A Beginner’s Guide to Homeownership
MICHAEL VANELLA Mortgage Banker [M] 573.881.6620 email@example.com
Time to choose Michael Vanella and
#1 MORTGAGE BANK IN MISSOURI FOR 3 CONSECUTIVE YEARS In 2016, we had a 5% market share, meaning we issued one out of every 20 home loans made in Missouri. USA Mortgage has also been number one in USDA loans for 6 consecutive years and MHDC Lender of the Year since 2010. $1 BILLION LENDER USA Mortgage has had over $1 billion in loan volume for the last 8 years. In 2016, we closed over 6,547 loans across Missouri. #1 MHDC LENDER 7 CONSECUTIVE YEARS MHDC Loans are low-down payment options that oer down-payment assistance grants through the State of Missouri for up to 4.5% of the loan amount, and the rest of the financing coming from a certified lender like USA Mortgage who has been the top MHDC lender since 2010. COMMUNITY OUTREACH USA Mortgage believes in giving back to the community. We work with Habitat for Humanity, REALTOR® Housing Assistance Fund, Veterans Association, Better Family Life and many, many more.
USDA FHA Conventional VA Jumbo MHDC 100% Financing One time Construction Loan Bridge Loan 203K Construction
I have taken a true passion in growing our mutual business in ways that relate to people, not companies. Delivering not the product but a process that is clear, concise and amazingly unreplaceable is deserved when buying your home, and I will continuously strive to do just that. I sincerely treasure every relationship for life in regards to educating, assisting and conducting any and all home mortgage needs. I will continuously go up and above for every borrower and look forward to helping your buyers with any of your mortgage needs, in allowing me to become your mortgage banker.
Michael Vanella Mortgage Banker
[M]: 573.881.6620 [D]: 573.818.2193 firstname.lastname@example.org 33 E Broadway #290 Columbia, MO 65203 NMLS: 1507612, Company NMLS: 227262
Zillow’s Top 10 Mortgage Banker in Missouri
TABLE OF CONTENTS
CHAPTER 1 GETTING READY TO BUY A HOME
CHAPTER 2 BUYING YOUR HOME
CHAPTER 3 GETTING YOUR MORTGAGE
CHAPTER 4 CLOSING YOUR LOAN
CHAPTER 5 BEING A SUCCESSFUL HOMEOWNER
Company NMLS 227262
So you've decided to take the leap and purchase a home. Congratulations! You've come to the right place to prepare yourself for what lies ahead. Buying a home can be as exciting as it is overwhelming, but the more information you have, the better off you'll be. Our Homebuyer Education Program will help you enter into the home-buying process with your eyes wide open. Welcome to USA Mortgage’s Homebuyer Education Program
CHAPTER 1 Getting Ready to Buy a Home
You've sold yourself on the advantages of homeownership over renting.
You can usually deduct mortgage interest on your tax return You can build equity in your home Historically, homes have proven to appreciate over time You can avoid increases in your monthly payment
REVIEW YOUR CREDIT One of the first steps in readying yourself to buy your home is to examine and evaluate your credit standing.
You're ready to make the big step. But before you start collecting paint chips and fabric swatches, you need to collect your thoughts around more practical matters, particularly money matters. Purchasing a home at a price you can aord is key to successful homeownership-that is maintaining homeownership. The best way to find out how much home you can aord is to:
What is credit?
Credit permits you to obtain something now for little or no money out of your pocket, and pay for it over a specific period of time.
There are two types of credit:
Open-end credit is extended on an ongoing basis, but usually with a limit on how much you may borrow. It is often referred to as revolving credit because as you repay the balance due, credit up to a specified limit is then available to you again to use at anytime in the future. Credit cards, such as VISA ® and MasterCard ® , are the most common form of open-end credit. Closed-end credit is extended on a one-time, limited basis, such as a car loan or a personal loan. Although you may still have a positive relationship with the lender after paying o the obligation, you must still requalify each and every time you want another loan.
Review your credit
Develop a budget you can live with
Prequalify for a mortgage
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How do you get credit?
Credit is most frequently extended by department stores, finance companies, oil companies, credit unions, commercial banks and credit card companies. Those who extend credit are called creditors. For credit to be extended to you, a creditor looks at two things: You as a credit risk. Each creditor has dierent ways of evaluating applications for credit. Most creditors review various factors such as income, length of employment, how long you've lived at one residence, previous credit history, amount of outstanding debts, stability of your checking and savings accounts, number of dependents, etc., in order to determine, to a certain degree, whether you will repay the amount borrowed over a certain period of time. The collateral you are purchasing. If you fail to make payments on collateral purchased with credit, it's easier for a creditor to repossess items like furniture and appliances than to foreclose on a home. Therefore, credit may be extended to even those with a questionable ability to pay when it comes to purchases like refrigerators and entertainment systems. When a home has been posted as collateral for a loan, the foreclosure process can be costly and time consuming. The lender assumes a greater amount of risk at a lower interest rate. Therefore, the lender is going to evaluate you and your credit history more carefully when you're trying to buy a house. Unfortunately, this is where some people learn their first real credit lesson - when credit is extremly important - because they are stunned and surprised when they are denied, based on their credit history. Open a checking and savings account. Maintain your checking account by keeping enough money in it to cover all outstanding checks. Make regular deposits in your savings account to establish a history of savings. Apply for credit gradually. Once your checking and savings accounts are in good working order and if you believe your budget can handle the financial load, apply for credit through retail stores or a major bank. Don't apply for more credit than you can manage. A credit card establishes you with credit as soon as your application has been approved. Make regular payments for the products or services you purchase with credit. Every time you make a payment as agreed to by a creditor, you are building a favorable credit history. How to establish a good credit history Establishing a good credit history is actually pretty simple:
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How to protect your good credit standing
Failure to repay credit extended as agreed is where most people get in trouble.
Late payments affect your credit history. It doesn't matter that the credit card balance is only $5, or that the payment is only one day late, or that you pay the late fee. Failure to pay on time will put a black mark on your credit history that can last for a year or more. Minimum payments are another trouble spot. Making the minimum payment is acceptable, but it does very little to reduce your outstanding debt. Meanwhile, interest and annual fees can significantly add up over time. Use credit effectively. Determine how much credit you can comfortably aord. Develop a household budget - a detailed list of your income and expenses. If you find that you cannot aord credit purchases because of your current income and expenses, you should still concentrate on establishing good credit, but continue making most of your purchases using cash. Credit purchases should generally be limited to those that can be paid o at the end of the month. Larger purchases should be evaluated based on need, and a payment schedule must be established to assure that the debt is paid o quickly.
What's on a credit report?
The credit report just provides information. It's up to the creditor to determine whether you are a good or bad credit risk. Each creditor will analyze the information dierently when deciding whether to extend credit to you. The credit report typically includes four types of information:
Identifying information Credit information Public record information Inquiries
Almost as important as what is in your credit report is what isn't: no information about your race, religious preference, medical history, personal lifestyle, personal background, political preference or criminal record.
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How can I view or fix errors on my credit report?
To obtain a copy of your credit report, contact any of the three major credit-reporting agencies. Each agency compiles its own report, so you may want to obtain copies from all three agencies.
To correct any errors on your credit report, you may contact the credit provider and explain the error. If the creditor concurs that an error has occurred, the credit provider must report and correct the error to the credit-reporting agency. There is also an online dispute form on each of the credit reporting agencies' websites. After you fill out the form, the agency will investigate your claim and contact the creditor in question on your behalf. If the creditor agrees that an error has occurred, the credit reporting agency will then fix the report.
Experian www.experian.com TransUnion LLC www.transunion.com Equifax www.equifax.com
How can I repair bad credit?
It may take some time, but bad credit can be fixed. You may want to contact a professional financial counselor or a credit- and budget-counseling agency if you need help developing a budget/debt reduction.
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DEVELOP A BUDGET YOU CAN LIVE WITH
A budget is a plan that lays out your income and expenses as precisely as possible. Budgets and spending plans are critical to using credit wisely and meeting financial goals, such as saving up for your down payment or making a monthly mortgage payment.
A budget can help you uncover your spending patterns and discover places where you can save. This section will help you learn how to create a successful budget.
Adjust your attitude
Most budget attempts fail due to the "you must cut expenses 'til it hurts" mentality. When establishing a budget, it's easy to look at your expenses (like utilities, food, transportation, clothing and entertainment) and start slashing. Adhering to such a budget would certainly amount to enormous savings, but what would it do to your quality of life? You need a budget that will help you guide your spending so that you can enjoy your life! A practical, well thought out household budget is a powerful way to improve your standard of living. Unless you are in dire financial trouble, there is no reason for budgeting to be a painful experience.
A good budget helps you:
Understand how your money is being spent Increase your savings Prevent or reduce impulse spending Protect against the financial effects of unemployment, accidents, sickness, aging, and death
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Identify your expenses
One of the most challenging aspects of budgeting is not cutting expenses, but rather identifying them.
The best place to begin is to keep a detailed record of all income and expenses, right down to the change you used for the vending machine. Once you see where your money is spent on a daily basis, a snapshot of your monthly expenditures comes into focus. At this point, the hard work is done. To be a successful homeowner, it's important to set aside funds in your monthly budget for home maintenance. It costs money to own a home, and you will continually incur a variety of expenses. Budgeting for these expenses monthly will help you identify, plan for and eectively manage the costs associated with owning your home. It will also help you establish a plan to address day-to-day maintenance as well as create a plan for financing major improvements and allocating funds to meet emergency maintenance needs. It will take some thought and time to develop your budget. You may have to do some research, make some calls, and ask some questions to get the job done. If you do your homework right, you'll have something many homebuyers lack--a clear picture of the price of being a successful homeowner. Once you have a picture of where your money is going, it's usually clear to see where changes can be made. You'll find that you don't have to make big changes that sap the enjoyment out of life. Simple, logical changes in your spending habits can have a meaningful impact on your lifestyle. Perhaps you'll decide to discontinue the cable TV service, or you'll bring your lunch to work more often. You may cancel subscriptions to the magazines that are piling up unread, on the coee table. Small sacrifices can add up to significant savings. Make simple, logical changes
A good budget:
Need not be complicated Is flexible, not rigid Requires little time Works for you not against you
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TIPS FOR SUCCESSFUL BUDGETING
Talk with other members of your family. Consider each person's needs and wants so all family members feel they are a part of the plan. If everybody realizes the rewards, they may work harder to make the budget succeed, and be less inclined to overspend.
Be specific. If goals are vague, objectives may never be met and you and other household members may have dierent ideas of what the end result should be.
Be prepared to compromise. If, for example, one person wants to pay cash for things and the other person prefers to buy on credit, they will need to discuss the pros and cons of both methods and decide on a middle ground each can accept. A plan cannot succeed unless there is a financial partnership.
Set realistic goals and objectives. Setting the bar too high may lead to frustrations that could cause you to abandon your plan.
Exercise will power. Try not to overspend - opportunities to do so will occur daily. Each family member needs to encourage the others to stick to the plan.
Be flexible. Your plan will require adjustments to keep up with your changing lifestyle and financial situation. Don't make a budget that is so rigid that each new development requires an entirely new plan.
Develop a good record-keeping system. You'll need to keep a record of what you spend. This will show how well you are following the plan and will allow you to adjust your spending to meet your goals.
PRE-QUALIFY FOR A MORTGAGE
What is "prequalifying?” Prequalifying shows you how much you can aord to spend on a home based on where you stand financially, taking into account your income, debt and savings. Current interest rates are also considered. Prequalifying can determine:
An estimate of the purchase price and monthly mortgage payment you can afford and qualify for
How much money you will need for a down payment (the difference between the purchase price and the amount of your mortgage)
Budgeting goals you need to set and achieve
Who can help me prequalify? A USA Mortgage loan ocer can help you prequalify. Prequalifying is not a commitment on your part to work with a particular lender or real estate agent, and it does not guarantee you a loan on the lender's part. That all happens during the actual loan application process. 08 Chapter 1 Getting Ready to Buy a Home (Michael Vanella)
CHAPTER 2 Buying Your Home
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We've covered a lot of ground so far. You now have a rough idea of how much you can afford to spend on your home purchase.
You've analyzed your credit situation and ironed out any issues. You've created a budget that you can live with that anticipates your home purchase.
If all of the above are true, you're ready to buy a home!
WHAT TO LOOK FOR IN A HOME Once you're ready to start looking for a home, think carefully about what you're looking for. You may want to consider:
In this section, we'll focus on the home-buying process - the steps you need to go through as you shop for, select and make an oer to purchase your version of the American Dream.
Sales price Neighborhood Distance to work Schools Shopping
What to look for in a home
How real estate agents can help What to do before you make an offer How to make an offer to purchase
You'll also want to consider specific elements of the house itself. Are the electrical systems, plumbing and heating up to code? Is there sucient closet space? Will the number of bedrooms be enough?
Chapter 2 Buying Your Home (Michael Vanella)
HOW REAL ESTATE AGENTS CAN HELP
Real estate agents can be helpful because they know the local real estate market.
Most agents belong to multiple listing services that publish directories of all properties listed for sale in a particular market. The real estate agent will consult the multiple listing directory for you and determine which properties are available that meet your specifications. He or she can forward these listings to your e-mail address, then arrange to show you the properties you are interested in. Another advantage of working with a real estate agent familiar with the area you would like to live in is that he or she will usually have information about such things as school systems, tax rates, water and sewer charges, public transportation and other concerns that might aect your decision to buy a particular home. How to Find a Real Estate Agent
There are a variety of ways to find a real estate agent:
Ask for advice from a friend or relative who may be able to recommend someone Meet agents by going to open houses Contact the real estate firms that are advertising properties you are interested in Use the Internet to look up local agents
The Agent’s Role
Usually, it's best to choose one real estate agent - provided that you're comfortable with that person - and work with that person until you find the home you would like to buy. Real estate agents usually specialize in particular areas. You may want to find someone who knows the area that you are most interested in to assist you in your home search. Typically, sellers will "list" their home with an agent and agree to pay a commission if the house is sold within a specified period of time. During the time the listing is in eect, the real estate agent will try to sell the property by advertising it and having open houses. A real estate agent will help you find a home, but understand that the agent usually represents or works for the seller. Therefore, the agent has certain obligations to the seller and will relay any information that you provide. There are buyer's agents who work directly for the buyer, and may be paid by the buyer, but the majority of real estate agents work for the seller. Real estate agents generally work on commission. Their fee is based on the purchase price and is paid by the seller. If another real estate agent finds the buyer, the two will share the commission.
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BEFORE YOU MAKE AN OFFER
Look at a wide range of homes before making a decision to buy. It is rare (and not well-advised) for a buyer to look at a single home, fall in love with it and purchase it immediately. As a homebuyer, it's especially important not to buy too quickly just because you have waited a long time and are eager to own a home. If you've found one or more neighborhoods that you like, look at enough homes there to get a feel for real estate values, or prices.
Then, once you've narrowed down the choices, do your homework. Research factors like:
When you find a home you really like, take some time to think about it before making an oer. In some markets, you may have to act quickly if there aren't many homes for sale in the area but there are a lot of buyers. Still, think about your purchase carefully. You are making a big investment. It is important to make an informed decision so that you will be happy with the home you've chosen. Once you've found the home you want and have checked up on taxes, the school system and the cost of utilities, you're ready to make an oer. Taxes School System Cost of Utilities Quality of community services (such as fire and police) and anything else that will affect your live once you own the home
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HOW TO MAKE AN OFFER TO PURCHASE
Typically, when homebuyers are ready to make an oer, they meet with the real estate agent and complete the Oer to Purchase form together. You may also want to write your oer with the help of an attorney. Although you can prepare an oer yourself, it is not recommended. An Oer to Purchase includes detailed, complex information. If you try to write an oer by yourself, you may make mistakes, omit or include items that would put you at a disadvantage relative to other buyers or trap yourself into an agreement that is not in your best interest. When you are ready to make an oer, get a copy of your state's form from the real estate agent and look it over carefully. Have either the real estate agent or an attorney thorough- ly explain every item on the form to you so that you understand exactly what you are committing to before you actually write an oer.
Making the Offer
There are many factors that may influence the amount you would oer for a home:
How much you can afford How badly you want the house
How many other buyers are interested How motivated you think the seller is
How much work might need to be done on the house How the property compares with other similar properties
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Contingencies are conditions that must be satisfied or you will not be required to go through with the purchase after your oer is accepted.
Most buyers make an Oer to Purchase contingent upon their ability to obtain satisfactory mortgage financing. Without this contingency, you could risk losing your earnest money (or worse) if you cannot get a mortgage loan.
Other common contingencies include:
Getting a satisfactory home inspection within a specified period of time Obtaining a termite inspection Obtaining satisfactory well and septic tests Requiring evidence that the property meets building and safety code requirements
Obtaining an appraisal with a value not less than the offered price Getting a satisfactory attorney review of your Offer to Purchase (if offer was not prepared by an attorney)
A home inspection should not be confused with a property appraisal. An appraisal is an estimate of value that is prepared by a professional appraiser. A home inspection is an examination of a property to determine the condition of the structural and mechanical systems. This inspection should be completed by a professional home inspector. Although home inspections are optional, it's recommended that you include a home inspection contingency in your Oer to Purchase. By making your oer contingent on an acceptable home inspection, you have the option to withdraw the Oer to Purchase if the inspection reveals major problems that neither you nor the seller is willing to correct. In fact, you may want to have the inspection completed before you apply for your loan. That way, you will uncover any problems with the home before you spend money or time on securing financing. Usually, it is your responsibility as the buyer to pay for an independent home inspection. Generally, a professional home inspection only takes two to three hours, and it gives you valuable information on the home's structural condition and mechanical systems.
Chapter 2 Buying Your Home (Michael Vanella)
Finding a Qualified Home Inspector
It's important that your home inspection be done by a qualified professional who has training and experience in a field such as engineering, architecture or construction. To find a qualified home inspector, ask your loan ocer or real estate agent for names of companies that have a good reputation. If you are unable to find a home inspector through a reliable recommendation, you may wish to look for someone who is a member of the American Society of Home Inspectors. The ASHI standards of practice require that inspectors judge the condition of a number of structural and mechanical components of a home and give a written report to the buyer.
Central heating and air conditioning systems Interior electrical and plumbing systems Interior walls, ceilings, floors and stairs Visible insulation Ventilation systems Foundation, basement, attic and roof Exterior wall coverings, flashing and trim, gutters and downspouts Windows and doors Surface grading and drainage
You should insist that each of these items be covered in a detailed report that you get to keep. It is highly recommended that you go with the home inspector when he or she conducts the inspection. This will give you the chance to ask questions about any of the conditions that may exist in the home and get an estimate of the cost for repairing these items. It will also give you the chance to ask questions about home maintenance.
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Getting an Attorney
Depending on your situation, other contingencies may be appropriate. This is another reason why it's a good idea to have an attorney look over your oer before you present it to the seller. If any contingencies specified in the Oer to Purchase are not met, you have the option of not going through with the purchase. Make sure when you are deciding upon the contingencies that you are adequately protected, but at the same time, be realistic. Consider the situation in your market and make sure your oer terms and price are fair. When you submit an oer, you'll likely be asked to make a deposit. This deposit is often referred to as "earnest money." It's given to the real estate agent to be held in an escrow account as a show of good faith on your part that you are sincere about your oer. If the sale goes through, the amount of earnest money you put down will be deducted from the amount you owe the seller at closing. If the seller rejects your oer, or the sale falls through because one of your contingencies is not satisfied, your earnest money should be returned. Once you make an oer, the seller has the option to accept it as is, reject it or make a counteroer proposal. If the sellers want to change some of the terms of the oer, they will make a counteroer. It then becomes your decision whether the counteroer is acceptable or not. For example, the seller may counter with a higher sale price. Or, they may change or delete some of your contingencies. Or, the seller may exclude a piece of personal property that you wanted included in the sale, such as appliances. If you receive a counteroer, you have the option of accepting or rejecting it - or making another counteroer. This is the negotiation process that leads to a final oer that both parties agree upon. Earnest Money Counteroffers
Chapter 2 Buying Your Home (Michael Vanella) 15
CHAPTER 3 Getting Your Mortgage
You've found your dream home and your offer has been accepted. Your next step is getting your mortgage.
YOUR RIGHTS AS A HOMEBUYER The Fair Housing Act protects your rights as a homebuyer. As you shop for a mortgage and move through the mortgage process, no one may take any of the following actions based on sex/gender, national origin, religion, race or color, familial status or disability:
In this section, we'll cover what it takes to get to the point where you secure financing and sign your name on the dotted line:
Refuse to make a mortgage loan Refuse to provide information regarding loans Impose different terms or conditions on a loan, such as different interest rates, points (which are a one-time fee from the lender and equals 1% of the loan) or other fees. Discriminate in appraising property Refuse to purchase a loan Set different terms or conditions for purchasing a loan
Your rights as a homebuyer
Choosing the best loan
The Mortgage Process
Predatory mortgage lending typically includes excessive or unnecessary loan fees. It often targets emerging-market communities including minorities, lower-income families, and people with nontraditional, weak or blemished credit records. This practice drains wealth from families and communities, destroys the benefits of homeownership and often leads to foreclosure. Ask us about our fair housing and anti-preda- tory lending policies. If you feel your rights have been violated, contact: US Department of Housing and Urban Development , Oce of Fair Housing and Equal Opportunity 451 7th St., SW | Washington, DC 20410-2000 Phone: 1-800-669-9777 | Fax: (202) 708-1425 | TTY 1-800-927-9275 For details about the Fair Housing Act, go to www.hud.gov 16 Chapter 3 Getting Your Mortgage (Michael Vanella)
CHOOSING THE BEST LOAN
When you start to shop around for a loan program, it's important to take into consideration:
Your payment's stability Your ability to qualify for the loan amount
How long you plan to live in the home Whether your income is stable or rising The possibility of significant interest rate changes The amount of up-front costs Whether you can comfortably afford your monthly mortgage payment
Your monthly mortgage payment will generally include:
A principal and interest payment An amount to cover your real estate taxes and homeowners insurance Possibly an amount to cover other costs like condominium dues or mortgage insurance
Mortgage Term Options
Mortgage loans have varying terms. Most terms range from 15 to 30 years, although there are also terms available that are less than 15 years and more than 30 years. The term of your loan aects two things:
The monthly payment The building of equity
The term equity describes the dierence between the market value of your property and the amount you still owe. The shorter the loan's term, the higher the monthly payment and the quicker you build equity. Conversely, a longer term results in lower monthly payments, but slower equity build-up.
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FIXED-RATE VS. NONFIXED-RATE MORTGAGE
F ixed-rate mortgages feature a nonchanging interest rate. With a fixed-rate loan, the principal and interest portion of your monthly mortgage payment do not change; however, real estate taxes and homeowners insurance costs may change from year to year, resulting in a higher or lower monthly payment. Advantages: Fixed-rate mortgages are beneficial for you if your income is not rising rapidly, and you want the comfort of knowing the principal and interest portion of your mortgage payment will not change.
Disadvantages: The downside of fixed-rate mortgages is that they typically have a higher interest rate than nonfixed-rate mortgages.
Nonfixed-rate mortgages mean you assume some of the interest-rate risk that the lender normally assumes on a fixed-rate mortgage. For taking this risk, you would usually receive a lower initial interest rate than the fixed-rate mortgage's interest rate. Advantages: A lower interest rate means a lower monthly payment The point at which the payment can be changed varies by the program you choose. It can range from one month to more than five years. Typically, the shorter the period before a change can occur, the lower the initial interest rate. Nonfixed-rate mortgages are a possible option for borrowers who are comfortable with their ability to handle payment increases. Disadvantages: The trade-o with the nonfixed-rate mortgage is that, beyond increasing costs for taxes and homeowners insurance, the interest portion of your monthly payment also increases.
AMORTIZING VS. INTEREST-ONLY MORTGAGES
To keep monthly payments as low as possible, some lenders oer interest-only mortgages. These loans typically do not require any principal payments for a set period of time. Typical interest-only time periods are 5, 7 and 10 years. Advantages and disadvantages: Since you are not paying o any principal, your monthly mortgage payment will be lower. The downside is that you are not building equity. Also, depending on the loan structure, you may face a significant payment increase once the loan begins to amortize (the time your payments must be sucient to cover both principal and interest).
Chapter 3 Getting Your Mortgage (Michael Vanella)
DOWN PAYMENT OPTIONS
A down payment is your initial investment in your home. The larger your down payment, the more equity you have in your home from the start and the smaller your monthly payment.
If you opt to make a down payment of less than 20% of your home's value, we will most likely require that your loan is guaranteed by one of these entities:
US Department of Veterans Affairs (VA): If you are a veteran of the US armed forces, check with your loan ocer regarding VA loan possibilities.
Federal Housing Administration (FHA): There are certain limitations with FHA loans; check with your loan ocer regarding these options.
Private Mortgage Insurance (private Ml): Private Ml oers several advantages over FHA financing. You'll typically pay less for and have greater flexibility than FHA mortgage insurance. With private Ml:
You can avoid paying the upfront premium charged by FHA. Your monthly payment will likely be lower than or comparable to an FHA monthly payment. You may have greater equity in your new home instead of a larger loan amount (most borrowers usually add the FHA upfront premium to their loan amount, increasing their debt). You can request to cancel the Ml generally when your mortgage balance reaches 80% of your home's value - either because you've paid down the balance or because your home's appraised value has increased due to improvements or appreciation.
On loans with less than 10% down and terms greater than 15 years, the monthly FHA insurance payment cannot be cancelled.
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The Mortgage Process
Asset verifications. Credit reports. Insurance applications. Many homebuyers wonder where the loan process begins - and where it ends. To help make the process easy to understand, we've laid out the basic steps involved in purchasing a home. The time frame will vary depending on geographic location, the loan, you and your lending institution.
You've decided on a loan program, and now you're ready to complete a loan application with the help of your loan ocer. In order to expedite the application process, your loan ocer may give you a list of documents to bring with you. If you have already met with a loan ocer to prequalify for financing, you may have given them some of this information. Even so, bring the documents with you again when you go back to apply for your mortgage. Once you have completed the loan application, your loan ocer will verify, or confirm, all of the information you provide. Based on the requirements of your loan program, we may ask you for additional information. Loan Estimate (LE) The Loan Estimate is our best estimate of your closing costs. It shows an estimate of the amount of any fees USA Mortgage may charge to process or close your loan, such as mortgage insurance, title insurance and recording fees. It also provides a summary of how your loan will be repaid and itemizes the costs associated with applying for a loan. The Loan Estimate indicates the finance charge, annual percentage rate (APR), number of payments you will make, amount of each payment and due date (for fixed-rate loans), late payment charges that may apply and total amount you will pay in principal and finance charges over the life of the loan. The information in the Loan Estimate Comparison section will help you to compare the cost of dierent loan oers. To compare the costs, you want to be sure you are comparing the same kind of loan. Commitment Letter Your loan ocer will send you a Commitment Letter, which is a promise from the lender to make you a loan. It includes all of the specifics of the loan as well as any conditions that must be met prior to or at the closing, and information on the loan amount, term, origination fee and interest rate. Shortly after you apply for your loan, you will receive these documents:
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Ordering documents for the loan file
We order the following documents and then await their return:
Property appraisal The property appraisal is ordered to estimate the property's market value. The maximum loan amount the lender will provide will be based on the lower of the purchase price or appraised value. Credit report If you do not have traditional forms of credit, you will need to provide other evidence of your ability and willingness to repay debts, such as money order receipts or cancelled checks from the payment of rent and utility bills. We create a loan file with all required information and pass that file on to an underwriter. The underwriter makes sure all loan requirements are met. Sometimes an underwriter needs additional information to make a decision. Two typical scenarios we might present to you are: Information is needed before the loan is approved. It is critical that you provide the additional information as quickly as possible in this situation. The underwriter approves the loan "with conditions." That means you will need to provide additional information at closing before the loan can become final. Underwriting
Chapter 3 Getting Your Mortgage (Michael Vanella) 21
Once the loan is approved:
Title insurance is ordered Approval contingencies are met The closing is scheduled
Once the closing is scheduled, the borrower orders homeowners insurance, which covers for damages or losses caused by things like theft, fire, vandalism or wind. Because your property is the security for your mortgage loan, we want to be sure the value of the home is protected in case it is damaged or destroyed. Contact your insurance agent to secure an insurance binder. At the closing, the borrower obtains his or her loan proceeds and presents a certified check to cover the balance of the down payment and the closing costs. The loan closes. The borrower moves into the new home.
22 Chapter 3 Getting Your Mortgage (Michael Vanella)
CHAPTER 4 Closing Your Loan
Your home has been inspected. All contingencies have been met. Your mortgage has been approved. All your ducks are in a row.
WHO IS INVOLVED AT CLOSING? You, of course, will be in attendance, along with your loan ocer, called a closing ocer, or a representative of the title insurance company. The closing ocer's job is to make sure that all necessary documents are signed and verified and that the money from the sale is properly distributed. You may also have your own attorney attend the closing. Sometimes, the sellers will be present, along with any real estate agents involved in the sale. It is common for buyers and sellers to complete their paperwork in separate rooms and never see each other on the day of closing.
What happens next? You close the deal!
There is no such thing as a standard closing procedure that is followed in all areas of the country. What is standard, though, is the outcome of the procedure: You settle all the financial details associated with the purchase and receive the title to your new home.
Who is involved at closing?
What to bring to closing
WHAT TO BRING TO CLOSING As the buyer, you should bring the following documents to the closing:
How to prepare for closing
Certified or Cashier's Check for your down payment and closing costs. You can find out the exact amount you will need by contacting us a day or two before the closing.
Chapter 4 Closing Your Loan (Michael Vanella) 23 Binder for Homeowners Insurance and Paid Receipt. Before going through with the closing, the closing ocer will contact you to confirm that you have your binder for homeowners insurance and your paid receipt for the first-year's premium that proves you have adequate homeowners insurance for the home you are buying. We will not issue the mortgage loan without it.
How to Prepare for Closing
Three days prior to your scheduled closing date you will receive the Closing Disclosure. The Closing Disclosure provides the final loan terms and closing cost details; carefully review this document to be sure the details are correct. If something looks dierent than expected from the initial Loan Estimate, you should contact your loan ocer. Review all of your closing documents with your attorney to be sure there are no errors or problems before the closing begins. These documents will include: The Mortgage, a separate document that you sign at closing, pledges your home as security for the loan. In some states, buyer(s) sign a Deed of Trust rather than a mortgage, but both documents serve the same purpose. The Mortgage Note, your promise to repay your loan. It indicates the terms and conditions of your loan and how it will be repaid (the amount of your monthly mortgage payment for principal and interest, when it is due, the length of the mortgage, etc.). The Closing Disclosure provides details on the final loan terms and itemizes the costs associated with the loan.
Once the closing gets under way and the closing ocer has verified that you have your binder and paid receipt for homeowners insurance, he or she will explain each closing document and ask you to sign each of them. Your closing ocer will answer any questions you have about the documents before you sign them, so don’t hesitate to ask.
24 Chapter 4 Closing Your Loan (Michael Vanella)
Typically, the closing ocer will begin by reviewing the Mortgage Note and the mortgage document and ask you to sign them. Then, he or she will move on to the Closing Disclosure (CD). Beginning on the back of the form - where each of the costs being paid by the sellers and the buyers is itemized - you will find a breakdown of the costs, including: All the buyers' and sellers' closing costs. A summary of both parties' transactions by showing how funds are transferred among the buyer, seller, lender and any other parties involved in the sale. The net amount due from the buyers and the net amount that will be paid to the sellers. Commissions to real estate agents involved in the sale. Any lender charges made in connection with the loan, such as points and other fees. Items that we may require to be paid in advance, such as interest due from the date of the closing until the first mortgage payment. Amounts deposited in escrow to cover insurance and property taxes. Title charges for the title search required by us and title insurance policies for USA Mortgage and the buyer. Charges to cover recording the mortgage and deed at the county courthouse. Tax service fee to cover the ender's cost of researching the tax rate for the property. The closing ocer will then go over the summary of each party's transaction (on the front of the form). The left column summarizes the buyer's transaction and the right side summarizes the seller's. The price of the home is listed at the top of both columns. Amounts are added or subtracted in both columns to arrive at the net amounts due from the buyer and due to the seller. After the closing ocer has covered the entire Closing Disclosure, he or she will ask for a check for the down payment and closing costs. When all of the buyer's documents have been explained and signed, the closing ocer will move on to the seller's documents.
After the Closing Disclosure, the closing ocer will review both of the foliowing documents, making sure that the legal descriptions on each document match exactly:
Chapter 4 Closing Your Loan (Michael Vanella) 25
Prior to closing, the title company will issue a commitment for title insurance. This is not the actual policy, but it guarantees the policy will be issued if conditions specified in the commitment are met. In almost all real estate transactions, separate title policies will be purchased for the lender and buyer. As the buyer, you would typically purchase the lender's policy, which covers only the amount of the loan. The buyer's policy which insures you, the buyer - is for the full sales price and it is often paid by the seller. Commitment for the Title Insurance When you buy a home, in most cases you will be required to obtain title insurance. This protects your legal ownership of the property you buy. Prior to issuing the insurance, the title company will conduct a thorough search of public records to determine exceptions to coverage, such as any liens or restrictions that aect ownership of the property. The insurance company informs you of any outstanding liens so you can require the seller to satisfy them before you close. The Deed The Deed is the legal document that transfers ownership of the property from seller to buyer. Any mistakes on the deed could aect your ownership of the property so they must be identified and corrected before you close the purchase. After the closing, the closing ocer will take care of recording the deed with the Registrar of Deeds in the county in which the property is located.
The final activity at closing involves the distribution of the money generated by the sale. It's the closing agent's responsibility to present checks to:
The sellers The sellers' lender, if there is an existing mortgage on the property The real estate agents involved in the sale Any others who may be indicated on the Closing Disclosure
After you have signed all the necessary documents and paid your closing costs and down payment, the closing is finished. Your possession date the day you can move into your new home - is stated in the purchase agreement. If your possession date is the same day as your closing, before you leave the closing, you will receive the keys to your new home! If your possession date is other than the closing date, arrangements will be made to secure the keys on the possession date.
26 Chapter 4 Closing Your Loan (Michael Vanella)
CHAPTER 5 Being a Successful Homeowner
You're in! You've got new keys - house keys!
Becoming a homeowner is exciting, but it's a lot of responsibility and hard work.
MAINTAINING YOUR HOME When you sign your mortgage at closing, you pledge your home as security for your loan. You have a responsibility to make sure your property keeps its value as collateral for your loan. And, you'll want to maintain your home so it remains a good investment for you. Every homeowner will eventually be faced with expenses for unexpected repairs and routine maintenance. You'll need to learn about your home's mechanical systems and construction (and what it will cost to maintain them) so you can budget for their upkeep. Repairs that occur after you sign the closing documents are generally not the previous homeowners' responsibility. In addition to the cost of future maintenance, there may be some initial expenses that you may not have thought about, such as:
Learn more of what you can expect after you purchase your home:
Maintaining your home
Prioritizing improvements DIY or call in a professional?
Insuring your home
Establishing a reserve
Getting help for financial trouble
Lawn and garden equipment
Snow removal equipment
Finally, there are likely to be projects that you will want to take on to improve your new home. All of these expenses - in addition to your new mortgage payment - require you to budget and save faithfully. Continuing to fill out your Monthly Spending Planner will help you plan and save for home improvements and repairs .
Charges for sewer, water and/or trash collection
Chapter 5 Being a Successful Homeowner (Michael Vanella)
What to do first? This decision can be dicult for first-time homeowners. It's tempting to make cosmetic improvements, like installing new wallpaper or carpeting, because these changes are the most visible.
But part of the responsibility of owning a home is prioritizing your projects and considering the improvements that are likely to increase your home's value, or decrease your expenses.
For example, it may be better to replace an aging oil furnace with an energy-ecient gas furnace before you purchase new carpeting for the living room. You'll need to anticipate and budget for serious issues that may arise, like a leaking roof or a dying water heater, that will be more important than cosmetic improvements. The best way to anticipate problems is to inspect your home regularly and perform certain routine maintenance tasks. Refer to the Home Maintenance Checklist for the items you should inspect. It also identifies some specific maintenance tasks that should be performed and how often you should do them. If you have the skills to do some or all of this work yourself, you will still need to budget for any tools or materials that you will need. If you're not especially handy, you can use this checklist to predict the work that will need to be done so that you can also budget enough to hire someone to do it. You can save money by learning to do basic home repairs. Home repair courses are usually oered through public school adult education classes, local technical colleges, university extension programs or nonprofit organizations. There probably will be instances where you will need to employ a carpenter, plumber, electrician, appliance repairman or heating/cooling contractor. Ask family, friends and neighbors for references. Interview three or four contractors from each trade. Compare experience, prices, policies, personality and availability. While price will certainly be a consideration, it should not be the sole factor for selecting a contractor. Do It Yourself or Call In a Professional?
Insuring Your Home
As a requirement of your mortgage loan, you obtained homeowners insurance.
In some cases, lenders will escrow money from your mortgage payment each month to cover the annual renewal of your homeowners insurance premium. However, if your lender does not set aside money to renew your homeowners insurance, you will have to budget and save for it on your own.
You'll want to occasionally review your coverage levels to make sure your home is adequately protected.
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