BUYING A HOME BUILDING A HOME REFINANCING

Guide to Mortgages BUYING A HOME BUILDING A HOME REFINANCING

Trust People First For Your Mortgage Needs People First is committed to providing our members with quality mortgage products that are both competitive and affordable. Our Mortgage Professionals will analyze your needs and fit you into the mortgage product that works best for you. Whether purchasing a home or refinancing, we will guide you through the mortgage process from beginning to end. Save Hundreds of Dollars in Mortgage Fees A great benefit of financing your mortgage with People First is the hundreds of dollars you can save in fees at closing of your mortgage loan. You can save on broker s fees, underwriting fees and more. On an average $100,000 mortgage loan you could save approximately $1,200 which could be spent on moving expenses or items for your new home. Inside Our Mortgage Guide Types of Mortgage Products Page 3 We offer a variety of mortgage products ranging from Fixed and Variable Rate Mortgages to FHA Mortgages for First Time Home Buyers. Refinance Your Mortgage Loan Page 4 Sometimes refinancing your mortgage makes sense. Review the reasons that can help you make that decision and the steps you will need to take. Purchasing a Home? Get Pre-Approved. It s Free! Page 5 Smart consumers want to know what they can afford before they shop. CU Realty Real Estate Rebate Program Page 5 A free service that saves you time, money and the hassle of buying or selling a home. Steps in the Mortgage Process Page 6 Find out what information will be required and the steps involved. Glossary of Terms Page 7 Definitions of the most commonly used mortgage terms. Types of MortgageS People First offers a variety of competitively priced mortgage products to meet the specific needs of each individual. After reviewing your application our Mortgage Professionals will recommend the best option for you. Our mortgage rates can be found on our web site at www.peoplefirstcu.org, click on Rates and then Mortgages. Our most popular mortgage products are listed below. Fixed Rate Mortgages The fixed rate mortgage has been the most popular mortgage used in America for years. With a fixed rate mortgage, your interest rate remains constant for the length of your loan so monthly principal and interest payments never vary. Many homebuyers select a fixed rate mortgage if they want the security and peace of mind of knowing that their monthly payments will not 2 Guide to Home Mortgages change. People First Federal Credit Union offers various fixed rate terms of loans, including conventional and jumbo, as well as FHA, VA, and state bond programs which require little or no down payment. Adjustable Rate Mortgages (ARM) An Adjustable Rate Mortgage (ARM) usually offers an initial lower interest rate and initial lower monthly payments than a fixed rate mortgage. However, the interest rate with an ARM may increase or decrease over the term of the mortgage. To protect you against rapid rate increases, most ARMs have an interest rate cap or ceiling. Some ARMs have a convertible feature that allows you to convert an ARM into a fixed rate mortgage at specific time periods. FHA Mortgages The FHA (Federal Housing Administration) mortgage is a great way to obtain financing, particularly if you are purchasing your first home. This type of mortgage helps you get started because it requires a low down payment (as low as 3.5%), minimal credit history, and allows flexible underwriting guidelines. FHA mortgages are available in both fixed and adjustable rate programs. Remodeling Mortgages Does your current home or the new one you re buying need improvements or repairs? Or, are you interested in adding an addition to your existing property? If so, then remodeling loans can assist you. A remodeling loan enables you to refinance both the purchase (or refinance) and repairs for the property. Remodeling loans can include repairs as well as updates and eligible improvements. Most importantly, there is only one mortgage payment. Remodeling loans are available in conventional and FHA mortgages with fixed and adjustable rates. Bridge Loan Mortgages If you currently own a home, the equity from the sale of that home will enable you to purchase a new home. However, if your present home hasn t sold prior to the closing of your new home, then a bridge or swing loan would help. A bridge loan provides interim financing and enables you to buy a new home before you sell your existing one by using the equity in your current home, whether or not it is sold or listed for sale. People First will collateralize the bridge loan by recording a mortgage against this property, and full payment will be required upon its sale/ closing, with an initial term of 6 months. Construction/Permanent Mortgages Now you can build your dream home and obtain permanent mortgage financing with a construction-to-permanent loan. A construction-to-permanent PeopleFirstCU.org 3

loan can make your home building process simple because People First has flexible guidelines, and there s only one closing. Plus, extended options are available just in case problems or inclement weather prolong the time it takes to build your home. Upon completion, the mortgage becomes a permanent 15 or 30 year fixed rate mortgage with no additional costs or closing documents. You can choose a construction term of up to 12 months and a customized draw system to fit your individual needs. Piggyback Mortgages A piggyback mortgage involves the use of two separate mortgages in a purchase or refinance transaction (the second is referred to as a piggy back ). It is primarily used to eliminate private mortgage insurance, but it also may lower your monthly mortgage payment. It also provides greater tax deductibility (please consult your tax advisor) and helps build equity in your home faster. REFINANCING YOUR MORTGAGE LOAN There are many reasons why someone would want to refinance their home. A few of the more common reasons are listed below. To obtain cash for home improvements, education and purchase opportunities To move from an adjustable rate mortgage to a fixed rate mortgage consider how long you think you will be in your home and potential interest rate changes To provide a means of consolidating your debt paying off high interest rate loans or credit cards To lower the interest rate on your mortgage generally speaking, it pays to refinance if you can get an interest rate at least 1.5 percentage points lower than what you are currently paying To reduce the term or length of your loan doing so can save you thousands of dollars in interest To help you decide if refinancing can benefit you, complete the following exercise. It calculates how long it will take you to recoup the cost of a refinance. 1. Calculate the total cost to refinance example: $2,000 2. Calculate the monthly savings example: $100 a month 3. Divide the result of #1 by the result of #2 - example: $2,000/$100 = 20 months The homeowner, in the example above, would have to plan on living in the home for at least 20 months following the refinance of their mortgage to recoup the cost of $2,000. PURCHASING A HOME? Get pre-approved. It s free! Smart consumers will take this step before they begin the process of shopping for a home. Why? Finding out how much you can afford saves you wasted time and money. To start the pre-approval process, apply online at www.peoplefirstcu.org or make an appointment with a Mortgage Professional by calling 610.797.7440 or 1.800.446.5598 extension 612. CU Realty Real Estate Rebate Program Our CU Realty Rebate Program streamlines the home buying and selling process for credit union members by providing you with a TRUSTED and experienced real estate agent. Our program will help you with everything from finding a knowledgeable Realtor, to looking for a new home and/or determining your current home s value. The CU Realty services are FREE to all members of People First. How do I earn a rebate? When you select an Approved Realtor from this program, you will earn a cash rebate of 20% of your agent s commission at closing, based upon the sale price of the home. It doesn t make any difference if you are buying or selling a home, you can earn this rebate when you enroll in the CU Realty program and use one of our Approved Realtors. To learn more about the CU Realty Program pick up a detailed brochure in our lobby, go to www.curealty.com or call and speak to a representative at 1.800.203.9014. Estimated Savings Home Sale Price Member Rebate $100,000 $600 $200,000 $1,200 $400,000 $2,400 $600,000 $3,600 Rebates are awarded to buyers and sellers registered in the CU Realty program before they begin their home search or sale and who use a Realtor from the Approved Agent network. Examples in the chart above are based on a 3% commission rate; broker/agent s commissions may vary. 4 Guide to Home Mortgages PeopleFirstCU.org 5

STEPS IN THE MORTGAGE PROCESS When you are ready to apply for a mortgage for a home purchase or refinance, begin by completing a mortgage application. Sometimes the mortgage process can be overwhelming but not to worry, People First will stay with you every step of the way. Step 1: Completing a Mortgage Application Apply for your mortgage online at www.peoplefirstcu.org or call 610.797.7440 or 1.800.446.5598 extension 612 for questions or to make an appointment. When applying at a branch we recommend you bring the following information to your appointment for both you and your joint applicant, if applicable. Employer name(s), address(es) and phone number(s) for the last two years W-2 for the last two years and one months recent pay stubs If self-employed, last two years tax returns with all schedules Place of residence for the last two years Most recent bank statements for the last month, include all pages All investment company names, addresses, account numbers and balances Debtors names, addresses, account numbers, balances and monthly payments for all open loans and credit cards If this is a purchase, fully executed agreement of sale signed by both buyer(s) and seller(s) $350.00 appraisal fee in the form of a check, made payable to People First FCU Step 2: A Mortgage Professional will contact you to review your application and discuss the mortgage product to best fit your needs. Step 3: A Mortgage Professional will verify your employment and assets and review your credit history. Step 4: An Appraiser will appraise the property. Step 5: An Underwriter will review your file for final approval. Step 6: Upon approval, an appointment will be scheduled for the closing with you and your settlement agent. Glossary of Mortgage Terms Acceleration clause. A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed. Adjustable-rate mortgage (ARM). A mortgage that permits the lender to adjust its interest rate periodically on the basis of changes in a specified index. Amortization. The gradual repayment of a mortgage by installments. Amortization schedule. A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the balance remaining. Annual percentage rate (APR). The total yearly cost of a mortgage stated as a percentage of the loan amount; includes such items as the base interest rate, primary mortgage insurance, and loan origination fee (points). Appraisal. A professional opinion of the market value of a property. Assessed value. The valuation placed upon property by a public tax assessor for purposes of taxation. Assumable mortgage. A mortgage that can be taken over ( assumed ) by the buyer when a home is sold. Assumption. The transfer of the seller s existing mortgage to the buyer. Binder. A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate. Cap. A provision of an ARM limiting how much the interest rate or mortgage payments may increase or decrease. Cash reserve. A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two monthly mortgage payments. Clear title. A title that is free of liens or legal questions as to ownership of property. Closing. A meeting at which the buyer signing the mortgage documents and paying closing costs finalizes a sale of a property. Also called settlement. Closing costs. Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called settlement costs. Commitment letter. A formal offer by a lender stating the terms under which it agrees to lend money to a homebuyer. Condominium. A form of property ownership in which the homeowner holds title to an individual dwelling unit, an undivided interest in common areas of a multi-unit project, and sometimes the exclusive use of certain limited common areas. Contingency. A condition that must be met before a contract is legally binding. Conventional mortgage. Any mortgage that is not insured or guaranteed by the federal government. Convertible ARM. An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions. Cooperative. A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the corporation that owns the property, giving each resident the right to occupy a specific apartment or unit. Credit report. A report of an individual s credit history prepared by a credit bureau and used by a lender in determining a loan applicant s creditworthiness. 6 Guide to Home Mortgages PeopleFirstCU.org 7

Deed. The legal document conveying title to a property. Deed of trust. The document used in some states instead of a mortgage; title is conveyed to a trustee rather than to the borrower. Default. The failure to make a mortgage payment on a timely basis or to otherwise comply with other requirements of a mortgage. Delinquency. A loan in which a payment is overdue but not yet in default. Deposit. A deposit made by the potential home buyer to show that he or she is serious about buying the house. Depreciation. A decline in the value of property; the opposite of appreciation. Down payment. The part of the purchase price which the buyer pays in cash and does not finance with a mortgage. Due-on-sale clause. A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage. Easement. A right of way giving persons other than the owner access to or over a property. Equal Credit Opportunity Act (ECOA). A federal law that prohibits lenders from denying mortgages on the basis of the borrower s race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. Equity. A homeowner s financial interest in a property. Equity is the difference between the fair market value of a property and the amount still owed on the mortgage. Equity loan. A loan based on the borrower s equity in his or her home. Escrow. The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender (or servicer) into which a homebuyer pays money for taxes and insurance. Fair Credit Reporting Act. A consumer protection law that regulates the disclosure of consumer/credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one s credit record. FHA mortgage. A mortgage that is insured by the Federal Housing Administration. Also referred to as a government mortgage. First mortgage. A mortgage that has first claim in the event of default. Fixed-rate mortgage. A mortgage in which the interest rate does not change during the entire term of the loan. Flood insurance. Insurance that compensates for physical property damages resulting from flooding. It is required for properties located in federally designated flood areas. Forbearance. The lender s postponement of foreclosure to give the borrower time to catch up on overdue payments. Foreclosure. The legal process by which a mortgaged property may be sold when in default. Graduated payment mortgage. A mortgage that starts with low monthly payments that increase at a predetermined rate. The initial monthly payments are set at an amount lower than required for full amortization of the debt. Hazard insurance. Insurance coverage that compensates for physical damage to a property from fire, wind, vandalism, or other hazards. Home Inspection. A Home Inspection is an examination of a residential dwelling, performed for a fee, which is designed to identify defects within specific components of a dwelling. Homeowner s insurance. An insurance policy that combines personal liability coverage and hazard insurance coverage for a dwelling and its contents. Homeowner s warranty (HOW). A type of insurance that covers repairs to specified parts of a house for a specific period of time. The builder or property seller as a condition of the sale provides it. Interest. The fee charged for borrowing money. Interest rate cap. A provision of an ARM limiting how much interest rates may increase or decrease per adjustment period or over the life of a mortgage. See also Lifetime cap. Joint tenancy. A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship. Late charge. The penalty a borrower must pay when a payment is made after the due date. Lien. A legal claim against a property that must be paid off when the property is sold. Lifetime cap. A provision of an ARM that limits the highest rate that can occur over the life of the loan. Loan commitment. See Commitment letter. Loan servicing. The collection of mortgage payments from borrowers and related responsibilities of a loan servicer. Loan-to-value percentage (LTV). The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. Lock-in. A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing. Mortgage. A legal document that pledges a property to the lender as security for payment of a debt. Mortgage banker. A company that originates mortgages exclusively for resale in the secondary market. Mortgage broker. An individual or company that for a fee acts as an intermediary between borrowers and lenders. Mortgage insurance. See Private mortgage insurance. Mortgage insurance premium (MIP). The fee paid by a borrower to FHA or a private insurer for mortgage insurance. Mortgage margin. The set percentage the lender adds to the index value to determine the interest rate of an ARM. Mortgage note. A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the mortgage note is secured by a mortgage. Mortgage interest rate. The rate of interest in effect for the monthly payment due. Mortgagee. The lender in a mortgage agreement. Mortgagor. The borrower in a mortgage agreement. Negative amortization. A gradual increase in the mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the unpaid principal balance to create negative amortization. 8 Guide to Home Mortgages PeopleFirstCU.org 9

Notice of default. A formal written notice to a borrower that a default has occurred and that legal action may be taken. Origination fee. A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount. Owner financing. A property purchase transaction in which the property seller provides all or part of the financing. Payment cap. A provision of some ARMs limiting the amount by which a borrower s payments may increase regardless of any interest rate increase; may result in negative amortization. See Adjustable-rate mortgage. PITI. Stands for principal, interest, taxes, and insurance the components of a monthly mortgage payment. Planned unit developments (PUDs). A planned unit development is a project or subdivision that consists of common property that is owned and maintained by an owner s association for the benefit and use of the individual PUD unit owners. Points. A one-time charge paid to the lender to reduce the interest rate. One point equals 1 percent of the amount of the mortgage. Preapproval. The process of determining the ability of an applicant to obtain a mortgage loan. The determination is based on verification of income, assets and credit history. Prepayment penalty. A fee that may be charged to a borrower who pays off a loan before it is due. Prequalification. The process of obtaining a preliminary determination of the amount of credit for which an applicant may qualify. This determination is based on unverified information. Principal. The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage. Private mortgage insurance (PMI). Insurance provided by nongovernment insurers that protect lenders against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with loan-to-value (LTV) percentages greater than 80 percent. Purchase and sale agreement. A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold. Qualifying ratios. Guidelines applied by the lenders to determine how large a loan to grant a home buyer. Radon. A radioactive gas found in some homes that in sufficient concentrations can cause health problems. Rate lock. See Lock-in. Real estate sales professional. A person licensed to negotiate and transact the sale or purchase of real estate. Real Estate Settlement Procedures Act (RESPA). A consumer protection law that requires lenders to give borrowers advance notice of closing costs. Refinancing. The process of paying off one loan with the proceeds from a new loan using the same property as security. Rent with option to buy. See Lease-Purchase Mortgage Loan. Second mortgage. A mortgage that has a lien position subordinate to the first mortgage. Secondary mortgage market. The buying and selling of existing mortgages. Seller-take-back. An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage. Settlement. See Closing. Settlement sheet. The computation of costs payable at closing that determines the seller s net proceeds and the buyer s net payment. Survey. A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features. Tenancy by entirety. A type of joint ownership of property that provides right of survivorship and is available only to a husband and wife. Tenancy in common. A type of joint ownership in a property without right of survivorship. Title. A legal document evidencing a person s right to or ownership of a property. Title Company. A company that specializes in examining and insuring titles to real estate. Title insurance. Insurance to protect the lender (lender s policy) or the buyer (owner s policy) against loss arising from disputes over ownership of property. Title search. A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding. Transfer tax. State or local tax payable when title passes from one owner to another. Truth-in-Lending. A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges. Underwriting. The process of evaluating a loan application to determine the risk involved for the lender. It involves an analysis of the borrower s creditworthiness and the quality of the property itself. VA loan. A loan that is guaranteed by the Department of Veterans Affairs. Also referred to as a government mortgage. 10 Guide to Home Mortgages PeopleFirstCU.org 11

People First Federal Credit Union A Valuable Collection of Member Services People First Federal Credit Union provides a myriad of convenient services for you. And, our list continues to increase as we make every effort to respond to the needs of our growing membership. Accounts Share/Savings Share Draft/Checking Holiday & Vacation Money Market Individual Retirement Accounts Share Certificates & IRA Share Certificates Loans Signature Line of Credit/ Overdraft Protection Home Equity Loans/Lines of Credit Automobile Loans Bill Consolidation Loans Home Mortgages Credit Cards 24-Hour Services Automated Teller Machines Visa Debit Card Telephone and Internet Loan Applications Tellerphone PC Access/Bill Payer Mobile Access Other Services Direct Deposit Automatic Transfer/ Payroll Deduction Money Orders Travelers Checks Safe Deposit Boxes Savings Bonds Wire Transfers estatements enotices CU Realty Real Estate Rebate Program Business Services Commercial Lines of Credit & Mortgages Visa Platinum Credit Card Merchant Services Visa Debit Card Share Draft/Checking For detailed information: Visit our website at www.peoplefirstcu.org Call our Member Service Center at 610.797.7440 or 1.800.446.5598 To apply for a loan: Apply for all loans at www.peoplefirstcu.org Apply for consumer loans and credit cards by calling our 24-Hour Loan Center at 1.877.531.5126 MBNL01 ADC 5/12 500