26 Apr 2018
By Kevin Gahagan

The Home-Buying Closing Process in a Nutshell

Mortgage

The Home-Buying Closing Process in a NutshellThe closing process for a home purchase is an exciting time. The home is finished, the purchase is ready to be finalized and it’s almost time to move in. The final steps of the closing process ensures both parties are able to meet their requirements and all the paperwork is in place and verified.

The Key Players

There are actually four parties involved in a typical closing: the buyer, the seller, the bank or lender financing the purchase, and the escrow agent. Each has an important role in making sure the closing happens effectively and efficiently.

As is common with most purchases, the buyer is already familiar with the need to have a down payment ready and to be committed to a purchase. Additionally, the buyer will have already worked out the loan approval preliminary reviews and steps with the bank financing the purchase if it is not an all cash purchase.

The Escrow Process

During escrow the purchase is then validated through a number of steps. These include:

  • Ensuring the property title is clear of any problems or previous liens (a legal method by which other parties get paid for the seller’s outstanding prior debts).
  • Ensuring the property has been appraised and represents the actual worth represented to the bank.
  • Ensuring the bank is ready to pay the seller with a payment check and that the buyer has paid any down payment as well. Both payments are put into an escrow account managed by an escrow agent and not to be released until all the purchase requirements are met.
  • Ensuring the buyer has been notified, read and has committed by signature to all the purchase documentation necessary to complete the sale. This includes understanding the nature of the home loan, payment responsibilities, and what happens if there is a default.
  • Ensuring any property taxes, homeowner’s association fees, and other fees have all been addressed before the seller transfers the property to the escrow agent, which is then transfered to the seller.
  • Finally, passing along the keys and title of the property to the buyer, the title lien to the bank financing the deal, and the payments for the property to the buyer.

When all the above happens, a home purchase is closed and the home officially belongs to the buyer. The seller also gets paid and can deposit his income accordingly. The escrow agent files all the paperwork with the bank, the county recorder’s office, and copies are sent to the buyer and the seller for their own records.

Contact your trusted mortgage professional if you have any additional questions about the closing process as well as other aspects of financing your new home. 

 

24 Apr 2018
By Kevin Gahagan

Equity Loan and HELOC vs. Reverse Mortgage – What’s the Difference?

Mortgage

Equity Loan and HELOC vs. Reverse Mortgage - What's the Difference?There are times in our lives when the idea of freeing up cash becomes desirable or necessary. Near retirement, this is a common consideration. The typical financial tool that many retirees want to know about is a reverse mortgage, but it’s not the only equity tool available.

Equity Loan

The equity loan, or second mortgage, is essentially an additional fixed interest loan attached to the home. However, unlike the first mortgage which was used to buy the home, the second mortgage can be used for other purposes such as putting in a pool, redesigning the home to make it more accessible, or to pay for a dream vacation. This kind of loan can be set up for a long pay period which reduces its monthly financial impact. The fact that it is attached to the home can result in a very low interest rate for the borrower. However, to qualify, one does have to have the income or assets to pay it back, which may be challenging for those on a fixed income.

HELOC

The Home Equity Line of Credit, or HELOC, is similar to the equity loan, but it is not a fixed loan amount. Instead, the HELOC works more like a credit card. The homeowner makes charges against the line of credit, develops a balance and then pays it off. The homeowner retains the ability to borrow against it again, as needed. Much like the equity loan, the HELOC is attached to the home for collateral, which can result in a lower interest rate, but the borrower is not under obligation to the entire loan value at once. The HELOC can result in a lower monthly payment and can be used multiple times. Most HELOCs have a variable interest rate. 

Reverse Mortgage

A reverse mortgage is an option for borrowers age 62 or older who have a sizable amount of equity in their home. This loan takes equity out of an owned home and converts it into cash for the borrower. A key benefit, compared to other tools, is that there is no monthly payment. Many times, the reverse mortgage loan is used to pay off an existing mortgage to eliminate that monthly payment as well. The homeowner is able to stay in their home and is not obligated for repayment until the home is no longer the primary residence or he or she passes away. The loan principal and accruing interest are paid back at the end of the loan life with a balloon payment or by transferring over the home itself to satisfy the debt. The loan is never more than the value of the home at the time of origination, so in most cases the home value will have risen and is more than enough to repay the loan. Many seniors have found the reverse mortgage to be a powerful way to boost monthly cash flow in their lives and make their later years more comfortable.

The home equity loan, HELOC and the reverse mortgage are three equity borrowing tools that can effectively give a homeowner greater cash flexibility. Each have varied requirements and benefits as well as certain risks to be aware of. Contact your trusted mortgage professional who can answer your questions and help you determine the very best option for you.

18 Apr 2018
By Kevin Gahagan

Pros and Cons of Adjustable Rate Mortgages

Mortgage

Pros and Cons of Adjustable Rate MortgagesWhen you are in the market for a new home, you may be faced with numerous options for financing your home. One of the choices you will have to make is whether to apply for a fixed or adjustable rate mortgage. In some cases, an adjustable rate mortgage (ARM) may be your best option, but keep in mind, they are not the answer for everyone.

Adjustable rate mortgages can be risky for some borrowers and it’s important to understand both the pros and cons.

When To Consider Adjustable Rate Mortgages

Perhaps one of the best things about ARMs is they typically have a lower starting interest rate than fixed rate mortgages. For some borrowers, this means it is easier for them to qualify for a loan. ARMs are beneficial for borrowers who:

  • Anticipate an income increase – for borrowers who are anticipating their income to increase over the next year or two, an ARM may be the right option.
  • Will be reducing their debt – those borrowers who have automobile loans or student loans that will be paid off in the next few years may benefit from an ARM which would allow them to qualify for a larger mortgage today anticipating their ability to covert to a fixed-rate mortgage.
  • Are purchasing a starter home – when you anticipate living in a home for five years or less, an adjustable rate mortgage may help you save money for a bigger home.

Adjustable Rate Mortgage Concerns

There are a number of different types of adjustable rate mortgages and they are each tied to specific interest rate indexes. While an ARM may offer borrowers some flexibility in terms of income and debt ratios, the downsides cannot be ignored. Some of the cons of using an ARM to finance your mortgage include:

  • Rate adjustments – borrowers should carefully review their loan documents to see how frequently their interest rates may increase. Some loans adjust annually while other may not increase for three to five years after the mortgage is signed. For borrowers, this means they may anticipate an increase in their monthly payments.
  • Prepayment clauses – oftentimes, lenders include a prepayment penalty with ARM loans which can be surprising for borrowers. Before agreeing to an ARM, make sure you read the documents very carefully to determine how long you need to hold the loan and if there is a prepayment clause.
  • Home values – one of the biggest challenges borrowers face with an ARM is what happens if the property value decreases: Refinancing a home into a fixed-rate mortgage may be more difficult if this occurs.

Borrowers who are searching for the right mortgage should discuss all options with their loan officer. There are specific instances when an ARM may be the best option and there are other times, such as if you plan to stay in your home for more than five years, where a fixed-rate mortgage may be your best option.

17 Apr 2018
By Kevin Gahagan

Should You Pay Discount Points When You Get Your Mortgage?

Mortgage

Should You Pay Discount Points When You Get Your MortgageOne of the challenges you will face when deciding how much money to put down on your new home is whether to put down a larger down payment or to take a bit of money from your down payment and use it to buy “discount points” to lower your interest rate.

There are pros and cons to doing both and each borrowers situation will be different so it’s important to understand which option is best for your individual situation. Some factors you should consider include:

  • Cost of borrowing – generally speaking, to lower your interest rate will mean you pay a premium. Most lenders will charge as much as one percent (one point) on the face amount of your loan to decrease your rate. Before you agree to pay points, you need to calculate the amount of money you are going to save monthly and then determine how many months it will take to recover your investment. Remember, closing points are tax deductible so it may be important to talk to your tax planner for guidance
  • Larger down payment means more equity – keep in mind, the larger your down payment, the less money you have to borrow and the more equity you have in your new home. This is important for borrowers in a number of ways including lower monthly payments, better loan terms and potentially not having to purchase mortgage insurance depending on how much equity you will have at the time of closing
  • Qualifying for a loan – borrowers who are facing challenges qualifying for a loan should weigh which option (points or larger down payment) is likely to help them qualify. In some instances, using a combination of down payment and lower rates will make the difference. Your mortgage professional can help you determine which is most beneficial to you

There is no answer that is right for every borrower. All of the factors that impact your mortgage loan and your overall financial situation must be considered when you are preparing for your mortgage loan.

Talking with your mortgage professional and where appropriate your tax professional will help you make the decision that is right for your specific situation.

12 Apr 2018
By Kevin Gahagan

Look Beyond The Interest Rate: What Else Matters When Choosing A Mortgage Lender?

Mortgage

Look Beyond The Interest Rate What Else MattersMost consumers securing a mortgage plan to remain in that loan for 30 years. During that time, the borrower maintains a relationship with the loan servicer or lender. Most often, home buyers do not think twice about who the mortgage lender is, but rather focus on the interest rates offered.

Look beyond this information. Borrowers need to take into consideration much more before they sign on the dotted line. Here’s what to look for specifically:

Choosing a Specialized Lender Can Help

Home buyers interested in special loan programs must select a lender approved to provide those loans. FHA, USDA and VA loans, in particular, must come from an approved lender. A specialized lender like this not only has approval for the loan but often will provide more support and guidance throughout the lending process.

Recognize That Competition Is Heavy

The mortgage lending market is very competitive and with that comes the ability to negotiate deals and discounts. It also means lenders will be aggressive in trying to close the deal. A good mortgage lender will never cause the borrower to feel rushed or as if they must agree to terms immediately. Rather, they should feel comfortable enough with the lender to discuss terms at length and even to think about it before buying.

In-House Lenders Versus Independent Lenders

Many real estate agents have an in-house lender that works alongside the agency helping to secure loans for would-be buyers. Sometimes, they can help with lower interest rates or promises of better access to credit, but not always. Again, buyers should never feel pressured into working with a specific lender or in settling for a loan they are not confident they can afford. Buyers should not feel as though they must work with the real estate agent’s recommended lender.

Take A Close Look At The Advertising

To be clear, the real estate lending industry has many fantastic offers to provide to home buyers or those refinancing now – including low interest rates and low down payment requirements. However, advertisements from some lenders may try to sway a buyer by looking more promising than the competition. However, most of today’s mortgage lenders offer many of the same benefits even if they do not explicitly advertise them.

For example, most offer a lock-in period to hold a specific interest rate for a length of time. Most offer discount points and incentives to help buyers to save money. Virtually all lending agents and loan offers will work “aggressively” as some marketing may state, to secure a low-cost loan for the buyer. In other words, buyers need to look beyond these flashing promises and at the actual terms.

How to Find a Comfortable Fit with a Lender

Considering all of these points, many home buyers still will make a decision about who to borrow from based on interest rates and available borrowing credit. It makes sense to consider lenders with lower rates or better terms.

Yet, there are other factors that contribute to which lender is the best. Perhaps most importantly is finding a lender that feels right. What does that mean?

They should work closely with the buyer as a team, together working to find the best loan opportunity possible. That often means that the mortgage lender needs to be ready to say no. For example, if a home buyer hopes to buy a home that he or she really cannot afford, the lender needs to be willing to caution against such investments.

Worthy lenders do more. They will help a buyer to qualify for a loan, but also provide advice on how to get the best deal possible in their situation. For example, they may be able to tell the home buyer what to do about their current credit score to boost it a bit before locking in a loan. They may offer advice about monthly payments and how much a buyer can expect to pay in mortgage payments, insurance, utilities, and so on. They work with the buyer, not sell to the buyer.

Does Personal Experience Matter?

Many times, consumers receive advice that they should ask for referrals from family and friends. This can be helpful, but that does not mean the recommendation is the best fit. For those that choose to use referrals, be sure there’s a comparison that’s recent and that the recent buyer can offer specific reasons why one lender was better than another.

The same is true for a local bank. Many times, consumers instantly turn to their local bank, perhaps one they have experience with spanning 10 or more years. This can be one option, but it should never be the instant, only option considered. Take the time to compare numerous opportunities.

History Matters, Too

Mortgage lenders come and go. Often, lenders sell a loan to another serving agency, which can make any mortgage holder a bit on edge about what to expect. Buyers should ask whether or not the lender will remain the long-term loan servicer or if they could see their new mortgage sold to another company. There are protections in place to ensure that the borrower isn’t penalized during the transfer of servicing, but it’s a good question to ask up front.

Here’s the Bottom Line

Home buyers need a mortgage lender they can trust and count on to provide their mortgage loan. They also need:

  • To feel as though the lender is knowledgeable and willing to share that knowledge with them
  • A lender that makes time for them to ask those questions and never rushes a decision
  • An organization that offers competitive rates and is willing to work hard to qualify the buyer
  • To feel valued as an investor, not just sold to
  • To offer competitive services including the type of tools borrowers need for online payments

The good news is some lenders work hard to stand out from the others. They provide incredible offers, reliable service, and a feel-good atmosphere for buying a home. Any home buyer who is making this type of financial decision needs a lender by their side they feel good about and trust to have their best long-term intentions in mind. Those loan offers who stand out tend to ensure the entire buying process is successful.