Finding the Money to Close Your Loan

With vigilant focus on the source of funds for closing mortgage loans, it’s important to know what’s acceptable. Here’s what you need to know and what you’ll need to provide:

 

 

  • Mattress Money or any “cash on hand” is not acceptable. All funds must be “seasoned,” which means your money needs to be in an institutional account (bank, credit union, brokerage, etc.). You will need to provide all pages of up to three months of consecutive statements for proof these funds are yours.
  • Gift Funds are OK with a signed “gift letter” (a form we provide) and evidence of the donor’s ability (a statement showing sufficient funds). Later, we’ll need copies of the check, deposit slip and account statement to show the transfer into your account.
  • Assets Being Sold, such as a car, boat, collectible or anything of value you are selling, require proof of ownership (such as a registration or title) and evidence of value (blue book value or appraisal). After the sale, provide copies of the receipt and the check and deposit slip showing the transfer of funds to your account.
  • Other Examples include loans from employers or against retirement savings, grants, inheritances, proceeds of sale from other property, loan paybacks and winnings. Be prepared to show the source of funds, evidence of transfer into your account and any supporting documentation of value, terms, service provided, etc.

 

TIP: If you have time and want to minimize paperwork, consolidate all funds into one account at least two or three months prior to closing. Save any and all evidence of transfers and deposits and keep activity to a minimum.

 

Never hesitate to ask questions when you’re unsure about what will work and what will not.

What You Need to Know About Gift Money

If you’re getting gift money to help finance your new home, here are a few things to remember:

 

 

The “Donor” of the gift must be a family member, fiancé or domestic partner. They must prove they have the ability to provide you with the gift by providing a copy of their bank statement, a copy of the canceled gift check and/or a signed letter from their bank saying the funds are available.

 

The “Gift Letter” is a form we will provide. The donor will need to complete it with basic information and a signed statement that the funds are a gift with no expectation of repayment.

 

The “Transfer” must be documented carefully. Make a copy of the gift check and deposit slip or of confirmation of the wire transfer. Deposit the gift in the account you’re already using for verification of funds to close. DO NOT combine this deposit with any other incidental deposits. Provide either an online update or the next account statement to show that the deposit cleared into the account.

 

Some programs allow for the entire down payment to be in the form of a gift. Others may require that you have at least 5% of the purchase price from your own funds. As these rules can vary or change at any time, never hesitate to consult with us for the specifics as they relate to your transaction.

 

While the documentation requirements may seem excessive at times, please remember that the underwriters are simply following the rules to assure that your down payment is not borrowed and that any allowable gift funds are coming from acceptable sources.

Are You Still Paying the Landlord?

Still Writing Checks to the Landlord?

Home loan payments are now often less than rent payments!

If you don’t intend to stay in your home long, need extra mobility or are unsure about your employment prospects, renting probably makes good sense for you. But if you’re planning to stick around, owning may prove to be more rewarding. Here are five good reasons:

 

  • Rates are near historic lows, and prices are still well below the past peaks. This unusual combination places the real cost of purchasing a home near a 50-year low.
  • Buying builds equity. On most mortgage loans, you pay down the principal balance with each payment. This typically starts at about $100 per month for every $100,000 of loan balance and increases each month through the entire life of the loan. To make a fair comparison, be sure to subtract principal paid from a home loan payment vs. the cost of renting the same property.
  • Home values rise over time. Increases are not guaranteed; however, if we use the last 50 years as a guide, values have typically risen at a pace above inflation.
  • Homeownership often brings tax benefits. Deductions for home mortgage interest and real estate taxes save many homeowners thousands every year. Others still find taking the standard deduction more beneficial. Always consult your tax pro for advice.
  • It’s more than just the money. Families become rooted in a neighborhood, school district and community. Homeowners have the freedom to choose paint colors and make modifications. Pets are welcomed. Intangibles like these often formulate the most valuable returns.

Housing is a precious commodity that we all need every day. It’s your choice to rent or to own, yet buying a home for yourself usually beats buying one for your landlord.

What’s standing in your way of refinancing?

What perceptions might be keeping you from saving money with a refinance?

 

“I’ve read that the rate needs to be 1% or 2% lower than my current one.” When average loan amounts were much lower, it took a much bigger drop in rates to achieve tangible savings. Today, even small rate differences can make a big impact. The best way to determine value is to simply divide your costs by your savings. This provides a “break-even” period, and if you know you’ll be using your loan past this point, the rest is pure benefit.

“I haven’t yet reached the break-even point from my last refi.” That may be okay. Refinancing again will require additional investment, but it could get you to an overall break-even point—and greater savings—more quickly.

“I don’t want to add years back to my loan.” The new loan term created when you refinance is only on paper. You determine the actual length of the loan by how much you pay. If lowering your interest rate saves you $100 per month, add that money to your new payment. You will reduce your balance more quickly and reach free and clear ownership faster than you would by keeping your current loan.

“It’s too expensive.” I’d rather save my money. Refinancing is all about saving money! The historically low interest rates that make refinancing such a good deal right now also make “saving” your money in the bank a lousy one. Banks are paying just fractions of a percent to hold your cash, but investing in a refinance could save you hundreds of dollars per month for a far greater yield on your cash.

Example: If closing costs = $3,600 and annual savings = $1,200 that’s a 33% rate of return on your money ($3,600 x 33.3% = $1,200).

Even better, you can often refinance without using any funds “out of pocket.”

Refinancing can have other benefits, too. A lower rate may mean not only a smaller payment but more paid toward principal each month, too. You may be able to free up cash for renovating your home, financing a college education, purchasing a vacation home or investing in property without adding to your monthly expenditures.

Are you ready to explore you refinancing options by the numbers? We’re here to help.

Important Tips for a Smooth Real Estate Closing

As your mortgage consultant, my team and I provide you with more than just a loan. We want to do everything we can to make your loan closing as easy as possible for you!

When the time comes to close the deal on your new home, a lot of things are happening all at once. You can expect the real estate transaction and the financial transaction to close on the same day!

With that in mind, I wanted to share some tips to help you prepare for this exciting day.

Important Tips for a Smooth Real Estate Closing

You’ll be reviewing many legal documents that will require your full attention, so make sure your calendar is clear of any other appointments.

•    Review Loan Documents in Advance – We will touch base in advance to prepare you for your loan closing. There should be no surprises at this point, providing we have locked in the interest rate for your loan to coordinate with the timing of your real estate purchase.

At the final closing, you will need to review every legally binding document carefully and make sure there are no typos or errors, and the loan terms are listed as we have discussed. Any typos or errors must be corrected prior to closing. We will go over each document with you, so you have a clear understanding of your financial commitment.

One important document you will be signing is the HUD-1 Settlement Statement. This document lists all the final credits and charges relevant to both you and the seller, based on the terms of your contract. You should receive this at least 24 hours prior to  your closing. Compare this to your Good Faith Estimate to make sure your rate and terms are written as you expected them to be. The lender is bound to honor the Good Faith Estimate for 10 days.

•    Be Prepared for Closing Costs – Prior to closing, you should know exactly what your closing costs are. It’s best to have a cashier’s check ready to pay your closing costs. (An electronic funds transfer could delay the process, depending on what time the transfer posts.) This includes any fees, taxes, charges and your down payment. Again, we will review this with you, so you have a full understanding of your closing costs. Don’t be afraid to ask questions! We’re here to help.

•    Make Sure Your New Home is Ready to Live In – When you do your final walk-through of the property, make sure all repairs have been made that were agreed upon and the home is ready to occupy. Otherwise, your Buying Agent can make additional negotiations with the Selling Agent to resolve any outstanding issues. Your final walk-through should be done before the final real estate closing documents are signed. Allow for at least 30 minutes to do your final walk-through.


I hope you find these tips helpful. My team and I will be in touch with you on a regular basis to make sure this transaction goes smoothly as possible. If you have any questions, please don’t hesitate to give me a call.

When Do I Make the Offer

Here are some common mistakes to avoid during the home buying process to make sure your transaction goes smoothly!

•    Don’t Make an Expensive Purchase
It’s best to avoid making major purchases like furniture, cars, appliances, electronic equipment, jewelry, or vacations until after the closing. Financing large purchases with a credit card could bring your credit score down. Using cash to purchase high-ticket items can also create a problem, because many banks take your cash reserves into consideration when approving your mortgage.

•    Don’t Get a New Job
Lenders like to see a consistent job history. Generally, changing jobs will not affect your ability to qualify for a mortgage loan if you’ll be making more money. But, lenders usually look for stability. Changing jobs during the loan approval process could raise some concern and affect your ability to gain loan approval.

•    Don’t Switch Banks or Move Money Around
As your lender reviews your loan package, you will be asked to provide bank statements for the last two or three months on your checking accounts, savings accounts, money market funds and other liquid assets. To eliminate potential fraud, most loans require a thorough paper trail to document the source of all funds. Changing banks or transferring money to another account could make it difficult for the lender to document your funds.

•    Don’t Disregard Your Lender’s Requirements
Even if you have been pre-approved for the loan, your lender will still need copies of your bank statements, W2s and other paperwork. It is up to you to provide all necessary documentation as soon as possible. Failure to submit certain qualifying documents could cause you to lose your loan and the financing you need to buy your home.

I hope these tips are helpful. Please feel free to give me a call if there’s anything I can do for you.

Tips for House-Hunting

Knowing how much house you can afford is just a starting point in your search for a new home. By answering the following questions, you can narrow down what features are most important to you:

•    How many bedrooms and bathrooms do you need?
•    Do you want a new home or would you prefer an older one?
•    Are there special features you must have?
•    Is the school district a factor for you?
•    Do you want to be close to a shopping center?
•    Is commuting to work an issue? If so, how far are you willing to drive?
•    Will you accept any style of home? What about colors?
•    Do you want a fireplace, pool and/or air conditioning?

Searching for a new home can be overwhelming.
Here are a few tips to make it a bit easier!


•    Take a notepad and map with you. Save each home’s fact sheet.
•    Limit the homes you look at in one session to three, so you can focus on the details.
•    Take a picture of the homes that appeal to you, so you can remember their features.
•    Make sketches of floor plans to help you compare the homes you like.
•    Ask questions about any problems in the home before you make an offer.


I hope these tips help you find the home of your dreams!

Does Your Refinance Math Add Up?

Is there a formula that determines whether it makes sense for you to refinance? Yes and no. The math isn’t the same for everyone, but it always revolves around the payback period…and shorter is always better.

To make your calculations, we must know:

  • Your current loan amount and interest rate
  • The interest rate of your new loan
  • Can the lock-in period be extended?
  • How long you plan to stay in your home

As a general rule of thumb, you should consider refinancing if you can recoup the finance charges within 14 months.

You may have heard it only makes sense to refinance if you can lower your interest rate by 1.5 to 2 points, but I find that’s not always the case. Every situation is different, and you deserve to know what your options are.

I’d be happy to meet with you to discuss whether refinancing now makes sense for you. Let’s crunch the numbers together.

Principal Balance

My clients often ask me if it’s a smart idea to make additional payments toward the principal balance on a mortgage. The truth is, every person has different short- and long-term goals, and it’s a very personal decision.

Owning a home outright can be a huge financial advantage that offers guaranteed security. And, you can save thousands of dollars in interest fees by paying your loan off early. But, you’ll want to make sure you will not be adversely affected by prepayment penalties.

Some people prefer to use the extra money to create an investment portfolio. Or, you can consider paying off credit card debt, building an emergency fund, or setting money aside for your children’s college education.

What’s the best solution for you? A qualified financial planner can help you weigh out these options and make recommendations as to what choices make the most sense for you and your family.

DOs and DON’Ts for Getting an Ideal Mortgage

It’s critically important to pay your bills on time. There’s no single element that dramatically affects the success of an application as much as your credit history. Another thing, of course, is savings. You should have a disciplined savings pattern, since that’s the kind of behavior that’s going to make you a successful homeowner.
 
Everybody comes into the real estate market with a different perspective and level of experience. The fact that online mortgage applications, new loan products and rising interest rates compete for attention these days makes it all the more difficult to give foolproof advice. But, some general rules apply to pretty much anybody when it comes to getting the money to buy a home. 
 
Here are some DOs and DON’Ts you should consider when you seek to get an ideal mortgage:
 
DOs:
 
1. Make loan and other debt payments on time, especially over the months leading up to the filing of your mortgage application. It sounds simple, but every 30-, 60- or 90-day delinquency on a loan or credit card will reduce the credit score the lender ends up considering as part of the loan file. That score, in turn, will determine the interest rate you get on your home loan.
 
2. If something has to be missed, miss the credit card payment first, followed by the payment on any installment loan you might have, and finally, the payment of an existing mortgage. Because credit-scoring systems look at the performance of similar loans first when deciding what type of score to assign, it’s best to follow this order. This will give the most weight to the performance of another mortgage, for example, then the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do. Payment performance of so-called “revolving” loans, like credit cards, which feature variable payments that fluctuate with the outstanding balance, is typically evaluated last.
 
3. Consider paying off more debt and putting down a smaller amount at closing. This move will leave you with a larger mortgage, but it allows you to replace non tax-deductible, high-interest rate debt with lower-rate mortgage debt that features deductible interest.
4. Get the mortgage first if multiple financial obligations are going to pop up in the near future. Numerous credit inquiries, such as credit card applications, can hurt your credit score, especially if they’re filed in the months prior to the home loan review process.
 
5. Increase the size of the down payment you’re able to make by saving as much as possible, as often as possible. Evaluate money market or other accounts that offer reasonable rates of return, automatic payroll deductions, or other financial incentives to save.
While these are all great steps to follow, you also have to consider what you shouldn’t do as well. Resisting the temptation to overspend is at the top of the list.
 
DON’Ts:
 
1. Don’t make any big purchases over the next couple of months. Besides the obvious fact that it makes less money available for the down payment, it might require you to get yet another loan. A significant debt such as a $15,000 auto loan will look bad to the mortgage lender as they review your credit-worthiness. Plus, this adds to your monthly expenses and may affect your ability to qualify for the mortgage loan you want.
 
2. Don’t try shooting for that six-bedroom house in the Hamptons if it’s going to be too much of a stretch in your current budget. Lenders consider what’s known in the industry as “payment shock” when approving loans. Someone who goes from a relatively small monthly housing payment to a large one either won’t qualify for a mortgage or will end up having to cover too much loan with too little money.
 
3. Don’t just get pre-qualified for a mortgage; get pre-approved. To get pre-qualified, you only need to submit credit and income/debt information voluntarily to a mortgage broker or lender. The lender then estimates the amount of home the borrower will qualify for. Before the borrower gains full pre-approval, the lender must pull your credit report, check your debt-to-income ratio, and perform other underwriting steps. Pre-approval gives the borrower more buying power and extra leverage when making an offer to purchase a home.
 
4. Don’t forget what kind of spending habits you have when getting a mortgage. By taking out a 30-year fixed rate loan rather than a 15-year mortgage, and investing the money saved on monthly payments, you might earn a higher return on your money in the long run. But, that approach won’t work if you enjoy dinner and a movie twice a week. If you’re a compulsive spender, the 15-year loan would force you to save your money and accumulate equity faster by going with the shorter term and higher payment.
 
 
I hope this information is valuable to you! Please feel free to contact me at any time with any questions or concerns!