New Forms Can Help You Save on Closing Costs

In October, new forms designed by the Consumer Finance Protection Bureau to help borrowers better understand their closing costs went into effect. These are designed to make it easier for you to save by providing binding estimates far enough in advance of closing that you can shop for services yourself.

Officially called Loan Estimate and Closing Disclosure forms, but also known as “TRID” (for TILA-RESPA Integrated Disclosure), the new forms combine elements of two laws, Truth-in-Lending and the Real Estate Settlement Procedures Act. They eliminated duplicate paperwork and replaced it with just two forms on mortgage and closing costs—one that lenders must send borrowers within three days of applying for a mortgage and a second that is due three days before the closing data.


Estimate of all your closing costs

The first form details the kind of loan you’re taking out, including rate, term, monthly payment, fixed or fixed or adjustable rate. It will state whether there’s a prepayment or late payment penalty, whether the rate can be locked, whether you are paying points, and whether you’ll need to take out mortgage insurance. It will include taxes and other hard costs that will not vary.

The Loan Estimate also will include estimates for two kinds of closing services provided by third party vendors—those the lender choses, like the appraiser, and those you select, like title insurance and settlement services. These estimates must be accurate within 10 percent of the final cost, or the lender must make up the difference.

If you think the loan terms and closing costs are too high, this is your chance to shop around. Apply to a few other lenders to see how they compare. Some charge lower rates by making up the different in higher fees. Again, be sure you understand exactly what the estimates say. If rates, terms, payments or, loan types differ significantly, make sure you know why.

How to save: the basics

Once you have chosen a lender, focus your attention on the third party services that you can hire. You can shop for any of the services listed on section C of page 2 of your Loan Estimate form. Even though you will not be liable for paying more than ten percent of the estimates provided by your lender, your chosen lender may or may not have done a good job of finding a cost effective provider.

Along with the Loan Estimate, the lender should provide you with a list of approved providers for each of these services. You can choose one of the providers on the list. You can also look for your own providers, but check with your lender about any not on the list. There may be a reason your lender doesn’t recommend them.

For most borrowers, title insurance and settlement service are the two categories the greatest opportunities to shop and save.

Saving on title insurance

Lenders require you to take out title insurance to protect their interests. When shopping for title insurance, you should decide in advance whether you want coverage for yourself as well (see Do You Really Need Owners’ Title Insurance?). If you’re refinancing and bought ownership coverage when you first bought your home, it will still be intact and you don’t need to worry about buying ownership coverage again.

Title insurance is highly regulated at the state level and your opportunities to save will vary greatly depending upon where you live. In some states, you will find that insurers’ costs vary little one from another. In other states, you might be able to save by choosing a competitively priced product or a from an online title company.

In addition to title, settlement services include preparing all documents, signing, and post-closing review of the loan package. Often the same company will provide title and settlement services in the same package.

Choose your closing service providers and notify your lender so that the third party providers you choose can be included in his final calculation of all closing costs.

source:  totalmortgage.com

A Homebuyer’s Guide to Escrow

Once a seller accepts your offer, you enter the home stretch of your journey toward home ownership. At this point, though, there’s still some work to be done before you can collect the keys. During a period known as escrow, an independent agent handles most of the details. This process ensures both you and the seller perform the way you agreed you would.


Of course, that’s not the end of escrow for many buyers. When you take out a mortgage loan, your bank may insist that you deposit your property tax and insurance payments into a special escrow account established for that purpose.

Escrow for Home Buyers

 

Escrow is a legal term that describes a trust arrangement between two parties. It is the act of depositing something of value, usually cash or documents, with a neutral third party who only delivers the deposited items when certain conditions are met.

If you’re in escrow for a home purchase, an escrow agent (usually the title company conducting the closing) will gather and hold the seller’s deed, your down payment and the mortgage money your receive from the bank. They will then perform various tasks required by the sale and purchase agreement, such as obtaining approval to the home inspection report and taking out a title insurance policy.

When the contract contingencies are met, the escrow agent will pay the closing money to the seller and record the deed and loan documents in the appropriate county office, thus transferring the property to the buyer. At this point, escrow is said to be closed.

Escrow for Mortgages

 

Mortgage lenders require that you not only make your mortgage repayment but also that you insure your home and pay your property taxes on time. These payments commonly go by the acronym “PITI”:

• Mortgage Principal
• Mortgage Interest
• Property Taxes
• Homeowners Insurance

To safeguard their investment, many lenders collect your PITI payments prorated by month, together with a two-month cushion to guard against tax increases. The money is deposited in escrow and used to pay your bills when they arise.

Under the Real Estate Settlement Procedures Act, lenders must send you an annual statement showing the amount held in your escrow account and projected payments for the coming year. If your account shows deficiencies, your lender may raise your monthly payment. Excesses of $50 or more must be returned to you within 30 days of the annual statement.

Why Use Escrow?

 

Escrow takes the stress out of home ownership. During the home purchase process, escrow ensures that the property and its title are “clean” before the seller cashes any checks. After closing, mortgage escrow ensures that your bills are paid on time and your property is properly insured against hazards — providing invaluable peace of mind for home buyers.

source: totalmortgage.com

5 Things Every Renter Should Know Before Buying

Buying a home can be financially rewarding, but it also has its challenges. Many renters can’t wait for the day when they’re able to get the keys to their own house. Ownership can provide a sense of stability, giving you full control to decorate and remodel as you like. But before buying, it’s important to know exactly what you’re getting into. Some people start the homebuying process with rose-colored glasses, or they feel the experience will be far better than renting—and sometimes, it is. At the same time, you need to be realistic and understand that buying might be more expensive and time-consuming than renting.

1. Profits aren’t guaranteed

Some people buy a home because they’re tired of wasting money on rent. Rather than put money in a landlord’s hand each month, they purchase a home to build their own net worth. Unfortunately, there’s no guarantee that buying a home will be financially beneficial.

If you purchase at the right time, your property may appreciate a little each year, which increases your equity, and you can earn a profit when you’re ready to sell. But sometimes, home prices go backwards. Rather than appreciate, property values depreciate. In a bad market, you could end up owing more than you paid for the house. And if you sell before home prices recover, you can lose money and pay out-of-pocket to sell the property.

2. Maintaining a yard takes time and money

If you lived in an apartment before buying a house, your landlord’s maintenance department likely handled the landscaping. As a homeowner, you’re responsible for your exterior, which involves mowing your lawn, pulling weeds, seeding, and fertilizing. Maybe you always dreamed of having a beautifully landscaped yard, but it takes money to maintain an outdoor masterpiece. You’ll also sacrifice your free time. According to the Bureau of Labor Statistics, the average American spends about 1 1/2 hours a week maintaining their lawns and gardens — but as a newbie, it might take you longer.

3. You might pay more for utilities

If you’re moving from an apartment to a single-family home, anticipate an increase in monthly utilities. The amount you pay for electricity depends largely on the size of the property. And if your apartment was smaller than your new home, you can realistically pay an extra $20-$30 every month. You’ll also pay more for utilities if your new home has natural gas, whereas your apartment was electric. Plus, homeownership means paying your own water and sanitation bills.

4. Your mortgage may slightly increase from year to year

Some people purchase a home because they’re tired of yearly rent increases. However, just because you buy a home with a fixed-rate mortgage doesn’t mean your mortgage payment will never change. Your property taxes can increase, which can increase the monthly payment a little each year, and if you file a claim with your homeowner’s insurance, your agency may raise your rate. Since both of these expenses are included in your mortgage payment, any increase or decrease affects your monthly payment.

5. Homeownership can slow your savings efforts

Saving money might be a priority, just know that buying a house can slow your efforts. Ownership can be financially beneficial in the long run, but in the beginning, you’ll drain your savings account buying the property, plus there’s ongoing repairs and maintenance which can cut into your disposable income.

If you’re ready to own your own place, buying can be rewarding and satisfying, but there are things you should know before you even think about starting the process. If you know what you’re getting into, you won’t have unrealistic expectations or be caught off guard.

source: totalmortgage.com

Home buying tips for people over 40

LOS ANGELES - It's often the most daunting and emotionally taxing item on one's financial to-do list: Buying a home.

Most people wade into homeownership for the first time in their 20s and early 30s, when they still have the bulk of their working years ahead of them and a long runway to build equity — a key asset for eventually moving up to a bigger home.

But what if you've reached midlife and still envision buying a home one day? Tackling that first home purchase after 40 can be easier in some ways than when you're just staring out in your career, but it also brings its own set of financial factors.


"It's important to consider the financial work you have left," says Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards based in Washington D.C. "The financial hurdles you still have over the rest of your life and how homeownership and debt in particular are going to impact that."

A National Association of Realtors survey of people who bought a home between July 2011 and June 2012 showed that nearly 80 percent of first-time homebuyers were 32 years-old or younger.

In the next age bracket, those age 33-47, 36 percent were first-time buyers; between the ages of 48 to 57, only 19 percent were first-time buyers. The rates of first-time homeownership generally declined as buyers got older, according to the survey, which featured 8,500 respondents.

Even so, the last decade's economic downturn and housing crash has forced many to put off that first home purchase.

Here are some things to consider if you're over 40 and eyeing homeownership:

LENDING RULES DON'T CHANGE FOR OLDER BUYERS

Good news: Being closer to retirement age than someone in their 20s and 30s can't legally be held against you by a lender when they consider you for a home loan, regardless of the loan period.

"So if somebody was to walk in today, and they're 114 years old, and they ask for a 30-year mortgage and qualify for it, we have to give it to them," says Tom Jarboe, regional manager at lender Primary Residential Mortgage Inc.

The decision on whether one qualifies for a loan hinges on the borrower's income, assets, credit history and other factors.

Banks generally look back two years to establish a borrower's income history and also look to evaluate the likelihood that the borrower will continue to make the same level of income for at least another three years.

If you're in your late 50s or early 60s and disclose that you're planning to retire within three years, a lender will evaluate your projected earnings from Social Security, retirement accounts, dividends on investments and other sources.

CONSIDER BENEFITS OF PAYING OFF LOAN

Most banks operate under the assumption that even a 30-year fixed mortgage will be swapped out for another loan within eight years, if not sooner. That's because many homebuyers often end up refinancing, or moving for work or due to family considerations.

But paying off a home and owning it free and clear by the time one retires is a smart play, particularly as the cost of housing is a significant expense for a person relying on a fixed income.

That can be tougher for someone who puts off that first home purchase two decades into their prime working years, assuming they haven't saved up money to make a hefty down payment — think at least 30 percent.

But it's doable.

Blayney recommends that even older borrowers who take on a 30-year mortgage take steps to pay off the loan or lower the monthly payment significantly by the time they retire.

That could mean making extra payments during the early years of the loan, or putting up more than the minimum down payment so the borrower is financing a smaller amount. A 15-year mortgage, which typically translates into lower interest, but higher monthly payments, is another route to a quicker loan payoff.

LOOK INTO FIRST-TIME BUYER ASSISTANCE

One of the biggest obstacles to homeownership is coming up with a down payment to qualify for a loan.

Federal and state housing agencies offer assistance for first-time homebuyers, including in many cases former homeowners who haven't owned a home for at least three years. You can find a list of some programs by state at www.hud.gov .

Remember though, while some loan programs allow homebuyers to make a down payment of as little as 3.5 percent of the purchase price, experts say you'll need to save enough for at least a 20 percent down payment in order to get the lowest interest rate and avoid having to pay private mortgage insurance, or PMI.

And they can come with hefty fees and restrictions.

ASK YOURSELF IF THIS IS THE RIGHT TIME TO BUY?

You may want to own a home, but are you financially ready to take on the financial commitment that comes with a home loan?

Experts recommend borrowers consider the implications of buying a home in their later years, as well as taking on a large loan

"This isn't the situation where if you happen to time your purchase incorrectly when you're 25 and you buy at the top of the market, you still have most of your life left to recover financially," says Rick Sharga, executive vice president at home auction site Auction.com.

CONSULT WITH A FINANCIAL PLANNER

Buying a home in midlife or beyond has direct implications on retirement.

Homeownership can bring stability to one's monthly housing costs, versus rental housing, as well as tax benefits, but it also carries with it a trove of costs, including property taxes, insurance and maintenance.

A good way to evaluate all the ways buying a home, whether in cash or through financing, will affect one's retirement finances is to enlist a financial planner to go over one's retirement goals.

"You have to sharpen your pencil, sit down and do all the math," Blayney says. "There's no one answer."

source: newsday.com