We ve been helping our members. for generations. Jeanne D Arc Credit Union. turn a house into a home. real estate Guide. we share a common thread

Transcription

1 We ve been helping our members turn a house into a home for generations. real estate Guide Jeanne D Arc Credit Union we share a common thread

2 elcome to Jeanne D Arc Credit Union During the Industrial Revolution of the early 1900s, immigrants came here from all over the world to seek their fortunes at the mills. They traveled long distances, overcame adversity, and worked long hours to make a better life for themselves and their families. In 1912, Jeanne D Arc Credit Union was established to give those people a place to save their hard-earned money so they could buy a house and put down roots. Through the decades, generations of people have trusted us to help them make smart financial choices and work toward The American Dream of buying a home of their own. It s a responsibility and a privilege we ve been honored to be a part of for so many years, and it s one of the many reasons why we say, we share a common thread. With all of that experience backing us, we know that buying a home is not only a large financial investment, but an incredibly emotional experience as well. A home is a place where you can build your dreams, raise your family and plant memories that will always be a part of you. Rest assured that we will be there to guide you through every step as you begin this exciting journey. Of course, every situation is different: Buying your first home, upsizing to a bigger home to accommodate a larger family, downsizing to a smaller home when the children leave the nest, using the equity in your home to take care of big home improvement projects, paying for a wedding or college, taking a well-deserved vacation, and even buying an investment property or vacation home. This guide will provide you with information you ll need to get started and help you make the transition from thinking about it to doing it as smooth as possible. We look forward to serving you not only as your financial institution, but also in welcoming you as a neighbor. If there s anything we can do to enhance your home buying or membership experience along the way, please just let us know. we share a common thread

3 Buying your first home Buying your first home represents a benchmark in your life it s a way of saying, I ve arrived! And even though it is a very exciting milestone for you, it can also be a little intimidating. This section of the guide is designed to help walk you through the process so you know what to expect at each step along the way. Buying a home can also be a great long-term savings plan. Think of your monthly mortgage payment as an investment in your future. Over time, the payments you make build equity in your home. Equity represents the percentage of your home that you actually own. Another great thing about buying a home is that you can deduct property taxes and mortgage interest payments from your annual income taxes (check with your tax advisor for details). Compare that to renting a home or apartment. Your monthly rental payments don t gain any equity. Even if your monthly payments increase slightly when you switch from renting to owning, the return on your investment in the long run will be well worth it. So let s get started. What can you afford? Before you start searching for the home of your dreams, it s a good idea to find out what you can afford. If you have an idea of what you can realistically afford to pay on a monthly basis, use our online calculator to figure out the price range of homes you should be looking for: Go to jdcu.com and look for the Life Events section on the right side of the page. When you click on Buying a Home, you ll be directed to a page that offers a number of calculators. Click on How much house does a given monthly payment buy? under Mortgage Calculators and plug in your numbers. You should do a little homework first regarding property tax rates and homeowner s insurance costs, but the calculators will give you a general idea of where you should limit your price range. If you have no idea what you can afford, start with a number that is around 40% of your gross monthly income. Here s an example: Annual household income = $72,000 Divide by 12 months = $6,000 gross monthly income Multiplied by 40% (.40) = $2,400 Keep in mind that this is not your end number. You should deduct your other monthly bills from that number to come up with what you can realistically afford on a monthly basis for a home: Combined monthly car payments = $500 Monthly credit card payments = $160 Student Loan payment = $120 Total monthly expenditures = $780 $2,400 (40% of gross monthly income) - $780 (monthly expenditures) = $1,620 available per month for your mortgage (Principal, interest, taxes and insurance)

4 Get pre-approved Once you have identified what you can afford on a monthly basis, the next step is to get pre-approved for a loan. This is where one of our Mortgage Specialists looks at your income, credit history, and other assets and liabilities to see what loan best suits your needs. The total pre-approved loan amount may be higher than you pre-calculated. If it is, it s best to stick within the budget you have established. If the total loan number is lower, there may be some factors on your credit rating that influenced the calculations. Having a good credit score is very important to the loan approval process. The higher your credit score, the better your options. It s a good idea to monitor your credit reports from the three major credit reporting bureaus: Equifax ( TransUnion ( Experian ( You can check all of these free once every 12 months by visiting or you can subscribe to any or all three of the reporting agencies to check more often. Checking your credit report regularly ensures that someone else isn t using your Social Security Number illegally, and it gives you the opportunity to dispute items listed on your reports. Take the time to make sure your credit reports are accurate so you can qualify for the best mortgage rates. Your down payment Once your credit rating is in order and you ve prequalified for a specific amount on a home, the next thing to do is to get your down payment in order. A conventional mortgage usually requires 20 percent of the purchase price for the down payment, so multiply your prequalification limit by.20 to see how much you ll need to save. However, if 20 percent is not realistic for you, your Jeanne D Arc Credit Union Mortgage Specialist will be happy to discuss other options that include paying Private Mortgage Insurance (PMI) to help reduce your up-front costs. The search begins! Now you re ready to start looking for a home. A real estate agent can be instrumental in guiding you though this stage and in helping you negotiate a good deal. When looking for agent, ask for a Buyer s Agent. Their fees are paid for from the sale of the property instead of coming out of your pocket. After you ve decided on a home and have a tentative agreement to buy, it s a good idea to get the home inspected. This is something you pay for, but what you can learn from a professional inspection can save you a great deal of money in the long run if the inspector finds serious defects or issues with the home. Once everything is in order and you and the seller have agreed on all points of the contract, including items uncovered by the inspection, it s time to finalize the loan process. Your Jeanne D Arc Credit Union Mortgage Specialist will help you through this process, which includes: Verification of your credit and employment history. Appraisal of the house is an important issue when it comes to the terms of your mortgage. A title search that makes sure there are no liens or other financial burdens on the property or home. These fees come out of your pocket, so be prepared for extra expenses. Keep in mind that Jeanne D Arc Credit Union offers no closing cost programs, and is a MassHousing approved lender. At closing, you will review and sign all of the pertinent documents, the funds will be disbursed and you will officially be a homeowner!

5 FEES AND COSTS In addition to determining the amount of your down payment and what the monthly payments will be once you close on your loan, there is a number of other fees and costs you will most likely run into along the way. Here is a breakdown of these potential costs: Pre-Closing Earnest Money When you submit a formal offer to buy a home, you may be required to put down a deposit that reinforces your commitment to the transaction. This is what is known as Earnest Money and can be as much as 5% of the asking price, but usually is more like $500-$1,000. This money is held by the real estate agent or another third party and will be credited back to you on your Settlement Statement at closing. Home Inspection This is not required by the lender, but as mentioned previously, an inspection can save you hundreds, even thousands, of dollars on repairs you might need to take care of after the sale of the home is completed. Any issues discovered by the inspector can be used as bargaining points during negotiations with the seller. This is an out-of-pocket expense for you and is based on the size of the home, but generally runs from $300 to $500. NOTE: When looking for an inspector, be sure to use a reputable inspection company. Remember, you get what you pay for. Points You often have the option to buy down the interest rate on your loan by making a payment upfront with the lender. One point equals 1.00% of the loan amount. Taxes If the seller of the home has pre-paid city and/or state taxes on the property, a pro-rated portion of that payment will be assessed back to you. Closing Cost Credit If a seller is particularly interested in getting their home sold, they may agree to pay a portion or all of the closing costs. This shows up as a credit on your Settlement Statement. Loan Origination Fee Jeanne D Arc Credit Union does not charge broker or loan origination fees. These fees are generally paid to a lender for handling the paperwork it takes to get your loan started. Credit Report Fee When you initiate the loan process, the lender will pull a credit report on you (and your spouse, if applicable) to determine your credit worthiness and calculate your loan rate. This fee is generally minimal (around $20). Appraisal Fee When you submit your loan application, an appraisal is ordered by the lender to assess the value of the home you are buying. An appraisal fee of $350-$525 will be charged to you when you submit your application. NOTE: If the appraisal of the property comes back much lower than the seller s asking price, you can either renegotiate the terms of the price with the seller, pay the difference at closing, or you can back out of the deal. If the appraisal has been completed and you back out of the deal, you will not get your appraisal fee back. Tax-Related Service Fee If your loan-to-value (the loan amount divided by the appraised value) is greater than 70%, Jeanne D Arc Credit Union requires your mortgage payment to include property taxes. The tax-related service fee is a one-time charge assessed to you to set up this account. This fee is generally around $80-$100. Flood Fee Every new mortgage or refinance requires a flood zone determination based on FEMA s flood housing map. This $15 charge is for the certificate that determines whether your property lies in a federally designated flood hazard area. If it does, you will also be required to purchase flood insurance. At Closing The following are items typically found on the Settlement Statement from the U.S. Department of Housing and Urban Development. This listing is meant to give you a general idea of the items and their associated costs you ll see at closing.

6 Fannie Mae Underwriting Fee All Jeanne D Arc Credit Union mortgage loans are submitted to Fannie Mae for underwriting to ensure that the loans are sellable. The underwriter is the one who actually looks at all of the financial considerations, the likelihood of repayment and then renders a credit decision. That fee is $35. Interest Charge When you close on your loan, the first mortgage payment cannot be less than 30 days away. So if you close on September 30, your first payment won t become due until November 1. The payment you make in November will include interest in arrears for the month of October. Since you won t have an October payment, an interest payment will be charged to you at closing from the date you close until the end of the month. In other words, the closer your are to the end of the month when you close, the less you ll be assessed in interest charges at closing. To determine the amount, multiply the principal balance times the interest rate. Then divide the sum by 365 and multiply that figure by the number of days from the date you close to the end of the month. City Property Taxes At closing you will also be required to pay a prorated portion of the annual city property taxes. This proration will vary by city or state. As an example, if you close in September, you may be required to pay the remaining taxes for the months of October, November and December. Title Search The closing attorney will go to the Registry of Deeds and look back over the history of the ownership of the property to make sure there are no outstanding problems. This fee is generally $100 $200 and is payable at closing. Title Insurance As a lender, we require basic title insurance to protect us from any defects in the title, such as unrecorded documents that place a lien on the property. Typically lender s insurance runs $2.75 for every $1,000 borrowed. As the new owner of the title, you can also purchase additional title insurance for yourself to protect against a defective title, forgery and fraud. This insurance is optional but highly recommended. If you elect owner s title insurance, this will also be assessed at closing. Recording Fees The fees charged for recording all of the documents with the Registry of Deeds to make transfer of ownership official. There are separate charges for recording the deed, the mortgage and any releases, and these will generally add $175 $365 to your closing costs. State Tax You may be required to pay a state tax stamp at closing (depending on the state where you purchase). This is dependent on the purchase price of the property but can add thousands of dollars to your closing costs. Survey Typically a certified plot plan or survey is ordered on single- or multiplefamily homes to determine the rough guidelines of the property boundaries, where the structure lies within those boundaries. Typically, this will add another $150 to your closing costs. Pest Inspection This is another inspection separate from the home inspection that you can order to identify evidence of termites and other wood-boring insects that can damage the structure of a home, as well as signs of mold (A separate mold inspection can also be ordered.), fungus, wood decay, dry rot, water pooling and leak damage. This is another out-of-pocket expense to you that will generally run $100 $500, depending on the size and age of the home. Be Prepared Depending on the size of the home you are buying, the location, the month in which you close and various other factors, you can expect to pay several thousand dollars at closing. This is in addition to the down payment you ll need and the up-front costs for the appraisal, home inspection, potentially buying points to buy down the loan rate, etc. If you re interested in buying a home but don t have 20 25% of the purchase price available in cash for these costs, be sure to ask your Jeanne D Arc Credit Union Mortgage Specialist about other mortgage options that may be available.

7 Home Equity loan versus Line of Credit building a new home If you ve been in your home for a while, you can use the equity you ve built to finance home improvements, pay off high-interest credit cards, or take care of other expenditures. You have a couple of options: A Home Equity Loan, sometimes referred to as a second mortgage, is a form of credit that offers a fixed rate and fixed monthly payments on the amount you borrow. A Home Equity Line of Credit (also known as a HELOC) acts like a revolving line of credit with a variable rate during the draw period (the length of time you re taking funds out) and the repayment period (the length of time you take to pay the funds back). The payment each month is based on the outstanding balance owed. Both options have advantages that make the loan more attractive than simply using a credit card or other types of non-secured loans. For example, the interest rates you pay are usually lower than credit card rates and the interest you pay on the loans may be tax deductible (check with your tax advisor for details). Refinancing your current home If you are in the position to custom build a home from the ground up, Jeanne D Arc Credit Union can help by providing you with a construction loan. Construction loans are different from long-term mortgages in that they offer a line of credit to pay the contractors who are building your home, then revert to a residential mortgage when the home is completed. One advantage of obtaining a construction loan, versus having your builder finance the building of your home, is that you only have to go through the closing process once. Depending on how a builder passes on costs, this could end up saving you quite a bit of money. A construction loan is basically a short-term, interest-only loan that covers hard costs the price of land, materials and labor and soft costs unexpected costs that spring up along the way. Construction loans work much like credit cards in that you have a total limit to spend, but you are only charged interest on the amount you have borrowed. Once construction is completed, the loan transfers to a long-term mortgage to immediately pay off the construction loan. You make regular monthly payments on that mortgage just as you would if you bought a pre-built home. If you currently have a mortgage rate that is higher than the rates being offered today, it may be to your advantage to refinance. The steps to do so are very similar to the new home buying process in that you ll need to apply for the new loan, pay for an updated appraisal and possibly pay closing costs, but the savings in the long run could be worth thousands of dollars to you. No matter what your needs, WE RE HERE TO HELP YOU MAKE SMART FINANCIAL CHOICES Buying, refinancing or using your home s equity to help improve the quality of your life does not have to be complicated or burdensome. Our experienced Mortgage Team is here to guide you through every step of the process.

8 we share a common thread means you can rely on the same experience and advice that has served generations of people here since We understand the excitement as much as we sympathize with the uncertainty, and we ll work very hard to smooth over any apprehension you may have along the way. If you ever have any questions about your home buying or equity experience, or if you re just thinking about buying a new home and you d just like to chat with us about your options, please stop by any Jeanne D Arc Credit Union loan center to speak with one of our Mortgage Specialists, call us at , or visit us online at JDCU.com. Glossary of Mortgage Terms Adjustable Rate Mortgage (ARM) A mortgage that offers a lower initial interest rate than most fixed-rate mortgages. The interest rate can change periodically, usually in relation to an index, and the monthly payments will go up or down accordingly. Annual Percentage Rate (APR) The cost of credit on an annual basis, expressed as a percentage. The APR includes all up-front costs associated with obtaining a loan, and therefore is usually higher than the amount of the interest rate shown in the mortgage note. Application An initial statement of personal or financial information required for the approval of a loan. Application Fee Fees paid to file an application. These generally include charges for a property appraisal and a credit report. Appraisal A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby. Closing Costs Any fees paid during the closing of the mortgage loan. They can include origination fees, discount points, attorney s fees, title insurance, a property survey, and any other items which must be paid. Contract of Sale The agreement between the buyer and seller on the purchase price, terms and conditions necessary for both parties to convey the title to the new buyer. Discount Points (or Points) An amount paid to maintain or lower an interest rate charged on a mortgage. Earnest Money A deposit made by the potential home buyer to show that he or she is serious about buying the house. Equity The difference between the appraised value of your home and your outstanding mortgage balance. Escrow Account An account you may have with your mortgage lender once you ve closed on your home purchase. This means that the payment you make each month includes an amount above just the loan principal and interest. This extra money is held in an account for the payment of items such as property taxes and homeowner s insurance when they come due. The lender then pays them on your behalf out of this escrow account. Fannie Mae (FNMA) The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation s largest supplier of home mortgage funds. FHA Loan A loan insured by the Federal Housing Administration to protect the lender against losses if the buyer defaults on the loan. FSBO (Sometimes pronounced Fizz Beau ) An acronym for homes that are For Sale By Owner. Grace Period A period of time during which a loan payment may be paid after its due date without incurring a late penalty fee. Home Equity Line of Credit (HELOC) A loan providing you with the ability to borrow funds in the amount you choose from the available equity in your home. Home Equity Loan A fixed- or adjustable-rate loan secured by the equity in your home. Often used for home improvements or real estate investments. Home Inspection A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Index A number, usually a percentage, upon which the future interest rates for adjustable-rate mortgages are based. Loan-to-Value Ratio (LTV) The ratio determined by dividing the loan amount into the appraised value of a home, expressed as a percentage. For example, if the mortgage loan is $80,000 and the value of a home is appraised at $100,000, the LTV would be 80%. Loans with an LTV under 80% may require Private Mortgage Insurance (PMI). Lock A commitment you obtain from your lender assuring you of a stated interest rate for a defined period of time. This protects you from rate increases between the time you apply for the loan, acquire the loan, close on the property and receive the funds borrowed. Margin An amount, usually a percentage, which is added to the index to determine interest rates for adjustable mortgages. Mortgagee The lender. Mortgagor The borrower. Origination Fee A payment associated with the establishment of a loan application. PITI An acronym for Principal, Interest, Taxes and Insurance, the four facets that comprise a typical mortgage payment. Point A point is 1.00% of the amount of the mortgage. Some lenders afford the buyer the opportunity to buy down the APR (Annual Percentage Rate) of the mortgage by paying a point or more at closing. Private Mortgage Insurance (PMI) A fee payable to a lender that insures against losses when a mortgagor is not able to repay the loan. PMI is usually required when a down payment of less than 20% is involved in obtaining a mortgage. Settlement Statement A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement may include real estate commissions, loan fees, points, and initial escrow amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the statement define the seller s net proceeds and the buyer s net payment at closing. The settlement statement is also sometimes known as the closing statement or settlement sheet. Title The written evidence that proves the right of ownership for a particular piece of property. Title Insurance Protection for lenders and homeowners against financial loss resulting from legal defects in the title.

9 Jeanne D Arc Credit Union offers a variety of programs including first-time homebuyers, MassHousing assistance, pre-approval and no-closing-cost options. We also offer fixed-rate mortgages, adjustable-rate mortgages, jumbo mortgages, construction loans, second-home mortgages, land loans and home equity lines and loans for owner-occupied homes. jdcu.com toll-free Mailing Address P.O. Box 1238, Lowell, MA Jeanne D Arc Credit Union we share a common thread The shares and deposits of this credit union in excess of NCUA limits are insured by the Massachusetts Credit Union Share Insurance Corporation up to limits set by Massachusetts law. v.1 (10/09)