Monday Morning Cup of Coffee: Potential homeowners expect low mortgage rates | HousingWire

Monday Morning Cup of Coffee: Potential homeowners expect low mortgage rates | HousingWire

How to Understand Your Mortgage Disclosures

The volume of paperwork that goes into a new mortgage loan, even a refinance of an existing loan, can seem overwhelming. The federal government requires a lender to provide a number of important disclosures to any new loan applicant within 72 hours of signing a loan application, as well as during and after the loan application and funding process. Because the government uses mandatory disclosures as a method of protecting consumers from a process they may not understand, the sheaf of paperwork a loan officer slides across the desk to the borrower can be a bit of a surprise.

Understanding the primary purpose and function of these documents will make your mortgage process much less intimidating. With that in mind, here are some of the documents you are likely to see.

Before your loan closes

After submitting your loan application, your loan officer or broker has three days to give you a number of documents, collectively referred to as the upfront disclosures. Here is a quick description of some of these documents.

The Truth-In-Lending Disclosure Statement: Sometimes referred to as the TILA disclosure, this is one of the first documents you’re likely to see. It explains:

• Annual percentage rate (APR)
• Total amount financed
• Total monthly payment
• Total of all payments
• Total finance charges
• Late payment charges
• Prepayment penalties
• Insurance requirements
• Assumability restrictions

The second document you’re likely to see within the first 72 hours is the Settlement Costs and Information booklet from the U.S. Department of Housing and Urban Development. This document explains the types of costs you can expect to incur for taking out this loan.

The Good Faith Estimate: This breakdown of total settlement costs is a critically important document. The government now requires lenders to come much closer to this estimate than was required in the past. This document is now a good indication of what the loan will cost to originate. It includes an estimate of the following fees:

• Loan origination fees
• Credit report fees
• Appraisal fees
• Loan points
• Prorated interest
• Homeowners and mortgage insurance premiums
• Title search fees and title insurance premiums
• Document preparation fees

If the lender plans to sell off the servicing rights to your loan (the ability to collect payments from you) you may also see the Transfer of Servicing Disclosure Statement, which informs you about your lender’s possible right to transfer the servicing of your loan to another lender.

Initial Escrow Account Disclosure: Finally, you’ll see a document detailing:

• Escrow account requirements
• Cash requirements at closing

Closing and beyond

After your loan process is complete, your loan officer will give you another set of disclosure documents to review and sign. Compare these new documents with the initial disclosure documents you already received. Notify your lender of any differences between the two sets of documents before you sign them.

Your lender will give you a package of loan disclosure documents for your files. These will include many of the same documents signed earlier at your loan closing. Compare those documents to what you already signed at closing and ask your lender about any discrepancies. Documents in this package will include:

Final Truth-in-Lending Disclosure Statement: This discloses:

• Annual percentage rate (APR)
• Total amount financed
• Total finance charge
• Total of all payments
• The demand feature
• Late payment fee information
• Prepayment penalties

Final Good Faith Estimate of Settlement Costs: This discloses:

• Final settlement charges and fees
• Final closing expenses

You will only see copies of the initial disclosure of these two documents at closing if nothing has changed on your loan during the processing. If the costs do change during the process, the lender may be required to disclose the new costs on one or both of these documents again before you reach the closing table.

Finally, there are two additional disclosures you’re likely to see for most loans you might choose. They are:

• Private Mortgage Insurance Disclosure: Explains private mortgage insurance benefits.
• Appraisal Notice: Informs you about your right to have a copy of the appraisal report.

Review carefully
The disclosures described here are part of most loan products you might purchase from a lender, but you may see other disclosures due to local or state requirements or based on the type of loan product you need.

Lenders hope to earn your commitment to the lending process as quickly as possible. One way they do that is to get the upfront disclosures delivered, signed and returned quickly. This is in the borrower’s best interest, and it keeps the lending process moving forward and ultimately results in the consumer getting the money needed to purchase a home or refinance an older mortgage.

10 Metros Where Rents Are Soaring

10 Metros Where Rents Are Soaring

Number of flipped homes rises 19% in seller's market | HousingWire

Number of flipped homes rises 19% in seller's market | HousingWire

How Much Paperwork to Buy a House?

The more things change, the more things stay the same. This popular adage is definitely not true when it comes to the amount of paperwork involved in buying a home!

To understand how things have changed, we need to compare the past to the present. Luckily my father is very organized and has his entire file of documents from when he bought the family house almost 45 years ago in Virginia. More recently, when he made what he calls his “final” property purchase, he couldn’t believe the stack of paperwork involved in the purchase.

Here’s a comparison of the amount of paperwork involved with a home purchase “then” and “now,” along with brief descriptions of the voluminous stack of documents you’ll encounter the next time you buy real estate.

Purchase contract

Then (1 page): In 1969 the purchase contract was a full page long and covered all the material issues related to buying the property, with no other disclosures, reports or documents related to the transaction.

Now (200 pages): The 2012 purchase contract was 10 pages, plus approximately 200 more pages of contract addendums, disclosure reports from the seller and agent(s), third-party disclosure information, plus federal, state and local disclosures, disclaimers, questionnaires, certifications, escrow instructions, inspections, advisories, verifications, counteroffers, receipts for reports and notices.

Mortgage loan

Then (4 pages): Three-page deed of trust/mortgage note and one-page settlement sheet.

Now (100-125 pages): 13-page deed of trust, five-page promissory note, 50-70 pages of lender disclosures, 3-10 pages of federally required HUD-1 statement and good faith estimate, and other paperwork required as documentation for the loan.

Title insurance

Then (5 pages): Chicago Title cover page plus five total pages of the title abstract, survey, schedule of exclusions and general exclusions pages.

Now (15-20 pages): The title abstract, title insurance policy, exclusions, plat/survey and general information.

Property insurance

Then (unsure): Unfortunately his insurance policy document was not in the file, but his annual policy coverage premium — $25.06 — was noted on the settlement sheet. But this payment might have covered more or fewer perils than a policy covers today, so that annual amount probably is not comparable to a modern-day policy.

Now (30-40 pages): A standard homeowners policy covers the dwelling, liability and medical, and has pages and pages of items that are excluded from coverage.

HOA documentation

Then: His property was not in a homeowners association, so no documentation in his file. This item is included as a reference point for current buyers whose properties are in common interest developments (HOAs).

Now (200-300 pages): Covenants, conditions and restrictions (CC&Rs), bylaws, board of directors meeting notes, financial statements, budgets, disclosures, reserve studies and more.

As you can see, the current-day acquisition of a property really entails 300 to 600 pages of documentation that goes along with a purchase. This number of pages can vary widely depending on the state, the type of property and the complexity of the issues related to a particular dwelling.

Unfortunately, most people review little, if any, of the paperwork related to their purchase — they just sign whatever is presented to them. All buyers would be much better off and would significantly reduce the risk of something going wrong by educating themselves and doing a detailed review of every page of every document that pertains to their purchase. Yes, this takes extensive time, energy and effort, but real estate has a lot of risks and issues, and you should work hard to protect yourself on every property you buy.

10 Reasons You Can’t Buy a House

 

As home prices continue to rise and mortgage rates creep above 4%, home buyers are jumping into the market as sellers move off the sidelines. But strict lending standards have complicated the home-buying process.
Even if you have the down payment for a new house, that might not be enough to move into your dream house. Despite the uptick in the housing market, banks are using much more stringent standards when making a mortgage loan.
It’s not just the expected problems like late payments, charge-offs, collection accounts or judgments against you that can prevent securing a mortgage. More common events might stop you from making your dream home become a reality.
Here are 10 events that can hurt your credit score and how to prevent them:

Your credit has been checked too often. Applying for credit cards or loans can shave precious points off your credit score. And if you’re close to the threshold between a “good” or “fair” credit score, even a few points can be the difference between qualifying for a loan.
To be safe, hold off applying for anything for six months before applying for mortgage.

Applying or obtaining new credit while in escrow. Fannie Mae now requires lenders to run a new credit report just prior to loan funding. So if you open a new credit card or finance furniture for your new digs before closing, expect to provide a good explanation and possibly have the deal fall through.

Not having credit. Pre-bubble days no credit was considered good credit, but in today's market, a lender needs to see that a home buyer has a history of managing credit obligations. If you are new to the credit market and do not have a long enough credit/payment history, you may not be able to get a mortgage.

Not having PMI. Qualifying for a mortgage isn’t the only approval you need. If your down payment isn’t 20% of the purchase price, you’re going to need private mortgage insurance (PMI). PMI is generally required by lenders as a means of protection in the vent you default on the loan. But just because you qualify for a mortgage, doesn’t mean you’ll qualify for PMI; these companies run their own credit check and assess credit worthiness independent of the mortgage lender.

Lack of reserves. Mortgage lenders like to ensure borrower has proper reserves (savings account, IRA, 401(k), stocks, etc.) in case of a physical issue with the house or loss of the borrower's job. And inadequate reserves kill many loans.

Appraisal issues. The price negotiations aren’t necessarily over just because the buyer and seller agree on a price. In an unstable market, an agreed upon price may be more than the appraised value of the home. It that’s the case a buyer has to cough up more cash for the down payment to maintain the proper loan to value ratio.

Your available credit to debt ratio is too high. The preferred credit to debt ratio varies by lender, but tends to hover around approximately 36%. If your credit to debt ratio is higher than this amount, it is wise to pay your cards down to this level or expect to be denied a mortgage.

You have been the victim of identity theft. Applying for a mortgage could tip you off that your information has been used to open fraudulent credit accounts that were probably not paid. If you are a victim of identity theft, notify the police, the credit bureaus and creditors immediately and advise them of what has happened in order to begin the process of cleaning these fraudulent items off of your credit reports.

You may not have been at your job long enough. Potential lenders want to know you have a stable income and the ability to pay your mortgage payment along with your other obligations. So if you just started a new job, you might have to wait three to six months (maybe longer depending on credit history, etc.) before putting in a purchase offer.

You only have one type of credit history. If you only have a department store credit card or one consumer credit card, lenders won’t be convinced you can aptly handle a budget. They want to see diversity (car loan, a store card and a credit card) to assess your full potential as a debtor lender.

Credit Sesame is the consumer’s credit and lending expert, providing smarter financing for your world. We provide a complete picture of your credit and loans in one place, including your free credit score, credit monitoring, customized analysis, and unbiased loan and savings recommendations – all for free. Our proprietary savings recommendation engine, with bank-level analytics, monitors the market, runs thousands of scenarios and analyzes each consumer’s debt, to identify the best loans and savings opportunities.

Understanding Credit Ratings

Credit plays a role in everything from buying a home, to signing up for cell phone service or utilities, to getting car insurance. A credit score is a snapshot taken by the three leading credit bureaus, TransUnion, Equifax and Experian, that allows lenders to determine whether or not you will be extended credit, the amount of credit and even the terms (interest rate, loan amount, repayment schedule).

While I am not a credit counselor, I can give you a little bit of information about credit scores and some basic steps to keep them healthy, which are important for you to know when applying for home financing.
What is a credit score and how is it calculated?

A credit score is a number between 300 and 850 that is used to predict how likely you are to pay your bills. Many of the companies with whom you have a loan or a line of credit report back to the three credit bureaus information such as whether you pay on time, your credit amount, etc. Your credit score is calculated from this personal financial information. The higher your credit score, the better the credit terms you will receive. The lower your score, the higher the interest rates you may have to pay. Generally, scores over 700 are considered excellent while scores below 600 are considered poor.

You are eligible for one free credit report per year from each of the three credit reporting agencies. Take advantage of this opportunity to monitor your credit report and ensure there are no mistakes or surprises with your credit.
How can I improve my credit score?

Although there are no quick fixes when it comes to improving your credit score, you can take steps to rebuild your score over time:

1.    Continue paying your bills on time — your payment history matters.

2.    Don't max out your cards or even run the balances up high.

3.    Hold off on applying for new credit or cancelling an old card, since length of credit helps.

4.    Pay down high balances, but don't just transfer debts among several lenders.

5.    Settle any collections or past due accounts that you possibly can.

6.    Dispute and resolve any inaccurate items in your credit report. The last two years of your credit history are the most important.

Credit scores affect your life — beyond just mortgage interest rates.

Credit scores are often used in determining prices for auto and homeowners insurance. Employers have also begun using the scores as part of background checks when making hiring decisions. The practice of using credit scores in nontraditional ways is expanding. It's more important than ever to educate yourself about credit. If you have more questions, I can help you find more in-depth information.