When you refinance, you'll go through almost the same process as when you first purchased your home, with the main difference being that you don't have the get-preapproved-and-find-a-house-to-purchase element.
Here's a simplified step-by-step process of what to expect when you're going through a refinance transaction.
1) You give your loan officer the following documentation: most recent paystubs, tax returns for the last two years, the last three months' bank statements, most current 401k, stocks and bonds statements (if any), a copy of your most current mortgage statement and a copy of your homeowners insurance policy.
2) Your loan officer will need to pull your credit report to find out what your credit score is.
3) Your loan officer, after doing a value check to make sure that your loan-to-value ratio is where it should be, will arrange to have an appraiser call you to set up a time to swing by your place and do an appraisal. You'll typically need to pay the appraiser on that same day.
4) Your loan officer will start putting your file together so it can be submitted to the lender for underwriting. Your file will include the income and asset documentation that you submitted, as well as the appraisal report, escrow instructions and a preliminary title report.
5) The lender will review your file, and if the underwriter doesn’t have any additional conditions (such as updated bank statements, etc.) that need to be submitted, your loan documents will be emailed to the escrow company. The escrow company will call you in to sign your loan documents or have a notary go to your house to have you sign loan docs. This is also the time that your escrow officer will let you know how much money you need to bring in for the rest of closing costs, if you asked that the amount not be rolled into your new loan amount.
Note: While not very many loan advisors attend their clients signing but I really prefer to be there, so that I can check and double-check and explain every document before my client signs anything.
6) Your signed loan documents are taken back to the escrow company. The escrow officer adds some more documents to the file and messengers it back to the lender.
7) The lender’s underwriter reviews your documents to make sure all the i’s are dotted and the t’s crossed. He or she will then tell the lender to release the money to the title company. The title company will then wire the money to escrow. Escrow disburses the funds accordingly.
8) Escrow sends out the forms to the courthouse of the county in which the property is located for recording.
9) Shortly before or after the recording, the escrow officer will call you and confirm that the deal's done. If you're doing a cashout refinance, you'll either pick up a check or have the escrow company wire it into your bank account.
10) Hooray! You're done!
Monday, June 23, 2008
The Homebuyer's Mortgage Process Simplified
If you're buying a home, here's a simplified step-by-step process of what to expect when you're going through a mortgage transaction.
1) Before you do anything else, get preapproved for a loan so that you know if you're qualified and if you are, how much home you qualify for. Heads up that you're going to need to gather your income (most recent paystubs, tax returns for 2006 and 2007) and asset (the last three months' bank statements, most current 401k, stocks, bonds and life insurance statements, etc.) documentation. Your loan officer will also need to pull your credit report to find out what your credit score is.
2) Start looking for a realtor to represent you in the buying process. Your loan officer will usually have a list of recommended realtors. If not, ask trusted family and friends for references.
3) Once you're preapproved, go look at homes within your price range with your realtor.
4) Once you find a home you like, your realtor will send an offer letter to the listing agent for that particular property.
5) If the seller accepts your offer, you’ll be giving your realtor a check (usually $3,000 to $5,000 for a single-family residence) to give to the escrow company that the seller’s agent chooses, and that will be kept “in escrow” as your earnest money deposit until the end of the transaction. Usually, that amount goes towards your closing cost and down payment at the end of the transaction.
6) A typical purchase transaction can take anywhere from 30-45 days. Sometimes it's less. Sometimes it takes longer. From the time that you get accepted on your offer, you typically have a 17-day contingency in which you’ll want to get the inspection done (to make sure the house is in good shape and doesn’t have mold, cracks in the foundation, etc,) and the appraisal as well (to make sure the house is valued correctly.
If the home is worth less than the offered price, you'll have to decide whether you want to pay over and above that or walk away from the deal while the 17-day contingency is still in effect. If it’s valued more than the purchase price, hey, so much the better. Instant equity for you!).
Within this contingency period is when you'll also need to have your loan approval (what you had prior to finding a house was a preapproval). In the approval process, in addition to your income and asset documentation, the lender will look at the appraisal report, escrow instructions, preliminary title report to make sure the property’s free and clear, and the value is where it should be. Expect to sign a ton of paperwork. Fun times. Fun times.
7) If the lender doesn’t have any additional conditions (such as updated bank statements, etc.) that have to be met prior to sending out the loan documents to the escrow company, the loan documents will be sent to the escrow company. The escrow company will call you in to sign your loan documents or have a notary go to your house to have you sign loan docs. This is also the time that your escrow officer will let you know how much money you need to bring in for the rest of the down payment or closing costs, if any.
Note: While not very many loan advisors attend their clients signing but I really prefer to be there, so that I can check and double-check and explain every document before my client signs anything.
8) Your signed loan documents are taken back to the escrow company. The escrow officer adds some more documents to the file and messengers it back to the lender.
9) The lender’s underwriter reviews your documents to make sure all the i’s are dotted and the t’s crossed. He or she will then tell the lender to release the money to the title company. The title company will then wire the money to escrow. Escrow disburses the funds accordingly.
10) Escrow sends out the forms to the courthouse of the county in which your property is located so that the property can be recorded in your name.
11) Shortly before or after the recording, your realtor will take you to the property to do a walkthrough to make sure the property is in the condition that it should be.
12) The escrow officer will call you and confirm that the property has been recorded in your name and arrange for you to swing by and pick up your keys.
13) Hooray! You walk into your new home and do the happy-happy-joy-joy dance!
1) Before you do anything else, get preapproved for a loan so that you know if you're qualified and if you are, how much home you qualify for. Heads up that you're going to need to gather your income (most recent paystubs, tax returns for 2006 and 2007) and asset (the last three months' bank statements, most current 401k, stocks, bonds and life insurance statements, etc.) documentation. Your loan officer will also need to pull your credit report to find out what your credit score is.
2) Start looking for a realtor to represent you in the buying process. Your loan officer will usually have a list of recommended realtors. If not, ask trusted family and friends for references.
3) Once you're preapproved, go look at homes within your price range with your realtor.
4) Once you find a home you like, your realtor will send an offer letter to the listing agent for that particular property.
5) If the seller accepts your offer, you’ll be giving your realtor a check (usually $3,000 to $5,000 for a single-family residence) to give to the escrow company that the seller’s agent chooses, and that will be kept “in escrow” as your earnest money deposit until the end of the transaction. Usually, that amount goes towards your closing cost and down payment at the end of the transaction.
6) A typical purchase transaction can take anywhere from 30-45 days. Sometimes it's less. Sometimes it takes longer. From the time that you get accepted on your offer, you typically have a 17-day contingency in which you’ll want to get the inspection done (to make sure the house is in good shape and doesn’t have mold, cracks in the foundation, etc,) and the appraisal as well (to make sure the house is valued correctly.
If the home is worth less than the offered price, you'll have to decide whether you want to pay over and above that or walk away from the deal while the 17-day contingency is still in effect. If it’s valued more than the purchase price, hey, so much the better. Instant equity for you!).
Within this contingency period is when you'll also need to have your loan approval (what you had prior to finding a house was a preapproval). In the approval process, in addition to your income and asset documentation, the lender will look at the appraisal report, escrow instructions, preliminary title report to make sure the property’s free and clear, and the value is where it should be. Expect to sign a ton of paperwork. Fun times. Fun times.
7) If the lender doesn’t have any additional conditions (such as updated bank statements, etc.) that have to be met prior to sending out the loan documents to the escrow company, the loan documents will be sent to the escrow company. The escrow company will call you in to sign your loan documents or have a notary go to your house to have you sign loan docs. This is also the time that your escrow officer will let you know how much money you need to bring in for the rest of the down payment or closing costs, if any.
Note: While not very many loan advisors attend their clients signing but I really prefer to be there, so that I can check and double-check and explain every document before my client signs anything.
8) Your signed loan documents are taken back to the escrow company. The escrow officer adds some more documents to the file and messengers it back to the lender.
9) The lender’s underwriter reviews your documents to make sure all the i’s are dotted and the t’s crossed. He or she will then tell the lender to release the money to the title company. The title company will then wire the money to escrow. Escrow disburses the funds accordingly.
10) Escrow sends out the forms to the courthouse of the county in which your property is located so that the property can be recorded in your name.
11) Shortly before or after the recording, your realtor will take you to the property to do a walkthrough to make sure the property is in the condition that it should be.
12) The escrow officer will call you and confirm that the property has been recorded in your name and arrange for you to swing by and pick up your keys.
13) Hooray! You walk into your new home and do the happy-happy-joy-joy dance!
Friday, June 6, 2008
Foreclosure: The Pros and Cons
Ed McMahon appeared on Larry King Live yesterday and talked about how he is on the verge of having his Beverly Hills home foreclosed because he is $644,000 behind on payments on his $4.8million mortgage.
While poor planning does play a big role (personally, if I had been in McMahon's shoes, and given that he says he had much less money than what people thought he made, there are better things I can think of to use my hard-earned money on- things that would have ensured that my money kept making even more money- than a swanky mansion in the 90210 zip code, but that's just me) foreclosure can happen to anyone, and often, it's due to a combination of factors, a lot of which cannot be helped, such as the economy, health problems, job loss, or divorce.
In a perfect world, if you can't make your mortgage payments anymore, you'd call you bank, ask them to do a loan modification. They'll acquiesce and come up with a way to make your payments affordable and you'd live happily ever after. That's not always the case.
If you're currently thinking of walking away from your home, here are some pros and cons that I hope will help you make the right decision.
THE PROS:
- If you choose to walk, you may be able to stay in your home payment free for up to 18 months.
- During that period of time, you will be able to save the payments you would have made to your lender and pay off your consumer debt or save for life after foreclosure.
- After you've been foreclosed on, you may have to put several month's rent down to secure a rental property.
- At this point, you may have nothing to lose. If you owe more than the house is worth, your home is no longer an investment. And if the property is not your primary residence, the "investment" may be costing you an awful lot of money.
- It may be significantly cheaper to rent than to continue paying the mortgage on your property.
- As home prices continue to plummet, making payments on a home bought at the peak of the market may just be throwing good money after bad.
THE CONS
- The principle area of concern is that there will be a foreclosure on your records. Foreclosures stay on your credit report for seven years. It is usually at least four years before you can get back into a house.
- When you go into foreclosure, the bank is often able to get a deficiency judgment. This means you will owe the bank the difference between what the house was sold for and the balance on the mortgage. Many people have a deficiency judgment against them, find themselves in a position where they have to file bankruptcy on top of the foreclosure.
- You should consider where you will live after the foreclosure. Many large property companies won't consider renting to people with foreclosures on their records. Individual investors may consider you only with a deposit of several month's rent.
Given that foreclosure should always be the final option, I do hope that you call your trusted mortgage advisor, as well as your CPA, to discuss the ramifications of your individual situation before you make your final decision.
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