The Mortgage Guide Book

8/3/2019 The Mortgage Guide Book

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The Mortgage Book:The Smart Consumers Guide

To Home Ownership

1. What Is a Mortgage? - Page 3Defines terms, describes borrowers responsibilities, serves asintroduction to rest of content

2. Types of Mortgages - Page 6Fixed, variable, balloon, reverse, re-fi, credit line, jumbo terms andconditions

3. The Right Mortgage For You Page 10Considerations in choosing the right mortgage, specialty mortgages

(no income verification, etc.)

4. Sources of Mortgage Loans Page 14Mortgage Banks, brokers, traditional banks, personal savings, family,mortgage assistance programs pros and cons

5. Pre-Qualified Vs. Pre-Approved Page 19Differences, pros and cons, terms required by lender

6. Preparing to Submit a Loan Application Page 22Tips on improving credit history, required documentation, document

preparation services, attorneys, etc.

7. What Lenders Look For Page 25Credit reports, ability to make monthly payments, percentage of grossincome, condition of property

8. Finding the Right Home For You Page 29


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Considerations, priorities, house hunting tips, using the web to find theperfect home

9. The Home Inspection Page 32Choosing a home inspector, what do inspectors look for, what do

lenders look for, conditional sales, re-negotiation of purchase price,give-backs, etc.

10. Price Negotiations Page 36Purchase price, price reduction factors, initial bid, and creativesolutions to price negotiations (binding contract, terms and conditions)

CA DRE# 01215943 NMLS# 1850


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Indeed, today most of us think of mortgages in terms of money. Amortgage is a loan from a lender thats used to purchase property. Themortgage loan is secured by the property, protecting lenders.

The agreement between home owner and lender, sometimes called the

mortgage deed or mortgage note, describes in legal terms, importantloan features including:

a repayment schedule, sometimes called an amortizationschedule

the rate of interest charged by the lender

when payments from the home owner are due

any fees associated with late payments or other servicesprovided by the lender

fixed monthly payments for a set period of time from 12months to 30 years

the lenders legal obligations

the homeowners legal obligations

detailed terms and conditions associated with the mortgage loan

itself

a highly-organized set of rules to protect both home owner andlender should the unexpected become reality

In fact, a mortgage is the security a lender puts into your property. Asa consumer, its imperative to learn all you can about mortgages inorder to find the best mortgage for you and your family.

Compare features and look for innovative lending solutions from

professionals who guide you throughout the loan application process.These highly-trained professionals provide the information you need toobtain the best type of mortgage loan from the best source.


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Types of Mortgages

fixed-rate locks in theinterest rate for theterm of the mortgage

variable rate in whichthe interest ratechanges over time, upor down

residential mortgagesfor homes

commercial loans forcommercial properties

non-owner occupiedmortgages for realestate investors

jumbos (mortgagesover $500,000)

government-assistedmortgages for low-income home buyers

reverse mortgages thatenable home owners to

remain in their homes

specialty mortgages,i.e. no incomeverification loans

re-fis that swap onemortgage for a betterone as the economychanges

Mortgage Loan SourcesThere are many sources for mortgage loansincluding:

your local bank

regional and national banks

mortgage banks

mortgage brokers

government agencies (for qualifiedborrowers)

private investors (rent to own)

Because there are so many types ofmortgages and so many sources for amortgage loan, it pays to shop around andcompare interest rates, fees and penalties,length of the mortgage agreement andspecial terms for specialty mortgages.

Learn all you can about the process ofobtaining a mortgage. Whats required and

how does the process work?

Ask questions. Lots of them!

Home ownership starts with obtaining amortgage. Owning a home is a greatinvestment. It gives you the freedom tomake changes to your property to suit yourtastes and needs now and tomorrow.

So shop around. When it comes to securing a mortgage loan, the rightfit gets you the right home, and we all knowtheres no place likehome your home.


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Theres A Perfect MortgageFor Buyers of ALL Ages

Types of Mortgages:You Have Options

When you start shopping around for a

mortgage lender you quickly discover thatthere are lots of different types ofmortgages, each type with uniquefeatures, and some things to considerbefore signing on the dotted line.

It starts with an analysis of your currentsituation finances, family size, commuteto work and other lifestyle considerations and continues in to your future wheredo you intend to be five years from now?

How about 10 years from now?

A mortgage is a product, just like a car. They each have features thatshould be weighed before making the final decision on which mortgageproduct is right for youand why!

Fixed Rate MortgagesLenders earn their money by charging interest on the amount youborrow for a home purchase. If you borrow $100,000, the lendercharges a percentage on the outstanding balance you owe.

A fixed rate mortgage sets the interest rate and locks it in. It neverchanges throughout the term of the loan. This provides peace of mindfor many homeowners, especially when mortgage rates are on therise. With a fixed rate mortgage, it doesnt matter how high mortgageinterest rates climb.

Typically, a fixed rate mortgage has a term of five years to 30 years.Obviously, the longer the term, the smaller the monthly payment.Some lenders even offer a 40 year mortgage with extremely lowmonthly rates, but 40 years is a long, long time to be paying off a

mortgage.

Interest rates on fixed mortgages tend to be higher than on variablerate mortgages (see below) because the lender does lock in the ratefor decades and that lender wants to ensure it gets its moneys worth.


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Variable Rate MortgageThere are variable rate mortgages to suit the needs of just about anyhome buyer. With variable rate mortgages the interest on theoutstanding mortgage balance is adjusted up or down based on theprevailing interest at the time the variable rate mortgage adjusts.

There are one-year variables, three-year variables, 5/1 variables ingeneral, theres the right mortgage fit to suit your needs and planstoday and tomorrow.

Variables are locked in for a certain period of time, after which theinterest rate adjusts up or down. In fact, if rates are lower, a variable

rate mortgage may actually lower monthly payments until the nexttime the mortgage adjusts to prevailing rates.

The percentage of interest increase is usually defined in a variable loanagreement. For example, a lender may be limited to a 2% increase inmortgage interest rate after three years of a three-year variable. Thisenables homeowners to plan their housing costs more effectively andaccurately. (You know the best and worst case scenarios before yourvariable rate adjusts.)

Because variable rate mortgages do adjust every year or three yearsor at some set time, the interest rates on these variables are lowerthan fixed rate mortgages sometimes significantly lower. Forexample, a 30-year fixed mortgage is available at a 5.75% interestrate. A one-year variable a mortgage that adjusts interest rate every12 months might be available for 4.25% and that makes a bigdifference in your monthly payments at least for the first 12 months.

AmortizationLoans are amortized structured from the first month of payment tothe last so the lender is paid its interest first. If you pay $500 amonth on a mortgage loan, the first month your statement mightshow that $12 went to pay off the principle while $488 was paid to thelender in interest.

With each passing month, an increasing amount of your fixed paymentis applied to paying off the principle the loan itself, and less is paidin interest.

Amortization applies to any type of mortgage, including variable ratemortgages.


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A Specialty, New ConstructionMortgage Loan Is Perfect

For Building Your Dream Home

Jumbo MortgagesJumbos are mortgages usually in excess of $400,000 to $500,000.

These mortgages are designed for the purchase of larger homes byhomebuyers with proven mortgage payment histories, equity in their

existing homes, impeccable credit records and sufficient incomes toensure those large monthly payments.

Jumbo mortgages are designed for homeowners who plan to sell theircurrent homes and reinvest the profits from those sales into larger ormore expensive homes.

Specialty MortgagesMortgage lenders want to lend money.Its their business and its how theygenerate their revenues. To accomplishthis, a number of specialty mortgageshave been developed.

An example? No income verificationmortgage loans are just what they say.If you have a less than stellar credithistory, a no-income verification

mortgage may be your best choice.

Expect to pay a higher interest rate on specialty mortgages because,

in most cases, the lender takes a higher risk on the home ownersability to pay off the loan.

If you have special financial needs, talk to a mortgage professional todetermine the specialty mortgage thats right for your uniquemortgage needs.

Non-Owner OccupiedMost residential mortgages are for homes that are owner occupied the mortgagee (thats you) lives in the property that backs up the

loan. Professional property investors require a non-owner occupiedmortgage loan to finance their investments in property.

These loans usually come with a higher interest rate based on thehigher risk assumed by the lender.

Reverse Mortgages


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A Reverse MortgageEnables Long-Time

Home Owners To StayIn Their Homes

Many home owners are real estate rich but cash poor. Their homemortgages are paid in full, they own a $300,000 home but they haveno way of using that $300,000 to live day to day.

A reverse mortgage is designed to address this

problem. Home owners, over the age of 62 andwho own their houses outright, receive monthlypayments from a lender. These payments are, ineffect, loans made monthly to the homeownersso they can stay in the homes where theyvelived for decades.

Reverse mortgages are growing in popularity asthe Baby Boomer Generation moves into itsretirement years. Reverse mortgagessupplement Social Security and investmentincome, enabling senior citizens to truly enjoytheir Golden Years.

With a reverse mortgage, homeowners can livein the home for as long as they want or can. At which point, the homeis sold, the lender receives repayment for the monthly payments itmade to the home owners for 20 years, and any leftover profit goes tothe homeowners.

So, it doesnt matter if youre a young home buyer just learning about

mortgage options, or youre a long-time homeowner whos finding itdifficult to keep up with rising costs (and theyre always rising).

Theres the right mortgage to suit your familys needs now and wellinto the future. Talk to a mortgage professional. Ask questions. Ask tohear the pros and cons of each type of mortgage.

Educate yourself on the types of mortgages available and choosewisely. An educated mortgage consumer is a smart mortgageconsumer.

Youll be living with that loan agreement for years. Be smart when itcomes to securing a mortgage.


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The average familymoves

every five years.

The Right Mortgage For You:Planning For Home Ownership

Congratulations!

Youve decided to become a home owner. Or, move up to your dreamhome. Its not surprising. According to answers.com, 40 million of usmove each year. Thats a LOT of packing! In fact, the averageAmerican family moves every five years, and now youre one of them.

Shopping for a home mortgage can be a confusingprocess of percentages, terms, fees, fine print and amind-boggling basket of different types ofmortgages. So, how do you know which mortgage isright for you?

A mortgage is a product, just like a refrigerator.Refrigerators come in different sizes and havedifferent features. So do mortgages. And just as

youd shop around for a new fridge, its smart to shop around for theright mortgage to suit your needs now and in the future.

Its time to put together a financial picture of your family including:

monthly household income

credit history, including payment history if you currently own ahome

available down payment

closing, legal and moving costs

job security

history of home ownership

future plans

financial needs in the coming years

your age

your lifestyle
http://wiki.answers.com/Q/How_often_do_people_move_in_the_UShttp://wiki.answers.com/Q/How_often_do_people_move_in_the_US


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Work with a mortgageexpert to find theright mortgage foryou and your familytoday and in to thefuture.

HOW MUCHMORTGAGE CAN YOUAFFORD MONTHLY?

Total your monthly

household income.

Then, expect to pay28-34% of thatamount on monthlyhousehold expenses.

Thats how muchlenders expectmortgage consumersto pay each month.

All of these and more are considerations youand your family make before you start shoppingfor a mortgage. Make a list, fill in the blanks anddevelop a picture of what features are important

in your next mortgage.

Then, start looking for the right mortgage to fityour needs and preferences. Today, mortgageshoppers have lots of options.

First-Time Home BuyersFirst-time home buyers have a dizzying array ofchoices when it comes to types of mortgages.

There are fixed-rate mortgages, variables with diverse roll-overs andincreases or decreases in monthly mortgage payments, interest onlymortgages, no-income verification mortgages, non-owner occupiedmortgages, reverse mortgages, jumbos thelist just goes on and on.

Some things to consider when shopping foryour first mortgage...

theres a big difference between a first-timehome buyer and a home owner. Home buyers

must demonstrate the ability to make paymenteach month. Home owners, with a steadypayment history, dont have to prove theirability to pay the monthly mortgage payment.Theyre doing it!

If a fixed rate, monthly payment is more thana mortgage bank is comfortable lending, go with a variable ratemortgage with a lower, initial interest rate. Variable rate mortgageshave lower interest rates than fixed rate mortgages. Example?

A 30-year fixed rate mortgage may have an interest rate of 5.75% forthe 30-year term of that mortgage loan. A one-year variable, in turn,would have a 4.25% interest rate, lowering your monthly payment tothe point at which a lender is willing to make the mortgage loan.


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If Youre PlanningTo Move In

The Next Few Years

If your next home purchaseis a stepping stone, a five-year fixed that adjusts

annually after that will savethousands of dollars overthe short term you actuallyhave the mortgage becauseof lower interest rates.

If your work includes a lot ofmoving, go with a variablerate and, if circumstanceschange, you can always re-finance, or re-fi, with a fixed

rate mortgage with alocked-in interest rate.

Once in the home, home owners can change their mortgages from avariable to a fixed if appropriate. The monthly payment is higher butyou can count on the interest rate staying steady.

Hybrid loans have the benefits of fixed and variable rate mortgages.

For example, a hybrid locks in a rate for five years than adjustsannually after that. These hybrid mortgages, again, come with a lowerinterest rate.

Moving On UpIf youre planning to purchase a largerhome to accommodate a larger family, orshorten the daily commute, chances areyou have equity in your current home.

Great!

Use this equity as your down payment onyour new place and consider a fixed-ratemortgage with a shorter term. A 15-yearfixed rate mortgage saves tens ofthousands of dollars in interest.

In fact, the shorter the term of themortgage loan, the more you save so

you can buy up using the equity stored in your current home.

Your Financial FutureIts not enough to look at the present when mortgage shopping. Itsjust as important to look to the future. Is the job situation secure? Willyou start paying college tuition in three years? Things change, andsome changes impact quality of life.

Dont assume an annual raise. Dont assume prices of necessities arefixed. Theyre not. Prices go up with inflation each year and you want

to live comfortably each month without worrying about your homemortgage payment.

Start your planning today. Learn all you can about types of mortgagesand the features each type offers. Become an educated mortgageconsumer.


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Then, talk with a mortgage professional. Discuss your needs today,and your expectations for the future.

Together, working with a mortgage loan officer or mortgage broker,youll find the perfect mortgage with the perfect features to suit your

familys needs today, tomorrow and well in to the future.


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The perfect family home startswith the perfect mortgage lender.

Sources of Mortgage Loans:The Empowered Mortgage Consumer

When you begin the process of buying

a home you want options and today,you have more mortgage options thanever before, empowering you to walkaway from any terms offered by anylender. This power to choose haschanged the real estate industry byproviding choices to anyone interestedin purchasing property.

Whether youre a first time home buyer, or moving up to a largerhome, whether youre a real estate investor who rehabs homes for

resale, or a landlord who enjoys regular rental income from tenants,today, where you obtain a mortgage is important. The right sourcesaves money and time regardless of the state of the realty market.

So, what are your options? And which is best for you?

Local BanksSmall town banks have five or six branches and service a few adjacenttowns. These mortgage lenders are excellent sources for mortgagesfor several reasons.

If you have a checking and savings account, a credit and debit cardmanaged by a small town bank, the loan officer brings up youraccounts and quickly determines that you and your spouse areexcellent credit risks. Small town banks know you and are more likelyto give you a mortgage because of a proven payment history and a bigdown payment in the local banks insured money market account.

Small town banks almost always invest in the communities theyservice the real estate market with which theyre familiar so if youknow the town in which you want to purchase property, a local bank is

more apt to invest in a home, condo or other dwelling right down thestreet.

Real estate investors and value-conscious home buyers especiallythose who buy homes in foreclosure look to local banks for shortsales, sales of bank-owned properties. To a bank, owning a home is aliability. The bank has to maintain the property, insure it and recoup


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the outstanding mortgage, so theres a strong incentive to sell aliability just to get it off the books and recover the outstandingmortgage balance to put that money to work by lending it to anothersmall bank customer.

If you know the community in which you want to buy real estate, stopby the local, community bank to see a friendly face and a willingnessto lend to local realty buyers.

Regional and National BanksThese large banking institutions are in the business of providingmortgages for mortgage consumers who bank elsewhere. You dontneed a personal relationship with these lenders. Theyre used toworking with people across a wider service region and with mortgageseekers with whom the bank is unfamiliar.

Larger banking groups almost always have a mortgage department setup to process mortgage applications quickly so theyre an ideal sourcewhen the owner of your dream home wants to close in 30 days. Needthe paperwork processed quickly? Large banks are in the business ofmortgage generation and theyre set up to collect, collate and assessall those forms, pay stubs, tax returns and other documentationprovided by potential mortgagees.

Investors in real estate will find experienced, authoritive advice fromspecialists in commercial real estate investment, often pointing

professional property investors to attractive deals, from a studiocondo to a large strip mall with great potential.

Though these regional lenders lack the personal touch of local banks,they process mortgage applications efficiently. They have a largerinventory of homes in foreclosure for short sales and they have realestate experts to assist property investors in finding the perfect rehab,flip or income producing property.

Mortgage Banks

Some banks place a stronger emphasis on mortgage lending thanothers. These mortgage banks provide other services, like checkingand savings accounts, but the primary focus of a mortgage bank isinvesting in real estate.

These banks have experts who analyze your finances and pre-approveor pre-qualify you for a certain dollar amount so you have a clear


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A mortgage broker offers abasket of lending options

one sure to fit your individual needs.

picture of just what you can afford to spend on your first or nexthome.

And again, investors receive tips and counsel from propertyprofessionals who can hook you up with the real estate that best suits

your investment needs, from a quick rehab or flip to long-term rentalincome property to supplement your monthly income.

Mortgage BrokersMortgage brokers representnumerous lenders local, regionaland national banks, as well asgovernment-backed mortgagesand other lending sources for yourproperty purchase.

Brokers review your financescarefully so be prepared to provideall necessary paperwork includingtax returns, investment statements

and yes, last weeks pay stub. Once these mortgage pros have a clearpicture of your assets and liabilities, theyre able to shop you aroundto numerous lenders, often with a simple telephone call.

Mortgage brokers are an excellent option for first-time home buyerswho have yet to establish a mortgage payment history. Theyll find a

small bank, or even a property investment group, to provide themortgage money needed to get that property deed you and your lovedones desire.

Mortgage brokers are also a great source for specialty mortgagesincluding:

construction loans for new homes being built

zero down payment loans that enable you to get your foot in the

door your door

interest-only loans that lower monthly mortgage payments

variable interest loans that adjust anywhere from every sixmonths to every five years


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On-line mortgage lenders simplifythe mortgage loan process.

Get the whole family involvedfrom the comfort of home.

no interest verification loans for buyers who have credit issuesthat are being resolved

In addition, mortgage brokers have business contacts at the lendersthey represent. This enables a mortgage broker to facilitate the

processing of mortgage loan documentation with a simple phone call.For example, if your application file is missing a document, themortgage broker can develop a work-around with the lender toinsure the mortgage process goes smoothly and you close on time.

On-Line Mortgage LendersYou know the names. These on-line lenders advertise on TV every day.

On-line lenders bring convenience to themortgage application process and provide

quick approval often in just a few hours.All of your documentation is filed on linesafely and securely and, though you maynever have a face-to-face with arepresentative of the on-line lender, youcan be assured of fast service and quickapprovals when time is critical.

Because these lenders operate across thecountry, theyre ideal sources for buyerswho are moving to another state, to a

community where they dont have a localbank to turn to. Theyre newcomers. So, ifyoure moving from Connecticut toCalifornia, these on-line mortgageresources wont bat an eye when theyreceive your application. They handle thiskind of mortgage thousands of times a day.

Real estate investors should turn to other sources local and regionalbanks, and local mortgage brokers with whom the investor has a

business relationship. On-line lenders offer non-owner occupiedmortgages but the paper work is often complex and the process slow.

Another reason to turn to on-line lenders is the relationships thesemortgage providers have with national realty chains. On-line lendershave relationships with national realty companies, and while they dontmaintain an inventory of homes for sale, they do work closely with real


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estate agents to ensure you get the mortgage you need to purchasethe home you want.

Today, you have options when it comes to finding the right mortgagefor you from the best source to suit your financial and personal

circumstances.

So shop around. Pick up the phone and talk to the loan officer at yourcurrent bank, but dont stop there. You can save money on applicationfees, closing costs and monthly interest payments with a few hours ofresearch time well spent.


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Pre-qualification often takes placeon line or by telephone.

Pre-Qualified Or Pre-Approved?The Difference Can Mean Your Dream Home

Its amazing.

Every day, home buyers take to the streets looking for the perfecthome to suit their needs, yet theyre clueless about what they canactually afford to spend on that dream home.

Many are completely unprepared for a home purchase, which shouldbe undertaken carefully, slowly and completely. Youll know, long inadvance of your first walk-through, that a new home is in your futureso you have plenty of time to get organized and educated.

Pre-Qualified Home Buyers

Before you talk to a real estate agent, or scan the Sunday real estatelistings, talk to a loan officer, mortgage broker or some other sourcefor the intended cash you need to make a home purchase.

The initial step is getting yourself pre-qualified for a mortgage. Its a simpleprocess and, in most cases, its free. In fact,pre-qualification often takes place over thetelephone or on a web site.

The prospective lender asks for basicinformation on household income,investments, outstanding debt and other

basic questions about how you expect to handle a monthly mortgagepayment.

The process is based solely on information the borrower provides sothe bank or other lender doesnt make any promises at the pre-qualification stage. Instead, the lender gives you a general idea of howmuch you can borrow based only on the information you provide.Nothing is verified at this stage.

Now, home sellers at least savvy home sellers understand thedifference between a pre-qualified buyer and a pre-approved buyerand, in every case, a home seller will take the offer from the pre-approved buyer over the offer from the pre-qualified buyer.

Heres why.


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Can you afford it?

Get pre-approved

before you even start house hunting

Pre-Approved Home BuyersGetting pre-approved for a mortgage loan is more complicated than asimple pre-qualification in which the lender provides a general idea ofwhat the buyer can expect in terms of mortgage size and loan terms,like interest rates.

Getting pre-approved is almost like getting a mortgage itself.Prospective home buyers must provide written documentation, thingslike tax returns and quarterly brokerage statements paper evidencethat backs up the information provided during the pre-qualificationstage.

During the pre-approval stage, yourlender performs a detailed credit check,and maybe even a background check. Themortgage paperwork may even beprepared, leaving the physical address ofthe home blank until buyer and sellercome to terms.

The advantages of having yourself pre-approved before starting the search foryour first, or next home?

With pre-approval from a mortgagelender, youll know exactly what the

lender will deliver at closing, sometimes down to the penny. Add thisto your down payment, subtract routine inspection costs, transferencefees and other closing costs, and you arrive at a precise figure of whatyou can spend on your home purchase.

Getting pre-qualified provides a general idea of what a lender will lend.Getting pre-approved gets specific. VERY specific. This saves time onyour part. You look at homes you know you can buy and stay clear ofpie-in-the-sky homes you think you can buy. You never get in overyour head. The lender provides an impartial pair of eyes to make sure

you dont borrow more than you can comfortably afford.

Home sellers love pre-approved buyers. They know that: (1) the buyerhas the resources to purchase the home and (2) the buyers offer ismore certain than one from a pre-qualified buyer. Pre-qualified buyersmay or may not be able to secure a mortgage and if they dont, thesellers home is off the market for a couple of weeks, slowing salesmomentum to a crawl. Not good for the seller.


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Once terms with home sellers are in place, pre-approved buyers,march straight to their lenders, sign there, initial here and theyregood to go at closing.

Home sellers know this. They know pre-approved buyers have paid thefees and filed the documentation that virtually guarantee the loan willgo through. Thats why an offer from a pre-approved prospect carriesa lot more weight than an offer from a pre-qualified prospect.

The other advantages to getting pre-approved?

You know exactly what you can afford. This saves time and putsyou in a stronger negotiating position with a home seller. Youknow, as you enter negotiations, what you can afford.

Pre-approval prevents over-borrowing borrowing too much andgetting in over your head. The lender is impartial in its analysisof your personal finances and will provide a more precise figureof just how much you can afford to borrow and pay each month.

Getting pre-approved takes longer and usually costs a fewdollars for the lender to pull a credit report and analyze yourhard copy documentation. Every thing is verified beforehand.

Since the verification process has already been done, pre-

approved buyers have their loans processed faster. It saves time an important consideration when working with an eagerseller.

Talk to any potential lender about pre-qualified versus pre-approved.Its a 10-minute phone call thatll give you confidence before you evenstart house hunting.

More importantly, youll enjoy living in your dream home one youcan afford for years to come.


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Before applying for a mortgage - PREPARE

Preparing To Submit A Loan Application

Once youve determined that anew home is in your future, itstime to start compiling the

paperwork a lender requires todetermine if youre creditworthy.

Now, there was a time whenborrowers had to provideeverything from tax returns to

the results of an EKG but times have changed. Thanks to improvedcredit reporting and web-based research tools, lenders require lessfrom prospective borrowers. Most of what a lender needs is in one of

the credit reports generated by the three big credit reporting agencies:Experian, Trans Union and Equifax.

How Does A Lender See You? Check Your Credit ReportsStart by obtaining copies of your credit reports. It may cost a fewbucks but its critical to see what a lender sees during the review ofyour credit history. Search for errors. Theyre common. Notify eachcredit bureau of mistakes to clean up your reports and to present themost accurate picture possible of your finances.

Look For Red Flags. Thats What Lenders Do.Look for red flags like numerous credit cards with maxed out limits. Aborrower who owes $30K on six credit cards isnt showing much fiscalrestraint and, chances are, that borrower will have more troublegetting home financing than a borrower who pays down her credit cardbalance each month, only has two credit cards and shows a five-yearpayment history on her existing mortgage.

Improve Your Credit Picture And Lower Monthly ExpensesIf you do carry a lot of debt, pay it down before applying for a homeloan. Even if you have to liquidate assets, pay down expensive credit

card debt to (1) save money on interest and (2) demonstrate fiscalresponsibility in your personal life. Lenders like personal responsibilitywhen it comes to money management.

Pay The Fee. Save Cash.Expect to pay an application fee of between $150 and $250 to coverthe lenders costs to pull your credit reports and crunch the numbersto determine if youre a credit risk or a regular pay. There are some


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Youre approved!

Gather your most recentfinancial statements

lenders who waive the fee, or who have eliminated application feesaltogether. Dont choose a lender based on the app fee alone. Lenderswho do charge a fee may deliver better terms, saving thousands ofdollars over the term of the mortgage.

Pre-Qualified or Pre-ApprovedGetting pre-qualified for a mortgage doesnt carry the weight of a pre-approval but there are advantages to getting pre-qualified first. One,theres usually no fee involved. The lender looks over your credithistory, asks some questions about personal assets and liabilities andpre-qualifies you in 15 minutes over the phone.

To get pre-approved, chances are you pay a feeand must deliver more proof to back up yournumbers. Pre-approval also takes longer thangetting pre-qualified so if youre just startingyour house search, save a few dollars and go fora pre-qualification. When your house huntingturns serious, spend the time and money to getpre-approved. Sellers like buyers who have beenpre-approved. It gives them confidence in youroffer.

Gather Your PaperworkYoull be asked to provide paperwork and insome cases, plenty of it. Start compiling your

paper early, before you apply for the loan.

Heres a partial list of what lenders want to see:

tax returns for the past three years showing household income

investment statements (Ask your financial advisor to send themost up-to-date statements.)

proof of who you are (drivers license, birth certificate, state-

issued ID, etc.)

a copy of your latest pay stub

letters of agreement from family andother sources who will donate to yourdown payment fund


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your job history (a resume usually suffices)

additional sources of income including rental income, trust fundincome, intellectual property residuals and any other income thatmakes its way into your personal or professional demand deposit

accounts or investment portfolio

proof of property ownership (only if you use owned property ascollateral to back up the mortgage loan, of course)

copies of your updated, corrected credit reports ( a must-have)

if youre self-employed (one out of six of us are) expect to beasked for business tax filings, annual reports and otherdocumentation to demonstrate that your business is established

and profitable, and has been for a number of years.

a copy of your most current mortgage statement if you currentlyown a home

the latest utility bills including heat and electric, primarily,though if you pay a monthly sewer assessment, for example,that statement should be included, as well

It may sound like a lot of paper but, if youre reasonably wellorganized, you should be able to gather what you need in a few hours

and with a few phone calls. Also, theres an old saying in real estate: Aweek after you move into your new home youll forget the hasslesinvolved in getting there.

Its true.


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One missed mortgage paymentcan prevent you from getting anew mortgage for your new home.

What Lenders Look For:Look Good To Land The Best Loan

After youve filed all of your paperwork with a lender, its time for the

lender to go to work to find the right mortgage for you.

Lenders engage in a lengthy process of review, checking everythingfrom your credit history to just how secure your job is. In some cases,the review takes a couple of days to get pre-approved or to get the

loan itself. Some lenders may take acouple of weeks to verify yourinformation and compile a profile ofjust how sound a credit risk you are.

There are also special

circumstances loans to suit a varietyof common circumstances, and whilethese special mortgages may take afew extra days to process, they alsoenable buyers to purchase a homeeven under unique circumstances.

Credit ReportsSo, just what do lenders look for? It starts with you, and morespecifically, your credit reports. Once your paperwork is in the lenders

hands, the lender pulls credit reports from the big three: Trans Union,Equifax and Experian. The lender reviews your credit history goingback years looking for red flags:

a Chapter 7 or Chapter 13 bankruptcy filing (not good) usuallywithin the past several years

missed mortgage payments (a bright red flag)

excess credit card debt

missed credit card payments

liens, encumbrances and other legal sanctions filed against yourcurrent home


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Are you a job jumper?

criminal convictions or civil litigation anything related to thelegal system, including a divorce involving child support and/oralimony

over-extended credit, i.e. too much credit even if that credit isnt

used

a maxed-out credit line on the home

a combination of your credit scores

numerous credit card disputes

Lenders know how to read a credit history like you read the Sundaycomics. Thats why its so important to obtain and clean up all three of

your credit reports before submitting a loan application (and payingthe application fee).

Job HistoryA thorough lender checks the work historiesof the primary wage earners in thehousehold. Youll be asked for tax returns,usually for the past three years. You mayalso be asked to provide a pay stubshowing your regular take-home.

A stable job history carries more weightthan a job-hopping applicant whos had

eight jobs in the past five years. Job hopping isnt a mortgage killerbut lenders like to see earnings stability and the potential for growthwithin your field. This is especially true of first-time home buyers whocant point to a five-year payment history as proof of creditworthiness.

Additional Revenue SourcesMany home owners have more than a paycheck to take care of routine

expenses. Rental income, for example, is counted on a percentagebasis when calculating your ability to pay. Lenders assume that rentalproperties will sit unrented for some period so only a portion of rentalincome is counted toward total household income. The percentagechanges from lender to lender.

Other sources of income include: investment income, residual incomefrom the sale of a home or business, trust fund income, royalties,


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business ownership and other common sources of household revenue.Alimony and child support dont usually factor into the householdincome calculations because these can change by court order.

An Impeccable Payment History

If you own a home, lenders carefully examine the payment history onyour current mortgage. If you havent missed a payment in 10 years,lenders smile. If you missed two payments last year, they dont smile.Missing a single mortgage payment puts at risk your ability to securehome financing in the future.

Percentage of Total Income Versus Household ExpensesLenders establish a range of percentages that they believe a familycan pay each month toward total home maintenance.

More liberal lenders allow up to 36% of gross household income to goto paying the mortgage, utilities, property maintenance and otherexpenses every homeowner knows all too well. It costs money to owna home and lenders want to make sure you can cover those monthlyexpenses for many years to come.

At the low end, conservative lenders wont lend out more than 27% ofgross monthly income to a potential home buyer. So heres a littleexercise.

total your gross household income from all sources. Then, calculate

27%, 32% and 36% of that figure to determine what a lender believesyou can pay each month for total costs of home ownership.

Using these general guidelines youll quickly determine what variousmortgage lenders are willing to lend based on your ability to pay allthe costs of homeownership. If you fall outside of the lenders safetyzone, chances are, you arent getting the mortgage you hoped for.

The Condition of the PropertyA mortgage lender is your partner in home ownership. You have a

stake in the home and so does the lender and both want to insure thehome is sound, the mechanicals are in good order and that the lendercan recover its investment in the case of a foreclosure.

Of course, you want to know the true condition of any home beforeyou sign on the dotted line so a home inspection is a must-have forboth buyer and mortgagor. A bad inspection report is good reason towalk away and keep looking. And even if you plan a DIY fix, lenders


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A construction loan oftenrequires more paperworkthan a traditional mortgage loan

are less likely to provide a loan on a home that needs work and plentyof it.

Sound complicated? A little discouraging? Well, just remember thatmortgage lenders want to give you the loan. Thats how they earn

income to stay in business and generate loans for other home buyers.

Mortgage lenders, from the bank onMain Street to on-line lenders whonever see your face, want you inyour home. They just want to makesure theyre protected, too.

So, put on your best face. Look forhomes that fall within the comfortzone of the lender. Dont push theenvelop and fall in love with a homethat you cant afford. Its a headacheyou dont need and a mortgage youwont get.

However, when you find the right house in the right condition, whenyou demonstrate that youre a good credit risk, lenders line up to helpyou find the perfect mortgage for your circumstances.

Just remember, you and the lender both want the sale to go through

and both will work hard to see that it does.


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Calculate a locked-downmaximum you want to payeach month.

Find The Right Home For You:Its NOT About The Paint

Many home buyers spend more time researching a car purchase thanthey do the purchase of a home. Your home is more than a place tokeep your stuff. Its a financial asset that you live in. It keeps the rainoff your head. Its the place for family gatherings, and its the placememories are made.

Your home buy should be well considered, weighing pros and cons,developing a list of must-haves and extras. Finding the right homefor you today and tomorrow requires research, a little education, anunderstanding of whats important to you and the right attitude towardhome buying.

Before you fall in love with a home, look at it clinically, impartially andas a financial investment. You may love the house but Americans buyand sell houses every 5.6 years so, consider how easy itll be to sell ahome before you even put in an offer.

Whats your limit?You need a number. A locked-down, etched-in-stone number. The maximum you canspend on a home, whether a single-family,

a condo or a multi-family you buy as aninvestment.

Talk to several lenders. Get pre-qualified toget a general idea of what you can expect alender will give you.

Dont forget closing costs. In some states, closing costs include legalfees, transfer fees, recording fees the list makes your head spin. Setaside enough to cover closing costs. Some people add closing costs tothe total amount borrowed but in that case, youre paying off closing

costs over 30 years, and thats a lot more than paying those costs atthe time you take possession of your dream home.

Factor your down payment but dont bust the bank. Save a little foremergencies and the unexpected. If all you household income is goingto pay for the house, theres no money left over for things like familyvacations and renovations down the line.


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Will your family grow?Plan for the future whenbuying a home.

Calculate your down payment (the one that doesnt blow the budgetout the back door), add expectations of what a lender will lend, andsubtract closing costs. Then, subtract 5% of that figure and you have aconservative estimate of just what you can spend on your first or next

home.

Make a priority listNot as easy as it sounds because all members of the family havedifferent priorities. The kids want their own bedrooms. Your spousewants to be close to work. You want space for a garden.

Time to make some trade offs. Start with the number one priority.Maybe its privacy. Or four bedrooms. A swimming pool or ocean

views. Start with your top-most priority andbuild on that.

How much space do you need? Number ofbedrooms? Bathrooms? Amount of land?Family-friendly neighborhood? Good schools?Close to transportation? Easy commute? Roomto garden? Make a list of what you must haveand what youd like in your home. Thats yourroad map to home buying success.

Schedule a day for house hunting

Call an agent from a recognized, certified real estate agency andschedule a day of house hunting.

Discuss your list of priorities, give the agent a few days to do somemarket comparisons and research current inventory, and do five or sixwalk-throughs in a day. This does a few things.

First, it saves time. A given, but house hunting can take months.Looking at five or six homes, within your price range, is a total timesaver. Second, it keeps homes fresh in your memory so you can

compare House A against House B to see which meets more of yourpriorities. Finally, a one-day tour of homes in a community is a crashcourse on market conditions and what you get for $X amount ofmoney.

Tip: Bring a camera and take lots of pictures of the homes you visit.You have a lot of choices to consider and pictures are great for joggingthe memory.


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Your home is wherememories are made.

Use the world wide web to start house hunting from homeThe chances of finding a home that meets all your priorities have

improved thanks to the world wide web especially if youre planning to move three time

zones to the right. The web is a great househunting tool. Use it to narrow your search andsave time BIG time.

Most realty sites have search options so searchby preference. Number of BRs, family room,square footage, information about the

neighborhood and community even property tax assessments. Youcan find a lot of information on the web and save yourself a lot oftime.

Trade-off, compromise and be happyDont expect to meet all of your priorities, but do expect to meet yourtop three to five. Just be willing to trade off and compromise.

Okay, maybe your dream house is 10 minutes further from work,adding 20 minutes highway time, more mileage and higher gas costs.Are you willing to make that change in return for a fourth bedroom ormore acreage?

Only you can decide what trade-offs and compromises are acceptable

but go back to your priority list. The home you ultimately purchaseshould meet three of your top five priorities and fall at or below theiron-clad dollar figure that you set early in the house hunting process.

Take the time to do the legwork. Know the market, what you need andwant and what you can pay. And remember, if this deal isntworking, theyll be another one tomorrow so patience, when homebuying, is a virtue.

With the right information and a business-like approach to your next

home purchase, youll enjoy the security of ownership, building equityand creating those memories for a lifetime.


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A home inspection is essentialto your familys peace of mind.

The Home Inspection:Check It Out Before You Check In

Buying a home is a process. Part of that process is signing a binder an agreement that you will purchase the home based on certaincontingencies.

A binder usually requires a non-refundable down payment of 1% ofthe total purchase price so you, thebuyer, would put up $2,400 on ahome youve agreed to purchase for$240,000. You lose your binder if youback out of the deal for no reason.

However, the binder should includeescape clauses that allow you toback away under certain conditions.For example

if you cant find a lender and are unable to secure a mortgage, thebinder is voided. Thats why home sellers like pre-approved buyersrather than pre-qualified. The pre-approved buyer has already filled afat file full of documentation and the lender has checked thedocumentation and approved the buyer.

Another critical contingency that should be in the binder you sign is aclean inspection report. When buying a home, the last thing you wantis a house that looks great but has leaky pipes, drafty windows and aroof that was installed when disco was king.

Ask a friend to join you house hunting.A handy friend who knows how to stop a leak or spot a sagging joistcan steer you away from properties that have deficiencies that can beseen by an experienced eye. If you dont know a ball cock from a ballpeen hammer, ask a handy friend or family member to tag along on

house hunting trips to save time.

Read the binder twice. Then read it again.The binder is a legal document. It commits your money to thepurchase of a home so take it seriously. Make sure youre covered.You can back out of the deal in the event that serious mechanicalproblems are discovered during the inspection. Then, be prepared to


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If you dont know a ball cockfrom a ball peen hammer,hire your own home inspector.

walk away if the seller is unwilling to make concessions. Dont buysomeone elses house headaches.

Choose your own inspector.Your real estate agent may offer a recommendation for a home

inspector we use all the time. Thats the problem. The agency usesthe same home inspector. The agency accounts for a significantportion of the inspectors revenue. Theres bound to be a strong

incentive to insure the sale goes throughso the inspector may make somejudgment calls that arent in your bestinterests.

Look in the yellow pages for a certifiedhome inspector. You want the inspectionto take place quickly. You want to bethere during the inspection to make surethe inspector climbs up into the atticlooking for leaks. And you want a writtenreport. A written report is your ticket out

of a bad deal, or a negotiating tool used to negotiate concessions fromthe buyer.

What do inspectors look for?Professional home inspectors check the mechanicals of the home.They arent decorators or agents and, if you choose your own

inspector, you can be sure to receive an impartial analysis of theplumbing, the electrical system, condition of the roof and basement,potential costs like an out-dated furnace and other issues related tothe mechanical condition of the house.

These professionals should test electrical sockets, flush the toilets, runthe water, perform a water test, test for radon (an odorless colorlessgas thought to be linked to cancer), climb up on the roof, shine a lightdown the chimney and, if the appliances are staying, test the burnerson the stove.

A thorough home inspection should take between one and two hoursdepending on the age of the home and visible signs of problems.Follow your chosen inspector as she examines your future home fromrooftop to basement sump pump.

Lenders want to see the inspection report.


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Renegotiate concessions fromthe seller through your

real estate agent.

A mortgage lender doesnt want to lend money on a home with lots ofmechanical problems. They want a clean inspection report, too. Itmakes them sleep better at night. Thats one reason you may have toshop around for a lender if youre buying a handymans special realestate lingo for a home that needs a lot of work.

The lender may ask how repairs will be made before finally approvingthe mortgage if serious mechanical problems are discovered during theinspection. Having DIY money in the bank often smoothes theapproval process.

Before hiring a home inspector, ask to see a copy of the report formmost of these jack-of-all-trades use. It should include a detailedchecklist of the items to be inspected. Make sure you provide a copy ofthe inspection report to the lenders that youre working with.

Negotiating give-backs and concessions.If problems are discovered during thehome inspection, you have two options.Which one you choose should be weighedcarefully.

First, if the home inspector uncoversserious mechanical issues during theinspection you can simply walk away fromthe deal. You get your 1% binder back, no

questions asked, because the binder isheld by the agent and is NOT given to the

buyer unless you renege for no good reason something to avoid atall costs.

Your second option is to re-negotiate the agreed-upon price with thehome owner and ask for a lower price, concessions and give-backs.

For example, if the home inspection reveals that the wheezing, smokyfurnace is on its last legs, check local furnace prices and request that

the furnace be replaced or that the seller lower the house price tocover your expense of replacing an ancient but essential part of thehome heat and hot water.

Go down the list of problem areas discovered by the inspector. Dosome quick research on the world wide web or make a few phone callsto contractors to get an idea of what itll take to fix a floodedbasement or a crumbling patio.


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Present these written fix-it estimates to the home owner and ask thatthe problems be fixed or that the price of the home be lowered so youhave the cash to fix what needs fixing.

Depending on how motivated the seller is there may be some give andtake here but remember, if you cant arrive at terms that suit youthere will always be another house coming to market that doesnt needa lot of work.

Its your choice because, in the end, itll be your home. And you wantto move in to a place that you know is sound, where everything worksand you dont have to worry about replacing the central airconditioning next summer.

Take the time to look at a prospective home from a purely mechanicalpoint of view and save headaches and heartaches six months after youmove in.

Thats the home you want to buy.


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Dont let your dream hometurn into a nightmare duringprice negotiations.

Home Purchase Negotiations:Get The Most For The Least

Youve done your homework, youve talked with a couple of lenders,

you have a real estate agent and youve studied the housing marketwhere you intend to buy. Good for you. An educated home buyermakes an excellent negotiator.

Once youve found the right home thehome that suits your preferences, yourliving needs and your budget, its time toput in an offer. The offer you present tothe home seller is legally binding. Yousign a document that has teeth so itscritical that you negotiate the best price

without over-extending yourself in the all-too-common bidding war between youand other buyers or you and the seller.

The last thing you want when buying ahome is to engage others in lengthynegotiations. Why? Because the longerdeliberations take the more you stand tolose in time, legal fees and other costs,including the loss of your initial binder

that 1% of the total purchase price that demonstrates good faith onyour part.

Start preparing to negotiate.Get your financial records in order and submit them to the lender ofchoice, whether its the local bank on Main Street or an on-line lenderthat services the whole country. Submitting the paperwork and payingthe app fee gets you pre-approved for a certain amount of mortgagemoney.

This enables you to determine what you can bid and how high you can

go. It also demonstrates that youre a serious buyer, not just a looky-look who takes house tours for fun. The process of getting pre-qualified (less paperwork) and pre-approved (more paper work, moretime and an application fee) takes time. Submit your requiredpaperwork early to have the pre-qualification or pre-approval in yourhand before you start your house search.


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Work with a real estate agent whoknows the housing market tohandle price negotiations.

It also takes time to find the right house. Oh, you may get lucky andfind the right home on your first day out but for some home buyers,the right home may take months to find especially when the budgetis tight or the market is active. Homes come and go quickly usually60-90 days after theyre put on the market so be ready to take action

when you find the right home.

Locking in your initial offer.Laws vary from state to state but, typically, to make an offer on ahome, a contract, called a binder, is required. A good-faith payment of1% is also made at the time a binder is signed. This is the first step inthe negotiating process.

The good faith money is held by the real estate agency you work with.The binder includes several conditions that must be met by both buyerand seller. For example, a typicalclause defines how long the buyer hasto have the home inspected, i.e. Thebuyer has 14 business days fromsigning this agreement to have thehome inspected.

This protects home sellers who musttake their homes off the market untilyou, the buyer, have the homeinspected. On the other hand, if an

inspection report identifies numerousdefects, the binder contains a clausethat allows you to back out of theagreement a clause that protects you.

Ask your real estate agent to explain the conditions and terms of thebinder before your sign to make sure you understand your obligationsand rights under the terms of the agreement.

How much should you bid on a new home?

A number of factors come into play when determining how much youshould bid on a home:

How quickly do you want or need to move in? (Another reason toprepare and start early in your home search). Most families wantto be in place before the start of the school year, for example, sothe kids can start on opening day. Or, you may have already


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sold your current home so moving quickly to find your nexthome is essential.

Are there other bidders on the home? You may not know thisuntil you put in your bid but a good real estate agent should be

able to tell you if the house your eyeing has seen a lot of activityso stay in touch with your agent.

How much have you been pre-approved to borrow? If your initialoffer is the max you have to buy a new home, theres no roomto negotiate so never offer your best bid first. Leave some roomto negotiate.

You can always raise your offer but you cant lower it so dont beconcerned about putting in a low-ball bid initially just to see how

the seller reacts. Who knows? You might be pleasantly surprised.

How long has the house been on the market? The longer a homegoes unsold, the stronger your negotiating position. Sellers areoften committed to the purchase of another home and carryingtwo mortgages is a real strain so you have some bargainingleverage when negotiating with a motivated seller.

Is the home currently occupied? The home may be empty, theowners forced to move into their new home or worse, forced togive up their home during a foreclosure. A bank-owned home,

called a short sale, is more likely to sell well below the askingprice. Same is true of a home sitting empty but costing theowner a lot of money each month.

A good rule of thumb is to calculate your initial bid 5% to 10% belowthe asking price. So, a good bid for a home listed at $200,000 wouldbe between $180,000 and $190,000 depending on how quickly youneed to move and how much you want the home.

It cant be said too often: if negotiations are not going your way, if you

feel uncomfortable or over-extended, simply stop making counter-offers and start looking for another home. The right home is waitingfor you. You just havent seen it yet.

Look for creative financing solutionsThe primary consideration in any home purchase is cash but otherfactors often enter price negotiations on a home including: thecondition of the home, the inspection report, the closing date (when


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you sign the papers and take possession), owner financing options andother considerations.

If you work with a savvy agent and a flexible mortgage lender you canoften save tens of thousands of dollars on the cost of your next home.

Work with these professionals to find the solutions you need to getyour foot in the door.

Home sweet home is a lot sweeter when you get it for your best price.

The Mortgage Guide Book

Documents

Transcript of The Mortgage Guide Book