Mortgage and Closing An Overview

1
Mortgage and Closing - An Overview
Created by New Mexico State University
Extension Adapted by University of Idaho Extension
2
(No Transcript)
3
The big picture!Steps to Financial Freedom

• 1 - Manage Spending
• -Dollar Decisions
• -Couples and Money
• 2 - Prepare for Emergencies
• -Dollar Decisions
• -Making Insurance Work
• -Guarding Against ID Theft
• -Couples and Money
• 3 - Become Debt Free
• -Credit Cents
• -Big-Ticket Bargains
• -Couples and Money
• 4 - Prepare for Retirement
• -Investing for Retirement
• -Legally Secure your Financial Future
• -Long Term Care Workshop

• 5 - Teach Kids About Money
• -4H projects (for kids)
• -Welcome to the Real World (for kids)
• -Children and Money (for adults)
• -High School Program (for teachers)
• 6 - Pay Off Your Home
• -Home of My Own
• 7 - Live Free of Financial Worry!
• -Long Term Care Workshop
• -Legally Secure your Financial Future
• -Estate Planning
• -Charitable Giving
•  

4
Home of My Own Program Coverage

• 1) Managing Money
• 2) Renting
• 3) Deciding to Buy a Home
• 4) The Home-Buying Process
• 5) Maintaining the Home
• 6) Being a Responsible Homeowner
•  

5
Home Buying Process

• -Locating a House
• -Sales contract
• -Home Inspections
• -The Mortgage Process
• -Insurance
• -Warranties
• -Closing
• -Conclusion

Todays class
6
Financial Institutions

• Where do you start when looking for a financial
  institution?
• Current bank
• Better Business Bureau
• Friends
• Neighbors
• Family members
• Recent home buyers

7
Questions to Ask

• Questions to Ask
• Did your loan close on time?
• Did your loan officer seem knowledgeable?
• How long did it take to have your questions
  answered?
• Did you ever feel rushed?
• Would you do business with them again?

8
Researching an Institution

• How do I research a financial institution?
• Better Business Bureau
• Consumer Reports
• J.D. Power and Associates
• Idaho Department of Finance

9
For Profit Financial Institutions

• Commercial Banks
• Companies that cater to customers with
  established credit histories.
• Mortgage Brokers
• Companies that represent many mortgage lenders.
• Online Mortgage Companies
• Companies that offer services similar to those of
  local providers, but require careful research.

10
Not For Profit Financial Institutions

• Credit Unions
• Lend to members.
• Non-profit Housing Organizations
• Help people with all income levels.
• Rural Development (USDA)
• Offers special loan programs for purchasing in a
  rural area.
• Housing Authorities (HA)
• Offer local housing ownership programs if you
  qualify.
• Habitat for Humanity International
• Offers self-help housing and seeks to eliminate
  sub-standard housing and homelessness.

11
Financial Institutions

• They vary by
• Flexibility
• Interest Rates
• Fees
• Credit requirements
• Down payment requirements
• Income levels
• Reputation of lender

12
Decisions When Shopping For A Mortgage

• Financial Institutions
• Loan Options

13
Mortgages

• The house becomes the security for the loan until
  you pay off the mortgage, and then you retain
  full ownership of the house.
• If you fail to make payments, the lender has a
  legal right to take possession of the house.
• Loan is usually repaid in monthly installments
  over a set period of time from 15 to 30 years.

14
Mortgages

• What types of mortgages are available?
• Fixed-Rate Mortgage
• Adjustable-Rate Mortgage
• Balloon Mortgage (Interest only)

15
Fixed-Rate Mortgages

• Most common type of loan
• Interest rate is fixed for the term of the loan.
• Taxes and insurance rates can fluctuate.
• Usually 15- to 30-year terms.
• 30-year term has lower monthly payments, but
  usually has higher interest rates.

16
Fixed-Rate Mortgages

• Difference 70,746

17
Fixed-Rate Mortgages

• Minimize Interest Paid
• Make more than the minimum monthly payment.
• Make payments as if it were a 15-year term loan.
• Make biweekly payments.
• This will save you 5 years and 25,000!

18
Adjustable-Rate Mortgage

• Interest can increase or decrease during the term
  of the loan.
• Interest rate is adjusted on the loans
  anniversary date.
• Monthly payment increases and decreases with the
  change of the interest rates.
• Loan has periodic and lifetime interest caps.

19
Balloon Mortgage

• Small payments during the first few years (5-10
  years).
• At the end of the determined years, borrower must
  pay the outstanding balance with a lump sum
  payment or refinance the loan.

20
Special Loan Programs

• Federal Housing Administration (FHA)
• Veterans Administration (VA)
• U.S. Department of Agriculture (USDA)
• HUD Office of Public and Indian Housing (PIH)
• IdaMortgage (IHFA)

21
Loan Options

• What is the best option for me?
• Research YOUR options.
• Do NOT allow a lender to put you in the wrong
  loan program.
• Do NOT risk losing your home due to your failure
  to research the options.

22
Choosing A Loan

• By law, ALL fees must be disclosed on the Good
  Faith Estimate.
• Analyze and compare line by line each itemized
  fee on the Good Faith Estimate Forms.
• Compare the Truth in Lending Disclosure of each
  loan option.
• Select the institution with the best loan option
  for you.

23
Escrow Account

• Some lenders require consumers pay property taxes
  and insurance each month into this account.
• At the end of the year, the bank pays the taxes
  and insurance on the property.

24
Loan Application Process

• You may receive additional papers to sign.
• If you do not understand these, ask questions.
• The loan officer helps you through the entire
  loan process.
• Complete requested paper work as quickly as
  possible.

25
Approval or Rejection

• Loan officer gathers all needed information.
• Officer submits application to the underwriting
  department.
• Department weighs strengths and risks of loan.
• Loan is approved or rejected.

26
If the Loan is Rejected

• Reasons will be explained.
• Do NOT become discouraged!
• Correct the items in question.

27
Johns Scenario

• Difference 88,200

28
Preparing for Closing

• Know the Time, Date and Location.
• May close at a title company
• May close in-house
• Be cautious!
• Within 48 hours of closing you will receive a
  copy of all loan documents.
• Review all fees, costs and terms.
• Schedule a final walk through.
• Have your down payment ready.

29
HUD-1 Document

• Itemized statement of services provided and fees
  charged.
• Review this document in detail before closing.
• Do not allow lenders to pressure you to sign
  anything if you have not had time to review the
  documents

30
HUD-1 Document Not Available

• Contact your Loan Officer.
• Contact the Title Company.
• Contact your Real Estate Agent.

31
Title Company

• Neutral party
• Common place to close a loan
• Makes sure the title is free of liens
• Can explain documents in detail, if needed

32
Closing Documents

• HUD 1
• Itemized statement of services provided and the
  fees charged to the buyer and/or seller for the
  transaction
• Truth-in-Lending
• Discloses the annual interest rate of the loan

33
Closing Documents

• Note
• Discloses information such as the payment due
  date, date of first payment, and the specifics of
  how to make your mortgage payment.
• Mortgage
• Document that is used to secure the property and
  will reflect the full legal names of the buyers,
  how they will be taking ownership of the
  property, as well as the name of the financial
  institution that is financing the transaction.

34
Closing Documents

• 1st Payment Letter
• Tells the customer where and when his/her
  payments will need to be mailed.
• Initial Escrow Letter
• Lets the customer know the specific amount that
  will be going into the escrow account and what
  will be paid out on an annual basis.
• NEW HOUSE KEYS!!

35

• THANK YOU!
• Please fill out evaluation.