For a new home buyer, applying for a mortgage can be exciting — and overwhelming. The paperwork involved can be dizzying. One mortgage CEO talked to MarketWatch about his top three tips that may help prospective homebuyers.
Greg Schwartz, co-founder and CEO of Stamford, Conn.-based Tomo Mortgage, said that before committing to a mortgage, home shoppers need to seek more information on the different types of mortgages available, and also be clear on their goals.
Greg Schwartz, co-founder and CEO of Tomo Mortgage.
Photo by Tomo Mortgage
Tomo Mortgage is a mortgage originator and licensed in 19 states. The company is hoping to digitize the mortgage process and bring down costs, like fees and such, for homebuyers, as well as speed up the process.
In an interview with MarketWatch, Schwartz said that instead of simply going to your broker with a bunch of financial documents, which could take six or seven days to get you a pre-approval, companies like Tomo are working to simplify the process, and everything is pulled from online databases, which considerably shortens the time it takes to get pre-approved for a mortgage.
Earlier this month, Tomo launched a product that can get prospective homeowners approved for a mortgage in 3 to 4 minutes, Schwartz said.
After working at Zillow, Schwartz said he “fell in love with the mortgage industry” which he admits is not a sentiment many express. “I found the complexity, the capital market element, and a very interesting cost structure in this industry that is massively unnecessary,” Schwartz said.
With rates double where they were a year ago, homebuyers are looking for a good deal. Here are Schwartz’s top three must-dos when looking for a mortgage:
Tip #1: Get a loan estimate
First, look for transparency, Schwartz said. And that starts with getting a loan estimate.
A loan estimate is a three-page form that you get after applying for a mortgage, but before your application gets approved or denied, according to the Consumer Financial Protection Bureau.
This loan estate provides information like your estimated interest rate, monthly payment, total closing costs, tax, insurance, and so on.
““We recommend customers look at multiple loan scenarios, based in particular on how much money they’re willing to put down in the down payments.””
— Greg Schwartz, Tomo Mortgage
Getting an estimate is something “I recommend to every family member, everyone I talk to,” Schwartz said.
If you have multiple loan estimates, you can compare them and see which lender offers you the best deal. And if one lender is offering a lower-than-usual rate, you can use that offer to shop around with others, and negotiate.
“So that would be the one thing, to ask every friend, every family member and every reader of yours — always get a loan estimate” Schwartz said.
Tip #2: Ask for loan scenarios
Schwartz’s second tip is to ask your lender for different scenarios. And by that he means, what happens when you put different amounts down, or if you’re adding different income sources, and so on.
“We recommend customers look at multiple loan scenarios, based in particular on how much money they’re willing to put down in the down payments,” Schwartz said.
“There are step changes in loan size that actually make big, big differences in rates that can be as much as an eighth of a point difference in rates,” he explained.
People should ask their lender to run scenarios, such as what happens when they put 20% down, versus 25%, or 15%, and see what happens to their monthly. They could also ask them how much their mortgage loan changes when their income sources change.
Also look at points, Schwartz said, in which a potential borrower can pay fees to lower their mortgage rate. Sometimes you can buy your rate down by a quarter of a point, or more.
Ask your lender to break out these scenarios in an Excel spreadsheet, or something similar, and see what your obligations are, he stressed.
Tip #3: Be realistic about how long you’re gonna live in the house
Lastly, figure out what’s your plan with the home you’re looking to buy.
“Be realistic about how long you stay in your house. It has a fundamental impact on what’s gonna cost you with mortgages,” Schwartz said.
If you’re going to stay in the house for more than five years, look at points, Schwartz said.
But if you know you’re staying there for less than five years, then an adjustable-rate mortgage may work better for you, and that would save you some money.
And also be real with your partner, or whoever you’re buying the house with, about how long you’re likely to be in the house.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at email@example.com