If you think homeownership is beyond your budget, you may not have considered the tax and equity advantages.
Tax Advantages
Deducting home mortgage interest and property taxes from your federal income tax return is one of the best financial advantages of owning a home. Despite changes to the tax laws in recent years, home mortgage interest and property taxes are two of the few remaining tax deductions available to the average taxpayer.
Building Equity
Building equity while paying off your home is another advantage of owning rather than renting. What is equity? In homeownership, it’s the difference between the appraised value of the home and the mortgage balance. A portion of each mortgage payment you make increases your equity and contributes to your ownership of the home.
Appreciation
Appreciation of the home and property is another means of building equity. For example, the value of a home initially appraised at $100,000, with an annual appreciation of 4%, **would increase to $104,000 at the end of the first year. The additional $4,000 is equity you have gained in one year from the home’s appreciation of 4%.
Covering the Basics
This section gives you general guidelines on what to expect during the mortgage process and answers some commonly asked questions.
A Lender Considers Five Basic Criteria
1. Income
Lenders use standards, called ratios, to evaluate your ability to make mortgage payments. Ratios compare monthly expenses to monthly income. The ratios most commonly used throughout the lending industry are 28/36. The first number indicates your monthly mortgage payment (including principal, interest, taxes, and insurance) as a percentage of your gross monthly income. The second number indicates your monthly payments (other debts extending ten months or more) plus your mortgage payment (housing payment obligations, including principal, interest, taxes, and insurance) as a percentage of your gross monthly income. In short, the “28” means your monthly mortgage payment should not exceed 28% of your gross monthly income. And the “36” means your long term monthly payments plus your mortgage payment should not exceed 36% of your gross monthly income.
How your income is earned is important to lenders. The stability of your income and probability that it will continue are factors lenders will consider. Bonuses, commissions and overtime pay can vary from year to year; lenders may require additional information in order to consider these as sources of income.
2. Debt
Before extending credit terms, the lender projects how much debt you can successfully handle. Lenders debt as recurring monthly expenses (including your housing payment) that extend ten months or more (e.g., loan payments, credit card payments, etc.) These expenses generally should not exceed 36% of your gross monthly income when applying for a conventional loan. The amount of allowable debt may vary by loan type.
3. Credit History
Your credit report shows your payment history with various
credit sources you have used in the past several years, (e.g.,
Visa®, Discover® Card, American Express®, a student or car
loan). Lenders use credit reports when considering your
eligibility for a mortgage. Here’s what lenders consider:
- Size and terms of past loans
- Payment record
- Active accounts, bankruptcy, judgments or other financial items of public record
You have the right to request your credit report from a credit reporting agency. If there are mistakes or discrepancies, lenders may consider a letter of explanation. If you have never seen your credit report, it may be a good idea to order one from your credit report from a credit reporting agency. If there are mistakes or discrepancies, lenders may consider a letter of explanation. If you have never seen your credit report, it may be a good idea to order one from a credit reporting agency before applying for a mortgage.
4. Down Payment
The lender typically requires a down payment between 10% and
20% of the home’s selling price. FHA and VA mortgage loans, as
well as certain conventional mortgage loans used in conjunction
with mortgage insurance, can reduce your down payment to as
little as 5% or less of the purchase price.
Mortgage Insurance (MI) helps protect lenders against loss
associated with a default on the mortgage. The significance for
the first time home buyer is that MI will allow you to make a
lower down payment on a home. If coming up with a 20% down
payment is preventing you from buying a home, ask your
quotemearate.com representative about MI.
The down payment may consist of funds from a variety of sources,
including savings, stock/bonds, Individual Retirement Accounts
(IRAs), real estate holdings, life insurance policies, mutual
funds or employee savings plans. A gift from a parent or other
relative may be used as part of the down payment. The amount of
the gift and requirements for each mortgages may vary, so ask
your quotemearate.com representative for more details.
5.
Property
Before your home mortgage can be approved, lenders require a
property appraisal of the home you wish to purchase. The
appraisal is a report from a qualified person that determines an
estimated market value of the property. The appraisal helps
assure mortgage lenders that the loan amount plus your down
payment conforms with the value of the property.
Common Questions & Answers About the Mortgage Process
The Quotemearate.com process can be divided into four steps:
Application, Processing, Underwriting, and Closing. Your
Quotemearate.com representative will review the process with you
and provide you more detail. Below are some commonly asked
questions about the mortgage process.
1. Application
Q. How do I begin?
A. You have already taken the first step by reading the
information in this brochure. The next step is to call and make
an appointment with your Quotemearate.com representative. He or
she will cover all the details necessary to make buying your
first home a smooth experience.
Q. What kind of assistance can I expect during application?
A. Your Quotemearate.com representative will help you every
step of the way, from filling out the mortgage loan application
to reviewing what mortgage products and programs are best for
you. During the application process, you will be provided with a
Good Faith Estimate of closing costs and a Truth-in-Lending
brochure.
Q. What are closing costs?
A. Closing costs are fees associated with closing, the final
transaction in purchasing a home, and may include, for example,
origination or application fees, discount points, title
insurance fees, survey fees, attorney or escrow fees.
2. Processing
Q. What happens after I have completed and signed the
applications?
A. The mortgage representative hands your completed
application to a processor, who will request and obtain written
verifications from your employer, banks and creditors. The
processor will also order an appraisal to determine the value,
for the lender’s purposes, of the home you are purchasing and a
credit report to verify your credit history. The processor may
contact you for additional documentation or information.
3. Underwriting
Q. Who approves my loan?
A. Your application and all of the documents assembled by the
processor are submitted to an underwriter, who analyzes the
credit risk and outlines the terms and conditions that must be
met for an approval. If everything is in order, the lender will
issue a commitment guaranteeing that you will be granted a loan
amount for a specific time period, noting the interest rate,
points and closing conditions.
Q. How long is the typical mortgage process from the time I
apply to the time of closing?
A. Six to eight weeks.
4. Closing
Q. What happens before closing?
A. Prior to closing you will need to obtain a homeowners’
insurance policy along with a paid receipt from the first years’
premium. Additional, all other conditions, if any, stated on
your written loan commitment must be satisfied. You will need to
arrange a closing date with your real estate agent, builder,
attorney or escrow officer, and the title company. You will also
need to bring a certified or cashier’s check to the closing to
cover the costs outlined by the lender. The lender will let you
know the amount of funds you will need for the closing.
Contact your Quotemearate.com representative with any
additional questions you may have concerning the mortgages
process.
Your Choices
Mortgage Types For The First Time Home Buyer
When choosing a mortgage to finance your dream home, you
should select a lender that can provide a wide range of products
and quality customer service. Quotemearate.com offers a variety
of mortgages for the first time home buyer.
Fixed Rate: This type of mortgage has the same interest rate
and payment for the entire term. Typical terms for this loan are
15 and 30 years. Many first time home buyers like the
predictability and security of a fixed payment for the life of
the loan.
Buydown Option: A buydown is a temporary option for borrowers
who have lower incomes. This is a feature that allows you to
temporarily “buy down” or reduce the interest rate for the first
1 to 3 years to lower the monthly payment. The mortgage interest
rate will then become constant for the remaining years. This
feature is good for first time home buyers who may not have the
income to qualify but have a large cash reserve and whose income
will increase over the next several years.
Balloon: Based on a 30-year term, you are offered a lower
fixed rate for the first 5 or 7 years. When the 5 or 7 years are
up, the balance of the loan amount becomes due. You may then pay
off the remaining amount of the loan or refinance. This lower
interest rate can be attractive to the first time home buyer
because it allows a lower monthly payment.
Graduated Payment Mortgage (GPM): The rate is fixed, but the
payment amount increases on a set schedule. Payment increases
are applied to the principal, and the loan typically pays off in
15 years. However, tax deductibility is proportionally reduced.
Adjustable Rate Mortgage (ARM): The interest rate, and
therefore the payment, changes periodically over the life of the
loan. Typically, ARMs adjust every 6 months or 1 year, but we
offer a special feature that allows you to keep the payment
fixed for 3,5,7, or 10 years. The rate will change according to
the “index” used and there may be a cap on the individual and/or
lifetime payment and/or the amount the rate changes. Again, some
first time home buyers prefer ARM products because they give
them more buying power.
Government (FHA, VA): These loans have special underwriting
guidelines which are beneficial to first time home buyers.
Government loans offer lower down payments, which mean more
buying power.
Choosing The Right Mortgage Lender
Choosing the right mortgage to meet your needs is not the
only choice you’ll have to make. Buying a home is probably one
of the largest financial transactions you will have to make.
Finding a lender that understands your specific needs is equally
important. The company you choose should have the following
qualities:
- Excellent customer service
- Good communication and follow-up
- Responsiveness
- Wide range of products and services
- Financial strength and commitment to the customer
There are very few lenders that offer you all of these. Quotemearate.com offers all of these qualities and much more.
When you choose Quotemearate.com, you’ll receive the
expertise of a national mortgage company that has been meeting
the mortgage needs of individuals like yourself for over 29
years.
Quotemearate.com has the reputation for excellence in its
product, mortgage representatives and service. Quotemearate.com
will keep you updated every step of the way, even after your
loan has closed. Our representatives will also assist you in
choosing from over 30 mortgage products and be willing to
prepare a BestChoice® Report for you. A Best Choice Report,
Quotemearate.com’s customized loan analysis, reviews your income
and current monthly debt and provides you with mortgage products
and amounts that are best for you.
Call your Quotemearate.com representative to discuss your
option and obtain an ApprovalFirst® Process application. If you
qualify, you can be approved for a Quotemearate.com monthly
housing payment before you look for a house.
The Paperwork
Once you have found a home and your offer is accepted, gather
all the documents listed below and call your Quotemearate.com
representative. The application checklist below lists the
paperwork you need to provide to Quotemearate.com when you fill
out an application.
The Home You Want to Buy
o Purchase Contract
o Legal Description (if not shown on purchase contract)
o Real Estate Listing Sheet
Your Employment
If you are NOT self-employed, furnish the following
originals:
o W-2 forms, last two years
o Current pay stub
If you own 25% or more of a business, work for a relative, or
are self-employed:
o Signed Federal tax returns, including all schedules, for
the past two years
o Current (year-to-date) financial statement prepared by an
accountant, including a balance sheet and profit/loss statement
on the business
o Partnership agreement (if general partner), if applicable
o Partnership 1065 tax return, last two years, if applicable
o Corporation 1120 or 11205 Federal tax return forms, last
two years, if applicable
If you have changed jobs more than twice in the past two
years:
o Letter of explanation covering job changes
If you have been unemployed for more than 30 days in the past
two years:
o Letter of explanation
If your spouse’s income will be used to qualify for your
mortgage and you are moving to a new location with your present
employer:
o Spouse’s letter of intent to seek employment
Other Sources of Income
Note: Verification of any of the following sources of income
is required only if you wish to use it in qualifying for a
mortgage loan.
o Canceled checks or bank statements showing receipt, last 12
months
o Alimony/child support indicating scheduled receipt of at
least three years of income remaining
If you receive overtime or bonuses:
o Current pay stub showing year-to-date overtime or bonus
If you work part-time:
o W-2 forms, last two years
o Latest pay stub showing current and year-to-date pay
If you receive rental income from investment property:
o Schedule E from your Federal tax return, last two years, or
12 months bank statements indicating receipt of rental income
If you receive significant interest and dividend income:
o Federal tax returns, last two years
o Current account statements from financial institutions
(three months)
If you receive trust income:
o Copy of Trust Agreement or trustee statement outlining the
amount, frequency, and at least three years of income remaining;
evidence of income received (at least 24 months of trust
entitlement has extended that far)
If you receive Note Receivable income:
o Copy of the note indicating receipt of at least three years
of income and income remaining
o Bank statements or Schedule B from your Federal tax
return(s) indicating receipt for the previous 12 months
If you work as a tradesperson or more than 25% of your
earnings are from commissions or bonuses:
o W-2 or 1099 forms indicating receipt of at least three
years of income and income remaining
o Bank statements or Schedule B from your Federal tax
return(s) indicating receipt for the previous 12 months
Your Assets And Liabilities
o Statements of assets for each account, last three months
o Letter explaining source of funds for any accounts opened
in the past three months, if applicable
o Letter explaining any large increase in any account, if
applicable
If you have sold assets for down payment or closing costs:
o Form HUD I on sale of real estate
o Other bill of sale of property and title transfer (if
applicable)
If you are using gift money for a portion of your down
payment of closing costs:
o Letter from the person(s) giving the gift of monies
NOTE: Your Quotemearate.com representative can provide you
with the correct form
o Donor’s bank statement indicating sufficient funds to cover
gift money
o If gift has already been given, provide bank statement
showing receipt
If you presently have a mortgage on your current residence:
o Canceled checks showing proof of payment in a timely
fashion, last six months
Special Situations
Letters of explanation and other documents will be needed if
any of the following situations apply to you:
o Attachments and garnishments
o Bankruptcy
o Judgment or lien on your assets
o Litigation
o Derogatory credit history
Mortgage Terms
The following definitions of mortgage terms are provided to
increase your understanding of the mortgage process.
Adjustable rate mortgage (ARM)
A mortgage in which the interest rate is periodically
adjusted based on the movement of a pre-selected index.
Amortization
The repayment of a mortgage loan with periodic payments,
calculated to retire the obligation at the end of a fixed period
of time.
Annual percentage rate (APR)
The charge for credit, stated as a percentage, and expressed
as an annual rate.
Appraisal
A report prepared for the benefit of the lender that gives an
opinion of the market value of property.
Buydown
Money advanced by a seller, builder or borrower to reduce the
borrower’s monthly payment on a mortgage.
Cap (payment cap)
A limit to the increase or decrease in a mortgage loan’s
monthly principal and interest payments.
Closing
A meeting of all parties involved in a real estate
transaction where title to a property is formally transferred.
Closing Costs
Fees paid to effect the close of a mortgage loan, such as an
origination fee, discount points, title insurance fees, survey
fees and attorney’s fees.
Collateral
Property owned by a borrower that is pledged to a lender in
order to secure a loan.
Conventional mortgage
A non-government mortgage-one that is neither insured by the
FHA nor guaranteed by the VA or Farmers Home Administration.
Debt
Money that is borrowed, which the borrower promises to repay.
(May be either secured or unsecured with various possible
repayment schedules and collateral.)
Debt-to-income ratio
Ratio used to qualify you for a mortgage. Compares your total
monthly housing expense ( the amount you pay out) with your
total monthly gross income (the amount you earn).
Down payment
The portion of a sale price paid by a buyer at the time of
purchase.
Earnest money
The amount of money given by a buyer as evidence of good
faith to a seller for the purpose of securing a real estate
deal.
Equity
The difference between the market value of a property and the
balance owed on that property’s mortgage loan.
Escrow or impound account
An account that is set up and maintained by your mortgage
company. The purpose is to save a portion of your monthly
payment for the eventual payment of real estate taxes, hazard
insurance, mortgage insurance or mortgage premiums.
Fair market value
A price freely agreed upon by a willing buyer and a willing
seller of a property, with neither party being under any
compulsion to buy or sell.
FNMA (Federal National Mortgage Association)
See government-sponsored agencies.
FHLMC
See government-sponsored agencies.
Fixed rate mortgage
A mortgage in which the interest rate is set for the entire
term of the loan.
Gift letter
A signed statement by a gift donor which explains that a cash
gift used by the borrower to qualify for a loan does not need to
be repaid.
Government-sponsored agencies
Facilitate the secondary mortgage market by providing a
network for the purchase, sale and guarantee of existing
mortgages and mortgage pools. They include FNMA, FHLMC, and GNMA.
Graduated payment mortgage (GPM)
A mortgage with periodic monthly payment increases that lead
to a faster build-up of equity and enable borrowers to pay off
the loan in a shorter period of time.
GNMA (Government National Mortgage Association)
See government-sponsored agencies.
Hazard insurance
Insurance which compensates the insured for loss on property
because of physical damage by fire, wind or other natural
disasters.
Index
A published interest rate, such as the prime rate, London
Inter Bank Offered Rate (LIBOR), T-Bill rate, or the 11th
District Costs of Funds Index (COFI). Lenders use indexes to
establish interest rates charged on mortgages or to compare
investment returns.
Interest rate
The charge for borrowing an amount of money for a certain
period of time. Also known as the note rate.
Jumbo loan
A loan with a dollar value that is greater than prescribed
limits of the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation.
Loan-to-value (LTV) ratio
A percentage which compares the outstanding principal balance
of your mortgage loan with the value or selling price of the
mortgaged property.
Margin
A percentage amount that is added to a pre-selected index to
determine the interest rate for adjustable rate mortgages.
Monthly housing payment
The monthly amount of the total cost factors involved in
paying back a mortgage, including principal, interest, taxes,
hazard insurance, private mortgage insurance and assessments.
Mortgage
The legal instrument by which real estate is pledged as
security for the repayment of a loan.
Mortgage insurance (MI)
An insurance policy that insures a lender against loss if a
borrower defaults on his or her mortgage payments.
Mortgage insurer
Any of the approved private mortgage insurance companies that
insure a lender against loss if borrowers default on their
mortgage payments.
Mortgage note
A promise issued in writing stating that money will be repaid
at a specific interest rate over a given period of time.
Mortgagee
One who lends money in a mortgage transaction.
Mortgagor
One who borrows money in a mortgage transaction.
Net worth
The Value of all of your assets minus your total liabilities.
Origination fee
The amount charged by a lender to a borrower for processing,
underwriting and completing mortgage documents, and distributing
mortgage proceeds.
Point (discount points)
A charged assessed by a lender to a borrower or seller that
is required by investors to create the yield; usually calculated
in percentages of the loan amount.
Realtor®
A real estate agent who is a member of, or is affiliated
with, the National Association of Realtors®.
Servicing
The procedures related to the collection of mortgage payments
and the management of mortgage escrow accounts.
Title
Written evidence of the right to an ownership of property;
for example, the deed.
Title insurance
A policy that insures against loss brought on by any defects
in title to real estate.
Title search
A public record examination of legal documents to disclose
the facts relating to the ownership of real estate.
Truth-in-lending
A Federal law that requires lenders to fully disclose, in
writing, all credit terms and conditions of a mortgage to the
consumer.
Underwriting
The process of analyzing information such as a borrower’s
ability to repay a mortgage loan, the acceptability of the
property as security, and the mortgage rate and term to
determine the risk of lending money.
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