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MortgagesWhat every buyer should know Daryn Peterson www.dpmortgage.com
Agenda• Definition of a mortgage• Types of mortgages• Getting Pre-approved• Credit scores• Documentation• Application• Choosing the right lender• Closing Costs• Contract to Close Time Frame• Q and A
What is a mortgage?A mortgage is a loan; money that you borrow from a bank or other financial institution to finance thepurchase of a home. When you get a mortgage, you borrow enough money to purchase a home, and thenslowly pay that money back, with interest, over a period of many years typically 15 to 30 years Principal, Interest, Taxes, Insurance (PITI)PrincipalThis is, basically, the amount of money you actually borrow in the form of a mortgage. If your mortgageis for $250,000, then your principal is the same amount: $250,000. This is the amount youd need to repayto the lender -- if the lender didnt charge interest.InterestThis is the money your lender charges you for the privilege of borrowing all that principal. Its expressedas a yearly percentage. As you pay off more and more interest, youll start chipping away more of theprincipal with every payment.TaxesYour property taxes can vary depending on where you live. Be sure you calculate the property’s annualor monthly taxes into your budgetInsuranceHomeowner’s insurance will be required in order to secure a mortgage. If you put down less than 20%you may be required to pay monthly Private mortgage insurance to offset the risk of the lender givingyou that loan.HOA Dues – Condo or PUDIf you’re buying in a condo association or Planned Urban Development makes sure to find out themonthly dues and what those dues cover.
3 Types of Mortgages Conventional Fannie/ FreddieIn the Mortgage Industry there are 3 different types of loans.Any loan out there, will fall into one of these 3 categories. Portfolio Government Non FHA/VA Conforming CONV GOVT PORTDOWN PAYMENT 5% to 20% down 3.5% down 20% plus downCREDIT SCORE Great 680 plus Good 620 plus Great 700 plusINCOME 28/40 ratios 29/45 ratios can vary….
The Pre-approvalWhat 4 criteria make up every loan?
Credit CreditFICO scores range from 350 to 800620 is the minimum fico needed for FHA - 740 is the best score for Conventional What goes into my score? What hurts my score? • Not paying bills on time • Opening to many accounts • Closing old unused cards • Signing up for Retailers cards • Maxing out your cards
Income Income• W-2’d employee or Self-employed?• Length in Current job and line of work?• Salary, Hourly, Commission or Bonus?• Dividends, Social Security, Pension or Alimony? What documentation will we be used to determine your income?• Signed, dated tax returns, with applicable tax schedules for the most recent 2 years• Pay stubs from the past 2 pay periods• W-2 statements from the past two years• Divorce Decree, Social Security or Pension Award Letter• Signed Rental Lease Income with Corresponding Schedule E
Assets Assets• Savings/CD’s/Stocks• Gift Funds• IRA/401k loans• Seller Assistance• REDFIN rebate?What documentation do you need to see?• Last 60 days of your checking/savings• Stocks / Bonds / CDs / 401k (last quarterly statement)• Gift letter signed and dated• Proof of 401k or IRA loan repayment schedule
Property Type PropertyWhat type of property are you buying?-The Type of Property of use of the property will affect your loan and interest rate• CondosWarrantable / FHA approved / % of owner occupants• Single Family HomesPrimary, or Second Home• Multi UnitHow many unitsOwner Occupied or Investment
Pre-Approval1. Call your lender to discuss your objectives2. Talk to them about all 4 of your criteria in detail3. Have them pull credit and review your income/assetsAt that point your lender will be able to determine:• What loan product your should pursue• What your maximum payment or purchase price should be• What the approximate rate/costs will be for that loan• Issue you a pre-approval to accompany your offer
The Application• During the pre-approval process, youll be asked to complete a standard loan application. Though this may be a traditional paper form that you fill out in person, it may also be a web form that you fill out online. Either way, the application form will require you to provide detailed information on your employment, credit, and financial health.• Though the application form may be several pages long, completing it should be a fairly simple process of fill-in-the-blanks if you gathered all your paperwork. Your loan application will ask for information on the following topics:• Credit report & score• Total debt• Work history• Down payment• Residence history
Choosing a Lender How do I Start? Questions to ask?• Ask your real estate agent who • What type of loans do you offer? they work with. • Do you offer free pre-approvals?• Family or Friends who you • Are you broker or banker? trust • How experienced are you? How• RedFin’s site many deals, not years• A referral from someone who • Can you send me past client testimonials? just successfully closed • Do you have a team or assistant? • Customer service, do you return calls/emails promptly?
Interest Rates and APR• APR stands for annual percentage rate. It equals the interest rate plus any fees and minus any rebates offered by the lender. Usually, these fees and rebates are settled up front. The APR takes those fees and rebates and spreads them out over the full life of the loan. The goal is to show the true lifetime cost of a loan, so that it can be more easily compared to other loans• Once you’ve discussed your goals, income, down payment and credit score your lender should be able to quote you an interest rate.• Remember, the interest rate is tied to your new home and is set for a specific time, ie 30, 45 or 60 days.• You can’t lock into a rate until you have a property under contract and closing date set.
Closing CostsTypically 1.5% to 2% of the purchase price depending on where you buy• Lender Fees often include: o Appraisal o Underwriting and Credit o Origination or buy down points• Title fees o Lenders title policy o Closing or Settlement fee o Attorney fees• Pre-Paid Items –If you escrow o Taxes o Insurance o Daily interest - Remember mortgages are paid in arrears o Be sure to ask your lender or listing agent about the transfer tax in your city
Time Frame• Most contracts are for 30 to 60 days• Meet with your lender and complete the application and exchange any missing paperwork – Day 2 thru 5• Lock in the rate (or float it) -Anytime• Your lender will order the appraisal - Day 2 thru 5• The loan will go to underwriting (turn times can vary) – Day 3 to 6• The loan is conditionally approval – Day 6 to 10• The loan is Cleared to Close – Congrats you can close – Day 10 to 30• The settlement statement is sent to you 24 hours prior to closing to review• You bring your remaining funds to close and an ID• You now own a new home!