- Speak with a mortgage lender and get pre-approved.
- Start looking for homes.
- Once you have found your home, it is time to write an offer.
- Agree on a price with the seller.
- Next is the due diligence period to satisfy legal requirements.
- Request an independent inspection report.
- Undergo appraisal process.
- Undergo insurance process.
- Your lender processes your loan with underwriting.
- The week before closing, call your utility companies and transfer accounts.
- On closing day, you will walk through your new home for a final inspection.
WHY SO MUCH PAPERWORK?
We are often asked why there is so much paperwork mandated by the bank for a mortgage loan application these days. It was much simpler easier to buy a home ten to twenty years ago. There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.
First, the government has set new guidelines that demand that the bank prove beyond any doubt that buyers are indeed capable of affording the mortgage. During the run-up in the housing market, many people were allowed to qualify for mortgages that they could never pay back. This led to millions of families losing their homes, a situation everyone wants to avoid.
Second, the banks don’t want to be in the real estate business. During the mortgage crisis, banks were forced to take on the responsibility of liquidating millions of foreclosures and negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.
THE GOOD NEWS: LOWER RATES
The housing crash that mandated that banks be extremely strict on paperwork requirements also allows buyers to get a mortgage interest rate that is probably below 5%. Those who bought homes ten or twenty ago experienced a simpler mortgage application process, but they paid a higher interest rate. The average 30-year, fixed-rate mortgage was 8.12% in the 1990s and 6.29% in the 2000s.
THE BOTTOM LINE
The additional paperwork translates to historically low interest rates — which most buyers agree is worth it!
Here are some helpful DO’s and DON’Ts to ensure an effortless loan approval process and avoid delays.
DO continue making your mortgage or rent payments.
DO stay current on all existing accounts.
DO keep working for your same employer.
DO keep your same insurance company.
DO continue living at your current residence.
DO continue to use your credit cards as normal.
DO call the Loan Officer if you have ANY questions.
DON’T make major purchases (car, boat, jewelry, furnishings).
DON’T apply for new credit.
DON’T close any credit card accounts.
DON’T transfer any balances from one account to another.
DON’T max out or overcharge on your credit card accounts.
DON’T change bank accounts.
DON’T deposit any money other than your regular paychecks.
DON’T apply for any new loans.
DON’T finance any elective medical procedure.
DON’T open a new cellular phone account.
DON’T join a fitness club.
DON’T change jobs or retire without first discussing with your loan officer.
You’ll likely be responsible for a variety of fees and expenses that you and the seller will have to pay at the time of closing. Your lender must provide a good-faith estimate of all settlement costs. The title company or other entity conducting the closing will tell you the required amount for the following:
- Down payment
- Loan origination
- Points, or loan discount fees, which you pay to receive a lower interest rate
- Home inspection
- Appraisal
- Credit report
- Private mortgage insurance premium
- Insurance escrow for homeowner’s insurance*
- Property tax escrow*
- Deed recording
- Title insurance policy premiums
- Transfer fees such as HOA, utilities
- Attorney fees
- Courier/UPS fees
- Prepaid interest
- Land survey
- Notary fees
- Prorations for your share of costs, such as utility bills and property taxes, HOA dues
* Lenders will keep funds for taxes and insurances in escrow accounts as they are paid in the mortgage and when these fees become due, they will be paid by the mortgage company.
- Unrealistic contract dates
- Appraisal issues
- Title related issues
- Survey related issues
- Disparities in closing figures
- Lender requires additional documentation
- Agreed upon repairs are not complete
- Final walk-through problems
- Professional(s) involved in the transaction “drag their feet”
- The buyer’s mortgage is rejected /declined
IRS DEFINITION OF A SECOND HOME:
You must use a second home for the greater of 14 days or 10% of the number of days it is rented during the year, whichever is longer. If you do not use the home long enough, it is considered rental property and not a second home (IRS Publication 527). For example: If you own a second home and rent it out for 120 days during the year, 10% is only 12 days, so you would be required to use the home for 14 days minimum for it to qualify as a second home by the IRS’ definition.
SECOND HOME FINANCING TERMS
- Jumbo or Conventional
- Conventional up to 90%; Jumbo up to 80%
- Rates are typically very similar to primary home financing.
INVESTMENT HOME FINANCING TERMS
- Jumbo or Conventional
- Conventional up to 85%; Jumbo up to 75%
- Rates are higher due to risk and can vary based on details of transaction.