This step is to get a good faith estimate. Lenders and brokers are required by law to provide customers with a good faith estimate. And most do. But you want to make sure that you ask for it so that you let your lender or broker know that you will hold them accountable to the document.

Your good faith estimate shows a break down of all of your closing fees and impounds. Closing fees are one-time, non-recurring costs associated with closing your loan. These can include title fees, underwriting fees that go to the lender, origination fees that go to your lender or broker, and appraisal fees among others. Impounds are those recurring costs associated with home ownership. In most cases you will allow your lender to impound or pre-collect fees every month that they will put into an escrow account. They will also impound fees at the time of closing. The lender will use those fees to pay your homeowner’s insurance and your property taxes. Since the lender is collecting the fees and paying them directly, they can be assured that your taxes are paid instead of trusting a borrower to pay them. At the end of the year, they will assess your escrow account and either send you a refund check for fees they didn’t end up using, or they will send you a bill for the fees they paid that your account didn’t cover. If you choose to have your lender impound, then both recurring and non-recurring costs will be line-itemed on a Good Faith Estimate (GFE).

What is particularly useful about a GFE is that the federal government has created the form so that it is uniform across lenders. So a borrower looking at a GFE in Massachusetts will have the same form as a borrower looking at a GFE in California. Of course, the numbers may be different, but each of the various types of costs will be listed in the same place. This means that you can take your original GFE with you while you are shopping your loan. Any broker you go to will try very hard to beat a GFE that a potential customer brings in. And if they are unable or unwilling to beat the fees charged on your original GFE, then they can perhaps offer you a shorter pre-payment penalty or a similar incentive.

But when you are shopping your loan, you want to make sure that you are comparing apples to apples. That means you have to make sure that each broker or lender is quoting you the costs for the same loan. For example, if one broker charges $5,000 flat for a 30 year fixed loan and a second broker charges you only $4,000 you want to make sure they too are offering a 30 year fixed and not a 2 year adjustable rate mortgage, for example. You will also want to make sure that each are quoting you their fees for the same loan amount. This is particularly important because fees are often determined as a percentage of your loan amount.

A GFE is also useful because it gives you a fee quote that you can take with you to closing. When you sign your loan documents, you will sign a HUD1. This is your final delineation of closing costs. A title or escrow officer will prepare this document and have you sign it. What is nice is that this final document has the exact same line item numbers as your original Good Faith Estimate. So your appraisal fee will be shown on the same line number on both documents. This makes it easy to compare your final costs with your original quote.

Keep in mind though, your original GFE is an estimate. So if you close at the end of the month instead of the beginning of the month, your fees can be different. Usually you will notice the difference in your recurring closing costs like insurance and taxes and in your pre-paid interest.

In order to avoid surprises, it is a good idea to ask for another GFE right before you close. Typically, you should request it three business days before you sign. This allows the broker time to prepare the document, have an accurate knowledge of what the final costs will be, and also time for you to resolve any concerns that might arise after you review this GFE. A good broker should be able to create a GFE that is within pennies of your actual final costs. Most importantly, don’t be afraid to ask questions. You can ask your loan officer, his or her manager, and whomever guides you through the signing process. When you make an effort to really understand the process, you’ll always pay lower closing costs.

1. Tip 1: Narrow your options

   For this, you’re going to need to do some homework. There are a lot of different options available. You’re going to need to check out the ones most likely to serve your purposes. So first, you’re going to want to be sure what it is that you want to accomplish with this loan. To find the best mortgage rates and loan package that fits your needs, you’re going to need to sort through a lot of different options. You may want to have your mortgage broker or loan officer check out the best ones for you, and then explain all the differences so you can decide which one works best in your particular situation.

2. Tip 2: Know Your Credit Report

   Before you do anything, you’ll want to get a copy of your credit report and see what’s in it. Look it over carefully for errors. If you’re applying for a no-documentation loan, your credit report is going to be the most important piece of the puzzle as far as your lender is concerned. Once you’ve checked over your credit report, you can contact the reporting companies to correct the mistakes and also have outdated information erased. You’ll want to get rid of everything you can that might negatively affect your credit score. This will take some time, but is probably the most important thing you can do to improve your chances of getting the best loan. Start as soon as possible, so as to give the reporting agencies time to update your information. It’s a good idea to get everything in writing also. For example, if you had a debt or collection item paid off, you’d want to make sure they send you a letter stating the debt has been satisfied in full. That way, if it should show up again on your credit report, you have the necessary documentation to get it removed. You also have proof for the lender’s satisfaction, although they will most likely want to see a credit supplement showing it paid on your actual credit report as well.

3. Tip 3: Organize Your Paperwork

   Your lender will request various financial documents from you such as bank statements and paystubs. They may want to see you have assets enough to satisfy their program. This means they may want to see your 401K statements. If they do, remember they will want to see all the pages of the statement, not just the summary page. This is true for bank statements, too. So, if you have all your paperwork organized in advance, the process can move that much faster. Think about it this way, you’ve spent all this time shopping for a great rate, finally found it, but now you chance losing it as the rates rise while you’re in your basement or attic searching for a lost tax return. Take the time to get organized. Also, it’s a good idea to make copies of your important papers to give to your lender rather than fiving him your only copy and hoping he remembers to give it back when he’s done with it. Finally, if you’re purchasing a home, talk to your lender first and line up your financing. That way when you do sign a purchase contract, you won’t be waiting and hoping you’ll qualify, because you’ll already be approved. Those who plan ahead are much more likely to get the mortgage loan they prefer, with their desired terms, and skip the aggravating and costly delays. So, what are you waiting for? Go talk to your mortgage broker, get a copy of your credit report, and get your important papers together. You’ll probably sleep better, too.

This means that your introductory period will reach its end and your interest rate and payment will begin to periodically adjust. So what does this mean for you?

Most importantly it means that your payment will increase. Rates have risen since you signed your last mortgage note. And in some cases your mortgage payment may increase by 30 percent. So if you were paying $1,200 a month before, you may be looking at a monthly payment closer to $1,560. For many borrowers this will come as quite a shock. Many borrowers are not familiar with the details of their ARM. And there are just as many who can not afford a substantial increase in their monthly payment.

So what are your options? Well, the first thing to do is to pull out all of your mortgage documentation. Determine when it is that your particular loan will readjust. Did you have a 1 year, a 2 year, a 3 year or a 5 year ARM? Did you have an option ARM? If you had an option arm then your loan will probably recast 5 years after you signed. In some cases, however, it may be only 3 years. The highest number of loans will reset around September, October and November. So getting on top of this now would be a good idea.

Next you will want to meet with your mortgage broker or retailer. Have them check your credit and explain your options as far as refinancing goes. This will be the route most of us will take. Remember too that even though mortgage rates are higher now, you probably saved thousands of dollars versus your neighbors who got a fixed rate. And actually mortgage rates are still at historic lows despite having risen over the past year or so.

For a few people, refinancing will not be an option. This may be the case if your credit has seriously deteriorated or if your home’s value has dropped precipitously. You still have options. Your first option is to call your lender. You could tell them you are having a hard time making the new payment and you don’t want to lose the house. Then you could ask if they could possibly extend the loan’s initial period one year. The worst case scenario is that they will say no.

Another option is to sell your home. If you can do so without a realtor, you can save a large amount of money that way. There are numerous websites that give free advice on selling a home without a realtor. And some companies like forsalebyowner.com charge only a small fee and provide you with some of the key services of a realtor such as providing the contract and listing your property on the Multiple Listing Service (MLS).

Hopefully you won’t find yourself in this situation. But regardless of what your home is worth or how your credit has changed, it is still a good time to review your current adjustable rate mortgage and come up with a plan of attack for when your reset takes place.

This level ensures the bank’s investment. If you should default on your mortgage, then the bank would be able to foreclose on the property and sell it. With the proceeds from the sale, they could cover the unpaid mortgage balance and use the remaining proceeds from your equity to cover the costs of foreclosure and sale of the house.

This is why mortgage companies provide incentives for people who make larger down payments.  These incentives come in the form of lower interest rates or reduced closing costs.  A twenty percent down payment will also allow you to avoid paying mortgage insurance. Mortgage companies may also eliminate or reduce your loan’s pre-payment penalty. And these incentives increase as your down payment increases.  

But not everyone has a twenty percent down payment available in addition to closing costs. Luckily, the mortgage market now offers low and no down payment options for qualified borrowers. These options aren’t for everyone but may make sense for borrowers with good income, who are looking to take advantage of the benefits of home ownership.

What borrowers should know is that the more you put down the better the interest rate you will get. So a borrower who puts down ten percent will receive a better interest rate than a borrower who puts down zero percent.

Borrowers should also know that no down payment loans are not available in all areas. for example, in some markets where house values are unsteady or falling, mortgage companies will be less likely to offer loans with such a high level of risk attached to them.

 Before making any decisions about a down payment, you should consult with your loan officer to first determine what your closing costs will be. Then determine how much the lender will require in asset reserves. Finally, decide what you can afford.

First you will want identification. Because of the Patriot Act, lenders are required to obtain a copy of your driver’s license and social security card or permanent resident alien card. When you make copies of these, try to make enlarged, color copies. Enlarging the copies will ensure that people can still read the information on the cards after being faxed numerous times.

Next you will want to gather your employment and income information. Gather together all of your W2s for the most recent two years. You will also need to provide your last full month’s worth of paystubs. Some companies allow their employers to print these out online. If you use online print outs, make sure they show your name and social security number. It is also a good idea to get the phone number for your Human Resources department. This will allow your loan officer to obtain the necessary verification of employment.

After employment information you will need to document your assets. Your loan officer will need the most recent two months worth of bank statements–ALL PAGES. I can’t stress this enough. All pages are needed. For investment or retirement accounts you will need to provide all pages of your most recent quarterly statement. Some people black out the account numbers on these statements. But chances are the mortgage company will require those numbers not only for your application but so that they can independently verify that you own those accounts and the accounts contain what you say they contain. Fraud is too prevalent for mortgage companies to not verify.

Last you will want to provide your loan officer with the name and phone number of your insurance agent. This will allow the loan officer to quickly obtain proof of insurance as well as an invoice for insurance that will be paid at closing.

By providing your loan officer will all of this information upfront, you will save yourself quite a bit of last minute scrambling. This will also help to ensure that your loan closes as quickly as possible.

The next major set of fees will come from your lender. Standard lender fees include an underwriting fee, a document prep fee, a tax service fee, a flood certification fee, a wire fee, and sometimes discount points. Discount points are only paid when you decide to “buy down” your interest rate. This means that you are paying a premium to the lender in exchange for a lower interest rate. Underwriting fees and document prep fees off set the lenders costs for underwriting your loan application and preparing all of your loan documents when the file has been completely approved. The tax service fee and flood certification fee are simply fees that pay for the lender to get official tax information and official information as to whether your property is in a flood zone and therefore requires flood insurance.

The final set of fees comes from title and escrow. The main title and escrow fees you will see include title insurance, an escrow fee, endorsement fees, a reconveyance fee, an email fee, and overnight delivery or courier fees. Title insurance will almost always be your most expensive title fee and this fee varies based on the size of your loan. Larger loans require more insurance and therefore have a higher title insurance fee. Your escrow fee can also vary based on your loan size. That is the case when you are purchasing your home. However, when you refinance you will typically pay a flat fee for escrow, and this is much lower than the escrow fee you will pay for a purchase. The newest fee added on by title companies is an email fee. Over the last few years almost all lenders have switched from overnighting their loan documents to the title company and instead now email the documents to the title company. So now title companies have to print out multiple sets of loan documents for each borrower and so title companies have begun to charge a very small amount for this service.

In addition to the above mentioned fees, there are a few more you may come across. The first is a recording fee. This fee goes to your county or municipality so that they can officially record the transfer of the property. Another fee you may come across is a pest inspection fee. This will only affect purchases and not refinances. Lawyer fees may also come into play depending on what state you live in.

When you purchase a home, then you will need to pay your closing costs out of pocket when you close escrow and sign your loan documents. However, when you refinance, typically the fees are not paid by you out of pocket. Instead, they come out of your loan proceeds. At the time you sign, you will receive what is called a HUD-1 Settlement statement. This statement line items each fee and shows how much the fee is and to whom the fee is paid. Overall, the most important thing to remember when it comes to closing costs is to obtain a Good Faith Estimate when you first start the application process. And then review your closing costs with your broker before you go into sign your loan documents. If these fees have changed, then your broker should provide you with a new Good Faith Estimate. Finally, remember to compare your Good Faith Estimate to your final Settlement Statement. And never be afraid to ask for clarification of a cost you don’t understand. It’s your money.

Along with communicating clearly, you must make sure your mortgage professional has the whole picture. For example, if you’ve had a bankruptcy, foreclosure or liens on your property, or you won’t have the down payment until your current home sells and closes, he or she must know this to package your loan properly and get it approved without having to resubmit it several times. Giving your loan officer complete, accurate information is critical to streamlining and speeding the process. It could even mean the difference between getting the loan you want and no loan at all.

Be sure to provide requested documents in a timely manner. Usually, most of what your loan officer will need will be requested of you upfront. However, banks will sometimes want to clarify a debt or an asset with additional information or paperwork. This is often because they sell the loan to a lender who has their own requirements. These requirements can and do change from time to time, often making it frustrating for all involved. Be aware that your mortgage professional is only going to ask for items necessary to complete the loan transaction.
Ask questions, but don’t monopolize his/her time. This might seem unnecessary to include, but while your loan officer is anxious to make sure you understand the process and keep you happy, they have other customers who likewise deserve their attention and time. Your loan officer will also do his/her best to minimize calling you unless necessary, or to give you good news regarding your new mortgage loan.

Offer your help if it will speed up the process. In our post 9-11 world, companies and banks are less likely to share your information without your authorization. Many require your physical presence to give your personal banking information. While this information may be obtained in writing, or through a fax, it is sometimes urgent to get information in a hurry to expedite your loan. This may be the case regarding verification of deposit or verifying employment through a third party, such as the work number. Most of the time, they can get what is needed without bothering you, but if they can’t, you’ll get a call.
While it is always your option to shop for a better loan elsewhere, don’t endlessly shop your loan or make large purchases before your loan closing. I’ve seen people unwittingly sabotage their own loan by going out and purchasing a truck on credit, or furniture for their new home, and kill their mortgage loan by ruining their credit and their debt to income ratio ( DTI).

Finally, and this I would make priority one. Choose your mortgage professional wisely. This should be a person with whom you feel comfortable and confident. He needs to be someone you can trust to give you sound advice, and look out for your interest throughout the loan process. He needs to be someone you know well enough to trust their advice regarding your mortgage. He should be knowledgeable yet approachable. He should be available to consult with even after the transaction is complete. You want a mortgage professional who can guide you throughout your mortgage lifetime and with every new purchase as well. You want a true mortgage professional.