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What do I do after I have found the home I want to purchase?
How do I apply for a loan?
What is the best way to approach the loan process?
What counts in the loan application process?
How do I know which loan program will benefit me the most?
What does it mean to have 0 points or 1 point or 2 points?
How do I get pre-approved for a loan?
What documents are needed to process my loan?
Who's who in the housing business?
What do the words amortization, escrow, principal, foreclosure,
PITI, and closing mean?
How long before I can get my loan?
What are closing costs, and how much will my loan cost me?
What's in a mortgage payment?
What are all the different types of insurance involved in buying
and securing a home?
What is refinancing, and when should I do it?
What is a rate lock-in?
What do I do after I have found the home I want to purchase?
It is time to contact the seller who may be an individual or an
representative of a real estate agency. Negotiations can begin
for the sale of the property. Once the buyer and seller have
agreed on a purchase price and developed sales agreement, it
is time for the buyer to apply for a loan.
How do I apply for a loan?
Applying for a loan is very simple and straightforward. If you
would like to go ahead and try to pre-qualify or submit a loan
application, please fill out the preliminary online loan application.
The uniform loan application that is submitted to lenders is
known as the Fannie Mae form.
What's the best way to approach buying home?
Buying a home is not a difficult process. It is basically a ladder
of events. Follow this guided tour to buying your own home. BEGIN.
What counts in the loan application process?
-
Your Income
The amount of income you earn will determine the amount of money
you can borrow to purchase your home. For example, if a person
makes $5000 a month and spends $1600 on a mortgage loan, including
property taxes, mortgage insurance and hazard insurance, the housing
expense ratio is 32% (1600 divided by 5000). Normally to qualify
for mortgage loans lender may spend a maximum of 33% of their mortgage
payments.
- Your debts
The lender will look at the monthly debt such as loan payments,
charge cards, child support, made monthly by the applicant.
The percentage of debts to income is known as the debt-to-income
ratio.
A good goal is to spend about 38% of your income on all debts
including the contemplated mortgage payment.
- Your employment history
It is important for the lenders to see a steady employment
in any occupation held by the applicant. Mortgage lenders
are more likely
to lend money to people who have worked several years at
the same job or the same type of job. A Verification of Employment
Document
will be requested by the lender to verify your work history.
- Your credit history
Each borrower has a credit history report that is filed with
the Credit Bureau. Lenders receive a copy of your credit
history in
the loan application process in order to determine your
willingness to pay as a borrower. This assessment depends
on your credit
record, ie. if you have been late on your various payment
obligations.
- What is the property worth?
The lender will want to know the value of the prospective
home. The loan amount approved will depend on the value
of the property
to be determined by an appraiser. This appraisal is to
ensure that the lender can recover the money he lends,
even if you
stop making
payments. If the borrower fails to repay the loan, the
lender has the right to sell the home to pay off the
loan -- a process
known
as foreclosure.
How do I know which loan program will benefit me the
most?
There are various types of loan programs design to
suit the financial needs of individual borrowers. In
deciding
the
type of loan program
for which you would like to qualify, it is important
to consider your loan amount ......
Loan type
First, the two types of loans are a conforming loan and a non-conforming/jumbo
loan. Conforming loans are for amounts up to $333,700.
Jumbo loans cover loan amounts greater than $333,700.
Loans can
be fixed
or variable (ARMS). Fixed rate loans are amortized
over a period
of 30, 15, or 10 years. Due to shorter commitments
for rates, ARM (Adjustable Rate Mortgage) rates are typically
lower than
longer term rates. These are best suited for transient
borrowers.
Loan Amortization
A loan can be amortized over a period of 30 years,
15 years, or 10 years. Adjustable rate
mortgage loans will have rates
fixed
for a shorter period of time. A shorter amortized loan
will build up your equity faster and will
therefore provide you with a debt-free
home; however, mortgage payments are hirgher for shorter
amortized loans.
Loan-to-Value
The loan amount you receive will depend on the
appraised value of the property and how
much down payment you can
afford. If
you are purchasing a $100,000 home with $20,000 down
payment available,
it will be necessary to borrow an amount of $80,000
from a lender to purchase the property. This will be 80%
of
the home value;
therefore, the loan-to-value of your mortgage is
80%. LTV's can be as high
as 97%.
What does it mean to have 0 points or 1 point
or 2 points?
A point is one percentage of the loan amount.
Lenders offer rates which may be lower but require
paying points.
A rate
of 7.875%
with 1 point for a loan of $100,000 would require the
borrower to pay a total of $1000 to the lender upon
settlement of
the loan. A rate of 8.000% with 0 points will require
no payment
to the lender,
but the interest rate is slightly higher. Points will
lower rates and are of benefit if you have some cash
for the
down payment
and can therefore lower the rate. You should intend
to keep the loan
for its full term. How do I get pre-approved for a loan?
Pre-approval is a new trend in the mortgage industry that allows
a borrower to be pre-approved for a loan before shopping for
a home. Sellers and real estate agents will know you are a serious
and qualified buyer. Pre-approval can be obtained within seven
days of filling out the online loan application. Final approval
of the loan will be subject to an appraisal of the property.
What documents are needed to process my loan?
The loan requires certain documents for approval. These may include
credit reports, the loan application, an appraisal of the property,
income verification, asset verification, and various other documents
depending on the complexity of your personal financing situation.
Who's who in the housing business?
-
Real Estate Agent/Broker
When you first start looking for a new home, contact a real estate
company in the area that you are planning a purchase. The real
estate professionals will show you many available houses in your
price range that will meet your personal needs. When you decide
on a home to purchase, make an offer on the home. The real estate
broker will present your offer to the seller. But please remember
that the broker is under contract to the seller to represent the
seller's interest. When an agreed price has been reached, it is
necessary to draw up a sale of contract document signed by both
the buyer and seller.
- Mortgage Brokers
The mortgage brokerage firm has loan officers who will find
the best loan program to suit your financial needs and concerns.
The
mortgage broker represents numerous wholesale lenders and typically
searches for the best program and rates to suite your particular
needs. Nationwide Residential Lending would like to be your mortgage broker.
- Loan Officer
The loan officer will be the buyer's liason to the lender for
obtaining a loan.
- Lender
Banks, savings and loans, and mortgage companies lend money
to home buyers. Your lender will ask you to fill out a
loan application
form that includes information about your income, employment,
and debts.
- State or Local Housing Finance Agency
Some government agencies provide valuable housing assistance
to low- and moderate-income home buyers and renters.
To find out more
about these programs, ask your real estate agent or your
mortgage broker.
- Property/Mechanical Inspector
For a fee, a qualified inspector will examine the home
you've chosen from basement to attic. The inspection
includes an
evaluation of
the home's plumbing, electrical work, appliances, the
furnace and/or air conditioner, roof, and structural
stability.
These inspections
can save you thousands of dollars in the future, and
the knowledge of flaws can help you negotiate a better
price
on the house.
- Appraiser
The appraiser will be hired by the mortgage broker
or lender to determine the market value of your prospective
home
based on its
condition and the selling prices of comparable homes
recently sold in the area. This estimate helps the
lender
decide
a reasonable loan amount for the mortgage.
- Mortgage Insurer
Mortgage insurance makes it possible for lenders
to offer mortgage loan options to buyers with small
down
payments.
If for some
reason you can no longer make your payments, mortgage
insurance helps
cover the lender's losses.
- Underwriter
The underwriter works for the lenders in reviewing
all the documentation involved with your loan.
Once you've
applied
for the loan and found
the loan program appropriate to your needs, the
mortgage broker will begin the paperwork to provide
all the
supporting documents
required for the approval of the loan. These
shall include employment history, credit reports, the
appraisal of
the home, verification
of employment, the uniform loan application,
and other documents.
- Attorney/Closing Agent
The attorney or closing agent is responsible
for ensuring that all documents have been completed
properly including
those
related to the title search and title insurance.
The closing agent will
explain all closing documents to you and the
seller,
obtain your signatures, and record the documents
with the appropriate
local
governments. He or she also will collect the
transaction fees and give them to the appropriate
parties.
What do the words amortization, escrow, principal,
foreclosure, PITI, and closing mean?
These words may ring a bell or seem completely
foreign. But they are very important concepts
to understand
when applying
for a loan.
- Amortization
Gradual debt reduction. Normally, the reduction is made according
to a pre-determined schedule for installment payments.
- Escrow
An account set up by the lender into which the borrower makes
periodic payments, usually monthly, for taxes, hazard insurance,
assessments,
and mortgage insurance premiums.
- Principal
The original balance of money loaned, excluding interest; also,
the remaining balance of a loan, excluding interest.
- Foreclosure
If the borrower fails to pay back the loan through mortgage
payments, the lender has the right to put the home on the
market for sale
to recover the money owed to the lender. This is known
as foreclosure.
- PITI
Principal, Interest, Taxes, and Insurance are the components
of a mortgage payment.
- Closing
The conclusion of a transaction. In real estate, closing
includes the delivery of a deed, financial adjustments,
the signing
of notes, and the disbursement of funds necessary to
the sale or loan transaction.
How long before I can get my loan?
The settlement closing of a loan requires about 30
days from the date of the locked-in rate. While at
settlement,
you
will read
and sign numerous documents related to the purchase
or refinance of your property. Your settlement agent
will
be able to answer
any questions you may have regarding these documents.
Settlements usually run smoothly and are completed
within 60 minutes. What are closing costs?
Once a loan has been approved by the lender, the buyer is asked
to go to settlement to sign papers, and the loan process is complete!
There are certain costs involved in closing a loan which usually
amount to about 2%-6% of your mortgage loan. For example, if
your mortgage loan is $85,000, your closing costs might range
from $1700 to $5100. These closing costs will be in addition
to your down payment on the house.
Origination Fees
Your lender will charge a fee to cover the administrative cost
of processing your loan. This fee is usually a small percentage
of the loan amount.
- Items Paid in Advance (Prepaid Escrows)
Most lenders require you to pay for some items that will be due
after closing. These pre-paid items usually include first year
insurance premiums (for hazard and mortgage insurance) and real
estate taxes.
- Title Charges
A title is the document that shows who owns a property. It is
necessary for an attorney to examine a title to make sure there
are no problems
that would prevent you from having "clear" (legal)
title. It is also necessary to get title insurance in case someone
else
should try to claim title to your property. Fees for title examination
and title insurance will be included in the closing costs.
- Recording and Transfer Charges
A record of your home purchase will be on file with your local
government , and there is a small fee to cover the cost of
paperwork.
- Attorney's Fee
This fee is to pay the attorney or closing officer for preparing
and reviewing all of the documents needed to close your loan.
What's in a mortgage payment?
Mortgage payments consist of costs for principal, interest,
property tax, hazard insurance, and mortgage insurance.
- Principal
The principal is the amount of money you borrowed. Each month when
you make your mortgage payment, you are paying back a small portion
of the principal. The longer the payments are amortized (over
30 years for example), the more the payments go to reduce the
principal you owe; over time, interest will become a smaller
part of your monthly payment. In the beginning, most of the mortgage
payments made to the lender will be interest payments.
- Interest
Interest is the cost of borrowing money, usually expressed as
an annual percentage of the loan amount - for example 8.125%,
9.000%,
etc. Lenders will offer different rates depending on the type
of loan program offered.
- Property Taxes
These are taxes paid to local governments, usually charged as
a percentage of the property value. Your lender collects the
taxes
through your monthly payments. The amount of tax will vary depending
on the location of the home.
- Hazard Insurance
This is a contract that protects you from any financial losses
on your property that might result from fire, flood, or any other "hazards."
- Mortgage Insurance
This is an insurance policy that pays mortgage lenders for
part of their financial losses if a borrower fails to fully
repay
a loan. Mortgage insurance makes it possible to buy a home
with a
low down payment.
What types of insurance do I need to know about?
- Private Mortgage Insurance (PMI)
A lender will require you to purchase mortgage insurance if
you make a down payment of less than 20% of the market
value of the
home. There are different types of insurance available
which often affect the type of mortgage loans you obtain.
- Conventional Mortgages
- FHA Mortgages
- VA Mortgages
- Title Insurance
Title insurance will be included in the closing costs to insure
that no other party can claim title to your property.
- Hazard Insurance
This insurance is a contract that protects you from any financial
losses on your property that might result because of fire, flood,
or any other "hazards."
What is refinancing, and when should I apply for it?
Refinancing involves obtaining a new mortgage loan on a property
already owned - often to replace existing loans on the property.
When the mortgage rates are low, it may be a good time to refinance.
Refinancing can save you money on your monthly mortgage payments. What is a rate lock-in?
A lock-in, or rate lock option, ensures the borrower a commitment
to a specified mortgage rate, including not only the interest
rate but also its discount/origination points. The borrower must
agree with an authorized representative of Nationwide Residential Lending, Inc. for a specific interest rate in order to choose this
option. It is also possible to choose not to lock-in a specific
rate, but instead to "float" for a certain number of
days. Floating means simply a borrower electing to have interest
rates move up and down according to market conditions until a
specific rate is elected to be locked-in. All borrowers electing
this option must lock-in a rate and its discount points at least
five (5) business days prior to a scheduled settlement, or else
your settlement will be delayed.
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