Form of the Week: Mortgage Worksheets — Forms 312, 320, and 320-1

Accompaniment of the buyer in mortgage financing

The ability of a buyer or owner to obtain funding is an integral part of most real estate transactions.

The buyer’s agentdesignated by the lenders as the transaction agent (TA) in the context of financing, owes its buyer the duty to ensure that it negotiates better financial benefit available from several mortgage lenders.

The duties imposed by law on agencies at the TA include:

  • help the buyer to find the most advantageous solution mortgage conditions;
  • monitoring of mortgage application submission; and
  • monitor the lender mortgage packaging process and financing conditions.

Remember that a lender’s objectives and goals are diametrically opposed to those of the buyer. The lender sells a product to potential buyers. Therefore, buyers have the freedom to accept or reject a lender’s offer.

The buyer’s agent owes a fiduciary duty to their buyer to help them acquire the necessary information to make an informed choice regarding their finances. Without mortgage information, a homebuyer cannot make an informed decision about which mortgage offers the best terms.

Thus, the buyer’s agent is obliged to accompany his buyers throughout the information asymmetry created by buyer inexperience and lender silence about the mortgage process and available mortgage options. Agents, who are familiar with the fundamentals of real estate and the conduct of lenders, are the only ones available to guide their buyers through the mortgage market.

Shop till you drop

The consequences of an uncompetitive mortgage search amount to a costly mistake for potential buyers.

According to the Consumer Finance Protection Bureau (CFPB), up to 30% of buyers do not compare their mortgage and more than 75% of borrowers have applied for a mortgage with only one lender.

This inability to shop around costs the average home buyer about $300 a year and tens of thousands of dollars over the life of the mortgage. In high-cost California, the average cost of not shopping is even higher.

Best practice is for mortgage applications to be submitted to at least two lenders. Without a backup request processed by another lender, the buyer has no ability to reject last minute changes from the lender. [See RPI e-book Real Estate Principles, Chapter 54]

Several government agencies also encourage the practice of submitting more than one application. To help the buyer compare the products of two or more lenders, government entities publish Mortgage Shopping Worksheets.

The Mortgage Shopping Worksheet published by Real Estate Publications, Inc. (RPI) is designed to be completed by the buyer with the assistance of the AT. The worksheet contains a list of all mortgage variables that commonly occur at inception and during the term of the mortgage. [See RPI Form 312]

Keep in mind that applying to multiple lenders will not negatively affect the credit scoreas long as the buyer completes all mortgage inquiries for comparison purposes within 45 days.

Related video: Preparing to meet a lender

Click here for more information on meeting with a lender.

Interest rate changes

A promissory note is a document given as proof of a debt owed by one person to another. It is given in exchange for a good as promise to pay. The sign promissory note is not the debt itself, but proof that the debt exists.

Promissory notes are partly distinguished according to interest rate calculationssuch as:

  • fixed interest rate bonds, commonly referred to as fixed rate mortgages (FRM); and
  • variable interest rate bonds, commonly referred to as adjustable rate mortgages (ARMs).

The most common type of real estate financing in the United States is FRM 30 years. Under this arrangement, the interest rate and scheduled payments remain fixed for the life of the mortgage, providing certainty for future payment obligations. [See current market rates]

The ARMS, as opposed to an FRM, provides for periodic interest rate adjustments after an initial teasing period. As a result, the amount of scheduled payments fluctuates from time to time and can increase significantly. The ARM provides the lender with periodic increases in its yield on the principal balance during periods of rising and high short-term interest rates. [See RPI e-book Real Estate Finance, Chapter 6]

Whether the buyer chooses an FRM or an ARM, they always have the opportunity to shop around for the best financing options available to them.

A buyer looking for an FRM, with the help of the TA, uses the Borrower’s Mortgage Worksheet – For FRMs to determine their best FRM term. [See RPI Form 320]

Similarly, a buyer who buys an ARM, with his agent, uses the ARM Disclosure Worksheet to determine their best ARM term available among mortgage lenders. [See RPI Form 320-1]

Customer Q&As:

Customer Questions & Answers: What is the difference between an Adjustable Rate Mortgage (ARM) and a Fixed Rate Mortgage (FRM)?

Mortgage Shopping Worksheet

An AT and its buyer use the Mortgage Shopping Worksheet published by RPI when a mortgage loan application is submitted to two or more lenders. The form allows the buyer to compare mortgage rates and origination fees offered by different lenders competing for the same type of mortgage. [See RPI Form 312]

The Mortgage Shopping Worksheet contains critical details of three different mortgages in a user-friendly columnar format, including:

  • the total amount of the mortgage loan to be financed;
  • the amount of down payment the buyer intends to make;
  • the term of the mortgage in years;
  • the total estimated monthly payment that the buyer will pay to the lender;
  • the monthly cost of private mortgage insurance (PMI) or mortgage insurance premiums (MIP), if applicable;
  • whether the mortgage has a fixed or adjustable interest rate, as well as the associated rate and conditions;
  • the lender’s margin on the mortgage;
  • the total expected loan and origination costs;
  • whether the mortgage contains a final/balloon payment, and if so, the amount and when it becomes due; and
  • the amount of any prepayment penalty the buyer will pay when they prepay the mortgage. [See RPI Form 312]

The worksheet is used to compare the terms of a purchase assistance mortgage Where mortgage refinance. Space is provided for entering mortgage terms offered by three competing lenders, and terms of an existing mortgage when a homeowner refinances.

Once complete, the buyer and their agent can quickly compare terms offered by competing lenders.

Related article:

The mortgage shopping spreadsheet – help your buyer close with the most competitive lender

Borrower Mortgage Worksheet for FRMs

A buyer, owner or their TA uses the Borrower’s Mortgage Worksheet for FRMs published by RPI when initiating the pre-approval or mortgage application process. The form allows the borrower to interview a lender and determine the most advantageous of the fixed rate financing options available. [See RPI Form 320]

The Borrower’s Mortgage Worksheet for FRMs includes all the details and terms of a fixed rate mortgage, including:

Once completed, the buyer or owner and his agent have all the information necessary to determine whether the borrower wishes to enter into the mortgage on the terms offered.

Related article:

FRM over 15 years compared to 30 years for the constitution of equity

ARM Disclosure Worksheet

A buyer, owner or their TA uses the ARM Disclosure Worksheet published by RPI when looking for the most advantageous ARM financing available to finance the purchase or refinancing of a property. The form allows the agent to provide the buyer or homeowner with a checklist for interviewing mortgage lenders and noting for comparison the terms they offer on an ARM. [See RPI Form 320-1]

The content of the ARM Disclosure Worksheet understand :

  • the name of the loan plan, lender, loan officer and address of the property [See RPI Form 320-1];
  • the monthly interest rate adjustment, the time of the first adjustment and the ceiling rate of the note, as well as the initial interest rate and its duration of effect [See RPI Form 320-1
  • §§1 through 4];
  • whether full amortization, interest-only payments, or accrual of the principal amount borrowed is a feature of the loan, and the terms [See RPI Form 320-1 §§5 through 7];
  • if a exigibility clause exists in the trust deed, and the terms of consent to an assumption on a resale [See RPI Form 320-1 §8];
  • if a prepayment penalty exists and, if applicable, for what period it applies and the terms [See RPI Form 320-1 §9]; and
  • whether the mortgage provides for convertibility into a fixed rate loan at the choice of the borrower, and on what conditions. [See RPI Form 320-1 §10]

Once complete, the buyer or homeowner with their TA is able to determine whether they wish to proceed with obtaining the mortgage on the terms offered or seek financing elsewhere.

Related article:

MLO Mentor: The Adjustable Rate Mortgage

Want to know more about supporting a buyer with mortgage financing? Click on an image below to download the RPI books cited in this article.

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