Colorado Home Mortgage Loan

As your Colorado Home Mortgage provider it is important to me that you understand the Good Faith Estimate.  I have listed a detail explanation of the Goof Faith Estimate for you to review.

Good Faith Estimate

 

The Good Faith Estimate is a listed of fees associated with the loan being offered to you.  These fees are broken down into three major sections; Closing Costs, Prepaid Items, and Title fees.

 

A common issue associated with disclosing Good Faith Estimate costs verbally is that only the closing costs are referenced.  This will give the appearance that the costs are actually lower then they are. 

 

Prepaid items are a major part of the good faith estimate and need to be disclosed and understood.

 

First we will talk about the closing costs.  Closing costs are broken down by line items on the good faith estimate and are easily recognizable and understood.  The most common good faith estimate closing costs are: origination fee, points, credit report, processing fee, underwriting fee, and appraisal fee.  Some other fees not always understood is Tax service fee, and wire transfer fee. 

 

For those who do not know the difference between any of the fees I will quickly go through each.

 

Before I start it is important that I point out that many of the fees on the good faith estimate is a third party fee and I will highlight the differences between both shortly.  These fees will primarily be the same no matter where you decided to go for your mortgage needs.

 

The first fee is the loan origination fee which is the primary fee the broker charges for services rendered on your loan.  It is what we get paid.  The fee will range from .25% to 2.5% of the loan amount; however it is normally 1%.  Obviously it is the gross amount the broker receives and it is subject to additional splits being shared with the company that employees the broker.  Normally about 60% going to the broker themselves.

 

Loan Discount fee can be paid out in two different ways either to the broker or the lender depending on the rate being charged on the loan.  This fee will range between .25% to 2.5% of the loan amount.  The rate on the loan will have a cost or a premium depending on what rate you finally lock into to.  Please review Yield Spread Premium in order to calculate the premium your broker receives for the rate you are charged.  Loan discount fee should be used to pay the lender directly for the cost of the rate you received.  Typically if the rate is low enough a cost is associated to the rate that cost is paid directly to the lender in the form of Loan discount.  On rare occasions if a cost is not associated with the rate your broker has given you and a Loan Discount fee is charged then the fee becomes additional broker compensation.  The compensation will still be gross compensation but it is still compensation.  You can get this determination on the final Settlement statement know as a HUD which will tell you who is receiving the Loan Discount fee.  This should be negotiated and talked about between you and your broker if the charge is listed.

 

Next is the Appraisal fee which is the first of many third party fee that goes directly to the appraiser who offers a detailed report on the value of your property.  This fee ranges from $350 to $450 depending on the Appraiser used on the loan.

 

After the appraisal fee you will have a credit report fee which should not exceed  $50.  We do not charge that fee to our clients but it typically shows up on other broker’s good faith estimates.

 

The Lender’s Inspection Fee is a fee that lenders will charge in order to review an appraisal already done on the property.  It is a fee not normally seen on the good faith estimate so it rarely shows up if ever.  However if the lender requires an inspection to be done then the fee will typically be in the range of $100 - $250.

 

The mortgage broker fee is another fee paid to brokers for compensation on a mortgage loan.  If the fee is charged it could range from .25% to 2.0% of the loan amount.  Most brokers will use the mortgage broker fee as a secondary fee on loans that put a cap on loan origination such as Veteran home loans.  The fee may also be applied to higher risk loans that require more work, but should always be negotiated by you and the broker.  It is another fee tied to compensation to the broker originating your loan.

 

Tax Related Service Fee is another third party fee charged by the lender for handling tax related matters.  It is a small fee but it is paid directly to the lender who funds your loan proceeds.  This fee will typically range from $60- $90.

 

Processing Fee is charged by the branch processing your file.  This fee can be tricky as it is a source for income to the broker and the broker’s office.  The fee is intended to cover matters like the collection of your application, running credit, automated approvals, documentation preparations, ordering services and other administration activities done at the branch.  The fee helps off set costs for the processor and administration staffs.  This fee can also help in additional compensation to the office depending on the relationship to actual costs and income received from this fee.  The fee should range between $300 - $600 but beware of excess charges being applied in this area.  My administrative staff receives 100% of the proceeds tied to this fee.  Our brokers and managing partners receive absolutely no additional compensation from these charges listed on the good faith estimate.

 

The Underwriting Fee is a third party fee paid to the lender to approve your loan in full.  It also pays for the closing preparation done by the lender and the final issue of funds for your closing.  It is basically the fee the lender charges for your loan.  This fee will range between $450 - $1200 depending on the level of risk associated on the loan, and the lender underwriting your file.

 

The final Good Faith Estimate normally tied to closing costs will be the Wire Transfer Fee.  Simply put it is the fee to wire the loan funds from the lender to the title company.  It is a third party fee but it is small in nature.  Ranging from $50 - $90.

 

All of these fees will typically be included in the good faith estimate as closing costs.  Be cautious of any other fees that may apply these fees do not account for normal closing cost fees and are used as additional compensation to the broker.  These fees may include but are not limited to:

Administration fees,

Application fees,

Warehouse fees,

Amortization fees,

Affiliated consulting fees,

Endorsement fees,

Express mail fees,

And miscellaneous fees.

 

The next section of the good faith estimate will typically be referred to as the prepaid items tied to your loan.  Prepaid items are normally costs tied to items that must be paid in advance for the purpose of your loan.  These are also funds set up in an escrow account which will be fully explained under escrows located on the resource page.  Here on the good faith estimate we will simply go through the items as they appear.

 

Daily interest charged for per day interest on the loan.  This item will appear as a per day charge and will vary depending on what day of the month you close your loan.  The per day charge can seem a bit complicated but it does not have to be that way.  Simply put it is the number of days between the day you close until the last day of the month.  For example if you close on the 15^th and there are 30 days in that month you will be charged 15 days interest.  The reason for this is simple.  Your first mortgage statement does not come out until the first full month is completed.  On the 1^st day of the following month you pay the mortgage for the month you had the loan.  Mortgage payments will pay interest in the rear and that is what your mortgage payment will be the following month.  Best way to look at this is by example:  Lets say you close on the 10^th of April since there is not a full month behind you since acquiring the loan a payment will not be due on May 1^st.  The first full month under the new loan will actually be June 1^st which will cover May 1^st through May 31^st.  So if you move in on April 10^th and don’t make a payment until June 1^st you actually have the loan for about 51 days.  June 1^st covers 31 from May 1^st to May 31^st so what happens to the other 20 days.  That is what will show up on your line item.  These days will always be paid in advanced as part of your prepaid items. 

 

Mortgage Insurance Premium will be a premium charged by lenders which will be issued to a Mortgage Insurance company to help protect the mortgage in the event of default.  These premiums are normally tied to loans that carry a loan to value ratio above 80%, or FHA loans.  FHA loans will charge Mortgage insurance premiums ranging from 1.5%-1.75% of the loan amount.

 

Hazard Insurance Premium is only charged on purchases and will be an annual charge made by your Home Owners insurance provider and will be paid directly to them for your home owners insurance for one year.

 

VA Funding Fee just like Mortgage Insurance Premium will be used to off set the risk tied to these loan programs.  VA provides lenders with a guarantee on the loan proceeds and in order to do this VA will charge a fee to all borrowers depending on how often they have used their VA eligibility.  The VA funding fee will range from .5% found in refinances and 2.15% - 3.3% on Purchases depending on whether it is a 1^st time use of multiple use VA benefit.

 

The 2^nd component of prepaid Items will be your escrow balance which is an account set up by the lender to pay taxes and insurance in the future.  A New Escrow balance must be established on all transactions and will be collected here.

 

Hazard Insurance Premium reserves will be collected depending on when your insurance is due next.  Normally it will be about 4-6 months insurance premium set aside to pay next year’s insurance obligations.

 

Mortgage Ins. Premiums reserves very rare and will typically not show up on a good faith estimate is collected to off set yearly Mortgage Insurance Premiums.  I can’t remember the last time that was used, but if the program warrants it, it will be collected.

 

School Tax Reserves.  Like the Mortgage Insurance premium is rare and will only be collected if the school district requires it as a function of the yearly mortgage premiums to be collected.  It is set up for future tax requirement for schools.

 

Taxes and Assessment Reserves are required on most loans and pretty much compiles the 2^nd major component to a typical escrow account.  Like Hazard premiums depending on what part of the year you close will dictate the amount paid in your reserve account.  Taxes are paid on twice a year once at the in of April and again in July.  Lenders will project how much is needed to ensure payment is available on these due dates and will set aside the amount in your reserve account to pay the premiums as they come due.

 

Flood Insurance Reserve will also be rare in the state of Colorado, but other states do require it.  Flood insurance is used to cover premiums associated with Flood insurance and work in a similar manner that taxes and home owners insurance is collected for reserve requirements.  The flood insurance reserve will cover the flood insurance requirement for the home.

 

Finally the last section of the Good Faith Estimate is title fees.  Title fees are fees charged by the title company to close and services the needs to allocate funds for your loan.  These fees are broken down and disclosed to you on the good faith estimate.  What people don’t realize in this section is that the borrower has the right to negotiate who the title company will be.  Title fees are listed as follows:

 

Closing/Escrow Fee is the charge that title companies charge to sit down with you and deliver the closing documents to you.  Basically it is the compensation received for closing your loan documents.  In a sales contract an additional charge is charged for the real estate closing documents and will be explained later. This fee will rage from $175 to $350.

 

Doc Prep Fee is another compensation fee charged to the borrower and is typically tied to administrative tasks done by the title company the fee will range from $100 - $300.

 

Notary Fees will be an administration fee given to a notary typically working for the title company in the even documents require notary services.  This is rare and is often associated as a junk fee.  The fee should be no greater then $100

 

Attorney Fees normally not needed in the state of Colorado are fees associated for the services of an attorney for closing a real estate transaction.  Some states like New York require attorney’s to negotiate and handle any contract administration which is involved in every Real Estate Transaction there for are required to close these deals.  This is where an Attorney Fee will be charged.  These fees can be as high as $2000, but should not be seen on a Good Faith Estimate in the State of Colorado.

 

Title Insurance fee is mandatory by law and will be charged on every real estate loan.  The Title Insurance fee insures protection to the lender that they no other outstanding liens appear on the deed and that they will have 1^st or 2^nd position depending on what loan you have.  The fee on this is paid directly to the title company and a portion of this fee will be compensation to the title company for services rendered.  Because the fees for title are registered with the state it is set in stone, but make no mistake title companies do make money on title insurance.

 

Recording Fees are charges made by the county clerk’s office for recording the deed of trust and note.  It is a per page charge and will typically range from $125 - $195.

 

Finally the Real Estate closing fee which will be the exact charge for the closing fee and is additional compensation given to the title company for services rendered in closing the actual real estate transaction portion of a purchase. $175 - $350

 

The title company may have some other charges that show up on the settlement statement but the costs of those additional charges are small.  Examples of these but limited to.  A variety of form fees that may be required by the lender, Improvement Land Certificate, Courier Fee, and Stamps fees.

 

These are the actual line items that will accumulate and be calculated as your total costs for the loan.  Closing costs and prepaid items plus your payoffs for your current loans of the purchase price will be your total cost for financing. 

 

 

What is Credit?

 

This is the fist of three major qualifying components for a home loan: Credit, Income/employment/, Previous residency

 

Lender will review your credit report to determine credit worthiness.

 

Three major reporting agencies are: Experian, Transunion, and Equifax.  We use Credit Plus to order credit there are many vendors, but primarily the scores will be similar, but not always exactly the same. 

 

What’s on the credit report: Identifying information, Public information such as judgments or BK’s,  Account history for every account you have ever opened. 

 

Credit History will determine a FICO score: The top 5 things impacting credit scores on a credit report are:   Amounts owed on accounts are too high, Delinquency on Accounts, Too Few bank revolving accounts, too many accounts with balances,

 

Things that can help boost credit scores immediately:  Opt Out Prescreen, Authorized user on good accounts, pay down total balance on accounts to 35% of the high credit limit.  Pay off or eliminate debt on American Express cards they do not report a high limit only the current balance, Pay your accounts on time

 

 

Pre-Qualification Process

 

Shopping for the right loan will be as important as shopping for the right home; you should find out what you qualify for 1^st before actually going out and starting the buying process. 

 

Preapproval commitment from the lender can be achieved if in fact you go through the loan process first.  Sellers are more likely to accept offers with a preapproval letter then without.

 

It is important that you ask yourself a few questions before obtaining a Loan, these questions will help you and your loan officer determine the right program for you: 

 

How long do I plan to stay in this home?

Do I anticipate any income or debt changes in the near future?

How quickly do I want to pay my mortgage off or do you want to pay your mortgage off?

If I do decided to move out of this property do I plan on keeping it as an investment property?

 

Finally do you homework and be prepared to ask as many questions as you need to feel comfortable with the choice you are making.

 

Mortgage Process

 

There are several steps that need to be followed in the mortgage process but it can be easy.  We understand that this is a major step for you and your family and we take it very serious.  We will put you at ease

 

The fist step is to have a mortgage application appointment where the application is completed so that your loan officer can begin working on what programs best fit your situation

 

Typically a loan program is recommended at applications and you will be asked to sign the documentation at that time.  If you need more time we will accomidate your requests, however by signing the documentation you are not in any way tied to the paperwork being submitted to our lenders, nor are you required to use us for the transaction.  Signatures on the disclosures and applications allows us to obtain information from a variety of sources in order to provide you with the best loan options available in the market today.  We work for you and we do not forget that in the process, because you can fire us at will.

 

With the application we will collect a variety of standard qualify documents to prove the information on the application is accurate and true; W-2’s, tax returns, bank statements, current pay stubs, home owners insurance, asset information. Public information reports like bk or proof of judgment pay offs, divorce documentation, and other sources of income information

 

Once the signed documentation takes place and all supporting documentation is in place, we will shop the loan with all 92 investors currently signed up with us to see who is offering the best programs.  We are in a sense a travel agent for banks and these banks work hard to obtain our business by providing large incentives to us which we pass on to you in order to be competitive in this market.

 

The next step is to secure the loan program with a rate.  The rate will be determined by the market and will be explained in more depth in the rate section of the web site.  We will make float and lock recommendations daily, but ultimately you get to decide when to lock your rate.  We will do everything in our power to ensure you lock at the right time that maximizes your rate benefits. 

 

The entire loan packages is faxed or shipped out to the loan processing center located at the selected banking institution.  An underwriter is assigned where they review the file to ensure all supporting documentation is verified and accurate.  Their job is to prepare the file so that it can be portfolio’ed and sold in the secondary market.  Typically they will issue an approval with conditions and send it back to the loan officer or processor at the branch.  We will then contact you to gather the remaining components to complete your loan application in full.

 

The loan application is then again reviewed by the underwriter and hopefully all required documentation is in place, if not a new approval with conditions will be issued.  If the loan has all the appropriate information a Loan Commitment is generated and the loan application is sent to a closing department.

 

The closing department will be responsible for issuing the wire transfer that will ultimately be wired to the title company of your choice. 

 

Finally you will be given a closing date and closing time where you will be signing all of the final disclosures and application for loan approval.  Once the signing takes place the title company will issue all funds to the appropriate entities and your loan transaction will be complete.

 

Appraisal

 

An appraisal is done by a unbiased third party to assess value in the property.  The lender uses the appraisal in determining the maximum loan amounts offered to you.

 

The appraisal fee is typically paid to the appraiser at the time the appraisal is done and will normally require you to make this payment upfront.

 

The appraiser will view the home and take measurements to calculate size and features of the home.  They will also take pictures to show what condition the home is in.

 

Once the measurements are completed and all features analyzed the appraiser will then pull comparable sales normally within the last 90 days to start assessing the value of the home. 

 

These comparable homes are analyzed to determine like models and features that best relate to the subject property.  Once 3 or 4 comparable homes are determined the price for which these home sold for will be the starting point when assessing value to the subject property.

 

These comparable homes are broken down by all the features and amenities offered by each and simple reduction or additions are made to the subject property based on the differences found in each of these homes.  These differences will ultimately be calculated to create an even value for all the homes being compared.

 

A final value is determined and a full appraisal report is generated for the lender. A copy of this report will also be given to you at the time of closing or upon request.

 

It is important to remember an appraiser differs from a home inspector and will not inspect the house the same way.  A home inspection is highly recommended before purchasing a home.   

 

 

 

Title Insurance

 

Required by law and will vary in cost depending on which title company you use.

 

A new policy will be required anytime a new deed is filed which will be done on all loan transaction.

 

This will protect the lender and the home owner from any unresolved title issues that appear after the closing from circumstances that arose before closing.

 

For example:  Lets say you bought a home and the reason for buying that home was the beautiful landscaping throughout the property.  This landscaping could have been done recently on credit with th landscaping company.  If for some reason the previous owners default the likelihood that a lein be placed on your home is high.  The title Insurance would protect you in this situation

The week’s headline economic report showed that inflation rose far more than expected in July, yet mortgage rates barely reacted and ended the week essentially unchanged. The July Consumer Price Index (CPI), the most widely watched inflation indicator, rose at the fastest annual rate since 1991. The core rate, which excludes the volatile food and energy components, rose at a 2.5% annual rate. The Fed’s perceived comfort level for core inflation is between 1.5% and 2.0%.

Mortgage rates usually move higher after an unexpected increase in inflation. This time they did not. Investors have started to expect that inflation levels will diminish later in the year and point to a couple of factors. First, slower economic growth in major global markets will reduce demand for goods and energy. In addition, a stronger US dollar will lower the cost of imported goods.

Even the Fed’s Stern, noted for his vigilant anti-inflation stance, stated that he expects inflation to come d own after the third quarter. To summarize, economic weakness at home and abroad, a stronger dollar, and a decline in oil prices offer hope that future inflation levels will be lower.

The Economic Calendar will be very light next week. The Producer Price Index (PPI) will come out on Tuesday. PPI focuses on the increase in prices of “intermediate” goods used by companies to produce finished products. Housing Starts will also be released on Tuesday. Leading Indicators and the Philadelphia Fed index will come out on Thursday