Mortgage Guide


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Mortgage Guide

  1. 1. The Chicago Bancorp Guide to MortgagesChicago Bancorp is an Illinois Residential Mortgage Licensee
  2. 2. Table of ContentsOne Chicago Bancorp—The Right Choice Page 3Two The Loan Process Page 4Three Pre- Approval Page 5Four Shop For a New Home Page 6Five First Time Homebuyers Page 7Six Loan Programs Page 9Seven Special Financing Needs Page 10Eight What a Mortgage Payment Consists of Page 11Nine Good Faith Estimate- Costs to Close Page 12Ten Glossary of Mortgage Terms Page 14
  3. 3. Who we are Chicago Bancorp— The Right Choice• Founded in 1995, Chicago Bancorp has grown to be one of the largestprivately held mortgage banks in the Midwest• Chicago Bancorp lends over a billion dollars a year from our ownfunds and also partners with over 40 of the best lenders in the countryto provide a multitude of lending solutions with seamless funding• A national lender offering loans across the country• An executive staff with over 50 combined years of experience inmortgage banking What we offer • Over 100 mortgage products offered to fit each individual’s needs • Highly competitive rates based on the large volume of loans that we close • We combine the optimum mix of online convenience, technology and mortgage-banking expertise to service the needs of the borrower • Timely processing and the ability to close loans quickly.. we can close a loan in 10 days from application if needed • A single point of contact to manage the overall success of the mortgage process Why we’re different• Great rates and low fees are the benchmark, not the goal• Technology meets personal service, being efficient does not meanforgetting that real estate is not just an investment, it is a family’s home• Chicago Bancorp has high standards… for ourselves, for our vendors, andfor the investors that we partner with to provide the highest qualityservice with the most ethical standards of practice• We control the mortgage process from beginning to end. Period. Wehave in house underwriters for conventional and FHA products, our ownclosing department and a contract title company on-site which allows us tobe hands on at every level of the mortgage progression from originationthrough closing!
  4. 4. Borrower gets pre approved from The Loan ProcessChicago BancorpBorrower shops for a new homeand signs a sales contractChicago Bancorp customizes a loanfor you and begins processing itChicago Bancorp underwrites yourloan once the appraisal is completeChicago Bancorp underwrites yourloan once the appraisal is complete
  5. 5. Obtaining a Pre ApprovalChicago Bancorp’s Pre Approval is a commitment to fund your The Pre Approvalmortgage loan for a fixed period of time. A Pre Approval may includean interest rate lock. To obtain a Pre Approval, Chicago Bancorpevaluates your credit history and calculates your housing and debtratios. You should expect to verify your income, length of employmentand source of down payment.Pare Approval legitimizes you as a serious buyer. It also gives youadditional negotiating leverage to agree on a sales price, especially ifthe seller has other offers before them to consider that may be largeroffers but are not substantiated by a Pre Approval.When seeking a Pre Approval, it is important to not misrepresent thefacts on your application. If a lender learns later that you’vemisrepresented or omitted information on your application, your PreApproval may be rescinded. Pre Approval vs. Pre Qualify Yes, there is a big difference. Here are the differences between the two: Pre Qualify A mortgage Pre Qualification is a simple calculation of the amount of home a buyer can afford. It is solely based upon the information that is provided by the borrower with no or little documentation to fully assess the buyer’s financial ability. Pre Approve A Pre Approval is a financial document generated from your mortgage company that substantiates your ability as a buyer. A complete loan application has also usually been taken. The Pre Approval Summary also provides valuable information to the Real Estate Agent as to the amount of home a buyer can afford and any other conditions that may be applicable.
  6. 6. 5 Things to avoid when you’re buying a home Shop for a new home Don’t Change JobsChanging jobs before or during the loan process can create a problem inqualifying you for a loan, particularly if that job is in a different line of work orat a lower rate of pay than your current job. Many loan programs requireborrowers to have a 2 year work history. Don’t switch banks It is best to leave your money where it is until your loan has closed. Moving your money to a new bank or even into a new account can wreak havoc with the verification process. Most new accounts opened or large deposits made in the last six months will have to be explained as to the source of the funds. If you are transferring money from investment or retirement accounts, make sure you keep the withdrawal/deposit receipts and make sure you clearly show where you deposited the money. Avoid paying off bills Your Mortgage Banker will advise you if it is necessary to pay off bills to help you qualify for a loan. They will also show you the best way to pay of bills to make sure you have the evidence needed to verify the bill has been paid in full. Avoid big purchase A new large monthly payment can affect the amount of home you qualify for and it can make it difficult to get your loan approved. Avoid credit inquiries Your credit score will be affected if your credit is run many times in a short time period. Since interest rates and good credit scores are directly linked, it is in your best interest to minimize the number of times your credit is pulled.
  7. 7. 5 simple steps to the process First Time Home BuyerThe home buying process can seem overwhelming to a first time buyer. Thebetter you understand how the process works, the less intimidated by theprocess you will be. Pre Approval Before a borrower begins their search for a new home, they should always be Pre Approved. This process helps to determine what they can afford. Your realtor will submit your Pre Approval certificate with the purchase offer to the seller which enhances the offer and will make you more attractive to the seller. Loan Application Once all parties have agreed to the purchase price and terms have been signed, there is an executed contract, which becomes the foundation of the new mortgage. There are now 3 steps that need to be accomplished by the borrower in order to proceed with the loan. 1.Decide on a loan program 2.Sign all necessary loan documents 3.Borrower must gather all their personal documentation to submit Lock your rate The borrower may choose to lock their rate at the time of application or may choose to float their loan to be locked at a later time. Generally speaking, the best pricing is available at 30 and 45 day locks. The lock period needed will depend on the closing date stated in the contract. Continued….
  8. 8. Approval Process First Time Home BuyerThere are three major steps that are being accomplished between theapplication signing and the closing with Chicago Bancorp.1.Appraisal—an appraisal is necessary to close your loan. ChicagoBancorp will order an appraisal on the property to determine thevalue to be sure that you are paying a fair market value for the homeyou are purchasing.2.Title and Escrow—the real estate attorneys will generally orderthese services and then forward the findings to Chicago Bancorp sothat we may included them in our final package.3.Underwriting—each loan will be sent to an approved underwriter inour office who reviews the application, supporting documentation,financial information, sales contract, appraisal and title to be sure allnecessary criteria and regulations are met. ClosingThe day before closing, the Title Company will generate a finalstatement of charges that incorporate the lender’s attorney’s,realtor’s and title fees as well as taxes and insurance escrows.On the closing day, all final clsoing documents will be signed at a TitleCompany.Most of the time, your first mortgage payment will not start untilafter the first FULL month of the closing date unless the lender hasissued an interest credit.
  9. 9. Fixed RateFixed Rate mortgages are available for 30 years, 20 years, 15 years, andeven 10 years. There are also “biweekly” mortgages, which shorten the Loan Programsloan by calling for half the monthly payment every two weeks. (Since thereare 52 weeks in a year, you make 26 payments, or 13 “months” worth,every year.)Fixed rate fully amortizing loans have two distinct features. First, theinterest rate remains fixed for the life of the loan. Secondly, the paymentsremain level for the life of the loan and are structured to repay the loan atthe end of the loan term. Property taxes and homeowners insurance mayincrease, but otherwise your monthly payments will remain stable. Themost common fixed rate loans are 15 year and 30 year mortgages. Adjustable Rate These types of loans have interest rates that are fixed for a specified term (10, 7, 5, 3, or 1 year) and then adjust periodically based on changes in a pre-selected index. The most common indexes for these mortgages are Treasury, LIBOR or COFI indexes. Adjustable rate mortgages have lower initial interest rates during the fixed initial term than a long term fixed rate loan which translates to a lower monthly payment. These types of loans are especially attractive to first time homebuyers who are usually in their first home less than five years or to any buyers who do not plan on living in the home for the full term of a long fixed rate (i.e. 30 years). HELOC A Home Equity Line Of Credit loan enables you to borrow money against the equity (the value of your home minus what you owe) you have built up in your home. This loan is subordinated to the existing first mortgage. Home equity loans are often used to pay off credit card debt, pay college tuition or to make improvements on a home. A HELOC is a form of revolving credit in which your home serves as collateral. There are also closed end home equity loans which sometimes better suit a specific loan scenario than an open line.
  10. 10. FHA loanFHA, also know as the Federal Housing Administration, operates under thecontrol of the Department of Housing and Urban Development (HUD) and Loan Programshas the primary responsibility for administering the government homeloan insurance program. This program allows buyers who might otherwisenot qualify for a home loan to obtain one because the risk is removed fromthe lender by FHA. The most popular FHA home loan program nationwideonly requires a minimum of 3.5% from the borrower and permits 100% oftheir money needed to close to be a gift from a relative. The mainadvantage to a FHA home loan is that the credit criteria for a borrower isnot as strict as FNMA or FHLMC. Someone who may have had a few creditproblems should not have a problem obtaining FHA financing. VA loan VA loans are designed to provide assistance in purchasing a home for United States Veterans. In most cases, no down payment is required (unless required by the lender or the purchase prices I more than the reasonable value of the property) and the parameters for attaining the loan are less stringent. VA guaranteed loans are made by private lenders to eligible veterans for the purchase of a home which must be for their own personal occupancy. Jumbo A Jumbo mortgage is designed for those who wish to take a loan out for more than the conforming loan limit of $417,000. A jumbo mortgage can go as high as $5,000,000. Jumbo loans are available in many variations including ARMs, fixed rate, and interest only. Lending criteria tend to be more stringent due to the increased risk of loaning a larger sum of money.
  11. 11. Principal Mortgage Payment? What Makes up MyThe amount of money borrowed. Each month when a mortgagepayment is made, a small portion of the principal is being paid back.Over the life of the loan, the portion towards principal will increase andthe portion towards interest will decrease. InterestThe cost of borrowing money. Property TaxesTaxes are paid to local governments. Lenders collect taxes throughmonthly payments that they then sue to pay the property taxes whenthey are due. Hazard Insurance All lenders require that borrowers have hazard insurance which protects the borrower against any financial losses that might result due to a fire, flood or other “hazard.” the hazard insurance policy must be paid in full for one year at the time of closing. Mortgage Insurance An insurance policy that pays mortgage lenders for their financial losses if a borrower fails to repay a loan. Mortgage insurance is required on any loan that is greater than 80% of the home value.
  12. 12. Good Faith Estimate
  13. 13. Good Faith Estimate
  14. 14. Adjustable Rate Mortgage (ARM)A mortgage that permits the lender to adjust its interest rate periodically onthe basis of changes in a specified index. Ex: 3/1 ARM is a mortgage rate thatis fixed for the first 3 years and can then fluctuate annually based on thecurrent market.Adjustment Period GlossaryThe period that elapses between the interest rate change dates for anadjustable rate mortgage (ARM).AmortizationThe gradual repayment of a mortgage loan by installmentsAmortization TermThe mount of time required to amortize the mortgage loan. Theamortization term is expressed as a number of months. For example, for a30 Year fixed rate mortgage, the amortization term is 360 months.Annual Percentage Rate (APR)The cost of a mortgage stated as a yearly rate; includes such items asinterest, mortgage insurance, and loan origination fee (points).Appraised ValueAn opinion of a property’s fair market value, based on an appraiser’sknowledge, experience, and analysis of the property.AppreciationAn increase in the value of a property due to changes in market conditions orother causes. The opposite of “Depreciation.”Biweekly Payment Mortgage26 biweekly payments are each equal to one-half of the monthly paymentthat would be required if the loan were a standard 30 year fixed ratedmortgage, and they are usually drafted from the borrower’s bank account.The result for the borrower is a substantial savings in interest.
  15. 15. Bridge LoanA short-term loan collateralized by the borrower’s present home which iscurrently on the market to be sold that allows the future proceeds of the saleto be used for closing on a new house before the present home is sold.Cash-Out RefinanceA refinance transaction in which the amount of money received from the new Glossaryloan exceeds the total of the money needed to repay the existing firstmortgage, closing costs, points, and the amount required to satisfy anyoutstanding subordinate mortgage liens. In other words, a refinancetransaction in which the borrower receives additional cash that can be usedfor any purpose.Closing CostsExpenses (over and above the price of the property) incurred by buyers andsellers in transferring ownership of a property. Closing costs normally includean origination fee, an attorney’ fee, taxes, an amount placed in escrow, andcharges for obtaining title insurance and an appraisal.Escrow AccountThe account in which a mortgage servicer holds the borrower’s escrowpayments prior to paying property expenses. A borrower typically providesfunds that will pay taxes, mortgage insurance, hazard insurance premiums,and other payments when they are due.Fixed Rate MortgagesA mortgage in which the interest rate does not change during the entire termof the loan.Fixed Period Adjustable Rate MortgagesThis type of adjustable rate mortgage (ARM) maintains the same initialinterest rate for the first 3, 5, 7, or 10 years of your loan.Good Faith EstimateThe good faith estimate is a disclosure from your lender the outlines the costsyou will incur to obtain your mortgage. It is based on the lender’s typical loanorigination costs for the area where the property you are purchasing islocated.
  16. 16. Hazard Insurance (Homeowners Insurance)The insurance should be equal to at least the replacement cost of theproperty you want to purchase. Replacement cost coverage ensures that yourhome will be fully rebuilt in case of a total loss. Most home buyers purchase ahomeowners insurance policy that includes personal liability insurance incasesomeone is injured on their property, personal property coverage for loss anddamage to personal property due to theft or other events, and dwelling Glossarycoverage to protect the house against fire, theft, weather damage, and otherhazards. If the home you are purchasing is located near water, you may needflood insurance as part of your homeowners protection. Lenders generallyrequire the first year’s premium to be paid in full prior to the closing as well asescrowing the monthly breakdown to pay the premium in full when it comesdue annually.Investment propertyA property that is not occupied by the ownerLiabilitiesA person’s financial obligations. Liabilities include long-term and short-termdebt, as well as any other amounts that are owed to others.LienA legal claim against a property that must be paid off when the property issold.Loan ApplicationThe loan application is a detailed form designed to provide information tooriginate your loan. Lenders use the application to evaluate whether or notthey can give you a loan, and if , so the amount of money they can lend you.The loan application form requests information such as bank account balancesand account numbers, employment and income information and liabilities.
  17. 17. Loan CommitmentThe commitment letter states the dollar amount of the loan being offered,the number of years you have to repay the loan, the loan origination feesand/or points, the annual percentage rate, and the monthly charges. Thisletter conveys the intent of the lender and buyer to complete the purchaseby the terms that are listed any conditions that are still pending to be clearedin order to close the loan will also be indicated on the commitment letter. GlossaryOrigination FeeThe loan origination fee covers costs of processing the loan. It is oftenexpressed in points. One point is 1% of the mortgage amount. For Example,a $100,000 mortgage with a loan origination fee of 1 pt. would mean you pay$1,000.Loan-to-Value (LTV) PercentageThe relationship between the principal balance of the mortgage and theappraised value (or sales price if it is lower) of the property. For example, a$100,000 home with an $80,000 mortgage has a LTV percentage of 80%.Interest Rate LockA written agreement in which the lender guarantees a specified interest rateif a mortgage goes to closing within a set period of time.Mortgage BankerAn individual that represents the bank which funds the purchase at theclosing table. Mortgage companies then typically transfer the servicing rightsto other investors. Mortgage Bankers generally control the origination andclosing and then transfer the loan to post-closing for resale in the secondarymortgage market.Mortgage InsuranceA contract that insures the lender against loss caused by a mortgagor’sdefault on a government or conventional mortgage. Mortgage insurance canbe issued by a private company or by a government agency such as theFederal Housing Administration (FHA).
  18. 18. Pre ApprovalWhen you work with your lender to get Pre Approved, you are getting anindication of how much money you will be eligible to borrow when you applyfor a mortgage.Pre QualificationThe process of determining how much money a prospective home buyer will Glossarybe eligible to borrow before they apply for a loan.SurveyA drawing of map showing the precise legal boundaries of a property, thelocation of improvements, easements, rights of way, encroachments, andother physical features.TitleA legal document evidencing a person’s right to or ownership of a property.Title InsuranceInsurance that protects the lender (lender’s policy) or the buyer (owner’spolicy) against loss arising from disputes over ownership of a property. Yourlender will require that you buy title insurance to ensure that you arereceiving a “marketable title.”Transfer TaxState of local tax payable when title passes from one owner to another.Truth in Lending (TIL)A federal law that requires lenders to fully disclose, in writing, the terms andconditions of a mortgage, including the annual percentage rate (APR) andother charges. Your lender should provide you with the Truth in Lending(TIL) Statement within three business days of your loan applicationUnderwritingThe process of final evaluation of a loan application to determine the riskinvolved for the lender determined by the parameters of the selected loanprogram. Underwriting not only involves the analysis of the borrower’screditworthiness and financial profile but also the quality of the propertyitself.