The Essential Guide to Understanding Your Mortgage. mortgagemoneyman.com (817)

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1 The Essential Guide to Understanding Your Mortgage mortgagemoneyman.com (817)

2 Understanding Types of Mortgages and Eligibility Requirements Whether you are purchasing your first home or your fourth, getting ready to build, or renovate, thoroughly understanding the financing options available to you is key to making the best possible financial decisions. Jumbo Mortgage The Jumbo loan is for borrowers that are looking to finance the purchase of a property that exceeds the $417,000 (In most areas) maximum imposed by Fannie Mae and Freddie Mac. This type of loan is similar to traditional mortgages but due to the increased risk to the lender can be difficult to finance and once a lender is found, usually carry a higher interest rate. Allows the borrower to access to larger loan amounts for expensive properties or the construction of a dream home. No need to break up your borrowing needs across two loans. No need to access savings for large down payments. Jumbo loans are flexible in terms. You could have access to a 30-year fixed rate or adjustable rate terms. Jumbo loans are higher risk for money lenders so you will have to pay a higher interest rate across the life of the loan. Can be difficult to find a lender willing to process a Jumbo loan. Qualification requirements can be difficult to meet. Loan payments are much larger than traditional loans. Is a Jumbo Loan right for me? If the property you are looking to purchase is over $417, (In more expensive markets, the minimum amount requirements for a Jumbo loan increase.) then a Jumbo Loan is what you will need to obtain. Examine your finances closely and begin the process of locating a lender only when you are confident the larger repayment schedule will not be overwhelming. Must have a low debt-to-income ratio Debt should not exceed 28% of pre-tax income including Jumbo loan Must be able to provide proof of income. (Typically two years) At least a credit score of 720 Must have 20%-30% for down payment Property type must meet individual lenders qualifications mortgagemoneyman.com (817)

3 truction-to-permanent Mortgage A truction-to-permanent is a loan borrowed to finance the construction of a home and typically only interest is paid during the construction period. Once the construction is over, the loan amount can be converted to a permanent loan.the money is advanced incrementally during construction, as construction progresses. Allows borrower to build their own house Loans tend to be larger in amount. You may finance up to 990% of your home s appraised value or cost for up to 1,250, No per-draw fees truction terms are 12 months with extensions available Typically comes with a variable interest rate Susceptible to market interest increases Loan terms usually set a time limit to construction period Is a truction Mortgage right for me? If you are looking to build your home, a truction-to-permanent Loan may be the best option for you. The terms of the loan minimise fees associated with withdrawals for payment to contractors, and with a 12 term with interest only payments, you can focus your energy on building the home of your dreams. Borrower must qualify for a loan with existing and proposed housing expenses Borrower must use loan for new home construction. Or, borrower must use loan for additions to existing homes, adding $25, or more in value. mortgagemoneyman.com (817)

4 First Time Buyer These loans are specifically for those who have never purchased a home, or have not owned a home for at least three years. If you qualify for this loan, there are state and federal programs that will provide assistance in the form of down payment and closing cost credits. First time home buyers are also offered lower mortgage rates that vary state to state and they are allowed to role the closing costs into the mortgage. Comparatively lower restrictions for qualifying Smaller down payment Flexibility with credit score Significantly lower interest rates Most loan programs limit the cost of the property Property must be used as primary residence Terms may limit your ability to sell the home within a given number of years. Refinancing or changing terms of debt may not be flexible. May be required to purchase private mortgage insurance. Is a First Time Buyer Mortgage right for me? The purchase does not need to be a traditional home in order for the individual to qualify as a first-time homebuyer, but it must be the principal residence. For example, it could be a houseboat that will be lived in. The maximum amount that may be distributed from the IRA on a penalty-free basis for this purpose is $10,000. This is a lifetime limit. For married couples, the limit applies separately to each spouse. This means that the combined limit for a married couple is $20,000. Must be a U.S. citizen, permanent resident or other qualified alien. Need credit and income requirements of lender Must live in the home you are purchasing Must be a first time home buyer mortgagemoneyman.com (817)

5 FHA Mortgages The Federal Housing Administration (FHA) helps borrowers receive loans by insuring that those who might not otherwise qualify have access to funds. The FHA can be a better option over other loan programs because they are usually easier to qualify for, require lower down payments, allow for borrowers to be approved with lower credit scores, and usually have manageable interest rates. Minimum down payment of 3% may come from outside sources Lower interest rates Lower credit scores are accepted Allows for higher ratio of debt to income No prepayment penalties Available for multi unit properties Closing costs can be rolled into loan Higher mortgage insurance rates Loan size limits based on location of the property Property must be owner-occupied Process is more time consuming and may be a detriment when bidding on a property. Is a FHA Mortgage right for me? Federal Housing Authority loans are right for you if you are planning to make a smaller down payment, and have a lower credit score than what is required by more traditional loan programs. These loans are designed to help those with low to moderate incomes purchase a home and fulfill the American dream. Provide proof of employment for at least two years Provide proof of consistent or increasing income Any foreclosures or bankruptcies should be at least three years old. mortgagemoneyman.com (817)

6 VA Home Loans With more than 25.5 million veterans and service personnel eligible for VA home financing, this loan is attractive and has many advantages. The Department of Veterans Affairs will guarantee a maximum of 25 percent of a home loan (amount up to $104,250) which limits the maximum loan amount to $417,000. Speak to a mortgage professional for details and location-based exclusions. VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms. No down payment required No private mortgage insurance required Allows for a higher debt to income ratio No prepayment penalty Flexibility with bankruptcy and foreclosure Limits to closing costs Mandatory VA Funding Fee Property must be primary residence Co-borrowers are limited to spouses and other veterans Co-borrowers are limited to spouses and other veterans Not automatically eligible, must apply Current servicemen need to have served for 90 consecutive days National Guard/Reserve members that served since the Gulf War need only 90 days consecutive Widowed spouses if they have not remarried and their spouse was a veteran who died during service, from service related disability or are missing in action. mortgagemoneyman.com (817)

7 Doctor - Professional Loans Professional Mortgage Loans are a home financing option that uses future earning potential and a low down payment to make home ownership more accessible to individuals in specialized professional degree programs. Whether you have just left residency, recently started your professional career, or you re active in a fast-growing medical practice, our Professional Mortgage Loans provide flexible financing options to help you finance the home of your dreams. Also called Doctor-Professional Loans, Physician Loans, and Doctor Loans, the loans are designed specifically for the needs of professionals working in various fields such as medicine, dentistry, finance, and law. Professional Loans from Mark Goodwin offer flexibility in terms, such as individualized payment and maturity options. With Mark Goodwin s years of experience in assisting high-income professionals and First National Bank s specialized financing options, you can rest assured that your home financing needs are taken care of. Eligible Medical Professionals: Certified Medical Technicians Certified Paramedics Chiropractors Dentists/Orthodontists Doctorate Degree Holders Medical Doctors Nurses (LN, LVN, RN, NP, PA, PT and Nurse Anesthetists) Pediatricians Pharmacists PH.Ds Ophthalmologists Optometrists Veterinarians Other Eligible Professionals Architects Attorneys Certified Public Accountants (CPAs) Certified Financial Planners (CFPs) Engineers Geologists Excluded: Medical Assistants/Interns, Dental Assistants/Interns Professional Mortgage Loan Programs We Finance- Straight First Lien Only 95% 1st Lien up to $650,000 80/15/5 Second Lien Program 95% Max Combined Loan-to-Value of up to $1,250,000 purchase price 80% First Lien ARM 15% Second Lien 10 year fixed/15 year amortization mortgagemoneyman.com (817)

8 Adjustable Rate Mortgage (ARM) An Adjustable Rate Mortgage (ARM) is a type of loan whose terms dictate that the interest rate paid on the outstanding balance varies according to market conditions, as opposed to a fixed rate that remains in place for the life of the loan. There are two types of interest rate caps that can be included in the terms of the loan. 1) The annual cap restricts the amount your interest rate can change in any given year. 2) The life-of-the-loan cap that limits the maximum and minimum interest rate you can pay for as long as you have the mortgage. Lower initial interest rates Lighter eligibility requirements Flexible repayment options Lower initial monthly payments for buyers that do not expect to live in a home for more than a specific number of years. Flexibility for those expecting an increase in finances Rapid increases in interest rates can result in sizable increases to repayment requirements Complex language and structure can make the terms difficult to understand Terms vary greatly from loan to loan. There may be prepayment penalties that a homeowner would need to prepare for or excessive fees for refinancing. Is an Adjustable Rate Mortgage right for me? If you anticipate being able to repay your mortgage within a short period of time, or only plan to reside in the home for a limited number of years, an adjustable rate mortgage can be a financially beneficial option. By paying the mortgage in full or re-selling during the period before the interest rate increases begin, a homeowner stand benefit greatly. If there is any doubt as to the length of residency or ability to pay the increasing monthly rates, perhaps this loan is not for you. While the rate increases will be planned, the market can fluctuate more than foreseen, resulting in payment requirements that have the potential overburden your finances. Borrower must meet standard FHA credit qualifications. Borrower is eligible for approximately 97% financing. Borrower is able to finance closing costs and the uppermost mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium. ARMS can only be used in conjunction with Sections 203(b), 234(c), and 203(k). The index used to determine the interest rate is the U.S. Treasury Security adjusted to a constant maturity of one year. Eligible properties are one to four unit structures. mortgagemoneyman.com (817)

9 Home Equity Line of Credit A Home Equity Line of Credit is a loan where the lender agrees to lend a maximum amount within an agreed period, where the collateral is the borrower s equity in the home. A lender agrees to lend the borrower a maximum amount of money over a set period of time, this loan differs from traditional home equity loans because the lender does not advance the entire sum to the borrower at once. This money can be used at the borrower s discretion; it can be used to make major purchases such as college tuition payments, home improvements, and medical bills. Provide fast access to cash at good interest rates. Interest paid on mortgages is tax deductible Most homes will appreciate in value so the equity often time replenishes itself. Rates are typically lower than those on credit cards or consumer loans. Loan can be used at borrowers discretion. You can use a second mortgage to pay for college, make home improvements, for debt consolidation, or to take a vacation. Home Equity Lines of Credit allow you to borrow large sums of money, there is a tendency for borrowers to gain access to more funds than they need. If interest rates rise, a second mortgage can become unmanageable. When it comes time to sell, if your home has depreciated in value, you may end up owing more money than your house is worth. Is a Home Equity Line of Credit right for me? Obtaining a Home Equity Line of Credit can be a very wise decision. If your plan is to make renovations that will add value to the property or continue your education with the intention of furthering your career and thus stabilize your finances, then the second mortgage is a sound viable option. Remember to use the money wisely, these mortgages are relatively simple and fast to obtain and look at your ability to repay the mortgage seriously. Homeowner has to have equity in his house equal to or greater than the size of the line of credit. Homeowners dept including second mortgage should not exceed 28% of monthly income. Including other types of debts, should not exceed 36% of monthly income. Borrower must have average to above average credit rating. Proof of steady employment mortgagemoneyman.com (817)

10 Contact Wondering what to do next? Mark Goodwin (VP, First National Bank) and his highly trained team of experts have years of experience in the mortgage industry. Contact Mark and his staff today to ask any questions you might have, or to talk about getting a mortgage through First National Bank. mgoodwin@townsquaremortgage.com (817) Mark Goodwin NMLS ID # First National Bank NMLS ID # mortgagemoneyman.com (817)

11 Glossary ARM (Adjustable Rate Mortgage) A mortgage with fluctuating interest rates. Amortization The process by which your loan principal decreases over the life of your loan. With each mortgage payment that you make, a portion of your payment is applied towards reducing your principal and another portion of your payment is applied towards paying the interest on the loan. An amortization table shows this ratio of principal and interest and demonstrates how your loan s principal amount decreases over time. APR (Annual Percentage Rate) The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction Appraisal a comprehensive report that determines the value of your property based on a number of valuation factors, ranging from gross living space, to the view and the year a property was built. Assessed Value The value that the tax assessor places on the home for tax purposes. Broker A broker is someone who brokers a loan to a lender or investor. Cash-out Refinance Borrowers can refinance their mortgages for a greater amount than the current loan balance to use for personal reasons. truction Loan A short-term loan that is obtained to finance construction. Conventional Mortgage A non-government backed loan. Convertible ARM An ARM that allows the borrower to switch to a fixed rate mortgage. COFI (Cost of Funds Index) An index that helps determine interest rate changes on adjustable rate mortgages. mortgagemoneyman.com (817)

12 Default When a payment on a first mortgage is more than 30-days late. Down Payment Portion of purchase price paid in cash. Equity The market value of your home, minus the amount owed on your current mortgage. FHA Loan These loans are insured by the government and made available to those who qualify.. Fixed Rate Mortgage The interest rate remains the same for the life of the loan. Foreclosure The lender forces the sale of a property because the borrower hasn t met the financial obligation. Interim Financing A construction loan you can obtain while your new home is being built. Jumbo Loan Loans exceeding annual loan limits set by Fannie Mae and Freddie Mac. Origination Fee The fee you pay the lender to prepare documents, credit checks, inspections, and so on. PITI Principle, Interest, Taxes, and Insurance. Prepayment Penalty A charge imposed when you pay off a loan early. Refinance A new mortgage on a home that already has a mortgage. VA Loan This loan is restricted to individuals who have served in the armed forces. It generally allows a low down payment or even no down payment. mortgagemoneyman.com (817)