The Mortgage ManIssue: Section:
“there are many items we need to pay for in the loan process that we do not think of and the various parties involved do not tell us”
Hello, here is a story, a process, a bushwhacking (if you will) map of the home buying process. What follows is a journey taken and successfully completed when most said it could not be done. We will discuss the "Mortgage Process" because that is after all the end result we desire, to OWN a HOME. Please remember this is a process and it will take some time to complete each task required of the financial institution and all other parties involved. The saying "Rome Was Not Built In Day" definitely applies here. We will break it down into steps, some depending upon your personal situation will be skipped, for me, I needed to do all of them to get my end result, Home Ownership. First, you will need to know your financial situation, (how much can you afford to pay each month), next, your credit report and score, then you may pick a real estate broker or buy directly from the owner, thereupon you may go directly for financing through a bank or you may need the services of a mortgage broker. Last but not least, FEES, a general guesstimate of cost you do not think of and the parties involved generally do not mention. Let's get started!
Your Mortgage Payment: It is important for you to know how much of a payment you can afford each month. Much like rent but 9.99 times out of 10, it will be higher. The mortgage payment will be comprised of a portion of the principal payment, the interest payment, real estate taxes, home owner's insurance, and private mortgage insurance (PMI if it applies to you).
Your monthly income
Paycheck, annuity, pension, social security, dividend check (paid quarterly), child support, (need not be reported if you do not want it included), any other monthly income you wish to report and have proof of receiving and would like to put towards purchasing a home.
Your monthly expenses
For the purposes of the bank or financial institution, this will be your expected monthly mortgage payment and any other payment (and this is important) which shows up on your credit report. It does not include daily living expenses, ie: food, phone bill, electric, etc.
Real Estate Agent/Broker:Picking a real estate agent/broker can be difficult, I have been ready to purchase a home a few times in my life and for some reason or another the timing, property, price or something was not quite set in the stars for me to buy at that time. That being said, I do remember my experiences with the various real estate agents and there were about 5 or 6 of them. They were impatient, hurried, not attentive, or simply did not pay attention to what my needs and requests were. From the start, I weeded them out when I saw these traits. I suggest you do the same. You want someone who understands what you are looking for in a home. I will go into this in a moment. However, in there defense, you need to get your mind together as to what that is as well and relay this to the agent right at the beginning.
• Price, how much of a home can you afford (the #1 item on the list)
• Location, location, location (we've all heard this but what does it really mean)
• Amenities, what does the property, location, town, community, city have to offer
• What do you need versus want in a home.
Let's talk about how to prepare yourself to deal with a real estate agent.
You need to do the homework on what exactly you want, need and narrow down the
absolutes so that you do not waste their time. (See above bullet points) Example: I started by telling the agent what I could afford to pay each month, location, amenities, and the community were not big issues as it was in the same town I had lived in for may years. As to what I wanted in a home this was something I needed to get across to the agent. I needed a 3 bedroom home, wanted 2 baths but 1 could suffice with 1. It could have been a Co-Op, condo, townhouse, or single residence. Pretty basic right, that's what I thought. We ended up viewing properties double and triple what I could afford to pay. While I was comfortable somewhere around three to three hundred and fifty thousand, we were looking at properties 5, 6 and 7 hundred thousand with property taxes as high as my expected mortgage. Another time, I had an agent and we got as far as an accepted bid and performed an appraisal only to find out that it was a fifth floor walk-up with no elevator and no parking space. Parking was wait listed in a town municipal lot about 4 blocks away and we just had a new born. Enough said, let’s talk about the one I went with. She was recommended by a family friend. I left a message for her and she called back the next day. She asked me what I was looking for right away and discussed the affordability question first. She asked me the area ie: what location I was interested in. We discussed many areas, so she set me up with a listing guide the real estate agents use called "Listing Book". In it, you can look by price, town, number of bedroom, baths, etc., the same as most. However, this is like no other real estate site. Please ask your agent if this is available for the area(s) you are looking at. There is too much detail in the site to discuss here, you need to play with it yourself. Anyway, I searched through this site for months and found many homes I wanted to see. The great thing, the addresses are listed so we went to get a curb appeal and drove through the neighborhoods. I then narrowed this to about 4 homes I wanted to see but had my mind set on only one. That's the one I live in now. My agent bent over backwards to help me. It was a home that was listed, did not sell, was delisted, listed again at another price, delisted and then listed again. It was on the market for about 9-10 months. When I first saw it, the home was on the second listing and had gone up in price. It jumped out at me. Now for the hoops, what I went through to get there. It started in late March and we finally closed July 7th, it took over three months from offer to closing. Here are the details: I actually went to see the house the day before it got re-listed on the market again. I immediately wanted to get an offer in so I went to were I bank, a bank with a reputation for lending on home mortgages. I let them run my credit which was in very good standing as far as scores go with some outstanding balances. They ran the numbers and I was told that it could not be done. Believing but not accepting, I talk about it to some friends who recommended a mortgage broker. I spoke to him within the next week and set up a meeting. Looking back, he was amazing, I had someone finally working with and for me to get an end result. He ran my numbers asked me about my credit score and report. I relayed this verbally and he told me to clean up some outstanding line of credit, save as much as I can from now till we are done, give him 2 years of tax returns, a copy of every recent check, copies of any retirement benefit , annuity, 401K, savings, checking or any other proof of income I wanted to put up for the home purchase and we went to work. This went on for about 2 weeks, as my situation was different than most, I am in the entertainment business and have many employers or as seen from the bank’s side, I was self employed with no particular job and unstable income. I needed letters from 5 employers stating my relationship with them, how long had I worked with them, what I did, the expected income for the upcoming year and an expected continued relationship. I then received a pre approval and was able to put an offer in. The seller did not reply with an acceptance or counteroffer, I was confused, I called my R.E. Agent and questioned this, she said it was unusual but that the seller wanted to wait over another weekend for more offers. As the weekend passed, he did receive another offer and now I was most likely going into a bidding war. I spoke with my agent and we put together the highest I could go, about 10 thousand more and it got accepted, that was on a Tuesday. I already had a home inspection company lined up and we did it the day after the accepted offer, on Wednesday. The inspection revealed that there may be a problem with the septic system, so I had that inspected on Friday and all was revealed to be okay with the warning of some potential problems down the road but nothing I did not think we could handle. We pushed forward to move the mortgage company into an official approval and a closing date. I had to collect updated annuity, 401K, bank, statements, etc. Then, my mortgage broker told me the good news, I was approved, yeah!!! Well, that's when it all started over again, the mortgage company had 37 items I needed to get done before anything was going to happen and now I had a time frame of 30 days. Again, more updated retirement, annuity, 401K, etc, statements. I needed to write a letter stating why I had my credit pulled. I had to write a letter about my employment, as I had gone back into a career I had done for over 17 years but had only been doing again for 2 years, to state my intentions of remaining in my chosen career path. I had to provide 12 months of rent receipts and a letter from my landlord. After all the paper was given in as requested, the mortgage broker and I waited to hear about an expected closing date. One week, two weeks, three weeks, nothing, we needed to file for an extension to lock the rate in, I needed to update all my statements again, more pay stubs, etc. Time was drawing near on the $8,000 first time home buyer's tax credit, I was now in jeopardy of losing it, lucky for me, they extended it till September 30th.Here is what you need to do, OWN YOUR LOAN. Keep in contact with the entire mortgage and real estate team. Here's what you need to know and do.
The Parties Involved: The Seller whom you will generally not have contact with.Your Real Estate Agent.Your Mortgage Broker (If you end up have one).The Lender (from a bank or other financial institution). The Processor. The Underwriter. The Closer. The Attorneys.
Keep in contact with your R.E. Agent and the mortgage broker, find out what the lender is requiring. Somewhere on your paperwork ie: the disclosures, pre-approval, approval or the conditions to be met page lists the the lender, the processor, and the underwriter, you will not have a closer assigned at this time. Get in touch with all of them and asked what they need to push the loan to closing. My mortgage broker told me. He said, "As soon as we get the bank approval, everyone will go on vacation". They did, I did not know or think of making the calls I am telling you to make to the various team members and you know what, my loan sat there, a big thick intimidating file that the processor and underwriter did not want to touch. It needed things that they did not want to work on. It needed answers to questions that they did not want to deal with asking. It was "approved" but... it had 37 items that needed to be looked over and met before it could go to a closer and be scheduled to close and ultimately be funded. Well, I finally got involved and called everyone and found out that the lender was located in a town in New York, the processor was located in a town in New Jersey and the underwriter was located in a different town in New Jersey. No one knew what was needed to move the loan through. The processor sent the file internally to the underwriter for review and did not hear back, the underwriter was waiting for items from the processor and the lender was not in communications with either until I got involved. I had covered all the 37 conditions and gave the copies of paychecks, bank statements, etc. What I found out was interesting. My loan was being held up because the underwriter had questions about a few large deposits on my bank statements. Now, I don't mean thousands of dollars, I mean about 4 thousand dollars in deposits. It was a line item on one of my bank statements for a 4 thousand and something deposit. I knew I had given copies of every check I had deposited for the last three months, so what the hell is the problem. Well, think like them and see what they see. The underwriter and processor over the last three months had amassed a file of about 100 to 120 pages. It contained 2 years of tax returns, three sets (at least) of undated bank, 401K, annuity, retirement statements, letters from my employers, a letter from my landlord, 12 months copies of my rent receipts, a letter stating why I had my credit report pulled, a letter explaining why I changed careers again, and ultimately every paycheck for the last 3 months. They simply did not connect the dots. The bank statements just show an amount deposited on a particular date but did not break it down by check amount. So I went to the bank and requested a copy of the cancelled checks. The deposit was made up of about 4 different checks. Because I was running around doing all the above stuff, I did not get a chance to get to the bank and the checks built up. So, I faxed the cancelled checks to the underwriter and whammy, the underwriter had the answer and we scheduled a closing.
The FEES, there are many items we need to pay for in the loan process that we do not think of and the various parties involved do not tell us.
Closing costs - 10 - 15 thousand dollars
Home Inspection $550 - $700 dollars
Septic / other inspection $350 dollars
Appraisal $300 - $400 dollars
1st Year Home Owner's Insurance (depends upon your situation)
Application fee $200 - 300 dollarsFor the most part, you should be able to finance the closing costs into the mortgage.
As for the rest, they are generally out of pocket expenses. In conclusion, I would start with your financial situation, (what can you afford to pay each month?). Next, I would request either a copy of my credit report free from one of the three credit reporting agencies or pay for a copy with the FICO score. It will be a slightly different score than the bank gets but it should be a ballpark guesstimate of where you stand, poor, fair, good, or excellent. After that, I would try to obtain the finances whether from a bank directly or working with a mortgage broker. Then, save some money to pay for the various expected and unexpected things that come up, ie: home inspection, appraisal, etc. Last but not least, own your loan. Get to know the parties involved and think about the process. Ask questions and get them the required paperwork, huffing and puffing over it will not get it done. The bank and all involved may seem out to get you but if you got approved, get it done, get that home and live the dream!