How to Buy A home - Home Financing Questions - Part 2

Here are some recent questions that I received from people that are thinking about buying a home.

Hi, I am Jeff Chubb with the Chubb Realty Group and today I wanted to share with you some additional questions from prospective home buyers that I often here.

-        People often ask “What are the differences between a pre-approval and a pre-qualification.”

A pre-qualification is a quick conversation with your lender in talking about income, assets and the anticipated down payment. A buyer has not submitted any underlying paperwork to support this conversation and thereby a mortgage banker has not dug deep into the credit worthiness of a buyer.

A pre-approval is where a lender will verify the financial information needed and submit the loan to underwriting for a preliminary approval. A pre-approval takes a little more time and documentation, but offers a lot more certainty throughout the buying process.

Think of it this way, if you are looking to put an offer and it is a competitive offer situation, then the pre-qualification is not going to carry nearly the same weight as compared to the buyer who has a buyer that has actually been pre-approved. The pre-approved buyer will offer the home seller a little more certainty in what can be a very uncertain process. When you are a home seller and you are about to make a very serious decision, generally they are going to want to go in the direction of the most certainty.

-        Another great question we hear is “What type of closing costs should I expect” and “are there any hidden fees?”.

We roughly estimate that a buyer closing costs in Massachusetts will be 1.5% of the total purchase price. This assumes that the buyer is not paying down their rate of course. These closing costs consist of and are not limited to: Lender fees, Title fees which include title insurance and a title exam, recording fees, attorney fees and insurance.

The closing costs will also be affected based on what time of the month a buyer is closing on a property. If a buyer is looking to limit closing costs, then they will want to close at the end of the month. The earlier the closing in the month, then the more a buyer will have to pay in pre-paid interest which obviously increases their closing costs.

The great news is that you do not have to pay a separate lending fee or commission to your mortgage banker and you should not be worried about any “Hidden Fees”. The bank is required by law to provide you a Loan Estimate when you apply for a loan.

A Loan Estimate includes the estimated costs for the mortgage loan and will provide a borrower with basic information which will help the buyer compare offers, understand the real cost of the loan and ultimately make an informed decision about which loan to choose. The form also indicates if the loan has special features that you will want to be aware of, like penalties for paying off the loan early or increases to the mortgage loan balance even if payments are made on time.

Here is the great news, a lender must provide a buyer with a Loan Estimate within three business days of receiving a full loan application. You can be charged a credit report fee before receiving a Loan Estimate, but you can’t be charged any other fees until you get the Loan Estimate and indicate you want to proceed with the mortgage loan. By law, the lender also cannot charge more than 10% at closing above the costs listed on this loan estimate. Anything over that 10% variance, the lender must eat the costs. In other words, this ensures that a lender isn’t going to give you made up low numbers to deceive you in the beginning and surprise you when it is too late at the end.

-        Another question we hear is “Can the seller help pay my closing costs?”

Yes, a seller can help pay a buyer closing costs. But if a buyer is looking to have the seller help pay their closing costs, then this is really something that needs to be discussed before the offer is submitted. As asking a seller to assist in paying closing costs can otherwise change the makeup of a deal.

A seller can pay up to 3% of a buyer’s closing costs, HOWEVER that assistance can only go towards true closing costs. In other words, if a buyer’s closing costs are $4,000. Then the seller is not able to give a $5,000 closing cost credit. This is why it is so important to talk about closing costs up front as in that scenario if a buyer asked for $5,000 and only used $4,000, then that additional $1,000 would revert back to the seller.

-        We also hear “My lease is up next month; how long does it take to close on a house?”

The “standard” closing timeline in Massachusetts is 45 days. Obviously, closings can happen faster and take longer. Heck, I recently had a 6-month long closing! If a buyer is getting a mortgage then a 35-day close is really pushing it. I have seen lenders closing a day or two faster, but it needs to be a seamless process with the buyer getting the lender all the information as soon as they ask for it.

Generally, it is our recommendation to actually start the process of getting pre-approved and visiting houses at least 4 to 5 months before the necessary moving date.

At the Chubb Realty Group our philosophy is to ‘Make Moving Easier’. We understand that the mortgage process can be a confusing maze to navigate which is why we work with some of the best industry professionals. They will speak with you with no obligation and all conversations are held with the strictest confidentiality.

Give us a call at 617-480-2600 or shoot me an email at [email protected] with specific questions or if you would like me to make an introduction to a mortgage banker that can answer all of your questions.  It would be my pleasure.