In order to be prepared for the loan officer, you will need to gather a lot of pertinent information that he or she will need in order to process your loan (there is a list at the end of this report). Before that happens, however, it is important that you understand what different types of financing are available to you.

 

 

Types of Mortgages:

FIXED RATE FINANCING

Once thought to be a dying breed, these loans offer fixed payments that only change when taxes or insurance change. A consumer can obtain a break on the rate of about 2% by going with a shorter maturity, 15-year loan, but this is at the expense of higher payments. As a result, a consumer qualifies for a lower loan amount. Under the current rates, these loans perform best over the long run since rates can vary greatly on Adjustable Rate Mortgages.

ADJUSTABLE RATE MORTGAGES (ARMs)

Having evolved for 15 years, these loans offer an attractive alternative to fixed rate financing. The initial rates start as much as 4% lower as compared to their fixed rate counterparts. A typical one-year ARM has a 2% annual cap and a 6% life cap over the initial rate and is adjusted annually according to a national index that reflects current interest rates. At adjustment, this program utilizes the current index rate and adds a margin that generally varies around 2.5 - 2.7%. Consumers should view ARMs under their worst case scenario as this, at some point, could be a reality. The loans are ideal for properties that will be sold in 4 to 5 years since a sizable amount of cash flow can be saved up front during the first two years. Under some circumstances, these loans can assist an individual in qualifying for a greater loan amount due to the lower initial rates.

The FHA has an attractive ARM program that offers more protection to a homeowner. The program offers a 1% annual cap and a 5% life cap. Although based on the same index as conventional ARMS, the margin is much lower at 2.0 - 2.25%.

BALLOON LOANS

These loans have evolved more recently and serve as an attractive alternative to ARMs and fixed rate programs. The loans are fixed for 5 to 7 years at a lower rate compared to fixed rate loans, although their payments are amortized over 30 years. A 7-year program saves .375% annually, and a 5-year program saves .75% annually compared to a 30-year fixed rate. At the end of 5 to 7 years, these loans are due in full although a consumer may (with restrictions) roll the loan over to the fixed rates (plus 2%) at the maturity date. These are great loans for individuals who will hold properties for 3 - 7 years but prefer fixed rate financing at lower rates.

None of the above programs have pre-payment penalties under FNMA guidelines and are based on simple interest calculations. The adjustable rate loans may be assumed with restrictions under their original terms, but the fixed rate and balloon programs are not assumable.
(Actual rate differentials may vary from above example)

POINTS EXPLAINED

What is a “Point”?

One point is equal to 1% of the New Loan Amount.

Why do lenders charge Points?

Whenever government regulation, state usury laws and/or competitive practices prohibit the lender from charging a rate of interest which would make the real estate loan competitive with other fields of investments, the lender must seek some method of increasing the yield for the investors. By charging points, the lender can bring the real estate loan up to those other investments.

Are Points called by different names?

Yes, Loan Origination Fee, Commitment Fee, Discount Fee, Funding Fee, etc.

Who must pay Points?

FHA Loans: The Buyer is usually charged with the Loan Origination Fee; the Discount Fee can be paid by Buyer or Seller.
VA Loans: The Buyer is usually charged with the Loan Origination Fee and the Funding Fee. Discount Fee must be paid by the Seller.
Conventional Loans: Points can be paid by the Buyer, the Seller, or split between the two. State on Contract of Sale! City/County/State Government Sponsored Loans: As published by them.

Does the number of Points charged fluctuate?

Yes. If rates on mortgage loans are lower than other investments (such as stocks, bonds, etc.) then funds will be drawn away from the mortgage market. Also, when there is a heavy demand on the money market because of business needs, military requirements or other government borrowing, the result is that money for home mortgages becomes scarce and more expensive. When this occurs, more points can be charged. Points balance the market. Points are not set by government regulation but by each lender individually.

On VA Loans, is there any way to lock in the number of Points?

Not without jeopardizing the sale. Even when a lender stipulates in writing the number of points to be charged, that guarantee states “if the interest rate is not changed by the government.” Points charged on an FHA or conventional loan are usually not changed from commitment time to settlement.

Is FHA or VA financing unfair to sellers?

No. Homes can sell faster because more buyers can qualify with the lower down payment requirement, lower interest rate, long term loans with lowest monthly payments. Sellers receive all cash for their equity to reinvest in a new home or other investment. The purpose of these loans is to provide buyers the opportunity to buy homes with minimal cash investment thus providing a bigger market for sellers.

Are Points deductible for Income Tax Purposes?

Points on a home mortgage (for the purchase or improvement of, and secured by, the taxpayer’s residence) are deductible currently if points are generally charged in the geographical area where the loan is made and to the extent of the number of points generally charged in that area for a home loan. If you are in doubt about points being deductible you should contact your tax return preparer.

LOAN APPLICATION INFORMATION

Being prepared for the Loan Officer is important when you make your application for a mortgage loan, so we have prepared a list of some of the questions the loan officer will ask you. In the interest of saving yourself time and money, be able to provide all the information at the first interview. The lender will require this information as it applies to you and your spouse (or CO-borrower). Be prepared to pay approximately $50.00 for a credit report, and approximately $350.00 for an appraisal.

EMPLOYMENT

• Name and address (including zip code) of Employer.
• Rate of pay and current pay stubs.
• How long you have worked there (if less than two years, you will also be asked to give the same information about your previous employer(s).
• W-2’s for the past 2 years.

CREDIT REFERENCES

• Names of banks or other places you have paid off an account in full within the last few years.
• Names of all creditors and credit cards along with account numbers, addresses and zip codes, required payments, and outstanding balances for each.
• Delinquent payments with any creditor will require written explanation.

CURRENT DEBTS

The lender will order a credit report on you, so please include on the list all items which will show up on a credit report - it will save time in having to give an explanation of unlisted items later.

• Names of banks, stores, credit card companies, etc., to whom you owe money, including revolving charge accounts.
• Monthly payment and balance owed.
• Account number (or credit card number).
• Child support and/or alimony.

INCOME

• Your monthly income before deductions.
• Average overtime per month and/or second job monthly income.
• Other regular income - investments, royalties, child support.
• Alimony, commissions, (with proof of sales - e.g. tax returns, 1099 forms for 2 years, divorce decree, etc.)
• (Should you be self-employed, the following documents are required)
• Sole Proprietorship:
• Complete, signed, personal tax returns for the past two years.
• A current, signed Profit and Loss, and signed Balance Sheet.

PARTNERSHIP

• In addition to the above, a schedule K-1’s complete, signed, Partnership tax returns for the past two years, and current signed Profit and Loss Statement and Balance Sheet.

CORPORATION

• In addition to the above, complete, signed, personal tax returns for the past two years plus current signed Profit and Loss Statement and Balance Sheet.
• If on a Commission Basis: complete, signed, personal tax returns for the past two years, year-to-date signed statement of employee business expenses.

LIFE INSURANCE

• Face and cash value of life insurance policies.

ASSETS:

• Household:o Replacement value of furniture and household items (approximately).
  • Jewelry.
  • Tools, hobby collections, art, rugs, antiques, etc.
  • Other things you own which have specific monetary value.
• Automobiles:
  • Make, model and market value of automobiles.
  • Indebtedness of all vehicles.
• Banks:
  • All banks names, addresses and zip codes, account numbers, current balances for all checking and savings accounts, including credit union accounts, money market accounts, etc.
  • Copy of the last two months bank statements on all deposit accounts.
• Investments:
  • Name of stocks, bonds, mutual funds, etc.
  • Market value and number of shares.
  • Location and estimated value of any real estate owned. Be sure to include name and address of lender and loan number, monthly mortgage payments, loan balances and rental income, if applicable.
  • Copies of leases on all rental property.

PERSONAL

• Copy of Drivers License and Social Security Card for each applicant.

LOAN APPLICATION CHECKLIST

____ Photo Identification/Copy of Driver’s License
____ Social Security Card
____ 7 Years Residence History
____ 2 Years of Landlord or Mortgage Addresses
____ 2 Years Employment History
____ Last 2 Years W-2’s and Most Recent Pay Stubs
____ Self-employed; Signed and Completed 2 Years Tax Returns, Corporate Tax Returns, Current Profit and Loss Balance Sheet
____ Commissioned: Complete 2 Years Tax Returns and Current Pay Stub Reflecting Year-to-date Earnings.
____ Name, Address with Zip, Account Number and Balance of:

• Installment and Charge Accounts
• Home Mortgage, all Real Estate Loans
• Checking, Savings, Credit Union, etc. to verify funds required to close your loan.

____ Copy of Last Two Months Bank Statements on All Accounts
____ Child Support Debt or Income: Complete Divorce Decree and/or Property Statement.
____ Sales Contract on New Home.
____ Sales Contract/Listing Agreement on Present Home.
____ Rentals: Lease Agreement (12 Months)
____ VA Loans: DD214 and Certificate of Eligibility
____ Check to Pay for Credit Report
____ Check for Appraisal in the Amount of $________