Financing Tips

KNOW the difference between PRE-QUALIFICATION vs. PRE-APPROVAL
Pre-Qualification is based on preliminary information that you verbally provide to your lender regarding your income, debts and assets. There is no fee; however, once a purchase agreement is executed, you must complete a loan application.

Pre-Approval is similar; yet a step further because the loan officer underwrites your file with desktop underwriting software, when applicable. You are informed of additional documentation required (if any) to process your loan should you choose to go further. You provide documentation of income, assets and debts. This information may then be further reviewed by an actual underwriter who would approve the loan. At this point your mortgage is fully approved, pending a sales contract and property appraisal. As you can see, this extra step strengthens your position as a buyer in the eyes of a seller and may grant you more flexibility in negotiating.

KNOW YOUR CREDIT SCORE
Your Credit Score is extremely important when shopping for a loan. Today, lenders rely heavily on your credit report when determining which loan product is best for you. Based on the way you handle your credit obligations, the credit bureau will develop a credit score. The higher your score, the better chance you have in qualifying for a loan with the best terms and interest rate.You're able to obtain a free report, once a year, from each of the three major credit bureaus. Visit www.annualcreditreport.com. In the event there are inaccuracies in your report, you must contact the major credit agencies directly. Only these three agencies can correct this information.

Equifax: (800) 685-1111 or www.equifax.com
Experian: (888) 397-3742 or www.experian.com
TransUnion: (800) 916-8800 or www.transunion.com

ADVICE: make timely payments, hold less than four credit cards, maintain an debt-to-income ratio of less than 36% and, DO NOT make any major purchases, such as an automobile, prior to completing the purchase of your new home.
Remember, if you have less-than-perfect credit, don't let that stop you from buying a home. It may take a bit longer in order to improve credit matters, but it's a step in the right direction. Also, lenders are typically more concerned with how you’ve handled your recent credit than with what happened years ago. Don't ever let credit issues discourage you from moving toward your dream of owning a home!

KNOW WHAT YOUR LENDER NEEDS
Be prepared. Lenders will require extensive documentation in order to provide you with a firm loan commitment, as well as providing you with a pre-approval. By compiling as much information in advance, your financing process will prove to be less stressful.

Review this MORTGAGE LOAN CHECKLIST which outlines basic information you will need:
Amount of money you want to borrow
The length of the loan
Current address. (previous address required if you've been at your present address for less than 2 years)
Social Security Number
Employer's name and address (if less than 2 years, you'll need to provide your former employer's address)
Gross monthly income
Bank account numbers and approximate balances
Your assets (personal property, life insurance, retirement funds)
Complete list of debts (including account numbers and approximate balances due)
A written explanation for any credit or other problems that may concern your lender (such as explanation of bankruptcy, late payments)
Once you've found your new home, an executed copy of your Purchase Agreement.
Once the application process begins, your lender will verify the facts of your application, obtain an updated credit report, conduct an appraisal of the property, review all the details of your mortgage application and make a final determination on your loan.

KNOW WHAT QUESTIONS TO ASK
The following questions are based on a conventional fixed-rate loan. In the event a lender recommends another loan product, please consult Me, your Realtor or your financial advisor for assistance.

Do you offer 15 to 30 year fixed-rate loans?
What is the difference in interest rates from a 15 to a 30 year fixed-rate loan?
At what point can I lock in my interest rate? For how long?
What is the difference between the interest rate and the APR?
Are points required? (one point equals one percent of the loan)
Are funds available for a second mortgage?
Is there a prepayment penalty?
What is the grace period on monthly payments before a late charge is assessed?
Would my loan be open-ended?
Is this an assumable mortgage?
Will I be required to pay private mortgage insurance (PMI)? 
What are the total estimated closing costs I can expect to pay (including loan costs, title costs & pre-paids)

KNOW WHAT ADDITIONAL COSTS TO CONSIDER
In addition to the standard closing costs and down payment, here are other costs to consider:
moving expenses, homeowners insurance (fire and hazard insurance), private mortgage insurance (PMI) in the event your down payment is less than 20%, home inspection fees, home maintenance or repairs, and, an increase in your property tax rate. Note: the tax rate provided you at the time of title transfer is based on the county's most recent appraised value. Once the county recognizes the new sale price, your property tax will be adjusted accordingly. Because we are generally six months in arrears and processing is delayed, this adjustment may not be reflected in your tax bill for approximately 12 months.

KNOW THESE MORTGAGE TERMS
These are a few of the common terms you'll here when searching for a lender and/or loan product that best fits your needs in buying your dream home.
Adjustable Rate Mortgage (ARM): 
This is the second most common type of mortgage.  It usually offers an interest rate that is 2 to 3% below a comparable fixed rate mortgage.  In this case however, the interest rate changes at specified intervals (for example, annually).  With an ARM, as the interest rate fluctuates, your monthly payment can increase or decrease at each set interval. There are many types of adjustable rate mortgages.  Your lender can help you decide if one is right for you.
Annual Percentage Rate (APR): A term used in the Truth in Lending Act to represent the relationship of the total finance charge to the amount of the loan, expressed as a year rate (includes interest, loan fees and points, if any.)
Balloon Mortgage:
These loans are short term mortgage that provide a fixed payment during the term of the loan; but do not fully amortize over this period.  At the end of the loan term, customarily 5 to 7 years, there is still a remaining loan balance which is to be paid in full.  This is accomplished either  by refinancing or selling your home.
Fixed-Rate Mortgage: This is the most common type of mortgage.  The loan term is usually 15 or 30 years.  Your monthly payments for interest and principle (mortgage balance) remain the same for the life of the loan.  Property taxes and home owners insurance may increase and are not fixed.
Jumbo Loan: 
This term reflects mortgages that are larger than $252,700 (a limit set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.)  Lenders may charge a higher interest rate on borrowed funds exceeding this limit.  Check with your lender or real estate agent for appropriate programs and options.
PMI (Private Mortgage Insurance): Many buyers are paying less than the standard 20% down payment these days.  If you do, however, you may have to pay Private Mortgage Insurance (PMI), which protects the lender in case of a default on the loan.  In some cases, you can finance your first year's PMI premium as part of the loan amount to lower your cash outlay at closing.  Financing PMI may help you qualify for a loan, but it can also reduce your qualifying loan amount, along with the home price you can afford.
Points:One point is equal to 1% of the loan amount, and may be referred to as a loan origination fee or discount points.  Typically, lenders charge points to achieve higher yeilds on their loans and attract more investors to the housing market. Points are generally paid when the loan is approved, or at closing.  Some lenders will let you finance points, which increases the cost of your mortgage.  If you pay points up front, however, you can deduct them from your income taxes in the year they are paid.
Truth-in-Lending: A federal law requiring that lenders fully disclose credit terms and conditions, the annual percentage rate and other mortgage financing charges in writing to the borrower