Are you a mortgage servicer? Why isn't Legacy staying my servicer?
No – we are not. We are a mortgage banker (also known a correspondent lender). This means that we originate the loan, process the loan, underwrite the loan, close the loan and fund the loan – but ultimately, we do not service the loan.
We will typically sell the loan itself into a Fannie Mae, Freddie Mac, or Ginnie Mae (Government-insured loans) mortgage-backed security (MBS) and then sell the servicing rights to a servicer who then manages the collection of payments and escrow account on behalf of FNMA, FHLMC or GNMA.
Oftentimes you’ll make the first payment (and sometimes the first two payments) to us at Legacy Mutual/Gardner Financial – but after that, the loan will usually have been sold to the servicer at which point you’ll receive a “Hello Letter” (“Hello, we’re your new servicer…send payments here…!” and a “Goodbye Letter” (“Goodbye, we’re no longer your servicer – please send your payments to the new company”).
What are points?
Points (also known as “discount points” are the net present value of a “discounted interest rate” that lenders charge to decrease a mortgage interest rate below what is called a “par” rate. One “point” is equal to 1% of the loan amount. Consider in golf that the word, “Par” means “even”. A “par” mortgage rate means a rate that isn’t discounted, or premium priced. So, if the par rate for a lender is 3.0%…then a 2.75% interest rate would be a “discounted” rate, while a 3.25% interest rate would be a “premium” interest rate.
A discount point is charged to offset the money that is lost when a lender originates a discounted rate mortgage loan. As an example – a par rate on a mortgage loan could be 3.0%. If you wanted to get a rate that is 2.75%…the investor who buys that loan won’t make as much money over time – so, they don’t pay as much for that loan.
A $100,000 loan that should have a 3.0% rate will be sold to the investor for $99,000 if the rate is 2.75%. As a business model – it doesn’t make any sense to loan out $100,000 but then only get $99,000 when the loan is sold. So, the discounted rate loss of $1,000 is made up for in the form of a discount point.
Discount points are commonly misunderstood because many people perceive them as a “fee” only – but in reality, unlike any other closing cost, discount points are, actually, “fees with a purpose” – paying them accomplishes something beneficial for a borrower, and should be considered as part of an overall mortgage lending strategy.
If I sign a Loan Estimate or a Closing Disclosure, am I now stuck with those terms?
Simply – NO. A Loan Estimate is a breakdown of the terms of a mortgage loan at a specific snapshot in time. At the time the Loan Estimate is generated, it represents the most accurate disclosure of terms at that time for the mortgage loan. HOWEVER, those terms are allowed to change at any time – and when they change, a new Loan Estimate must be provided.
The most important part of the loan estimate to look at is the disclaimer right above the signature line where it says, “By signing this document, I am only acknowledging *receipt* of this”. Federal law requires that a Loan Estimate be provided to you within 3 business days of the formal loan application. What is the best way to prove that it was given to you? By having you sign it acknowledging it was given to you. However, the signature line doesn’t suddenly lock the terms in – it simply documents that you received it.
The same holds true for a Closing Disclosure. In many cases, the Closing Disclosure is still being balanced between the lender and the title company or escrow agent, and also has the exact same disclaimer above the signature line that the Loan Estimate has. So – is it contractual? No. Should it be accurate? Yes. MUST it be accurate? Well – it should – but, sometimes mistakes are made when it is being generated, or borrowers decided to change what they wanted after the Loan Estimate was generated.
Remember, the Loan Estimate is an *estimate* generated at a specific point in time…and should not be considered the be-all-end-all.
If my Loan Estimate or Closing Disclosure is wrong, why do I need to sign it?
Per Federal Law, in order to “start” the loan application, a Loan Estimate must be sent and verification that it was delivered to the client within 3 business days of closing must be maintained in the file. The best way to verify that the document was sent, simply, is to have the client sign it.
The disclaimer above the signature line says it all: “By signing this document, I am only acknowledging RECEIPT of it”. In other words – by signing, you’re not acknowledging that the terms are set, or that they’re 100% accurate…you’re only acknowledging that it was provided.
Now – here’s the other part of that: Both the Loan Estimate and Closing Disclosure have the same disclosure, for the same reason – because it starts certain clocks that are regulatory in nature – required by the Federal Government. However, in order to verify that no fees were charged that hadn’t been disclosed originally or because of a Change of Circumstance Requirement – the documents must be signed in order of receipt.
Therefore, if the first Loan Estimate was provided that had an error…a new Loan Estimate can be provided – but the original loan estimate must still be signed – because the time/date stamp that it was signed must be before the new time/date stamp on the new Loan Estimate. These rules are also true for a Closing Disclosure.
Do you need to pull my credit in order to get prequalified?
Yes…and any lender who is willing to issue a preapproval or prequalification without checking credit isn’t doing their job right. We don’t ever want to do “half” the job. Half the job results in a bad outcome…each time, every time. We can give the best guidance based on a complete set of facts and documentation – but, like a doctor, we can’t prescribe a solution without having that full set of facts.
In a way, we’d be committing a form of financial malpractice. We’ve helped hundreds of clients change their financial situation because we approached a problem from a different direction and showed them a different solution that could save them thousands of dollars when it came to financing their home.
Why do I need to send updated documents? I’ve already sent these?
Yes – unfortunately, mortgage lending is a bit of a “process” – I call it an “information-ectomy”. All lenders are required to document a borrower’s ability and willingness to repay…and, unfortunately, financial circumstances can change up to the date of closing.
Due to this, lenders need to minimize the chance of accidentally originating a loan to someone who no longer has the ability or willingness to repay. The best way to do this is to have certain documents in the file dated within so many DAYS of closing. Not weeks or months…but days.
Most loans are split up into two distinct phases: The preapproval phase (where we get the initial documents needed to verify that you can be preapproved) and then the “processing” phase – which is where we get the most current information that is available right before closing.
This is why we typically need the most current paystub received, or the most current bank statement received. In other cases, over the course of processing of the loan – we discovered that there was some information that was provided (such as an Earnest Money check) that isn’t on a bank statement that is the most recent one we have in the file – and this can trigger another item needed.
Many of the documents, per Agency underwriting guidelines, must be dated within so many days of application or closing – which means that documents which were great to issue a preapproval on, say, June 15th, will now be too old for a loan that is closing July 30th. Due to this, many of the documents need to be updated in the file.
Will pulling my credit report hurt my scores?
Generally – no. Mortgage inquiries are unlike any other type of credit inquiry (usually “consumer debt” inquiries) you can have. Consumer debt inquiries are where someone can walk into a store (Nordstrom or Home Depot are good examples of this), apply for a credit card, and walk out of the store with lots of things in a shopping cart and new, potentially maxed-out credit card.
This can be very, very bad – especially if an individual goes into one store, then another, and then a third. Theoretically, they can go from one end of the mall to the other end and have $50,000 of new credit card debt. As a result, consumer credit inquiries will drop your score as soon as you shop (and open) the first card – to keep you from doing just that. However, mortgage inquiries are different. An individual can’t apply for four mortgage loans in a day and end up with FOUR closed mortgage loans in one day.
Mortgage loans take an average of 30 days to process from start to finish. As a result, most people who are checking their credit on a mortgage loan are simply preparing themselves for getting preapproved to buy a home, and due to this – mortgage inquiries don’t impact your credit score. You’re typically allowed no more than 3 in a 30-day window with no impact. You’re allowed to “reasonably” shop for a home.
Where do I make my first payment?
There is a “First Payment” letter that is part of your closing package that you signed at closing – it will give you instructions on where (and how much) to send your first payment IF you don’t receive a new notice from the service prior to the first payment coming due saying, “we’re your new servicer – send your payment here, now”.
What does escrow mean? (do I need to pay my own taxes and insurance?)
“Escrow”, when it comes to servicing the loan, means the money that is set aside as part of the payment to cover the property tax and homeowner’s insurance bills that will be coming up in the future. The lender will collect 1/12th of the actual cost for each, each month, and build up the escrow account with that money so that when the bill comes due, there’s enough money in the escrow account to cover that expense.
If you are financing your home with a government-insured loan (VA, FHA, USDA), an escrow account is required. If you are financing your home with conventional or jumbo financing, and you’re putting at least 20% down, or have at least 20% equity on a refinance, an escrow account is optional and not required, but there may be an “escrow waiver fee” charged by the servicer to not have an escrow account.