The Mortgage

After you sign the contract you have seven days to meet with the mortgage company.  The place I went to they didn't have weekend or evening office hours, so be prepared to take a few hours off from work for this, but I am getting ahead of my self, let's talk about mortgages in general.

Most people buying a home don't have the money to pay cash, so they take a loan or a mortgage.  A bank or someone else gives you money, and in return you pay it back, a little every month.  You also have to pay them interest, think of it as you buying the loan of money, every month you'll be paying interest/buying the loan by paying more than what you borrowed.  The longer they loan you money for, the more it cost to buy the loan.  A standard mortgage is for 30 years which is a long time, but you can also do 20, 15 or even shorter loans.  In addition to paying interest there are many other fees that are required to buy the loan.  There will be an origination fee which is expressed in points or a percentage of the mortgage (1 point is 1 percent of the money that they loan you).  You will pay the origination fee when you take control of the house (that is also the time the money is officially lent to you and you start paying interest).  There will also be a lot of flat fees such as appraisals, application fees, credit report fees and the like.  You'll also pay this at closing.  To save the most money (now and over the next 30 or so years) you will want to minimize these fees which is why you want to shop around.  It's a really good idea to shop around, all lenders will give you a good faith estimate of all the fees.

Ryan homes wants you to go with their lender, NVR mortgage.  Just so you know NV Inc owns both Ryan Homes and NVR Mortgage (they also own other companies like NV Homes), that is why they want you to use NVR mortgage.  They offered us a free finished basement (actually only part of it was free, since we added the morning room on we had to pay for the extra part of the basement to be finished).  This does not mean that you should just bend over and go with NVR mortgage but first I want to discuss what is legal and not legal (and barly legal) in terms of packaging a new construction home with a mortgage.

In Maryland (and other states) there is a law that says a builder can offer incentives to a buyer to use a certain mortgage company; however, they have to offer you a mortgage comparable to what you can get shopping around.  This means that they cannot put fees in or higher interests rates to negate your incentive.  If your state doesn't have these laws there are also federal anti-trust laws that could be used to stop the mortgage company of adding unreasonable fees/interests rates to make back the incentive; however, after I looked at these laws I feel that it doesn't really stop it.  Lucky for me I am in Maryland so I am protected, but that doesn't mean I should let my guard down.  I got a couple good faith estimates from the two banks I do business with along with some research online (you can get a loan from an online company as well).  I came armed with this knowledge when I showed up at my NVR mortgage appointment.

The first thing they will do is take all of your financial documentation that you brought, the Ryan rep will give you a long list when you sign the contract.  This will include the last two months of statements for your bank accounts, investment accounts, pay stubs and two years of your federal taxes.  They will also want statements of your loan payments (including any loans you cosigned on, such as that student loan your parents are still paying off).  You will need to provide your spouses as well.  The reason they want your bank statements is they want to see if you got any large payments recently (besides your job).  This is because when considering your down payment in figuring your interest rate it matters weather you saved it up or your parents gave it to you.  The reason is if you saved it you must be more responsible.  If your parents plan on giving you money, you may want to consider getting it in your bank account a few months ahead of time.  Everything else they want is just to verify your financial situation, what you make and what you owe.

I brought all of the info they needed, but I forgot one month bank statement for an account. No worries though we were able to finish everything and I mailed it to them the next day. After going through all the paperwork I brought they gave me a good faith estimate.  I was expecting some large fee that they were going to try to swindle me with to make up for the incentive they offered me.  To my delight there estimate was between the two estimates I had already gotten.  All of them had the same interest rate and were pretty close in fees.  After looking it over and finding it acceptable I signed that I wanted to proceed with the loan approval and then she came back with a ton of papers to sign.  There were papers for this and that.  As I mentioned before I read stuff before I sign.  She was patient with me while I skimmed through everything.  There was nothing complicated or a surprise and she explained any questions I had.  I went by myself, which was fine.  After signing all the paperwork she made copies and I brought them home for my wife to sign.  She also provided me a UPS envelope prepaid so I could overnight it back to her.

Just because my NVR mortgage was similar to the banks doesn't mean it will be for you.  If you are borderline between interest rates you may save big by using a lower mortgage rate at a bank than NVR mortgage.  Google amortization calculator and you'll be able to figure out what your monthly payment will be and how much interest you will pay back for different loan amounts and interest rates.  That $10,000 incentive might look like pennies when you see how a slight change in interest rate changes how much money you pay over 30 years.  Plus that $10,000 finished basement (or other incentive) isn't really $10,000 since you could have a contractor come and and do it for $7,000 after you buy the house, but I will talk about that in a post coming up real soon.  So GET MULTIPLE GOOD FAITH ESTIMATES!!!

Overall I felt that NVR mortgage was no different that the two banks I also went to.  They didn't have the lowest offer, but it was definitely comparable, and with the incentive of the finished basement it was worth it.  The customer service was good, but so were the banks.  They did have free coffee and a good coffee station with milk and Splenda that I took advantage of, but I deserved that because it took almost three hours to go through everything (45 minutes of that was probably me reading/skimming everything, but you'll do that too).  Overall the experience was average compared to the banks except I got coffee.

On a second to last note, NVR mortgage most likely will sell your mortgage to a different company the second you close on your home. In fact it is so likely that they have you sign a paper that tells you that they don't hold mortgages long term and intend to sell it.  This practice is very common; although, I don't completely agree with it (but that is something for congress to fix).  So don't be surprised if it ends up at a big bank or even with someone you never heard of.  Your terms won't change, just who you make the check out to.  The reason I don't like this practice is that I feel part of shopping around for a mortgage should involve shopping around for a company that you are willing to do business with.  For example I would never do business with Chase banks (they stole my mom's money after she passed away by assessing fees to her account, I felt this was immoral); however, Chase may end up with my mortgage and I'll be forced to deal with them.  That is just the way of mortgages.

On a last note there are many complexities to mortgages; however, they are easy to understand.  I may write a blog in the future about it but you should understand your mortgage before you get one.  Google how mortgages work or ask your parents or a friend that has a good financial head. Consumers not understanding how a mortgage works is part of the reason we had a financial collapse, the others being that banks let people take loans they knew they didn't understand and had little chance of being able to pay off.  Also if you are confused ask the banker or person doing your loan.  If they can't explian any part of it to you then don't sign.  Understanding your mortgage s your responsibility.  There are also many types of loans, from fixed to adjustable to ones with balloon payments.  From what I can tell NVR only offered fixed loans which with the low interest rates we have now is the best loan for everyone.  I didn't ask the rep if they offered other types of loans so I would like to hear from other people, were you offered anything except a fixed rate loan from NVR mortgage?