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Closing on a home – how to prepare

You’re getting ready to close on a new home – congratulations! You’ve completed your house hunt, you negotiated the price, and your offer was accepted. Before you get handed the keys to your new house, there’s one final step you’ll have to complete – closing on your home.

What is closing?

It’s the final step to transfer ownership of the property to you once all contingencies for the sale have been eliminated. To prepare for closing, your lending agency will originate and underwrite your loan and the title company will prepare paperwork for you to sign and make the transfer of ownership legal.

What happens during closing?

As soon as the seller accepts your offer and all contingencies have been met, the sale of the home is “pending” and closing begins. A thorough home inspection will be completed by a professional inspector to uncover any defects or local building code violations that might impact the value of the house. Your mortgage company will begin the time-consuming task of originating and underwriting your loan. They will be taking a very close look at your finances to decide whether you’ll repay the thousands of dollars you’re asking them to lend you.

Pre-approval helps

Being pre-approved for a loan means your lender already pulled your credit score, verified your income, and gave you an idea of the type and size of mortgage you qualify for. Having this information makes it likely you’ve selected a home you can afford and your lender will help you finance. But being pre-approved is not a guarantee you’ll be given a final approval for your loan. If anything has happened since you were pre-approved that might affect your finances (losing a job, taking out another loan, missing payments on your mortgage, etc.), you could be denied the loan.

How long does closing take?

It took an average of 49 days in November 2020 for all the paperwork to be completed and the transfer of ownership to be finalized. The number fluctuates a bit every month, but 30 to 60 days is a good estimate. The dedicated loan officers at Mann Mortgage strive to close loans in 30 days or less.

Have your documents in order

During closing, be ready to hand over a lot of documents to your mortgage company for final approval of your loan. Your loan officer will likely have a lot of questions for you. Answer their questions quickly to avoid delays in your closing date.

You’ll probably need the following:

  • Your last two tax returns
  • Your last two pay stubs
  • Your last two W2 statements
  • Your bank statements for the last one to three months

You may also need:

  • Credit card statements
  • Settlement statements
  • Verification of rent
  • Divorce decree
  • Bankruptcy documents
  • Statement of Social Security or retirement income
  • Copies of rental lease agreements on rental units
  • Contact information for your homeowner’s insurance agent
  • A profit and loss statement
  • Proof of additional income

Expect to pay closing costs

Some common closing costs are listed below. All of them have to be paid when closing on your new house.

Unless otherwise negotiated by your Realtor,
the buyer pays all the following:

  • Home inspection fee ($500 to 1,000)
  • Loan origination and underwriting fee (0.5% to 1% of the loan amount)
  • Credit check fee ($25 to $60)
  • First month’s interest (varies)
  • Flood certification fee ($15 to $25)
  • Title/escrow services and insurance ($200 to $400)
  • City or county recording fee (varies)
  • Transfer taxes (varies)
  • Realtor or broker fee (2% to 7% of the home’s price)

This isn’t an exhaustive list of every document and fee you’ll pay, but it will give you a good idea of where to start. If you have trouble finding documents your loan officer requests, ask them if there are alternative documents you can provide in their place.

Be prepared for closing day

Closing day might start with a final walk-through of the house to make sure it is in good shape and the seller met all contingencies. At the appointed time, you and the seller will meet and sign documents with your title or escrow agent, real estate agent, and possibly an attorney. Take as much time as you need to make sure you understand what you are signing.

Once all the paperwork is signed and any fees are paid, the ownership of the house it transferred to your name and the home is yours.

At any point, if you have any questions about your closing costs, loan options, or getting pre-approved, be sure to talk to your local loan expert at Mann Mortgage. We are here to help you make your closing as seamless and quick as possible.

What is a cash-out refinance?

So What is a cash-out refinance?

A cash-out refinance is a type of loan where a borrower has a mortgage they are currently paying off and they replace it with a new mortgage for more than their remaining principal. The difference between the principal balance of the first mortgage and the new one is given to the borrower in cash.

Cash-out refinance vs a standard refinance

In a standard refinance, borrowers work with their lender to get a lower rate of interest or a new payment schedule. Once the standard refinance is secured, they have a new monthly payment amount based on the new agreement – but their balance on the loan remains the same. In a cash-out refinance, a borrower works with their lender to pay off their home’s mortgage balance with a new loan based on their home’s current value. The difference between the original mortgage the borrower is paying off and the new loan is kept by the borrower. In order to have some equity in their home, most cash-out refinances limit the amount a borrower can receive at 80-90% of their home’s equity in cash (VA refinances don’t have this requirement).

In other words, don’t expect to pull out all the equity you’ve built into your home. If your home is valued at $350,000 and your mortgage balance is $250,000, you have $100,000 of equity in your home. You could do a cash-out refinance of somewhere between $80,000 to $90,000.

Benefits of a cash-out refinance

If interest rates are at a new low, you have equity built into your home, and if you would like cash on hand to pay off high-interest credit cards or fund a large purchase, a cash-out refinance is something you might want to consider.

Cons of a cash-out refinance

There are fees involved in a cash-out refinance, and you’ll have to make sure your potential savings are worth the cost. Like any refinance, you’ll pay closing costs of around 2% to 5% of the mortgage. And if your lender allows you to take out more than 80% of your home’s value, you’ll have to pay private mortgage insurance (PMI). Freddie Mac estimates most borrowers will pay $30 to $70 per month for every $100,000 they borrowed.

And, don’t forget your overall debt load will increase with a cash-out refinance.

Alternative options

One potential alternative is a home-equity line of credit (HELOC), which you could also use to pay for a home renovation or to pay off credit card bills. Learn more about what HELOCs are and how they work.

Should you get a cash-out refinance? If you have enough equity built into your home and you get a great rate, they might be a great solution for a home improvement or renovation. To find out what the current rates are and to check your home’s current market value, contact your local Mann Mortgage expert today.

How much will your down payment on a house be?

What is a down payment on a house?

A down payment is a minimum cash payment a buyer makes during the closing process to secure a loan on a home purchase. Down payment requirements vary for different types of loans, and can range from as low as 0% of the total purchase with a VA loan to as much as 20% or more for conventional or jumbo loans. Similar to your mortgage rate, your down payment amount will be determined in large part by your credit score, the purchase price of the home, and the type of loan you and your loan officer determine will help you the most given your circumstances.

How much should you put down on a house?

The amount you need depends on the type of loan you get. Below are the six most common types of home loan options and their minimum down payment requirements.

Conventional loan

Minimum down: 3%

These loans are used for purchasing a primary residence, secondary home, or investment property. Though you can put down 3%, you will have to pay private mortgage insurance (PMI). It ranges in cost from 0.55% to 2.25% of the original loan amount per year and is broken down into monthly payments. It ranges in cost from 0.55% to 2.25% of the original loan amount per year and is broken down into monthly payments. Once you own 22% of your home, you can stop paying PMI. You can avoid PMI altogether with a 20% down payment.

FHA loan

Minimum down: 3.5%

Depending on your credit score, you may be able to secure a loan guaranteed by the Fair Housing Administration (FHA) with as little as a 3.5% down payment. FHA loans are available to people with lower credit scores (as low as 500), higher debt-to-income ratio (up to 50%), and with smaller down payments than some conventional loans allow. FHA loans allow the money for a down payment to come from a gift or charitable organization. Borrowers will need to pay an annual mortgage insurance premium (MIP) of between 0.45% to 1.05% of the loan amount – this fee will be paid annually but broken down into 12 payments and added to the monthly mortgage bill. If borrowers put down a 10% down payment, they’ll pay MIP for 11 years. If they put down less than 10%, they’ll pay MIP for the lifetime of the loan.

Jumbo loan

Minimum down: 20%

When someone needs a loan for more than conforming loans allow ($548,250 is most states), a jumbo loan is an option. Since they are too large to be guaranteed by Fannie Mae or Freddie Mac, qualifications to get this loan are tight and borrowers will need an excellent credit score. A 20% down payment is standard, but some lending institutions may require more.

USDA loan

Minimum down: 0% Down

These loans are designed to improve the economy and quality of life in rural America. If you’re buying a primary residence in a rural area, you may qualify for a USDA loan. You’ll need a credit score of 640 (though some lenders will offer loans for less) and meet income restrictions for the area you’re buying in. Borrowers will pay an annual fee equal to 0.35% of the loan balance (broken down into 12 monthly payments and added to the mortgage bill) as well as a one-time funding fee of 1% of the loan amount due when the loan closes.

VA loan

Minimum down: 0% down

If you’re an active member or veteran of the U.S. military (or a surviving spouse) you may be eligible for a Veterans Affairs (VA) loan. The VA doesn’t set a minimum credit score requirement for VA loan eligibility, but lenders typically will. Normally, it’s around 660, but you’ll need to check with your individual lender to see what their qualifications are. Borrowers will need to pay a one-time funding fee of 1.4% to 3.6% of the loan amount and can be paid upfront or rolled into the loan amount. There are no private mortgage insurance fees associated with a VA loan.

What’s the right down payment for you?

Finding the down payment amount depends on your financial goals, your loan eligibility, and other factors. Work with your loan officer at Mann Mortgage to identify the loan programs you qualify for and to help you decide which is best option for achieving your home buying goals.

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