June 11, 2009
Real Estate & Loans Dear : This brochure will give you some guidelines about loans when buying real estate property. Don't forget the importance of using a Realtor® for your real estate transactions. All real estate licensees are not the same … My goal is to make life-long clients who turn to me first and who recommend me to others - not just a quick sale. I believe honesty, integrity, hard work, commitment and creativity are all necessary to craft a truly successful real estate transaction. I bring passion for my work to every transaction. You will receive competent and professional service when you select me and Harry Norman, Realtors® to assist you in your search for a new home. We have assisted many families in this area in their search for their ideal home. I hope you will select me as your agent in this very important transaction.
Warm Regards,
Patricia Kalmeijer Realtor® & Relocation Specialist
The Home Purchasing Process Your Harry Norman, Realtors速 sales associate will guide you through each step of the purchase of your home. Below is an example of the steps involved from finding your home through closing the transaction.
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Preferred Mortgage Rate Home Program The Preferred Mortgage Rate Home Program is a unique marketing program brought to you by Harry Norman, Realtors® and HomeServices Lending. The sellers of our Preferred Mortgage Rate Homes have arranged for preferred financing exclusively for qualified buyers who finance their purchase through HomeServices Lending at a price and terms acceptable to the seller. Here’s how it works: For the seller: The seller agrees to provide a seller-funded preferred financing package provided by HomeServices Lending. The sellerfunded package will be used to offer a below-market interest rate for the purchaser of the home. The utilization of the Preferred Mortgage Rate Home Program must be agreed upon in the final purchase contract. Benefits to the seller include: • Preferred financing significantly reduces the monthly mortgage payment as a result of obtaining a below-market interest rate • It is easier to qualify for the purchase of this home as a result of preferred financing • The program creates an opportunity for buyers who may not be able to purchase when cash reserves are an obstacle For the buyer: The buyer who contracts to purchase a Preferred Mortgage Rate Home listing at a price and terms acceptable to the seller, and obtains their financing through HomeServices Lending, will receive a preferred financing package. A contractually agreed upon contribution will be used toward a preferred financing package as determined by HomeServices Lending. The utilization of the Preferred Mortgage Rate Home Program must be agreed upon in the final purchase contract. Benefits to the buyer include: • Preferred financing significantly reduces the monthly mortgage payment as a result of obtaining a below-market interest rate • It is easier to qualify for the purchase of this home as a result of preferred financing • The program creates an opportunity for buyers who may not be able to purchase when cash reserves are an obstacle The best move you’ll ever make is with our Preferred Mortgage Rate Home Program. For more information, please contact your Harry Norman, Realtors® sales associate or a loan representative from HomeServices Lending. All first mortgage products are offered and provided by Homeservices Lending, LLC Series A dba Academy Financial Services. Homeservices Lending, LLC Series A dba Academy Financial Services is licensed by the Department of Corporations under the California Residential Mortgage Lending Act and is a Kansas Licensed Mortgage Company at 2000 Shawnee Mission Parkway, Suite 225, Mission Woods, KS 66205 (License #: 2002-4390). Academy Financial Services may not be available in your area. ©2007 Academy Financial Services. All Rights Reserved. An Equal Housing Lender. Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Glossary of Home Buying Terms Adjustable-Rate Mortgage (ARM): A mortgage in which the interest rate is adjusted periodically according to a preselected index. Alternative Financing: A home financing program that accommodates borrowers with special qualifying factors, including unique employment, income or credit issues. Annual Percentage Rate (APR): A yearly percentage rate that expressed the total finance charge on a loan over its entire term. The APR includes the interest rate, fees, points and mortgage insurance, and is therefore a more complete measure of the loan’s cost than the interest rate alone. The loan’s interest rate, not its APR, is used to calculate the monthly principal and interest payment. Appraisal: A report made by a qualified person setting forth and opinion or estimate of property value. The term also applies to the process by which this estimate is obtained. Bridge Loan: A form of second deed of trust or mortgage that is collateralized by the borrower’s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new home before the present home is sold. Closing: The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes and the disbursement of funds necessary to complete the sale and loan transaction. Closing costs: The costs paid by the mortgage borrower (and sometimes the seller) in addition to the purchase price of the property. These include the origination fee, discount points, appraisal, credit report, title insurance, attorney’s fees, survey and prepaid items such as tax and insurance escrow payments. Commitment Letter: A formal offer by a lender stating the terms under which it agrees to loan money to a home buyer. Conventional Loan: A mortgage not obtained under a government insured program (such as FHA or VA). Debt-to-Income Ratio: A formula lenders use to determine the loan amount for which you may qualify. Also known as “back-end ratio”. Guidelines may vary depending on the loan program. Deed: The legal document conveying title to a real property. Escrow: An item of value, money or documents, deposited with a third party, to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be dispersed upon the closing of a sale of real estate. In some parts of the country, escrows of taxes and insurance premiums are called impounds or reserves. Fixed-Rate Mortgage: A mortgage which the interest rate and payments remain the same for the life of the loan. Float the Rate: This term is used when a mortgage applicant chooses not to secure a rate lock, but instead allows the rate pricing to fluctuate until the applicant decides to lock in, usually no later than five days prior to closing. Provided by HomeServices Lending
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Glossary of Home Buying Terms (continued) Front-End Ratio: Also known as the housing expense-to-income ratio, it compares your proposed monthly home payment (PITI) to your household gross monthly income. Good Faith Estimate: A document which tells borrowers the approximate cost they will pat at or before settlement, based on common practice in the locality. Under requirements of the Real Estate Settlement Procedures Act (RESPA), the mortgage banker or the mortgage broker, if any must deliver the GFE to the applicant. Government Loan: A mortgage insured by a government agency, such as FHA, VA, Farmers Home Administration, or a state bond program. The loans are generally made by private lenders, such as Academy Financial Services. Home Mortgage Consultant: The HomeServices Lending representative to a homebuyer. Sometimes called a loan officer, account executive or sales representative. Homeowners Insurance (also called Hazard Insurance): A real estate insurance policy required of the buyer protecting the property against loss caused by fire, some natural causes, vandalism, etc. May also include added coverage such as personal liability and theft away from the home. HUD-1 Settlement Statement: A standard form used to disclose costs at closing. Index: A published interest rate, such as the prime rate, LIBOR, T-Bill rate, or the 11th District COFI. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. On ARMs, a predetermined margin is added to the index to compute the interest rate adjustment. Interest Rate: The percentage of an amount of money which is paid for a specific time. Interim Interest: The interest that accrues, on a per-diem basis, from the day of closing until the end of the month. Leverage: Using credit or borrowed money to increase the rate of return for an investment. For example, by purchasing a $100,000 with 10% down, you are using just $10,000 to control the investment. Lien: A legal claim or attachment against property as security for payment of an obligation. Loan Conditions: These are the terms under which the lender agrees to make the loan. They include the interest rate, length of loan agreement, and any requirements the borrower must meet prior to closing. Loan Payment Reserves: A requirement of many loan programs that, in addition to funds for the down payment and other purchase-related costs, you have saved enough money to cover one or two months of mortgage payments after your closing. Loan Settlement: The conclusion of the mortgage transaction. This includes the delivery of a deed, the signing of notes, and the disbursement of funds necessary to the mortgage loan transaction. Loan-to-Value (LTV): The ratio between the amount of a given mortgage loan and the lower sales price or appraised value. Margin: The set percentage the lender adds to the index rate to determine the interest rate of an ARM. Provided by HomeServices Lending
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Glossary of Home Buying Terms (continued) Mortgage: The conveyance of an interest in real property given as security for the payment of a loan. Mortgagor: The borrower in a mortgage transaction who pledges property as security for a debt. Mortgage Specialist: The HomeServices Lending employee responsible for collecting the completed application with all supporting documents before the entire loan packet is submitted to underwriting. Also known as the “processor”. Non-Conforming Loan: Conventional home mortgages not eligible for sale and delivery to either FNMA or FHLMC because of various reasons, including loan amount, loan characteristics or underwriting guidelines. Note: A general term for any kind of paper or document signed by a borrower that is an acknowledgement of the debt, and it, be inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagee (lender) is named as the payee. Origination Fee: The amount charged for services performed by the company handling the initial application and processing of the loan. Points: A one-time charge by the lender to increase the yield of the loan, a point is 1% of the amount of the mortgage. Pre-approval: A written commitment from a lender, subject to a property appraisal and other stated conditions, that lets you know exactly how much home you can afford. Prepaids: Closing costs related to the mortgage loan which are collected at loan closing – including per diem pre-paid interest and initial deposits of monthly escrows of taxes and insurance. Primary Residence: A residence which the borrower intends to occupy as the principal residence. Principal: The amount borrowed or remaining unpaid; also, the part of the monthly payment that reduces the outstanding balance of the mortgage. Private Mortgage Insurance (PMI): Insurance written by a private company protecting the mortgage lender against loss resulting from a mortgage default. Rate Cap: The limit of how much the interest rate may change on an ARM at each adjustment and over the life of the loan. Rate Lock: The borrower or lender agree to protect the interest rates, points, and term of the loan while it is processed. Title Insurance: An insurance policy that protects a lender and/or homebuyer (only if the homebuyer purchases a separate policy, called owner’s coverage) against any loss resulting from a title error or dispute. Truth-In-Lending Statement: A Federal law requiring full disclosure of credit terms using a standard format. This is intended to facilitate comparisons between the lending terms and financial institutions. Underwriting: Analysis of risk, determination of loan eligibility, and setting of an appropriate rate and terms for a mortgage on a given property for given borrowers. Provided by HomeServices Lending
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Pre-approval vs. Pre-qualification A pre-approval indicates that a lender has taken a detailed look into your financial background and has committed to lend you a certain amount of money, pending specific property details. Because pre-approval entails a credit check and a review of supporting documentation, it’s more powerful than a pre-qualification letter, which generally only estimates what you can afford based on information you have provided.
Advantages of being pre-approved: Pre-approval offers a number of advantages over waiting to apply for a mortgage until after you have found a home. It entitles you to: 1. Shop for a home with the confidence of knowing you are approved for the price range in which you are looking. 2. Take advantage of the preference many home sellers have for pre-approved buyers. With a pre-approval, sellers know they have a fully-approved buyer qualified to purchase their home. This often will give you an advantage over an un-approved buyer when more than one contract is presented. 3. Strengthen your negotiating position. 4. Allow your sales associate to structure the financing portion of the contract based on your financial needs. 5. Obtain a quick closing date. 6. Discover possible qualification issues early in the home buying process, minimizing last minute surprises. When searching for a new home, the last thing you want to be concerned with is the financing. A pre-approval helps remove the stress and anxiety during the home buying process by giving you the confidence that the financing will be in place. Provided by HomeServices Lending
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Mortgage Basics Although each individual home financing package has its own variety of features, the concept of a mortgage is really quite simple: a mortgage is a loan to help you finance a home. Your lender advances you a certain amount of money, which you repay over a specified period of time.
Rates, Points and Loan Fees
Your Monthly Mortgage Payment
The total cost of your mortgage is determined by a number of different factors, most notably the interest rate, discount points and loan fees. The expenses that contribute to the cost of your loan can be expressed • as the annual percentage rate (APR). • Interest Rate refers to the percentage of your outstanding loan balance that you pay the lender each month as part of the cost of borrowing money. Your interest rate will be based on the current overall rate environment, as well as your financial profile and the specific features of your loan. • Discount Points allow you to “buy down” your interest rate at closing. One point equals 1% of your loan amount. The more points you pay, the lower your interest rate will be and the less you will have to pay each month. • Loan Fees are up-front charges to cover the cost of originating, processing and closing your loan, among other things. An origination point is a loan fee that equals 1% of your loan amount. When considering a loan, keep in mind that rates, points and fees should be considered together. The interest rate alone only tells part of the story.
Provided by HomeServices Lending
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Mortgage payments can generally be divided into four parts: principal, interest, taxes and insurance. Principal refers to the amount of money you borrow to buy a home, and to the outstanding loan balance at any point during the mortgage term.
• Interest is the cost of borrowing money. As noted above, the amount of interest you pay each month is determined by your interest rate. • Taxes assessed by your local government will likely be collected by your lender as part of your monthly payments and then paid annually or semiannually on your behalf. This process is known as an escrow. • Insurance, like property taxes, is normally collected by the lender in an escrow account. Insurance offers financial protection and has two major components: • Homeowner’s Insurance, also called hazard insurance, protects you against damage to your property caused by fire, wind or other hazards. • Mortgage Insurance provides partial protection to your lender in the event that you fail to repay your mortgage. Whether you must pay mortgage insurance usually depends on the loan and the size of your down payment.
Mortgage Principal and Interest Payments Over 30 Years
Provided by HomeServices Lending
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Documents Required for Loan Application* *Some loan programs allow for reduced documentation, therefore all items listed may not be necessary. Additional documentation may be required based on underwriting guidelines.
Income • W-2 forms from the last two years • Federal tax returns, all pages, for the past two years for self employed or commissioned income sources • A copy of lease agreement for rental property • A complete copy of divorce settlement agreeement (if using income to qualify) • Year-to-date pay stub • Pension/Social Security: Current year award letter. Copy of most recent check or if direct deposit, copy of most recent bank statement showing receipt of funds • Self-employed: Year-to-date Profit & Loss Statement • Self-employed: Corporate/Partnership Tax returns for the past two years
Assets • The two most recent bank/brokerage statements, all pages, for all accounts
Liabilities • • • • •
Credit card account numbers, balances and minimum payments Car loan: Lender’s name, account number, payment and balance Mortgage loans: Lender’s name, account number, payment and balance for each loan Landlord’s name, address and telephone number dating back two years Complete copy of divorce/settlement agreement
Other Items • • • •
Application fee A copy of the fully executed contract on your home Copy of relocation agreement (if applicable) Alimony/Child Support/Note Income. Copy of note receivable or divorce decree/paternity award. Six months cancelled checks or deposit slips showing receipt** (to use income to qualify, it must continue for a minimum of three years)
** Alimony, child support, or separagte maintenance income need not be revealed if the borrower(B) or co-borrower(C) does not choose to have it considered for repaying the loan.
Provided by HomeServices Lending
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Choosing A Loan Selecting the right mortgage is central to the homebuying process. You need to consider two things at the outset: which loan type best meets your homebuying needs and which loan term offers the ideal repayment schedule. Your HomeServices Lending representative can assist you in the process, but here are a few things to keep in mind:
Loan Types Most home loans fall into one of two general categories: fixed rate mortgages and adjustable rate mortgages. You’ll also encounter other basic loan types such as government loans and flexible qualifying programs. • Fixed Rate Mortgages have interest rates that stay the same for the entire life of the loan. • You will have predictable monthly payments throughout the life of the loan. • You will be protected from rising rates, so your principal and interest payments can never increase. • Adjustable Rate Mortgages have interest rates that adjust periodically based on market conditions. • The initial rate is fixed for an introductory period (usually one to ten years) and is typically lower than for a fixed-rate mortgage. After that, the rate adjusts annually based on a market index, but can’t go above a predetermined adjustment cap. • Because of the lower initial rate, some borrowers may be eligible for a larger loan amount with an ARM than with a fixed rate mortgage. • Government Loans are offered by conventional lenders like HomeServices Lending, but insured by the federal government. They come in two types: FHA and VA. • FHA loans are backed by the Federal Housing Administration, and are designed to assist low-to-moderate income homebuyers by offering low down payment requirements and flexible qualifying guidelines. • VA loans are backed by the Department of Veterans Affairs (formerly the Veterans Administration), and are available to qualified veterans and active-duty military personnel and their spouses. They offer many of the same features as FHA loans. • Flexible Qualifying programs are designed for borrowers with less-than-perfect credit histories, excessive debt or previous bankruptcy, foreclosure or tax deliquency.
Loan Terms The “term” of a loan is the period of time for repayment. The most common loan term is thirty years, but other terms are available, ranging from 10 years all the way up to 40 year terms. Whether you’d be better off with a longer or shorter loan term depends on a number of factors, most notably your monthly income and long-term financial goals. • Longer Mortgage Terms offer lower monthly payments and are a good option if you’re on a tight budget or would prefer to direct your monthly cash flow toward other investments or expenses. • Shorter Mortgage Terms mean higher monthly payments, but allow you to repay the loan faster and save money on interest.
Provided by HomeServices Lending
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com
Behind the Scenes of Your Mortgage Application Home Mortgage Consultant: • • • •
Works with you to determine and discuss the products and programs that best suit your financial needs Gathers data and documents to pre-underwrite your loan and when possible issue a pre-approval commitment Discusses purchase price ranges, mortgage payments and closing cost expectations Sets expectations from application to closing
Mortgage Specialist: • Accepts your loan file from the Home Mortgage Consultant and collects any additional documents needed for loan approval • Follows up on appraisal report and title orders with the closing attorney • May make the underwriting decision if certain criteria are met, otherwise refers the file to underwriting
Underwriting: • Reviews the loan file and makes the underwriting decision • May request additional documentation from you • Communicates with the Home Mortgage Consultant and Mortgage Specialist. They, in turn, contact you
Closing Department: • Prepares instructions for the closing attorney based on your approval • Assembles the package for your closing and sends to the closing attorney’s office • Reviews and verifies final closing figures and authorizes funding
Closing Attorney: • • • •
Obtains payoffs Reviews title examination and survey on your property. Clears any survey and title problems found Prepares settlement statement and faxes a copy to the closing department and Mortgage Consultant Conducts closing and executes all lender documents
Provided by HomeServices Lending
Patricia Kalmeijer Office: 678-386-3896 Office Fax: 678-325-6351 E-mail: patricia.kalmeijer@harrynorman.com