Guide to. Getting Your First Mortgage

Transcription

1 Guide to Getting Your First Mortgage

2 2040 Deyerle Ave, Suite 207 Harrisonburg, VA (540) Thank you for downloading our FREE guide! Feel free to share this guide with anyone you feel could benefit. In this guide you will find: A breakdown of the mortgage process A list of what to bring to your first mortgage appointment A glossary of commonly used mortgage terms 1

3 THE MORTGAGE PROCESS A First Time Homebuyer s Guide to financing your first home The best way to begin the process of purchasing your first home is by speaking with an experienced mortgage professional. VBS Mortgage offers free mortgage consultations. We will walk you through the pre-approval process and let you know how much house you can afford. Too many times, people attempt to begin the process by looking for a home first, only to find out that they can t afford or aren t ready to buy the home they have fallen in love with. With our FREE mortgage consultation, you will receive a credit analysis complete with your credit score, advice on how to best position yourself to be ready for home ownership, and a complete analysis of your financial situation to let you know how much home you can afford and what the projected costs associated with your new mortgage will be. Once you have a clear picture of your ability to purchase and afford a home, the real fun can start- house hunting! In this process, you and your Realtor will browse properties that may meet your needs in hopes of finding the house that will become your home. Once you have found that home, you will enter into negotiations on the price of the home and any contingencies (such as home inspection, radon testing, and move in dates that best suit you and the home s seller). At this point, most home sellers will want to see the pre-approval letter that you acquired when meeting with your mortgage advisor. With your contract to purchase in hand, it is now important that you set up your second meeting with your mortgage advisor to complete the application process. You will have already supplied much of the necessary documentation to get started using our checklist on page 4 during your initial consultation, but this is where any additional information will be discussed. Be aware that mortgage guidelines do require lenders to be very thorough, so being honest and upfront about your financial situation and prepared to quickly provide any requested documentation will make your process much smoother and more timely. You will usually have around 2 weeks from the date of contract to conduct your home inspection and any other tests or inspections you negotiated in the contract. Be prepared for another round of negotiations during which you will decide who will fix any issues that arise. Even in new construction, inspectors often find something that should be fixed, so this round of negotiations is rarely avoided. During this time back at your lender s office, your loan is going through two sets of reviews. First, your Mortgage Advisor will send your paperwork to a mortgage processor for review. They will make sure all of the necessary documentation is in order before sending your loan on to Underwriting Review. The Underwriter may require additional documentation and will ultimately make the final decision on your loan s approval. 2

4 THE MORTGAGE PROCESS A First Time Homebuyer s Guide to financing your first home (continued) An appraisal will also be ordered on your home to assure your lender that the price you are paying for your home is reasonable in today s market. Your lender will provide you a copy of your appraisal prior to your loan s closing so you can see how the value of the home you are purchasing was calculated. If, for some reason, your home value comes in too low, you may have to return to negotiations to secure your financing. VBS Mortgage uses only local appraisers when working within the Shenandoah Valley of Virginia, so the appraisals reflect the most accurate values possible. Before your loan closes, you will be required to secure homeowner s insurance with the company of your choice and provide documentation to your lender. You will also be asked early in the process to select the title company with which you choose to close your loan. During the time your loan is being underwritten, a title search will occur on the property you are purchasing to make sure you receive clean title to the home. Any liens on the property will have to be settled before the home can be sold. The final and most exciting step in the process is, of course, the closing- where you sign all of the end documentation and walk away a homeowner at last. Your lender will send a final check to the title company and you will bring any down payment funds in the form of a cashier s check with you to this appointment. After closing, the title company will file all records officially transferring the property into your name. It s time to celebrate! VBS Mortgage prides itself on offering its clients the best in service. We are here to walk you through each of these steps and ensure you understand the ins and outs of this process. Please call us today for your free mortgage consultation! 2040 Deyerle Ave, Suite 207 Harrisonburg, VA (540) info@vbsmortgage.com 3

5 WHAT TO BRING to your first Mortgage Appointment Driver s License Most recent 2 years W-2s all jobs Most recent 2 years 1099s if applicable Most recent 2 years personal tax returns with all pages & all schedules Most recent 2 years business tax returns (1120, 1065, K-1s) with all pages & all schedules - if applicable Full months worth of consecutive, recent pay stubs for each borrower Most recent 2 month s asset statements (from your bank, 401K, and/or IRA) with all pages and explanations and source for any large deposits, other than automatic payroll, social security, and/or disability deposits 4

6 GLOSSARY of Mortgage Industry Terms 203K LOAN: An FHA backed mortgage loan program which allows for renovations and repairs both before purchasing a home and as part of refinancing a home. This loan provides financing for the home and the repairs rolled in to one loan, but only covers repairs of less than $35,000 and does not cover structural repairs. Amortization: The process of paying off a loan through a set number of payments prescribed under the terms of the loan. For instance, a 30 year fixed rate mortgage would amortize the payments of the initial amount borrowed to finance the home over a period of 30 years, resulting in a zero balance and a paid off mortgage. Appraisal: An estimate of the value of a property based on comparable properties that have been purchased in the past 6 months and other data and statistics. A lender uses this document to decide what they are willing to lend on a property. Appraisals must be conducted by certified appraisers. Appreciation: The increase of the value of a property. APR (Annual Percentage Rate): The mortgage interest rate and associated fees are rolled into one figure called the APR. It describes the interest rate over the entire year. The APR must be disclosed before advertising any interest rates and before a loan closes. Arrears: Paying after, as opposed to before, the time you are paying for is accrued. Unlike rent, interest on a home loan is paid in arrears. ARM (Adjustable Rate Mortgage): A mortgage in which the interest rate changes with market conditions. There are usually maximum percentage points that an interest rate can reach within a term set on the loan. 5

7 As-Is: A seller may sell a property in as-is condition if they are unwilling to make repairs that may come up in a home inspection. Foreclosures and Short Sales are often sold in as-is condition. Assessment: The value the locality places on a property for taxation purposes. Breach of Contract: Failure to preform a specific item in a contract. This could result in legal action, as a contract to purchase is legally binding. Capital Gain: A term of taxation related to the amount of profit that is taxable from the sale of an asset such as a home. Cash Out Refinance: A refinance of a mortgage that allows the homeowner to borrow against equity in their home. Certificate of Insurance: A document that is required before a mortgage loan closes proving that insurance has been bought on a property. Certificate of Title: A written legal opinion on the status of a home s title that is required before a mortgage loan closes. Closing: The transferring of the title of a home from seller to buyer. This is the end of the mortgage process and the beginning of owning your new home! Closing Costs: Borrower funds required to close a mortgage loan, which can include mortgage origination fee, credit report fee, appraisal fee, recording fees, home inspection fee, mortgage tax, title search expense, costs of termite report, survey, sales commissions and mortgage insurance premiums. Construction Loan: A short-term loan to finance the construction of a home. These loans need to be modified into permanent mortgage loans. VBS Mortgage and F&M Bank have a unique relationship for simplifying this process. 6

8 Conventional Mortgage: A mortgage that is not associated with a government program, but rather is based on a lawful agreement between a borrower and a lender. Credit Score: The number assigned an individual by the credit bureaus based on financial history. This number is used by lenders to evaluate the risk that lending to a particular individual presents. FICO is the most widely used credit score designation. U.S. FICO scores range from Deed: The document that, when recorded by the locality a property is located within, transfers ownership of the property. Disclosures: Multiple documents in the loan packet that the Federal Government requires you receive and sign to proceed with the mortgage loan. These documents are cumulatively called disclosures. Discount Points: A discount point is a discount to the loan equal to 1%. Discount points can be bought upfront in order to lower the interest rate on a loan. Down Payment: The amount of the purchase price the buyer of a property is paying upfront (the amount that will not be financed into the mortgage loan). Earnest Money: The money required to insure a Real Estate contract. Earnest money is held in escrow until mortgage closing, usually by the broker representing the seller of the home under contract. Escrow Account: An account in which monies are held in trust with the purpose of paying liabilities including insurances, taxes, and obligations attached to a home. FHA Mortgage: A low down payment mortgage option backed by a federal program to help insure the loan against default, meaning less risk to lenders. The purpose of the loan is to allow access to home ownership for more Americans. 7

9 Fair Housing Act: An act covering selling or leasing residential property that makes it unlawful to discriminate based on factors including color, race, sex, national origin, religion, family status or disability. HUD and the Office of Fair Housing and Equal Opportunity (FHEO) handle complaints. Fannie Mae: (Federal National Mortgage Association or FNMA) is a federal agency that purchases mortgages from lenders, packages them into pools, and sells securities against the pools. The agency s purpose is to free up lending and allow lenders to make more loans. FICO: The most commonly used credit scoring system in the United States. FICO scores range from and are based on scores from the 3 credit reporting agencies Experian, TransUnion and Equifax. Fixed Rate Mortgage: A mortgage with an interest rate that does not vary with market conditions, but rather stays at the percentage agreed upon at the issuing of the mortgage. Foreclosure: A legal action taken by a mortgage lender in order to satisfy a debt in default. Freddie Mac: Similar to Fannie Mae, (Federal Home Loan Mortgage Corporation or FHLMC) is a federal agency that purchases mortgages from lenders, packages them into pools, and sells securities against the pools. The agency s purpose is to free up lending and allow lenders to make more loans. For Sale by Owner (FSBO): When a home seller decides to put their home on the market without listing it with a Realtor, it is referred to as a For Sale by Owner. Gift Letter: A letter of explanation for any gift funds given by related persons to help in the purchasing of a home. 8

10 Ginnie Mae: (GNMA or Government National Mortgage Association) is similar to Fannie Mae and Freddie Mac, however, GNMA is the entity that purchases FHA and VA mortgages, pools them, and sells securities against the pools. Good Faith Estimate: Also referred to as the GFE, it is an estimate of the settlement charges the borrower will incur at closing. The GFE is required by RESPA (Real Estate Settlement Procedures Act). If changes occur to the GFE prior to the closing of the loan, they must be disclosed to the borrower. Hazard Insurance: Insurance that covers physical damage to a property (as described within the insurance policy). Coverage will be required as a part of the mortgage agreement. Hazard insurance doesn t cover damage by flood, so if your home is in a flood zone, additional Flood Insurance will be required. Home Affordability Refinance Program (Harp Or Harp 2.0): A program started by Fannie Mae and Freddie Mac in 2010 to help refinance loans in which borrowers are under water or owe more on their home than it is worth. Home Equity Loan: A second mortgage loan in which a homeowner borrows funds out of the equity in their home in order to finance another need. Home Owner s Insurance: An insurance policy that protects the home from damages as outlined in the policy. Maintaining this coverage is a requirement of most mortgages. Interest Rate: The cost of borrowing money calculated by current market conditions and the amount of money borrowed. This does not necessarily include the APR, but if a rate is advertised in marketing materials, the APR is required to also be disclosed. Jumbo Mortgage: A mortgage larger than the maximum amount allowed by Fannie Mae and Freddie Mac. 9

11 Lease Purchase: A contract which allows a seller and purchaser to agree to a period of time in which rent is paid on a property, a portion of which goes towards the sales price of the home. Most lenders provide guidelines for a lease purchase (or rent-to-own) contract. The amount that is able to be applied toward the home s purchase will be dependent upon the fair market rent on the property. Lien: A claim against a property as a security for a debt owed by the owner of the property. Loan Amount: The amount of money financed toward the purchase of a home as agreed to on the mortgage note. Loan to Value Ratio: Also called the LTV. This is the percentage borrowed on a property compared to the appraised value or sale price of that property. Lock: The process of committing to an interest rate based on the current market rate. This option is available to the borrower so that they can project the costs of a mortgage and the rate won t change during the process of the loan, regardless of what happens in the market. Lock times range from 15-day to 45-day for most lenders, and fees are associated if a lock has to be extended. Letter of Explanation: A letter, written by a borrower, to explain and document a situation, which is necessary for the loan to be viable. Manufactured Home: A home built in a factory setting then transported on a truck to the property in which it will be installed. These homes are subject to a Federal building code administered by the Department of Urban Housing & Development (HUD). Because Manufactured Housing is able to be transported, mortgage companies will often require a permanent foundation to be able to issue a mortgage on these properties. Other conditions may also apply. Market Value: The amount a purchaser is likely to pay for a property under current market conditions. 10

12 Modular Housing: Housing that is stick-built in sections in a factory, then delivered on a flat-bed truck to the building site and put together. These homes look and feel like a traditionally built house and are required to be built by the same BOCA code that stick-built on-site homes are. There are benefits to building modular, like lower costs (because of less waste). Mortgage Approval: This happens a short time before closing, when a lender determines that a borrower and property have met all loan conditions and the loan is able to close. Mortgage Insurance: An insurance policy to protect a lender in the event of default on a mortgage loan. Borrowers that are required to make this payment do so in an upfront amount or a financed monthly amount. Mortgage Insurance is a requirement on FHA Mortgages. Mortgage Investor: A bank or financial entity which purchases mortgage loans on the secondary market. Mortgage Modification: A change in the agreement of a mortgage, often relating to interest rate, in order to improve the borrowers ability to repay. Note: The document that describes a mortgage debt and illustrates the commitment to repay that debt. There are two documents required in a mortgage loan transaction: the note describing the debt and the mortgage (Deed of Trust) showing the lien placed against the home. Origination Fee: The fee a lender charges to write and process a mortgage loan, often described as a percentage of the overall loan. Pre-approval: The commitment, from the lender, that after reviewing a borrowers income, assets, and credit score, it appears they will be able to grant the borrower a mortgage. A pre-approval adds strength to an offer to purchase the home, as it lets the seller know a borrower is qualified to purchase. 11

13 Private Mortgage Insurance (PMI): Private insurance issued to protect a lender against default on the loan. This type of insurance is often required on loans with a loan-to-value over 80%. Processing: This includes the compiling and recording of the documentation required to issue a mortgage loan. After processing, a loan file is handed off to underwriting to issue a final decision. Refinance (Refi): The paying off of an existing mortgage loan with a new loan, often to reduce an interest rate or shorten the term of an existing loan. RESPA: Real Estate Settlement Procedures Act is a federal consumer protection statute, put into law in 1974, and designed to protect home buyers and homeowners by mandating a set of disclosures and the transparency of fees related to a mortgage. Reverse Mortgage: A special loan program only available to homeowners 62 years of age and older and backed by the federal government. This type of loan gives a homeowner cash against the equity in their home and is not repaid until either the homeowner is deceased or has ceased to live at the property for more than 6 months. Seasoning of funds: A term referring to the amount of time a sum of money has sat in a bank account, ensuring a lender that no additional debt was acquired in the acquisition of the funds that is not showing on the credit report. Sourcing of funds: A term referring to the paperwork trail a lender will require to ensure that all funds came from acceptable sources as opposed to the acquiring of additional, undocumented debt. Secondary Market: A market in which investors buy mortgages and mortgage backed securities. 12

14 Servicing: The administration of a loan from closing to payoff, including collecting payments, facilitating escrow funds, and maintaining record of payments and pay-off amounts. Settlement: In the case of a mortgage and real estate transaction, settlement is the same as closing. Short Sale: The sale of a home by a homeowner in distress in which the lender agrees to allow the homeowner to sell the home for an amount less than they owe on it (but equal to its market value). The entity holding the lien on the property must approve any real estate contracts to purchase in a Short Sale. Tangible Net Benefit: In terms of a refinance, this is documentation a borrower provides showing there is a benefit to them to refinance the loan. Title: Documentation of the rightful ownership on a piece of real estate property. Truth In Lending: Documentation required by the Truth in Lending Act of 1969 fully disclosing all fees associated with a mortgage loan. Calculating these funds is complex, so make sure to ask questions when receiving this documentation. Universal Residential Loan Application (1003): A standard application, taken at loan approval, to fully document a borrower s qualifications. USDA (US Department of Agriculture) Loan: A residential loan program backed by the federal government to allow home purchasers of a rural property to borrow up to 100% of the home s value. This loan program was developed to encourage the habitation of rural areas. 13

15 VA (Veteran s Affairs) Loan: A loan program backed by the Department of Veteran s Affairs, to aide veterans in the purchasing of a primary residence. This program allows veterans to borrow up to 100% of a home s value. Verification of Employment (VOE): A verbal or written statement made by a borrower s employer verifying the long term employment of the borrower. A VOE is required before a loan can close. Verification of Deposit (VOD): Documentation required to prove that funds can be accounted for and sourced. Verification of Mortgage/Rent (VOM or VOR): Documentation required to prove the current amount a borrower is paying on a mortgage or rent. VHDA (Virginia Housing and Development Authority) Loan: A state backed loan program allowing first-time home purchasers that are Virginia residents to borrow up to 100% of a home s value on a mortgage loan. This loan is paired with an FHA loan to comprise the full loan amount and was designed to help more residents be eligible for homeownership. 14

16 Thank you for downloading our guide! We would love the opportunity to sit down with you for a FREE mortgage consultation. If you are interested, please contact us by ing info@vbsmortgage.com or calling (540) and mentioning this guide and the FREE consultation. We look forward to helping you on your road to homeownership! 2040 Deyerle Ave, Suite 207 Harrisonburg, VA (540) info@vbsmortgage.com Click here for a FREE MORTGAGE CONSULTATION