Tierra Capital Corp ~ The Sam Shuck Team
Direct ~ (619) 733-2505
Email ~ sold@samshuck.com
Serving all of San Diego County
To get an accurate estimate (or pre-approval letter with Fannie Mae DU Automated Approval) gather up the following information from this check list and return it to me. I’ll get back to you within 24 hours.
· Understanding Types of Mortgages and Home Loans
Down payment. Traditionally, lenders like a down payment that is 20 percent of the value of the home. However, there are many types of mortgages that require less. Beware, though: If you are putting less down, your lender will scrutinize you even more. Why? Because the less you have invested in the home, the less you have to lose by just walking away from the loan. If you cannot put 20 percent down, your lender will require private mortgage insurance (PMI) to protect himself from losses. In todays tight lending market, all lenders require a minimum down payment of 10% for conventional financing when the borrower plans to occupy the property.
· LTV. Lenders look at the Loan to Value (LTV) when underwriting the loan. Divide your loan amount by the home's appraised value to come up with the LTV. For example, if your loan is $70,000, and the home you are buying is appraised at $100,000, your LTV is 70%. The 30 percent down payment makes that a fairly low LTV. But even if your LTV is 90 percent you can still get a loan, most likely for a higher interest rate, and you’ll need to pay monthly mortgage insurance (MI).
· Monthly Expenses and debt ratios. There are two debt-to-income ratios that you need to consider. First, look at your housing ratio (sometimes called the "front-end ratio"); this is your anticipated monthly house payment plus other costs of homeownership (i.e., PITI - Principle, Interest, Taxes, Insurance, HOA fees, Mello Roos, etc.). Divide that amount by your gross monthly income. That gives you one part of what you need. The other is the debt ratio (or "back-end ratio"). Take all your monthly installment or revolving debt (i.e., credit cards, student loans, alimony, and child support) in addition to your housing expenses. Divide that by your gross income as well. Now you have your debt ratios: Generally, it should be no more than 28 percent of your gross monthly income for the front ratio, and 36 percent for the back, but the guidelines vary widely. A high income borrower might be able to have ratios closer to 40 percent and 50 percent.
· Credit report. A lender will run a credit report on you; this record of your credit history will result in a score. Your lender will probably look at three credit scoring models (one for home equity loans or lines of credit) and then average them to arrive at your score. The higher the score, the better the chance the borrower will pay off the loan. What's a good score? Well, FICO (acronym for Fair Isaac Corporation, the company that invented the model) is usually the standard; scores range from 350-850. FICO's median score is 723, 680 and over is generally the minimum score for getting "A" credit loans. Lenders treat the scores in different ways, but in general, the higher the score, the better interest rate you'll be offered.
· Income or Work History. Believe it or not, lenders do require you to have a job or at least some sort of monthly income to repay your loan. Lenders will require a steady source of income over the last two consecutive years.
· Automated Underwriting System. Today you can quickly find out if you qualify for a loan via an automated underwriting system, a software program that looks at things like your credit score and debt ratios. Most lenders use an AUS to pre-approve a borrower. You still need to provide some information, but the system takes your word for most of it. Later on, you'll have to provide more proof that what you gave the AUS is correct.
· Understanding Types of Mortgages and Home Loans
There are different loans for different needs. In other words, the type of mortgage you get depends on your individual situation. It's important I get a good sense of all your needs; from your credit report, your assets, and your employment history. I can then recommend some options for you. Here's a rundown on the most common loan types.
Fixed-Rate Mortgage
Description: Interest is fixed for an amount of time; e.g., 10, 15, 20, 30, or even 40 or 50 years, at which point the amortized principal is paid in full.
Pros: Security. You know what your payments will be. You can refinance if rates drop significantly.
Cons: If rates go down, you'll still be paying the initial rate unless you refinance.
Watch out: This is a long-term prospect; if you are keeping your home for 15 or even 30 years, it's a conservative way to go. But you can end up paying more short-term than if you had an ARM.
Adjustable-Rate Mortgages (ARMs)
Description: The interest rate fluctuates with an indexed rate plus a set margin; adjustment intervals are predetermined. Minimum and maximum rate caps limit the size of the adjustment.
Pros: Initial rates are lower than fixed. Popular with those who aren't expecting to stay in a home for long, or in a hot market where houses appreciate quickly, or for those expecting to refinance. You can qualify for a higher loan amount with an ARM (due to the lower initial interest rate).
Cons: Always assume that the rates will increase after the adjustment period on an ARM. You are betting that you'll save enough initially to offset the future rate increase.
Watch out: Check out the frequency of the adjustments. The more often, the lower the starting rate, but the more uncertainty. The less often, the higher the rate, but a little more security. Check the payments at the upper limit of your cap (your rate can increase by as much as 6 percent!); you can get burned if you can't afford the highest possible rate. And planning that a refinance will bail you out is risky; what if you can't afford (or can't qualify for) that when the time comes?
Interest-only ARM
Description: For a period of time, you pay only interest, and do not pay down the principal.
Pros: If you don't plan to stay in a home long, you can buy something you ordinarily couldn't afford. If you are in a hot market, or a hot neighborhood, you'll have low payments while your house appreciates in value. You can always pay more on the principal while enjoying the low payments.
Cons: The day will come when you need to pay down the principal. If your home value has fallen, or your income decreased, you could have trouble making the new payments.
Watch out: If you can't pay interest and principal at the same time, chances are you can't afford the house. You can only put off the inevitable for so long: The principal has to be paid down. If you can't make payments, you could lose the house. If you plan to sell your house and can't sell it for what you owe, you are in trouble.
Jumbo loans
Description: Above Freddie Mac and Fannie Mae conforming guidelines, therefore the big secondary lenders will not secure jumbo loans. 2006 maximum amount for a conforming loan: $417,000.
Pros: When the market is out of sight, the jumbo loans make a purchase possible.
Cons: Higher down payments, and higher interest rates.
Watch out: If you can afford the higher payments, then go for it. But make sure you can afford them.
Assumable mortgage
Description: An adjustable-rate loan, the balance of which can be assumed by a home buyer.
Pros: Sellers can offer a low interest rate to entice buyers.
Cons: This is almost never a fixed rate mortgage, so the savings might not be all that great.
Watch out: These are rare today. If the buyer who assumes the loan defaults, the bank will go after the original borrower.
Veteran Administration Loans (VA)
Description: A zero-down loan offered to veterans only, the VA guarantees the loan for lenders.
Pros: Nothing down, and no mortgage insurance. The loan is assumable.
Cons: It's possible the rate is more than conventional loans or FHA loans.
Watch out: Shop around first. Lenders are getting paid a 2 percent service fee by the government, so your points should reflect a discount when compared to similar rate loans.
Federal Housing Administration Loans (FHA)
Description: Government-subsidized loan with low down payment (i.e., as little as 1-3%) and closing fees included; the government guarantees the loan.
Pros: Low rates for those who can't come up with the down payment or have less-than-perfect credit; great for first-time homebuyers. The loan is assumable.
Cons: If you can afford 5 percent down, you might find better rates with conventional loans
Watch out: Shop around first. Lenders are getting paid a 2 percent service fee by the government, so your points should reflect a discount when compared to similar rate loans.
Reverse Mortgage
Description: A loan to elderly homeowners who need to borrow against the equity of a home while still living in it. The debt does not need to be repaid until the house changes hands. Interest is commonly one-year treasury rate, plus a margin and a cap on a rate change.
Pros: Allows people 62 or older to stay in their homes as they age; no repayments.
Cons: You must maintain your house, pay property tax, and insurance. And you cannot take out a second mortgage or rent your home, or use it for business.
Watch out: The loans are complex, so make sure you understand what you are getting. AARP has good consumer-oriented explanations for seniors. Choose a lender who is member of the National Reverse Mortgage Lenders Association.
· Understanding Types of Mortgages and Home Loans
· Understanding Mortgage Fees and Closing Costs
· Refinancing? Find out what your home is worth
The amount you borrow to actually buy your house is one thing; the fees required to close the transaction are quite another, and they amount from 3 to 5 percent of your overall mortgage.
At the real estate closing, you'll be given a stack of paperwork that shows the loan fees line-by-line. (You should already have seen these in your Good Faith Estimate, but they might vary.) The fees below are what are generally required, but every buyer will not pay every fee listed. For example, maybe you worked a deal with the seller to pick up part of the closing costs. There are also many geographic differences. Finally, all lenders do not charge every fee shown.
Commissions: Payment for the work real estate agents have done. Traditionally it is 6% split between buyer and seller agents; usually 3% to buyer's agent, 3% to seller's agent. The seller usually pays these. Note: These costs are not included in your lender's Good Faith Estimate.
General loan fees
Application fee: An application fee is a fee to reimburse the lender for internal costs associated with initiating the application process, usually around $800.
Appraisal fee: The lender hires an independent appraiser to determine whether the property is worth the sales price you've offered for it. Expect $300-$500. It can be higher or lower, depending on the size of the property.
Assumption fee: Buyers sometimes take over (assume) the seller's existing mortgage. If so, the lender may charge a variable fee.
Credit report fee: Covers obtaining a credit report to determine whether you are an acceptable credit risk. Also called a "credit check fee," it averages about $25 per credit report checked.
Interest: Most lenders require the buyer to pay the interest that will accrue on their loan from the date of settlement (Close of Escrow) to the first monthly mortgage payment due date.
Mortgage insurance application fee: When the down payment is less than 20 percent of the purchase price, you are required to carry Private Mortgage Insurance, PMI, to protect the lender should you default on your loan. Sometimes the lender charges a variable fee to process the application.
Loan discount points: Refers to a one-time charge imposed by the lender or mortgage broker to lower the interest rate and therefore the monthly mortgage payment. The more points paid up front, the lower the interest rate. The loan discount is also called "point" or "discount point." Note that the interest rate does not drop by one percent per point.
Mortgage broker fee or Mortgage Administration fee: Paid to a mortgage broker, typically in a commission based upon the amount borrowed, in return for finding the mortgage. We charge $350.
Mortgage insurance premium (Hazard): Some lenders require borrowers to pay their first year's mortgage insurance premium up front. Other lenders ask for a lump sum insurance premium payment at closing that covers the life of the loan.
Processing fee: Charged by the lender or wholesale broker to cover costs associated with the processing and closing of a mortgage loan, typically around $500.
Reserve account funds: Your monthly mortgage payments are likely to include a pro-rated amount to cover payments for property taxes and homeowners insurance. This money is held in a "reserve" or "escrow" account by the lender who makes the payments for you. At closing, your lender may require you to pony up advance payments just to be sure the reserve fund has enough money to pay the bills.
Tax-related service fee: Paid to set up a service which identifies the payment due date of local taxes for the servicer of the loan.
Underwriting fee: Covers the final analysis and approval of the mortgage; often the lender's cost to the investor that will subsequently purchase the loan. Some lender will include this in with the loan application fee.
Wire transfer fee: Covers the cost of wiring the money around, which is usually done from lender to escrow holder.
Insurance and taxes
Annual assessments: If you will have annual assessments made by your condominium or homeowners association, you will have to pay two months' worth up front.
Flood insurance premium: Lenders may require flood insurance, with the premium paid at closing, depending on the property location.
Homeowner’s insurance premium: A homeowner’s insurance policy protects the lender (as well as the owner) against loss of the house from fire, wind, or other natural disasters. Usually the buyer pays some of the premium payment at closing.
Taxes: Buyers pay two months' worth of city property taxes and two months of county property taxes at closing.
Title charges
Notary fees: Pays for the notary public who witnesses that the signatures on closing documents are made by the people named in them.
Title insurance fees: Average is $350, but could be as high as one percent of the loan. Title insurance is a policy that protects the owner and/or lender by guaranteeing the title to the property is clear.
Title search: About $200. A search is done to make sure there aren't any unpaid mortgages or tax liens on the property.
Government recording and transfer charges
Courier fee: Charged if a courier picks up and delivers documents.
Lead-based paint inspection: Covers the cost of evaluating lead-based paint risk.
Pest inspection: Depending on location, a termite or other pest inspection may be required.
Radon test: Covers the cost of testing for the presence of radon gas, which can be a problem in some parts of the country.
Recording fees: Average about $100. This covers getting the sale recorded in the public record.
Survey: About $1000 for a survey of the property boundaries.
Transfer taxes: This is a fee, usually collected by the state, for transferring the title of the property within a certain jurisdiction. California the fee is $1.10 for every $1,000 of purchase price (example; $400,000 purchase ÷ $1,000 x $1.10 = $440). The fee may vary.
· Understanding Types of Mortgages and Home Loans
· Understanding Mortgage Fees and Closing Costs
· Refinancing? Find out what your home is worth