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Mortgages

FINANCING YOUR HOME PURCHASE

This section should help you to understand lending concepts and the steps in obtaining financing.  There are several types of loans.  Your loan officer will help you to decide which would suit you best based on your qualifications.  The following is a list of the major types:

  • Conventional (conforming and nonconforming)
  • ARMS (adjustable rate mortgages)
  • Interest Only
  • Investor
  • HELOC Seconds
  • FHA
  • VA
  • First Time Home Buyer (varies from State to State)
  • Bridge Loans

As you begin your search for a new home, it is important to know what you can afford.  Your lender can provide you with a pre-qualification letter that is an unofficial estimate of your home buying capacity based on the information you provided.  This letter should accompany any offer you make.

A pre-approval includes a review of your credit history and a verification of some basic financial information by your lender.  This should take place within a few days following acceptance of your offer to purchase.  To receive this pre-approval you will be asked to provide the lender with residence history, employment history, pay stubs, business records/tax returns (if self-employed), bank statements, current debts, assets, year-to-date income and credit information.  The lender will then give you a list of conditions that will need to be satisfied such as an appraisal, property insurance, title report, etc.

You should receive from your lender a good faith estimate that will include an estimate of your total closing costs, down payment and monthly payment (PITI: principle, interest, taxes and insurance).  The closing costs will include an origination fee, discount points, appraisal, credit report, title insurance and attorney’s fees (if required).  Pre-paids will also be included.  These items include: tax pro-rations, hazard insurance and pre-paid interest.  I will add just a note to help you understand points.  A point is one percent of the loan amount.  Points are used to calculate the origination fee and any fee to “discount” (lower) the interest rate.  Zero (no cost) point loans have a higher interest rate than loans with an origination fee.

Once you have an accepted offer on a home, the offer and earnest money go into escrow.  Escrow is a third party agent (usually a title company) for both the buyer and seller.  The escrow officer will process the escrow in accordance with the purchase and sale agreement and the lender’s instructions.  The elements of an escrow are as follows:

  • Putting the earnest money in a trust account
  • Providing a preliminary title report
  • Identifying liens and payoffs required to provide clear title
  • Documenting homeowner association and hazard insurance

In order to finalize the loan process, the following is required:

  • A completed loan application including property insurance, income verification and asset verification
  • A completed appraisal
  • A completed home inspection and verification of required repairs completed
  • A clear title report
  • Satisfaction of all lender conditions

Once the loan approval is completed the loan documents will be prepared for signing.  The escrow officer will arrange for the signing of documents with both the seller and the buyer.  Before signing takes place, the officer will prepare a preliminary closing statement (HUD) that specifies the charges and credits to your account.  The items will include the purchase price, the funds already in the trust account, and the costs of all the services provided.  The total costs you owe and payment instructions will be provided.  The hazard insurance binder will be necessary at this time.

Once the signing has taken place, the documents will be sent back to the lender for their review.  When the documents have been approved the lender will wire funds to the escrow account for distribution.  After funds are received, the officer will record the deed with the county recorder.  All parties are then notified that the title has been changed into the name of the buyer.  You (as the buyer) will then have access to your new home!