Mortgage, Closing Decisions and Title Companies
I know more about mortgages than I ever thought I would, mainly because we do very little cash over the barrel head homes. Instead, 99 percent of our clients use mortgages, and over the years, you begin to pick up a thing or two.
This chapter is designed to help you understand your mortgage, closing decisions and title companies based on at the time of this edition, thirty years of dealing with them.
Experience Comes With Practice
The one thing you don’t want to trust your new custom home mortgage to is inexperience. As I stated in the last chapter, a custom home is often one of the client’s biggest purchases in life, and you don’t want inexperience to throw a monkey wrench in the process.
Instead, you want to deal with people who are doing mortgages, and only mortgages, every day, for a living. Oftentimes, a client will come to us and want to use their own mortgage provider, but we prefer to work with one preferred lender because we know he knows what it takes to get the job done, on time, with all the i’s dotted and t’s crossed.
Not only do we work with them on a regular basis, but they also specialize in new home loans, and only new home loans. They’re not sitting at a bank desk handling car loans in the morning and boat loans in the afternoon and condo loans the next morning and motorcycle loans in the evening, and look, finally a home loan comes across their desk.
Why is this so important to us? The fact is, new home loans are different than other types of loans, even used home loans and especially car, motor home, trailer home, commercial building or motorcycle loans. Rather than someone who does all kinds of loans but is expert at none, we prefer to deal with someone who is an expert at new home loans.
This helps us eliminate surprises, makes us confident that you’ll get the best rate and broadens your options for different kinds of programs. What’s nice about our preferred lender is that he’s part of that overall team feeling you get at WhiteStone Custom Homes. This makes him not only part of the process, but part of a seamless process that you might not get with an outside lender who doesn’t have that same “team” mentality, or even personal connection.
Obviously, we can’t choose lenders for you. It will always be your option as to which lender you choose, but we highly suggest our preferred lender for the reasons listed above.
If you are not building with WhiteStone Custom Homes, I would suggest asking your realtor and checking some of the reference web sites such as Yelp to find a lender familiar with the nuances of custom home building. Generally, some of the larger high production lenders do not have the personnel to manage a more hands on loan that you would need with this type of building.
Fast, Good or Cheap, But Not All of the Above
The “designer’s triangle” states that you can get something fast, good or cheap, but not all three. The same holds true for mortgages. So, for instance, if you’re getting a really cheap rate, something is suffering on either the quality or expediency end. The rate may be being offered by a fly-by-night company or a company offering a “special deal.” We call these mortgage companies a “Bubba Mortgage Company.” Remember, we are based in Texas.
Ultimately, however, they’re not part of the team and, if something goes wrong with the loan they’ll inevitably blame it on the home builder, not themselves. It can lead to petty squabbles or even blown deals, and we never like to see that happen to anyone.
Let’s say you want to at least “price” or “term” shop and are looking for an outside lender, where would you start? I always suggest the internet. There are a lot of great apps for finding mortgage rates, terms, loan durations, and the like, that will work like a breeze when you type in the parameters of your search, such as how much you’re looking to borrow, for how long and your ideal interest rate.
Making a Commitment
When you find a mortgage company that fits your needs, what next? Well, when you’re working with WhiteStone Custom Homes, we ask that you go to your loan officer and get what is called a “commitment” loan.
A commitment letter is different than an opinion letter or credit approval. Those may be fine for used or existing homes, but building a custom home takes a larger commitment and we actually require the more formal commitment letter over a simple credit approval.
Why we insist on this is because we have to take that commitment letter from your loan officer to our bank in order to borrow the money necessary to build your home for you.
This letter gives the bank confidence in the fact that someone wants to buy that home when we’re done, i.e. we’re not just building it on spec and hoping to sell it after it’s finished.
Many people don’t want to go through the process of getting an actual commitment letter because to do so requires the lender to check their credit, which may “ding” or affect their credit rating if enough people check it before obtaining the letter.
We fully understand and want to honor that fact. On the other hand, making a commitment is a big part of the home building process, for you and for us. If you’re building a home with us or any builder, however, at some point you need to make a commitment regardless of your stellar credit rating.
Once you commit to getting the commitment letter, your lender will enter another, more critical phase of the lending process. Here, the company will need to get down to business, obtaining verification of employment, deposits of record, tax receipts, etc.
It’s vital that, as the loan approaches, you begin to gather this material together, and there are many forms on the internet, most likely on your lender’s website in particular, to help walk you through this.
Of course, getting a loan is never guaranteed. Regardless of your financial situation, now is the time to get good credit, make it better or keep it stable. I always tell prospective clients that now is not the time to go out and open up a bunch of credit cards, buy a new car or boat or otherwise “rock the boat” when it comes to your precious credit.
The loan is not entirely based on income, after all, but your ability to pay the mortgage loan in relation to various other factors, such as your income, outstanding debts, new debts, etc.
I know it can be tempting to rush out and buy a ton of new furniture, a new bed or master bedroom suite, massive grill, etc., in anticipation of moving into the house. But, wait until you get the financing set and in stone and then go out and splurge if you still want to. It may sound severe but I’ve seen many instances where people come in and see us, get excited about our model homes and design plans, get into initial talks with us, and in anticipation of working together, go out and charge massive amounts on new furniture for the home. But when a creditor sees that type of sudden and massive new activity on top of a $300,000 to $900,000 mortgage commitment, these folks have essentially disqualified themselves from the loan with their premature spending spree. Think about it before your home is built. You have put substantial deposits down and now you don’t qualify for the home. It is not worth it, trust me.
What’s more, it’s not just the initial borrowing phase, but further on in the process that counts. As you might imagine, in our current economic client lenders are extremely cautious. Many insist on another credit review, or update, before the closing date, so if you go out and splurge during that time you could still put your loan at risk.
The current home lending climate is such that upon closing of your home loan, the lender may send out an appraiser to ensure the home is up to completion and code.
As construction nears its end, about 45 days in advance of completion, our office will send you a letter posting an official, expected date when your home will be finished. As the date nears we get firmer and firmer about an actual date, and will update you on that, as well. This allows you to settle up issues with your current home, arrange for movers to come, pack your things, etc. I would suggest you ask your builder for a firm date at this time as well.
As far as your mortgage goes, you will have your closing at a title company. Now, we use the same title company all the time and for the very same reasons we like to use a preferred lender. I would suggest that customers of other builders use the title company they suggest or use a good reference web site like Yelp.
As part of our “team,” this preferred title company can make sure all the documents are there, we know they’ll work with us on scheduling and deadlines, they’re proficient with the paperwork and, what’s more, we trust them.
That’s our job, actually, to find trusted vendors to help make your custom home a dream home, and that’s why we work with so many people over and over again. We like to work with people who know what they’re doing, do it for a living and can be trusted, again and again, to do it well. That way you can worry about moving into your home, and we can worry about the details, including the title company.
At the end of the closing at the title company, the mortgage lender will fund the loan, and once the paperwork is signed, you’ll get the keys to your new home. After that, the home is yours.
It’s time to move in, and that just so happens to be the topic of our next chapter!