Archives for April 2008

I have organized all of my experiences as a first-time homebuyer to one central page. It’s huge, sometimes I can’t believe I wrote all that stuff. Hopefully it can be of some help so other folks. Although I have few things left, I seem to be close to wrapping things up.

Do you have any other questions about buying a home you’d like to see answered? Please leave a comment below. I’m sure I’ve missed some things. I continue to be amazed by how confusing and complicated the home-buying process can be. No wonder so many people simply make inflated offers and sign their mortgages without even reading them…

Continued from Part 1, where you should have figured out what type of loan you want to get, gathered copies of your important paperwork, and gathered a list of potential lenders. Now to narrow things down to one final lender.

III. Narrowing Down The List
To trim down your list, you may want to call some of them up and ask them a few questions.

1) What type of loans do they specialize in? (Don’t tell them what you’re looking for yet.)
2) What do you need for a rate quote and Good Faith Estimate? What is your quote? Many will give you a rate quite easily, but the GFE is sometimes harder without submitting private information. Just remember, any such quote is only as good as the information you provide.
3) How fast can they lock their quoted rate/points if you choose them? Can I lock this quote you just gave me today? Will they provide written lock confirmation? Will they guarantee their lender fees? (See below.)

Some other people throw in some quiz questions that relate to guessing future mortgage rates, but I don’t really care about that. Your final list might look something like this:

1. A few Upfront Mortgage Lenders. These lenders have agreed to disclose accurate rates/points for the market niche they service, as well as guarantee their lender fees. At the very least, you should be able to get a good idea of a competitive current rate.
2. First-time homeowner programs in your area, or perhaps you have a preferred lender for your housing project.
3. Credit unions that are either local or otherwise restrictive (only teachers in your county, military affiliation, etc.)
4. A broker that was highly recommended by a trusted friend experienced in real estate.
5. A loan officer from a “big” bank, perhaps where you have an existing relationship.

IV. Compare Good Faith Estimates
When you apply for a mortgage, the government requires your lender to give you a Good Faith Estimate (GFE) within three days of your application. But you should be able to get one, or something similar to one, beforehand with no cost. When done, you should have GFEs from about 2-5 people to compare side-by-side. The actual document looks like a huge list of different fees and can be pretty confusing, but you need to simply break it down into three parts:

a. Interest Rate / Discount Points
– Use interest rate, not APR
– Also note lock period

b. Fees Paid To Lender (Add these all up)
– Application Fee
– Commitment Fee
– Rate Lock Fee
– Origination Fee
– Funding Fee
– Administrative Fee
– Transfer Fee
– Processing Fee
– Loan Set-up Fee
– Wiring Fee
– Discount Fee
– Flood Certification Fee
– Tax Service Fee
– Underwriting Fee
[Read more…]

Shopping for my recent mortgage loan was a pain. It shouldn’t be this hard! I had hope for Zillow, but a recent quote request for my same loan only got two offers from lenders, both of which weren’t very good. Ah well. Until it gets better, here’s how I would go about things if I could go back and do it again.

The Primary Goal
The most common pitfall with mortgages is the classic bait-and-switch. They lure you in with a rock-bottom rate and low closing costs… until signing day when your final HUD-1 statement looks completely different. Fees get changed, and by then is really hard to back out. Good Faith Estimates are not legally binding, and there is no real penalty for lying on them. In addition, interest rates change every day. If they don’t list their rates publicly, how do you know if the next day you’re still getting their “best” rate? “Oops, rates went up!”

I think the best thing to do is to be prepared, so that when you are ready you can go out and obtain some firm rate quotes, and lock it in. I would not sleep well until I had a loan commitment from the lender, an agreement on closing costs, and a signed rate-lock letter.

I. Prep Work

• Learn about mortgages. Many people rely on their mortgage broker to tell them what kind of mortgage to get. This is nice, if you have a honest, unbiased broker. This is also how people got talked into 0% down subprime adjustable rate mortgages. I hate the idea of signing up for something you don’t understand. Some reading suggestions: Fixed or adjustable? Loan term? Paying Points?
• Fill out a Uniform Residential Loan Application. You’re gonna have to provide this information anyway, so why not do it ahead of time. Download it here.
• Save and/or make copies of all your supporting documentation. For a full-documentation loan, you will need at a minimum your last two months of paystubs, bank statements, and investment statements. (More assets is better, but for simplicity I only provided my primary accounts and left out the ones with tiny balances.) You’ll also your last two years of tax returns. If you’re self-employed, they’ll want two years of those returns as well, including your accounting books for this year. Collect whatever else might be important, including any divorce or bankruptcy paperwork.
• Get a copy of your credit report from all three bureaus. Getting reports should be free. A score is also helpful, but not necessary since they will pull their own scores anyways. See here for ways to get a free credit score. Check for inaccuracies, and get them fixed as soon as possible. File dispute forms online at each bureau, and follow up.

II. Find Potential Lenders
This part should be pretty easy. Suggestions:

• National credit unions – Navy Federal, Pentagon Federal (1st and 3rd largest in the US)
• Local credit unions and banks
• Huge national banks
• Upfront mortgage brokers
• References from Realtor, family, friends
• Websites, both from aggregators and direct lenders

If you’re in the military or have direct family in the military, check out Navy Federal Credit Union for some great rates. I’m trying to sign up my family member right now in preparation for our next mortgage.

Some of this is personal preference, but I think most brokers and websites have access to the same general rates for common conforming loans, because they rely on what the secondary wholesale market is providing. Credit unions and local banks sometimes lend their own money, which means their rates might be better (or worse).

Next time: Comparing Offers, Negotiating, etc.

The post is a new addition to my Experiences in Buying A Home.