The Mortgage Process: What You Need to Know

The Mortgage Process: What You Need to Know [INFOGRAPHIC] | MyKCM

Some Highlights:

  • Many buyers are purchasing a home with a down payment as little as 3%.
  • You may already qualify for a loan, even if you don’t have perfect credit.
  • Take advantage of the knowledge of your local professionals who are there to help you determine how much you can afford.
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More Than 50% of Home Buyers Are Surprised by Closing Costs

More Than Half of All Buyers Are Surprised by Closing Costs | MyKCM

According to a survey conducted by ClosingCorp, over half of all homebuyers are surprised by the closing costs required to obtain their mortgage.

After surveying 1,000 first-time and repeat homebuyers, the results revealed that 17% of homebuyers were surprised that closing costs were required at all, while another 35% were stunned by how much higher the fees were than expected.

“Homebuyers reported being most surprised by mortgage insurance, followed by bank fees and points, taxes, title insurance and appraisal fees.”

Bankrate.com gathered closing cost data from lenders in every state and Washington, D.C. in order to share the average costs in each state. The map below was created using the closing costs on a $200,000 mortgage with a 20% down payment.

More Than Half of All Buyers Are Surprised by Closing Costs | MyKCM

Keep in mind that if you are in the market for a home above this price range, your costs could be significantly greater. According to Freddie Mac,

“Closing costs are typically between 2 and 5% of your purchase price.”

Bottom Line

You need to speak with your lender and agent early and often to determine how much you’ll be responsible for at closing.   I have always wondered – Why do buyers wait till they are under contract to find out how much they need.  In many discussions I have found that most Realtors do not understand how closing costs work and also how much they really are.   With these two statements above it is no surprise why many buyers have challenges with the home buying process.

We have created a process called the Home Express Mortgage Plan that haelps our clients to know there numbers prior to contract thus helping them navigate the contract negotiation process and make the transition that much easier.

Unfortunatly it is not uncommon – Finding out that you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.

Over Half of All Buyers Are Surprised by Closing Costs

Over Half of All Buyers Are Surprised by Closing Costs | MyKCM

According to a recent survey conducted by ClosingCorp, over half of all homebuyers are surprised by the closing costs required to obtain their mortgage.

After surveying 1,000 first-time and repeat homebuyers, the results revealed that 17% of homebuyers were surprised that closing costs were required at all, while another 35% were stunned by how much higher the fees were than expected.

“Homebuyers reported being most surprised by mortgage insurance, followed by bank fees and points, taxes, title insurance and appraisal fees.”

Bankrate.com recently gathered closing cost data from lenders in every state and Washington, D.C. to be able to share the average costs in each state. The map below was created using the closing costs on a $200,000 mortgage with a 20% down payment.

Over Half of All Buyers Are Surprised by Closing Costs | MyKCM

Keep in mind that if you are in the market for a home above this price range. your costs could be significantly more. According to Freddie Mac,

“Closing costs are typically between 2 and 5% of your purchase price.”

Bottom Line

Speak with us and your agent early and often to determine how much you’ll be responsible for at closing. Finding out that you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.  We recommend that ou take advantage of our Home Express Mortgage Plan – so that before you take your time and spend you money in this process – you know what the costs are.  Having the right expectations upfront is such an advantage to making the right decision.

Do You Have Enough Saved for Closing Costs?

Have You Saved Enough for Closing Costs? | MyKCM

There are many potential home buyers, and even sellers, who believe that they need at least a 20% down payment in order to buy a home or move on to their next home. Time after time, we have dispelled this myth by showing that many loan programs allow you to put down as little as 3% (or 0% with a VA loan).

If you have saved up your down payment and are ready to start your home search, one other piece of the puzzle is to make sure that you have saved enough for your closing costs – not mention Prepaid items as well.

Freddie Mac defines closing costs as:

“Closing costs, also called settlement fees, will need to be paid when you obtain a mortgage. These are fees charged by people representing your purchase, including your lender, real estate agent, and other third parties involved in the transaction. Closing costs are typically between 2 and 5% of your purchase price.”

We’ve always heard from who were first-time home buyers that they wished that someone had let them know what closing costs would be. If you think about it, with a low down payment program, your closing costs could equal the amount that you saved for your down payment.

Here is a list of just some of the fees/costs that may be included in your closing costs, depending on where the home you wish to purchase is located:

  • Government recording costs
  • Appraisal fees
  • Credit report fees
  • Lender origination fees
  • Title services (insurance, search fees)
  • Tax service fees
  • Survey fees
  • Attorney fees
  • Underwriting fees

Is there any way to avoid paying closing costs?

Work with us and real estate agent to see if there are any ways to decrease or defer your closing costs. There are no-closing mortgages available, but they end up costing you more in the end with a higher interest rate.

Home buyers can also negotiate with the seller over who pays these fees. Sometimes the seller will agree to assume the buyer’s closing fees to get the deal finalized, which is known in the industry as ‘seller’s concession’

Bottom Line

Speak with us and your agent early and often to determine how much you’ll be responsible for at closing.   In my opinion the mistake is made making an offer and not knowing your numbers.  Ask us about our Home Express Mortgage Guarantee which will save you time and money in the home buying process.

Finding out you’ll need to come up with thousands of dollars right before closing is not a surprise anyone is ever looking forward to.

TMI about PMI

You Can Never Have TMI about PMI | MyKCM

When it comes to buying a home, whether it is your first time or your fifth, it is always important to know all the facts. With the large number of mortgage programs available that allow buyers to purchase a home with a down payment below 20%, you can never have Too Much Information (TMI) about Private Mortgage Insurance (PMI).

What is Private Mortgage Insurance (PMI)?

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

According to the National Association of Realtors, the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 6%, while repeat buyers put down 14% (no doubt aided by the sale of their home). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:

You Can Never Have TMI about PMI | MyKCM

 

The larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and to help you make the best decision for you and your family.

TWO WAYS TO MEASURE THE BREAK-EVEN ON REFINANCING

break even point graph highligted in dictionary

According to recently released estimates, over 8 million American homeowners could benefit from refinancing at today’s low interest rates.  Here are three questions to ask yourself in order to figure out if refinancing makes sense for you:

1 – Interest & Cost Benefit:  What would be my interest and cost savings if I refinance into a lower interest rate?

For example, assume you could save $50 in monthly interest expenses if you paid $2,500 in closing costs to refinance.  In this case, it would take you 50 months to break-even ($2,500 costs / $50 monthly savings = 50-month break-even).

When you calculate your refinancing costs, you should include all the closing costs on the new loan, but you should not include the pre-paid interest or pre-paid items that go into your new escrow account.  That’s because you’ll get a refund of whatever is in your existing escrow account after you pay off the current mortgage.  In some cases, the lender may allow you to pay less closing costs in exchange for a slighter higher interest rate.

When you calculate your interest and cost savings, be sure to include the mortgage insurance that you may be able to reduce or eliminate by refinancing.  For example, assume your home value has increased from the time you purchased the home.  The mortgage insurance may be less if the mortgage balance only represents 85% of your current home value vs. 95% of your current home value.

2 – Cash Flow Benefit: How would my overall cash flow situation change if I refinance?

Here are three examples of when it could make sense for you to refinance even if your new interest rate is not that different from your current interest rate:

  • Assume you took out a car loan or racked up some credit card balances that carry interest rates that may be higher than current mortgage rates. You may be able to benefit from a debt consolidation refinance.  In this case, be sure to compare your current blended interest rate scenario vs. the new refinance scenario.
  • Assume you recently completed some home improvements, or you’d like to make some home improvements in the near future. Trading in your current mortgage for a new one through a “cash-out refinance” may be the way to go.  If you go this route, the IRS gives you a 24-month look back period and a 12-month look forward period to gain the coveted “acquisition indebtedness” tax deductibility status.  For more details, please see my article titled, Three Things You Should Know if You’re Pulling Cash-Out for Home Improvement.
  • Assume you have an upcoming large expense where it makes more sense to use a low-interest-rate mortgage vs. paying cash or liquidating other investments. In this case, you could use the funds from a “cash-out refinance” in order to preserve your cash and/or other investment assets.

Please contact me for details on any of these ideas, or to evaluate your mortgage options.