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Tips for Saving Time and Money on Your Mortgage
Step 1: Look down to the bottom of this page for today's current interest rates. Determine the maximum price you can qualify for by using the Morgage Qualification Calculator on the Mortgage Calculators page. Then decide how much you feel comfortable spending each month. Use the Mortgage Calculators to determine how much you qualify for and what your monthly payments might be.
Step 2: Pick at least two of the lenders to compare programs, fees and interest rates.
Step 3: Give some thought to how long you plan on residing in the new home. Is this a long term deal (greater than 7 years) or a shorter interim move. This will help you make an educated decision about what type of loan program to seek. If you plan on staying less than 7 years be careful about paying lots of fees to reduce your interest rates. A good rule of thumb is that it takes about 60 months to pay for 1% of fees. So an origination point might make the rate look good but the savings is so small each month that it will take you 5 years to breakeven.
Adjustable rate mortgages (ARM's) are not the "Evil Empire" the press has made them out to be. Often the interest rate is lower especially on JUMBO financing. If your stay is short term then give them some serious consideration.
Step 4: Request a "Good Faith Estimate" (GFE). This will demonstrate the costs and the interest rate you can expect at closing. It will also provide you with an accurate forecast of your monthly payment. A GFE is the only accurate tool for comparing deals. PLEASE DO NOT make decisions based upon interest rates alone. Remember a low rate often comes with high upfront expenses and may not be worth it depending upon how long you plan on being in the home.
Step 5: Call me to review the GFE with you even if you are just refinancing. I will provide you with advice about the loan, interest rate and fees and help you make an intelligent loan choice that fits your needs and future plans.
Summary Overview of the Mortgage Loan Process
1) Contact a lender – Preferred Lending Partners
Mortgage Broker
Mortgage Banker
2) Compare lenders using Good Faith Estimates (“GFE”)
3) Get Pre-Approved
Loan Application
Credit Application
Document Assets
Job and Income Verification
4) Search for a home that fits within your budget and approved loan amount
5) Negotiate a contract for the home
6) Appraisal Valuation for New Home
Appraises for Value without Conditions – Move to step 7
Doesn’t Appraise for Value – Renegotiate or Terminate
Has Conditions – Renegotiate, Terminate, Waive
7) Final Loan Approval for New Home
8) Closing on New Home
Down Payment Due
Detailed Mortgage Loan Process
1) Applying for your Loan:
Today’s lending environment presents one of the more significant challenges of the home buying process. Choosing a lender and applying for a loan should be the very next step after you select a Realtor to help you find your home. Even before you begin looking for a home you should visit on the phone with a lender. Some excellent lenders you might consider are my PREFERRED LENDING PARTNERS. I recommend these lenders because they are fair and honest and have served my clients well in the past. I suggest you speak to at least two of these lenders prior to committing to one for your loan. You will want to request free a Good Faith Estimate (“GFE”) which is helpful when comparing the offers from lenders. A GFE describes in detail the fees, interest rate, points and payment you can expect for a given loan amount and loan program. The lender will want to know the purchase price, loan amount, down payment, taxes, HOA fees and insurance for the new home. Since we are guesstimating here, consult with your Realtor for advice as to the answers for these questions.
2) Get Pre-Approved
In yesterday’s lending market a pre-qualification letter was about all you needed to get started looking for a home. Today’s market demands that you get approved pending finding your home. This means completing the loan application, credit check, asset and income documentation, and job verification. There are two reasons that this is so important: One, this is the only sure way of knowing you will be approved when you find your dream home. Two, it provides you with more negotiation leverage since neither you nor the Seller has to worry about your loan approval. Think of it like this, you save time and money in the end!
3) Stay Approved
Once approved for a mortgage you need to stay approved. Lenders today check right prior to closing to ensure your credit, income and job status have not changed. DON’T MAKE THE MISTAKE of buying furniture for your new home on your credit card one week prior to closing. This may disqualify you for your loan. Keep your job until after closing and avoid any inquiries into your credit if possible e.g. car loans etc.
4) Finding Your New Home
Now that you have the approval process taken care of you can now confidently shop for a home because you know exactly how much it will cost you to borrow the money and the amount of your payments enabling you to shop within your qualified and comfort price range. Keep in mind that depending upon the type of loan you obtain, in addition to principal and interest you may need to add insurance, taxes and possible mortgage insurance to the monthly payment. Ask you Realtor for help with this and check your Good Faith Estimate from your lender to see if these numbers have been estimated for you.
5) Contract Contingencies
The Colorado Real Estate Commission approved Contract to Buy and Sell Real Estate provides several standard pre-printed conditions or contingencies allowing you the Buyer to terminate or renegotiate the contract. Among these are the conditions for Loan Approval and Appraisal. If either of these conditions is unsatisfactory, in the buyer’s sole discretion, the contract may be terminated and the buyer shall receive a refund of their earnest money. It is important to follow the terms of the contract precisely to protect this right and a good Realtor will help you with this.
The Loan Approval Contingency:
Paragraph 5.2 - Loan Conditions: This states, among other things, that “If Buyer is to pay all or part of the Purchase Price with a New Loan, this Contract is conditional upon Buyer determining, in Buyer’s subjective discretion, whether the New Loan is satisfactory to Buyer, including its availability, payments, interest rate, terms, conditions and cost of such New Loan…”. Further, that “if such New Loan is not satisfactory to Buyer, Seller must receive written notice to terminate from Buyer, no later than Loan Conditions Deadline, at which time this Contract shall terminate”. Finally stating in clear bold capitalized print, “IF SELLER DOES NOT TIMELY RECEIVE WRITTEN NOTICE TO TERMINATE, THIS CONDITION SHALL BE DEEMED WAIVED, AND BUYER’S EARNEST MONEY SHALL BE NONREFUNDABLE, EXCEPT AS OTHERWISE PROVIDED IN THIS CONTRACT”.
Simply put, if you don’t like your loan or can’t obtain it, you better deliver written notice to Seller prior to the expiration of the deadline or you will not get your money back under this clause! Typically the Loan Conditions Deadline is between three weeks and 45 days after the contract is agreed upon by the parties but this time frame can be anything the parties negotiate.
The Appraisal Objection Deadline
Your lender will require an appraisal which typically costs between $350 and $450 and is typically paid by you the buyer but can be paid by the seller. This fee is paid outside of closing (“POC”) which means you write a check for it directly to the lender prior to closing. This should be accounted for in the loan fees estimated on your Good Faith Estimate and will show up as paid on the closing settlement statement. Discuss with your Realtor the best tactic for your situation about when to pay for and complete the appraisal. You may want to do this prior to or after the inspection and title review depending upon the situation.
Paragraph 6.2 Appraisal Condition: Much like the Loan Conditions Deadline the appraisal condition provides the Buyer and Buyer’s Lender the opportunity to obtain an appraisal and if the Purchase Price exceeds the Property’s valuate as determined by the appraiser then the contract may be terminated upon delivery of written notice on or before the Appraisal Condition Deadline in which case, if the clause is carefully adhered to, the earnest money is refunded to the Buyer. Buyer’s failure or choice not to deliver written notice of termination on or before the Appraisal Objection Deadline waives buyer’s right to terminate under that section of the contract.
Other items to consider: Paragraph 6.1 Property Approval states that “If the lender imposes any requirements or repairs to be made to the Property (e.g. roof repair, repainting), beyond those matters already agreed to by Seller in this Contract, Seller may terminate this Contract by written notice to buyer on or before three days following Seller’s receipt of the Requirements.”… Unless, the parties agree to an alternative solution, the Seller corrects items or Buyer waives the requirements.
In simple terms, the lender is using the appraisal to confirm that their collateral is sufficient to protect their loan. If it isn’t then they won’t loan the money or will loan less money. In this event, you the Buyer, have the right to Terminate or, if agree by the Seller, modify the agreement.
Notice that in all cases written notice to one party or the other is required and it must be timely for the protections offered in the clauses. Your Realtor is qualified to handle this for you. Depend upon them or consult with your attorney for their advice.
6) Closing
Closing is when you “buy” the home and the seller “sells”. In Colorado closings are typically held at Title Companies who collect the down payment, loan proceeds, make all necessary payoffs to utilities, taxes, lenders, Realtor’s, administer the necessary paperwork including the loan documents and deed and bill of sale.
Colorado is a “Table Fund” state. This roughly means you pay and they give the deed. Cash on the barrel head if you will. Payment is demanded upon closing or you could be in default (which is bad). This is why using a reputable lender is recommended. You must have the confidence that your lender will deliver the loan on the date and time of closing to avoid default. California, among other states, operates differently. Check with your Realtor so you understand the differences.
YOU MUST provide valid photo id at closing for notary purposes. YOU MUST pay with “good funds” which means cash or a cashier’s check. Title Companies cannot accept personal checks. Check with your Realtor for advice about obtaining a check sufficient to cover closing costs.
Speaking of which, Title companies and lenders are typically understaffed and buried in paperwork. While you would expect to have closing figures delivered to you a week in advance it rarely if ever happens. Depending upon the lender you may not get figures until the day of closing which can cause lots of stress. You will have to scramble to get a cashier’s check for closing. Unfortunately that is the way of the world and you nor can your Realtor do anything about it.
