This Article Is About Borrowers Cost Out Of Pocket During The Mortgage Process 

There are two types of costs involved when buying a home:

• The down payment on the home purchase
• The closing costs on the home purchase transaction

Down Payment And Closing Costs

The down payment required depends on the type of mortgage program.

• FHA Loans require 3.5% down payment
• Conventional Loans require 3% to 5% down payment
• USDA and VA Mortgages do not require any down payment and offer 100% financing
• Not everyone can qualify for VA Loans
• Borrowers need to be an active and/or retired member of the U.S. Military with Certificate Of Eligibility (COE)
• Non-QM Mortgages require 10% to 20% down payment
• Jumbo Loans require 10% to 20% down payment
• Investment Home Loans normally require 15% to 25% down payment
• Second homes require 10% down payment
• Condotels require 25% down payment
• Closing costs vary
• Most closing costs can be covered with a sellers concession by the seller and/or lender credit

In this blog, we will discuss when these costs are due and Borrowers Cost Out Of Pocket During The Mortgage Process. There are certain costs that home buyers need to pay prior to closing. These costs may or may not be refundable if the home purchase transaction does not go through.

The Pre-Approval Step Of The Mortgage Process

The home buying and mortgage process is a true process. The pre-approval step of the home buying process is the most important stage. The number one reason for a last minute mortgage denial and/or stress during the mortgage process is because the loan officer did not properly qualify the borrower prior to issuing a pre-approval letter. Unfortunately, there are still loan officers who issue pre-approval letters without thoroughly qualifying borrowers.

Loan officers need to do the following prior to issuing a pre-approval letter:

• Thoroughly interview borrowers
• Pull tri-merger credit report and go over line item per line item
• Ask borrowers if there are public records not reflecting on the credit report
• All public records not on the credit report will be discovered by the mortgage underwriter when they do a national third-party public records search
• Make sure there are no credit disputes
• Thoroughly go over income docs reflected on income tax returns, W2’s, 1099, and other financial documents
• Make sure where the down payment and/or closing costs are coming from and verify it by reviewing the documents
• Run file through the Automated Underwriting System (AUS)
• Make sure the borrower can meet all conditions listed on the AUS
• Make sure the borrower meet all Agency Guidelines and the loan officer’s employer’s lender overlays

The Home Shopping And Buying Process

Once the home buyer is armed with a solid pre-approval letter, they can now shop for a home.

• Once they find a home they want to purchase, they enter into a real estate purchase contract
• The home buyer needs to give an earnest money deposit
• Earnest money deposits are one of the Borrowers Cost during the mortgage process
• The earnest money is refundable if the buyer needs to back out of the deal due to contingencies listed on the real estate purchase contract

Earnest money can be anywhere between $500 to $5,000. The earnest money is used as part of the down payment.

Home Inspection And Real Estate Appraisal

Once both sellers and buyers signed the real estate purchase contract, the contract is submitted to the lender.

• A mortgage processor is assigned to the file
• The mortgage processor’s role is to prepare the file to get it assigned to an underwriter
• Home inspections are optional
• It is highly recommended buyers invest the few hundred dollars in getting a home inspection
• Home inspections are normally done prior to the home appraisal
• Home appraisals are borrowers cost prior to closing

Once the home inspection comes back to the buyer’s satisfaction, the lender will order a home appraisal. The appraisal is another borrowers cost prior to closing.

When Does Borrower Come Up With The Down Payment And Closing Costs

All down payment and closing costs are paid at closing. The earnest money is applied towards the cash-to-close needed at closing. If the home buyer has extra in sellers concessions, the home inspection and appraisal fee can be refunded to the borrowers. In the event if the deal does not close for one reason or another, the earnest money is normally refunded. The home inspection and appraisal costs are not refunded. For more information on this topic and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com.