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Loan Programs

* Fixed Rate Mortgages (FRM)

The most common type of loan option, the traditional fixed-rate mortgage includes monthly principal and interest payments which never change during the loan’s lifetime.

Mortgage application form was approved — Fixed Rate Mortgages in Maitland, FL

The traditional fixed rate mortgage is the most common type of loan program, where monthly principal and interest payments never change during the life of the loan. Fixed rate mortgages are available in terms ranging from 10 to 30 years and can be paid off at any time without penalty. This type of mortgage is structured, or "amortized" so that it will be completely paid off by the end of the loan term.

Even though you have a fixed rate mortgage, your monthly payment may vary if you have an "impound account". In addition to the monthly loan payment, some lenders collect additional money each month (from folks who put less than 20% cash down when purchasing their home) for the prorated monthly cost of property taxes and homeowners insurance. The extra money is put in an impound account by the lender who uses it to pay the borrowers' property taxes and homeowners insurance premium when they are due. If either the property tax or the insurance happens to change, the borrower's monthly payment will be adjusted accordingly. However, the overall payments in a fixed rate mortgage are very stable and predictable.

* Adjustable Rate Mortgages (ARM)

Adjustable-rate mortgages include interest payments which change during the loan’s term, depending on current market conditions. Typically, these loans carry a fixed-interest rate for a set period of time before adjusting.

The initial rate on an ARM is lower than on a fixed rate mortgage. Adjustable rate mortgages are usually amortized over a period of 30 years with the initial rate being fixed for anywhere from 1 month to 10 years. All ARM loans have a "margin" plus an "index." Margins on loans range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value. The index is the financial instrument that the ARM loan is tied to such as: 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI).

When the time comes for the ARM to adjust, the margin will be added to the index and typically rounded to the nearest 1/8 of one percent to arrive at the new interest rate. That rate will then be fixed for the next adjustment period. This adjustment can occur every year, but there are factors limiting how much the rates can adjust. These factors are called "caps". Suppose you had a "3/1 ARM" with an initial cap of 2%, a lifetime cap of 6%, and initial interest rate of 6.25%. The highest rate you could have in the fourth year would be 8.25%, and the highest rate you could have during the life of the loan would be 12.25%.

* FHA Loans

FHA home loans are mortgages which are insured by the Federal Housing Administration (FHA), allowing borrowers to get low mortgage rates with a minimal down payment.

FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single family and multifamily homes. The FHA doesn't issue loans or set interest rates, it just guarantees against default. FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.

* VA Loans

VA loans offer military veterans exceptional benefits, including low interest rates and no down payment requirement. This program was designed to help military veterans realize the American dream of home ownership.

This program was designed to provide housing and assistance for veterans and their families.

* Interest Only Mortgages

Interest only mortgages are home loans in which borrowers make monthly payments solely toward the interest accruing on the loan, rather than the principle, for a specified period of time.

A mortgage is called “Interest Only” when its monthly payment does not include the repayment of principal for a certain period of time. Interest Only loans are offered on fixed rate or adjustable rate mortgages as wells. At the end of the interest only period, the loan becomes fully amortized, thus resulting in greatly increased monthly payments. The new payment will be larger than it would have been if it had been fully amortizing from the beginning. The longer the interest only period, the larger the new payment will be when the interest only period ends.

*Balloon Mortgages

A balloon mortgage has an interest rate that is fixed for an initial amount of time. At the end of the term, the remaining principal balance is due. At this time, the borrower has a choice to either refinance or pay off the remaining balance.

There are no penalties to paying off a balloon mortgage loan before it is due. Borrowers may refinance at any time during the life of the loan.

Balloon loans typically have either 5 or 7-year terms. For example, a 7-year balloon mortgage with an interest rate of 7.5% would feature this interest rate for the entire term. After 7 years, the remaining loan balance would become due.

*Reverse Mortgages

Reverse Mortgages allow senior homeowners to convert a portion of their home equity into cash while still living in the home and you still retain ownership of the property.

It is just like a traditional mortgage, except in reverse. Instead of the homeowner paying the lender each month, the lender pays the homeowner.

As long as the homeowner continues to live in the home, no repayment of principal, interest, or servicing fees are required. The funds received from a reverse mortgage may be used for anything, including housing expenses, taxes, insurance, fuel or maintenance costs.

You may choose to receive the reverse mortgage funds in a lump sum, monthly advances, as a line-of-credit, or a combination of the three, depending on the reverse mortgage type and the lender.

The amount of money you are eligible to borrow depends on your age, the amount of equity in your home, and the interest rate set by the lender.

Because the borrower retains ownership of the home with a reverse mortgage, the borrower also continues to be responsible for taxes, repairs and maintenance.

Depending on the plan selected, a reverse mortgage is due with interest either when the homeowner permanently moves, sells the home or dies.

If the homeowner dies, the lender does not take ownership of the home. Instead, the heirs may elect to pay off the loan, typically by refinancing the loan into a forward mortgage (if the heirs meet eligibility requirements) or by selling the home.

A Reverse Mortgage is a non-recourse loan. Therefore, the borrower or borrower’s estate won’t be held responsible for paying the difference if the loan balance does become larger than the home’s value.

*What kind of loan program is best for you?

Should you get a fixed-rate or adjustable rate mortgage? A conventional loan or a government loan? Deciding which mortgage product is best for you will depend largely on your unique circumstances, and there is no one correct answer.

The many different types of home loans available can seem overwhelming. Should you choose a fixed rate, adjustable rate or government loan mortgage? The truth is there is no right answer. Choosing a loan type is an important decision that is best made after you have researched your options. Remember, taking the time to explore your options now can mean saving thousands of dollars in the long run.

Ask yourself the following questions to determine what loan type is right for you:

Do you expect your financial situation to change over the next few years?
Do you plan to live in your current home for a long time?
Do you feel comfortable with the idea of a changing mortgage amount?
Do you want to be free of mortgage debt by the time your children go to college or you retire?

A professional lender is the best resource available to help you decide which loan best fits your needs. Follow the general guidelines outlined below to get started selecting the best mortgage for your home.

How many years do you plan to stay in your home?	Plan(s) to Consider
1-3	3/1 ARM or 1-year ARM
3-5	5/1 ARM
5-7	7/1 ARM
7-10	10/1 ARM or 30-year fixed
10+	30-year fixed or 15-year fixed

Loan Process

* Step 1:Find Out How Much You Can Borrow

The first step in obtaining a loan is to determine how much money you can borrow. In case of buying a home, you should determine how much home you can afford even before you begin looking. By answering a few simple questions, we will calculate your buying power, based on standard lender guidelines.

Click here to Pre-Qualify.

You may also elect to get pre-approved for a loan which requires verification of your income, credit, assets and liabilities. It is recommended that you get pre-approved before you start looking for your new house so you:

1. Look for properties within your range.

2. Be in a better position when negotiating with the seller (seller knows your loan is already approved).

3. Close your loan quicker

More on Pre-Qualification

LTV and Debt-to-Income Ratios

LTV or Loan-To-Value ratio is the maximum amount of exposure that a lender is willing to accept in financing your purchase. Lenders are usually prepared to lend a higher percentage of the value, even up to 100%, to creditworthy borrowers. Another consideration in approving the maximum amount of loan for a particular borrower is the ratio of monthly debt payments (such as auto and personal loans) to income. Rule of thumb states that your monthly mortgage payments should not exceed 1/3 of your gross monthly income. Therefore, borrowers with high debt-to-income ratio need to pay a higher down payment in order to qualify for a lower LTV ratio.

FICO™ Credit Score

FICO™ Credit Scores are widely used by almost all types of lenders in their credit decision. It is a quantified measure of creditworthiness of an individual, which is derived from mathematical models developed by Fair Isaac and Company in San Rafael, California. FICO™ scores reflect credit risk of the individual in comparison with that of general population. It is based on a number of factors including past payment history, total amount of borrowing, length of credit history, search for new credit, and type of credit established. When you begin shopping around for a new credit card or a loan, every time a lender runs your credit report it adversely effects your credit score. It is, therefore, advisable that you authorize the lender/broker to run your credit report only after you have chosen to apply for a loan through them.

Self Employed Borrowers

Self employed individuals often find that there are greater hurdles to borrowing for them than an employed person. For many conventional lenders the problem with lending to the self employed person is documenting an applicant's income. Applicants with jobs can provide lenders with pay stubs, and lenders can verify the information through their employer. In the absence of such verifiable employment records, lenders rely on income tax returns, which they typically require for 2 years.

Source of Down Payment

Lenders expect borrowers to come up with sufficient cash for the down payment and other fees payable by the borrower at the time of funding the loan. Generally, down payment requirements are made with funds the borrowers have saved. If a borrower does not have the required down payment they may receive “gift funds” from an acceptable donor with a signed letter stating that the gifted funds do not have to be paid back.

*Step 2: Select The Right Loan Program

Home loans come in many shapes and sizes. Deciding which loan makes the most sense for your financial situation and goals means understanding the benefits of each. Whether you are buying a home or refinancing, there are 2 basic types of home loans. Each has different reasons you'd choose them.

1) Fixed Rate Mortgage

Fixed rate mortgages usually have terms lasting 15 or 30 years. Throughout those years, the interest rate and monthly payments remain the same. You would select this type of loan when you:

Plan to live in home more than 7 years
Like the stability of a fixed principal/interest payment
Don't want to run the risk of future monthly payment increases
Think your income and spending will stay the same

2) Adjustable Rate Mortgage

Adjustable Rate Mortgages (often called ARMs) typically last for 15 or 30 years, just like fixed rate mortgages. But during those years, the interest rate on the loan may go up or down. Monthly payments increase or decrease. You would select this type of loan when you:

Plan to stay in your home less than 5 years
Don't mind having your monthly payment periodically change (up or down)
Comfortable with the risk of possible payment increases in future
Think your income will probably increase in the future

By carefully considering the above factors and seeking our professional advice, you should be able to select the one loan that matches your present condition as well as your future financial goals.

*Step 4: Begin Loan Processing

Although lenders conform to standards set by government agencies, loan approval guidelines vary depending on the terms of each loan. In general, approval is based on two factors: your ability and willingness to repay the loan and the value of the property.

Once your loan application has been received we will start the loan approval process immediately. Your loan processor will verify all of the information you have given. If any discrepancies are found, either the processor or your loan officer will troubleshoot to straighten them out. This information includes:

Income/Employment Check

Is your income sufficient to cover monthly payments? Industry guidelines are used to evaluate your income and your debts.

Credit Check

What is your ability to repay debts when due? Your credit report is reviewed to determine the type and terms of previous loans. Any lapses or delays in payment are considered and must be explained.

Asset Evaluation

Do you have the funds necessary to make the down payment and pay closing costs?

Property Appraisal

Is there sufficient value in the property? The property is appraised to determine market value. Location and zoning play a part in the evaluation.

Other Documentation

In some cases, additional documentation might be required before making a final determination regarding your loan approval.

In order to improve your chances of getting a loan approval:

1. Fill out your loan application completely. You may use our online forms to expedite the process.

2. Respond promptly to any requests for additional documentation especially if your rate is locked or if your loan is to close by a certain date.

3. Do not move money into or from your bank accounts without a paper trail. If you are receiving money from friends, family or other relatives, please prepare a gift letter and contact us.

4. Do not make any major purchases until your loan is closed. Purchases cause your debts to increase and might have an adverse affect on your current application.

5. Do not go out of town around your loan's closing date. If you plan to be out of town, you may want to sign a Power of Attorney.

*Step 5: Close Your Loan

After your loan is approved, you are ready to sign the final loan documents. You must review the documents prior to signing and make sure that the interest rate and loan terms are what you were promised. Also, verify that the name and address on the loan documents are accurate. The signing normally takes place in front of a notary public.

There are also several fees associated with obtaining a mortgage and transferring property ownership which you will be expected to pay at closing. Bring a cashiers check for the down payment and closing costs if required. Personal checks are normally not accepted. You also will need to show your homeowner's insurance policy, and any other requirements such as flood insurance, plus proof of payment.

Your loan will normally close shortly after you have signed the loan documents. On owner occupied refinance loan transactions federal law requires that you have 3 days to review the documents before your loan transaction can close.

Mortgage Basics

*Application Checklist

Application Checklist

Mortgage application form with money — Mortgage Basics in Maitland, FL

Below is a list of documents that are required when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation. So, if you are asked for more information, be cooperative and provide the information requested as soon as possible. It will help speed up the application process.

Your Property

Copy of signed sales contract including all riders
Verification of the deposit you placed on the home

Names, addresses and telephone numbers of all realtors, builders, insurance agents and attorneys involved
Copy of Listing Sheet and legal description if available (if the property is a condominium please provide condominium declaration, by-laws and most recent budget)

Your Income

Copies of your pay-stubs for the most recent 30-day period and year-to-date
Copies of your W-2 forms for the past two years
Names and addresses of all employers for the last two years
Letter explaining any gaps in employment in the past 2 years
Work visa or green card (copy front & back)

If self-employed or receive commission or bonus, interest/dividends, or rental income:

Provide full tax returns for the last two years PLUS year-to-date Profit and Loss statement (please provide complete tax return including attached schedules and statements. If you have filed an extension, please supply a copy of the extension.)
K-1's for all partnerships and S-Corporations for the last two years (please double-check your return. Most K-1's are not attached to the 1040.)
Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) including all schedules, statements and addenda for the last two years. (Required only if your ownership position is 25% or greater.)

If you will use Alimony or Child Support to qualify:

Provide divorce decree/court order stating amount, as well as, proof of receipt of funds for last year

If you receive Social Security income, Disability or VA benefits:

Sale of your existing home - provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement)
Savings, checking or money market funds - provide copies of bank statements for the last 3 months
Stocks and bonds - provide copies of your statement from your broker or copies of certificates
Gifts - If part of your cash to close, provide Gift Affidavit and proof of receipt of funds
Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation

Debt or Obligations

Prepare a list of all names, addresses, account numbers, balances, and monthly payments for all current debts with copies of the last three monthly statements
Include all names, addresses, account numbers, balances, and monthly payments for mortgage holders and/or landlords for the last two years
If you are paying alimony or child support, include marital settlement/court order stating the terms of the obligation
Check to cover Application Fee(s)

*Appraisals

Application Checklist

*What is an Appraisal?

An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.

Why get an Appraisal?

Obtaining a loan is the most common reason for ordering an Appraisal, however there are other reasons to get one:

Contesting high property taxes
Establishing the replacement cost for insurance purposes
Divorce settlement
Estate settlement
Negotiating tool in real estate transactions
Determining a reasonable price when selling real estate
Protecting your rights in an eminent domain case
A government agency requirement
A lawsuit

What are Appraisal Methods?

There are 3 common approaches, or Appraisal Methods, used by Appraisers to establish property value. After thorough exercise of all 3, a final value estimate is correlated. When evaluating single-family, owner-occupied properties, the Sales Comparison Approach is heavily weighted by an Appraiser.

1. Cost Approach – A formula is used to obtain the property value: Land value (vacant) added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building.

2. Sales Comparison Approach – The Appraiser identifies 3 to 4 comparable comps, recently sold properties in the neighborhood, ideally, sold in the previous 6 months and within ½ mile of the subject property. A comparison is done between the recently sold properties and the subject property including square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition.

3. Income Approach – The potential net income of the property is capitalized to arrive at a property value. Capitalization is the process of converting a future income stream into a present value. This approach is suited to income-providing properties and is used in conjunction with other valuation methods.

Who owns the Appraisal?

The mortgage company owns the appraisal even though the borrower paid for it. This is because the mortgage company orders the appraisal on the borrower's behalf, and the Appraiser lists that mortgage company on the report. The borrower does have the right to receive a copy; however it's the mortgage company's discretion to give the borrower the original appraisal report.

Can another mortgage company be used after the completed appraisal?

Yes. In most cases you will not have to pay for another appraisal if you change your mortgage company, and depending on the loan program typed, the first lender can transfer it to the new lender. Some appraisal firms may charge a small fee because additional clerical work is required to reflect the new mortgage company; this is called an "Appraisal Retype Fee". The original mortgage company has the right to refuse to transfer the appraisal to another lender. In this case, a new appraisal is needed.

Who determines the market value of a property?

The property seller sets the price, especially for residential property, not the Appraiser. Sellers usually don't order an appraisal because they want to obtain the highest price for their home and therefore don't want to be bound by the Appraiser's assessment.

The real estate agent receives a percentage of the price as compensation and often represents the seller in the transaction and assists them in setting the sale price. They perform a Comparative Market Analysis (CMA), which real estate agents in most states are allowed to perform without an Appraiser's License or Certification. The CMA is vital to the agent’s preparation for a listing examining recent property sales in the neighborhood to arrive at a listing price. Typically the agent will suggest a price to the seller based on the CMA however the seller may choose to list their property for a higher price.

How can I assist the appraiser?

It's to your advantage to help the Appraiser perform the assessment by providing additional information:

What is the purpose for the appraisal?
Is the property listed for sale, and if so, for what price and with whom?
Is there a mortgage? And if so, with whom, when placed, for how much and what type (FHA, VA, etc.), at what interest rate, or other type of financing?
Are any personal properties or appliances included in the property?
With an income-producing property, what is the income breakdown and expenses for the last year or two? A copy of the lease may be required.
Provide a copy of the deed, survey, purchase agreement, or additional property papers.
Provide a copy of the current real estate tax bill, statement of special assessments, or balance owed on anything, i.e. sewer, water, etc.

*Closing Costs

Closing Costs

What Happens at Closing?

The property is officially transferred from the seller to you at "Closing" or "Funding".
At closing, the ownership of the property is officially transferred from the seller to you. This may involve you, the seller, real estate agents, your attorney, the lender’s attorney, title or escrow firm representatives, clerks, secretaries, and other staff. You can have an attorney represent you if you can't attend the closing meeting, i.e., if you’re out-of-state. Closing can take anywhere from 1-hour to several depending on contingency clauses in the purchase offer, or any escrow accounts needing to be set up.
Most paperwork in closing or settlement is done by attorneys and real estate professionals. You may or may not be involved in some of the closing activities; it depends on who you are working with.
Prior to closing you should have a final inspection, or "walk-through" to insure requested repairs were performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.
In most states the settlement is completed by a title or escrow firm in which you forward all materials and information plus the appropriate cashier's checks so the firm can make the necessary disbursement. Your representative will deliver the check to the seller, and then give the keys to you.

What are Statutory Costs?

These are expenses you have to pay to state and local agencies, even if you paid cash for the house and didn't need a mortgage:

Transfer Taxes – Required by some localities to transfer the title and deed from the seller to the buyer.

Deed Recording Fees – To pay for the County Clerk to record the deed and mortgage, and to change the property tax billing.

Pro-Rated Taxes – Such as school taxes and municipal taxes may need to be split between the buyer and the seller since they are due at different times of the year. For example, if taxes are due in October and you close in August, you would owe taxes for 2-months, and the seller would owe for the other 10-months. Pro-rated taxes are usually paid based on the number of days, not months of ownership. Some lenders may require you to set up an escrow account to cover these bills. If not, you may want to set one up yourself to insure the funds are set aside for these important expenses.

State & Local Fees – Other state and local mortgage taxes and fees may apply.

What are Third-Party Costs?

There may be expenses paid to others like inspectors or insurance firms, even if you paid cash for the property:

Attorney Fees – You may want to hire an attorney when purchasing a home. They usually charge a percentage of the selling price up to 1%, or some work on an hourly basis or for a flat fee.

Title Search Costs – Usually your attorney will perform or will arrange for the title search to ensure there are no obstacles such as liens or lawsuits regarding the property. Or you may work with a title company to verify a clear property title.

Homeowner's Insurance – Most lenders require you prepay the first year's premium for homeowners insurance, sometimes called hazard insurance, and must show proof of payment at the closing. This insures that the investment will be secured even if the property is destroyed.

Real Estate Agent's Sales Commission – The seller pays the real estate agent's commission, and if one agent lists the property and another sells it, the commission is usually split. The commission is negotiable between the seller and the agent.

What are Finance and Lender Charges?

Most people associate closing costs with finance charges levied by mortgage lenders. The charges you pay will vary among lenders, so it’s good to shop around for the best combination of mortgage terms and closing, or settlement costs:

Origination Fee – For processing the mortgage application there may be a flat fee, or a percentage of the mortgage loan.

Credit Report – Most lenders require a credit report on you and your spouse, or an equity partner. This fee is often a part of the origination fee.

Points – One point is equal to 1% of the amount borrowed and can be payable when the loan is approved either before or at closing. Points can be shared with the seller which is negotiable in the purchase offer. Some lenders will let you finance points which will add to the mortgage cost. If you pay the points up front they are tax deductible in the year they are paid. Different deductibility rules apply to second home loans.

Lender's Attorney's Fees – For your attorney to draw-up documents and to ensure that the title is clear, and for representation at the closing.

Document Preparation Fees – There are several documents and papers prepared during the home-buying process ranging from the application to the closing. Lenders may charge for this, or the fees may be included in the application and/or attorney’s fees.

Preparation of Amortization Schedule – Some lenders will prepare a detailed amortization for the full term of your mortgage. This is usually done for fixed mortgages or adjustable mortgages.

Land Survey – Lenders may require that the property be surveyed to ensure it has not been encroached and to verify the buildings and improvements to the property.

Appraisals – Professional Appraisers can do a comparison of the value of the property to that of other recently sold neighborhood properties. Lenders want to be sure the property is worth the value of the mortgage loan.

Lender's Mortgage Insurance – If your down payment is 20% or less, many lenders require that you purchase Private Mortgage Insurance (PMI) for the loan amount. If you should default on your loan, the lender will recover their money. These insurance premiums will continue until your principal payments, plus the down payment equal 20% of the selling price and may continue for the life of the loan. The premiums are usually added to any amount you must escrow for taxes and homeowner's insurance.

Lender's Title Insurance – Even with a title search for any property obstacles, liens or lawsuits, many lenders require insurance to protect their mortgage investment. This is a 1-time insurance premium usually paid at closing, and is for the lender only, not the homebuyer.

Release Fees – If the seller has worked with a contractor who put a lien on the house and is expecting payment from the proceeds of the house sale, there may be fees to release the lien. The seller usually pays these fees which could be negotiated in the purchase offer.

Inspections Required by Lenders – The lender may require a Termite Inspection if you apply for an FHA or a VA mortgage loan. In many rural areas a water test may be required to ensure the well and water system will maintain an adequate water supply to the house; for quantity not quality. Depending on the sales contract and property type, additional inspections may be required.

Prepaid Interest – The first regular mortgage payment is usually due from 6-8 weeks from closings; however, interest costs begin at closing time. The lender will calculate the interest owed for that period of time, and that fraction of interest is sometimes due at closing.

Escrow Account – Lenders often require that you set-up an Escrow Account, where you will make monthly payments to, for taxes, homeowner's insurance, and sometimes PMI (Private Mortgage Insurance). The amount placed in this account at closing depends on when property taxes are due and the timing of the settlement transaction. The lender can give you a cost approximation during the application process of your mortgage loan.

Are There Any Other Up-Front Expenses?

The major portion of other up-front expenses is the deposit or binder you make at the time of the purchase offer, the remaining cash down payment you make at closing, or can include:

Inspections – Lenders may require inspections, and you can make your purchase offer contingent based on satisfactory completion of some other inspections such as structural, water quality tests, septic, termite, roof and radon tests. You and the seller can negotiate these inspection fees.

Owner's Title Insurance – You may want to purchase title insurance in case of unforeseen problems so you're not left owing a mortgage on property you longer own. A thorough title search ensures a clear title.

Appraisal Fees – You may want to hire an Appraiser either before you sign a purchase offer, or after reviewing the lender's appraisal report.

Money to the Seller – You'll need to pay for items in the house you want that were not negotiated in the purchase offer such as appliances, light fixtures, drapes, lawn furniture, or fuel oil and propane left in tanks.

Moving Expenses – If you are changing jobs, your new employer may pay for your relocation, otherwise you must figure in the moving costs such as truck rentals, professional movers, cash for utility deposits like telephone, cable, electricity, etc.

Escrow Account Funds – In the purchase offer, you can request that the seller set up an Escrow Account to defray any costs for major cleanup, radon mitigation procedures, house painting, appliance repairs, etc. Depending on the purchase offer contract and contingency clauses, you may discover that you have expenses upon moving in.

Example: Your purchase offer contract has a clause making the purchase contingent on a satisfactory structural inspection, and it’s determined that the house needs a new roof. You can negotiate to have the seller arrange for the work to be done but, this will delay the closing date. You may have to agree to a higher price for house, or to pay some of the new roof repair expenses. Or you and the seller may split the cost using estimates from a contractor of your choice, and each of you will put funds into an Escrow Account. Or, the seller may be willing to reduce the sale price of the house, but either way cash will be needed for the new roof.

Time Investment – One often overlooks major up-front costs in buying a home. The time and expenses invested in house-hunting, which can take up to 4-months, plus the time spent searching for the best mortgage for you, the right real estate agent, an attorney, and other related things that take up your valuable time.

What is RESPA?

The Real Estate Settlement Procedures Act (RESPA) contains information regarding the settlement or closing costs you are likely to face. Within 3-days from the time of your mortgage application, your lender is required to provide you a "good faith estimate of settlement costs" (GFE) based on their understanding of your purchase contract. This estimate will indicate how much cash you will need at closing to cover prorated taxes, first month's interest, and other settlement costs.

RESPA requires lenders to give you an information booklet about settlement costs, written by the U.S. Department of Housing & Urban Development which address how to negotiate a sales contract, ways to work with professionals like attorneys, real estate agents, lenders, etc, and your given rights as a home buyer. It gives an example of the Uniform Settlement Statement used at your closing. You are entitled to see a copy of the statement 1-business day prior to closing indicating your final costs.

*Credit

Credit

What is a credit report?

Your credit payment history is recorded in a file or report. These files or reports are maintained and sold by "consumer reporting agencies" (CRAs). One type of CRA is commonly known as a credit bureau. You have a credit record on file at a credit bureau if you have ever applied for a credit or charge account, a personal loan, insurance, or a job. Your credit record contains information about your income, debts, and credit payment history. It also indicates whether you have been sued, arrested, or have filed for bankruptcy.

Do I have a right to know what's in my report?

Yes, if you ask for it. The CRA must tell you everything in your report, including medical information, and in most cases, the sources of the information. The CRA also must give you a list of everyone who has requested your report within the past year-two years for employment related requests.

What type of information do credit bureaus collect and sell?

Credit bureaus collect and sell four basic types of information:

Identification and employment information

Your name, birth date, Social Security number, employer, and spouse's name are routinely noted. The CRA also may provide information about your employment history, home ownership, income, and previous address, if a creditor requests this type of information.

Payment history

Your accounts with different creditors are listed, showing how much credit has been extended and whether you've paid on time. Related events, such as referral of an overdue account to a collection agency, may also be noted.

Inquiries

CRAs must maintain a record of all creditors who have asked for your credit history within the past year, and a record of those persons or businesses requesting your credit history for employment purposes for the past two years.

Public record information

Events that are a matter of public record, such as bankruptcies, foreclosures, or tax liens, may appear in your report.

What is credit scoring?

Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).

Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:

Equifax: (800) 685-1111

Experian (formerly TRW): (888) EXPERIAN (397-3742)

Trans Union: (800) 916-8800

These agencies may charge you up to $9.00 for your credit report.

You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion. This free credit report may not contain your credit score and can be requested through the following website: https://www.annualcreditreport.com

Why is credit scoring used?

Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.

How is a credit scoring model developed?

To develop a model, a creditor selects a random sample of its customers, or a sample of similar customers if their sample is not large enough, and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.

Under the Equal Credit Opportunity Act, a credit scoring system may not use certain characteristics like -- race, sex, marital status, national origin, or religion -- as factors. However, creditors are allowed to use age in properly designed scoring systems. But any scoring system that includes age must give equal treatment to elderly applicants.

How reliable is the credit scoring system?

Credit scoring systems enable creditors to evaluate millions of applicants consistently and impartially on many different characteristics. But to be statistically valid, credit scoring systems must be based on a big enough sample. Remember that these systems generally vary from creditor to creditor.

Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed. And many creditors design their systems so that in marginal cases, applicants whose scores are not high enough to pass easily or are low enough to fail absolutely are referred to a credit manager who decides whether the company or lender will extend credit. This may allow for discussion and negotiation between the credit manager and the consumer.

What can I do to improve my score?

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.

What happens if you are denied credit or don't get the terms you want?

If you've been denied credit, or didn't get the rate or credit terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you get credit, ask the creditor whether you are getting the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information.

If you are denied credit, the Equal Credit Opportunity Act requires that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: "Your income was low" or "You haven't been employed long enough." Unacceptable reasons include: "You didn't meet our minimum standards" or "You didn't receive enough points on our credit scoring system."

If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Credit scoring systems consider updated information and change over time.

Sometimes you can be denied credit because of information from a credit report. If so, the Fair Credit Reporting Act requires the creditor to give you the name, address and phone number of the credit reporting agency that supplied the information. You should contact that agency to find out what your report said. This information is free if you request it within 60 days of being turned down for credit. The credit reporting agency can tell you what's in your report, but only the creditor can tell you why your application was denied.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is designed to help ensure that CRAs furnish correct and complete information to businesses to use when evaluating your application.

Your rights under the Fair Credit Reporting Act:

You have the right to receive a copy of your credit report. The copy of your report must contain all of the information in your file at the time of your request.
You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes.
Any company that denies your application must supply the name and address of the CRA they contacted, provided the denial was based on information given by the CRA.
You have the right to a free copy of your credit report when your application is denied because of information supplied by the CRA. Your request must be made within 60 days of receiving your denial notice.
If you contest the completeness or accuracy of information in your report, you should file a dispute with the CRA and with the company that furnished the information to the CRA. Both the CRA and the furnisher of information are legally obligated to reinvestigate your dispute.
You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction.

*FHA Loans

FHA Loans

What is an FHA Loan?

In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to provide an adequate home financing system with mortgage insurance. Now families that may have otherwise been excluded from the housing market could finally buy their dream home. FHA does not make home loans, it insures a loan; should a homebuyer default, the lender is paid from the insurance fund.

Buy a house with as little as 3.5% down.
Ideal for the first-time homebuyers unable to make larger down payments.
The right mortgage solution for those who may not qualify for a conventional loan.
Down payment assistance programs can be added to a FHA Loan for additional down payment and/or closing cost savings.
FHA Loans vs. Conventional Home Loans

FHA Loans vs. Conventional Home Loans

The main difference between a FHA Loan and a Conventional Home Loan is that a FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items, but will use common sense credit underwriting. Some borrowers, with extenuating circumstances surrounding bankruptcy discharged 3-years ago, can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union or Equifax. If your score is below the minimum standard, you may not qualify.

If I've Had a Bankruptcy in Recent Years, Can I Get a FHA Loan?

Yes, generally a bankruptcy won’t preclude a borrower from obtaining a FHA Loan. Ideally, a borrower should have re-established their credit with a minimum of two credit accounts such as a car loan, or credit card. Then wait two years since the discharge of a Chapter 7 bankruptcy, or have a minimum of one year of repayment for a Chapter 13 (the borrower must seek the permission of the courts). Also, the borrower should not have any credit issues like late payments, collections, or credit charge-offs since the bankruptcy. Special exceptions can be made if a borrower has suffered through extenuating circumstances like surviving a serious medical condition, and had to declare bankruptcy because the high medical bills couldn't be paid.

What Documents are Needed to Apply for a FHA Loan?

Your loan approval depends 100% on the documentation that you provide at the time of application. You will need to give accurate

information on:

Employment

Complete Income Tax Returns for past 2-years
W-2 & 1099 Statements for past 2-years
Pay-Check Stubs for past 2-months
Self-Employed Income Tax Returns and YTD Profit & Loss Statements for past 3-years for self-employed borrowers

Savings

Complete bank statements for all accounts for past 3-months
Recent account statements for retirement, 401k, Mutual Funds, Money Market, Stocks, etc.

Credit

Recent bills & statements indicating account numbers and minimum payments
Landlord's name, address, telephone number, or 12- months cancelled rent checks
Recent utility bills to supplement thin credit
Bankruptcy & Discharge Papers if applicable
12-months cancelled checks written by someone you co-signed for to get a mortgage, car, or credit card, this indicates that you are not the one making the payments.

Personal

Drivers License
Social Security Card
Any Divorce, Palimony or Alimony or Child Support papers
Green Card or Work Permit if applicable
Any homeownership papers

Refinancing or Own Rental Property

Note & Deed from any Current Loan
Property Tax Bill
Hazard Homeowners Insurance Policy
A Payment Coupon for Current Mortgage
Rental Agreements for a Multi-Unit Property

How Big of a FHA Loan Can I Afford?

Your monthly costs should not exceed 29% of your gross monthly income for a FHA Loan. Total housing costs often lumped together are referred to as PITI.

P = Principal

I = Interest

T = Taxes

I = Insurance

Examples:

Monthly Income x .29 = Maximum PITI

$3,000 x .29 = $870 Maximum PITI

Your total monthly costs, or debt to income (DTI) adding PITI and long-term debt like car loans or credit cards, should not exceed 41% of your gross monthly income.

Monthly Income x .41 = Maximum Total Monthly Costs

$3,000 x .41 = $1230

$1,230 total - $870 PITI = $360 Allowed for Monthly Long Term Debt

FHA Loan ratios are more lenient than a typical conventional loan.

*Glossary of Mortgage Terms

Glossary of Mortgage Terms

1003 Uniform Residential Loan Application.

A & D LOAN Acquisition and development loan- a loan for the purchase of raw land for the purpose of development.

Abstract Title A written history of the ownership of a parcel of land.

Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire outstanding balance of the loan should you default on your loan.

Acknowledgment A declaration by a notary, certifying, by way of personal knowledge or written identification, the identity of the signer.

Adjustable Rate Mortgage (ARM) Is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage. (ARM)

Adjustment Interval On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Affidavit A sworn statement in writing.

American Land Title Association (ALTA) An organization of title companies specializing in Real Property Law which has standardized forms and coverage on a national basis. This is standardized coverage.

Amortized / Amortization Amortization refers to the principal portion of the loan payment and is the 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. A fully amortized loan will be completely paid off at the end of the loan term.

Annual Percentage Rate (APR) An interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal An estimate of the value of real property, made by a qualified professional called an "appraiser." An appraisal will be needed to determine the value of your property.

Assumption The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. This must be approved by the lender and be allowed by the note, which was originally signed by the seller.

Back End This refers to the debt-to-income ratio calculated using principal, interest, taxes, insurance and consumer credit obligations divided by gross monthly income. It is expressed as a percentage.

Balloon Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Beneficiary The entity funding the loan. This is the entity to which the loan is owed.

BK / Bankruptcy A reorganization or discharge of debts. Could also be referred to as Chapter 7, 11 or 13.

Broker An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Buy Down When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

Cap The highest rate that an adjustable rate mortgage may reach. It can be expressed as the actual rate or as the amount of change allowed above the start rate. For example, a 7.99 % start rate with a 6% rate change cap would have a maximum interest rate cap of 13.99%.

Cash Out Any funds disbursed directly to the borrower.

Certificate of Occupancy A certificate issued by local city government to a builder, stating that the building is in proper condition to

be occupied.

Certified Copy A true copy, attested to be true by the officer holding the original. It should have a stamp and signature stating that it is a true copy.

Clear-to-close Loan is ready to be closed with no additional conditions.

Closing The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement.

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 usually are about 3 percent to 6 percent of the total mortgage amount. Or any costs being charged to facilitate granting of the credit request.

Commitment 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 conditions.

Community Property Property owned in common by a husband and wife, which was not acquired as separate property. A classification of property peculiar to certain states. In community property states, assets may be owned in part by a spouse even if their name does not appear on the title.

Comp. / Comparable A property with the same basic characteristics as the property you are attempting to find the value of (usually a real estate appraisal.) It should have been sold recently and be as similar as possible.

Condominium A property owned as a group, with rights to occupy specific units of the structure. An overseeing board, often referred to as a Homeowners Association, governs the property.

Construction Loan 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.

Consumer Credit Credit owed by the individual, not secured by real estate.

Conventional Loan A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FMHA).

Conversion Clause A provision in some ARMS, (Adjustable Rate Mortgage) that allows you to change the ARM to a fixed-rate loan at some point during the loan term.

Credit Ratio The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).

Credit Report History of buyers past credit performance.

Credit Score The score given to an individual to determine the credit worthiness. These scores come from TRW, Equifax and Trans Union.

D.R. / Debt Ratio The customer's monthly obligations divided by their monthly gross income. See also Back End.

Deed Legal document which conveys the title to a property.

Deed of Trust A document used which pledges real property to secure a debt. In some cases a deed of trust can replace a mortgage.

Default Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Deferred Interest See Negative Amortization

Delinquency Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA) An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.

Derog Letter A letter written by the borrower giving an explanation for any derogatory credit.

Derog This is short for derogatory and refers to negative credit items.

Discharge Following a completed bankruptcy proceeding, discharged debts are no longer owed or collectable. Lenders will require copies of the discharge papers on any prior bankruptcy filings.

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

Dismissal If a bankruptcy is dropped without being completed, a Bankruptcy Dismissal document will be needed to proceed with the loan. Either the court or the debtor can prompt the dismissal.

Down Payment Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on Conventional loans, and no money down up to 5 percent on FHA and VA loans.

Due-On-Sale Clause A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Easements An interest in property, owned by another that entitles the holder to a specific limited use or privilege, such as the right to cross or to build adjoining structures on the property.

Encroachment A fixture of a piece of property which intrudes on another's property.

Equal Credit Opportunity Act (ECOA) Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

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

Escrow Instructions Instructions to the escrow agent giving the parameters and contingencies involved in the transaction and agreed upon by both parties.

Escrow Waiver Request for a borrower to pay their own taxes and insurance. Escrow wavers are rarely granted with less than a 25%

equity position (

Escrow Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.

Farmers Home Administration (FMHA) Provides financing to farmers and other qualified borrowers who are unable to obtain

loans elsewhere.

Federal Home Loan Mortgage Corporation (FHLMC) Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Administration (FHA) A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standard for underwriting mortgages.

Federal National Mortgage Association (FNMA) Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

Fee Simple The most common form of ownership where the vestee owns both the land and the structures.

FHA Loan A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.

FHA Mortgage Insurance Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount to either $2,250 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount.

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

Flood Insurance A mandatory insurance for some homeowners whose property is built in a designated flood zone.

Foreclosure A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt.

Free and Clear This means the property is completely paid for and has no liens attached.

Functional Obsolescence A detraction from the property value due to the design or material being less functional than the norm.

GFE Good Faith Estimate of Buyers Loan Charges.

Government National Mortgage Association (GNMA) Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.

Graduated Payment Mortgage (GPM) A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Grant Deed A Grant Deed is the most common form of title transfer deed. A Grant Deed contains warranties against prior conveyances or encumbrances.

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

Guarantee A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

Hazard Insurance A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like, it would not cover earthquake, riot, or flood damage.

Homestead The dwelling (house and contiguous land) of the head of the family. Some states grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of the creditors. Property tax exemptions are also available in some states.

Housing Expenses-to-Income Ratio The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).

Impound That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Index A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Interest Bearing A form of interest calculation where the loan is charged at a daily or monthly rate (1/365 or 1/12 of the annual interest rate) on the current outstanding balance.

Investor Money source for a lender.

Joint Tenants A form of holding title where the owners have 100% rights of survivorship unless redirected by a will.

Jumbo Loan A loan which is larger (more than $424,100) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Land Contract An agreement between the seller and the buyer where the title is withheld until a time where the required payments have been completed.

Leasehold Estate A kind of real estate ownership where the lessor does not hold title to the property but has use of the property subject to the terms of the lease.

Legal Description A method of geographically locating a piece or parcel of land, which is acceptable in a court of law.

LIBOR London InterBank Offered Rate. LIBOR is the base interest rate paid on deposits between banks in the Eurodollar market.

Lien A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan Committee Generally the Underwriting process.

Loan Risk The rate category assigned to the loan, which estimates the probable risk of delinquency and loss in the future.

Loan-To-Value Ratio (LTV) The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.

Margin The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value The highest price that a buyer would pay and the lowest price a 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.

Mortgage Escrow Accounts The account set by the Lender to pay Taxes and Insurance on behalf of the Borrower.

Mortgage Insurance Money paid to insure the mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance or FHA Mortgage Insurance.

Mortgagee The lender.

Mortgagor The borrower or homeowner.

Negative Amortization Amortization means that monthly payments are large enough to pay the interest and reduce the principal on a mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, a borrower may owe more than was owed at the beginning of the loan.

Net Effective Income The borrower's gross income minus federal income tax.

Non-Assumption Clause Statements in the mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Non-Owner Occupied A property not used as a residence by the owner of the property.

Notary Public A person, designated by the state, which can certify the identity of a person when signing various documents.

Note Short for promissory note. This document gives the parameters of the loan and legally obligates the borrower to pay back the debt.

Obligations Any debt, or recurring payment the borrower is obligated to pay, including mortgage payments.

Origination Fee The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

Owner Occupied Designation given to property used as the owner's residence.

Owners Policy A policy of the title insurance which protects the buyer against problems with the title.

P & I Principal and Interest. This refers to the principal and interest portions of the monthly mortgage payment.

P & L / Profit and Loss A statement of a businesses gross income, cost of goods, operating costs and net profit or loss.

P.I.T.I. Principal, interest, taxes and insurance. The complete monthly cost associated with financing a property.

P.U.D. Planned Unit Development. Property owned as a group, where individuals own the specific piece of land and structure they occupy, but also have a divided interest in a common area. A board, often referred to as a Homeowners Association, will govern the development.

Piggy Back Loan Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a Secondary Financing.

Points A point is equal to one percent of the principal amount of a mortgage, see also Discount Points.

Power of Attorney An authority by which one person enables another to act on his or her behalf. Power of attorney can be limited to specific areas or be general in some cases.

Pre-Approval The Buyer has actually begun the application process and an underwriter has approved their income, funds and credit. Beware of any conditions on the approval.

Prelim. / Preliminary Title Report The title report generated at the beginning of the application process. It tells the mortgage company what liens are on the property and gives advice as to what will need to be done to gain clear title prior to recording the trust deed.

Prepaid Interest The portion of interest, collected at loan closing, which covers the time period between funding and the beginning of the first 30-day period covered by the first payment. For example, if the loan closed on 2/15, the first payment due on 4/1 would pay interest from 3/1 to 4/1. The prepaid interest would cover the period from 2/15 to 2/28.

Prepaids Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment Penalty Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

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

Pre-Qualified Buyer has discussed their financial situation with a loan expert. No attempt has been made to verify the validity of any of the borrowers information. PRE-Qualification is only an indication of what the buyer should qualify for.

Principal The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI) In the event that you do not have a 20 percent down payments, lenders will allow a smaller down payment, as low as 5 percent in some cases. With the smaller down payments loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10 percent down payments, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

Purchase Agreement The agreement made between the buyer and seller of a property, containing the purchase price and contingencies of the sale.

Quit Claim A deed operating as a release; intended to pass any title, interest or claim, which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Rate Float Assuming market risk on an interest rate in the hopes that it will go lower prior to closing.

Rate Lock Choosing to have no change to a rate for a specific length of time.

Ratios How a buyers housing expense and debt picture relates to their income.

Real Estate Settlement Procedures Act (RESPA) RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.

Realtor A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Rescission The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Recon / Reconveyance A release of lien filed with the county recorder by the trustee.

Recording Fees Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

REFI Slang for refinance, or a new mortgage on a property that does not change ownership.

Request for Reconveyance Verification given by the beneficiary to the trustee that the conditions of the lien have been fulfilled and request that the lien be canceled.

Reverse Annuity Mortgage (RAM) A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

S.I. / Statement of Information The form the customer fills out for the title company giving further identification of the customer. This allows the title company to eliminate debts and liens owed by people with similar names.

Second Mortgage A mortgage which is entered after the primary loan. Called a second due to it being in second lien position to the first mortgage. See also Secondary Financing.

Secondary Financing Financing obtained, subordinate to the first mortgage, to facilitate closing the first mortgage. Also known as a "piggyback" loan.

Servicing All the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement Costs See Closing Costs.

Settlement See Closing.

Shared Appreciation Mortgage (SAM) A mortgage in which a borrower receives a below-market interest rate in return for which a lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

Submission This refers to a complete loan application package submitted for approval to the underwriting department.

Subordination Agreement The agreement detailing the contingencies of subordination, filed with the county recorder. If a lien holder agrees to accept a lien position after that of a later recorded lien.

Substitution of Trustee A document, filed by the beneficiary, which changes the trustee on a particular trust deed.

Surety Bond A bond which insures against harm to a party (usually the lender or owner) by a lien still attached to the property. This is usually used when the original deed was lost or the beneficiary cannot be located.

Survey A measurement of land prepared by a registered land surveyor showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.

Suspended The underwriter cannot yet approve or deny the loan. More information is required.

Tenants in Common A percentage interest in a property by two or more individuals without rights of survivorship.

Term Mortgage See Balloon Payment Mortgage.

Title Insurance The insurance policy insuring the lender and/or the buyer that the liens are as stated in the title report. Any claim arising from a lien other than that disclosed is payable by the title insurance company.

Title Search An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

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

Trust Deed The Trust Deed attaches the note as a lien on the property. This is the document which conveys the ability to collect from the proceeds of the property.

Truth-in-Lending A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan. Also known as a TIL.

Two-Step Mortgage A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10 years), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan, due within 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.

Underwriting The decision whether to make a loan to a potential homebuyers based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

VA VETERANS ADMINISTRATION

VA Loan A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000, 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

Variable Rate Mortgage (VRM) See Adjustable Rate Mortgage.

Verification of Deposit (VOD) A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE) A document signed by the borrower's employer verifying his/her position and salary.

Wraparound Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

Zoning The division of a city or county into areas (zones) specifying the uses allowable for the real property in these areas.

*Refinance

Refinance

When I should refinance?

It's generally a good time to refinance when mortgage rates are 2% lower than the current rate on your loan. It may be a viable option even if the interest rate difference is only 1% or less. Any reduction can trim your monthly mortgage payments. Example: Your payment, excluding taxes and insurance, would be about $770 on a $100,000 loan at 8.5%; if the rate were lowered to 7.5%, your payment would then be $700, now you're saving $70 per month. Your savings depends on your income, budget, loan amount, and interest rate changes. Your trusted lender can help you calculate your options.

Should I refinance if I plan on moving soon?

Most lenders charge fees to refinance a loan. So, if you plan to only stay in the property for a couple of years, your monthly savings may not accumulate to recoup these costs. Example: A lender charged $1,000 to refinance your loan that resulted in saving you $50 each month; it would take 20-months to recoup your initial costs. Some lenders will charge a slightly higher than average interest rate on refinance loans, but will waive all costs associated with the loan. This will depend on the interest rate on your current loan.

How much will it cost me to refinance?

Starting with an application fee for $250 - $350, you may need to pay an origination fee typically 1% of your loan amount. In most cases you will pay the same costs you had with your current home loan for the title search, title insurance, lender fees, etc. The total sum could cost up to 2-3% of the loan amount. If you don’t have the funds to pay for associated loan costs, you can search for lenders that offer "no-cost" loans which will charge a slightly higher interest rate.

What are points?

A point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.

Should I pay points to lower my interest rate?

Yes, if you plan to stay in the property for a least a few years. Paying discount points to lower the loan's interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front.

What does it mean to lock the interest rate?

Mortgage rates can change from the day you apply for a loan to the day you close the transaction. If interest rates rise sharply during the application process it can increase the borrower’s mortgage payment unexpectedly. Therefore, a lender can allow the borrower to "lock-in" the loan’s interest rate guaranteeing that rate for a specified time period, often 30-60 days, sometimes for a fee.

Should I lock-in my loan rate?

It's unsure how interest rates will move at any given time, but your lender may estimate where interest rates are headed. If interest rates are expected to be volatile in the near future, considering locking your interest rate may be good because it allows you to qualify for the loan. Or, if your budget could handle a higher loan payment, or lender's lock fees, you may want to let interest rates "float" until the loan closing.

I've had credit problems in the past. Does this impact my chances of getting a home loan?

Even with poor credit getting a home loan is still possible. A lender will consider you to be a risky borrower and to compensate for this they will charge you a higher interest rate, and expect a higher down payment usually 20%-50%. The worse your credit history is, the more you can expect to pay.

I've only been late a couple of times on my credit card bills. Does this mean I will have to pay an extremely high interest rate?

Not necessarily, if you've been late with your payments less than 3-times in the past year, and the payments were no more than 30-days late, you still have a good change at getting a competitive interest rate. Most lenders will accept certain reasons for this like an illness, or job-change, but explanations are required.

Should I choose the lender with the lowest interest rate and costs?

There are two important things to consider when choosing one lender over another one:

Quality of Service – Especially for first-time homebuyers who will have many questions about the total financing process and available loan options. Finding a lender with outstanding service skills that you trust will comfortably guide you every step of the way, so ask questions, even before you fill-out an application.
Cost of Services – It’s good to ask potential lenders upfront what they charge for their services and any fees involved. They should be able to give you facts and get you through the financing process so that you feel confident knowing that you made a good decision by choosing them.

I've had credit problems in the past. Does this impact my chances of getting a home loan?

Even with poor credit getting a home loan is still possible. A lender will consider you to be a risky borrower and to compensate for this they will charge you a higher interest rate, and expect a higher down payment usually 20%-50%. The worse your credit history is, the more you can expect to pay.

REFINANCE CALCULATOR

*VA Loans

VA Loans

What is a VA Loan?

Who is eligible for a VA Loan?

Wartime/Conflict Veterans

Veterans who were NOT Dishonorably Discharged, and served at least 90 days
World War II – September 16, 1940 to July 25, 1947
Korean Conflict – June 27, 1950 to January 31, 1955
Vietnam Era – August 5, 1964 to May 7, 1975
Persian Gulf War - Check with the Veterans Administration Office
Afghanistan & Iraq – Check with the Veterans Administration Office
Veterans Administration website www.va.gov

Peacetime Service

At least 181 days of continuous active duty with no dishonorable discharge. If you were discharged earlier due to a service-related disability you should contact your Regional VA Office for eligibility verification.

July 26, 1947 to June 26, 1950
February 1, 1955 to August 4, 1964, or May 8, 1975 to September 7, 1980 (Enlisted), or to October 16, 1981 (Officer)
Enlisted Veterans whose service began after September 7, 1980, or officers who service began after October 16, 1981, must have completed 24-months of continuous active duty and been honorably discharged

Reserves and National Guard

Certain U.S. Citizens who served in the Armed Forces of a government allied with the United States during World War II.
Surviving spouse of an eligible Veteran who died resulting from service, and has not remarried.
The spouse of an Armed Forces member who served Active Duty, and was listed as a POW or MIA for more than 90-days.

What type of home can I buy with a VA loan?

A VA home loan must be used to finance your personal residence within the United States and its territories. You have choices for the type of home you purchase:

Existing Single-Family Home
Townhouse or Condominium in a VA-Approved Project
New Construction Residence
Manufactured Home or Lot
Home Refinances and Certain Types of Home Improvements

How do I apply for a VA guaranteed loan?

You can apply for a VA Loan with any mortgage lender that participates in the program. In addition to the application requirements from your lender, you will need the following at application time:

Certificate of Eligibility from the Veterans Administration by submitting a completed VA Form 26-1880.

Proof of Military Service from a VA Eligibility Center

If I have already obtained one VA Loan, can I get another one?

Yes, your eligibility is reusable depending on the circumstance. If you have paid-off your prior VA Loan, and disposed the property, you can have your eligibility restored again. Also, on a 1-time basis, you may have your eligibility restored if your prior VA Loan has been paid-off, but you still own the property. Either way, the Veteran must send the Veterans Administration a completed VA Form 16-1880 to the VA Eligibility Center. To prevent delays in processing, it's advisable to include evidence that the prior loan has been fully paid, and if applicable, the property was disposed. A paid-in-full statement from the former lender or a copy of the HUD-1 settlement statement must be submitted.

What are the benefits of a VA Loan?

100% Financing & No Down Payment Loans
No Private Mortgage (PMI)
No Penalties for Prepaying the Loan
Competitive Interest Rates
Qualification is Easier than a Conventional Loan
Sellers Pay Some of the Closing Costs
Can be combined with additional down payment assistance to reduce closing costs

What are the disadvantages of a VA Loan?

VA Loans made prior to March 1, 1988 can be assumed with no qualifying of the new buyer. If the buyer defaults the property the Veteran homeowner may be liable for the funds.
Some sellers are hesitant to work with someone obtaining a VA Loan because it takes longer than a conventional loan to process.
Sellers are often asked to pay a portion of closing costs and therefore less likely to negotiate the sales price of the home.

Online Forms

To assist you in your mortgage process, we have provided certain forms you might need along the way. Included is obviously the Mortgage Application Form which you can download and print. The application should be completed with the assistance of a mortgage professional. You will need a browser compatible with PDF files or you will need to download Adobe Acrobat Reader to view and print PDF files on all major computer platforms.

PDF Forms:

Mortgage Application

Mortgage Application - Spanish Version

Borrower Certification & Authorization

Credit Report Authorization

Frequently Asked Questions

When should I refinance?

An employee have agreement with the clients — Loan Process in Maitland, FL

What are points?

Should I pay points to lower my interest rate?

What is an APR?

The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.

The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan.

Because APR calculations are effected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. You can then delete the fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.

The following fees are generally included in the APR:

Points - both discount points and origination points
Pre-paid interest. The interest paid from the date the loan closes to the end of the month.
Loan-processing fee
Underwriting fee
Document-preparation fee
Private mortgage-insurance
Escrow fee

The following fees are normally not included in the APR:

Title or abstract fee
Borrower Attorney fee
Home-inspection fees
Recording fee
Transfer taxes
Credit report
Appraisal fee

What does it mean to lock the interest rate?

What documents do I need to prepare for my loan application?

Your Property

Copy of signed sales contract including all riders
Verification of the deposit you placed on the home
Names, addresses and telephone numbers of all realtors, builders, insurance agents and attorneys involved
Copy of Listing Sheet and legal description if available (if the property is a condominium please provide condominium declaration, by-laws and most recent budget)

Your Income

Copies of your pay-stubs for the most recent 30-day period and year-to-date
Copies of your W-2 forms for the past two years
Names and addresses of all employers for the last two years
Letter explaining any gaps in employment in the past 2 years
Work visa or green card (copy front & back)

If self-employed or receive commission or bonus, interest/dividends, or rental income:

Provide full tax returns for the last two years PLUS year-to-date Profit and Loss statement (please provide complete tax return including attached schedules and statements. If you have filed an extension, please supply a copy of the extension.)
K-1's for all partnerships and S-Corporations for the last two years (please double-check your return. Most K-1's are not attached to the 1040.)
Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) including all schedules, statements and addenda for the last two years. (Required only if your ownership position is 25% or greater.)

If you will use Alimony or Child Support to qualify:

Provide divorce decree/court order stating amount, as well as, proof of receipt of funds for last year

If you receive Social Security income, Disability or VA benefits:

Provide award letter from agency or organization

Source of Funds and Down Payment

Sale of your existing home - provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement)
Savings, checking or money market funds - provide copies of bank statements for the last 3 months
Stocks and bonds - provide copies of your statement from your broker or copies of certificates
Gifts - If part of your cash to close, provide Gift Affidavit and proof of receipt of funds
Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation

Debt or Obligations

Prepare a list of all names, addresses, account numbers, balances, and monthly payments for all current debts with copies of the last three monthly statements
Include all names, addresses, account numbers, balances, and monthly payments for mortgage holders and/or landlords for the last two years
If you are paying alimony or child support, include marital settlement/court order stating the terms of the obligation
Check to cover Application Fee(s)

How is my credit judged by lenders?

The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).

Equifax: (800) 685-1111

Experian (formerly TRW): (888) EXPERIAN (397-3742)

Trans Union: (800) 916-8800

These agencies may charge you up to $9.00 for your credit report.

What can I do to improve my credit score?

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

What is an appraisal?

What is PMI (Private Mortgage Insurance)?

On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. Sometimes you may need to pay up to 1-year's worth of PMI premiums at closing which can cost several hundred dollars. The best way to avoid this extra expense is to make a 20% down payment, or ask about other loan program options.

What is 80-10-10 financing?

Surprising as it may seem, some folks with hefty incomes find that it’s mighty tough for them to save enough money to make a 20% cash down payment on their dream homes. Using conventional financing, such buyers must purchase Private Mortgage Insurance (PMI) which increases the cost of home ownership and, ironically, makes it even more difficult to qualify for the mortgage. However, if you’re a dues-paying member of the cash-challenged class, don’t despair. Given that your income is sufficiently high, it’s eminently possible to avoid getting stuck with PMI. That is why 80-10-10 financing was invented. It is called 80-10-10 because a savings and loan association, bank, or other institutional lender provides a traditional 80% first mortgage, you get a 10% second mortgage, and make a cash down payment equal to 10% of the home’s purchase price. By using this method, you are no longer obligated to take out PMI on your property.

The same principle applies if you can only afford to make a 5% down, 80-15-5 financing is also available. However, because a smaller cash down payment increases the lender’s risk of default, do not be surprised when you are asked to pay higher loan fees and a higher mortgage interest rate for 80-15-5 than you pay for 80-10-10.

What happens at closing ?

The property is officially transferred from the seller to you at "Closing" or "Funding".

At closing, the ownership of the property is officially transferred from the seller to you. This may involve you, the seller, real estate agents, your attorney, the lender’s attorney, title or escrow firm representatives, clerks, secretaries, and other staff. You can have an attorney represent you if you can't attend the closing meeting, i.e., if you’re out-of-state. Closing can take anywhere from 1-hour to several depending on contingency clauses in the purchase offer, or any escrow accounts needing to be set up.

Most paperwork in closing or settlement is done by attorneys and real estate professionals. You may or may not be involved in some of the closing activities; it depends on who you are working with.

Prior to closing you should have a final inspection, or "walk-through" to insure requested repairs were performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.

In most states the settlement is completed by a title or escrow firm in which you forward all materials and information plus the appropriate cashier's checks so the firm can make the necessary disbursement. Your representative will deliver the check to the seller, and then give the keys to you.