1 Your Mortgage Guide: The Process, Meet Your Team, Definitions, and Frequently Asked Questions Getting Started The first step begins by completing your mortgage application. You may hear this referred to as a Uniform Residential Loan Application (URLA) or a The mortgage loan application captures important information about you, your finances, and all of the details of the loan you are applying for. Part of the loan application process includes reviewing your credit history. Your credit report will be generated at the time you apply for your loan. BCU offers you several convenient ways to complete your application. You may apply over the phone with one of our Home Loan Consultants at (800) ext or you may apply in person at one of our many Service Center locations. BCU even gives you the ability to apply online from the comfort of your own home! You may qualify for an on the spot pre-approval on your purchase or refinance application. Pre-Approval, Purchase, or Refinance BCU can help you with all three! A Home Loan Pre-Approval means that you are conditionally pre-qualified for the purchase of a home. A Pre- Approval is a great tool to have while house hunting! It helps you to know how much you qualify for and it shows the seller that you are already one big step closer in the buying process. Do you already know which house you want to buy? Great! BCU can help you to complete your purchase application and get you on the road to home ownership. How do you know if a refinance is right for you? If you can reduce your interest rate, save money on your monthly bills, or need cash for a specific purpose, refinancing your home could be a good option for you. To see if you qualify, you may apply online, over the phone or in person at a Service Center location. Your loan process includes providing us with documentation to verify the information collected on your application. To speed up your final approval process, you may want to have the following documents available at the time you apply: Recent Paycheck Stubs W-2 Forms Tax Returns if Self-Employed Bank Statements Insurance Agent Contact Info Interest Rates: When to Lock? Simply put: If you are afraid that interest rates are on the rise, protect your monthly payment and buying power by locking in the rate at the time you apply for your loan. If you believe that rates could drop during your loan process, you might decide to take a risk and let your rate float. This means your rate is NOT locked and you must let us know when you are ready to lock your rate. You can sign up and take advantage of BCU s Rate Tracker to receive an alert when rates are at the level you are looking for. But be careful! Rates are tough to predict, much like the stock market. They may not reach the low that you are hoping for and, if you choose to float during your loan process, there is a chance they can increase. Also, keep in mind the term of your rate lock. Be sure to tell us when you anticipate to close your loan. Remember that if you are purchasing a bank owned property or are refinancing a property with needed repairs, your loan may take longer to close. Make sure your rate lock period allows enough time for your loan to be processed. We re here to help you with your rate lock questions!
2 Which Loan is Right for You? Everybody has a different situation. How do you know which type of home loan is best for you? To find the best loan for your own needs, think about your short and long term plans and goals. To give you a better idea, we have outlined some examples. However, individual situations may vary so please contact a BCU Home Loan Consultant to discuss your individual needs. If you plan to live in your home for many years and/or if you want to budget for fixed monthly payments, your best strategy may be a fixed rate loan. Fixed rate loans are considered to be the most stable, providing the homeowner with a principal and interest payment that never changes over the life of the loan. Loan terms can range from 7 to 30 years. The most common terms are 15, 20, and 30 year loans. However, ask your BCU Home Loan Consultant about a customized fixed rate loan term to best suit you! Looking to refinance to take advantage of a lower rate? Don t want to increase the remaining term of your loan? Ask us about our customized Fixed Rate Loan Terms to fit your individual needs! If you plan to sell or refinance your home in just a few years, you may wish to take advantage of the low initial interest rates typically associated with an Adjustable Rate Mortgage, also referred to as an ARM. An Adjustable Rate Mortgage (ARM) is a loan with an interest rate that periodically adjusts. ARM s generally have a lower initial interest rate and monthly payment. This could help you qualify for a larger loan amount to purchase your home. The interest rate and payment will be guaranteed for a fixed period of time, commonly 3,5,7 or 10 years. You should take into consideration your long term plans and financial goals when selecting the initial fixed term for your ARM product. For example, if you plan to sell or refinance your home in 5 years, then the 5 Year ARM product might make the most sense for you. The rate and payments are fixed for 5 years. After the initial fixed rate period expires, ARM s generally adjust every 12 months. BCU s ARM products have caps that protect your monthly payment from increasing too much at any adjustment period. Also, there is a lifetime cap, a rate that your ARM will never exceed over the life of your loan. BCU offers additional loan products aimed at very specific individual member needs. Interest Only options are available to qualified members wishing to keep their monthly payments at a minimum and maintain higher monthly cash flow. An Interest Only product (sometimes known as Interest First) is a loan that requires only interest to be paid over a certain fixed period. An interest only product can apply to some Adjustable Rate Mortgage products as well as Fixed. This type of loan might be beneficial to someone planning to stay in the home for a short period of time. Homeowners should be cautious in considering an Interest Only product, particularly in areas of declining home values. Generally, more equity is required in the home to qualify for an Interest Only product because none of the monthly payment is being applied to the principal balance of the loan, meaning the balance of your loan will not decrease until the initial interest only period has expired and regular principal and interest payments become due. Ask your BCU Home Loan Consultant about our current products and rates! You may even choose to buy down your rate or roll in your closing costs. Let us help you decide! Look out for lenders offering loans with Pre-Payment Penalties (a fee to payoff your loan early) or Negative Amortization (a feature allowing monthly payments that are less than what is required to repay the loan-resulting in an increasing loan balance) BCU does NOT originate loans with a Pre-Payment Penalty or NegAm Feature!
3 Disclosures: Outlining Your Loan & The Costs Involved Once your mortgage application process is complete and you are approved, you will be provided with a package of documents called your Initial Loan Disclosures (with the exception of applications at the pre-approval stage without a property yet selected). These documents will outline the terms and costs associated with your home loan. There are a few key documents that you should review carefully and some documents that should be signed and returned to BCU for us to begin processing your loan. You will receive additional instruction on this at the time your disclosures are sent. The most important documents that outline the terms of your loan are the Good Faith Estimate and the Truth-in-Lending Disclosure Statement. Good Faith Estimate The Good Faith Estimate (GFE) provides you with an estimate of your mortgage loan terms and costs to complete your mortgage transaction. We will walk you step-by-step through the GFE. Important Dates: The Important Dates section includes important dates and timeframes about the pricing of your loan that you need to be aware of. Date your interest rate offer is good through. If your rate is locked, this should reflect your lock expiration date. Date All Other Settlement Charges is good through. It will be a minimum of 10 business days from the date the GFE was issued. Interest rate lock period in number of days. This does not mean your rate is locked. If your rate is not locked, it should say NA. The number of days prior to closing your loan that you must lock your interest rate. This should be a minimum of 10 day prior to your closing. If your rate is locked, it should say NA. Summary of Your Loan: The Summary of Your Loan section discloses your loan amount, loan term, the initial interest rate, and your initial monthly payment including principal, interest, and any mortgage insurance (if applicable). It also tells you if your interest rate can increase, if your loan balance can rise, if your monthly payment for principal, interest, and mortgage insurance can increase, and whether or not your loan is subject to a pre-payment penalty or a balloon payment. Escrow Account Information: The Escrow Account Information section indicates whether or not an escrow account is required on your loan. An escrow account holds funds needed to pay property taxes, homeowners insurance, and flood insurance if applicable. BCU generally requires an escrow account on home loans over 80% Loan-to-Value. If an escrow account is required or chosen by you for your loan, you will have to pay an initial amount at your closing to start the account. If an escrow account is not required or requested, you must pay all taxes and insurance items directly when they become due. Many members choose to take advantage of an elective escrow account with their mortgage loan. If you choose to establish an escrow account, and it is not required based on the terms of your loan, you will have the flexibility to escrow both your taxes and your insurance OR you may choose to escrow just one and pay the other directly when due. Ask us about these convenient options!
4 Summary of Your Settlement Charges: This section is broken down into two categories and provides details of the costs and fees associated with your loan. Adjusted Origination Charges: This is the sum of the origination charges and any credits or points paid for the specific interest rate on your loan. These are the charges to originate and process your loan. The price of a mortgage is stated in terms of interest rate and closing costs. You have the option to pay lower closing costs in exchange for a higher interest rate and also the option to pay higher closing costs in exchange for a lower interest rate. Talk to your Home Loan Consultant to find the best option for you. Charges for Other Settlement Services: This section includes the other fees associated with services required for your home loan. Some common fees you may see in this section are listed below. o Appraisal Fee: The fee paid by the lender on your behalf for the cost of your appraisal used to assess the value of your home. o Credit Report: The fee paid by the lender on your behalf for the cost of the credit report pulled to assess your credit history. o Flood Certification: The fee paid by the lender on your behalf for the cost of your Flood Certification. A flood cert is required on every loan to determine if your home is in a flood zone and will require flood insurance coverage. o Title Services and Lenders Title Insurance: The fee paid at settlement to the title company to search county records, making sure that the home you are financing is free of any complications such as tax liens or unreleased mortgages you were not aware of. o Owners Title Insurance: The fee paid at settlement on purchase transactions. The Owners title policy protects your interests. o o o o o o Services That You Can Shop For: The fees associated with required services that you can shop for. Some of these items may include a home inspection, survey, pest inspection, or attorney fees. Government Recording Charges: The fee paid at settlement that is required to record the deed, the mortgage, and documents related to the loan. Transfer Taxes: The fee paid at settlement for taxes related to the mortgage and to transferring title to the property to you. Initial Deposit for Your Escrow Account: This is the money that you must pay in advance in order to establish your escrow account, if applicable. The amount required to set up this account depends heavily on the amounts and due dates of your taxes and insurance. Daily Interest Charge: The charge paid at settlement for the daily loan interest from the day of settlement to the first day of the following month. Homeowners Insurance: The annual fee for the insurance you must purchase to protect your property from a loss. This may include flood, fire, and storm damage. Please review this document carefully and talk with your Home Loan Consultant if you have questions. We re here to help! Keep in mind that the Good Faith Estimate is only an estimate and the actual costs may differ. To help you better understand, the GFE defines limits on how much certain fees can change. You will receive an updated GFE during your process if your fees increase.
5 Truth-in-Lending Disclosure Statement The Truth-in-Lending Disclosure Statement is a key document in the mortgage process that shows you the total cost of your home loan under your specific mortgage terms. This disclosure provides you with the opportunity to ask questions and understand how much you will pay for your home loan over its entire term. The Truth-in-Lending Disclosure Statement provides you with the amount being financed, the annual percentage rate (APR), the finance charge, and your payment schedule. Amount Financed: The Amount Financed is the total amount applied for less the prepaid finance charges. The APR is based on your Amount Financed. The Annual Percentage Rate (APR): The APR is NOT the interest rate for which you applied. The APR takes into account various loan charges and is calculated by spreading these charges over the life of the loan, which results in a rate higher than the interest rate applied for. Finance Charge: The Finance Charge reflects the total dollar amount your home loan will cost you over the life of the loan, assuming you make all of your payments for the duration of the full term rather than pre-paying your loan. It is the total amount of interest, prepaid finance charges, and mortgage insurance premiums (if applicable) which you will be expected to pay over the life of your loan. Total of Payments: This figure represents the total of all payments made toward principal, interest, and mortgage insurance (if applicable) over the life of your loan. It is the Amount Financed plus your Finance Charge. Interest Rate and Payment Summary: This is a table that provides you with information about interest rates and monthly payments. It discloses your monthly principal and interest payment, estimated tax and insurance payment if escrowed, and mortgage insurance payment if applicable to provide you with your total estimated monthly payment. Other Important Disclosures There are several other documents that you will receive with your Initial Loan Disclosures. You will receive a notice of your right to a copy of your appraisal, a notice about your credit report, a servicing disclosure, identity disclosure, authorizations to release information and tax documentation as well as various other disclosures including some that may be specific to the state in which your property is located. BCU offers you the convenience of receiving your Initial Loan Disclosures electronically for your review. If you prefer us to put them in the mail, we can do that too. It s your choice. Your disclosures contain a lot of valuable information about your loan and we encourage you to read them carefully. There is no need for you to sign and return all of your disclosures. However, once you decide to begin your loan process, BCU will need you to sign and return to us the Certification and Authorization to Release Information, the 4506T, and the Patriot Act Form (also referred to as the Customer Identification Program or CIP Customer Notice). Did you know that your Initial Loan Disclosures may be reviewed electronically immediately after completing your loan application? This gives you more time to consider your options to select the loan that is best for you! Your loan may require updated disclosures if the terms change. You may also review all updated disclosures electronically to provide you timely updates and expedite your loan process.
6 Who s Who in Your Mortgage Process and What Can They Do for You? You will probably work with many people during your home loan process, especially if you are purchasing a new home! While it may appear overwhelming at times, just keep in mind that each person you work with is there to provide a specific service to help you achieve your goal of refinancing or purchasing a home. Your Home Loan Consultant: Your BCU Home Loan Consultant is a mortgage specialist who will review your credit, income, employment, and financial information to see if you qualify for a mortgage. Your Home Loan Consultant will help you to complete your mortgage application and work with you to determine the best financing options to help you achieve your goals. Your Home Loan Processing Specialist: Your BCU Home Loan Processing Specialist is here to help you walk through the necessary steps to get your loan to close. Your Processor will request from you the required loan conditions such as documentation about your income, employment, monthly obligations, and assets. Your Processor also places the appropriate orders for your appraisal, title, and flood certification. Your Home Loan Processing Specialist is responsible for reviewing this information, guarantying its accuracy, making any necessary corrections to your application, and submitting your loan to the Underwriter for a final review. You will need to work closely with your Processor and provide the necessary documentation in a timely manner to help keep your loan process on track. You ll receive periodic updates during your loan process to keep you well informed of your loan status. You may also check the status of your home loan online or contact your Processing Specialist at anytime with your questions. Mortgage Underwriter: The Mortgage Underwriter reviews your file once all of the required underwriting conditions have been collected by your Processor. This review is performed to validate the accuracy of the data taken from your loan application in order to make a final determination of your eligibility for the home loan you applied for. Internally, the Underwriter plays an important role within the mortgage process by providing your Home Loan Consultant and your Processing Specialist answers to any questions they may have about the underwriting and qualification of your loan along the way. Home Loan Closing Specialist: Your BCU Home Loan Closing Specialist will work with you, the title company, the notary, and required attorneys to facilitate the closing of your loan. Upon scheduling your home loan to close, the Closing Specialist receives your file from your Processor in order to complete your closing documents and determine the final closing figures associated with your loan. The Closing Specialist will provide you with a copy of your closing documents and your figures prior to your closing. If you need to bring money to close, you will be informed of the amount. Please note that you will typically have to bring certified funds to close or have your money wired directly to the title company. To save you time, we can wire your funds on your behalf if they are held in a BCU account! Real Estate Appraiser: The appraiser is responsible for looking at your property, usually both the interior and exterior of the home, to determine how much it is worth. Real Estate Appraisers are selected randomly through an Appraisal Management Company to avoid any conflicts of interest. The appraiser determines the value of the home in a number of different ways, the most significant being the comparison of your home to other similar homes nearby that have recently sold.
7 Other Important Mortgage Professionals Real Estate Agent: When you decide to purchase a home, Real Estate Agents (Realtors) can help you find the type of home you are looking for. A Realtor will give you the opportunity to view and compare homes and neighborhoods to find what is right for you! Your Realtor is a great source of information about specific community information and can provide you with data about schools, shopping, recreation, property tax rates and more. Your Real Estate Agent will help you find a home that meets your needs and financial circumstances. When you re ready to make an offer, it s your Realtor who typically handles the negotiations and presents your offer to the seller. Ask us about our CU Realty program! You may qualify to save Hundreds or -even Thousands-on your fees! Ask your Home Loan Consultant for more information by calling (800) x You may also register online by visiting the Home Rebate Program page of our website! Attorney: In the home buying process, you might consider using the services of an attorney to represent your interests. For example, an attorney can review a purchase contract and tell you if it protects your best interests and covers the important details of the sale. If you are considering an attorney, you should ask what services will be performed and whether the attorney is experienced in representing home buyers. It would be a good idea to also ask if the attorney is representing anyone else involved in the transaction. Full disclosure is important. In some areas, an attorney will act as your settlement agent and facilitate the closing of your loan, even on a refinance transaction. Closing or Settlement Agent: Closing is the final step in completing your home financing. A representative of the title company will oversee the actual closing of your loan for both purchase and refinance transactions. After your documents are signed, the Closing Agent returns them to the title company for proper recording. Want to close your Refinance Loan in the comfort of your own home? How about in your office or any location of your choice? Ask your Home Loan Processing Specialist about this convenient option! Home Inspector: When purchasing a home, you may want to consider hiring a professional home inspector to make sure the property is in good condition before you buy. A qualified inspector can uncover defects that could cost you a lot of money down the road! If you know about needed repairs upfront, you will have the opportunity to negotiate with the seller to make the necessary repairs prior to close. Any significant items of repair that might impact the livability of the home are generally required to be completed prior to closing your loan. Mortgage Loan Servicer: To provide you with the best home loan services possible, BCU has partnered with Central Loan Administration & Reporting (Cenlar) to fulfill the servicing of your home loan. Cenlar is a national mortgage servicer with significant expertise in servicing home loans. The servicing relationship between BCU and Cenlar is simply for your information. Your loan has not been sold or transferred. As a partner, Cenlar enables us to offer you many convenient ways to make your mortgage payment and provide you with easy access to your home loan information when you need it.
8 The Final Step: What You Need to Know About Your Closing Congratulations! BCU has received all required loan documentation and you have been issued a final unconditional loan approval by the Underwriter. You re ready to close! A mortgage closing is the final step in the process. It is a meeting of all parties involved in the transaction to sign the final loan documents and, if you re purchasing a home, to transfer the property to you. Scheduling: Your Home Loan Processing Specialist will work with all necessary parties to schedule the closing and coordinate the location. You should set aside at least an hour of your time to complete the closing. If you are closing on a refinance, BCU works with a nationwide title company with a network of traveling notaries that can typically meet you at a location of your choice to perform the closing, even your home or your place of employment. The notaries can accommodate most times throughout the day, including early morning and evening appointments. Please note that certain states may require your loan to close at a local title company or attorney s office for regulatory compliance. If you are closing on a purchase, the date of your closing should already be set and documented on your purchase contract. Your Home Loan Processing Specialist will work with you, your real estate agent and attorney, as well as the seller s attorney to coordinate your closing. BCU will require at least 3-5 days advance notice of the closing date in order to prepare the loan documents, send them to the title company, and to obtain your final closing figures. Your Closing Documents: After your closing has been scheduled, your BCU Home Loan Closing Specialist will prepare your set of closing documents and send them to the title company on your behalf. We will also provide you with a copy of your documents for your review prior to your scheduled closing date. It is important that you review these documents and alert us right away if you have any questions or feel there are any discrepancies. Making any necessary changes prior to your closing will help to prevent any delays. Please note that you do not have to print any of these documents. The notary will have the closing package ready for you to sign. Your Closing Figures and Funds to Close: The HUD-1 Settlement Statement is the document that discloses the actual dollar amounts that you will pay towards the various fees, services, and payoffs associated with the closing of your mortgage loan. The bottom line of the HUD-1 Settlement Statement will reflect the amount of money you need to bring to your closing or the amount of cash back you are receiving. The title company is responsible for preparing this statement. This is done once they have received your closing documents and instructions from us. Once your Settlement Statement complete, you will be notified of your bottom line figure. If money is required to close, you should be prepared to bring only certified funds unless otherwise notified. Please note that the title company may require funds to be wired based on county or state mandate. If the appropriate funds are available within your BCU account, we can wire the exact amount to the title company on your behalf. BCU will not charge you for this service. Please let us know if you would like to take advantage of this convenient option! Don t Forget to Bring to Closing: A Government Issued Photo ID Plus 1 Additional Source of Identification If you require funds to close, you ll need to bring a Certified Check, a Cashier s Check, or Wired Funds. Your Processor can help you to decide the option best for you! If you are interested in our automated payment option, please bring a voided check or deposit slip from the account you wish to have your payments made from.
9 Key Closing Documents There are many documents you will be required to sign at your closing. The documents may vary slightly by state or county depending on specific regulations and disclosure requirements. However, the fundamental documents are the same for everybody, regardless of gender, level of income, national origin, or language. Federal law requires everyone to sign documents written in the English language as your final legally binding contract. Let s go over some of the key documents you will sign at your closing and what they mean to you. The Promissory Note (The Note) The note is the formal executed promise you make to repay the mortgage loan according to the terms you ve agreed to. It includes the amount you owe, the interest rate of the mortgage loan, the dates that the payments are to be made, the length of time to repay, and the location where your payments should be sent. The Mortgage or Deed of Trust The mortgage or deed of trust is the security instrument that conveys a lien on the subject property as security for repayment of your home loan. When you sign the mortgage or deed of trust (the specific document depends on the state the subject property is located), you are giving the lender the right to take the property by foreclosure if you fail to pay the loan according to the terms you ve agreed to. The Truth-in-Lending Disclosure Statement (TIL) This document may look familiar to you because you received one in the beginning stages of your application process. It is possible that you will receive TIL statements throughout your process if there are multiple changes to the terms of your mortgage. You are entitled to a revision based on certain APR, Product, and fee changes to your home loan. Because of this, you will receive the final version of your Truth-in-Lending statement at the time you close. The TIL contains the amount being financed, the annual percentage rate (APR), the finance charge, and the payment schedule. The HUD-1 Settlement Statement The HUD-1 Settlement Statement is the document that discloses the actual dollar amounts that you will pay towards the various fees, services, and payoffs associated with the closing of your mortgage loan. Additionally, this statement includes a section that compares the charges on the Good Faith Estimate (GFE) to the charges on the HUD-1. The purpose of this section is to determine if your final costs fall within the allowable tolerance limits as compared to those that were disclosed to you on the Good Faith Estimate. The HUD-1 is prepared by the title company based on figures provided by the lender and seller (if applicable), the county recording costs, and title fees. The amount of money you will need to close your loan or, if applicable, the amount of money you will receive will be reflected on this document. The Notice of Right to Cancel (applies to owner occupied refinance loans) The Notice of Right to Cancel is a document you will receive when closing on a refinance of your primary residence. Under federal law, you have a legal right to cancel your mortgage transaction within 3 business days from the day of the closing. This 3 day period is often referred to as your rescission period. The document will specify the closing date and the last day that you must sign and return the document in order to cancel or rescind the loan. Each person signing the Mortgage or Deed of Trust will receive 2 copies of the Notice of Right to Cancel. One copy is signed and returned to the lender to acknowledge your receipt of the document and the other is for you to keep for your records. Other Important Disclosures There are several other documents and affidavits for you to sign at your closing. While it may feel like a lot of paperwork, all of these forms are important legally binding documents that outline the terms of your financial obligation that you are entering with BCU.
10 Glossary: Mortgage Terms Adjustable Rate Mortgage (ARM): This is a type of mortgage loan product that may offer a lower upfront interest rate than a fixed rate loan, but your payments are subject to change after the initial fixed rate period of the loan. ARM s have rate caps for adjustment periods as well as for the life of the loan that control the maximum interest rate change your loan is subject to. Annual Percentage Rate (APR): The APR is the annual cost of your loan factoring in the interest rate, points, and certain charges you were required to pay in association with your home loan. The APR is not the interest rate. It is generally higher as it factors in the costs of your loan. Application Fee: This is the fee a lender charges to apply for a mortgage. BCU does not charge this fee until you decide to lock your interest rate and/or to move forward with your loan by putting it into process. Assets: Items of value that you own such as money in your bank account, mutual funds, retirement account, or even an automobile. Liquid assets are those that you can gain immediate access to such as funds in a checking or savings account. Collateral: Property used to secure a loan. In the case of a home loan, the collateral is the subject property and land value. Co-Borrower: Any additional person whose name appears on the closing documents and whose credit and income are used to qualify for the loan. A co-borrower has a joint obligation with the borrower to repay the loan. Commitment Letter: A letter from your lender that outlines the terms under which your loan was approved. Credit: The ability of a person to borrow money and pay it back over a period of time. It is granted by a lender based on an assessment of the applicant s financial stability and ability to repay. Credit Report: This is a document used by the lender to assess your use of credit and ability to repay. A credit report is ordered from a credit bureau as part of your home loan application process. It provides the lender with information on the amount that you have borrowed, the amount of available credit in your name, and your history of repayment. Credit Score: This is a number generated through complex computer models to summarize with a score your credit profile and likelihood of future debt repayment. The higher your credit score, the better your credit. Please review your Credit Disclosure issued in your initial disclosure package for more information. Default: This is the failure to pay a debt obligation such as a mortgage, auto loan, or credit card. It can also be the failure to adhere to the agreed upon terms of a contract. Down Payment: This is the difference between the purchase price of your home and the mortgage loan amount. Earnest Money: This is a deposit made from the buyer of a home to the seller to confirm the buyer s interest in purchasing the home. The earnest money will be applied to your closing costs and/or towards your down payment at the time your loan goes to close. In the event you are not approved for a mortgage loan, the earnest money is typically refunded by the seller. To protect the potential buyer s interest, it is advised that the purchase contract outlines the terms of such a refund. Escrow: This is a deposit held in an escrow account from the borrower to the lender for the purpose of paying property taxes and/or insurance premiums when they become due. There may be an initial deposit to establish this account at the time of the loan closing. Ongoing payments into this account are made monthly along with the mortgage payment. An escrow account is typically required when the Loan-to- Value (LTV) exceeds 80%. Equity: This is the value of your home over and above the total mortgage obligation you owe. This amount can fluctuate greatly over time based on your mortgage balance and also the changing home values in your local market area.
11 Fixed Rate Mortgage: This is a type of mortgage loan product that offers a fixed rate of interest for the life of the loan. Foreclosure: A foreclosure is a legal action that ends all ownership rights when a homeowner falls delinquent or is in default under the terms of their mortgage. Homeowners Insurance: This is an insurance policy that protects the homeowner and the lender against losses due to flood, fire, or other acts of nature. Liabilities: A liability is a debt or other financial obligation. The required payments on all liabilities factor into your ability to qualify for a mortgage. Lien: A claim on property for the repayment of debt. A lien is recorded and will be reflected on the title. An auto loan is a lien on your car. A mortgage loan is a lien on your home. Property taxes are also a lien. A lien gives the creditor the ability to foreclose or take title to your property in the event of default. Lock-In-Confirmation: This is a document provided to you by the lender to guaranty a specific mortgage interest rate for a specific period of time. Mortgage: A mortgage is a loan that uses your home as collateral. A mortgage can also refer to the actual document you sign that grants the lender a lien on your home. Mortgage Insurance: This is insurance that protects the lender against loss in the event of default on a mortgage. Mortgage insurance is generally required on all loans over 80% Loan-to- Value. Mortgage Servicer: This is the entity responsible for collecting your monthly mortgage payments, managing your escrow account if applicable, reviewing your property for payment of taxes and insurance, and assisting you with your post-closing questions regarding your home loan. Principal: This is the amount of money borrowed from the lender to purchase or refinance your home that has not yet been repaid. This does not include the interest you will pay to borrower the money. Title: This is a document providing written evidence of the right to ownership in a property. Title Insurance: This is insurance that provides protection to the lender (Lenders Policy) and/or buyers (Owners Policy) against loss arising from problems connecting to the title of the property. Underwriting: This is the process that the lender uses to assess your ability to qualify for a mortgage loan. It involves a review of your financial stability, credit history, liabilities, debt to income ratios, and your overall ability to repay. Do you have questions about any of these Mortgage Terms? A BCU Home Loan Consultant is just a phone call away! Please contact us by calling (800) x 8167 Mortgage Lender: The lender provides financing for a mortgage loan. Mortgage lenders are also responsible for reviewing an applicant s credit, financial stability, and property as well as assisting the applicant with the loan application process through the closing. Mortgage Rate: The cost or interest rate you pay to the lender to borrower the money for purchasing or refinancing your home.
12 A Few Frequently Asked Questions: Key FAQ s How do I begin the mortgage application process? BCU offers our members several convenient ways to begin your home loan application process. You can apply in one of our many service center locations. You can apply over the phone by calling us at ext You can even apply online at your convenience anywhere you have internet access by visiting us at: I am interested in purchasing a home. Can I apply for a home loan before I find a property to buy? Yes! Applying for a home loan in the early stages of your search is a very smart move. By obtaining a BCU home loan pre-approval, prospective sellers and agents will know you are a qualified buyer. A pre-approval may help to set you apart from the rest in your search for your dream home! Is there a fee charged to begin the application process or to review my credit? You can apply for a home loan at no charge. With your permission, we will review your credit report and your application information. You will not be charged a fee until you have a conditional loan approval AND decide to put your application into process. If the property I am buying appraises for more than the purchase price, am I able to use the difference towards my down payment? Unfortunately conventional real estate guidelines do not allow us to consider this as equity towards your purchase. If you are purchasing a home, we are required to use the lower of your appraised value or your purchase price to determine your down payment requirement. However, this is still a great financial benefit to you when you are able to purchase a home for less than what it is worth! I am getting a gift towards the down payment of purchasing a new home. Is this an acceptable source of down payment? Guidelines vary on this based on your financial profile and Loan-to-Value. Generally, gifts are an acceptable source for a portion of your down payment if it comes from a family member. The gift donor will be asked to sign a gift letter and you will be required to verify the deposit of the gift funds into your account. How do you decide what documentation you will need from me to process my loan? Each loan is put through an automated underwriting system which evaluates your credit history and the information entered on your application. Based on this data, we are provided an initial underwriting decision and a list of conditions required to validate your information. However, there are many other factors in making a final loan decision and every loan has its own unique qualities and needs. Because of this, each application is reviewed by a BCU Home Loan Underwriter for approval and a list of required loan conditions. I plan to sell my current property to purchase a new one. What documentation do I need to provide? To prove your current home is sold and the mortgage is paid in full and to verify any funds needed to close on your new home, we will ask that you provide us with a copy of the HUD-1 Settlement Statement from the closing. Often, the closing for the sale of your current home is on the same day as the closing for the purchase of your new one. We will simply require you to provide a copy of the HUD from the sale of your home at the time you go to close your purchase. How will you verify my income if I am selfemployed or earn commissions? We will ask you to provide us with copies of your federal tax returns or even assist you by ordering transcripts directly from the IRS. Depending on the source of income, we may need to see your business tax returns as well. We can only use income reported on your tax returns to qualify. We will need to see 1 or 2 years of income to obtain a sufficient long term average for calculating qualifying earnings.
13 I receive rental income from an investment property. What documentation do you need to verify this income? We will ask you to provide us with copies of your federal tax returns to verify rental income. We review your Schedule E to verify rental income after expenses (other than depreciation). If you have owned your rental property for less than the full tax year, we will require a copy of your lease agreement and we will factor in an expense ratio for qualifying purposes. I am retired and my income comes from social security and pension. What do you need to verify this? We will require copies of your recent paystubs or bank statements if your retirement earnings are deposited directly into your checking account. Sometimes, we may need to verify your income will continue for a minimum of 3 years if you are not receiving lifetime benefits. Generally, an award letter will suffice to prove continuance of retirement earnings. Some sources of retirement earnings, such as social security, are not taxed. This may be considered in your favor while evaluating your income. Will my overtime or bonus income be considered when evaluating my application? Do I have to provide information about my child support or spousal maintenance? If you are receiving payments for child support or maintenance and would like this to be included in your monthly income calculation, we need a copy of your final divorce decree or legal separation agreement along with verification that this income has been received by you for the past 6 months. If this source of income is not needed for your loan qualification, we would simply need a copy of your divorce decree. If you are required to pay child support or spousal maintenance, this should be documented on your loan application (1003) and we will need a copy of your final divorce decree or legal separation agreement to verify your payment. I have student loans that aren't in repayment yet. Should I show them as installment debts? Yes. We are required to count deferred student loans or student loans not yet in repayment in your monthly debt calculation. We factor in a payment that is 2% of your outstanding balance. If you can provide account statements reflecting a different payment or if your credit report reflects a different payment, we will use that amount in your debt calculation. We may consider overtime or bonus earnings if they have been consistent over the past 2 years and are likely to continue. Your Home Loan Processor will work with you to obtain the necessary documentation required if we need to factor in this income for qualifying purposes. I've co-signed a loan for another person. Will that payment be included in my monthly debt calculation? We generally include any co-signed debts when determining your qualifications for a mortgage. Often, this may not impact your ability to qualify for a home loan. However, if it does, we may consider eliminating it from your liabilities if you can provide documentation that the other person responsible for paying the debt has made the required payments for the last 12 month period. This can be verified by obtaining cancelled check copies or bank statements from the other party. Still have questions? We re Here to Help! A BCU Home Loan Consultant is just a phone call away! Please contact us by calling (800) x 8167