July 2, 2016

Purchase – Home Loans

Purchasing a Home

Homeownership is the American Dream, and may be the biggest investment that most people ever make. It stands for security, comfort and wealth. The sense of community that comes with putting down roots in a place of your own, the security of owning the roof over your head, and the opportunity for financial growth - all of these are reasons why we want to own our own home.

Along with the rewards of homeownership come the benefits that are not available to renters like:

Wealth Building - Making a mortgage payment every month builds equity in your home. As your home appreciates in value it is a direct contributor to your long-term wealth and financial foundation.

Reduces Your Tax Burden - The interest and property taxes you pay each year on your home are still two of the best tax deductions. (Always consult your tax preparer about the deductibility of interest.)

Eliminates Your Landlord - As a renter, you are building wealth for your landlord. Money you pay as rent is wasted each month. You will no longer have to worry about lease renewals, moving and rent increases. You’ll be earning the equity rather than your landlord.

House of Your own - You will be free to paint, decorate and remodel as you wish. A home is a great place to live and raise a family.

This online guide is here to help you learn about the home buying process, so you can make informed decisions every step of the way. You don't have to do it alone. Whether you decide to use our online tools or rely on your Mortgage Provider, we are here to help. The more educated you are about buying a home, the better experience it will be.

Determine How Much You Can Afford

It is important to see or talk to your Mortgage Provider first before house hunting. The first thing you want to do is get "Pre-qualified" for a mortgage loan. The Mortgage Provider takes your income, asset and debt information from you and determines your buying power. It's quick, easy, and we keep the paperwork to a minimum.

What is the difference between Pre-qualified and Approved? Approved is one step further and requires the Mortgage Provider to take a full application from you and validate your credit-worthiness. You can apply through our secure online application or by calling your Mortgage Provider.

Why is an approval so important? Getting approved is a smart idea for the serious home buyer. Real estate agents and sellers of homes want to make sure you are a bona fide buyer. With an approval letter in hand they will not have to wonder if they are wasting their time with you. You have the clout of a buyer ready to make a valid offer right now!

Down Payment and Closing Costs

In today's marketplace there are so many options to choose from. You now have a variety of adjustable & fixed rate loan products, interest only payment options, zero down payment, and many more.

Don't let saving for a down payment be the reason to put your dreams on hold. We offer a variety of zero & low down payment options for qualifying borrowers. Not only will you be able to afford a home sooner, you'll probably be able to afford more home than you think!

There are certain standard costs associated with purchasing a house. As the buyer, you will receive a "Loan Estimate" of closing costs at the time the loan application is submitted. Closing costs cover the amount of money required to close a mortgage loan. Closing costs vary based on the loan product chosen and state in which your property is located. Closing costs generally fall into two categories:

Non-recurring Expenses normally cover third party fees such as appraisals, credit reports, title insurance, closing fees, attorney fees (if needed), recording fees, and tax service. Other fees you will often see include the loan origination fee and discount fees (if any), processing, underwriting, funding and document preparation fee.

Pre-Paid Expenses usually include all the fees associated with establishing an escrow account. Escrow accounts are set up by the lender to pay property taxes, home owner's insurance and private mortgage insurance (if needed). These accounts help the borrower avoid the hassle of saving money to pay the taxes & insurance when they come due. It also reassures the lender that these payments are always up-to-date. Although escrow accounts are typically required on loans with less than 20% down payment, ask your Mortgage Provider if it is required for your loan.

Your Mortgage Provider can help you make smart choices from the hundreds of loan products available. Finding out how long you plan to be in the home, and exploring your financial needs will play a big role in helping you make informed loan program decisions.

Overview of the Loan Process

Many people view the loan process as time-consuming and tedious, but it doesn't have to be! We've built the most convenient home loan service ever! The application will ask you questions about the home and your finances, and takes less than about 20 minutes to complete. As soon as you've finished the application we'll review your request for approval. If your application is approved we can begin to process your request immediately.

After your application is completed, your Mortgage Provider will contact you and answer any questions you may have. Your Mortgage Provider is a mortgage expert and will provide guidance along the way.

If you are purchasing a new home, your Mortgage Provider will also contact your Real Estate Agent (or the seller if there’s no agent) so that they'll know who to contact with questions. Your Mortgage Provider can walk you through the loan process quickly, so you can close your loan quickly.

Loan Application

The loan application is a detailed form designed to provide information from you that your lender will need. You can either apply online (safely and securely), in-person, or over the phone. Lenders use the application to evaluate whether or not they can approve you for a loan, and if so, the amount of money they can lend you. The "Four Cs" of credit come in to play when filling out an application -- they are Capacity (your ability to re-pay the loan), Credit History (paying debts on-time), Capital (your assets) and Collateral (the property you’re buying).

The loan application form requests information such as . . .

  • Bank account(s) name and balances
  • Information about where you work, how much you make and additional sources of income you may have
  • Outstanding debts (installment loan(s) and credit card(s) with names, payments and balances)
  • Information about your present mortgage (or rent) will also be required, such as
    • current monthly payment
    • outstanding mortgage balance
    • status of property tax and insurance payments
    • the lender's contact information

Credit History

When a lender reviews an applicant's credit history, the lender examines all the information in their credit report. This includes your credit cards, student loans, automobile loans, public records (judgments and bankruptcy) and other loans. The lender reviews how you have made your payments—on-time or late. Your credit report also notes three credit scores per borrower.

What is a Credit Score? Credit scoring is a quick, accurate, and consistent scientific method for assessing credit risk. Your credit scores are based on data stored by a credit repository about your credit history and payment pattern. Most credit scores estimate the risk a company incurs by lending you money or providing you with a service--specifically, the likelihood that you'll fail to make payments in the next two to three years.

Credit scores are calculated by statistical models that assign points to factors indicative of repayment. These scoring models exist in software utilized by credit bureaus or lenders. Credit scores are based on data rather than human judgment, making credit scoring an objective risk assessment tool as opposed to a subjective one. Credit scores range from 300 to 850, but the majority of scores fall within the 600s and 700s. Higher scores indicate a lower credit risk! You want your scores to be high!

Finding a Home

With your approval letter in hand, you can now embark on the most important part of the home buying process - finding the right home.

You first have to figure out what is the most important thing to you in a home. Here are some pointers to keep in mind during your search:

Location, Location, Location - Is it close to your job? Is it in a good school district? Is it on a busy street? Is it in a safe neighborhood? Is it close to a bus line, grocery store, and other amenities? Do you like the neighborhood? These are just a few things to consider when deciding on location.

Type of Home - There are single family homes, condominiums, and townhomes. They all offer different styles, ownership options, and lifestyle choices. You’ll have to decide which type of housing will best fit your family and lifestyle.

Size and Features of the Home - You need to make a wish list of items you want or require. An example would be the square footage of the home or lot, number of bedrooms and bathrooms, age of the home, heating and air conditioning, etc.

Using a Real Estate Agent - Check to see if there is a Real Estate Provider on your Mortgage Provider’s HomeBenefitIQ.com website. There are typically benefits for you if you use an agent on the site or in the Mortgage Provider's network of agents. The Real Estate Provider (Agent) is paid by the seller of the home, so don't worry about the cost. Hiring an agent will cut down on your search time and help tremendously when negotiating the sales price, and any seller concessions.

Your Mortgage and Real Estate Providers are here to make sure that finding and financing a home is a friendly and rewarding experience for you! This is one of the biggest purchases you will make, so ensure that you have a good team representing you and your best interests!

Making an Offer

Congratulations! You have found a home, now it is time to negotiate a price with the seller. When you are ready to make an offer to purchase a home, you and your Real Estate Provider will prepare a Purchase and Sale Agreement. Your Real Estate Provider then presents it to the listing agent (or the seller if there is no agent). It will have the price of the home, property address, type of financing you have selected, closing date, inspection and financing contingencies and many more items. (This is a legal and binding agreement.) Your Real Estate Provider will present the offer to the seller’s agent, and will help negotiate on your behalf if the seller counteroffers. Keep these things in mind for your initial offer:

  1. Put everything in writing to make sure there is a clear understanding of your offer. Ask for everything you want up front, and make sure it’s in the Purchase and Sale Agreement! This is a legally binding contract.
  2. You will be required to submit an earnest money deposit to show your commitment to the transaction. Your agent will help you with the correct amount. The money is placed into an escrow account and you can use it as part of your down payment or closing costs.
  3. You may also want to include special contingencies in your offer. A contingency requires a certain act to be performed in order for the contract to take effect. Some of the more common contingencies are home inspection, clear title, financing, repairs, environmental concerns, and appraisals. There are many other contingencies you may want to consider. Your Real Estate Provider will help you decide the contingencies you should select.

Home Inspection

It is HIGHLY recommended that you hire a professional home inspector to perform a home inspection on the house you are interested in purchasing. A home inspection is an objective examination of the physical structure and systems of a home. Make sure the professional you hire inspects all the major systems in the house, such as heating and cooling, plumbing, and electrical.

If problems are identified, it doesn't necessarily mean you shouldn't buy the house. However, you should be aware of potential repairs. A seller may adjust the purchase price or contract terms if major problems are found. Or, you may decide not to purchase the home.

Closing

Once you have a signed Purchase and Sale Agreement, the loan closing wheels start to turn. We are here to help you understand the procedure and what to expect. The first step is processing your loan package. Your Mortgage Provider gathers current income and asset documentation needed to complete your loan file. Documentation requirements vary depending on the loan program that you apply for. At the same time, your Mortgage Provider will order an appraisal and a title commitment (it verifies that you will receive clear title).

At this point in the transaction, you can float or lock-in, your interest rate. A rate lock is a lender's promise to hold a certain interest rate and a certain number of points for you for a specified period of time while your application is processed. This prevents you from going through your whole application process and at the end of it finding out the interest rate has gone up. A rate lock period can vary in length, and longer ones usually cost more.

If you decide not to lock your loan (float), you will be taking a calculated risk. It is a tough decision, but you will be responsible for making it. Your Mortgage Provider can provide guidance and information to help you make an informed decision.

Upon receipt of all the income, asset, credit and property information, the file is submitted to underwriting, who has the final authority to approve your loan. When your loan is approved without additional conditions, we are ready to order your loan documents and send them to the closing agent specified on the Purchase and Sale Agreement.

At or before the closing, you should receive the original or copies of the following:

  • Closing Disclosure -- This document itemizes the funds the buyer and the seller will pay at closing.
  • Note -- Often called the promissory note, it represents your promise to pay the lender according to the agreed upon terms of the loan, including when and where to send your payment.
  • Affidavits -- A written declaration made under oath before an authorized official. You'll sign various affidavits at your closing verifying information such as your address, place of employment, checking account number and more.
  • Deed -- This document transfers ownership from the seller to you.

After your closing is completed, keep any paperwork you received in a safe place. Remember to keep a copy of every document you signed.

When you file your taxes, it may be useful to have a copy of the settlement form because it lists the real estate taxes and loan discount points (if applicable) you paid at the closing -- they may be tax deductible.

Homeownership brings both rewards and responsibilities. It's important to keep both your home and your finances in good shape. That means managing your money wisely to ensure you can meet your obligation to repay the mortgage loan. This will enable you to make your home's equity work for you.

Congratulation’s on getting started on the purchase of your new home! It’s a GREAT investment in your future!

 

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