Marva Morris: Hi everyone! Thank you for joining us today. I am Marva Morris, your New Jersey Realtor, and I’m here today with Matt Fischman who is a mortgage loan officer. Matt, introduce yourself.
Matthew Fischman: Hey Marva! Thanks for having me on today. My name is Matt Fishman. I am a mortgage loan officer with Barrett Financial Group. I’ve been in the business for 16 years and I am looking forward to sharing some helpful information today that’s going to help you in your home buying journey.
Marva Morris: Excellent, excellent! So today is an exciting day. I’m only kidding But we have to tell you about it today. We’re talking about how to read a mortgage quote Because you know, you get that information and the only thing that we want to know is the bottom line. Pretty much, how much do I have to put down and what is my payment gonna be. But Matt’s gonna put up one up live for us and he’s going to go through the entire process with us and kind of explain to you what that it actually all means. So Matt, we’re gonna share my screen here and we’re gonna dive right in. And by the end of this you will know how to read a mortgage quote. So just one moment here. I know I’m excited! What about you guys?
Matthew Fischman: You can put some toothpicks in your eyes if they start to shut. That’s my recommendation. LOL. Alright. So we should have my my screen up here. So this is what a mortgage quote looks like. Every lender may use a slightly a different format, but this is what we use here at Barrett Financial Group. Personally I think it’s easy to read. I’ve seen more complicated ones, but we can just kind of dive right in.
At the top you’re going to see loan details. You can kind of think of this as a bird’s eye view of the overall terms of this quote, so to speak. So this is telling you that this is a regular old conventional mortgage. It’s a 30-year fixed mortgage. As of the date that this quote was generated, the rate was 6.49%. APR stands for annual percentage rate. That always calculates out to be a bit higher than what the rate is because mortgages have closing costs and sometimes mortgage insurance. In this example we used a $300,000 price, did a 5% down payment, which gives you a loan amount that results in $294,500. And then this is for a primary residence, single family detached home meaning that it’s freestanding and it doesn’t share walls with another house. LTV / CLTV stands for loan to value ratio and combined loan to value ratio. It’s a value ratio. The long and the short of it is that’s basically the opposite of your down payment. If you’re putting 5% down, you’re borrowing the remaining 95%.
So in this example we can hop over to the right hand side and we can see what the monthly payment is. So mortgage payments have a number of different components to them, So the principal and interest portion of the payment is $1,859 and that means that’s just the mortgage itself, without anything else, just the loan, is this amount per month. Now you’re also going to have hazard insurance and that’s just the technical term for homeowners insurance. I used $1,500 per year in this example which breaks down to $125 per month. And then for the real estate taxes, those are going to vary on each home. This particular example uses $9,500 per year for real estate taxes, and that works out the $791 per month. Lastly, you have mortgage insurance. Sometimes that’s also referred to as PMI, which means private mortgage insurance, This amount scales up and down with the loan amount and also depends on your down payment and your credit score. So it’s going to be unique to every situation. But that’s another $61 dollars and change per month. So when you add it all up, your total payment, that you would either write a check for, or have debited out of your bank account every month, would be $2,837 and change, for this particular scenario. Obviously a lower price and/or lower taxes would yield to lower payment so each house is going to have its own unique payment.
So then we can get into the closing costs. These are paid in addition to the down payment and there’s again, different components to them. We can scroll down here and the lender fees, everything that we charge, is $1,498. (Fyi – As of the time of this post, please note our lender fees are now closer to $1,000) and that’s the total fees that we charge as the lender. In this situation, everything else you’re going to see is a 3rd party fee, not charged by the lender or bank. Obviously you want to know what those are going to be because they effect your bottom line. So we can kind of do a quick rundown of those. You’re going to need to get the home appraised which is $550. If you move forward, the cost of the credit report is passed along to you which is $125. The flood certification is where we check to see if the house needs flood insurance. Then you have your title fees here in this section. That’s the legal end of things. It’s transferring ownership, it’s issuing what’s called a title insurance policy and it’s recording the supporting document that show the transfer of ownership in public records . It’s also background searches on you as the buyer, on the seller and on the home to make sure there’s no liens or judgments or any lawsuits that have attached to the house’s deed. This ensures that you get a clean title when you obtain ownership of the house. Then you have some optional fees down here. Attorney fee -technically you’re not required to hire a real estate attorney but it is highly recommended. Most people do obtain one. You’re looking at approximately $1,500 for that. The survey fee – that’s when somebody comes out and surveys the land. They have one of those tripod devices and they check for the boundaries of the property. A lot of times there’s very clear maps in the public records that define the property boundaries and you don’t need one. But if you do need a property survey you’re looking at about $500 for that. On this page 1, these are the actual hard costs for services that are being rendered and you’d be looking at $7,540 total in this example.
So then we’re gonna hop over to page 2. There are more costs but they’re technically not fees .They’re actually you paying things in advance of when they’re due. They still do effect your bottom line and how much you need at closing so they’re here in this escrow and prepaid section. A few things to point out there – you do have to pay your homeowners insurance, in full, for the for the whole entire year. It’s not like auto insurance where you can pay as you go. So we’re seeing $1,500 here for that. And then you’re also seeing some line items here having to do with additional homeowners insurance and property taxes here and here. How it works is you may have heard the term called escrow. A lot of people don’t know what that is. But what that means is that your taxes and insurance are built into your mortgage payment. As you saw on page 1, a portion of your payment is allocated towards taxes and insurance. So we actually take that money every month and we put it in a separate account called an escrow account. It’s almost like a savings account that we maintain for you. Every month you make a payment that balance is going up from the payment you made into it. And then when the taxes and the insurance are due in the future, we literally write a check out of that account and we mail it to the tax collector or the homeowners insurance company on your behalf. In the months when those are due the balance of escrow account is going to drop because we just paid taxes and/or Insurance on your behalf. So to kind of circle it all back – At closing we have to figure out – okay here’s our closing date. When are the taxes and insurance due again in the future. And then we have to deposit funds into the escrow account at closing, so it starts out with a positive balance so there will be enough money built up in that account by the time the taxes and the insurance are due again in the future. I know that can be a little confusing. But at the end of the day, this is based on 5 month’s worth of taxes and 14 month’s worth of insurance. That’s how we came to arrive at these figures. And then you also have something called prepaid interest. That means you’re going to pay all the interest that’s going to rack up from the day you close out until the last day of the month. But since you’re paid in advance on interest, the benefit to that is you essentially get to skip your first month’s payment. So if you closed in, let’s say, May, there’s no payment due June 1st. Your first payment is going to be due July 1st because you already paid that interest at closing. So when you add all these up, you end up with $6,610 and change.
If everyone’s still with me, we’re almost at the end here. Yes the the end is in sight. Just hang with me for a couple more minutes. To put it all together, we have what’s called cash to close. It’s the total of your down payment and all these various costs. 5% of the price is your down payment in this example. 5% down is $15,500. Then we have all those actual hard costs from page 1. If you recall, they are $7,140. And then all these prepaid and escrow items from page 2, is $6,610. So when we add all this up, when you go to closing, or settlement as it’s sometimes called, on that day, you would need a a cashier’s check in the amount of $29,250 and change. That would cover your entire out of pocket cost to purchase this home in this example. So that’s how to read a mortgage quote and that’s your your crash course in doing so.
Marva Morris: How are you guys feeling about that? I feel like I know now what it all means. And it’s all hard – you get those pieces of paper and you’re thinking, what does this all mean. But you want to know, at the end of the day, what your closing costs are going to be because it usually takes 45 to 60 days to close once you find the home that you need. So this way when you get that upfront you’re going to know approximately how much money you will need for closing so you can be prepared for that. So thank you Matt for all that information.
Matthew Fischman: You’re very welcome!
Marva Morris: The math Geeks out there they’re all excited like, “whoa okay, I’m loving it!” And the rest of us are thinking – great information to know, but would you want to sit through it again? Thanks Matt again for showing us that today about how to read a mortgage quote. So thank you so much. That was phenomenal! So any last words before we sign off here?
Matthew Fischman: No. I just wanted to thank everybody for their time. I’m always available if anyone has any questions and I hope everyone found that valuable and you all have a great rest of your day!
Marva Morris: Thank you! So we want to thank you for joining us today. And make sure you look out. We’re going to have homebuyer seminars. We did a whole series. So if this is your first time watching one of our videos, go back and look for the other ones that we did. We talk about everything regarding the mortgage process and the home sale process. Hopefully you’ll get to catch them. And make sure you put your comments in there. And follow us on our different social media platforms. We look forward to seeing you and talking to you, in person, when we have our home buyer seminar. Have an awesome day! This is Marla Morris, your New Jersey Realtor. Take care.