Mortgage Basics

Whether this is your first mortgage, or you have already financed a few times, here are the steps involved during the entire mortgage process.

PLAN
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Interest Rate
The Interest rate on your Loan is used to calculate the monthly payment. The higher the rate, the higher the payment. The reverse is also true, the lower the Rate, the lower the payment.

You can lower your rate by paying Points to the Lender. One "POINT: is equal to 1% of the Loan Amount. For a $150,000 Loan, 1% equals $1500, 2% equals $3000. By paying these "POINTS" to the Lender as part of your Closing Costs, you can "buy-down" your Contract Interest Rate. If you have the money or can negotiate to have the Seller, Builder or Developer contribute funds for your Closing Costs, you can buy-down the Interest Rate and save money over the life of your loan.Annual Percentage Rate:

Your new Home Loan is more than Rate and Points. It also involves several other costs that are listed on your Good Faith Estimate as "Closing Costs" and Pre-Paid Items". The Truth-in-Lending Law requires all advertisements for Home Loan Credit Terms disclose all Closing Costs and Pre-Paid items and must include the APR. This is intended to enable you to compare the terms of Loan Products from various Lenders. The Good Faith Estimate will be mailed to you within 3 days after Application Submission. To make an accurate comparison, look at each item on the Good Faith Estimate. The Loan with the lower APR is the less expensive Loan.

Lock or Float
If you are ready to secure your Interest Rate, you will need to "lock" the Rate. As rates do go up and down daily, you may want to lock-in your Rate. You can "float" your Interest Rate instead of locking it. You can watch the Rates go up and down. The moment you tell your Mortgage Banker to lock your Rate you will be protected for the length of your lock. Interest Rates are very difficult to predict just like the Stock Market. If Rates suddenly jump up, your monthly payment will be higher than you planned and this can cause you to be qualified for a lower loan amount or worse, not be able to qualify for the home of your dreams. Most Lenders will allow up to a 45 day lock. Longer Lock Terms and Lock Extensions are available on some products, please ask your Mortgage Banker for details.

Loan Types
Fixed Rate Loan: This is a lower rate over a fixed period of time, such as 15, 20 or 30 years. This is a great strategy if you plan to live in the house for many years, or are looking for a low monthly payment. The shorter the Loan Term, the quicker you will build equity and pay down on the amount that you owe.

Adjustable Rate Mortgages (ARM): Your Rate will be fixed for a specific time period such as 3, 5, 7 or 10 years. After the fixed time expires, your Rate will adjust either up or down. Each Mortgage Note will have an ARM Rider that will list your specific loan details about when the Rate will change and how it will be calculated. Please ask your Mortgage Banker to explain the exact details of your Loan and how changes will effect your monthly payments. ARM Loans are a good solution for people that have incomes that are going to grow and they plan to quickly refinance or will be able to afford the larger payment in a few years if the Interest Rates should rise.

LOAN PROCESS
The Lender needs to analyze your Loan Application for Pre-Approval.
Borrowing Limit: Lenders will calculate your Borrowing Limit based on your earnings and debt, this is called Debt-to-Income Ratio. They take into consideration all of your earnings, all your current monthly housing expense, credit card payments, property taxes, home owner's insurance, student loan and auto payments. The total Debt-to-Income Ratio should not exceed 45% . Some Lenders do have Loan Program Exceptions and are evaluated on an individual basis.

Documentation
Underwriters may require different types of proof or documentation of your earnings and assets. Each Borrower is evaluated on their own merits. No two situations are exactly alike. The Lenders need to make sure that there are Net Tangible Benefits or "good reasons" for your refinance. Examples of these "NTB's" are; lower Interest Rate, refinancing out of an Adjustable Rate Mortgage (ARM) or Negative Amortized Loan (you owe more than what the Original Mortgage Balance was). Shorter Term (paying off your loan faster), cash out for debt consolidation and payoff of delinquent Taxes also are included.

Pre-Approval
After the Underwriter has approved your Application, we will provide you a Pre-Approval Commitment Letter. This needs to be given to your Realtor to include with your Purchase Agreement to give to the Seller. When you get the signed and dated accepted Purchase Agreement back from the Seller, this needs to be submitted to the Underwriter so we can start on your Appraisal and Title Work.

Final Approval
Once we have received the independent Appraisal on Title Work back, your loan is submitted for final approval. After evaluating the entire file, the Underwriter will either give a list of "conditions" or items that need to be corrected, or they will give us a "Clear to Close" and we can set your Loan Closing date and time. You will also be sent out a final HUD 1-A Settlement Statement which will detail all your Closing Costs and Pre-Paid Items. This also will show the exact amount of funds you need to bring for Loan Closing.

LOAN CLOSING
The Loan Closing or Settlement will usually take place at your Mortgage Banker's Office, a Title Company or Law Office. You will review all Loan Documents and have your signature notarized by an Independent Loan Closer or Title Agent. Many of the people involved with this transaction will be at your Loan Closing. You will be joined by the Sellers, their Realtor or Attorney and the Closing Agent. To provide the best service possible, your Mortgage Banker will also attend.

Here is what will happen during and after your Loan Close:
1. Closing Agent will review all Loan Documents and HUD 1-A Settlement Statement. Both you and the Seller will need to sign this document.
2. Signatures are collected on all Loan Documents, such as the Mortgage Note or Deed, Truth-in-Lending Statement, etc. You will also need to provide evidence of Home Owner's Insurance and Inspections.
3. If all parties agree to sign all Loan Documents, you will then submit a Certified or Cashier's Check to the Closing Agent for the funds needed for your Closing Costs and Pre-Paids. Your Earnest Money (the amount of money you gave with your Purchase Agreement) will be deducted from the amount you need to bring with you.
4. The Lender or Bank will provide a check or wire funds to the Closing Agent covering your Loan Amount.
5. Escrow Account will be established for you if you are escrowing your Home Owners Insurance and Property Taxes.
6. You will receive the keys to your new home!

I hope that you have found this information helpful and interesting. Should you have any questions or to apply for a new Mortgage, please either contact me direct at 763-515-5050 or visit our website at www.StevenGoldmanLoans.com
Thank you for reading my blog. Have a great day!
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Steven Goldman