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APPLYING FOR A MORTGAGE
Handousts For A Home Loan

8 THINGS NOT TO DO WHILE IN THE PROCESS OF OBTAINING HOME FINANCING.

You can unknowingly sabotage your home financing goals by making some obvious and not-so-obvious moves with your finances. Check out the list below to see if you know the top 8 things NOT TO DO when you are in the process of buying a home. 


1. Do not transfer money between your accounts or deposit cash you cannot paper trail, unless receiving complete documentation from your bank,
itemizing all transfers and their source.

2. Do not leave your existing job.

3. Do not allow your accounts to go into a negative balance, even if you have overdraft protection.

4. Do not apply for credit in any form, including credit for major purchases, such as a car or furniture, or apply for credit to consolidate or change existing credit.

5. Do not co-sign on any debt with a family member or any one else.

6. Do not ask your tenant to move out.

7. Do not delay paying all debts on time.

 

8. Do not have a friend or relative pay for anything related to the purchase of your home, such as appraisal fee, earnest money deposit, down payment, etc, since gifts are only allowed under certain guidelines.


BANKING ON A MORTGAGE

 

 

This section of the mortgage handouts is information on different types of mortgages, and what each type of mortgage can and can not do for you. You need to know the following information in order to apply for your mortgage.

(1) Mortgage Provider
(2) Mortgage Types
(3) Applying For a Mortgage
(4) Pre-approval
(5) Low Down Payment Options
(6) Getting a Ratified Sales Contract

(1) MORTGAGE PROVIDER


You can get a mortgage from many different sources, like mortgage banking companies, commercial banks, community banks, credit unions, and other financial institutions. Mortgage brokers may be a source of information about different mortgage products available from a variety of sources. Some starting places include:

Your own bank or financial institution. Some times lenders can offer better mortgage term to current customers.

Real estate professionals.

Family members, friends, and co-workers.

Internet research.

Your local newspaper or the telephone book.

(2) MORTGAGE TYPES

There are many different types of mortgages. It is important to find the mortgage that is right for you. Shop around. Mortgages and rates vary. Keep in mind that interest rates change frequently, even daily, so contact several mortgage lenders on the same day to comparison shop. The type of mortgage is also an important part of the decision. Some of the most common mortgages available today include:

1. Fixed rate mortgage

2. Adjustable rate mortgages

3. Balloon/reset mortgages

4. Prepayment penalty mortgages

Different types of mortgages will affect your payment. The lowest mortgage rate may not always be the best choice for you. Rates are important, but also consider the overall cost of the loan.

Look at other costs such as loan and origination fees, and discount and origination points. Be sure to ask the lender exactly what he or she is quoting to you. Ask what the annual percentage rate (APR) of the loan is. The APR takes into account the interest rate and fees. Ask for a “good faith estimate” in writing from each lender that you work with so you understand all of the costs and you can compare lenders.

FIXED RATE MORTGAGES

Fixed-rate mortgages are stable and offer long-term savings. Because the interest rate never changes, the monthly principal and interest payment never changes either. Below is an overview of the fixed-rate mortgage. Be sure to contact your lender for all the specifics related to this type of mortgage.

If you plan to own your home for at least 5 years, a fixed-rate mortgage can help protect you form inflation. Because your mortgage principal and interest payment remains the same it is easier to budget.

OTHER CONSIDERATIONS

Fixed-rate mortgages may be offered with 10, 15, 20, 30 years terms. A monthly principal and interest payment that doesn’t change would help with financial planning.

If the market interest rates go down, your monthly principal and interest payment will not decrease, unless you refinance your mortgage.

COMPARE DIFFERENT TERMS


Longer terms such as 20 and 30 years would:

a. Qualify you for a larger loan amount.

b. Have higher interest rates.

c. Make you to pay more interest in total then shorter term loans.

d. Be a good choice if you don’t plan to move or refinance for at least 10 years or if the interest rates were low when you locked in the rate.

Short terms such as 10 and 15 years would:

a. Have lower interest rates.

b. Have a shorter period (term) to pay back the principal. Because of the shorter term the monthly payments are higher, but more of the payment goes to principal and less to interest.

c. Have higher monthly payments, because of which, you may qualify for a smaller loan amount.

d. Be a good choice if you want to build equity quickly or you would rather pay less interest than buy a more expensive home.

ADJUSTABLE RATE MORTGAGES

Adjustable Rate Mortgages (ARM) are popular because they usually start with a lower interest rate, so your monthly payments are lower. This allows you to qualify for a larger mortgage than would be possible with a fixed rate mortgage. The interest rate on an ARM is adjusted periodically based on an index that reflects changing market interest rates. It is important to understand all the aspects of ARM before you make your decision. Below is an overview of the adjustable rate mortgage. Be sure to contact your lender for all the specifics related to this type of mortgage.

BENEFITS

a. Arms have a lower initial interest rate than fixed rate mortgages. The difference in cost may allow you to qualify for a more expensive home.

b. Arms can be a good choice when interest rates are high. If interest rates are high when you get the mortgage, but drop over the initial period, or any subsequent adjustment period, your monthly payment may decrease.

c. An ARM that has its initial adjustment after the 5th or 7th year can save you money if you plan to stay in your house that long.

OTHER CONSIDERATIONS WITH ARM’S

All ARM interest rate adjustments are based on a published market index. Some frequently used indexes include Certificate of Deposit, U.S. Treasury Bill, Cost of Funds, and LIBOR.

Arms have defined adjustment periods that determine how frequently the interest rate can change. The initial period before the first adjustment can be short (1 or 3 years) or quite lone (7 to 10 years). After the initial period the interest rate on most Arms adjusts every year.

Once the initial period is up, the interest rate can increase or decrease, based on an index, plus a certain percentage, which is known as the margin. Arms have rate caps, or ceilings, and floors, on how much the interest rate can increase, and in some cases, decrease.

There are caps on the amount of the interest rate increase or decrease on the first change date after the initial period, on each subsequent periodic adjustment and over the life of the loan. For example, a 5/1 ARM may have a 5% cap on the change in the interest rate on the first change date (after the 5 year initial period), and 2% cap on the change in the interest rate each year after the first change date, and a 5% cap on the increase (but not the decrease) over the term of the loan.

Be sure to look at what the maximum monthly payment could be with the ARM you are considering, in order to be sure you can afford it.
Even though the interest rate on an ARM may increase over the term of your mortgage, it may still be a good choice if you expect your income will increase over the life of the loan, because your initial payments are lower than with a fixed rate mortgage. When the interest rate and your payments increase, you will still be able to make the payments from your higher income.

TYPES OF ARMS:

There are many different types of Arms. We have listed the most common ones:

10/1 ARM - 7/1 ARM - 5/1 ARM - 3/1 ARM - 1/1 ARM.

The first number is the length of the initial period that how long it is until the first interest rate adjustment. For example, the interest rate on a 10/1 ARM will not change for the first 10 years but can change in the 11th year. People often plan to sell or refinance their home before the end of the initial period.

BALLOON/RESET MORTGAGES

Balloon/reset mortgages may be a good choice for homebuyers who don’t expect to own their home past the maturity date of the balloon note, 5 or 7 years. Below is an overview of balloon/rest mortgages. Be sure to contact your lender for tall the specifics related to this type of mortgage.

Balloon/reset mortgages have monthly mortgage payments based on a 30 years amortization schedule but the entire mortgage balance becomes due at the end of the 5 or 7 years term.

However under the reset option you may be able to “reset” your mortgage interest rate at the market rate at that time for the remainder of the amortization period if:

a. You are still the owner and occupant of the home.

b. You have not been delinquent in your mortgage payments for a year before the maturity; date of the balloon note.

c. You have no other liens against the property.

d. You have satisfied certain other conditions of the reset.

e. You may also qualify to refinance your balloon/reset mortgage.

f. You might also consider a balloon/reset mortgage if you can’t afford the home you want because the monthly payment for an ARM or fixed rate mortgage exceeds your Debt-to-Income Ratio. Balloon/reset mortgages typically come with a slightly lower initial rate than many other mortgage types.

g. If interest rates have increased during the term of the balloon note, when you reset or refinance your mortgage, the interest rate you pay will be at the current rate. This may be quite an increase in your monthly payments.

TYPES OF BALLOON/RESET MORTGAGES

There are several types of balloon/reset mortgages:

7/23 balloon/reset - 5/25 balloon/reset

UNDERSTANDING THE SPECIFICS

The two numbers combined indicate the total number of years that the payments will be based on. In other words, your monthly payments will be calculated as if the mortgage had a 30 year term.

The first number is the number of years before the balloon maturity date and the second number is the balance of the term.

If you exercise your option to reset your balloon/reset mortgage, the reset mortgage will have a term of 23 or 25 years. For example, a 7/23 balloon/reset mortgage means that your payment for the first 7 years will be based on a 30 years amortization but at the end of the 7th year, you would need to exercise the reset option or refinance the mortgage and pay off the loan balance.

(3) APPLYING FOR A MORTGAGE

Once you choose a mortgage lender and you decide on a mortgage product, you will need to fill out a mortgage application. If you were pre-approved, you may have already done this. If you like me to help you to get your home loan, please call me. Thank you for your business.

MORTGAGE APPLICATION STEPS

Complete the “Uniform Residential Loan Application” which requests your income, assets, liabilities, and a description of the property.

Pay the application fee which covers the lender’s processing costs. Fund out if there is a refund policy.

Submit the application. Mortgage applications include a review of your credit score. When your credit score is pulled, and “inquiry” will be place on your credit report. It is important that you understand about inquiries. Every time a lender asks to see your credit history, an inquiry is noted on your report. If you have too many inquiries, lenders will be concerned that you are trying to get more credit than you can handle.

Don’t make too many requests for credit-it can damage your credit score. All mortgage loan inquiries in a 2 weeks period are counted as one transaction. To keep inquiries on your report to a minimum, apply to different lenders within a 2 or 3 weeks.

ORGANIZE YOUR DOCUMENTS

HOME BUYERS: PLEASE PROVIDE THE FOLLOWING ITEMS THAT APPLY TO YOU TO COMPLETE YOUR LOAN FILE.

Copies of the following items:

California Driver License and Social Security Card.

Revolving bill statements showing minimum monthly payment and current balance for any current liabilities such as credit cards, car loans, mortgage, and other financial obligation accounts.

If you are renting, your landlord information, name, address, and phone number for the past two years.

Most recent two months bank statements for each checking, savings, stock, money market, IRA, 401K, and other liquid asset accounts.

If you don't have the funds needed for the down payment and closing costs in your bank account, provide the source of funds that states where the funds are coming from. If the funds are gifted, a gift letter from the donor and the verification of withdrawal from the donor's account or the verification of donor's ability to donate gift (the canceled gift check), and the verification of deposit from the recipient's account.

All foreclosure and/or bankruptcy within the past seven years, copy of complete bankruptcy papers, including schedules papers and the final judgment (discharged or dismissed).

If you are divorced: Divorce agreement, final judgment and terms.

A letter of explanation for any past credit problems including late payments, bankruptcy, and foreclosure.

If buying a condo-Home Owner Association's (HOA) name and address including CC&R's.

If you are a permanent or non-permanent resident alien, copy of an I-151, green card, or any other document issued by INS.

If you are a veteran, DD214/Certificate of eligibility/Discharge papers.

If you are not buying a HUD home, a check for appraisal fee, $350 for FHA / CONVENTIONAL loan and $400.00 for VA loan, and credit report fee $55.00. Self employed credit report fee is $75.00.

PLUS: IF YOU ARE EMPLOYED:

Name, address, and phone number for each employer for the last two full years. Explain work and school history for the last two years include dates and evidence of special training: certificates, school transcripts, or diplomas.

Most recent full 30 days' check stubs from each source of income.

Most recent two years' W-2 forms from each employer for each borrower.

PLUS: IF YOU ARE SELF EMPLOYED OR COMMISSIONED:

Most recent two years Federal Tax Returns (1040's), signed and dated (if the total amount of your overtime, bonuses, or other variable income is 25% or more of your total income).

Last two months bank statements. Ask your loan officer if two months is enough or they require more months.

Most recent YTD Profit and Loss statement and a Balance Sheet prepared and signed by yourself.

Corporate and Partnership Returns and balance sheet.

Business license and yellow page ad.

Complete current expense Report (if Commissioned Sales).

Last two years 1099's (if Commissioned Sales).

PLUS: IF YOU HAVE OTHER INCOME:

Rental agreement with your tenant, signed and dated for each rental property.

If you receive SSI: Social Security award letter, copy of current SSI check and/or bank statements showing automatic deposit, and copy of last two years 1099's from SSI.

Retirement award letter and/or bank statements showing automatic deposit.

Evidence of other source of income, child support or alimony and/or bank statements showing automatic deposit. If you receive a child support, copy of divorce decree or court order indicating the amount paid.

PLUS: IF YOU ARE REFINANCING:

The front and back of your last twelve months canceled checks to prove current payments on any property you own or rented out.

Most recent mortgage payment statement and a copy of the mortgage payment coupon book on each loan.

Evidence of Property Taxes and Hazard Insurance Policy (Fire Insurance).

Copy of the note and deed of trust on current rental and/or residence properties.

(4) PRE-APPROVAL

If you think home ownership is for you, getting pre-approved for a mortgage is a good idea. We recommend that you get pre-approved for a mortgage before seriously looking at homes. Pre-approval gives you a good idea of how much of a mortgage you will qualify for and the price range of homes you can afford.

Pre-approval helps you to know:

How much you can borrow?

Confirm your ability to qualify for a mortgage based on your credit, financial and employment information.

Strengthen your position to make an offer on a house. A seller will be more willing to accept an offer if the buyer is pre-approved.

To become pre-approve, you will need to work with a mortgage lender. The mortgage lender will review your credit history, earnings information, employment history and assets. You will need to provide certain documents to the lender to verify this
information. After the review, the lender will give you a “pre-approval letter”.

PRE-APPROVAL VS. PER-QUALIFICATION

Pre-approval is not the same as pre-qualification. Pre-qualification simply states the borrower qualifies for a loan based on some preliminary questions but does not commit the mortgage lender to approve the mortgage. The mortgage lender will still have to review your credit report and your employment history.

The pre-approval process is more thorough. The lender does most of the work for full approval except for an appraisal and title search because no property has been identified.

(5) LOW DOWN PAYMENT OPTIONS

Saving enough money for a down payment can be hard and meeting lender underwriting requirements ca be challenging. Sometimes this prevents people from buying a home.

Some mortgage lenders offer low down payment fixed rate mortgages and mortgages with more flexible underwriting. Below is an overview of low down payment options available with some mortgages. Be sure to contact your lender for all the specifics related to loans with this type of option.

Some mortgages need as little as 3% down payment. Others raise the maximum debt-to-income ratio, allowing you to qualify for a mortgage payment that is a larger percentage of your monthly income.

Ask your lender about fixed rate mortgages with low down payment features like:

a. Small down payments (3% to 5%).

b. Additional sources of money for the down payment, like a federal, state, or local government agency, nonprofit organization, employer, private foundation, or family member.

c. Expanded debt-to-income ratios (sometimes, up to 33% of gross monthly income for housing expenses and 38% for total monthly debt expense).

d. Options for people with limited incomes in high cost areas.

e. Home buyer education programs.

f. Lower mortgage insurance costs.

g. Seller’s contributions to your closing costs.

(6) GETTING A RATIFIED SALES CONTRACT

So now you are pre-approved. You find your dream house and make an offer. If the offer is accepted, the next step is to get a ratified sales contract from the sellers. You will need the ratified sale contract when you return to the lender to complete the mortgage process. A ratified sales contract is simply the offer you made to the seller that the seller accepted and you both signed off on. This offer may include:

a. Sale price of the house.

b. Contingencies, such as getting mortgage financing of a certain type and rate, satisfactory inspection, and repairs that need to be made.

c. Closing and occupancy dates.

EARNEST MONEY DEPOSIT

As part of the ratified sales contract, you will submit an earnest money deposit to show that you are a serious buyer. This money will be placed in an escrow account and applied to your closing costs. Your mortgage lender will probably want to see a receipt for the earnest money along with your ratified sales contract so it is a good idea to bring both of theses items with you when you apply for the mortgage. The earnest money is usually not returnable if you don’t complete the terms of the contract.
   GOOD LUCK
Please call me anytime if you have any question (909) 754-4947