The Homebuyer’s Guide Chapter 4 Selecting a Mortgage

Agenda Mortgage loan basics Who can get a mortgage loan? How much will a lender loan to you? Shopping for the right lender and product Steps the lender takes to approve your loan Your rights as a loan customer

The 4 Cs of Credit Capital Capital Capacity Capacity Credit History Collateral Capital Capacity Credit History Collateral

Capital Down Payment Down Payment Closing Costs Closing Costs Money in Escrow Reserves Moving Expenses Other Assets Down Payment Closing Costs Money in Escrow Reserves Other Assets like jet skis, boats or guns (not like sofas or golf clubs)

Capacity Current income Income history and future earning potential Amount owed on Installment accounts Revolving charge accounts Other monthly payments Current income Income history and future earning potential Amount owed Installment accounts Revolving charge accounts Other monthly payments

Credit Do you pay your bills regularly and on time?

what you are paying for it? Is the house worth what you are paying for it?

What Does a House Payment Include? Principal Interest Taxes Insurance and, possibly Private Mortgage Insurance (PMI)

What Are the Steps in Getting a Loan? Research Pre-approval Loan application Loan processing Underwriting Approval Loan Closing

Shopping for a Loan Look in newspapers Check with current financial institution Get referrals from friends and family Shop by phone

Comparing Loans and Programs Use the Lender Mortgage Checklist Mortgage loan amount Type of loan Down payment Term of mortgage Rates and fees Grace period and fees for late payment Prepayment penalties p.30-31

Applying for the Loan Discuss details of loan terms Complete and sign written application form Provide copies of required documents Sign permission letters for verifications

Documents Needed to Apply Pay stubs and W-2 forms for the past two years Tax records from the last two years The purchase contract, signed by the seller and the buyer A copy of divorce decree, along with verification of alimony and child support Bank account numbers, bank statements Information on investments and retirement accounts.

Getting Prequalified by a Lender As a consumer, you need to have your lender help you figure: how much money the lender will loan you how much mortgage (PITI + PMI) fits within your income and expenses how much down payment you will be paying Obtaining pre approval does not guarantee the loan.

Who Makes Mortgage Loans? Financial institutions Government agencies Nonprofit organizations Sellers Refer to the Homebuyer’s Guide for an overview of some of these sources for loans.

Government Agencies State or local housing finance agencies USDA Rural Development, Rural Housing Services

Government-Insured Loans FHA loans VA loans Rural Housing Services loans

Loan Price Cost Comparison Use an amortization table to determine your principal and interest payments p.33 Rate Monthly Principal and Interest Payment Total Interest Paid 6.20% $612 $120,488 12.30% $1,052 $278,643

Predatory Lending High-pressure sales tactics and steering High interest rates and fees Balloon payments “Packing” and padding costs and fees

Different Types of Loans Fixed-rate mortgages Adjustable-rate mortgages Balloon-payment mortgages Bi-weekly mortgages Review the types of loans; help your clients understand they all might have applications, depending on individual circumstances. These are described in detail in the book.

Loan Fees Loan application fee Underwriting fee Credit report fee Document preparation fee Appraisal fee Attorney’s fees Loan origination fee Processing fee

Reasons you could be denied High debt Insufficient funds Low appraisal Poor credit rating

Standard Loan Conditions Mortgage insurance Hazard and possibly flood insurance Clear title report and lender’s policy of title insurance Clean termite inspection and certification Survey Other inspections common in area

Your Rights as a Loan Customer Equal Credit Opportunity Act Fair Housing Act