What Your Mortgage Company Won't Tell You
Everyone knows that applying for a mortgage is standard part of buying a home. Outside of cash sales, which astoundingly accounted for 69.4 percent in Sarasota last year, according to the Tampa Bay Business Journal, a home loan is often a necessity. Many first time and even seasoned home buyers take out a mortgage, which usually represents the single largest investment of their lives. Over the course of the loan, their property appreciates in value, especially in areas like Sarasota because of its highly desirable location.
What too many home buyers allow to happen is giving-over their purchasing power to someone else, more particularly, an entity, represented by a loan officer or mortgage broker. Just because you apply for a home loan doesn't mean you have to accept the terms and all that's supposedly needed. Mortgages, like many other financial products, are generally stuffed with extras. Of course, there are several costs which can't be avoided, but that certainly doesn't mean these can't be negotiated.
Applying for a mortgage can easily be a nerve-racking, uneasy process because of the sheer amount of unknowns. The documentation itself is enough to cause a truck-load of anxiety and what's more, is the time it takes to hear back for a final answer. After the financial downturn of 2008, new regulations were enacted to guard against another housing bubble. Banks and other lenders loss hundreds of millions of dollars in defaulted debt instruments, but now, those same institutions are eager to rebuild their books of business.
Pre-Qualified versus Pre-Approved
Something that typically confuses, or at least, frustrates, new home buyers is the approval process. It begins with a pre-qualification, which generally doesn't cost anything, and can be done over the phone or online. It usually entails providing a potential lender with an overall picture of your finances, which of course, include your income, debt, and any assets you might have in your portfolio. From this basic information, an initial calculation is done, yielding an approximate amount for which you would qualify. However, your credit file isn't examined during the pre-qualification period, which obviously accounts for a sizable qualifier.
Most home-buyers focus so much on the interest rate, they don't pay attention to the fees associated with the closing. Many of the fees are standard - doc stamps, home appraisal, etc - but the broker can also add origination fees that often go straight into his or her broker's pocket. --WTSP News, Tampa Bay and Sarasota
The purpose of a pre-qualification is to help you identify where you might improve your finances, as well as what loan products might fit your situation. Since this is not an in-depth analysis, you'll have to be pre-approved. At this stage, you'll complete a mortgage loan application and provide more detailed information, along with paying an application fee. The lender will then delve into your finances, along with your credit file, and determine how much you can be loaned, as well as the interest rate you'll pay.
Things Your Mortgage Company won't Tell You
Both the pre-qualification and pre-approval processes are intended to help you not only get a mortgage, but also, to improve your finances so you have more choices and know precisely your buying budget. These are done before you begin to house hunt, but what options you are given aren't set-in-stone. You do have choices and there are things lenders will not tell you, which include the following omissions:
- "There's a better choice of loan product for your situation". Many consumers are familiar with loan products like FHA, conventional, and VA mortgages. However, you could well be pitched a home loan that doesn't necessarily benefit you. Understand that you likely have other options and don't let emotion cloud your judgment. Ask questions and then carefully compare products so you don't rush into a decision.
- "We like to litter fees in our mortgages". Mortgage loans, like many other financial investment products, can be enhanced with fees, which obviously benefit the lender and pick your pocket. When you apply for a loan, the lender is required by Real Estate Settlement Procedures Act, or RESPA, to provide you with a good faith estimate. Ask for an itemized statement and be sure to question anything and everything that seems awry.
- "That rate lock isn't a guarantee". When a lender offers a rate lock on the interest rate and discount points, it's usually applicable for 60 days. After that time, it can go up, and there have certainly been instances where something holds-up the sale transaction, which can mean you'll pay more over the life of the loan.
- "We love selling you extras". There are all kinds of add-ons you don't really need, but these will likely be included. It bears repeating, you ought to ask for an itemized, detailed document and carefully read it over to find extras that cost you more than you need to pay.
Yet another way you'll pay more is through the lender's payment plans, which charge you to do what you can do on your own, for free. Just pay half your monthly mortgage payment every two weeks, and that will add-up to one extra payment each year, which will amortize the loan faster. Skip those money-wasting payment plans and invest in your property instead.