So, you found the home of your dreams, made an offer, and they accepted! Now what? Hopefully, you have already started the loan process and were able to furnish a letter of pre-approval with the offer. I recommend that before you begin your house hunting, you begin the loan pre-approval process. Getting pre-approved requires that a lender verify your financial information, and it serves as their commitment to lend a specified amount based on that information. It will give you a number of advantages:
1. When you find a property, sellers will take your offer more seriously given that you have a lender that has committed to backing your offer.
2. It does give the assurance that you're looking at homes you can confidently afford to finance. Your efforts will be focused on properties that match your financing abilities.
3. You'll have an edge over other buyers who aren't pre-approved. In situations where there are multiple offers on a property, this can be the difference between having your offer accepted or losing the property to another buyer.
I do business with lenders who have excellent reputations for honest and reliable service. Please contact me if you need help in deciding on a mortgage company. Today's loan options are many. Buyers need to be as skilled in 'shopping' for a mortgage as they are in finding just the right home. Working with a real estate professional you trust can be a huge help in this regard.
Following is a list of the information you will be asked to provide when you meet with a loan officer:
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1. Name, age, social security number of borrower and co-borrower.
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2. All household income and/or family income to be applied to loan agreement.
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a. Name and address and phone number of all employers for the past two years.
b. If a student, please bring copy of transcripts and/or diploma.
c. Position and length of time of job (s).
d. Income-base salary, average overtime, commission, bonus, capital gains, etc..
e. Documentation of any child support payments (with a 12 month history as verified by deposit slips, cancelled checks or court records) if they are to be counted as income.
f. Verification of social security benefits, VA benefits, etc., including awards letter & copy of check.
g. If self-employed or commissioned, provide copies of Federal tax returns (with all schedules) for two years and a current business year to date P&L with a balance sheet.
h. Most recent 30-days paycheck stub.
i. W-2's for the last two years.
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3. Bank accounts (checking and savings, IRA's, CD's, 401K's) including the name and address of the banks, name (s) accounts are in, account numbers, and current balances. Include statements for the last three months.
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4. Stocks and bonds---types, current market value, and copies of last 3 months broker's statement.
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5. Life insurance amount of coverage and approximate cash value.
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6. Year, make and current market value of automobile (s).
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7. Approximate value of personal property and furniture owned presently.
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8. Account numbers, monthly payments and current balances of all open credit accounts and loans, including names and addresses to whom payments are made.
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9. Information on any and all paid accounts in relation to No. 8 going back at least two years.
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10. Typed letter explaining any adverse credit history, including bankruptcy. Explain circumstances and furnish copy of schedule of bankruptcy, reinstatement of debts, etc..
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11. If applicable, complete divorce decree, including all amendments and property settlements.
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12. Monthly house/rent payments.
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13. Copy of purchase agreement and listing sheet.
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14. Bring your checkbook. You will need to pay about $275 - $350 at the time of application for an appraisal fee and credit report.
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15. If a property is on a septic system and/or well, be prepared to write a check of approximately $60 for a Health and Hospital Inspection.
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16. Name, address and phone number of current mortgage company, account number, monthly payment amount and approximate balances, or name, address and daytime phone number of landlord for the past two years.
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List of items typically required at closing:
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1. Cashiers or certified check made payable to the title company for funds to close.
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2. Driver's license and/or picture ID.
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3. Original homeowner's insurance policy and paid receipt, effective the day of closing.
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4. Additional requirements from a lender may include original termite inspection report, and HUD statement from previously owned home.
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The four most popular ways to finance the purchase of a home are:
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1. A Fixed-Rate Mortgage Loan---
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Either conventional, FHA or VA. The interest rate you pay does not vary during the life of the loan--typiacally a period of 15, 25, or 30 years. The 15-year mortgage is an increasingly popular way to reduce total interest costs while accelerating equity growth. And because of the shorter commitment, lenders usually offer a lower rate of interest on 15-year mortgages.
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2. Adjustable Rate Mortgage (ARM)---
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As the name implies, ARMs carry a rate that adjusts to interest rates in general and protects the lender. ARMS are attractive to buyers, too, because they offer a lower initial interest rate than conventional fixed-rate mortgages. If interest rates in general rise or fall, so will your ARM rate.
Arms come with "caps." Thisd is the maximum amount the interest rate can be raised or lowered at each adjustment period. The cap is usually about 2-3%. If your initial ARM rate is 10% and your cap is 2%, the most your rate can be raised in the first adjustment period is to 12% ( or lowered to 8%).
Often an ARM includes a lifetime cap, too. This limits the total amount the interest rate can be adjusted--commonly, 5-6%.
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A few other terms relating to ARMS...
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Each ARM is based on a monetary index such as one, three or five-year U.S. Treasury bills, or the average mortgage rate published weekly by the Federal Home Loan Bank Board.
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A lender adds a percentage of interest, or margin, to the index rate to determine the mortgage interest rate at each adjustment period. The margin generally ranges from 1.5% tp 3/6% and includes the lender's loan service costs, risk and profit.
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This refers to the time between interest rate adjustments and typically is one, three, or five years.
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Some ARMs carry an option permitting conversion to a fixed-rate loan and this could save the borrower money.
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3. Mortgage Assumption---
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Here the buyer merely assumes or takes over the seller's mortgage.
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More popular during times of high interest rates, buying a home on contract requires the seller to carry the financing--usually at more favorable terms than other forms of financing.
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How Much Can I Afford to Pay?
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Do you know your paycheck gets BIGGER when you buy a home? A large portion of the mortgage payment is tax-deductible interest. While some people prefer getting money back from the IRS, others prefer to increase their allowable dedcutions and get the "tax-savings dollars" to help them make the mortgage payments.
Start by determining how much you can invest in the down payment. Second, figure out how much you can afford in monthly payments.
Most lenders feel that the PITI payments should not exceed 28% of gross monthly income...or no more than 36% for PITI and monthly debt repayments combined. Factors that can change these percentages might be other outstanding long-term debts, alimony and/or child support payments, the size and age of your family and other household budget items.
Your monthly mortgage payment covers principal, interest, property taxes and insurance. These four costs--principal interest, taxes and insurance--often are shortened to PITI. If you buy a condominium or a home in an area governed by a homeowner's association, your monthly costs would also include association dues, condominium fees and perhaps mortgage insurance.
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Where Do You Get the Down Payment?
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Most people turn to their savings to come yp with at least part of ther down payment on a home, but there are other sources--including these:
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Parents with substantial equity in their own homes are using this asset to make a gift to their children. Under the 1981 federal tax law, each parent may make a tzx-free gift of $10,000 to a child. Parents pay no federal gift tax and the yound people pay no income tax on the gift. However, some lenders will ask for a "gift letter" verifying that parents do not expect repayment.
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A parent or friend might be found who is willing to provide part of the dfown payment if they share in any "profit" or net equity of the house when it is sold. This is sometimes called "shared equity".
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Cash values on life insurance accumulate over the years. You may find that your insurance policy will permit you to borrow a substantial amount at a more favorable rate of interest than you would find elsewhere.
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Should you own stocks and bonds but don't wish to sell them at present, you might be able to use your portfolio to secure a bank loan.
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EMPLOYER PROFIT-SHARING OR SAVINGS PLAN
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If you have built up funds in your firm's profit-sharing or savings plan, you may consider withdrawing them to invest in a home.
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What About the Closing and its Costs?
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At the closing or settlement, you will review and sign the mortgage, the mortgage note, lender forms and settlement sheets. You will be expected to pay the balance of the down payment and your part of the closing costs with a cashier's or certified check.
Closing costs vary widely, but the buyer's costs usually average between 3% and 6% of the sales price. They may cover such things as loan origination fee, mortgage insurance premium, attorney fees, title insurance, recording fees, survey, appraisal and credit report. You may also make an advance deposit in excrow for real estate property taxes and insurance.
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If you have never purchased a home, this may seem a little over-whelming. Please do not hesitate to contact me. It will be my pleasure to guide you through the entire process, step by step.
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