Important Guidelines to Follow When Purchasing a Home
How To Apply For A Mortgage
I understand that applying for a mortgage is a big step. For first time buyers this can be an intimidating undertaking. Even if you have been through the process before, you may have some questions and I want you to have the answers you need. That’s why I have professional loan officers available who are ready to answer your questions and assist you in applying for your home loan. In the meantime, this document may help answer some questions about down payments, closing costs, whether you qualify, and the steps it takes to process your loan application. I try to help make that dream of home ownership come true for as many financially qualified persons as possible. My goal is to offer the best personal service you’ll find anywhere. If you have any questions about anything in this brochure or about any other services, please call me at my office. I’ll be glad to help you.
Your Loan Application
Your loan application must be in writing (standard form 1003). Application forms and assistance are available at my office, or one of my qualified loan officers will be glad to assist you in filling out the application.
What To Bring With You
Having the following information available at the time of application will minimize delays and should reduce total time required for approval of the loan.
1. Cash or a check for the appropriate Appraisal and Credit Report Fee required at the time of application.
2. Addresses for past two years along with names and addresses of landlords or institutions where housing expense was paid. (Show complete addresses, including zip codes and account numbers.)
3. Social Security numbers for all applicants.
4. A list of your creditors, specifying the address where payments are made. Be sure to include retail store charges, finance companies and bank charge accounts with account numbers, monthly payments and balances due.
5. Bank names, address, account numbers and balances for all savings and/or checking accounts, and name under which the account is carried.
6. Serial numbers and value of savings bonds and stock certificate numbers if appropriate. Amount of vested interest in retirement accounts.
7. If you want to apply for a VA loan, your Discharge Form (DD-214) or Certificate of Eligibility is required. If you have previously owned a home with a VA mortgage, the following information is needed:
- Property address
- Lender and Lender’s account number
- To whom the property was sold
- Date of title transfer
- The VA loan number, if possible
- Copy of completed Purchase Contract on the home you intend to purchase
8. Miscellaneous Information
- If you are self-employed, we will require a business report, signed federal tax returns for the last two years, and if available, audited profit and loss statements plus balance sheets for the same period.
- If earnings are based on commissions, signed 1040’s for the last two years will be needed.
- Bankruptcy Petition & Discharge along with a letter of explanation. (if applicable.)
- If funds required for settlement costs are in a Trust, Trustee papers and a letter of explanation.
- If you have a home that sold pending financing, a copy of the contract and net sheet.
- If your employer is subsidizing the interest or paying any or all closing costs, a copy of the company policy, etc.
- Retirement pay statement or award from Social Security, VA Disability, etc. (if applicable.)
- Leases on any rental properties you may own verifying rental income.
How Your Application is Reviewed.
As part of the application process, the mortgage company will verify your income and down payment, review your credit history and financial standing, and order an appraisal of the property to be mortgaged.
Your application should show a steady income from employment and/or other sources to make your loan payments, plus all tax and insurance payments and maintenance costs.
Secondary income such as bonuses, commissions, overtime or part-time employment is included as “stable monthly income” when they are typical for your occupation, are substantiated by your previous year’s earnings, and if the continuation of this secondary income is probable.
In cases where an applicant is self-employed, the Mortgage Corporation will verify income by obtaining audited profit and loss statements for the last two years or by requesting completed, signed federal tax returns for the last two years, or both. Other sources of income will be considered on an individual basis. When there is more than one wage earner in the family, the above guidelines will apply to each income in determining the combined income.
Down Payment Requirements
The Mortgage Corporation must verify your sources and nature of assets used for the down payment, prepaid items, closing costs, and other costs incurred in acquiring the property to be mortgaged.
The Mortgage Corporation verifies cash assets in the form of savings, certificates of deposit, or checking accounts directly with the depository. Stocks and bonds must be verified with your stockbroker or agent.
If you are selling a property, the difference between the sales price (as shown on a copy of the sales contract you include with your application) and the mortgage or other liens outstanding upon it, less selling expenses, is considered in the calculation of available cash assets.
If you receive all or part of the down payment as a gift, a “gift letter” is required and the source and amount of the gift must be verified. This can come from an immediate relative. Secondary financing for part of the down payment may be permitted subject to certain conditions.
A reputation for a responsible attitude towards your financial obligations and for paying your bills is important. If you have had financial problems in the past, but your credit history is currently good, you may still qualify for a loan if you can provide a satisfactory written explanation of your previous credit problems. A lending institution will pay particular attention to any record of slow payment, mortgage loan defaults and foreclosures, assessments for late charges, bankruptcy, credit written off as bad debts, or a pattern of excessive use of credit.
In most cases, your monthly house payment (PITI – Principal, interest, real estate taxes, and insurance) should not exceed 28% of your gross monthly income. These expenses include loan principal and interest payments, real property taxes, insurance, assessments and homeowner dues, if applicable. Also, your monthly housing costs plus other debts should not normally exceed 36% of your gross monthly income. Other debt includes any obligations with more than ten months remaining before full pay-off, such as car loans, credit cards, alimony, child support, 2nd mortgages, etc.
These ratios may vary depending on the type of loan you are applying for and may be higher depending on the amount of down payment and other factors. My loan officers will be glad to help you with the calculations and find a loan program to suit your qualifications. How much house can you afford?
Appraisals of the Property
An appraisal establishes the fair market value of your property, which must be sufficient to provide the necessary security. It is made by an approved appraiser who compares your property with similar properties in the neighborhood and with prices for recent sales of these properties. The maximum loan amount is based upon the appraiser’s determination of fair market value after physical inspection of the property or on sales price, whichever is lower.
The appraisal will usually be current for up to 90 days after its validation date. After this, individual consideration must be given as to whether a new appraisal or an update of the original appraisal is required.
Loan to Value Ratios
The maximum amount you can borrow on a property is based upon your sales price or appraised value of the property, whichever is less. Some loan programs are available with as little as 0% down (this is a 100% loan to value ratio). More commonly are 3% to 10% down payment loans. If you can get to the point of 20% down you can avoid paying mortgage insurance; this can save you anywhere from $40 to $140 per month depending on your loan amount and down payment.
Interest rates and fees
Interest rates and loan terms are subject to economic forces and market conditions. Eligibility for the minimum interest rate or for the maximum loan amount depends on many things. For example, a higher interest rate or loan fee may be charged when a buyer does not intend to occupy the property as a principal place of residence. Or the maximum loan amount may be less if the down payment is smaller.
Here’s What Happens with your Loan Application
The loan officer takes your application. The Branch Manager reviews it and gives it to a loan opener. The opener logs in any fees and orders the appraisal, credit report and title insurance policy. The opener also types and mails all verification forms. The file then goes to the loan processor.
The loan processor follows up on any appraisal or credit reports and on verifications of employment or bank deposits.
After all verifications, and when the credit report, appraisal and title insurance policy are in, the processor prepares the file for underwriting.
If mortgage insurance is required, a copy of the file is sent to a mortgage insurance company. Upon approval, the processor helps communicate and complete any approval conditions.
You then confirm your acceptance of the loan terms.
The mortgage closers inspect the title insurance policy, order any inspections, and check to make sure all conditions are met (if necessary). The loan note and mortgage and other necessary documents are prepared. The file then goes to the Title Company or attorney for closing.
The Title Company or attorney acts as settlement agents. They prepare the settlement statement, check for adequate hazard insurance, and have all parties to the transaction sign the necessary documents. The Mortgage Corporation provides the settlement agent the funds necessary for disbursement.
If you have questions about anything discussed in this document or any of our other services, my loan officer or I will be pleased to answer them