Applying for a Mortgage has changed substantially for the buyer, brokers, lender and appraisers the last five years. Some things are becoming easier and others more frustrating due to increased regulations. I will help you understand the choices available to you and what you can do to get the best rates and fees with a great lender.
To get the best mortgage for your situation. The most important thing you can do is to educate yourself about what options are available to you. As the old saying goes, “Knowledge is Power.” I recommend that you get and review a copy of your personal credit report and credit score before meeting with lenders. Often there will be mistakes on your credit report that you will want to get corrected because lenders will want to pull your credit report/score before they quote you rates.
The bank loan officer works at a bank, credit union, or other financial institution that offers home loans directly to you, the consumer. The loan officer is employed by the institution that is offering the loan or mortgage. They will often have a variety of loan products available and their loans originate from within their institution.
A mortgage broker is a professional who is licensed by the state’s Division of Finance & Securities. They may work independently or be part of a larger brokerage company. The primary distinction between the mortgage broker and the bank loan officer is that the mortgage broker or their brokerage company are not funding the loan themselves. One of the primary benefits of working with a mortgage broker is that they will frequently have access to home loans and mortgages from hundreds of different financial institutions. This can be especially helpful when dealing with unusual financial situations, very bad credit, or more exotic types of loans such as construction loans or land/lot loans.
What factors affect a loan’s interest rate?
Size of Down Payment
Fixed Rate or Adjustable Rate Loan
Conforming or Non-Conforming (Jumbo) Loan
Type of Real Estate Loan (Residential, Multifamily 1-4 Units, Commercial, Lot/Land, Construction, Condominium)
Employee or Self-employed
Owner Occupied or Investment Property
Length of Employment
The down payment amount that you need will vary greatly depending on the specifics of your loan. Many of the loan factors listed above will influence the down payment requirement. Typically, loans with less than a 20% down payment will require Private Mortgage Insurance (PMI).
A fixed rate loan refers to a loan for which the interest rate is fixed for the entire life of the loan. The most common product of this type is a 30-year fixed rate mortgage. However, 10, 15, and even 40-year mortgages are now available.
Adjustable Rate Mortgages (ARM), on the other hand, are prone to having the interest rate change or “reset” at specified intervals. When this happens, the payment amount will go up or down. Popular in high-interest rate environments, not so much in current record low rates.
A conforming loan is a loan that meets the guidelines set by Fannie Mae or Freddie Mac. Every year, in January, the conforming loan limits are set based on the median cost of housing in a region. The limits in the Jackson County area is currently $424,100 for a single-family dwelling. Over $424,100 the loan becomes Jumbo which may increase the interest rate or fees a tad.
A conventional loan is a mortgage that is not guaranteed or insured by any government agency like VA, FHA, or the Farmers Home Administration (FmHA). It is typically fixed in its terms and rate. And the fees associated with this vehicle of financing are the least expensive of all the loans.
An FHA loan is a program provided by the Federal Housing Administration that can have lower down payment requirements and easier qualification guidelines than many conventional loan programs and is available for loans up to $279,450 for a single-family dwelling. Most large lenders are FHA approved.
A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). The loan may be issued by any qualified lender. Different fees are charged for this loan making it more expensive than a conventional loan.
Closing costs will be disclosed to you in full in your buyer pre-qualifying process. Pre-qualifying is something you need to do before wasting your time or a broker’s time before you start looking at houses.
Discount points are fees paid to the lender to lower your interest rate. They are expressed as a percentage of the total loan amount. One point = 1% of the total loan amount. On a $200,000 loan, the is a $2,000 charge to the buyer. The lender may raise the rate a tad to absorb the origination fee if the buyer is tight on cash. This fee can also negotiate between the buyer and seller mostly done on FHA and VA loans.
The appraisal fee covers the cost of having a professional appraiser evaluate a home and estimate the market value of the home. The cost is often around $400 to $500. Unique properties and remote area homes can cost more to appraise. Without an acceptable appraisal, you cannot borrow to purchase or refinance a home.
Recording fees are charged by the county for registering or recording a real estate purchase or sale so that it becomes a matter of public record since it maintains records of all property purchases and sales.
Loan processing fee or underwriting fee is charged to cover some of the costs involved in processing the application including credit checks, property appraisals, and basic administrative costs.
Loan origination: The fee the lender, and any mortgage broker, charges the borrower for making the mortgage loan. Origination services include taking and processing your loan application, underwriting and funding the loan and other administrative services.
.Credit report: This fee covers the cost of a credit report, which shows your credit history. The lender uses the information in a credit report to help decide whether or not to approve your loan and how much money to lend you.
Flood determination: This is paid to a third party to determine if the property is located in a flood zone. If the property is found to be located within a flood zone, you will need to buy flood insurance. The insurance is paid separately.
Home inspection: Verifying the condition of property, usually written as a contingency in the contract.
Pest inspection: This fee is to cover inspections for termites or other pest infestation of your home.
Title insurance binder: Commitment to issue a title insurance policy at a future date.
Lender’s title insurance: The cost of the lender’s policy, which protects the lender’s investment.
Owner’s title insurance: The cost of the owner’s policy, which protects the homeowner’s investment for as long as they, or their heirs, own the property.
Settlement: Paid to the settlement agent or escrow holder. This fee is split between the seller and the buyer, unless VA.
Title search: The fee to search the public records of the property you are purchasing protecting you from hidden defects or flaws.
Document Preparation: This fee covers the cost of preparation of final legal papers, such as a mortgage, deed of trust, note or deed.
Notary: A person who is licensed as a notary public swear to the fact that the persons named in the documents did, in fact, sign them.
Recording fees: These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for legally recording the new deed and mortgage.
Homeowner’s insurance premium: This insurance protects you and the lender against loss due to fire, windstorm, and natural hazards. Lenders often require the borrower to bring to the settlement a paid-up first year’s policy or to pay for the first year’s premium at settlement.
Mortgage insurance premium: The lender may require you to pay your first year’s mortgage insurance premium or a lump sum premium that covers the life of the loan, in advance, at the settlement.
Prepaid interest: This is money you pay at closing to get the interest paid up through the first of the month.
Property taxes: Usually six months of county property taxes.
Home warranty: An insurance policy to protect you from the costs of unexpected failures to the major systems and appliances in your home. Seller may agree to pay as part of the negotiations.
I am sure your thinking by now; best to sit down with a professional lender as a first step, to prepare you for your loan amount, down payment and closing costs, also giving you, your new payment range.
I hope this information was helpful. I am a phone call away if you’re looking for Buyer’s Broker to represent you in new home purchase😊
Ashley Jensen, Principal Broker.