Our Most Frequently Asked Questions – San Francisco Mortgage FAQs!
Ask me a question if you don’t see the answer you need here.
Before you jump into home ownership, it’s wise to take a moment to think seriously about your current financial situation and how buying a house will affect it. Ask yourself the following questions:
- Is my income stable and do I have a monthly budget? Do I have disposable income each month, or am I living from paycheck to paycheck?
- Am I planning to live in the area for at least three to five more years?
- What’s my current rental payment and what can I reasonably afford for a monthly mortgage payment?
- How much will property taxes and property insurance or condo dues cost?
- Am I currently able to save and/or contribute to a 401(k) or other retirement savings plan? Would I be comfortable diverting part or all of those scheduled savings into a mortgage payment for the next few years?
- What’s my current tax bracket and what will my new housing payment look like after figuring in the tax benefits?
- Will I have cash reserves left after closing in case the property needs repairs? Will I have money left to buy furniture and move?
- Is my employment situation stable? If I were to lose my job, do I have a safe fallback plan? Do I have the support of parents or other family members in case of a cash crunch? Do I have untapped credit available on credit cards?
It’s easy! We will chat for ten minutes on the phone and, based on our conversation, I can give you a rough price range. I will ask you about the following:
- What line of work are you in?
- How long have you been at your job?
- What is your annual salary or other income sources?
- Where is your down payment coming from?
- What are your regular monthly debts such as car loans, credit cards and student loan payments.
- Do you have an estimate of your credit scores?
To get started, we will need the following documents. Please don’t email these items to us directly; we will send you a link to our Secure Web Portal:
- Two most recent pay stubs
- W-2 forms for two previous years of employment
- Federal tax returns for two previous years
- Checking, savings, and brokerage account statements for past 2 months
- Most recent IRA and/or 401(k) account statements
- Photocopy of driver’s license and green card or visa (if applicable)
- Authorization to charge your credit card $25 for the credit report
Once you have filled out our online loan application, we will pull your credit report and one of our underwriters will review the documents you have uploaded to our Secure Web Portal. You will then have a 90-day commitment to obtain a mortgage for a specific amount from a specific lender based on the down payment you have available. Please note, however, that the rate will not be locked in until you actually find a house and are in escrow.
- I will issue the pre-approval letter once you locate a property on which you are writing an offer. It will not be a generic pre-approval letter. Generic letters are too open-ended and will not put you in the best competitive position.
- Our pre-approval letter will state unequivocally that you are fully approved for this particular property, subject only to a property appraisal and title report.
- We will not disclose your top price range to the sellers or their agents.
- At times, we may advise you that you do not need to include a financing contingency in your offer. That could make your offer more competitive!
In the San Francisco Bay Area, a true conforming loan for a single family home is under $417,000, a high balance conforming loan is under $625,500 and a jumbo loan is over $625,500. True conforming loans have the very best rates and jumbos have the highest rates.
Here are the conforming limits for multi-family units:
- True Conforming: $533,850 for 2 units; $645,300 for 3 units; $801,950 for 4 units.
- High Balance: $800,775 for 2 units; $967,950 for 3 units; $1,202,925 for 4 units
- FHA: $729,750 for 1 unit; $934,200 for 2 units; $1,129,250 for 3 units; $1,403,400 for 4 units.
One of your first decisions should be between a fixed rate (the interest rate and monthly payment remains constant for life of the mortgage) or an adjustable rate (the interest rate is adjusted — either up or down — at specified times during the mortgage term).
Adjustable Rate Mortgages (ARMs) start with a lower rate than fixed loans, but are subject to fluctuation after a specified period. They may be a good choice if you are fairly sure that you will not be owning the home for an extended period of time (more than five to seven years). However, you need to be sure that the adjustable rate is low enough to justify the risk that you will be in the home longer than you had planned.
- Easier to budget, since your payment is always the same
- No possibility of an interest rate change making your mortgage payment suddenly unaffordable
- No anxiety over interest rate fluctuations
- More income needed to qualify because of higher initial mortgage rate
- If interest rates go down in the future, you will need to refinance to get a lower payment
- Fixed rate loans are not assumable by a new buyer of your home
- If you make extra principal payments, you will shorten the life of your loan, and save on interest, but your monthly payment will not decrease.
- Lower initial monthly payments so you can “grow into” your mortgage
- You can choose whether you want the initial rate fixed for 3, 5, 7 or 10 years
- You may qualify for a larger mortgage, thus a higher purchase price
- Most ARMs can be assumed by a new buyer when you sell your home
- Good option if you plan to own the home for less than 10 years
- If you make extra principal payments during the fixed period, your payments may actually decrease at the next rate adjustment.
Please don’t underestimate the importance of a splendid real estate agent. An agent can save you time or waste your time; he or she can be a great resource or a source of stress! Your real estate agent can literally make or break the deal for you.
These are the qualities of a good agent:
- Has earned an impeccable reputation in the local real estate community
- Is associated with an excellent firm that has lots of listings and activity, and holds an in-house tour of new listings once a week
- Works full-time at being a realtor
- Values your time
- Is an active listener
- Won’t let you pay too much for a property
- Is comfortable discussing both the pros and cons of a particular property or neighborhood
I have had the privilege of working with some of the best agents in the Bay Area and I would be happy to refer you to a super-hero realtor — just ask me!
Most offers are written with three contingencies, or ways out, if you decide you don’t want to proceed with the transaction:
- Inspection contingency (usually about 10 days)
- Appraisal contingency (usually about 10 days)
- Financing contingency (usually about 17 days)
Your realtor may advise you to hire a property inspector (either termite or contractor, or both) to evaluate the property and will let you know the cost. Such inspections are not counted as closing costs, and will not be included in your Good Faith Estimate.
We order your property appraisal as soon as your Truth in Lending form has been signed, and we will charge your credit card accordingly. You will receive a copy of the appraisal report and should not release your appraisal contingency until the lender has reviewed and approved the appraisal.
You can remove your financing contingency once we have issued your loan approval and you have provided us with all items requested by the lender. Please do not remove this contingency until you have discussed this with me and/or your realtor. It’s always best not to give notice on your apartment, hire a moving company or turn on utilities until we give you the green light.
Your realtor will open an escrow account with a local title company and you will deposit your earnest money (usually 3% of the purchase price ) into that account. A preliminary title report will also be ordered and you realtor will provide you with a copy when it arrives.
From this point forward, the title company will be coordinating the purchase of your home, making sure all monies are accounted for, and insuring that you are purchasing the property with a clear title.
As soon as you are in escrow, we will discuss locking in your interest rate. Mortgage interest rates change daily, sometimes hourly, depending on how the U.S. bond market and Wall Street traders respond to economic news on any given day.
Normally, I recommend that you lock in your rate for the next 30 days, which is the typical escrow period. The alternative to locking in your rate as soon as you get into escrow is to let it “float”, and hope that rates will be better when you get closer to your closing date. I usually don’t recommend this option, because rates can rise unexpectedly and with very little warning.
Points are fees you pay in advance to receive a lower interest rate in the future. One point equals 1% of the loan amount. When deciding whether you should pay points, keep in mind that the more points you pay, the lower the rate. A general rule of thumb is: for each 1.0 that you pay, you will save .25% in the interest rate.
Paying points may make sense in your particular case. Once you are in escrow, I will give you choices from various rates/points combinations. We will look at whether you will save enough on your monthly payment to justify the payment of points upfront.
A few days after completing your loan application, you will receive a Good Faith Estimate and a Truth-In-Lending form. The key information on these forms is the list of estimated closing costs.
- Origination Fees: Often called “points”, this is a one-time charge used to lower the interest rate. For example, if you want a 30 year fixed rate at 0 points, the rate might be 4.5%, but if you pay 1 point, the rate would drop down to 4.25%. One point is equal to 1% of the loan amount; on a loan of $500,000, the point would cost you $5,000 in additional closing costs. The origination fees on the Good Faith Estimate will include any points, lender underwriting fees and loan processing fees that you will be paying.
- Appraisal: This is a one-time fee – a statement of property value – performed by a licensed property appraiser. The fee ranges from $440 to $850, depending on the purchase price of the property.
- Credit Report Fee: The cost is $25.00 for each credit report, and will be charged to your credit card.
- Escrow Fee: This is a one-time fee charged by the title company to administer your escrow. This includes a title search, title report, the coordination of buyers’ and sellers’ funds, paying off loans on the property, making sure you take clear title to the property, and making various payments to third parties such as appraisers.
- Title Insurance Fees: You will purchase two title insurance policies: the lender’s title policy —ALTA — which protects the lender against loss due to defects on title, and a buyer’s title policy — CLTA — which protects you from title defects as long as you own the home. These are both one-time fees, although, if you refinance in the future, you will need to purchase a new lender’s policy.
- Miscellaneous Title Charges: The title company may charge fees for recording the deed of trust, document preparation, notary, email receipt of loan documents. These are all one-time charges and are fairly minimal.
These are fees you first pay at closing, then continue to pay as long as you own the property.
- Prepaid Interest: Depending on the date your transaction closes, this charge varies. If your loan closes at the beginning of the month, you will probably have to pay the maximum amount of prepaid interest. If your loan closes at the end of the month, you will only have to pay a few days’ interest. Either way, this is a tax deductible item.
- Taxes and Hazard (Fire) Insurance: You will pay your first year’s insurance premium at the closing and any property taxes that may be due.
- A few days before the closing (the date the property officially becomes yours), your real estate agent will set up an appointment for you to sign papers either at the escrow company, or at home with a mobile notary.
- Please bring a copy of your driver’s license or passport for ID to the signing appointment.
- The final amount due at closing can be in the form of a cashier’s check or a bank wire and must be received the day before the closing.
- The funds for your new loan will arrive at the title company the day before closing as well.
- Your escrow officer will notify everyone when your transaction has been recorded at City Hall, and you will receive your keys that day.
Your first payment is due the first day of the month after your loan closes. For example, if your loan closes September 15, your first payment is due November 1.
Why a time lag? When you close escrow, you will be paying prepaid interest from funding date to the end of that month. Example: if you close escrow on September 15, you will pay prepaid interest from September 14 to September 30. Your first mortgage payment due November 1 covers interest from October 1 to October 31.
Keep in mind that although your payment is due on the first day of the month, it’s not considered late until after the 15th day of the month. I often recommend that you set up your mortgage payment with your online banking to be paid by the 12th or 13th of each month. Make sure to check each month that the payment has actually been made by your bank. Being late on a mortgage will negatively impact your credit score.
We take our clients’ financial privacy very seriously. During the course of processing your application, we accumulate non-public personal financial information from you and from other sources about your income, your assets, and your credit history in order to allow a lender to make an informed decision about granting you credit. We restrict access to nonpublic personal information about you to those employees who need to know that information to provide products or services to you. We maintain physical, electronic, and procedural safeguards that comply with federal regulations to guard your nonpublic personal information.
We collect nonpublic information about you from the following sources:
- (i) information we receive from you on applications or other forms;
- (ii) information about your transactions with us, our affiliates, or others; and
- (iii) information we receive from a consumer reporting agency.
We do not disclose any nonpublic information about our customers or former customers to any third party, except as permitted by law.
Yes. This form causes a lot of confusion because of the APR, which many have heard of but few understand. You need to know that the APR is not the same as your interest rate.
Here are the main sections of the form:
- Amount Financed: This is your loan amount minus the prepaid charges. The amount financed is NOT the loan amount that you have applied for or are actually borrowing.
- Annual Percentage Rate (APR): The APR represents the interest rate of the note plus the prepaid items shown as a constant rate averaged over the term of the loan. In other words, it is the cost of the credit over 30 years expressed as an interest rate. THE APR IS NOT THE INTEREST RATE THAT YOU HAVE APPLIED FOR, NOR WILL IT APPEAR ON THE LOAN PAPERS THAT YOU WILL SIGN.
- Finance Charge: The interest you will pay over the life of the loan, if you keep the loan for the entire 30 years.
- Total of Payments: The total of principal plus interest you will pay over the next 30 years.
Yes, we are very experienced in this specialized loan type. Below is a list of items we will need, in addition to your loan application and supporting paperwork:
- Master Insurance Policy in the name of the HOA, with at least $1 million in liability coverage in addition to building coverage
- HO6 insurance policy on the contents of your unit
- Copy of the recorded CC&R’s and condo budget
- Amount of monthly condo dues assigned to each unit
- Current loan balance and property tax allocations
- Escrow company and attorney who has been handling your conversion