Mortgage Information

Loan Qualification Form

Financing Procedures

Home Mortgage Terms

Mortgage Loan Application Checklist

Choosing Your Mortgage

All About Closing Costs

Loan Qualification Form

Here's how to determine how much of a mortgage you're qualified to obtain:

1. Determine your gross monthly income. $___________

2. Your gross monthly income times 28 percent equals your allowable monthly payment. $_________

3. Monthly real estate taxes (1/12 annual tax). $__________

4. Monthly Homeowner's insurance. $_________

5. Gross monthly income times ______ percent* equals $_______________(A)

* If you have at least a 10 percent down payment or greater, use 8 percent. If you have less than a 10 percent down payment, use 5 percent. Monthly installment payments - cars, credit card charges, student loans, etc., equals $_______(B)

6. Amount of monthly payment available for principal and interest (line 2 minus lines 3, 4, and 5). $____________

8. Amount of initial investment (down payment). $___________

9. Potential purchase price (line 7 plus line 8) $____________

Financing Procedures

After you have decided on the home you want to buy, you will make an offer to purchase to the Seller through your sales associate. One the Seller and you agree on the price by signing the offer to purchase, you then can start your loan application.

The following are a number of steps in the processing of your loan.

1. You will interview with your loan officer - providing the information listed on the "Application Checklist."

2. The appraisal is ordered to verify the value of the home. Also, a mortgage report is requested from a credit reporting agency to verify your credit and other important information.

3. We continue processing your application by verifying, in writing, your job income, debts, assets, credit, etc.

4. We will do the final underwriting after this information is compiled and received.

5. After all information is complete, we will notify you and your sales associate of the answer as soon as possible, usually within five business days.

6. Once a date and time are agreed on by all parties, a closing can be scheduled with the closing agent. The listing broker or Seller's attorney will then supply a closing statement and title commitment to the closing agent.

7. You, the Buyer, will need to bring a certified check for the proper amount, along with a homeowners insurance policy and paid receipt, to the closing. You should also contact us with the Homeowners insurance premium amount at least one week prior to closing.

8. The closing agent will have you sign all the proper documents and will supply you with copies of these forms. Approximate time for closing is one hour.

Congratulations on your new home!

Home Mortgage Terms

Applying for a mortgage means taking a large financial step. You will hear many strange terms throughout the process. Becoming familiar with these terms through use of this "dictionary" will help you feel more in touch.

Adjustable Rate Mortgage (ARM) is a mortgage in which the interest rate is adjusted periodically based on a preselected index.

Amortization means loan payment by equal periodic payments calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Annual Percentage Rate (APR) is the cost of credit expressed as an annual rate. It must be calculated by using a formula set by federal law and disclosed to the Borrower to aid in comparing different credit plans. All finance charges imposed by a Lender are included in this calculation, and an APR is always higher than the simple interest rate when such finance charges like points, origination fees or mortgage insurance are charged by a Lender.

Appraisal is an estimate of the value of property made by a qualified professional called an "appraiser."

Closing Costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The costs of closing are usually about 2% to 4% of the mortgage amount.

Commitment is an agreement, often in writing, between a Lender and a Borrower to loan money at a future date subject to the completion of paperwork or compliance with stated condition.

Construction Loan is a short term interim loan for financing the cost of construction. The Lender advances funds to the builder at periodic intervals as the work progresses.

Conventional Loan is a mortgage not insured by FHA or guaranteed by the VA of Farmers Home Administration (FmHA).

Credit Report is a report documenting the credit history and current status of a Borrower's credit standing.

Debt-to-Income Ratio is the ratio, expressed as a percentage, which results when a Borrower's monthly payment obligation on long term debts is divided by his/her gross monthly income.

Down Payment is money paid to make up the difference between the purchase price and the mortgage amount. Down payments are usually 5% to 20% of the sale price on conventional loans.

Equity is the difference between the fair market value and current indebtedness, also referred to as the Owner's interest.

Escrow refers to a neutral third party who carries out the instructions of both you and the Seller to handle all the paperwork of settlement or "closing". Escrow may also refer to an account held by the Investor into which you would pay money for tax or insurance payments.

Federal Home Loan Mortgage Corporation (FHLMC), also known as "Freddie Mac" is a tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as s those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money available and more affordable.

Fixed Rate Mortgage is a mortgage on which the interest rate is set for the term of the loan.

Gross Monthly Income is the total amount the Borrower earns per month, before any expenses are deducted.

Loan to Value Ratio is the relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Market Value is the highest price that you would pay and the lowest price the Seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Points (Loan Discount Points) is prepaid interest assessed at closing by the Lender. Each point is equal to 1% of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Prepayment is a privilege in a mortgage permitting the Borrower to make payments in advance of their due date.

Private Mortgage Insurance (PMI) may be required by your Lender if the loan you apply for cannot be granted because the loan does not meet the normal standards for the Lender. The most common reason for this requirement is a smaller down payment than the Lender usually required (around 20%). This insurance protects the Lender from loss if the Borrower defaults. If does not protect the Borrower, though it may allow the Borrower to qualify for a loan he could not otherwise get. This insurance will require an initial premium payment of .5% to 2% of your mortgage amount plus an additional monthly fee, depending on your loan structure.

Title is a document that gives evidence of an individual's ownership of property.

Title Insurance is a policy usually issued by a title insurance company, which insures you against errors in the title search. The cost of the policy is usually a function of the value of the property and is often borne by the Purchaser and/or the Seller.

Title Search is an examination of municipal or county records to determine the legal ownership of property, usually performed by a title company.

Note: The checklists are for your general guidance only; your Lender may require different or additional information. The loan charges and fees for services mentioned are provided only for examples; the fees can vary quite a bit depending upon whom you ask to provide the service; the loan charges also will vary depending upon the Lender and the type of loan. You should receive a Good Faith Estimate of Settlement Costs which, though still an estimate, will be more specific to the loan product for which you have applied.

Mortgage Loan Application Checklist

To speed processing, bring the following information when you apply for your mortgage loan:

• Accepted purchase offer with any amendments of counteroffers signed by all parties.
• Names an addresses of banks, credit unions, or thrifts in which you have accounts, including account numbers and balances in each account.
• List of all stocks, bonds, Certificates of Deposit, and other securities showing current market value, recent monthly and/or quarterly statement, account numbers, etc.
• Issuing company's name and policy number of life insurance owned, showing face amount and cash value less outstanding loans.
• Address, current market value, original loan amount, and current balance owing for any real estate owned, with the account number for each property. Provide same information for previously owned and paid for real estate. Verification of net proceeds on sale if property is under contract.
• Your social security number.
• Your annual gross salary (list overtime or bonuses separately), last year's Form W2 and most recent payroll voucher, when available.
• If self employed, copies of your federal income tax return for the previous two years. If employed by your own corporation, copies of its returns for the previous two years and a year to day profit and loss statement.
• Names and addressed of all employers for the previous two years.
• If you choose to use your social security, disability, or pension, income, bring a copy of a check or award certificate from the issuing agency.
• Complete list of all obligations including installment loans, student loans, department store balances, and credit card balances.
• If you have been a party in any legal proceeding (e.g. divorce), be prepared to provide a copy of any documents showing evidence of your rights to additional income or obligation of additional payments resulting from the action.
• Alternative documentation of employment, deposit account, and mortgage payment history.
  • Please provide the original Form W2s for a two year period and most recent pay stub for the pervious 30 days.
  • Please provide original deposit account statement for the most recent three months.
  • Please provide canceled check for the last 12 months or a year-end mortgage account statement which provides a payment receipt history.

Note: The checklists are for your general guidance only; your Lender may require different or additional information. The loan charges and fees for services mentioned are provided only for examples; the fees can vary quite a bit depending upon whom you ask to provide the service; the loan charges also will vary depending upon the Lender and the type of loan. You should receive a Good Faith Estimate of Settlement Costs which, though still an estimate, will be more specific to the loan product for which you have applied.

Choosing Your Mortgage

What types of mortgages are available?

Fixed Rate Mortgages

You're probably aware of the fixed rate mortgage. No doubt your parents had one and their parents before them. The major advantage of a fixed rate mortgage is that it presets predictable housing costs for the life of the loan. Some of the fixed rate mortgages you will undoubtedly hear about are:

• 30 Year fixed rate mortgages
• 15 Year fixed rate mortgages
• Biweekly mortgages

Adjustable Rate Mortgages

The adjustable rate mortgage come about during a time of high interest rates that kept many people out of the housing market. The ARM offered lower "initial rates" by sharing the future risk of higher rates between Borrower and Lender.

ARMs can be an excellent choice of financing under certain conditions, such as rising income expectation, high interest rates and short term ownership. But because payments and interest rates can increase either steadily or irregularly, homebuyers considering this kind of mortgage need to have the income to keep up with all possible rate and/or payment changes.

Each ARM has four basic components. They are:

• Initial Interest Rate - usually one to three percentage points lower than that of most fixed rate mortgages. Lower initial interest rates also make ARMs somewhat easier to qualify for. The initial interest rate is tied to certain economic indications that dictate in part what the monthly payment will be.
• Adjustment Interval - the time between changes in the interest rate and/or monthly payment; typically one, three or five years, depending on what index is used.
• Index - against which Lenders measure the difference between what they are making on their investment in the mortgage and what they could be making on other types of investments. The most popular index is base on the rate of return on a one year Treasury bill (T-bill)
• Margin - the additional amount the Lender adds to the index to establish the adjusted interest rate on an ARM. The margin is usually 2.5% to 3%.

Some ARMs have fixed rate conversion options. This option allows the Borrower to make his variable rate loan become a fixed rate loan. There is usually a fee required for the conversion. The conversion rate may be higher than the prevailing ARM rate to compensate the Lender for the risk it takes in regard to market rates going up.

Beginning no later than October 1, 1998, Lenders who offer ARMs must give a disclosure about its ARM program at the time it gives the applicant an application form (or collects a nonrefundable fee).

All About Closing Costs

What are they and why do they exist?

The following information is meant to eliminate much of the confusion sometimes present as "closing" time draws closer.

Types of Closing Costs

Here are two broad categories of extra charges and fees that are usually found in settlement or closing transactions nationwide.

• Charges of establishment and transfer of title. These involve the title search, title issuance, legal fees and settlement supervision fees.
• Costs associated with obtaining the mortgage. Other costs include surveys, appraisals, credit checks, loan documentation fees, notary charges, loan origination fees, commitment fees, processing fees, hazard insurance, interest prepayments, Lender's inspection fees and underwriting fees.

Title: Who Owns What?

In buying a car, you see the Owner's registration certificate as proof of ownership or clear title. The burden of proof is upon him.

When you go to buy a house, the burden to provide clear title is usually the responsibility of the Seller. The Lender will not give you a mortgage until you can prove that the present Owner of the house legally owns it.

Title Insurance

It is likely that a title insurance policy will be required even though a formal title search was done. This is to guard against the possibility of error by whoever searched the title on the home. Errors in this area are pretty rare, but when they do occur, they are catastrophic for all parties concerned. The cost of this policy is a function of the value of the house and is often borne by you, the Buyer. You have the right to ask the Seller to pay half or all of the one-time premium as par of your negotiation.

The title insurance policy lists the Lender as the beneficiary. You would need to take out an Owner's title insurance policy to protect yourself. The additional premium cost will usually be only a fraction of the Lender's policy and worth it for peace of mind.

Mortgage Related Closing Costs

Another major category of closing costs involves mortgage money. Following is a list of what this includes.

• Loan application fee This fee covers the initial costs of processing your loan request, checking your credit history and preparing the loan documents. The existence and amount of this fee varies from one Lender to another; in many cases, this fee is not refundable even if the loan is not granted. Be sure to ask.
• Property appraisal fees All Lenders require an opinion, usually by an independent appraiser, of the market value of the home being purchased. This opinion gives the Lender some confidence that if the borrower defaults, the Lender can recover its loan money from the sale of the home after foreclosure.
• Loan origination fees (1% to 3% of the loan amount) Also known as "points." Each point equals 1% of the mortgage amount; they represent the equivalent of prepaid interest.
• Mortgage Insurance (.5% to 2% of the loan amount) The lender may require you to purchase mortgage insurance as a condition of granting the loan. The most common reason for this insurance is because the Borrower's down payment is less than the Lender's normal minimum (usually at least 20%). It protects the Lender from loss if the Borrower defaults. (This insurance does not protect the Borrower, but it may allow the Borrower to get a loan for which he/she might otherwise not get.) For a typical 90% loan, you are charged an annual fee of .5% to 2% of the loan amount.
• Homeowners hazard insurance ($180 to $400 a year) You will be required to have a policy in effect at closing with the first year's premium paid in full. This insurance is protection against physical damage to the house by fire, wind, vandalism and other causes. (Minimum coverage is to be no less than the mortgage amount.)
• Survey ($125 to $300) A verification from a surveying firm will assure us that the lot containing the house you are buying has not been encroached upon any other structures since the last full-fledged survey was conducted. On occasion, a complete survey is required to ensure that the house and other structures are legally where you and the Seller say they are (Buyer or Seller may be responsible for cost of the survey, depending on area.)

We'd like to point out that there may be additional costs involved with your mortgage. They would be documented and explained before the closing.

Note: The checklists are for your general guidance only; your Lender may require different or additional information. The loan charges and fees for services mentioned are provided only for examples; the fees can vary quite a bit depending upon whom you ask to provide the service; the loan charges also will vary depending upon the Lender and the type of loan. You should receive a Good Faith Estimate of Settlement Costs which, though still an estimate, will be more specific to the loan product for which you have applied.