A Home Inspector’s Weblog by Frank Schulte-Ladbeck

exploring homes and the lives in them around Houston

Delving into Paperwork (Part 2)- How to start your wanderings

You may ask where should you go to obtain a loan, or which title company should you go to for your closing? There can be positives and negatives to any place where you can go, and sometimes it is better to let others help you in this decision. Many real estate professionals work with one another, so they may have someone that they prefer. If you are working with a Realtor, they may have an in-house loan department, and a Realtor would have a title company that they are familiar with. You may ask them their opinion.

No matter where you obtain your mortgage, you will want to analyze their offer to see if it is right for you, so I want to go over the steps for a quick analysis of a loan. Internet sites like E-loan and LendingTree can offer you tips as well as presenting you with offers, so this may be a good place to start your search. If you have a relationship with a financial institution, obtain a loan quote from them- often these loans can reduce fees for your other accounts. There are also mortgage service firms, which will look for mortgages matching your requirements. They are not affiliated with certain banks, so they look at different institutions to find you a deal. When looking for a mortgage, make all of your quote requests/applications within a two week period. The credit reporting agencies will see this as one loan request, and that fact will help your credit score. (The more loans that you are applying for will lower your score, so you want your loan hunt to be seen as one request, which will not hurt your score). One warning: sometimes you can find a mortgage that suits your needs, and you will go with it. You may find that the company will sell your loan to another firm, which imposes it own rules that do not match your expectations. Do some research on the company where you will obtain your loan.

Looking at the offers from different firms will cause you to quickly realize that you may be comparing the old VW Beetle to the Porsche. They were both designed and developed by the same man, so there are similarities, but they are vastly different machines. The easy way to compare different quotes comes from a requirement by the federal government: listing the APR. APR stands for annual percentage rate, and it is the interest rate that you will pay expressed as an yearly rate. Comparing the APR from one firm to the next gives you a quick look at how much each will be charging you to borrow money from them. The APR is also useful in determining if you are being stuck with a lot of fees. The lender will provide you with an interest rate and an APR. The interest rate is just the amount of interest that you will be paying on the loan, but the APR will include all charges (think fees) related to that loan. If these numbers do not match, the lender is hitting you with fees. All loans will have forms called HUD-1 and a Good Faith Estimate. These forms contain a schedule of fees associated with the loan, and you need to be aware that you can discuss and negotiate these fees with your lender. Go through this list to check if any of the fees duplicate each other. For example, you may see an application fee and a processing fee which could be the same thing- handling your paperwork. After looking through your fees for questionable ones, you will need to look at costs. This is a bit harder, since some costs depend on what the going rate in your area are. For example, how much are appraisers charging? This amount could depend on the appraiser, who may be charging $100 or $500. This is not a fraud; it is just their standard service fee. I would do a quick search to find out what an average fee for that service may be in your location, either by internet or phone. Some fees like obtaining your credit information should be around $25 to $35, but lenders will tag on a $100 fee for this service claiming that they have to cover their expenses. The expenses should have already been covered in any fee for the paperwork. Typical fees include courier fees, notary fees, points, credit check, overnight delivery, appraisal, origination, escrow and title insurance fees. (Just a reminder, I have definitions on my website). The origination fee should be the only fee related to creating the loan; there should be no other document preparation fees.

The one part of the loan which can fluctuate in any loan type is the escrow account. This is the account set up by the lender to cover expenses with the house. Each lender will consider different items as being paid from this account. Usually your homeowner’s insurance and your taxes are paid from this account. Currently federal law dictates how much a lender can keep in this account after payments have been made for the year. During the year, the lender can require you to pay more or less into the escrow account based on what they feel will be the costs to them will be at the end of the year. You should know exactly what will be paid out of this account by your lender, so that you will not have to scramble to make a payment. You should also know how much your expenses are for the items in the account, so you can discuss this with the lender. For example, if your property taxes are $2000 a year, and that is the only item to be paid out of your escrow account, then the lender should not be collecting $8000 a year. Sounds unreasonable of them to collect so much? One lender insisted on doing this with me for my loan. At the time the law about returning funds was not in place, so my lender informed me that they were keeping the additional $6000, and by the way, they were going to increase the amount that I paid into escrow for the next year. When they refused to change this fact, I refinanced my loan with another lender. The message is to look at what your lender is doing and understand it.

When closing at a title company, you are tying up all of the paperwork involved with transferring the house from the previous owner to you and with ensuring that everyone gets paid. Most title companies are doing the same work for the same rates. You can call to find out which one you would like to use, but if you are using a Realtor, they would know of a title company that handles everything to their satisfaction. On occasion, the lender will have a title company that they frequently use. Thinking about the amount of work involved with the documentation from different sources, your best move will be to work with the suggested firm. Closing comes quickly, and you will have so much else going on in your life at that moment, you should make it easy on yourself.

Everything here sounds simple; however, many of us fail to take these steps. Take your time one evening, away from distractions, and look at the offers. You can write down the numbers in a spreadsheet format to give a better picture of each loan. Be forewarned, these offers are estimates, and some figures can change once you have accepted. Your best weapon in dealing with a loan is your willingness to question the terms presented

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1 Comment»

  va wrote @

it is good advice. I had to walk out of a closing once because what I got at closing was not what we had agreed on with the mortgage company. you have to read it. If I wouldn’t have read the papers I would have been stuck in a bad deal.


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