Thank you for visiting my Web Site. The following mortgage related topics would help you to decide either to buy a house or keep renting.
Is Home Ownership Right For You?
Before you begin, think about whether owning a home is right for you. Becoming a homeowner takes time, energy, and money - but it is worth the effort. Ask yourself:
1. Do I have a steady, reliable source of income?
2. Have I been employed regularly for the last 2 years?
3. Do I pay my bills on time?
4. Is my total debt (all credit cards, car loans, etc) manageable? Can I afford those debts and a mortgage?
5. Do I have some money saved for a down payment?
6. Do I have some money saved for closing costs?
7. Can I afford both the mortgage and other expenses, susch as electric, water, repair and maintenance costs?
8. Do I plan to live in the house for at least 2 years or long enough to build some equity?
9. Do I have time to take care of a house - including responsibilities like mowing the lawn and repairing my property?
10. Do I have time to devote to buying a home right now or are other commitments a priority?
If you can snswer yes to most of these questions, you are probably on your way to owing your own home.
Why Own a Home?
Some people like the flexibility that comes with renting. When you rent, you can live in a neighborhood far as little or as long as you want. You are also free of most maintenance responsibilities, your landlord usually handles repairs. Yet there are many reasons for owning a home.
Build Equity- In the early years of most mortgages, the majority of your monthly mortgage payments go towards interest on your loan. Over time, an increasing amount of the monthly payment goes toward reducing mortgage balance, or principal. As you make payments, you reduce the principal and increase your share or equity in your home's value. If your home increases in value through appreciation, your equity will build even faster. Building equity or savings in your home is important. For many people it lets them plan for retirement and other future goals.
Gain Tax Advantages - You are allowed to deduct mortgage interest and property taxes from your federal income tax and from some states' income tax. These deductions can mean significant tax savings, especially in the early years of the mortgage when interest makes up most of the monthly payment. After calculating your taxes, you may find that it is cheaper for you to buy than to rent.
Rely on Payment Stability - If you select a fixed-rate mortgage, you will pay the same monthly principal and interest payment for the term of your loan. Unlike renting, this type of payment will remain the same month after month, even when inflation leads to higher prices. However, your total monthly housing expense could vary if tax and or insurance expenses change.
Gain a Sence of Community - Owning a home involves you in the welfare of your community. You may feel a greater sense of belonging and permanence by owning your own home.
Rent or Buy?
Deciding whether to rent or buy is a complex decision. You will need to compare costs and understand the financial factors to make the best decision for your situation. Personal benefits of home ownership can include:
1. More living space.
2. Freedom to design and decorate your home.
3. Home security. You don’t have a landlord to ask you to leave. Home ownership is like having your own business and having your own job security and having a peace of mind. And you don’t have to worry about getting fired or if you are going to have a job tomorrow or not.
How Much Can I Afford To Spend?
For a general idea of your buying power, multiply your annual gross income by 21/2. For example, if you had a household income of $50,000.00, you might be able to qualify for a $125,000.00 home price. The actual number may be more or less, depending upon your individual situation, like your debits and credit history. Mortgage lenders generally use either one of the following two ratios or both them to help them determine how much you can afford to spend each month on your mortgage payment.
HOUSING EXPENSE RATIO - As a general guide, your monthly mortgage payment should be less than or equal to a percentage of our income, usually about a quarter of your gross monthly income. This percentage can change, depending on the type of mortgage you choose.
DEBT-TO-INCOME RATIO - Your buying power can be affected by factors such as your income, debt and credit history. Your debt, such as credit card bills and car loans, and other expenses such as housing expenses, alimony and child support, should not be more than about 30-40% of your gross income.
How To Calculate Your Mortgage Payment? The amount of your mortgage payment will depend on how much you borrow, the term for repayment period, and the interest rate. If you know how much you need to borrow, which is the purchase price minus your down payment, and what the interest rate will be, you can use the following chart to find out what your monthly payment will be for each $1000 loan, with a standard 30 years fixed interest rate mortgage. This chart includes only principle and interest payments, and not property taxes and home owner’s insurance. If your down payment is less than 20 percent, you may need to pay private mortgage insurance. In addition, if you are thinking about buying a unit in a condo or cooperative building, or a house in Planned Unit Development (PUD), you may also need to pay monthly home owner’s association fees to cover maintenance expenses or special assessments related to the common areas.
MORTGAGE PAYMENT TABLE
% / Years 5 10 15 20 25 30 40
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4 18.42 10.12 7.40 6.06 5.28 4.77 4.18
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4.125 18.47 10.18 7.16 6.13 5.35 4.85 4.28
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4.25 18.53 10.24 7.52 6.19 5.42 4.92 4.34
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4.375 18.59 10.30 7.59 6.26 5.49 4.99 4.42
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4.5 18.64 10.36 7.65 6.33 5.56 5.07 4.50
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4.625 18.70 10.42 7.71 6.39 5.63 5.14 4.58
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4.75 18.76 10.48 7.78 6.46 5.70 5.22 4.66
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4.875 18.81 10.55 7.84 6.53 5.77 5.29 4.74
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5 18.87 10.61 7.91 6.60 5.85 5.37 4.82
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5.125 18.93 10.67 7.97 6.67 5.92 5.44 4.91
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5.25 18.99 10.73 8.04 6.74 5.99 5.52 4.99
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5.375 19.04 10.79 8.10 6.81 6.07 5.60 5.07
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5.5 19.10 10.85 8.17 6.88 6.14 5.68 5.16
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5.625 19.16 10.91 8.24 6.95 6.22 5.76 5.24
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5.75 19.22 10.98 8.30 7.02 6.29 5.84 5.33
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5.875 19.27 11.04 8.37 7.09 6.37 5.92 5.42
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6 19.33 11.10 8.44 7.16 6.44 6.00 5.50
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6.125 19.39 11.16 8.51 7.24 6.52 6.08 5.59
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6.25 19.45 11.23 8.57 7.31 6.60 6.16 5.68
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6.375 19.51 11.29 8.64 7.38 6.67 6.24 5.77
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6.5 19.57 11.35 8.71 7.46 6.75 6.32 5.85
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6.625 19.62 11.42 8.78 7.53 6.83 6.40 5.94
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6.75 19.68 11.48 8.85 7.60 6.91 6.49 6.03
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6.875 19.74 11.55 8.92 7.68 6.99 6.57 6.12
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7 19.80 11.61 8.99 7.75 7.07 6.65 6.21
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7.125 19.86 11.68 9.06 7.83 7.15 6.74 6.31
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7.25 19.92 11.74 9.13 7.90 7.23 6.82 6.40
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7.375 19.98 11.81 9.20 7.98 7.31 6.91 6.49
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7.5 20.04 11.87 9.27 8.06 7.39 6.99 6.58
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7.625 20.10 11.94 9.34 8.13 7.47 7.08 6.67
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How Much Money Do I Need To Buy A Home?
You need money for:
. A down payment
. Closing costs
. Other housing relate costs, like mortgage payments, maintenance, and repair costs
DOWN PAYMENT - The down payment is a percentage of the value of the property. What percentage is your down payment will be determined by the type of mortgage you select. Down payments usually range from 3 to 20 percent of the property value. You may be required to have Private Mortgage Insurance (PMI), if your down payment is less than 20%.
CLOSING COSTS Closing costs include points, taxes, title insurance, financing costs and items that must be prepaid or escrowed and other settlement costs. These costs generally range between 2-7% of the property value. You will receive an estimate of these costs from our lender after you apply for a mortgage.
CALCULATING DODWN PAYMENT AND CLOSING COSTS
1. Determine the property value of homes that interest you.
2. Review different mortgage products and compare their required down payment amounts to the money you have available.
3. Get an estimate of our closing costs from the mortgage lender or a real estate professional.
4. Add the down payment requirements and the closing costs together to determine the amount of money you will need.
5. If you don’t have enough money, you will need to begin saving for the difference.
Funds for your down payment can come from the following sources:
. Savings account, bonuses, and commissions
. Mutual funds
. Securities
. Proceed of life insurance
. IRA, 401 (k) or Keogh funds
. Charitable organization gift programs
. Government grant program and subsidized secondary financing
. You can use gift money from a relative towards a portion of your down payment.
Some mortgage lenders may require that a certain amount of the down payment come from a documented savings that you have accumulated personally. Ask your lender about their gift money requirements. The amount of the gift may also be limited in some mortgage programs. Usually the mortgage lender requires a gift letter verifying that the gift is not a loan and that you do not have to repay it.
Pre-approval
If you think home ownership is for you, getting pre-approved for a mortgage is a good idea. This determines the size of the mortgage you qualify for, and therefore, decides the price range for the homes you can look at.
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-qualification simply states that 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 conduct a complete review of our financial situation, including your credit report and your income and employment history.
Learning About Your Credit
Now that you have decided that home ownership is right for you, you will need to get ready and look for a mortgage. You need to know that your credit is very important part of the home buying process. When you look for a mortgage, lenders will review your credit report, which is a history of how you have managed your finances and repaid debt. It provides information on money you have borrowed and a history of your payments. Your credit history is pulled together into a credit report. The information on your credit reports are provided by three private companies: Equifax, Experian, and Trans Union. These companies sell your credit report to banks and other creditors so they can review mortgage and loan applications.
Your credit report includes:
. A list of your debts: such as credit cards, and car loans, and history of how you have paid them.
. A list of bills that have been referred to a collection agency. This can include items like phone, and medical bills.
. Public record information: such as tax liens, or bankruptcies, even if these have happened several years ago.
. Inquiries made about your credit worthiness. An inquiry is made when you request credit.
Many times your report will also show if you were given credit based on the inquiry. Most of the information in our credit report is deleted after 7 years (a bankruptcy is deleted after 10 years) and is continuously updated to reflect the latest information. It is important that you look at your credit reports from each of the three companies to make sure they are correct. Your credit report may vary from one company to the other.
Credit Reports - Under the Fair Credit Reporting Act (FCRA), you can get a free credit report once during any 12 month period if you certify it in writing that:
. You are unemployed and intend to apply for employment with in 60 days, or
. You are receiving public welfare, or
. You believe that your credit report contains inaccurate information due to fraud. You can also get a free copy of your credit report if you have been the subject of an adverse action, such as being denied credit within the last 60 days. To obtain your credit reports, contact the three companies below.
Equifax
P. O. Box 740241
Atlanta, GA 30374
Phone: (800) 685-1111
www.equifax.com
Experian
National Consumer Assistance Center
P. O. Box 2002
Allen, TX 75013
Phone: (888) EXPERIAN
www.experian.com/consumer
Trans Union LLC
Consumer Disclosure Center
P. O. Box 1000
Chester, PA 19022
Phone: (800) 888-4213
www.transunion.com
What If My Credit Reports Contain Errors? If you believe that any one of your credit reports contains mistakes and you with to dispute or correct the mistake, contact the company that developed the report. Under the Fair Credit Reporting Act (FCRA), the company must complete an investigation, usually within 30 days. Within 5 days of completion, the company must provide you written notice of the results, including a copy of your credit report if it has changed based upon the dispute. The Federal Trade Commission (FTC) enforces the FCRA and publishes brochures about credit. To contact the FTC, call or write:
Federal Trade Commission
Consumer Response Center
6TH & Pensylvaina Avenue,
N.W., Washington D.C. 20580
Phone: (877) FTC-HELP or (877) 382-4357
www.ftc.gov
Credit Scores - When you apply for a mortgage, the lender may request a credit score as well as a credit report. A credit score is a computer generated number that indicates your ability and willingness to repay a debt based on your credit record. Your credit score is part of the mortgage information that will decide if your application is approved. Your credit score may also be used to determine the mortgage interest rate. For example, if you charge up to the limit on your credit cards, even if combined they don’t add up to a lot of money, this might hurt your credit score. Or, if you have recently applied for a number of credit cards, even if you have not begun to use them yet, your credit score might be affected. However, if you show a pattern of managing your credit wisely, keeping credit card balances low and paying your bills on time consistently, your credit score will be positively affected.
Get Your Credit Scores - The most commonly used credit score today is known as a FICO score, developed by Fair, Isaac & Co. Inc.. FICO scores are ranked on a scale of approximately 400 to 900 points. Statistically, consumers with higher credit scores are more likely to repay their debts than consumers with lower credit scores. If your credit score is low, remember that no credit score lasts forever. A credit score is a snapshot based on current information in your credit. There are things you can do today to improve your credit score in the future. Paying one of your bills a few days late only one time usually will not impact a credit score immediately or significantly. Credit scores reflect credit patterns over time. However, an adverse action, like a tax lien or bankruptcy filling, can immediately and significantly impact credit score.
Other Factors Count - Mortgage lenders look at other information besides your credit score and credit record before deciding whether to give you a mortgage. They look at:
. Stability of your income
. Employment history
. Monthly debt payments (Credit card bills, car loans, etc.) in relation to your income
. How you save money and how much you have saved
. The type of mortgage you are considering
. The type and value of the property you want to buy
. The amount of the down payment you plan to make
. On time payment of rent and utilities
The key is to have a good balance between your capacity, credit, and collateral, the three C’s.
Build Good Credit - Building good credit doesn’t have to be difficult. Follow these tips and you are on your way:
1. Pay your bills on time.
2. Pay at least the minimum amount required
3. Keep credit card balances low
4. Don’t apply for too many loans or new credit card accounts
5. Establish credit if you have none
Things to Remember About Your Credit:
1. Get your credit report a few month before you plan to buy a house, so you have time to correct any errors, before applying for a mortgage.
2. Find out your credit score and review the information that comes with it.
3. The last 2 years count most. Your credit score looks most closely at the last 2 years.
4. But the last 7 years count too. Your credit report tracks your payment history over the last 7 years.
5. Shop for a mortgage, within a 2 or 3 week period. When you apply for a mortgage, the lender requests your credit report and the inquiry of that request show up on the report. All inquiries during a 2 week period only show as one inquiry. A couple of inquiries on your credit report are okay, but more can lower your credit score.
6. Don’t apply for new credit or make major purchases, such as a new car, right before you apply for a mortgage.
7. If you believe you have credit problems, get help from a credit counseling agency before you apply for a mortgage.
8. Don’t be discouraged if you have credit problems. You don’t need perfect credit to qualify for a mortgage. But people with perfect credit tend to get better interest rates than people wth less-than perfect credit. Beware of predatory lending practices that take advantate of credit problems.
Organize Your Documents - You need to organize and file your documents and have one folder for each type of document. When you are ready to meet with a mortgage lender to apply for a mortgage, you need to provide him or her the following documents from your folders.
. Your pay stubs for the past 30 days
. Your w-2 forms for the past 2 years
. Information of your long term debts (car loans, student loans, etc.)
. Recent statements from all of your bank accounts and other savings accounts
. Tax returns for the past 2 years if self employed
. Proof of any supplemental income
. Records of any past derogatory credit history that have since been paid off
. Records of child support or alimony (either going out or coming in)
Other Advises:
. Do not take money away from your down payment savings to pay off debts with less than 10 months. These debts don’t count in underwriting.
. Don not incur any new debt. For example, don’t buy a new car a week before you apply for amortgage.
. Keep your spending in check. Save as much money as possible.
Banking on a Mortgage
This section of the mortgage handouts is information on the mortgage process, different types of mortgages, and what each type of mortgage can and can not do for you.
Mortgage Providers - 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.
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:
. Fixed rate mortgage
. Adjustable rate mortgages
. Balloon/reset mortgages
. 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 morgages 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:
. Qualify you for a larger loan amount.
. Have higher interest rates.
. Make you to pay more interest in total then shorter term loans.
. 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:
. Have lower interest rates.
. 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.
. Have higher monthly payments, because of which, you may qualify for a smaller loan amount.
. Be a good choice if you want to build equity quickly or you would rather pay less interest than buy a more expensive home.
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:
. Small down payments (3% to 5%)
. Additional sources of money for the down payment, like a federal, state, or local government agency, nonprofit organization, employer, private foundation, or family member
. Expanded debt-to-income ratios (sometimes, up to 33% of gross monthly income for housing expenses and 38% for total monthly debt expense)
. Options for people with limited incomes in high cost areas
. Home buyer education programs
. Lower mortgage insurance costs
. Seller’s contributions to your closing costs
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:
. 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.
. 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.
. 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 ARM's
There are many different types of Arms. We have listed the most common ones:
. 10/1 ARM
. 7/1 ARM BR> . 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:
. You are still the owner and occupant of the home
. You have not been delinquent in your mortgage payments for a year before the maturity; date of the balloon note.
. You have no other liens against the property
. You have satisfied certain other conditions of the reset
You may also qualify to refinance your balloon/reset mortgage. 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. 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 tem.
. 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.
Down Payments and Closing Costs
Down Payments. Your down payment is a percentage of the value of the house you want to buy. The exact percentage depends on the requirements of the lender for the type of mortgage you choose. In order to qualify for most mortgages, you will need a down payment between 3% - 20% of the sales price. You may be required to have Private Mortgage Insurance (PMI) if your down payment is less than 20%. Private mortgage insurance protects the lender if the mortgage goes into default. You may be able to cancel your mortgage insurance under certain circumstances, for example when your loan amortization reaches a certain percentage or your property value increases due to a favorable market value of home improvements.
Closing Costs. You will need additional money for closing costs. These costs vary by region but generally range between 2% to 7% of the property value. Closing costs include: points, origination fees, taxes, title insurance, financing costs and items that must be prepaid or escrowed and other costs. You will receive a written estimate of these costs from your lender after you apply for the mortgage.
Calculating Costs - Follow these easy steps to see how much money you will need for your down payment and closing costs.
1. Determine the cost of homes that interest you.
2. Look at different mortgage products and compare the required down payment for each to the money you have saved.
3. Get an estimate of your closing costs from the mortgage lender or a real estate professional.
4. And the costs of he down payment requirements and the closing costs together to find out how much money you will need to buy a home.
Funds for the Down Payment - Funds for your down paynment can come from the following sources:
. Savings account, bonuses, and commissions
. Mutual Funds
. Securities
. Proceeds of life insurance
. IRA, 401 (K) or Keogh funds
. Charitable organization gift programs
Gifts Towards Your Down Payment - You can use gift money from relative towards a portion of your down payment. Mortgage lenders often requie that a certain portion of the down payment come from documented savings that you have accumulated personally. Be sure to ask your lender about any requirements. The amount of the gift may be subject to limits in some mortgage programs. Usually the mortgage lender requires a gift letter verifying that the gift is not a loan and that you do not have to repay it.
Pre-approval - We recommend that you get pre-approved fro 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. Sellers will be more willing to accept an offer if a buyer is pre-approved.
To become pre-approved, you need to meet with a mortgage lender or apply for pre-approval on the internet, or call Hamid Aghili, Real Estate Broker at Century 21 Town and Country. The mortgage lender will review your credit history, earnings information, employment history and assets. You will need to provide certain documentation to the lender and may fill out a mortgage application at this time. After the review, the lender will give you a “pre-approval letter”. This letter tells home sellers that you qualify for a certain mortgage amount.
Pre-approval vs. Pre-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.
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:
. Sale price of the house
. Contingencies, such as getting mortgage financing of a certain type and rate, satisfactory inspection, and repairs that ned to be made
. 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.
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.
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 period.
After you apply for your mortgage, your lender will schedule a loan interview with you and give you a list of the documentation you will need to bring to the interview. The lender may request additional information from you by email, rather than scheduling an interview.
Private Mortgage Insurance
Generally down payments or less than 20% of the price of the home require Private Mortgage Insurance (PMI) or some times MI. You may be able to cancel your mortgage insurance under certain circumstances, for example when your loan amortization reaches a certain percentage or your property value increases due to a favorable market value of home improvements.
