Pre-Mortgage Financing - Before You Seek Out Mortgage Financing
Let's take a look at several issues that should be considered before seeking financing. I am not suggesting that you need to have all of the answers before speaking with one or more trusted mortgage advisors, but you should do your best to equip yourself with good questions and position yourself to have meaningful conversations about your wants and needs. Before you even speak to an advisor, think through the following questions and focus on your objectives. There are other good, important questions that you will think of, and these will get you started:
What do I want?
What do I need?
(If refinancing) what do I have?
Do I know what I qualify for?
If I don't know what I qualify for, how do I find out?
How do I find a credible mortgage professional, and how do I know whom to trust?
What questions should I be asking?
How does this process work?
What do I need to get in writing? And, when?
How do I get the “best” deal for me?
How long do I anticipate being in this loan?
What do closing costs represent? Where is that money going?
If comparing lenders, rates, fees, etc., how do I go about it?
How do I make sure I get what I am being promised?
Also, you will need to figure out, with or without the help of a trusted advisor:
What amount, and/or percentage, do you want to borrow?
If a purchase:
a) how much do I need for a down payment?
b) how much would I like to put toward a down payment?
c) is there an amount or percentage I should put toward a down payment?
d) how much will I need for “reserves” and how much do I have available?
If a refinance, what are my objectives? Lower payment? Cash-out? Rate/term? What loan type best suits my needs? An “ARM.”? A fixed rate? Interest Only? An “exotic”? What “PITI” payment am I comfortable with on a monthly basis? PITI = principal + interest + taxes + insurance. (If you have an HOA, the dues will usually include your insurance payments). Will I have a prepayment penalty? If yes, why? How does it work?
If you are considering an Adjustable Rate Mortgage (ARM):
How do ARM's work?
How long is the start-rate fixed for before the rate and payment can adjust?
What index is the ARM pegged to?
What are adjustment periods?
What are “caps”?
If you want to borrow more than 80% (LTV) of the property value: What is mortgage insurance?
Do I have to have it? Does it last forever?
What is a piggyback loan?
What is a blended rate?
What is expanded LTV with no mortgage insurance?
These are just some of the many questions that you could, and should, ask. A good Loan Representative (LR) should beable and willing to answer all of your questions patiently and thoroughly. Please don't be embarrassed or too proud to ask questions. You were not born with this knowledge and nobody would expect you to know everything. But if you don't ask when you have the chance you do so at your own peril. A good LR will explain the process.
A good LR will give you a Good Faith Estimate (GFE) fully disclosing All fees and costs. A good LR will put everything in writing. A good LR welcomes transparency, full disclosure, and accountability. A good LR wants to compete on a high level and provide you the service you deserve. A good LR wants to give you good reason to choose him over unethical practitioners. A good LR wants to do the right thing, and be reasonably compensated for helping you with what may be the most important financial decision you will make in your lifetime.
As mentioned in another section, think about what you are willing and able to document. I have discussed financing with rate-shoppers whose first question is “What's your rate?”. I tell them that of course the rate is important, so in order to beaccurate and professional I'll need to ask a few questions. So the first thing I ask is “What are you willing and able to document?”. When the answer to that question is “What do you mean?”, which happens too often, I know that this person is headed for trouble. I don't know whether it's ego, or laziness, or wishful thinking, or what drives that behavior. But think about this; bad rate-shopping amounts to asking the same question until you find someone willing to lie to you. I have written a yet-to-be-submitted article pertaining to documentation, because understanding how this factor impacts your financing is crucial. For now, please remember that even if you think your documentation might be light, go for what you want. You can find a good LR to give you a free consultation and not charge you an application fee, so there is nothing to lose. As a mortgage professional, if I can try to help you then I welcome the opportunity. I am looking for ways to make your deal work as long as it is suitable, not for reasons to kill the deal. I amyour ally, not an adversary. A good LR is not judging you; we want to put your profile as a borrower in the best possible light (while staying compliant) and secure for you the most suitable financing that serves your best interests. What you should focus on is taking the appropriate steps to select a trusted advisor, be completely honest with that person, and participate andcooperate throughout the loan process to help expedite the closing of your deal.
In conclusion, I am not going to attempt to ask and answer every conceivable question at this time, because the purpose of the report is a “heads-up”, and not to write a textbook. However, there is an extensive amount of information available on-line and at your local bookstore. You should be able to easily get answers to the questions I have posed, and you'll probably think up some more good and important things to ask.