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Most purchase loan transactions are completed within 60 days of application. However, this depends on several factors, such as how long it takes for us to receive a fully signed (by buyer and seller) contract of sale and how quickly you provide us with requested documentation. For refinance transactions, the average time from application to closing is just under 45 days. Please keep in mind that every transaction is different and some loans may close in less time than what is stated here, while others may take longer.
Following the steps below will make buying your home a smooth process from start to finish. Some common questions that are often asked are grouped with each related step in the process. Click the step in the process to view those questions.
1. Determine which type of mortgage is right for you by calling us or speaking with one of our Mortgage Loan Officers.
- Are there any special requirements for condominiums?
- Does HVFCU provide financing for manufactured homes?
- What is the maximum percentage of my home’s value that I can borrow?
- Is comparing APRs the best way to decide which lender has the lowest rates and fees?
- Should I pay discount points in exchange for a lower interest rate?
- How much money will I need?
2. Get a pre-approval from HVFCU to see how much home you can afford. To submit your pre-approval, call us, stop into any branch, or apply online with one of our mortgage loan officers.
Your past credit history, job history, household income, as well as the property you propose to finance, all influence how much you can borrow.
- Can I apply for a loan before I find a property to purchase?
- Can I really borrow funds to use towards my down payment?
- I’m self-employed. How will you verify my income?
- Will my overtime, commission, or bonus income be considered when evaluating my application?
- I am retired and my income is from pension or social security. What will I need to provide?
- If I have income that’s not reported on my tax return, can it be considered?
- How will rental income be verified?
- I have income from dividends and/or interest. What documents will I need to provide?
- Do I have to provide information about my child support, alimony or separate maintenance income?
- Will my second job income be considered?
- I’ve had a few employers in the last few years. Will that affect my ability to get a new mortgage?
- I was in school before obtaining my current job. How do I complete the application?
- I’m getting a gift from someone else. Is this an acceptable source of my down payment?
- I am selling my current home to purchase this home. What type of documentation will be required?
- I am relocating because I have accepted a new job that I haven’t started yet. How should I complete the application?
- I’ve co-signed a loan for another person. Should I include that debt here?
4. Shop for a home.
5. Submit binder/purchase offer to seller.
HVFCU does not require a home inspection, but it is generally good practice to have one when buying a home.
7. Submit mortgage application and any additional documentation to HVFCU. You may lock your rate in at this time or at any point prior to three days before your loan closing.
9. Receipt of Conditional Mortgage Commitment from HVFCU (For conventional SONYMA loans only.)
- What is an appraisal and who completes it?
- What types of things will an underwriter look for when they review the appraisal?
- Will I get a copy of the appraisal?
- What if I am not satisfied with the value the appraiser has assigned to my home or the home I am purchasing?
- I’m purchasing a home, do I need a home inspection and an appraisal?
- How long does it take for the property appraisal to be completed?
- If my property’s appraised value is more than the purchase price can I use the difference towards my down payment?
13. Applicant submits remaining items outlined in the Conditional Mortgage Commitment to HVFCU.
14. Applicant’s attorney forwards copy of the title report to HVFCU attorney.
15. HVFCU attorney reviews title.
16. Once title is acceptable, a closing date is established between attorneys.
A loan estimate, which approximates your closing costs, is issued to you after HVFCU receives your application. This estimate informs you of what fees to expect at closing. You will need to have funds available in your account to cover all closing costs. The closing can be held at our attorney’s office or at the HVFCU branch nearest you, whichever is more convenient.
- What happens at the loan closing?
- Will I need to have an attorney represent me at closing?
- Can I get advanced copies of the documents I will be signing at closing?
- Who will be at the closing?
- I won’t be able to attend the closing. What other options are there?
- Can I make my monthly payments with an automated debit from my checking account?
- If I apply, where will the closing take place?
- Tell me more about closing fees and how they are determined.
- What are HVFCU’s closing costs?
18. Enjoy your new home!
Are there any special requirements for condominiums?
Since the value and marketability of condominium properties is dependent on items that don’t apply to single-family homes, there are some additional steps that must be taken to determine if condominiums meet our guidelines.
One of the most important factors is determining if the project that the condominium is complete. In many cases, it will be necessary for the project, or at least the phase that your unit is located in, to be complete before we can provide financing. The main reason for this is, until the project is complete, we can’t be certain that the remaining units will be of the same quality as the existing units. This could affect the marketability of your home.
In addition, we’ll consider the ratio of non-owner occupied units to owner-occupied units. This could also affect future marketability since many people would prefer to live in a project that is occupied by owners rather than renters.
This may affect the ability to lock in your rate until this information is verified. We’ll also carefully review the appraisal to insure that it includes comparable sales of properties within the project, as well as some from outside the project. Our experience has found that using comparable sales from both the same project as well as other projects gives us a better idea of the condominium project’s marketability.
Depending on the percentage of the property’s value you’d like to finance, other items may also need to be reviewed.
Does HVFCU provide financing for manufactured homes?
We define manufactured housing as housing units that are factory built with a steel undercarriage that remains as a structural component and limits the structure to a single story. These types of manufactured homes are sometimes known as mobile homes. We do not consider other factory-built housing (not built on a permanent chassis), such as modular, prefabricated, panelized, or sectional housing, to be manufactured housing. If your home is one of these types, please complete the application indicating that your home is a single family home.
In order to qualify for our loan programs a manufactured home must meet the following requirements:
- Be a one-family dwelling that is legally classified as real property.
- The towing hitch, wheels, and axles must have been removed and the home must be permanently attached to a foundation system that meets state and local codes as well as the manufacturer’s requirements.
- The land on which the manufactured home is situated must be owned by you. We do not provide financing for manufactured homes located on rented or leased land.
- Must have been built in compliance with the Federal Manufactured Home Construction and Safety Standards that were established June 15, 1976. Generally, compliance with these standards will be evidenced by the presence of a HUD Data Plate that is affixed near the main electrical panel of the home or in another readily accessible and visible location.
- Must be at least 12 feet wide and have a minimum of 600 square feet of gross living area and should be similar to other homes in the area.
What is the maximum percentage of my home’s value that I can borrow?
The maximum percentage of your home’s value depends on the purpose of your loan, how you use the property, and the loan type you choose, so the best way to determine what loan amount we can offer is to complete an application!
Is comparing APRs the best way to decide which lender has the lowest rates and fees?
The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees in addition to the interest rate determine the estimated cost of financing over the full term of the loan. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up front costs over the entire loan term.
Also, unfortunately, the APR doesn’t include all the closing fees and lenders are allowed to interpret which fees they include. Fees for things like appraisals, title work, and document preparation are not included even though you’ll probably have to pay them.
For adjustable rate mortgages, the APR can be even more confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.
You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that’s best for you. Look at total fees, possible rate adjustments in the future if you’re comparing adjustable rate mortgages, and consider the length of time that you plan on having the mortgage.
Don’t forget that the APR is an effective interest rate—not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.
Should I pay discount points in exchange for a lower interest rate?
Discount points are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them, up front, at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing, however, you will have lower monthly payments over the term of your loan.
To determine whether it makes sense for you to pay discount points, you should compare the cost of the discount points to the monthly payments savings created by the lower interest rate. Divide the total cost of the discount points by the savings in each monthly payment. This calculation provides the number of payments you’ll make before you actually begin to save money by paying discount points. If the number of months it will take to recoup the discount points is longer than you plan on having this mortgage, you should consider the loan program option that doesn’t require discount points to be paid.
If you’d prefer not to make this calculation the “old-fashioned way,” we have a discount points calculator!
How much money will I need?
How much money you will need all depends on the type of loan that you are approved for. Several of our products allow for financing of up to 100% of a home’s purchase, while some require at least five percent of the purchase price as a down payment. When you speak with one of our trained mortgage loan officers or processing specialists, they will make sure that you are matched up to the product that is best suited for your particular circumstances and will advise you early on as to how much money you will need. We will also provide you with a written Loan Estimate of closing costs and other settlement charges within three business days of your formal mortgage application to make sure you understand what is required of you.
Can I apply for a loan before I find a property to purchase?
Yes, applying for a mortgage loan before you find a home may be the best thing you could do! If you apply for your mortgage now, we’ll issue an approval subject to you finding the perfect home. We can also issue a pre-qualification letter online instantly. You can use the pre-qualification letter to assure real estate brokers and sellers that you are a qualified buyer. Having a pre-qualification for a mortgage may give more weight to any offer to purchase that you make.
When you find the perfect home, you’ll simply call your Loan Consultant to complete your application. You’ll have an opportunity to lock in our great rates and fees then and we’ll complete the processing of your request.
Can I really borrow funds to use towards my down payment?
Yes, you can borrow funds to use as your down payment! However, any loans that you take out must be secured by an asset that you own. If you own something of value that you could borrow funds against such as a car or another home, it’s a perfectly acceptable source of funds. If you are planning on obtaining a loan, make sure to include the details of this loan in the Expenses section of the application.
I’m self-employed. How will you verify my income?
Generally, the income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two-year period. However, based on your entire financial situation, we may not need full copies of your tax returns.
We’ll review and average the net income from self-employment that’s reported on your tax returns to determine the income that can be used to qualify. We won’t be able to consider any income that hasn’t been reported as such on your tax returns. Typically, we’ll need at least one, and sometimes a full two-year history of self-employment to verify that your self-employment income is stable.
Will my overtime, commission, or bonus income be considered when evaluating my application?
In order for bonus, overtime, or commission income to be considered, you must have a history of receiving it and it must be likely to continue. We’ll usually need to obtain copies of W-2 statements for the previous two years and a recent pay stub to verify this type of income. If a major part of your income is commission earnings, we may need to obtain copies of recent tax returns to verify the amount of business-related expenses, if any. We’ll average the amounts you have received over the past two years to calculate the amount that can be considered as a regular part of your income.
If you haven’t been receiving bonus, overtime, or commission income for at least one year, it probably can’t be given full value when your loan is reviewed for approval.
I am retired and my income is from pension or social security. What will I need to provide?
We will ask for copies of your recent pension check stubs, or bank statement if your pension or retirement income is deposited directly in your bank account. Sometimes it will also be necessary to verify that this income will continue for at least three years since some pension or retirement plans do not provide income for life. This can usually be verified with a copy of your award letter. If you don’t have an award letter, we can contact the source of this income directly for verification.
If you’re receiving tax-free income, such as social security earnings in some cases, we’ll consider the fact that taxes will not be deducted from this income when reviewing your request.
If I have income that’s not reported on my tax return, can it be considered?
Generally, only income that is reported on your tax return can be considered when applying for a mortgage. Unless, of course, the income is legally tax-free and isn’t required to be reported.
Some lenders may offer a stated income program, which means that you can be qualified for a loan based on the income you state rather than that which can be verified. Usually these programs require larger down payments and offer interest rates that are substantially higher than regular mortgage rates. We do not offer stated income programs at this time.
How will rental income be verified?
If you own rental properties, we’ll generally ask for the most recent year’s federal tax return to verify your rental income. We’ll review the Schedule E of the tax return to verify your rental income, after all expenses except depreciation. Since depreciation is only a paper loss, it won’t be counted against your rental income.
If you haven’t owned the rental property for a complete tax year, we’ll ask for a copy of any leases you’ve executed and we’ll estimate the expenses of ownership.
I have income from dividends and/or interest. What documents will I need to provide?
Generally, two years personal tax returns are required to verify the amount of your dividend and/or interest income so that an average of the amounts you receive can be calculated. In addition, we will need to verify your ownership of the assets that generate the income using copies of statements from your financial institution, brokerage statements, stock certificates or Promissory Notes.
Typically, income from dividends and/or interest must be expected to continue for at least three years to be considered for repayment.
Do I have to provide information about my child support, alimony or separate maintenance income?
Information about child support, alimony, or separate maintenance income does not need to be provided unless you wish to have it considered for repaying this mortgage loan. In order for this income to be considered, you must demonstrate that you have been receiving it consistently for the past twelve months and can verify that it will continue to be received for at least three more years.
Will my second job income be considered?
Typically, income from a second job will be considered if a two-year history of secondary employment can be verified, and the employer verifies that the secondary employment will be likely to continue for the next three years.
I’ve had a few employers in the last few years. Will that affect my ability to get a new mortgage?
Having changed employers frequently is typically not a hindrance to obtaining a new mortgage loan. This is particularly true if you made employment changes without having periods of time in between without employment. We’ll also look at your income advancements as you have changed employment.
If you’re paid on a commission basis, a recent job change may be an issue since we’ll have a difficult time of predicting your earnings without a history with your new employer.
I was in school before obtaining my current job. How do I complete the application?
If you were in school before your current job, enter the name of the school you attended and the length of time you were in school in the “length of employment” fields. You can enter a position of “student” and income of “0.” We may request a copy of your diploma and / or student transcript.
I’m getting a gift from someone else. Is this an acceptable source of my down payment?
Gifts are an acceptable source of down payment, if the gift giver is related to you or your co-borrower. We’ll ask you for the name, address, and phone number of the gift giver, as well as the donor’s relationship to you.
If your loan request is for more than 80% of the purchase price, we’ll need to verify that you have at least 5% of the property’s value in your own assets.
Prior to closing, we’ll verify that the gift funds have been transferred to you by obtaining a copy of your bank receipt or deposit slip to verify that you have deposited the gift funds into your account.
I am selling my current home to purchase this home. What type of documentation will be required?
If you’re selling your current home to purchase your new home, we’ll ask you to provide a copy of the settlement or closing statement you’ll receive at the closing to verify that your current mortgage has been paid in full and that you’ll have sufficient funds for our closing. Often the closing of your current home is scheduled for the same day as the closing of your new home. If that’s the case, we’ll just ask you to bring your settlement statement with you to your new mortgage closing.
I am relocating because I have accepted a new job that I haven’t started yet. How should I complete the application?
Congratulations on your new job! If you will be working for the same employer, complete the application as such but enter the income you anticipate you’ll be receiving at your new location.
If your employment is with a new employer, complete the application as if this were your current employer and indicate that you have been there for one month. The information about the employment you’ll be leaving should be entered as a previous employer. We’ll sort out the details after you submit your loan for approval. We will request that you provide an official offer letter or employment contract from a new employer.
I’ve co-signed a loan for another person. Should I include that debt here?
Generally, a co-signed debt is considered when determining your qualifications for a mortgage. If the co-signed debt doesn’t affect your ability to obtain a new mortgage we’ll leave it at that. However, if it does make a difference, we can ignore the monthly payment of the co-signed debt if you can provide verification that the other person responsible for the debt has made the required payments on a timely basis, by obtaining copies of their cancelled checks for the last twelve months.
When can I lock in my interest rate and discount points?
You can lock in your interest rate and discount points as soon as your loan is approved and you pay the application deposit to cover the cost of your appraisal and final credit report. The application deposit is not another fee, it’s actually just the appraisal cost estimate and will be credited to the actual appraisal cost at your closing. If you complete your application today, and your request is approved online, you’ll have the opportunity to pay the application deposit via your HVFCU account number and can lock in your great rate immediately.
If we need to review your information before providing your loan approval, a Loan Consultant will contact you and you’ll have the opportunity to lock your rate and fees then.
How do I know if it’s best to lock in my interest rate or to let it float?
Mortgage interest rate movements are as hard to predict as the stock market and no one can really know for certain whether they’ll go up or down.
If you have a hunch that rates are on an upward trend then you’ll want to consider locking the rate as soon as you are able. Before you decide to lock, make sure that your loan can close within the lock-in period. It won’t do any good to lock your rate if you can’t close during the rate lock period. If you’re purchasing a home, review your contract for the estimated closing date to help you choose the right rate lock period. If you are refinancing, in most cases, your loan could close within a shorter period of time. However, if you have any secondary financing on the home that won’t be paid off, allow some extra time since we’ll need to contact that lender to get their permission.
If you think rates might drop while your loan is being processed, you can take a risk and let your rate “float” instead of locking. After you apply, you can lock in by contacting our Real Estate Department.
What is a credit score and how will my credit score affect my application?
A credit score is one of the pieces of information that we’ll use to evaluate your application. Financial institutions have been using credit scores to evaluate credit card and auto applications for many years, and mortgage lenders use credit scoring to assist with their loan decisions.
Credit scores are based on information collected by credit bureaus and information reported each month by your creditors about the balances you owe and the timing of your payments. A credit score is a compilation of all this information converted into a number that helps a lender to determine the likelihood that you will repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender. Credit scores are calculated by comparing your credit history with millions of other consumers. They have proven to be a very effective way of determining credit worthiness.
Some of the things that affect your credit score include your payment history, your outstanding obligations, the length of time you have had outstanding credit, the types of credit you use, and the number of inquiries that have been made about your credit history in the recent past.
Credit scores used for mortgage loan decisions range from approximately 300 to 900. Generally, the higher your credit score, the lower the risk that your payments won’t be paid as agreed.
Using credit scores to evaluate your credit history allows us to quickly and objectively evaluate your credit history when reviewing your loan application. However, there are many other factors when making a loan decision and we never evaluate an application without looking at the total financial picture of a customer.
Will an inquiry affect my credit affect my credit score?
An abundance of credit inquiries can sometimes affect your credit scores since it may indicate that your use of credit is increasing.
But don’t overreact! The data used to calculate your credit score doesn’t include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry. Don’t limit your mortgage shopping for fear of the effect on your credit score.
Will I be charged any fees if I authorize my credit information to be accessed?
There is no charge to you for the credit information we’ll access with your permission to evaluate your application online. You will only be charged for a credit report if you decide to complete the application process after your loan is approved.
What is an appraisal and who completes it?
To determine the value of the property you are purchasing or refinancing, an appraisal will be required. An appraisal report is a written description and estimate of the value of the property. National standards govern not only the format for the appraisal; they also specify the appraiser’s qualifications and credentials. In addition, most states now have licensing requirements for appraisers evaluating properties located within their states.
The appraiser will create a written report for us and you’ll be provided a copy via mail.
Usually the appraiser will inspect both the interior and exterior of the home. The appraiser will take notes of both the inside and outside of the home. However, in some cases, only an exterior inspection will be necessary based on your financial strength and the location of the home.
After the appraiser inspects the property, they will compare the qualities of your home with other homes that have sold recently in the same neighborhood. These homes are called “comparables” and play a significant role in the appraisal process. Using industry guidelines, the appraiser will try to weigh the major components of these properties (i.e., design, square footage, number of rooms, lot size, age, etc.) to the components of your home to come up with an estimated value of your home. The appraiser adjusts the price of each comparable sale (up or down) depending on how it compares (better or worse) with your property.
As an additional check on the value of the property, the appraiser also estimates the replacement cost for the property. Replacement cost is determined by valuing an empty lot and estimating the cost to build a house of similar size and construction. Finally, the appraiser reduces this cost by an age factor to compensate for depreciation and deterioration.
If your home is for investment purposes, or is a multi-unit home, the appraiser will also consider the rental income that will be generated by the property to help determine the value.
Using these three different methods, an appraiser will frequently come up with slightly different values for the property. The appraiser uses judgment and experience to reconcile these differences and then assigns a final appraised value. The comparable sales approach is the most important valuation method in the appraisal because a property is worth only what a buyer is willing to pay and a seller is willing to accept.
It is not uncommon for the appraised value of a property to be exactly the same as the amount stated on your sales contract. This is not a coincidence, nor does it question the competence of the appraiser. Your purchase contract is the most valid sales transaction there is. It represents what a buyer is willing to offer for the property and what the seller is willing to accept. Only when the comparable sales differ greatly from your sales contract will the appraised value be very different.
What types of things will an underwriter look for when they review the appraisal?
In addition to verifying that your home’s value supports your loan request, we’ll also verify that your home is as marketable as others in the area. We’ll want to be confident that if you decide to sell your home, it will be as easy to market as other homes in the area.
We certainly don’t expect that you’ll default under the terms of your loan and that a forced sale will be necessary, but as the lender, we’ll need to make sure that if a sale is necessary, it won’t be difficult to find another buyer.
We’ll review the features of your home and compare them to the features of other homes in the neighborhood. For example, if your home is on a 20-acre lot, or has a large accessory building, we’ll want to make sure that there are other homes in the area on similar size lots or with similar outbuildings. It is hard to place a value on such unique features if we can’t see what other buyers are willing to pay for them. In some areas, additional acreage or outbuildings could actually be a detriment to a future sale. Finding comparable properties can be more challenging in rural areas where it is more difficult to find homes that have similar features.
We’ll also make sure that the value of your home is in the same range as other homes in the area. If the value of your home is substantially more than other homes in the neighborhood, it could affect the market acceptance of the home if you decide to sell.
We’ll also review the market statistics about your neighborhood. We’ll look at the time on the market for homes that have sold recently and verify that values are steady or increasing.
Will I get a copy of the appraisal?
As soon as we receive your appraisal, we’ll update your loan with the estimated value of the home. As a standard practice we will provide a copy of your appraisal via mail as soon as we receive it.
I’m purchasing a home, do I need a home inspection and an appraisal?
Both a home inspection and an appraisal are designed to protect you against potential issues with your new home. Although they have totally different purposes, it makes the most sense to rely on each to help confirm that you’ve found the perfect home.
The appraiser will make note of obvious construction problems such as termite damage, dry rot or leaking roofs or basements. Other obvious interior or exterior damage that could affect the salability of the property will also be reported. Any issues that affect the safety of any occupants must also be addressed.
However, appraisers are not construction experts and won’t find or report items that are not obvious. They won’t turn on every light switch, run every faucet or inspect the attic or mechanicals. That’s where the home inspector comes in. They generally perform a detailed inspection and can educate you about possible concerns or defects with the home.
Accompany the inspector during the home inspection. This is your opportunity to gain knowledge of major systems, appliances and fixtures, learn maintenance schedules and tips, and to ask questions about the condition of the home.
How long does it take for the property appraisal to be completed?
Licensed appraisers who are familiar with home values in your area perform appraisals. We order the appraisal as soon as the application deposit is paid. Generally, it takes 10-14 days before the written report is sent to us. We follow up with the appraiser to insure that it is completed as soon as possible. If you are refinancing, and an interior inspection of the home is necessary, the appraiser should contact you to schedule a viewing appointment. If you don’t hear from the appraiser within seven days of the order date, please inform your Loan Consultant. If you are purchasing a new home, the appraiser will contact the real estate agent, if you are using one, or the seller to schedule an appointment to view the home.
If my property’s appraised value is more than the purchase price can I use the difference towards my down payment?
Unfortunately, if you are purchasing a home, we’ll have to use the lower of the appraised value or the sales price to determine your down payment requirement.
It’s still a great benefit for your financial situation if you are able to purchase a home for less than the appraised value, but our investors don’t allow us to use this “instant equity” when making our loan decision.
What if I am not satisfied with the value the appraiser has assigned to my home or the home I am purchasing?"
If you believe that there are errors in the report, please communicate this to your Mortgage Loan Officer who will in turn provide the information you have supplied to the Appraisal Reviewers. The Appraisal Reviewers will work directly with the appraiser on the issue. The final resolution will be relayed by the Appraisal Reviewers to the Mortgage Loan Officer, who will communicate the results to you.
If you believe that the assigned value is incorrect, please note that in order to dispute the assigned value with the appraiser that we will require three alternative comparable sales not used in the current report. These comparable sales must be dated within the six months prior to the date of the initial appraisal inspection and cannot be homes that sold after the date of the appraisal inspection. You would be asked to provide these comparables to the Mortgage Loan Officer, who in turn, will provide the supporting documentation to the Appraisal Reviewers. The Appraisal Reviewers will work directly with the appraiser on the issue. The final resolution will be relayed by the Appraisal Reviewers to the Mortgage Loan Officer, who will communicate the results to you.
Please note that you have only one opportunity to initiate an appraisal dispute. If the appraiser does not adjust the assigned value we cannot order a second appraisal.
What is title insurance and why do I need it?
If you’ve ever purchased a home before, you may already be familiar with the benefits and terms of title insurance. But if this is your first home loan or you are refinancing, you may be wondering why you need another insurance policy.
The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and especially your mortgage lender, want to make sure the property is indeed yours: That no individual or government entity has any right, lien, claim, or encumbrance on your property.
The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected.
Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders, and others who have an interest in real estate transfer. Title companies typically issue two types of title policies:
1) Owner’s Policy. This policy covers you, the homebuyer.
2) Lender’s Policy. This policy covers the lending institution over the life of the loan.
Both types of policies are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you probably already have an owner’s policy that was issued when you purchased the property, so we’ll only require that a lender’s policy be issued.
Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in the company’s own title plant.
After a thorough examination of the records, any title problems are usually found and can be cleared up prior to your purchase of the property. Once a title policy is issued, if any claim covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights. They are also responsible to cover losses arising from a valid claim. This protection remains in effect as long as you or your heirs own the property.
The fact that title companies try to eliminate risks before they develop makes title insurance significantly different from other types of insurance. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen future event, say a fire, accident or theft. On the other hand, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past.
This risk elimination has benefits to both the homebuyer and the title company. It minimizes the chances that adverse claims might be raised, thereby reducing the number of claims that have to be defended or satisfied. This keeps costs down for the title company and the premiums low for the homebuyer.
Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed.
What is mortgage insurance and when is it required?
First of all, let’s make sure that we mean the same thing when we discuss “mortgage insurance.” Mortgage insurance should not be confused with mortgage life insurance, which is designed to pay off a mortgage in the event of a borrower’s death. Mortgage insurance makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with low down payment lending. Low down payment mortgages are becoming more and more popular, and by purchasing mortgage insurance, lenders are comfortable with down payments as low as 3 – 5% of the home’s value. It also provides you with the ability to buy a more expensive home than might be possible if a 20% down payment were required.
The mortgage insurance premium is based on loan to value ratio, type of loan, and amount of coverage required by the lender. Usually, the premium is included in your monthly payment and one to two months of the premium is collected as a required advance at closing.
It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount – below 75% to 80% of the property value. Recent Federal Legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance has been amortized down to 78% of the original property value. If you have any questions about when your mortgage insurance could be cancelled, please contact your Loan Consultant.
I’ve heard that some lenders require flood insurance on properties. Will you?
Federal Law requires all lenders to investigate whether or not each home they finance is in a special flood hazard area as defined by FEMA, the Federal Emergency Management Agency. The law can’t stop floods. Floods happen anytime, anywhere. But the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 help to ensure that you will be protected from financial losses caused by flooding.
We use a third party company who specializes in the reviewing of flood maps prepared by FEMA to determine if your home is located in a flood area. If it is, then flood insurance coverage will be required, since standard homeowner’s insurance doesn’t protect you against damages from flooding.
What happens at the loan closing?
The closing will take place at an HVFCU branch or HVFCU attorney’s office for your convenience. If you are purchasing a new home, the seller may also be at the closing to transfer ownership to you, but in some states, these two events actually happen separately.
During the closing you will be reviewing and signing several loan papers. The closing agent or attorney conducting the closing should be able to answer any questions you have or you can feel free to contact your Loan Consultant if you prefer.
Just to make sure there are no surprises at closing, your Mortgage Loan Officer will contact you a few days before closing to review your final fees, loan amount, first payment date, etc.
The most important documents you will be signing at the closing include:
HUD-1 Settlement Statement
This document provides an itemized listing of the final fees charged in connection with your loan. If your loan is a purchase, the settlement statement will also include a listing of any fees related to the transaction between you and the seller. If this loan will be a refinance, the settlement statement will show the pay off amounts of any mortgages that will be paid in full with your new loan. Most items on the statement are numbered according to a standardized system used by all lenders. These numbers will correspond to the numbers listed on the Loan Estimate that will be provided in your application package. This document is also commonly known as the closing statement and both the buyer and seller must sign this document.
Truth-in-Lending Statement (TIL)
This document provides full written disclosure of the terms and conditions of a mortgage, including the annual percentage rate (APR) and other fees. It is exactly the same as the TIL that you received immediately after your initial application, except it has been updated to reflect the final rate and fee information. Federal law requires that all lenders provide you with this document at closing.
This is the document you sign to agree to repay your mortgage. The note will provide you with all of the details of your loan including the interest rate and length of time to repay the loan. It also explains the penalties that you may incur if you fall behind in making your payments.
Mortgage / Deed of Trust
This document pledges a property to the lender as security for repayment of a debt. Essentially this means that you will give your property up to the lender in the event that you cannot make the mortgage payments. The Mortgage restates the basic information contained in the note, as well as details the responsibilities of the borrower. In some states, the document is called a Deed of Trust instead of a Mortgage.
If your loan is a refinance of your primary residence, Federal Law requires that you have three days to decide positively that you want a new mortgage after you sign the documents. This means that the loan funds won’t be disbursed until three business days have passed (including Saturdays.) The closing agent will provide more details at the closing.
Will I need to have an attorney represent me at closing?
In some areas of the country it is very customary, and sometimes required by law, to have an attorney represent you at the closing. In other areas, attorneys are not as common at a real estate closing. Please contact the closing agent if you have questions about attorney representation. By all means, we recommend that you have an attorney at the closing if it would make you more comfortable. If your attorney has any questions about your new mortgage, please refer them to your Loan Consultant. We’d be happy to provide any information necessary.
Can I get advanced copies of the documents I will be signing at closing?
The most important documents you will sign at closing are the note and mortgage, sometimes called the deed of trust. Unless there are special circumstances, these documents are usually prepared one to two days before your closing. Other documents are prepared by the closing agent the day before or the day of your closing. If you would like copies of the completed documents to be sent to you after they are prepared, please contact your Loan Consultant.
Who will be at the closing?
The closing agent acts as our agent and will represent us at the closing. However, your personal Loan Consultant will contact you prior to closing to talk about your final documents and to provide a final breakdown of your closing fees. If you have any questions that the closing agent can’t answer during the closing, ask them to contact your Loan Consultant by phone and we’ll get you the answers you need – before the closing is over!
I won’t be able to attend the closing. What other options are there?
If you won’t be able to attend the loan closing, contact your Loan Consultant to discuss other options. If someone you trust is able to attend on your behalf, you can execute a Power of Attorney so that this person can sign documents on your behalf. We’re sure to have a solution that will work in your circumstances.
Can I make my monthly payments with an automated debit from my checking account?
Automated monthly payments are available. At the loan closing a payment option of automated payments or loan payment coupons will be provided. Simply complete your account information on the form provided if the automatic payment option is chosen.
If I apply, where will the closing take place?
The closing will take place at an HVFCU branch or HVFCU’s attorney’s office for your convenience.
We’ll deliver our loan documents and wire transfer your loan funds to the closing agent or attorney prior to closing so that they’ll have plenty of time to prepare for your closing.
Tell me more about closing fees and how they are determined.
A home loan often involves many fees, such as the appraisal fee, title charges, closing fees, and state or local taxes. These fees vary from state to state and also from lender to lender. Any lender or broker should be able to give you an estimate of their fees, but it is more difficult to tell which lenders have done their homework and are providing a complete and accurate estimate. We take quotes very seriously. We’ve completed the research necessary to make sure that our fee quotes are accurate to the city level – and that is no easy task!
To assist you in evaluating our fees, we’ve grouped them as follows:
Third Party Fees
Fees that we consider third party fees include the appraisal fee, the credit report fee, the settlement or closing fee, the survey fee, tax service fees, title insurance fees, flood certification fees, and courier/mailing fees.
Third party fees are fees that we’ll collect and pass on to the person who actually performed the service. For example, an appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee, and a title company or an attorney is paid the title insurance fees.
Typically, you’ll see some minor variances in third party fees from lender to lender since a lender may have negotiated a special charge from a provider they use often or chooses a provider that offers nationwide coverage at a flat rate. You may also see that some lenders absorb minor third party fees such as the flood certification fee, the tax service fee, or courier/mailing fees.
Taxes and other unavoidables
Fees that we consider to be taxes and other unavoidables include: State/Local Taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose. If some lenders don’t quote you fees that include taxes and other unavoidable fees, don’t assume that you won’t have to pay it. It probably means that the lender who doesn’t tell you about the fee hasn’t done the research necessary to provide accurate closing costs.
Fees such as discount points, document preparation fees, and loan processing fees are retained by the lender and are used to provide you with the lowest rates possible.
This is the category of fees that you should compare very closely from lender to lender before making a decision.
You may be asked to prepay some items at closing that will actually be due in the future. These fees are sometimes referred to as prepaid items.
One of the more common required advances is called “per diem interest” or “interest due at closing.” All of our mortgages have payment due dates of the 1st of the month. If your loan is closed on any day other than the first of the month, you’ll pay interest, from the date of closing through the end of the month, at closing. For example, if the loan is closed on June 15, we’ll collect interest from June 15 through June 30 at closing. This also means that you won’t make your first mortgage payment until August 1. This type of charge should not vary from lender to lender, and does not need to be considered when comparing lenders. All lenders will charge you interest beginning on the day the loan funds are disbursed. It is simply a matter of when it will be collected.
If an escrow or impound account for property taxes and insurance will be established, you will make an initial deposit into the escrow account at closing so that sufficient funds are available to pay the bills when they become due.
If your loan requires mortgage insurance, up to two months of the mortgage insurance may be collected at closing. Whether or not you must purchase mortgage insurance depends on the size of the down payment you make.
If your loan is a purchase, you’ll also need to pay for your first year’s homeowner’s insurance premium prior to closing. We consider this to be a required advance.
What are HVFCU’s closing costs?
HVFCU does not charge any application fees, processing fees, underwriting fees or commitment fees on any of its residential mortgage applications. We will disclose to you any expected costs from third parties within three days of your formal application for a mortgage loan.