Why do financial documents have to be so difficult to understand?
As I helped yet another new homeowner-to-be (congratulations!) read through the Estimated Mortgage Worksheet (the document the mortgage lender gives you when you first apply for a mortgage loan), I wondered why they do this.
The one page document is broken up into six subsections. Each one has its own subtotal. It is like having a puzzle with only six pieces, but those pieces are not easy to fit together.
But, instead of going in some kind of logical order, or making it easy to see how each piece of the puzzle fits into the total picture, they make the reader work to figure out how things fit.
While all of the parts are important, there are a few key items you will want to know:
1. is it a fixed or variable rate?
2. what is the APR?
3. what is your down payment?
4. how much cash do you need to close?
5. what kind of mortgage is it?6. what is your total monthly payment, including principal, interest, escrow (usually homeowners insurance and taxes), and PMI?
In addition, check to make sure the mls, purchase price, term, and taxes are correct.
The mortgage company will determine when your first payment is due. Since mortgage payments tend to be due on the first of the month, seeing a how many days of interest are included in the “prepaid expenses” section will tell you how soon after your closing the mortgage company expects you to make your first payment. You definitely want to know this so you can make sure you have enough in your account to cover the payment and not incur any late fees.
Some of the closing costs may be paid ahead of time. The first year of homeowners insurance and the appraisal tend to be paid up front by the buyer. If this is the case, these amounts will be credited to your “cash to/from buyer” amount so you do not need quite so much cash on your closing date.
The document will also include your loan officer’s contact information and the lending institution’s name and address.
And, lastly, remember, this is only an estimate. Actual totals may change as you go through the mortgage process.
If you find financial documents confusing and overwhelming, you are not alone.
My mission is to help empower you to understand finances and be able to make the best decisions for you.
To that end I have a free How To Be A Money Master community right here on facebook and a program, Money Mom Academy, that can take you from wherever you are to the go-to financial resource for your friends and family. It has tons of support and never expires.
Feel free to join the community or ask me any questions you might have. I am here for you.