Applying for the Mortgage
When we’re ready to make an offer on a property, a pre-qualification letter from the lender is highly recommended to accompany it. Therefore, it’s important to start this process first , even before looking at properties. During this time you can review the types of financing options available with the lender. A great benefit is that the buyer will know beforehand exactly what they’re qualified to buy, this helps determines the price range of the home we are looking for. Also issues might need to be addressed, for example what items might be needed to be ready when applying for the loan, etc. Also you might get totally loan approved. A pre-approved buyer (not just pre-qualified) is almost as strong as a cash buyer.
On my web site, I have many calculators and tips on financing that would be helpful to peruse before coming to my office. However, once here, I can put the buyer in the hands of a recommended local loan officer with access to many programs, which can counsel and guide a buyer as to the most advantageous and appropriate one for their needs. Also during this period of looking for a home Do Not Make Any Major Purchase of Any Kind -- that would create debt of any kind. This includes furniture, appliances, electronic equipment, jewelry, vacations, expensive weddings…and automobiles, of course.
The terms of the real estate contract provide for a Conditional Loan Approval from the lender based on a loan application* and Credit Report within 5 days of Seller’s Acceptance (unless specified differently in the contract). This means loan application would need to be made immediately after the offer is accepted.
The loan officer will give you a Good Faith Estimate of the closing costs involved with the financing. There are recurring costs that you pay that are included in the monthly payment, such as homeowner’s insurance and property taxes (the monthly payment consists of principal, interest, taxes and insurance and is referred to as PITI).
The one-time closing costs include but not limited to the Following:
Closing Costs Associated with the Lender
·Loan Origination Fee – The loan origination fee is often referred to as "points." One point is equal to one percent of the mortgage loan. As a rule, if you are willing to pay more in points, you will get a lower interest rate. On a VA or FHA loan, the loan origination fee is one point. Anything in addition to one point is called "discount points."
·Appraisal Fee – Since your property serves as collateral for the mortgage, lenders want to be reasonably certain of the value and they require an appraisal. The appraisal looks to determine if the price you are paying for the home is justified by recent sales of comparable properties. The appraisal fee varies, depending on the value of the home and the difficulty involved in justifying value. Unique and more expensive homes usually have a higher appraisal fee. Appraisal fees on VA loans are higher than on conventional loans.
·Credit Report – As part of the underwriting review, your mortgage lender will want to review your credit history. The credit report can be as little as seven dollars, but normally runs between $21 and $60, depending upon the type of credit report required by your lender.
·Mortgage Broker Fee – About seventy percent of loans are originated through mortgage brokers and they will sometimes list your points in this area instead of under Loan Origination Fee. They may also add in any broker processing fees in this area. The purpose is so that you clearly understand how much is being charged by the wholesale lender and how much is charged by the broker. Wholesale lenders offer lower costs/rates to mortgage brokers than you can obtain directly, so you are not paying "extra" by going through a mortgage broker.
·Flood Certification Fee – Your lender must determine whether or not your property is located in a federally designated flood zone. This is a fee usually charged by an independent service to make that determination.
·Document Preparation – Before computers made it fairly easy for lenders to draw their own loan documents, they used to hire specialized document preparation firms for this function. This was the fee charged by those companies. Nowadays, lenders draw their own documents. This fee is charged on almost all loans and is usually in the neighborhood of $200.
·VA Funding Fee – On VA loans, the Veterans Administration charges a fee for guaranteeing your loan. If you have not used your VA eligibility in the past, this is two percent of the loan balance. If you have used your VA eligibility before, it is three percent of the loan. If you are refinancing from a VA loan to a VA loan, it is three-quarters of a percent of the loan amount. Instead of actually paying this as an out-of-pocket expense, most veterans choose to finance it, so it gets added to the loan balance. This is why the loan balance on VA loans can be higher than the actual purchase amount.
·Up Front Mortgage Insurance Premium (UFMIP) – This is charged on FHA purchases of single family residences (SFR’s) or Planned Unit Developments (PUDs) and is 2.25% of the loan balance. Like the VA Funding Fee it is normally added to the balance of the loan. Unlike a VA loan, the homebuyer must also pay a monthly mortgage insurance fee, too. This is why many lenders do not recommend FHA loans if the homebuyer can qualify for a conventional loan. However, condominium purchases do not require the UFMIP.
· Prepaid Interest – Depending on the time of month your loan closes; this charge may vary from a full month’s interest to just a few days’ interest. If your loan closes at the beginning of the month, you will probably have to pay the maximum amount. If your loan closes at the end of the month, you will only have to pay a few days’ interest.
· Beginning of the escrow account- - Your lender will typically have an account where your property taxes and property insurance will be held. This account will be started with approximate taxes equal to two months in excess of the number of months that have elapsed this year. (If 6 months have passed, they will collect 8 months of taxes.) You property insurance will be collected one year in advance plus two months worth into your escrow account .
Closing Costs not associated with the Lender
·Closing/Escrow Fee – Methods of closing a real estate transaction vary from state to state, as do the fees. For every thousand dollars in price.
·Title Insurance – Title Insurance assures the homeowner that they have clear title to the property. The lender also requires it to insure that their new mortgage loan will be in first position. The costs vary depending on price of the real estate purchase.
. Pest Inspection – also referred to as a Termite Inspection. This inspection tests not only for pest infestations, but also other items such as wood rot and water damage. The inspection usually runs around $75. If repairs are required, the amount to cover those repairs can vary. The seller will usually pay for the most serious repairs, but this is a negotiable item. Usually (not always) the pest inspection fee is paid by the seller of the home and is not normally reflected on the Good Faith Estimate.
·Reconveyance Fee – this fee is charged by your existing lender when they "reconvey" their collateral interest in your property back to you through recording of a Reconveyance. This fee can vary from $75 to $125.
*Loan approval documents needed upon application:
Picture ID with social security number of borrower and co-borrowers. Payment to cover the application fee. Name and complete address of all landlords for the past two years.
Employment history for the past two years including names, addresses, phone numbers, and length of time with the company. Copies of your most recent pay stubs and W-2 forms (past two years). Verification of other income (social security, child support, retirement). If self-employed you need copies of the past two years signed tax returns including all schedules, and a signed profit and loss statement of the current year. Retirees need tax returns for the past two years. If you have rental property income bring a copy of all lease agreements.
Copies of all bank and credit union statements for the past three months. Copies of all stock/bond certificates and/or the past three statements from all investment and retirement accounts. Prepare a list of household items and their values. Copies of title documents for all automobiles, boats, motorcycles, etc. Face amount, monthly premiums and cash values of all life insurance policies. (Cash value may be used for closing costs or down payments. You need documentation from the carrier indicating cash value. )
Credit cards (account numbers, current balances, monthly payments). Installment loans (car, student, etc.). Same details as for credit cards. Mortgage loans (property address, lender with address, account numbers, monthly payment and balance owed on all properties presently owned or sold within the last two years). Bring proof of sale of properties sold. Childcare expense/support (name, address, phone number).
Bankruptcy - bring discharge and schedule of creditors. Adverse Credit - bring Letters of Explanation. Divorce - bring Divorce Decrees, property settlements, quitclaim deeds, modifications, etc. for all divorces by yourself or your spouse. VA only - bring Form DD214 and Certificate of Eligibility. Retirees - bring retirement and/or Social Security Award Letter.
The following links provide useful information on obtaining home loans and closing costs and income tax issues associated with home purchases
Buying a Home -- What’s Deductible? Realtors are quick to point out that home ownership allows a lot of tax advantages not available to someone who merely pays rent. A homeowner can deduct points used to obtain a mortgage when buying a home, mortgage interest paid during the year, and property taxes.
Owning a Home -- What’s Deductible? Realtors are quick to point out that home ownership allows a lot of tax advantages not available to someone who merely pays rent. A homeowner can deduct points used to obtain a mortgage when buying a home, mortgage interest paid during the year, and property taxes.
Documenting your assets - verifying your down payment . When buying a home, it is not enough to just "come up" with the money. With the exception of "no asset verification" loans, lenders want to verify where the money comes from. If you can document the funds comes from your personal savings, the lender is more confident of your strength as a borrower.
Cleaning up your Credit Mortgage lenders generally check with three credit bureaus in order to evaluate you’re past payment history. Your goal in cleaning up your credit report should be to clean up each of the three bureaus. If you only work on one, this does not effect the reporting to the other bureaus.
How financing detail affect the offer. Since you will probably make your purchase contingent upon obtaining a mortgage, the seller has the right to be informed of your financing plans in order to evaluate them. That is one of the major reasons that financing details are included in your offer
Special Financing Available For Low Income Buyers
Housing Assistance Corporation (HAC) is a Nevada-based non-profit corporation that operates "Home Grants," a special down payment assistance program providing non-repayable grants and gifts to individuals and families nation wide. Phone: 702/385-3973.
Housing Assistance Council (HAC) helps local organizations build affordable houses in rural America. Helps in development in both single- and multi-family houses and helps low-income rural buyers through a self-help "sweat-equity" construction program. It maintains a focus on high-need groups and regions: Indian country, the Mississippi Delta, farm workers, the Southwest border region and Appalachia. Housing Assistance Council, 1025 Vermont Ave., NW, Suite 606, Washington, DC 20005, Phone: 202/842-8600.
Community Housing Assistance Program, Inc. ( CHAPA ) was founded in 1991 and services predominantly California, Washington and Oregon. The nonprofit organization is a managing partner for 42 tax credit partnerships with more than 5,500 units of affordable housing. Community Housing Assistance Program, 3803 E. Casselle Avenue, Orange, California 92869, Phone: 714/744-6252.
USDA Rural Development . This
is the only government agency I've included in this list because of
its unique programs, by supporting loans to businesses through banks
and community-managed lending pools. Plus, the largest demographic of
its client base are single moms, who usually need plenty of help in
the search for affordable housing. Rural Housing Service National
Office, U.S. Department of Agriculture, Room 5037, South Building,
14th Street and Independence Avenue, S.W., Washington, D.C. 20250,
The Nehemiah Program provides gift funds for down payment and closing costs (of any resale or new property) to qualified buyers using an eligible loan program, such as an FHA loan. Gift funds of 1 to 6 percent of the contract sales price can be requested, depending on the particular needs of the buyer. Homebuyers often move into their new home with as little as 1 percent of the sales price in reserves. No repayment, geographical restrictions or income/asset requirements. Nehemiah Program: Phone: 877/634-3642
The Housing Action Resource Trust (HART) operates its Down Payment Assistance Program. It assists with down payment costs for buyers who qualify for a first mortgage loan. The organization is supported through various builders/sellers and other businesses. The gift amount is limited to $15,000, which can be used for closing costs, pre-paids, rate buy downs and debts or collections (as mandated by the loan underwriter). Phone: 909/945-1574
1st Time Homebuyer Classes are co-sponsored by the Olympic Housing Network and the Washington State Housing Finance Commission.
Down payment Assistance for low-income families of Kitsap
Family Self Sufficiency is a program in Kitsap County to set goals and obtain the skills needed to achieve financial independence and the pride that goes with it.
Ron Kimball "A Internet Realtor"
Serving all of Kitsap Mason & Pierce County, WA
New Visions Reality LLC
1616 Ellis Court | Port Orchard, WA 98367
Direct Line (360) 876-4741 | Fax (360) 876 4843