Simply The Best Loans

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In order to save money and maximize the services offered by almost all major banks, you can set up bi-weekly payment plans yourself. If you bank online, this process is even easier. If not, you can visit your local branch and get assistance there to create this payment schedule.

First, look at your monthly mortgage payment (including escrow if you are impounding for taxes and insurance) and multiply it by 12. Once you have that number, divide it by the number of paychecks you receive in a year whether it’s 24 or 26 or 52. Set up an automatic draft for that amount to be drafted from your account and paid to you mortgage each payday.

Second, and this is very important, you must make sure you are ahead in your payments by at least 2 weeks, preferably a whole month, before you set these drafts up. Do not start these drafts at the beginning of a month assuming that you will stay current because you may not.

The way some banks process their automatic drafts, especially when they are first being established, may result in a 2 to 3 week delay for your mortgage lender to actually receive a payment from the bank. If your timing is off at all, it could result in the lender either charging you late fees or worse reporting a late payment on your credit record. Late mortgage payments are one of the most derogatory credit issues you can have on your credit report.

This is easily avoided. The best way to do it may make budgeting for a few weeks a little difficult if you’re already having money issues but the reward is well worth the extra tightening you might experience in the short term. (And it is still less expensive than paying the mortgage company a set up fee.) You need to pay your entire monthly mortgage on the first of the month as you usually do and, at the same time, start your first draft payment.

So, in essence, you are making a payment and a half or so that first time, so you are a half or so payment ahead in the beginning. By the next paycheck around two weeks later, you are making another half payment to the mortgage and now you are a month ahead in your payments. Now, as time goes forward, your mortgage is having the principal reduced every 14 to 16 days and you are always paying a month ahead.

With this strategy, you will reduce your mortgage quickly, have an easier time budgeting your mortgage payments and you will never have to worry about a late payment.

A later post will provide a checklist for easy reference when you start your bi-weekly payment schedule.

Many mortgage companies offer bi-weekly payment plans which are designed to help you budget for your mortgage payment more conveniently and payoff your mortgage early. Any bi-weekly payment plan will help you pay your mortgage off sooner, however, very few bi-weekly payment plans are actually making bi-weekly payments.

What the lender actually does is collect a bi-weekly draft from you but the payment is still applied in a lump sum once a month to your mortgage. This does pay down your principal quicker because it essentially results in one extra payment being made directly to your principal balance each year. You are not, however, getting the benefit of having a payment applied to your mortgage on a bi-weekly basis, even though you have had it deducted from your bank account that way.

This sounds confusing and, in fact, it is. If you are not very savvy about payment schedules, you could read all the information provided by most lenders offering these programs and not realize many of these important facts. Most lenders who offer these programs charge an enrollment fee of $250 or more. In addition, they also charge a processing fee of sometimes as much as $9.50 to $11.50 per draft of your checking/savings account. This can add up to over $500 per year in fees alone. I don’t know about you but, given the choice, I’d rather write checks myself and use that extra $500 to pay down my principal balance.

Don’t get me wrong, these programs will enable you to pay off your mortgage more quickly, but for far less than $500 a year, you can create the same effect and pay the extra money you’re not spending on fees to your mortgage principal.

Unless the your mortgage lender is offering the bi-weekly payment plan for a one time set up fee (which is usually a result of banks charging them a fee to set up automatic draft payment), there is a better option which you can set up yourself.

Tomorrow’s post will tell how to set up bi-weekly payments yourself.

Let’s say that you have (1) contracted to purchase a home; (2) completed the loan application; and (3) provided all required documents to your loan officer.

What happens now, you ask?

Your loan will be submitted for underwriting. In short, underwriting is the lender’s review of all the information submitted compared to FannieMae and/or FreddieMac lending guidelines to determine if it within their risk ratios. (More on underwriting will be featured later.) Once the underwriting process has been completed, your loan officer should tell you the results. Here’s what you should look for in your loan officer’s remarks:

1. Make sure that your loan officer reviews your underwriting results with you in terms that you understand. If something confuses you, ask for further explanation.

2. The loan officer should tell you if the results of the underwriting will affect the terms that you outlined in the Good Faith Estimate (GFE), such as your interest rate.

3. Expect updates: if you are working with a conscientious loan officer, you will be kept abreast of your loan’s progress. The underwriting process can take 24-48 hours or several days to weeks, depending on the volume of loans the lender is processing at any given time.

4. Your loan officer should tell you immediately if the underwriter has asked for additional documentation even if it is something that seems out-of-the-ordinary or trivial. If necessary, your loan officer should guide you through providing the underwriter with whatever information s/he requests as quickly as possible.

No matter what type of loan you need or how much you need to borrow, your loan officer’s job is to make the process clear and easy for you. Your questions and concerns should be addressed and any issues that arise addressed immediately. By working with you, your realtor and closing agent, your loan officer should make the entire loan process seamless and stress-free.

For further information or definitions of terms, see our website: www.PremierMortgageSource.com

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Whether purchasing or refinancing, once your loan is approved, your loan officer should confirm your loan commitment from the lender and provide you with a closing date. If you are purchasing, the date set is the day the loan transaction will occur.

If you are refinancing, the closing date is the day you will sign all the new loan documents and your new loan will actually fund and record three days from the date you sign the documents. This means that if you are doing a cash-out refinance, you will not be given a check for the money you are cashing-out until the 3 days have passed and your new loan has been recorded. At any point during the 3 day period, if you choose, you can change your mind about the loan and withdraw without penalty.

No matter what type of loan you need or how much you need to borrow, your loan officer’s job is to make the process clear and easy for you. Your questions and concerns should be addressed and any issues that arise addressed immediately. By working with you, your realtor and closing agent, your loan officer should make the entire loan process seamless and stress-free.

For further information or definitions of terms, see our website www.PremierMortgageSource.com.

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Third, your loan officer should tell you what type of loan programs you qualify for and explain their differences so that you can make a proactive decision about the type of loan you want.

Do you want a fixed rate loan? Do you want a “no down payment” loan? Will you have to pay PMI (private mortgage insurance)? Can you use gift money? Is there a prepayment penalty? In providing this information, your loan officer should explain the meaning of each aspect of the loan as well as outlining the pros and cons of each program.

Once you have contracted to purchase a home, completed the loan application and provided all required documents to your loan officer, your loan will be submitted for underwriting. Once the underwriting process has been completed, your loan officer should tell you the results.

Make sure that your loan officer reviews your underwriting results and lets you know if it impacts the terms that you had outlined on your Good Faith Estimate. You should know once underwriting has been completed if you will have any adjustments to the terms outlined on your GFE. If there are, it may affect your interest rate or other terms of your loan.

It is your loan officer’s job to review your credit, income, debt and loan options well enough that your underwriting should not present any unexpected results. However, if something should arise, your loan officer should bring it to your attention immediately. If working with a conscientious loan officer, you will be kept abreast of your loan’s progress.

Even under the best of circumstances, underwriters can set unexpected conditions which could impact your loan differently than the loan officer initially outlined. Your loan officer should notify you immediately of any conditions set by the underwriter that are unexpected. Remember, the underwriter’s job is to find a reason to deny the loan. Don’t be alarmed if your loan officer tells you that the underwriter has asked for something that seems out-of-the-ordinary or trivial. The best thing to do, whenever possible, is to provide the underwriter with whatever information they request as quickly as possible.

Again, a good loan officer will guide you through this aspect of the loan process easily.

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Second, your loan officer, once you are pre-qualified for a mortgage within a specific dollar range, should provide you with a detailed Good Faith Estimate (GFE). The GFE is a federally mandated form.

It will give very specific information regarding your loan amount, proposed interest rate, term (years) of the loan, and principal and interest payment. It will give you general estimates of other loan fees. Lender fees will include amounts for processing, underwriting, wire transfer, flood certificate, etc.

The closing agent (usually a real estate attorney) will have fees for title insurance, deed of trust, courier and preparation of closing documents. The GFE will also indicate fees charged by state and local government, recording of documents at local courthouse, and taxes.

You should question any fees that are not explained or not listed here. Many first time home buyers don’t know that a survey is required only if requested by the lender.

Those refinancing don’t know that they can save almost 50% of the cost of their title insurance if they provide a copy of their current owner’s title policy to the closing agent. Make sure that your loan officer addresses these items with you as well.

Tomorrow we will cover the third thing your loan officer should tell you.

When applying for a mortgage to buy a house, whether it’s your first or fifth, there is certain information your loan officer should tell you. It doesn’t matter whether you are applying for your mortgage with your local bank or with a mortgage broker, the information you want is the same.

First, your loan officer will have to pull a credit report to accurately qualify you for a mortgage. If you are qualified without having your credit pulled by the loan officer, then your qualification is not necessarily going to mean that you would actually qualify for a loan. In such a situation, the qualification would only mean that your debt to income ratio falls within the lender’s guidelines.

Assuming that the loan officer has pulled a credit report, they should tell you what your credit scores are. Credit scores over 620 are considered acceptable and/or average credit. Credit scores over 720 imply that you have an excellent credit history. Your credit report will also indicate if you have had any late payments, have any accounts in collections or have any judgment outstanding. (For further information on correcting credit reports and addressing credit issues, see our website, www.premiermortgagesource.com)

A complete pre-qualification for a mortgage loan will include a review of your gross monthly income, your monthly debt (total of minimum payments on all accounts, not including rent or current mortgage payment or utilities), and your credit scores. Once completed, your loan officer should provide you with a pre-qualification letter for your real estate agent or for the seller of the home you wish to purchase. Pre-qualification should not be confused with pre-approval. To be pre-approved for a loan, your loan officer must submit a completed loan application and a credit report to a lender for underwriting. The underwriting will either be denied or approved pending certain conditions being met.

Loan commitment is given by the lender only after all conditions are met and the loan is ready to schedule for closing. It is very important to understand these distinctions as both realtors and many loan officers will often use the terms interchangeably despite their specific differences.

Tomorrow we’ll cover the 2nd thing your loan officer should be telling you.