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Mortgage Information

Financing Your Home

A Helpful Guide To Understanding The Mortgage Process

Obtaining a home mortgage loan doesn’t have to be difficult. This is a step by step guide on the basic process of getting a home loan. Use this as a helpful reference, but make sure to seek the expertise of a professional mortgage loan officer for specific details of all loan programs.

How much can I afford? What are the factors?

Debt to Income Ratio

A common term you will hear during the initial mortgage application process. You can figure your debt to income ratio by dividing the total amount of your bills(only long term debt such as credit cards, car loans, etc.) including the new house payment and dividing by your total gross monthly income (before taxes). Just remember that because it looks good on paper doesn’t mean it is an affordable payment. You have to be honest with yourself and set a realistic mortgage payment that you can truly afford.The only thing you need to remember is in most cases you cannot go above a 55% debt to income ratio.

Down Payment

A down payment for a home is usually between 3% and 20% of the total cost of the home. The amount of the required down payment depends on your credit history, income, the cost of the home, and the type of mortgage you choose. Many first-time homebuyers put down 3% to 5% of the cost of the home.

Closing Costs

Closing, or settlement, costs are fees you pay when you actually get your loan from your financial institution. These include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed, and other settlement costs. You should negotiate for lower fees the same way that you should negotiate for the best rate. Some fees, such as taxes, may be fixed but your lender may be willing to negotiate others.
Closing costs generally range between 2 to 7% of the property value. You’ll receive an estimate from your lender after you apply for a mortgage. You must pay these costs before you move into your new home.

Mortgage Insurance

Normally required on all mortgage loans where you don’t put at least 20% down. It basically protects the bank should you go into foreclosure. Once you reach 20% equity in your home you may be able to get this insurance/fee removed.

Property Taxes

Sometimes the local property taxes you have to pay will be included in your payment. It is held in an escrow account and the lender pays your taxes for you.

Homeowners Insurance

Just like renters insurance, it protects you from potential hazards. You have the right to obtain homeowners insurance from the company you choose. You can include it in your payments if you choose; some lenders require it. It is always a good idea to have insurance, even if it is not required.

Basic Types Of Mortgages

Fixed-Rate Mortgages

Fixed-Rate Mortgages offer:
Predictable payments, there are fixed monthly payments for the life of the loan. Protection from rising interest rates. For the life of the loan, no matter how high market interest rates go up, your rate remains the same. Faster equity growth in comparison to other mortgage options such as ARMs and other Mortgages. Best for people who:
Prefer regular payments with no surprises. Are on limited or fixed incomes. Plan to stay in their homes a long time. Are purchasing or refinancing at a time when interest rates are comparatively low. Fixed-rate mortgages offer the same interest rate, monthly principal and interest payment throughout the entire term of the loan. The longer the term, the lower the monthly payments and the more cash you’ll have for other expenses. With a shorter term, you’ll have higher monthly payments and you’ll qualify for a smaller loan amount, but you’ll save on interest costs over the life of the loan and build your equity faster. The fixed-rate mortgage loan is the “traditional” choice and is still the most popular because it offers stability and predictable monthly payments.

Adjustable Rate Mortgages

Adjustable Rate Mortgages:
Assist borrowers in obtaining a larger loan amount because qualifications are at a lower interest rate. Save money in the early years. Lower initial interest rate than a traditional fixed-rate loan Have a variety of adjustment periods Best for people who:
Need extra borrowing power. Want to save money in the first few years. Plan to move or refinance in a few years. Are purchasing or refinancing at a time when interest rates are comparatively high. Adjustable-Rate Mortgages feature an interest rate that periodically adjusts with changing market rates. ARMs are available in government, conforming and jumbo loan amounts. The ARM allows you to take advantage of lower interest rates in a falling rate environment, and you’ll benefit from lower monthly payments. The initial interest rate on an ARM is usually lower than the lifetime interest rate on a fixed-rate mortgage (FRM). ARM interest rates and the degree to which they fluctuate at the end of every adjustment period, are determined by:
Index: Published economic indices such as U.S. Treasury Securities or London Inter-Bank Offered Rate (LIBOR) that are used to direct the adjustment. Margin: A fixed percentage (usually two to three percent) that is added to the index at each adjustment period Rate Cap: Typically the maximum amount your rate can increase or decrease per adjustment period (2%) and over the life of the loan (6%). This protects you in case of volatile market swings.

Jumbo Mortgages

Jumbo Mortgages offer:Larger loan amounts to purchase more expensive homes. Loan amounts as high as $1 million. Jumbo Mortages facilitate high-end purchases of:
• Primary residences
• Second or vacation homes
• Investment properties Best for people who:
Want to finance larger and/or more expensive properties and can handle larger monthly payments. Investment-minded buyers who want to leverage their assets more effectively. Currently a jumbo mortgage is a purchase or refinance loan that exceeds $417,000 for a single-family home.* It is also called a non-conforming loan because it does not conform to the loan limits set by Fannie Mae (The Federal National Mortgage Association or FNMA) or Freddie Mac (The Federal Home Loan Mortgage Corp. or FHMLC). Jumbo financing options include fixed-rate and adjustable-rate mortgages, with a range of terms to accommodate immediate and long-range financial plans.

Getting Your Paperwork Together

There are several things you will need to start the process:
Copy of Drivers License or ID Last 2-3 years W-2’s Bank, savings and investment account statements Most Recent Paycheck Stubs If renting, 12 months cancelled rent checks or written verification of good standing from your landlord

Getting Pre-Approved

Getting Pre-Approved tells you exactly how much you can afford, what the closing costs will be, makes your offer on homes look better than others, and gives you a chance to lock in a rate without being obligated to anything.

Apply for your Mortgage

Once you have a ratified contract in place on your new home you will apply for your mortgage. The mortgage application process will be simpler since you are already Pre-Approved. During this process your mortgage lender has you complete the entire application and provide more detailed financial information. Then your application is sent to underwriting for approval.

Order a Home Inspection

To insure there are no major problems with your home it is important to have a detailed home inspection performed. An experienced home inspector can find both major and minor problems with the house which you need to know about before your closing. If there are no real issues, great! If there are problems you may have the opportunity to negotiate further concessions from the sellers and if they are major (structural, serious mold or termite damage etc.) even void the contract.

Order an Appraisal

An appraisal will be required by your mortgage lender and will give you one last financial check that your new home is worth and appraises for the purchase price.

Final Approval of your Mortgage

Waiting for the bank to finish underwriting your loan is usually one of the longest steps in the process, so be prepared. Usually the bank will need more information such as past financial records, bank statements, etc. Get the bank whatever it needs as quickly as possible to keep the process moving!

Title Search

This step of the process will be started by your Closing Attorney and also takes some time. The title company checks through decades of public records to make sure that the people selling you the home actually own it. It may sound odd, but the banks and regulators require it to protect you and the lending institution from fraud.

Schedule your Closing and final Walk-Through

Once your mortgage is approved and the title search is completed, your Attorney can schedule the Closing (settlement). A few days prior to closing, you and me will walk through the house one last time to make sure everything is in order.


You, me and your Attorney, all sit down at the table and sign off on lots of paperwork, documents and fine print. Your Attorney and me will explain any item, term or document. It’s all worth it though because at the end of it all you finally get the keys to your new home!