Mortgage

HOW TO

PREPARE TO BUY A HOME

TALK TO MORTGAGE BROKERS. Many first-time home buyers don’t take the time to get prequalified. They also often don’t take the time to shop around to find the best mortgage for their particular situation. It’s important to ask plenty of questions and make sure you understand the home loan process completely.

BE READY TO MOVE. This is especially true in markets with a low inventory of homes for sale. It’s very common for home buyers to miss out on the first home they wish to purchase because they don’t act quickly enough. By the time they’ve made their decision, they may find that someone else has already purchased the house.

FIND A TRUSTED PARTNER. It’s absolutely vital that you find a real estate professional who understands your goals and who is ready and able to guide you through the home buying process.

MAKE A GOOD OFFER. Remember that your offer is very unlikely to be the only one on the table. Do what you can to ensure it’s appealing to a seller. FACTOR MAINTENANCE AND REPAIR COSTS INTO YOUR BUYING BUDGET. Even brand-new homes will require some work. Don’t leave yourself short and let your home deteriorate.

THINK AHEAD. It’s easy to get wrapped up in your present needs, but you should also think about reselling the home before you buy. The average first-time buyer expects to stay in a home for around 10 years, according to the National Association of REALTORS®’ 2013 Profile of Home Buyers and Sellers.

DEVELOP YOUR HOME/NEIGHBORHOOD WISH LIST. Prioritize these items from most important to least.

SELECT WHERE YOU WANT TO LIVE. Compile a list of three or four neighborhoods you’d like to live in, taking into account nearby schools, recreational facilities, area expansion plans, and safety.

OBTAINING A NEW LOAN

WHEN AND WHERE TO APPLY FOR A LOAN?

There are many sources for home loans including banks, credit unions, mortgage companies, and mortgage brokers. Your REALTOR® may give you several names of lenders who have proven reliable in their previous transactions. Apply for your loan as soon as possible. In fact, it’s probably a good idea to know what you can afford before you begin looking for your new home. It can give you more bargaining power when negotiating with a seller, especially in today’s market.

YOUR LENDER WILL MAIL OUT VERIFICATION REQUESTS

and order an appraisal on the property you are buying. If your lender asks for additional items, please comply promptly with those requests to avoid delaying loan approval.

WHAT IS HAZARD (OR FIRE) INSURANCE?

Hazard insurance covers the dwelling itself and is required by the lender to protect their “risk” in your home. Your lender will explain the necessary hazard insurance coverage to you. If you are buying a condominium, a master policy already exists which includes your unit—but it does not cover your personal belongings.

CONTACT YOUR INSURANCE AGENT EARLY IN THE PROCESS.

This coverage must be provided before the closing paperwork is prepared. Hazard insurance is one of the items frequently postponed until the last minute, and this can result in delaying the closing for a day or more. Order your insurance as soon as your loan is approved; then furnish your escrow officer and lender with the agent’s name and phone number.

When you talk with your insurance agent, be sure to ask about additional coverage in a homeowner’s policy to insure your personal belongings and to protect against liability for such events as injuries to visitors.

WHAT HAPPENS BEFORE CLOSING?

Once the lender and escrow officer have received all invoices and preliminary paperwork, the Closing Disclosure (CD) is prepared. The CD will be delivered to you no later than 3 business days* prior to loan consummation (signing), per federal regulations. The CD is intended to disclose costs associated with your loan. In addition to the CD, your escrow officer will prepare an estimated settlement statement. This statement indicates what funds go where, and at this time your escrow officer can tell you how much money you need to bring to the closing appointment. Be aware that this amount may be higher or lower than previously estimated due to changes in such items as prepaid interest, prorated fees, courier fees, and impound accounts.

What You May Need For The Loan Application

Be prepared to provide some or all of these items to your loan officer.

› Addresses of residences for last two years

› Social Security Number or taxpayer I.D. number

› Driver’s license or other valid I.D.

› Names and addresses of employers for last two years

› Two recent pay stubs showing year-to-date earnings

› Federal tax returns for last two years

› W-2s for last two years

› Last two months statements for all checking and savings accounts

› Loans: names, addresses, account numbers, and payment amounts on all loans

› Real estate loans: names, addresses, account numbers, and payment amounts on all loans for other real estate you own

› Credit cards: names, addresses, account numbers, and payment amounts on all credit cards

› Addresses and values of other real estate owned

› Value of personal property. Your best estimate of the value of all your personal property (autos, boats, furniture, jewelry, television, stereo, computer, other electronics, etc.)

› For a VA loan, Certificate of Eligibility or

DD214s

› Divorce decree if applicable

› Funds to pay upfront for the credit report

THE BASICS | BUYER

QUESTIONS TO ASK

WHEN CHOOSING A LENDER

Loan terms, rates, and products can vary significantly from one company to the next. When shopping around, these are a few things you should ask about.

GENERAL QUESTIONS: • What are the most popular mortgages you offer? Why are they so popular? • Are your rates, terms, fees, and closing costs negotiable? • Do you offer discounts for inspections, home ownership classes, or automatic payment set-up? • Will I have to buy private mortgage insurance? If so, how much will it cost, and how long will it be required? • What escrow requirements do you have? • What kind of bill-pay options do you offer?

LOAN-SPECIFIC QUESTIONS: • What would be included in my mortgage payment (homeowners insurance, property taxes, etc.)? • Which type of mortgage plan would you recommend for my situation? • Who will service this loan—your bank or another company? • How long will the rate on this loan be in a lock-in period? Will I be able to obtain a lower rate if the market rate drops during this period? • How long will the loan approval process take? • How long will it take to close the loan? • Are there any charges or penalties for prepaying this loan? • How much will I be paying total over the life of this loan?

ADJUSTABLE RATE LOAN. Adjustable or variable rate refers to the fluctuating interest rate you’ll pay over the life of the loan. The rate is adjusted periodically to coincide with changes in the index on which the rate is based. The minimum and maximum amounts of adjustment, as well as the frequency of adjustment are specified in the loan terms. An adjustable rate mortgage may allow you to qualify for a higher loan amount but maximums, caps and time frames should be considered before deciding on this type of loan.

ASSUMABLE LOAN. A true assumable loan is rare today! This loan used to enable a buyer to pay the seller for the equity in the home and take over the payments without meeting any requirements. Assumables these days generally require standard income, credit and funds verification by the lender before the loan can be transferred to the buyer.

COMMUNITY HOMEBUYER’S PROGRAM. This program

is designed to assist first-time buyers by offering a fixed rate and a low down payment, such as 3 to 5% down. The program doesn’t require cash reserves, and qualifying ratios are more lenient; however, the buyer’s income must fall within a certain range and a training course may be necessary if required by the program. Ask your Loan Officer if this program is available in your community and whether or not you might qualify.

CONVENTIONAL LOAN. This simply describes a loan that is not obtained under any government-insured program, secured by investors. It could be a fixed rate or adjustable.

FHA LOAN. This program is beneficial for buyers who don’t have large down payments. The loan is insured by the Federal Housing Administration under Housing and Urban Development (HUD) and offers easier qualifying with less cash needed upfront but the condition of the property is strictly regulated. The seller will pay a portion of the closing costs that would typically be paid by the buyer in a conventional loan program.

FIXED RATE LOAN. This loan has one interest rate that is constant throughout the loan.

VA LOAN. People who have served in the U.S. armed forces can apply for a VA loan which covers up to 100% of the purchase price and requires little or no down payment. Do not change jobs. A job change may result in your loan being denied, particularly if you are taking a lower paying position or moving into a different field. Don’t think you’re safe because you’ve received approval earlier in the process, as the lender typically calls your employer to re-verify your employment just prior to funding the loan.

The Loan Process - What to Avoid

Don’t pay off existing accounts unless the lender requests it. If your loan officer advises you to pay off certain bills in order to quality for the loan, follow that advice. Otherwise, leave your accounts as they are until your escrow closes.

Avoid switching banks or moving your money to another Institution. After the lender has verified your funds at one or more institutions, the money should remain there until needed for the purchase.

Don’t make any large purchases. A major purchase that requires a withdrawal from your verified funds or increases your debt can result in your not qualifying for the loan. A lender may check your credit or re-verify funds at the last minute, so avoid purchases that could impact your loan approval.

THE BASICS | BUYER

WHAT TO KNOW

ABOUT THE APPRAISAL PROCESS

Once you are under contract, your lender will send out an appraiser to make sure the purchase price is in line with the property’s value.

APPRAISALS HELP GUIDE MORTGAGE TERMS. The appraised value of a home is an important factor in the loan underwriting process. Although lenders may use the sale price to determine the amount of the mortgage they will offer, they generally only do so when the property is sold for less than the appraisal amount. Also, the loan-to-value ratio is based on the appraised value and helps lenders figure out how much money may be borrowed to purchase the property and under what terms. If the LTV is high, the lender is more likely to require the borrower to purchase private mortgage insurance.

APPRAISED VALUE IS NOT A CONCRETE NUMBER. Appraisals provide a professional opinion of value, but they aren’t an exact science. Appraisals may differ quite a bit depending on when they’re done and who’s doing them. Also, changes in market conditions can dramatically alter appraised value. APPRAISED VALUE DOESN’T REPRESENT THE WHOLE PICTURE OF HOME PRICES. There are special considerations that appraised value doesn’t take into account, such as the need to sell rapidly.

APPRAISERS USE DATA FROM THE RECENT PAST. Appraisals are often considered somewhat backward looking, because they use sold data from comparable properties (often nicknamed “comps”) to help come up with a reasonable price.

THERE ARE USES FOR APPRAISED VALUE OUTSIDE OF THE PURCHASE PROCESS. For buying purposes, appraisals are usually used to determine market value or factor into the pricing equation. But other appraisals are used to determine insurance value, replacement value, and assessed value for property tax purposes.