1. The Homebuyer’s Guide
Chapter 4
Selecting a Mortgage

2. 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

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

4. 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)

5. 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

6. Credit
Do you pay your bills
regularly and on time?

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

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

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

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

11. 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

12. 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

13. 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.

14. 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.

15. 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.

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

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

18. 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

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

20. 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.

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

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

23. 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

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