Four General Tips - What To Start Collecting - Mortgage Terms Glossary
Four Things To Avoid - Increase Purchasing PowerKnow your buying power
Before you start hunting, choose a lender for financing. When you give your loan officer all the necessary financial information, ask for a pre-approval instead of a pre-qualification. The difference is that a pre-qualification only assesses your ability to qualify for a loan approval. Pre-approval means you are ready to buy - your documentation has already been reviewed by the loan underwriter (the decision maker). So when you are ready to submit an offer to buy, include a copy of your preapproval letter. The letter tells the seller that your offer is the next best thing to cash. Pre-approval can help a buyer's agent obtain better terms and be a deciding factor in which offer a seller accepts. If you are a first-time buyer, find out if your lender participates with any agencies that offer special loan programs for first-time homebuyers.
Know how real estate agents work.
In Kansas, real estate agents may be a seller's agent, a buyer's agent, or a neutral transaction broker. If you are transferring into an unfamiliar environment, you may wish to hire a buyer's agent to represent you. However, take care when entering into a written buyer's agency agreement. Try to limit the term to a few days, covering only the properties the agent shows you. Simply renew the contract when additional properties are lined up. You may wish to exclude properties from the agreement which are unlisted or For Sale By Owner, allowing you to purchase those properties directly without owing the agent a commission. Many sellers who are showing their own homes have lined up a broker who will act as a transaction broker to prepare and handle the details for a flat fee, once a buyer is found. This could reduce your cost of purchasing the property. Above all, avoid telling an agent anything that you wouldn't want a seller to know.
Know the neighborhood you buy into.
A buyer assumes significant risk when buying the first home they see in a community. Take time to visit the neighborhood that interests you on different days and at varying times. Imagine moving into your new home, then finding out that one neighbor runs a noisy car repair business out of his garage, and another hosts frequent late-night parties. Or suppose you bought a home without realizing the neighborhood backed up to railroad tracks. Neighborhoods are very diverse. You won't be buying just a home, but part of the larger community as well. Make sure it's exactly where you want.
Plan your move.
Few times in life are as stressful as moving, but a little advance planning can help reduce the strain. Before closing, compose a list of addresses and phone numbers for your current utility companies, new utility companies, creditors, banks, insurance companies, subscriptions, and investment institutions. You get the idea. With this list you should have no trouble contacting important parties to make sure they know where you've moved. Finding that information once you've packed can be a nightmare.
Pack non-essential belongings a couple of weeks before the move. You'd be surprised how much time it takes just to pack the essentials. Finally, try to structure your moving date so you still have your present home for a few days after your new one is ready. Having the extra time can greatly reduce the anxiety of moving.
Back to TopWhat To Start Collecting Before You Apply For A Loan
Lenders require a lot of documentation so it's a good idea to start collecting some of the things you'll need to bring to your loan application beforehand. To save yourself time and frustration during your loan process, start gathering all the documentation listed below as soon as possible. The documentation required differs from Lender to lender but these guidelines should cover most of the essentials.
1) For Your Residence History:
a) Your previous addresses for the last 2 years and how long you lived in each place
b) If you currently rent, your landlord's name and address (for the last 12 months)
2) For Your Employment History:
a) The names and addresses for all your employers for the last 2 years
b) The dates you worked at each place of employment
c) A letter explaining any gaps in your employment in the last two years
d) Original pay stubs for the last 30 days
e) Most recent 2 years W-2's
f) Most recent 2 years 1040's
g) Year-to-date profit and loss statement and current balance sheet (if self-employed)
h) Transcript or diploma if you were a student in the last 2 years
i) Award letter and copy of most recent check for retirement, Social Security or disability income
3) For All Outstanding Loans and Credit Cards:
a) Coupon book or most recent statement for every account you have open
4) For All Savings, Checking or Investment Accounts:
a) The name and address for each financial institution and the account number
b) The current balance or value
c) 3 months bank statements on all accounts
d) 3 months statements for any IRA'S, Keogh's, 401 K's or profit sharing you have
5) For Personal Property You Own:
a) The net cash value of your life insurance
b) The make, year and value of your automobiles
c) The value of your furniture or other personal property
6) For Real Estate You Currently Own:
a) The property address
b) The estimated market value, outstanding loan balance and the amount of your monthly payment.
c) The amount of your monthly rental income (if applicable).
Back to TopAdjustable-Rate
An interest rate that can move either up or down at a designated interval, changing the monthly payment on your loan accordingly.
Amortization
Gradual payment of a debt through regular installments, covering both interest and principal. Or the payment schedule by which you reduce a loan to zero.
Annual Percentage Rate (APR)
This rate includes the loan interest rate plus points, loan origination fee, and other lender-related costs. The APR allows you to compare quotes from different lenders.
Appraisal
Required by the lender and prepared by a professional appraiser, this is an estimate of the value of your new home as of a specific date.
Assets
Everything of value that you own and that could be used for payment of debts including cash, real estate, personal property, retirement/pension accounts, and so on).
Closing
The completion of a real estate transaction.
Closing Costs
Costs associated with the submission, approval and closing of your mortgage application. Examples include loan fees, title fees, and appraisal fees.
Construction Loan
A loan providing you with funds to build a home.
Down Payment
The portion of the purchase price that you are responsible for, due at the closing.
Escrow
An amount paid along with your monthly mortgage payment. This amount is held by the lending institution for payment of your property taxes, homeowner's insurance, mortgage life/disability insurance, private mortgage insurance, etc.
Equity
The difference between the market value of your home and any outstanding mortgage loans.
Fixed-Rate Loan
A loan for which the interest rate will remain constant.
Interest
The charge you pay for the use of money you have borrowed.
Liabilities
Your monthly or fixed obligations, including those amounts that extend over the next six months. Liabilities include credit card balances, auto loan payments, alimony, child support, and any other obligations.
Lien
Any legal claim against your new home, ensuring payment of an unpaid debt.
Loan-to-Value Ratio (LTV)
Loan amount divided by the sale price or appraised value of the home, whichever is lower. This is usually expressed as a percent. For example: An $80,000 mortgage divided by a market value of $100,000 would give you a loan-to-value of 80%.
Mortgage Insurance
When your down payment is less than 20%, private mortgage insurance is required.
PI
Principal and Interest, two elements of your loan payment--the amount borrowed and the amount it costs to borrow.
PITI
Principal, Interest, Taxes (property) and Insurance (homeowner's and mortgage).
Point
A point is 1% of your loan amount. This is the initial charge sometimes required for borrowing money.
Prepaid Escrow
The amount paid at the time of closing toward escrow accounts for taxes and insurance.
Principal
The balance that remains due on the original mortgage.
Title
This refers to legal ownership of a property.
Back to TopFour Things To Avoid When Purchasing a Home
There are four major things to avoid doing before applying for a loan and during the loan process itself. Any one of these four things can greatly impact your ability to qualify for a mortgage loan so it is critical to avoid doing any of the following until AFTER your loan has closed escrow:
1) DO NOT CHANGE JOBS
Changing jobs before or during the loan process can create a real problem in qualifying you for a loan particularly if that job is in a different line of work or at a lower rate of pay. During the loan process, it can also create time delays as the new job will need to be verified.
2) DO NOT SWITCH BANKS OR MOVE YOUR MONEY AROUND
It is best to leave your money right where it is until your loan is closed. Moving your money to a new bank or even into a new account can cause delays.
3) DO NOT PAY OFF BILLS
Your loan officer 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 off bills to make sure we have the evidence we need to prove that the bills have been paid.
4) DO NOT MAKE ANY MAJOR PURCHASES
Many borrowers make the mistake of buying a new car, some furniture or making another major purchase without realizing the impact it can have on their ability to buy a home. A large monthly payment can affect the amount of home you qualify for and, during the loan process itself, actually make it extremely difficult to get your loan approved.
If you must do any of the things listed above (even if you've just been pre-qualified for a loan) contact your loan officer. They can help you by re-qualifying you if necessary and advising you of your options. By avoiding these four things, you can look forward to a successful loan closing.
Back to TopHow To Increase Your Purchasing Power
There are several factors that lenders take into consideration when determining how much they will lend to you for your home purchase. The three most important factors are your income, debts and down payment. Any one of these factors can greatly impact the amount of mortgage you qualify for. Lenders are primarily concerned with the percentage of your gross monthly income that goes to your new monthly housing expense and to your new monthly housing expense plus your other monthly debts. As a general rule, no more than 28% of your gross monthly income should be going towards your monthly housing payment and no more than 36% of your income should be going to your housing payment plus other monthly debt. These guidelines vary by the amount of down payment you make and the loan program you choose.
If you have been pre-qualified and are not satisfied with the amount you qualify for, we've listed four of the most common obstacles to qualifying for a home loan below and some possible solutions to each. Please be sure, however, to contact your loan officer with any questions or concerns, as they are the best source of information.
1) Excessive Long-Term Debt
a) Consolidate your debts by taking out one loan and paying off your bills with the money.
b) Pay off long-term debts by using some of your cash and making a lower down payment. Selling an asset to pay off debt is another option.
2) Inadequate Income
a) Income from alimony, child support, bonuses, overtime or future raises might be considered in qualifying. If you've overlooked any income, be sure to tell your loan officer.
b) Find a co-mortgagor who is willing to go on the loan with you to help you qualify.
c) Make a higher down payment.
d) Consider a financing option that will allow you to stretch your purchasing power. Some of these options include FHA loans, adjustable rate mortgages, balloon financing or a graduated payment mortgage.
3) Credit Problems
a) Repair your credit file by contacting creditors and requesting that negative information be removed.
b) Pay off outstanding judgments, liens and collections.
c) Re-establish good credit.
4) Lack of A Down payment
a) Get a gift from an immediate family member.
b) Ask the seller to carry back financing.
c) Sell or borrow against an asset.
d) Borrow against or cash out your 401 K.
e) Ask the seller to contribute towards closing costs.
f ) Obtain a low point or zero point loan.
g) Consider financing options that offer lower down payments and help with closing costs.
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