For a new home buyer, applying for a mortgage can be both exciting and stressful. The paperwork involved can be dizzy. A CEO of Mortgage spoke to MarketWatch about his top three tips that might help potential homebuyers.
Before committing to a mortgage, home shoppers need to research more information about the different types of mortgages available, as well as clarify their goals, said Greg Schwartz, co-founder and CEO of Tomo Mortgage in Stamford, Connecticut.
Tomo Mortgage is a mortgage originator and is licensed in 19 states. The company hopes to digitize the mortgage process and reduce costs, like fees and the like, for homebuyers, as well as speed up the process.
In an interview with MarketWatch, Schwartz said that instead of just going to your broker with a bunch of financial documents, which can take six or seven days to get pre-approved, companies like Tomo are streamlining the process, and everything is pulled from databases via The Internet, which greatly reduces the time it takes to get a mortgage pre-approval.
Earlier this month, Tomo launched a product that can get potential homeowners approved for a mortgage in 3 to 4 minutes, Schwartz said.
After working at Zillow, Schwartz said he “fell in love with the mortgage industry,” which he admits isn’t an honest sentiment for many. “I found the complexity, the capital market element, the cost structure very interesting in this industry, which is not widely needed,” Schwartz said.
With prices twice as high as they were a year ago, homebuyers are looking for a good deal. Here are the top three things Schwartz should do when looking for a mortgage:
Tip #1: Get a loan estimate
First, look for transparency, Schwartz said. This starts with getting an estimate for the loan.
A loan estimate is a three-page form that you get after you apply for a mortgage, but before your application is approved or denied, according to the Consumer Financial Protection Bureau.
This loan title provides information such as the estimated interest rate, monthly payment, total closing costs, taxes, insurance, etc.
““We recommend clients look at multiple loan scenarios, based specifically on how much money they’re willing to put toward down payments.”“
Getting appreciated is something I “recommend to every family member, everyone I talk to,” Schwartz said.
If you have multiple loan estimates, you can compare them and see which lender is offering you the best deal. And if a lender is offering a lower rate than usual, you can use that offer to shop around with others and negotiate.
“It would be the one thing,” Schwartz said, “to ask every friend, every family member, every reader of yours — to always get a loan estimate.”
Second tip: ask about loan scenarios
Schwartz’s second tip is to ask your lender for different scenarios. And by that he means, what happens when you put in different amounts, or if you add different sources of income, etc.
“We recommend clients look at multiple loan scenarios, based specifically on how much money they’re willing to put down payments,” Schwartz said.
He explained, “There are gradual changes in the size of the loan that are already causing large and large differences in prices that can reach one-eighth of the point difference in prices.”
People should ask the lender to run the scenarios, like what happens when they drop 20%, versus 25%, or 15%, and see what happens to their monthly. They can also ask them how much their mortgage loans change when their sources of income change.
Also look at the points at which a potential borrower can charge a fee to lower the mortgage rate, Schwartz said. Sometimes you can lower your price by a quarter of a point or more.
Stressed out, ask your lender to break these scenarios down into an Excel spreadsheet, or something similar, and see what your liabilities are.
Tip #3: Be realistic about how long you will be living in the house
Finally, find out what your plan is with the home you’re looking to buy.
“Be realistic about how long you spend in your home. It has a substantial effect on what a mortgage will cost you,” Schwartz said.
If you’re going to be in the house for more than five years, look at the points, Schwartz said.
But if you know you’ll be there for less than five years, an adjustable rate mortgage may be better for you, and it will save you some money.
Also, be honest with your partner, or whomever you’re buying the home with, about how long you’re likely to be in the house.
Do you have ideas about the housing market? Write to MarketWatch reporter Aarthi Swaminathan at firstname.lastname@example.org