Take a tour of the process from start to finish, know what to expect so that you can be best prepared for each step.
[note color=”#FF9900″]Before
[spoiler style=”2″ title=”Gathering Documentation”]Being organized and having quick access to the required documentation, can make the difference between having a trouble-free process or a frustrating experience. As such, its a good idea to start gathering your documentation ASAP. As a minimum you will need the items below; they are essential for completing your pre-qualification.
- Paystubs – most recent past 30 days (usually last 2 paystubs)
- Bank Statements – most recent past 2 months
- W2/1099’s for the past 2 years
- Income Tax Returns (Federal ONLY) for the past 2 years
Depending on the type of loan, you may need these items.
- Contact information for your employer’s Human Resources or Personnel Dept.
Click here to download a convenient Needs List
[/spoiler] [spoiler style=”2″ title=”Getting Your Questions Answered”]The refinancing experience is similar to buying a home, with a little less anxiety. As before, don’t be shy about asking questions. In short, you’ll want to ask enough questions – whatever it takes – until you feel comfortable about the process. This is the time where you want to break out the notepad and list all of the things that are on your mind. As your trusted advisor, making sure that you are comfortable through all aspects of the transaction is my most important goal. There really is no such thing as a dumb question. If it’s important to YOU, please be sure to ask.
[/spoiler] [spoiler style=”2″ title=”Understanding Monthly Costs & Cash to Close (video) – Remodeling”] [tabs style=”1″] [tab title=”Narrative”]UNDER CONSTRUCTION
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UNDER CONSTRUCTION
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[spoiler style=”2″ title=”Now That You’ve Decided to Move Forward”]STEP-BY-STEP…
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[tab title=”GFE”]
The Good Faith Estimate or GFE as it’s commonly referred to, is an estimate in good-faith, of your loans costs. By law, a lender is required to estimate the fees associated with your loan and provide them to you in a specific format on a specific form within 3 business days of taking your loan application. It’s a really intimidating bunch of numbers on a piece of paper, but it’s important that you fully understand every line. A qualified professional should be able to walk you through the document step-by-step. Be sure to ask questions until you feel comfortable.
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[tab title=”Upfront Fees”]
You will usually be required to pay an upfront fees for the appraisal, this fee is paid by the borrower in advance using a debit or credit card. The appraisal is ordered by the lender through a dispatch service known as an AMC (Appraisal Management Company), who dispatches a local, randomly selected appraiser to perform a physical inspection of the property. The appraisal fee ranges from $450 – $650.
Another upfront fee that you may incur is the credit report fee. This is typically between $20 and $50.
[/tab] [/tabs] [/spoiler] [spoiler style=”2″ title=”Taxes and Insurance – CRITICALLY Important”] [tabs style=”1″] [tab title=”Property Taxes On Own ?”] If you are paying your property taxes on your own, you get a bill bill from your county’s tax collector twice per year. It’s hard to remember the dates, so, in the business, we use the jingle, “No Darn Fooling Around”. The first letter of each word (N-D-F-A) helps us to remember that property taxes in California are due in November and delinquent in December, then due again in February and delinquent in April. Another, perhaps easier way to remember the due dates is to understand that property taxes are due at the worst possible time : just before Christmas (December) and just before Income Tax season (April).It’s important that you understand this because, it could have a significant impact on the (apparent) cost or your refinance. I used the word “apparent” because it is not really a cost. However, it can affect your “cash to close” or monies owed. If you are refinancing your mortgage 1-2 months before the months of December or April, the lender is aware that the property tax due dates are eminent.
Because it affects the safety of their collateral (your home), lenders tend to require that your property taxes be paid in full as a condition of your refinance even if you have several weeks to go before your property taxes are actually due. If you were planning on paying your property tax bill just a few days before the final delinquent date, this requirement might put a wrench in your plans. It’s important that we be in full communication with you regarding your property tax due date, so that all flows according to plan.
[/tab] [tab title=”Taxes Impounded ?”]If your property tax is being paid by your lender they are managing a savings account for you, it’s called an impound account. In this case, it’s even more important that you understand the logistics. You are currently paying 1/12th of the total annual amount due – on a monthly basis. When the property tax is due, the lender gets the bill ( a copy comes to you too) and they pay the tax bill directly from monies in your impound account. If you currently have an impound account and you choose to (or you’re required to) keep the account, there’s some complex accounting that goes on behind the scenes. It’s complex because your current lender controls the funds that have accumulated in your impound account and they will not release any funds as they have your loan.
For your current refinance, if you continue the impound account arrangement, where the new lender collects your property tax payments on a monthly basis, you may need to “bring” extra cash to the closing table to “fund” your new impound account. Since this will create a situation where excess funds have been collected, the existing funds in your “old” impound account with the current lender will be released (refunded) back to you after the close of escrow. In some cases, if the “old” lender will allow it, the new lender may let you (effectively) transfer the required funds into your new impound account.
[/tab] [tab title=”Insurance”] If a lender has a lien (loan) secured by your property, your house must have insurance at all times. A lender will always require that your insurance policy be paid and current. Typically, the insurance policy is paid one year in advance. As such, at any given time, your policy will have between 1 and 12 months of coverage “left” on the policy. As a general rule, lenders usually require that you have at least 6 months of coverage left on your policy. If your policy does not have at least 6 months of coverage remaining, they will require that funds be collected so that your insurance has the minimum required duration remaining on the policy.If your insurance is impounded, and you choose to impound again, the same requirement applies, however, they will always require that at an additional 2 months worth of insurance be collected, no matter how much time is remaining on your policy before expiration.
Important info for condos/townhouses
If you are financing a condominium or townhouse, the physical structure will be insured by a blanket policy that the HOA pays, where your fraction of the premium is included in your HOA dues. However, in most cases, the lender may still require that you get special contents coverage (type HO-6) to insure the interior of your particular unit. The standard blanket HOA policy does not insure the contents of your unit. Excluded items include your kitchen and flooring, as well as furniture and fixtures.
Insurance Refund
If your current loan has an associated impound account for the collection of property taxes and insurance, it likely that you will receive a sizable refund check from your old lender after the loan closes. Money that has been accumulating in your “savings” that was allocated for the payment of taxes and insurance represents a surplus of funds, beyond your loan payoff. After your loan is paid off, these funds that rightfully belong to you will be refunded promptly.
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[spoiler style=”2″ title=”Performing Appraisal”]
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[tab title=”General”]
The appraisal is a valuation report provided by an appraisal vendor that the lender selects. An appraiser will inspect your property and compare its value to other similar homes that have recently sold in the neighborhood. You need not be present at this inspection. The appraisal fee ranges from $450 – $650 and the fee is typically paid by the borrower in advance with a debit or credit card.
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[tab title=”Appraisal Preparation”]
In preparing your home for the appraisal inspection, most people tend to be overly focused on their home’s cleanliness. While it’s important that your home be tidy, overly clean is not necessary. Your house should be tidy enough that the appraiser can easily inspect or observe all areas of your house.
Other factors that you should focus are so that are much more important are detailed below. Please note; an appraisal is not a one-time “pass or fail” test. However, if these items do not meet the appraiser’s expectations it can get costly. He will require that all items be corrected then reinspected at a cost of $175 per visit before it will “pass”.
All of the items listed below are critical. They must be installed properly and function according to the appraiser’s satisfaction or they will trigger a costly re-inspection.
- Smoke detectors must be installed in all bedrooms and hallways and must be in working condition at the time of inspection. The appraiser will test each one to make sure that they are working at the time of inspection. A dead battery in a perfectly functional smoke detector will trigger a costly re-inspection –
- Carbon Monoxide (CO) detectors. Federal law requires that CO detectors be installed in close proximity to bedrooms, however, it is recommended that they be installed inside each bedroom. Multiple level homes, with bedrooms on separate levels require detectors on each level. The appraiser will test each detector to make sure that it is working at the time of inspection. A dead battery in a perfectly functional CO detector will trigger a costly re-inspection. For more information on placement view items 15-17 on this document.
- Swimming pool. If your home has a swimming pool, it must be in filled with water and the pump must be in working condition.
- Water Heater Strapping. Your water heater must be strapped to the wall and the exhaust pipe must be adequately vented to the outside.
- Peeling Paint (critical for FHA). If you are getting FHA financing on your home, appraisers have been directed to point out any cases where the paint is peeling; interior or exterior. FHA considers peeling paint to be a health hazard. If you have any areas that are suspect, it would be a wise use of your time to lightly sand the area and put a coat of paint on it.
[/tab] [/tabs] [/spoiler] [spoiler style=”2″ title=”Loan Approval”] On the loan side, we begin processing your paperwork right away. After we gather your initial paperwork (paystubs, bank statements, etc.), your loan processor will review it all to make sure that all is per expectation and note any additional documentation that may be required. This is the point in the process where the loan officer and his staff needs your assistance the most. You will want to be sure to provide any requested information as quickly as possible – and – its important that you be available to meet with your loan officer (in-person) to sign any required paperwork.
During this phase of the process, you Loan Processor is coordinating with the escrow officer, the title officer and lender personnel. We may also need to be in touch with your employer to verify your employment history. The objective of all of our efforts during this process is your loan approval. Then upon underwriter’s review, the lender provides a Conditional Loan Approval.
[/spoiler] [spoiler style=”2″ title=”Locking Your Interest Rate”] [tabs style=”1″] [tab title=”Overview”] The interest rate that you get on your mortgage is not something that is “set in stone” the moment that you have a conversation with your lender. In fact, it changes on a daily basis (sometimes hourly basis) until you decide to “lock in” the rate that suits your budget and needs. If it was entirely up to you, you would, of course take the lowest rates available at the lowest cost. However, its not that simple. The interest rates vary widely based on the following criteria:- Credit Score
- Amount of your down payment
- Type of loan – Conventional, VA, FHA
- Whether or not mortgage insurance is required
- The type the mortgage insurance that you decide to get – if needed
- The mortgage bond market (stock market for bonds)
- How far in advance you’d like to lock-in your interest rate.
After we decide on the type of loan that works best for your situation, we’ll need to decide on the best combination of interest rate and fee. A lower interest rate, has a higher fee and a higher interest rate has a lower fee. The fee that is charged is called a point. One point is 1% of the loan amount. The dollar amount (cost) can be calculated by multiplying the loan amount by 0.01.
Example:
For a $200,000 loan at a cost of 1 point , the fee is $2,000.
For a $300,000 loan, a fee of 1 point equals $3,000.
You can adjust your interest rate up or down by deciding to pay more or less in points. As a rule of thumb, you can adjust your interest rate up or down by 0.25% or 1/4% (point per quarter) by increasing or decreasing the fee by 1 point or 1%. See the example below.
|
Rate |
Fee (points) |
|
5.25% |
0 points |
|
5.00% |
1 points |
|
4.75% |
2 points |
However, there are times when we might decide to wait. As a mortgage professional I’m very well versed in the factors that influence interest rates. In addition, I consult with professional bond traders on a daily basis to better understand the current rates and trends. If we are fairly certain that the interest rate will trend lower during a 10 day time frame, we might decide to “float” your interest rate instead of “locking” it. This is something that I would allow a client to do when I’m confident that they fully understand the consequences of floating. Basically, it means that we might benefit from a lower rate or fee… but we might also have to accept a higher rate and fee.
[/tab] [/tabs] [/spoiler] [spoiler style=”2″ title=”Clearing Conditions”]After your complete loan package is submitted, an underwriter reviews it and gives her “stamp of approval”. Although this is a moment of celebration, we still have a few steps to go before we can fund your loan and close your close your escrow. The “stamp of approval” is always a conditional approval that lists conditions that we must satisfy before a full approval will be issued. This phase of the process is called the “Clearing Conditions” phase. During this part of the process we may need to contact you to request updated information or to get clarification on some items that were not clear to the underwriter.
[/spoiler] [/note] [note color=”#FF9900″]At the Close
[spoiler style=”2″ title=”Planning your closing”]As much as we would like to plan everything in advance, this is not always possible in a real estate transaction. It’s estimated that there are over 50 people who are involved in getting your loan to funding, so that there are a lot of things that can go wrong. There are also delays caused by totally unpredictable events as well, so that it is difficult to plan an exact closing date.
However, as we get nearer to your lock expiration date; dates will begin to firm up. This is the point in time where you can start tell your employer that you may have to take time off of work to sign your loan documents.[/spoiler] [spoiler style=”2″ title=”How to handle Cash to Close”]
As applicable, you may be required to bring a cashier’s check to your closing for any monies due. “Cash to close” for your refinance is the difference between the new loan amount and the sum of old (payoff) loan and the closing costs. This is the amount that you will need to bring to the closing table when you sign your loan documents.
PLEASE NOTE THAT YOUR CASH TO CLOSE FUNDS MUST BE IN THE FORM OF “GOOD FUNDS”. Good funds are defined as 1) cashier’s check or 2) wired funds.
In order to avoid delays at the last minute it is STRONGLY recommended that you NOT transfer funds from one account to another – even from checking to savings or vice-versa. Lenders treat a bank statement as if it were frozen in time and they expect the bank balance to remain the same.
Understanding this nuance is critically important to you. It means that we have to be very careful to make sure that the amount of a check does not exceed the amount on the bank statement that has been provided. As an example, if you deliver a check to escrow in the amount of $2,000 and your bank statement for that account says that you only had $1,500 in it, the transaction will be considered invalid and additional documentation will be required. This is critically important.
[/spoiler] [spoiler style=”2″ title=”Signing your Loan Documents”]Generating a set of loan papers for you to sign has been the main objective of your team from Day 1 until now. When the lender prints your loan documents, it really does mean that we have crossed our “T’s” and dotted our “I’s”. We’re all set, ready to go.
After the escrow officer receives your loan papers, she will use the lender’s figures to prepare an Estimated Closing Statement. It will be similar to estimates that you have seen at the beginning of the process, but it will be much more accurate. The final figure at the bottom of your Estimated Closing Statement will be your actual “cash to close”; the amount of money that you will need to bring in to complete your transaction.
Escrow will forward the estimate to you and ask you to secure the cash to close funds and bring them to your document signing appointment.
The actual process of signing your loan documents takes about one hour. It may be inconvenient for you take time off of work for this appointment during regular business hours, but it is important that do so. You will want to treat this appointment just like an urgent doctor’s appointment. You will want to make time for things like this that are important to you. Please be sure to tell your employer in advance that you will be taking time off and ask if they can be flexible with the timing as you may not have a firm date/time in advance.
[/spoiler] [spoiler style=”2″ title=”Funding and Recording”]The funding of your loan and the recording of your name to the new deed mark the “end of the transaction”.
Since these are very important papers, you will want to keep them in safe place. However, the most important piece of paper will arrive in the mail 1-2 weeks after your closing. This is the RECONVEYANCE DEED from your previous lender. It is your “receipt”; the lender’s declaration that your 0ld loan has been paid in full and that their lienhold has been released from your property.
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