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| Mortgage Resource Center |
Mortgage Loan Tips, Tools and Advice |
Buying a home and borrowing money have important and significant legal consequences and the parties should consult legal and tax or other counsel before signing. The following is provided as informational and should not be treated as legal or tax advice.
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Today's lending environment is dramatically different than that of a year ago. Now it is essential that you have your loan all lined up prior to seriously shopping for a home.
This page provides answers, step by step instructions and tips to help guide you through the mortgage application, loan and closing process with the least difficulty and at the lowest expense.
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Tom Studebaker's Preferred Lending Partners
I trust these lenders and know they will provide you with excellent service, a fair price, and most importantly they deliver on their promises without hidden fees or last minute changes. They are offer my clients preferred rates so please mention my name when contacting them.
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Michael Howe
303-550-4762
mhowe@csbt.com https://csbt.mortgagewebcenter.com/
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Useful Mortgage Links
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 Mortgage Qualification Calculator. 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 break even .
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.
Tips for Negotiating the Best Deal
This is oversimplified a bit but it covers the bases:
Most consumers of mortgage loans are "blinded" by interest rates in advertising and understand little about what creates the rate. Understanding how lenders make their money and how loan programs work adds clarity to the process and simplifies the shopping and negotiation process.
There is nothing that prevents a lender from advertising a 5%, 3% or even a 1% mortgage rate. It is not uncommon to see this on television or newsprint with disclosures that pass so quickly and are so small that they are impossible to read.
To simplify it you must understand that the "Market" meaning that ultimately investors on Wall Street create demand for investment instruments and mortgage backed securities are one of these. When demand rises rates drop. When demand diminishes interest rates increase. It is the same for every lender in America. So in theory, every lender is selling the same rates.
So why are they different?
Aside from some economies of size and bulk purchases of investment returns lenders are all generally paid the same way - either on the front-end, back-end or a combination of front-end and back-end. Front-end means the fees they charge directly to you like discount points, origination points, prep fees, application fees and so forth. Back-end fees are the fees that investors pay to the lender for delivering a loan above the market rate.
For example: If Wall Street will buy securities at a 4% yield and the lender delivers a loan at 4.5% then Wall Street pays that lender a premium for the higher yield so the lender can charge you lower fees and still make money. This is a back-end fee. If the lender delivers a loan at 5.5% that back-end fee is larger. On the other hand, if the lender delivers a loan at 3.75% then the lender must send money with it to increase the yield to 4% or Wall Street won't buy it. So they charge you points and fees to accommodate this.
Okay so how do you get the lowest rate possible? Aside from having good credit and a sizable down payment paying fees like discount points and origination fees will lower your rate. Remember, the lender will deliver some of this money to Wall Street to increase their yield. You have to decide if paying these fees upfront makes sense so you need to calculate the break even point for the reduced payment vs. the upfront money. Usually this is about 5 years.
Another way to get a low rate is to look to adjustable rate mortgages. The rates are low because the investor is protected against inflation if rates rise in the future. Some of these are fixed for 5 to 7 years before they adjust. While they have been bad mouthed by the press recently they are actually quite effective for saving money especially if you don't plan on being in the home more than 5 to 7 years. However, you need to compare the cost benefit vs. a 30 year fixed rate.
Each lender will quote you a similar though not the same rate for any given program. Each has different investors and margins they have to work with. So you need to get quotes from multiple lenders for similar programs along with a Good Faith Estimate which shows you the fees you are paying for that loan. Compare them apples to apples to see if they are really the same. Then it is up to you to negotiate with your lender for a better rate. Sometimes just asking will get you a discount or even a reduced fee.
Remember rates change continually. So until you "lock" in your rate it may change from day to day. You need to compare lenders on the same day. Ask your lender if they have the ability to float the rate down if interest rates go down after you lock.
The Home Loan through Home Closing Process
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.
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