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HOW DO I FIND A LENDER?
Remember, a home is most
people’s largest single investment, so count on recommendations from
people you trust; family, friends and companies we have a great history
working with. Start with financial
institutions and their staff that you may have already established a
long-term relationship with, but by all means don’t limit your options
to just one lending institution. It is often wise to get a second (or
third) opinion, since some lenders have more avenues open to them than
others and are better able to tailor a loan to fit your personal needs.
We work with many lenders that can offer very competitive rates and
still offer quality full service.
HOW MUCH HOME CAN I
AFFORD?
We can all find
beautiful homes in great neighborhoods that we would enjoy living in. Of
course, our ability to make the down payment and monthly payments will
probably limit most of us to more modest homes than our super dream home; we may need
to look on our home purchase as a stepping-stone to our dream home. The
key issues are our earning power, our debts and our assets to support
the down payment and monthly payments.
WHAT DO THEY MEAN WHEN
THEY SAY I NEED TO BE PRE-QUALIFIED OR PRE-APPROVED?
Pre-qualification is a
very simple process and identifies what loan amount you are
qualified to obtain provided you fit within all of the
established guidelines. It takes into consideration the
employment, income and debt information you provide to the loan
officer. Your credit situation is NOT thoroughly examined
and the loan package is NOT submitted to an underwriter
for their review.
Pre-approval
is a much more in-depth process and the most effective prior to
shopping for the home you want. You will fill out a complete
mortgage loan application and sign all of the required forms.
Verifications are sent out to your employer (past and present),
landlords, banks, and a mortgage credit report is generated. The
completed credit package is then submitted to an underwriter,
where they review the loan and approve or deny your application
based on your credit worthiness. If they approve the loan, they
will make their approval contingent upon a satisfactory
appraisal and title search of the property you intend to
purchase. This pre-approval will give you a better chance of
having a seller accept your offer on a property, because they
will know that you are credit approved and their transaction
with you is less likely to fall through due to you being denied
for credit. If you are asking for pre-approval, be prepared to
supply for the lender:
Names and addresses of
employers for the last 2 years
Most recent paycheck stub or
stubs (1 month)
W-2 forms from the previous
year
Last 2 months bank statements
on all checking and savings accounts
Names and addresses of
landlords for the past 2 years
Minimum monthly payments on all
installment and credit card debt along with any balances
remaining.
Monthly child support and
alimony payments
Copy of divorce decree (if
applicable)
TYPES OF MORTGAGES/DOWN
PAYMENTS
There are basically 4
common types of mortgages although each category may have a number of
variations, depending on which lending institution you’re dealing with.
They are:
Conventional
Institutional loan that is not insured or guaranteed
by a government agency.
Generally speaking the minimum down payment is 20%
of the Selling Price of the home
Insured
Conventional
A
third party, not a government agency, has agreed to
reimburse the lender for losses that result if the
borrower defaults
Buyer pays the mortgage insurance premium with
monthly payment (Private Mortgage Insurance or PMI)
May
require as little as a 5% down payment
FHA
A
loan made by an institutional lender and insured by
the Federal Housing Administration, so that the FHA
will reimburse the lender for losses that result if
the borrower defaults
Minimum down payment (as little as 3 percent, depending
on the particular program and size of the loan)
Seller can contribute towards buyers closing
costs
Buyers down payment & closing costs can be gifted by
a blood relative
Has
more lenient qualifying ratios
VA
A
home loan made by an institutional lender to an
eligible veteran, where the Veterans Administration
guarantees the lender for losses if the veteran
borrower defaults
Zero
down payment
Funding fee may be charged to the borrower, although
it may be financed along with the loan amount
LOCKING IN THE INTEREST
RATE/FIXED VS VARIABLE
Traditionally, lenders
will require that the interest rate be locked in 10 days prior to
closing. It is the buyer’s option if they want to lock or float at the
time of an accepted offer.
Fixed rate
loan-----a loan on which the interest rate will remain the
same throughout the entire loan term, typically 15 or 30
years
Adjustable-Rate Mortgage (ARM)------A loan in which the
interest rate is periodically increased or decreased to
reflect changes in the cost of money.
GOOD FAITH
ESTIMATES/CASH NEEDED AT CLOSING/APPRAISAL
Your lender will
probably require as a condition of the loan that the property you are
hoping to purchase be appraised by a licensed appraiser. The appraisal
is an estimate or opinion of the value of a property as of a particular
date and assures both the borrower and the lender that the price being
paid is consistent with the selling price of comparable properties in
the area.
MONTHLY PAYMENT
It’s been said that when
you purchase a home, you are in actuality purchasing a monthly payment
that you can live with. That payment will include Principal
(the amount originally borrowed) and Interest, and
escrowed amounts for property Taxes and property
Insurance (which the loan servicer will pay on your behalf) and
is commonly referred to as your P-I-T-I payment. If
Mortgage Insurance is required by your lender, that premium will
also be included monthly (P-I-T-I + MI)
Next:
Working
with
a REALTOR
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