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Buying a Home – What is All This Paperwork?
When buying a home, you may, as a first-time buyer, be overwhelmed with all the paperwork and fees involved! It is understandable. Your home purchase will be the biggest financial investment you will ever make! There are many federal and state laws that must be obeyed, and many of those laws are designed to protect home buyers from unscrupulous sellers and lenders.
This article will walk you through the basic steps in buying a home and discuss the paperwork and fees you will encounter.
First, when you start shopping for a home, especially your first home, you may wish to get pre-qualified or pre-approved for a loan from your lender or mortgage broker. Pre-approval means you tell the seller or lender your income, credit score, list of outstanding debts and assets, etc., and based on these numbers they help you figure out how much you can afford and how much they can afford. willing to lend you. Pre-approval takes the process further, the lender will contact your employer, run credit checks, ask for proof of income, tax returns, etc. interest rate and a certain amount. This is a firm commitment that can be pre-approved but may not always be arranged, depending on the lender. Some want a sales contract in hand first before going to the time and expense of reviewing a lender. Some will charge a small fee, which can be refunded at closing.
Either way, you look to sellers as a more important customer and this can help you negotiate. Realtors will also be willing to spend time with you.
Needless to say, don’t, during the home hunting and buying process, go out and change anything in your financial picture – changing jobs, buying a new car, etc. Those actions will affect and possibly damage your ability to get a loan. they are promised. Also, if you are only eligible, the amount of the loan is flexible, but if you are pre-approved for a certain dollar amount, do not buy a house above that amount, because the lender will not increase the loan they own. you are willing to make and you will need to make up the difference in the amount paid as a down payment.
What should a lender know about you? Here is a general list of what you will be asked:
- Employment – where, length of time, salary, W-2 or 1099
- Auto debt, credit cards, student loans, home equity or loans and how much you pay each month on that debt
- Cash in the bank – how much money will you have left after you pay your down payment at closing?
- Down payment – how much; Is it savings or a gift from a parent, government or other source?
- Will you live in this area? Or is it an investment, a second home, etc. Is it a single-family residence or a condo or duplex?
Correct answers to the above questions will get you approved or rejected, and if approved will determine your interest rate and terms. You may need to support your answers with documents such as bank statements, paystubs, tax returns including W-2 forms, etc. If you have already signed a purchase agreement, you will need to provide a copy of that, of course.
Within 3 days of the loan application, by law the lender must provide you with an official document known as the Good Faith Estimate of Closing Costs (GFE) and the Truth in Financing (TIL). These documents detail the closing costs associated with your loan, item by item. Costs fall into 2 categories:
- Origination fees – charged by the lender or mortgage broker:
- Discount fees – these are extra points you pay in advance to get a lower interest rate. You may not have this fee if you have not set this up with your lender. Generally for 1/8 point you pay up front you can reduce the interest rate on the loan by 1/2 point.
- Property appraisal – you or the seller may have already paid for this or the lender may have it.
- Credit report
- Inspection – not always done but some lenders require this
- Mortgage broker fee
- Tax-related service fees – vary by country
- Application fee – may not be the same
- Commitment – if you ask to be pre-approved for a loan while selling the house
- Rate lock fee – if you ask to “lock” your rate for a period of time beyond the pre-approval period some lenders charge this fee.
- Processing – bank fee
- Underwriting – bank fee
- Occupancy/closing/evacuation fees
- Missing title/search/examination fee
- Preparing the document
- A lawyer’s representative
- A lawyer – not required in all states
- Title insurance
- City/town tax stamps and recording fees
- Test – not required
- Insect inspection
- Application fee for a condominium or homeowners association
- Prepaid mortgage insurance, property taxes, homeowners insurance, flood insurance, etc.
Not all of the above fees will apply to all loans. Different countries have different laws as well. Remember, it’s still just an estimate. Some fees are out of your control, such as taxes. Others you can control such as inspections. Some lenders are controlling and can be very aggressive, so if you are shopping for a loan, check these fees carefully. Homeowners insurance, in particular, you should shop around, don’t just accept what the lender chooses for you.
TIP: Because mortgage payments are usually due on the first day of the month, you can avoid a lot of prepayment interest by closing on the day or end of the month.
Truth in Lending Disclosure will state the actual APR – the annual percentage rate of the loan versus the simple interest rate quoted. The APR can vary depending on the fees that the lender includes or by law chooses not to include in the APR calculation, so read it carefully. So unfortunately this document doesn’t always provide the “apples to apples” comparison it’s meant to give borrowers.
My next article will provide an in-depth look at the Appraisal and Home Inspection process and the Underwriting phase of getting your mortgage loan approved.
As always, it is strongly recommended that you work with a mortgage professional, as well as a realtor, both of whom can answer many questions and guide you through the process, all the way to having fun with you as the keys to your new home are handed to you. beyond the closing table!
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