The Mortgage Book: The Smart Consumers Guide To Home Ownership

1. What Is a Mortgage? - Page 3 Defines terms, describes borrowers responsibilities, serves as introduction to rest of content 2. Types of Mortgages - Page 6 Fixed, variable, balloon, reverse, re-fi, credit line, jumbo terms and conditions 3. The Right Mortgage For You Page 10 Considerations in choosing the right mortgage, specialty mortgages (no income verification, etc.) 4. Sources of Mortgage Loans Page 14 Mortgage Banks, brokers, traditional banks, personal savings, family, mortgage assistance programs pros and cons 5. Pre-Qualified Vs. Pre-Approved Page 19 Differences, pros and cons, terms required by lender 6. Preparing to Submit a Loan Application Page 22 Tips on improving credit history, required documentation, document preparation services, attorneys, etc. 7. What Lenders Look For Page 25 Credit reports, ability to make monthly payments, percentage of gross income, condition of property 8. Finding the Right Home For You Page 29

Considerations, priorities, house hunting tips, using the web to find the perfect home 9. The Home Inspection Page 32 Choosing a home inspector, what do inspectors look for, what do lenders look for, conditional sales, re-negotiation of purchase price, give-backs, etc. 10. Price Negotiations Page 36 Purchase price, price reduction factors, initial bid, and creative solutions to price negotiations (binding contract, terms and conditions)

CA DRE# 01215943 NMLS# 1850

Mortgage Basics: The More You Know, The Brighter Your Future
Whether youre a first-time home buyer, youre moving up to accommodate a growing family, or down-sizing empty-nesters, the more you know about mortgages, the more likely you are to find the best mortgage to suit your needs today and in to the future. By becoming an educated consumer you become your strongest asset in shopping for and securing a mortgage. You ask the right questions. You understand the pros and cons of different types of mortgages. Youre better prepared to negotiate the right terms for your situation. Knowledge empowers mortgage consumers, so the more you know about obtaining financing from a mortgage lender, the better deal you get.

When shopping for a mortgage, talk to an expert

Most of us believe that a mortgage is simply money borrowed from a lender to purchase a home, but, in fact, a mortgage is much more than dollars and cents. Its knowledge and sense. A mortgage is a long-term commitment, a partnership with a lender, a legal agreement and a financial responsibility. Its also an opportunity to live in the best investment youll ever make. Consider this: Lets say you buy a home for $200,000. You make a down payment of $20,000 and borrow $180,000 from a mortgage lender to reach the $200,000 needed to buy the home. Five years go by and now the house is worth $250,000 when you sell it. Even so, you only pay back the mortgage lender the $180,000 you borrowed (less the amount paid off) and you collect the entire $50,000 profit. And in all that time, your investment kept the rain off your head. So, lets start with some mortgage basics. A Mortgage Isnt Just Dollars and Cents
Theres no place like home

Indeed, today most of us think of mortgages in terms of money. A mortgage is a loan from a lender thats used to purchase property. The mortgage loan is secured by the property, protecting lenders. The agreement between home owner and lender, sometimes called the mortgage deed or mortgage note, describes in legal terms, important loan features including: a repayment schedule, sometimes called an amortization schedule the rate of interest charged by the lender when payments from the home owner are due any fees associated with late payments or other services provided by the lender fixed monthly payments for a set period of time from 12 months to 30 years the lenders legal obligations the homeowners legal obligations detailed terms and conditions associated with the mortgage loan itself a highly-organized set of rules to protect both home owner and lender should the unexpected become reality

In fact, a mortgage is the security a lender puts into your property. As a consumer, its imperative to learn all you can about mortgages in order to find the best mortgage for you and your family. Compare features and look for innovative lending solutions from professionals who guide you throughout the loan application process. These highly-trained professionals provide the information you need to obtain the best type of mortgage loan from the best source.

Types of Mortgages
fixed-rate locks in the interest rate for the term of the mortgage variable rate in which the interest rate changes over time, up or down residential mortgages for homes commercial loans for commercial properties non-owner occupied mortgages for real estate investors jumbos (mortgages over $500,000) government-assisted mortgages for lowincome home buyers reverse mortgages that enable home owners to remain in their homes specialty mortgages, i.e. no income verification loans re-fis that swap one mortgage for a better one as the economy changes

Mortgage Loan Sources There are many sources for mortgage loans including: your local bank regional and national banks mortgage banks mortgage brokers government agencies (for qualified borrowers) private investors (rent to own)

Because there are so many types of mortgages and so many sources for a mortgage loan, it pays to shop around and compare interest rates, fees and penalties, length of the mortgage agreement and special terms for specialty mortgages. Learn all you can about the process of obtaining a mortgage. Whats required and how does the process work? Ask questions. Lots of them! Home ownership starts with obtaining a mortgage. Owning a home is a great investment. It gives you the freedom to make changes to your property to suit your tastes and needs now and tomorrow.

So shop around. When it comes to securing a mortgage loan, the right fit gets you the right home, and we all knowtheres no place like home your home.

Types of Mortgages: You Have Options

When you start shopping around for a mortgage lender you quickly discover that there are lots of different types of mortgages, each type with unique features, and some things to consider before signing on the dotted line. It starts with an analysis of your current situation finances, family size, commute to work and other lifestyle considerations and continues in to your future where Theres A Perfect Mortgage do you intend to be five years from now? How about 10 years from now? For Buyers of ALL Ages A mortgage is a product, just like a car. They each have features that should be weighed before making the final decision on which mortgage product is right for youand why! Fixed Rate Mortgages Lenders earn their money by charging interest on the amount you borrow for a home purchase. If you borrow $100,000, the lender charges a percentage on the outstanding balance you owe. A fixed rate mortgage sets the interest rate and locks it in. It never changes throughout the term of the loan. This provides peace of mind for many homeowners, especially when mortgage rates are on the rise. With a fixed rate mortgage, it doesnt matter how high mortgage interest rates climb. Typically, a fixed rate mortgage has a term of five years to 30 years. Obviously, the longer the term, the smaller the monthly payment. Some lenders even offer a 40 year mortgage with extremely low monthly rates, but 40 years is a long, long time to be paying off a mortgage. Interest rates on fixed mortgages tend to be higher than on variable rate mortgages (see below) because the lender does lock in the rate for decades and that lender wants to ensure it gets its moneys worth.

Amortization Loans are amortized structured from the first month of payment to the last so the lender is paid its interest first. If you pay $500 a month on a mortgage loan, the first month your statement might show that $12 went to pay off the principle while $488 was paid to the lender in interest. With each passing month, an increasing amount of your fixed payment is applied to paying off the principle the loan itself, and less is paid in interest. Amortization applies to any type of mortgage, including variable rate mortgages. Variable Rate Mortgage There are variable rate mortgages to suit the needs of just about any home buyer. With variable rate mortgages the interest on the outstanding mortgage balance is adjusted up or down based on the prevailing interest at the time the variable rate mortgage adjusts. There are one-year variables, three-year variables, 5/1 variables in general, theres the right mortgage fit to suit your needs and plans today and tomorrow. Variables are locked in for a certain period of time, after which the interest rate adjusts up or down. In fact, if rates are lower, a variable rate mortgage may actually lower monthly payments until the next time the mortgage adjusts to prevailing rates. The percentage of interest increase is usually defined in a variable loan agreement. For example, a lender may be limited to a 2% increase in mortgage interest rate after three years of a three-year variable. This enables homeowners to plan their housing costs more effectively and accurately. (You know the best and worst case scenarios before your variable rate adjusts.) Because variable rate mortgages do adjust every year or three years or at some set time, the interest rates on these variables are lower than fixed rate mortgages sometimes significantly lower. For example, a 30-year fixed mortgage is available at a 5.75% interest rate. A one-year variable a mortgage that adjusts interest rate every 12 months might be available for 4.25% and that makes a big difference in your monthly payments at least for the first 12 months.

Jumbo Mortgages Jumbos are mortgages usually in excess of $400,000 to $500,000. These mortgages are designed for the purchase of larger homes by homebuyers with proven mortgage payment histories, equity in their existing homes, impeccable credit records and sufficient incomes to ensure those large monthly payments. Jumbo mortgages are designed for homeowners who plan to sell their current homes and reinvest the profits from those sales into larger or more expensive homes. Specialty Mortgages Mortgage lenders want to lend money. Its their business and its how they generate their revenues. To accomplish this, a number of specialty mortgages have been developed. An example? No income verification mortgage loans are just what they say. If you have a less than stellar credit history, a no-income verification mortgage may be your best choice. Expect to pay a higher interest rate on specialty mortgages because, in most cases, the lender takes a higher risk on the home owners ability to pay off the loan. If you have special financial needs, talk to a mortgage professional to determine the specialty mortgage thats right for your unique mortgage needs. Non-Owner Occupied Most residential mortgages are for homes that are owner occupied the mortgagee (thats you) lives in the property that backs up the loan. Professional property investors require a non-owner occupied mortgage loan to finance their investments in property. These loans usually come with a higher interest rate based on the higher risk assumed by the lender. Reverse Mortgages
A Specialty, New Construction Mortgage Loan Is Perfect For Building Your Dream Home

Many home owners are real estate rich but cash poor. Their home mortgages are paid in full, they own a $300,000 home but they have no way of using that $300,000 to live day to day. A reverse mortgage is designed to address this problem. Home owners, over the age of 62 and who own their houses outright, receive monthly payments from a lender. These payments are, in effect, loans made monthly to the homeowners so they can stay in the homes where theyve lived for decades. Reverse mortgages are growing in popularity as the Baby Boomer Generation moves into its retirement years. Reverse mortgages supplement Social Security and investment income, enabling senior citizens to truly enjoy their Golden Years.

With a reverse mortgage, homeowners can live in the home for as long as they want or can. At which point, the home is sold, the lender receives repayment for the monthly payments it made to the home owners for 20 years, and any leftover profit goes to the homeowners. So, it doesnt matter if youre a young home buyer just learning about mortgage options, or youre a long-time homeowner whos finding it difficult to keep up with rising costs (and theyre always rising). Theres the right mortgage to suit your familys needs now and well into the future. Talk to a mortgage professional. Ask questions. Ask to hear the pros and cons of each type of mortgage. Educate yourself on the types of mortgages available and choose wisely. An educated mortgage consumer is a smart mortgage consumer. Youll be living with that loan agreement for years. Be smart when it comes to securing a mortgage.

A Reverse Mortgage Enables Long-Time Home Owners To Stay In Their Homes

The Right Mortgage For You: Planning For Home Ownership Congratulations! Youve decided to become a home owner. Or, move up to your dream home. Its not surprising. According to answers.com, 40 million of us move each year. Thats a LOT of packing! In fact, the average American family moves every five years, and now youre one of them. Shopping for a home mortgage can be a confusing process of percentages, terms, fees, fine print and a mind-boggling basket of different types of mortgages. So, how do you know which mortgage is right for you?
The average family moves every five years.

A mortgage is a product, just like a refrigerator. Refrigerators come in different sizes and have different features. So do mortgages. And just as youd shop around for a new fridge, its smart to shop around for the right mortgage to suit your needs now and in the future. Its time to put together a financial picture of your family including: monthly household income credit history, including payment history if you currently own a home available down payment closing, legal and moving costs job security history of home ownership future plans financial needs in the coming years your age your lifestyle

HOW MUCH MORTGAGE CAN YOU AFFORD MONTHLY? Total your monthly household income. Then, expect to pay 28-34% of that amount on monthly household expenses. Thats how much lenders expect mortgage consumers to pay each month.

All of these and more are considerations you and your family make before you start shopping for a mortgage. Make a list, fill in the blanks and develop a picture of what features are important in your next mortgage. Then, start looking for the right mortgage to fit your needs and preferences. Today, mortgage shoppers have lots of options. First-Time Home Buyers First-time home buyers have a dizzying array of choices when it comes to types of mortgages.

There are fixed-rate mortgages, variables with diverse roll-overs and increases or decreases in monthly mortgage payments, interest only mortgages, no-income verification mortgages, non-owner occupied mortgages, reverse mortgages, jumbos the list just goes on and on. Some things to consider when shopping for your first mortgage... theres a big difference between a first-time home buyer and a home owner. Home buyers must demonstrate the ability to make payment each month. Home owners, with a steady payment history, dont have to prove their ability to pay the monthly mortgage payment. Theyre doing it!

Work with a mortgage expert to find the right mortgage for you and your family today and in to the future.

If a fixed rate, monthly payment is more than a mortgage bank is comfortable lending, go with a variable rate mortgage with a lower, initial interest rate. Variable rate mortgages have lower interest rates than fixed rate mortgages. Example? A 30-year fixed rate mortgage may have an interest rate of 5.75% for the 30-year term of that mortgage loan. A one-year variable, in turn, would have a 4.25% interest rate, lowering your monthly payment to the point at which a lender is willing to make the mortgage loan.

Once in the home, home owners can change their mortgages from a variable to a fixed if appropriate. The monthly payment is higher but you can count on the interest rate staying steady. Hybrid loans have the benefits of fixed and variable rate mortgages. For example, a hybrid locks in a rate for five years than adjusts annually after that. These hybrid mortgages, again, come with a lower interest rate. Moving On Up If youre planning to purchase a larger home to accommodate a larger family, or shorten the daily commute, chances are you have equity in your current home. Great! Use this equity as your down payment on your new place and consider a fixed-rate mortgage with a shorter term. A 15-year fixed rate mortgage saves tens of thousands of dollars in interest. If Youre Planning To Move In The Next Few Years
If your next home purchase is a stepping stone, a fiveyear fixed that adjusts annually after that will save thousands of dollars over the short term you actually have the mortgage because of lower interest rates. If your work includes a lot of moving, go with a variable rate and, if circumstances change, you can always refinance, or re-fi, with a fixed rate mortgage with a locked-in interest rate.

In fact, the shorter the term of the mortgage loan, the more you save so you can buy up using the equity stored in your current home.

Your Financial Future Its not enough to look at the present when mortgage shopping. Its just as important to look to the future. Is the job situation secure? Will you start paying college tuition in three years? Things change, and some changes impact quality of life. Dont assume an annual raise. Dont assume prices of necessities are fixed. Theyre not. Prices go up with inflation each year and you want to live comfortably each month without worrying about your home mortgage payment. Start your planning today. Learn all you can about types of mortgages and the features each type offers. Become an educated mortgage consumer.

Then, talk with a mortgage professional. Discuss your needs today, and your expectations for the future. Together, working with a mortgage loan officer or mortgage broker, youll find the perfect mortgage with the perfect features to suit your familys needs today, tomorrow and well in to the future.

Sources of Mortgage Loans: The Empowered Mortgage Consumer

When you begin the process of buying a home you want options and today, you have more mortgage options than ever before, empowering you to walk away from any terms offered by any lender. This power to choose has changed the real estate industry by The perfect family home starts providing choices to anyone interested with the perfect mortgage lender. in purchasing property. Whether youre a first time home buyer, or moving up to a larger home, whether youre a real estate investor who rehabs homes for resale, or a landlord who enjoys regular rental income from tenants, today, where you obtain a mortgage is important. The right source saves money and time regardless of the state of the realty market. So, what are your options? And which is best for you? Local Banks Small town banks have five or six branches and service a few adjacent towns. These mortgage lenders are excellent sources for mortgages for several reasons. If you have a checking and savings account, a credit and debit card managed by a small town bank, the loan officer brings up your accounts and quickly determines that you and your spouse are excellent credit risks. Small town banks know you and are more likely to give you a mortgage because of a proven payment history and a big down payment in the local banks insured money market account. Small town banks almost always invest in the communities they service the real estate market with which theyre familiar so if you know the town in which you want to purchase property, a local bank is more apt to invest in a home, condo or other dwelling right down the street. Real estate investors and value-conscious home buyers especially those who buy homes in foreclosure look to local banks for short sales, sales of bank-owned properties. To a bank, owning a home is a liability. The bank has to maintain the property, insure it and recoup

the outstanding mortgage, so theres a strong incentive to sell a liability just to get it off the books and recover the outstanding mortgage balance to put that money to work by lending it to another small bank customer. If you know the community in which you want to buy real estate, stop by the local, community bank to see a friendly face and a willingness to lend to local realty buyers. Regional and National Banks These large banking institutions are in the business of providing mortgages for mortgage consumers who bank elsewhere. You dont need a personal relationship with these lenders. Theyre used to working with people across a wider service region and with mortgage seekers with whom the bank is unfamiliar. Larger banking groups almost always have a mortgage department set up to process mortgage applications quickly so theyre an ideal source when the owner of your dream home wants to close in 30 days. Need the paperwork processed quickly? Large banks are in the business of mortgage generation and theyre set up to collect, collate and assess all those forms, pay stubs, tax returns and other documentation provided by potential mortgagees. Investors in real estate will find experienced, authoritive advice from specialists in commercial real estate investment, often pointing professional property investors to attractive deals, from a studio condo to a large strip mall with great potential. Though these regional lenders lack the personal touch of local banks, they process mortgage applications efficiently. They have a larger inventory of homes in foreclosure for short sales and they have real estate experts to assist property investors in finding the perfect rehab, flip or income producing property. Mortgage Banks Some banks place a stronger emphasis on mortgage lending than others. These mortgage banks provide other services, like checking and savings accounts, but the primary focus of a mortgage bank is investing in real estate. These banks have experts who analyze your finances and pre-approve or pre-qualify you for a certain dollar amount so you have a clear

picture of just what you can afford to spend on your first or next home. And again, investors receive tips and counsel from property professionals who can hook you up with the real estate that best suits your investment needs, from a quick rehab or flip to long-term rental income property to supplement your monthly income. Mortgage Brokers Mortgage brokers represent numerous lenders local, regional and national banks, as well as government-backed mortgages and other lending sources for your property purchase. Brokers review your finances carefully so be prepared to provide all necessary paperwork including tax returns, investment statements and yes, last weeks pay stub. Once these mortgage pros have a clear picture of your assets and liabilities, theyre able to shop you around to numerous lenders, often with a simple telephone call.
A mortgage broker offers a basket of lending options one sure to fit your individual needs.

Mortgage brokers are an excellent option for first-time home buyers who have yet to establish a mortgage payment history. Theyll find a small bank, or even a property investment group, to provide the mortgage money needed to get that property deed you and your loved ones desire. Mortgage brokers are also a great source for specialty mortgages including: construction loans for new homes being built zero down payment loans that enable you to get your foot in the door your door interest-only loans that lower monthly mortgage payments variable interest loans that adjust anywhere from every six months to every five years

no interest verification loans for buyers who have credit issues that are being resolved

In addition, mortgage brokers have business contacts at the lenders they represent. This enables a mortgage broker to facilitate the processing of mortgage loan documentation with a simple phone call. For example, if your application file is missing a document, the mortgage broker can develop a work-around with the lender to insure the mortgage process goes smoothly and you close on time. On-Line Mortgage Lenders You know the names. These on-line lenders advertise on TV every day. On-line lenders bring convenience to the mortgage application process and provide quick approval often in just a few hours. All of your documentation is filed on line safely and securely and, though you may never have a face-to-face with a representative of the on-line lender, you can be assured of fast service and quick approvals when time is critical. Because these lenders operate across the country, theyre ideal sources for buyers who are moving to another state, to a community where they dont have a local bank to turn to. Theyre newcomers. So, if On-line mortgage lenders simplify youre moving from Connecticut to the mortgage loan process. California, these on-line mortgage Get the whole family involved resources wont bat an eye when they from the comfort of home. receive your application. They handle this kind of mortgage thousands of times a day. Real estate investors should turn to other sources local and regional banks, and local mortgage brokers with whom the investor has a business relationship. On-line lenders offer non-owner occupied mortgages but the paper work is often complex and the process slow. Another reason to turn to on-line lenders is the relationships these mortgage providers have with national realty chains. On-line lenders have relationships with national realty companies, and while they dont maintain an inventory of homes for sale, they do work closely with real

estate agents to ensure you get the mortgage you need to purchase the home you want. Today, you have options when it comes to finding the right mortgage for you from the best source to suit your financial and personal circumstances. So shop around. Pick up the phone and talk to the loan officer at your current bank, but dont stop there. You can save money on application fees, closing costs and monthly interest payments with a few hours of research time well spent.

Pre-Qualified Or Pre-Approved? The Difference Can Mean Your Dream Home

Its amazing. Every day, home buyers take to the streets looking for the perfect home to suit their needs, yet theyre clueless about what they can actually afford to spend on that dream home. Many are completely unprepared for a home purchase, which should be undertaken carefully, slowly and completely. Youll know, long in advance of your first walk-through, that a new home is in your future so you have plenty of time to get organized and educated. Pre-Qualified Home Buyers Before you talk to a real estate agent, or scan the Sunday real estate listings, talk to a loan officer, mortgage broker or some other source for the intended cash you need to make a home purchase. The initial step is getting yourself prequalified for a mortgage. Its a simple process and, in most cases, its free. In fact, pre-qualification often takes place over the telephone or on a web site. The prospective lender asks for basic information on household income, investments, outstanding debt and other basic questions about how you expect to handle a monthly mortgage payment.
Pre-qualification often takes place on line or by telephone.

The process is based solely on information the borrower provides so the bank or other lender doesnt make any promises at the prequalification stage. Instead, the lender gives you a general idea of how much you can borrow based only on the information you provide. Nothing is verified at this stage. Now, home sellers at least savvy home sellers understand the difference between a pre-qualified buyer and a pre-approved buyer and, in every case, a home seller will take the offer from the preapproved buyer over the offer from the pre-qualified buyer. Heres why.

Pre-Approved Home Buyers Getting pre-approved for a mortgage loan is more complicated than a simple pre-qualification in which the lender provides a general idea of what the buyer can expect in terms of mortgage size and loan terms, like interest rates. Getting pre-approved is almost like getting a mortgage itself. Prospective home buyers must provide written documentation, things like tax returns and quarterly brokerage statements paper evidence that backs up the information provided during the pre-qualification stage. During the pre-approval stage, your lender performs a detailed credit check, and maybe even a background check. The mortgage paperwork may even be prepared, leaving the physical address of the home blank until buyer and seller come to terms. The advantages of having yourself preapproved before starting the search for your first, or next home?

With pre-approval from a mortgage lender, youll know exactly what the lender will deliver at closing, sometimes down to the penny. Add this to your down payment, subtract routine inspection costs, transference fees and other closing costs, and you arrive at a precise figure of what you can spend on your home purchase. Getting pre-qualified provides a general idea of what a lender will lend. Getting pre-approved gets specific. VERY specific. This saves time on your part. You look at homes you know you can buy and stay clear of pie-in-the-sky homes you think you can buy. You never get in over your head. The lender provides an impartial pair of eyes to make sure you dont borrow more than you can comfortably afford. Home sellers love pre-approved buyers. They know that: (1) the buyer has the resources to purchase the home and (2) the buyers offer is more certain than one from a pre-qualified buyer. Pre-qualified buyers may or may not be able to secure a mortgage and if they dont, the sellers home is off the market for a couple of weeks, slowing sales momentum to a crawl. Not good for the seller.

Can you afford it? Get pre-approved before you even start house hunting

Once terms with home sellers are in place, pre-approved buyers, march straight to their lenders, sign there, initial here and theyre good to go at closing. Home sellers know this. They know pre-approved buyers have paid the fees and filed the documentation that virtually guarantee the loan will go through. Thats why an offer from a pre-approved prospect carries a lot more weight than an offer from a pre-qualified prospect. The other advantages to getting pre-approved? You know exactly what you can afford. This saves time and puts you in a stronger negotiating position with a home seller. You know, as you enter negotiations, what you can afford. Pre-approval prevents over-borrowing borrowing too much and getting in over your head. The lender is impartial in its analysis of your personal finances and will provide a more precise figure of just how much you can afford to borrow and pay each month. Getting pre-approved takes longer and usually costs a few dollars for the lender to pull a credit report and analyze your hard copy documentation. Every thing is verified beforehand. Since the verification process has already been done, preapproved buyers have their loans processed faster. It saves time an important consideration when working with an eager seller.

Talk to any potential lender about pre-qualified versus pre-approved. Its a 10-minute phone call thatll give you confidence before you even start house hunting. More importantly, youll enjoy living in your dream home one you can afford for years to come.

Preparing To Submit A Loan Application

Once youve determined that a new home is in your future, its time to start compiling the paperwork a lender requires to determine if youre credit worthy. Now, there was a time when borrowers had to provide Before applying for a mortgage - PREPARE everything from tax returns to the results of an EKG but times have changed. Thanks to improved credit reporting and web-based research tools, lenders require less from prospective borrowers. Most of what a lender needs is in one of the credit reports generated by the three big credit reporting agencies: Experian, Trans Union and Equifax. How Does A Lender See You? Check Your Credit Reports Start by obtaining copies of your credit reports. It may cost a few bucks but its critical to see what a lender sees during the review of your credit history. Search for errors. Theyre common. Notify each credit bureau of mistakes to clean up your reports and to present the most accurate picture possible of your finances. Look For Red Flags. Thats What Lenders Do. Look for red flags like numerous credit cards with maxed out limits. A borrower who owes $30K on six credit cards isnt showing much fiscal restraint and, chances are, that borrower will have more trouble getting home financing than a borrower who pays down her credit card balance each month, only has two credit cards and shows a five-year payment history on her existing mortgage. Improve Your Credit Picture And Lower Monthly Expenses If you do carry a lot of debt, pay it down before applying for a home loan. Even if you have to liquidate assets, pay down expensive credit card debt to (1) save money on interest and (2) demonstrate fiscal responsibility in your personal life. Lenders like personal responsibility when it comes to money management. Pay The Fee. Save Cash. Expect to pay an application fee of between $150 and $250 to cover the lenders costs to pull your credit reports and crunch the numbers to determine if youre a credit risk or a regular pay. There are some

lenders who waive the fee, or who have eliminated application fees altogether. Dont choose a lender based on the app fee alone. Lenders who do charge a fee may deliver better terms, saving thousands of dollars over the term of the mortgage. Pre-Qualified or Pre-Approved Getting pre-qualified for a mortgage doesnt carry the weight of a preapproval but there are advantages to getting pre-qualified first. One, theres usually no fee involved. The lender looks over your credit history, asks some questions about personal assets and liabilities and pre-qualifies you in 15 minutes over the phone. To get pre-approved, chances are you pay a fee and must deliver more proof to back up your numbers. Pre-approval also takes longer than getting pre-qualified so if youre just starting your house search, save a few dollars and go for a pre-qualification. When your house hunting turns serious, spend the time and money to get pre-approved. Sellers like buyers who have been pre-approved. It gives them confidence in your offer. Gather Your Paperwork Youll be asked to provide paperwork and in some cases, plenty of it. Start compiling your paper early, before you apply for the loan. Heres a partial list of what lenders want to see: tax returns for the past three years showing household income investment statements (Ask your financial advisor to send the most up-to-date statements.) proof of who you are (drivers license, birth certificate, stateissued ID, etc.) a copy of your latest pay stub letters of agreement from family and other sources who will donate to your down payment fund
Gather your most recent financial statements

Youre approved!

your job history (a resume usually suffices) additional sources of income including rental income, trust fund income, intellectual property residuals and any other income that makes its way into your personal or professional demand deposit accounts or investment portfolio proof of property ownership (only if you use owned property as collateral to back up the mortgage loan, of course) copies of your updated, corrected credit reports ( a must-have) if youre self-employed (one out of six of us are) expect to be asked for business tax filings, annual reports and other documentation to demonstrate that your business is established and profitable, and has been for a number of years. a copy of your most current mortgage statement if you currently own a home the latest utility bills including heat and electric, primarily, though if you pay a monthly sewer assessment, for example, that statement should be included, as well

It may sound like a lot of paper but, if youre reasonably well organized, you should be able to gather what you need in a few hours and with a few phone calls. Also, theres an old saying in real estate: A week after you move into your new home youll forget the hassles involved in getting there. Its true.

What Lenders Look For: Look Good To Land The Best Loan
After youve filed all of your paperwork with a lender, its time for the lender to go to work to find the right mortgage for you. Lenders engage in a lengthy process of review, checking everything from your credit history to just how secure your job is. In some cases, the review takes a couple of days to get pre-approved or to get the loan itself. Some lenders may take a couple of weeks to verify your information and compile a profile of just how sound a credit risk you are. There are also special circumstances loans to suit a variety of common circumstances, and while these special mortgages may take a few extra days to process, they also One missed mortgage payment enable buyers to purchase a home can prevent you from getting a new mortgage for your new home. even under unique circumstances. Credit Reports So, just what do lenders look for? It starts with you, and more specifically, your credit reports. Once your paperwork is in the lenders hands, the lender pulls credit reports from the big three: Trans Union, Equifax and Experian. The lender reviews your credit history going back years looking for red flags: a Chapter 7 or Chapter 13 bankruptcy filing (not good) usually within the past several years missed mortgage payments (a bright red flag) excess credit card debt missed credit card payments liens, encumbrances and other legal sanctions filed against your current home

criminal convictions or civil litigation anything related to the legal system, including a divorce involving child support and/or alimony over-extended credit, i.e. too much credit even if that credit isnt used a maxed-out credit line on the home a combination of your credit scores numerous credit card disputes

Lenders know how to read a credit history like you read the Sunday comics. Thats why its so important to obtain and clean up all three of your credit reports before submitting a loan application (and paying the application fee). Job History A thorough lender checks the work histories of the primary wage earners in the household. Youll be asked for tax returns, usually for the past three years. You may also be asked to provide a pay stub showing your regular take-home. A stable job history carries more weight than a job-hopping applicant whos had eight jobs in the past five years. Job hopping isnt a mortgage killer but lenders like to see earnings stability and the potential for growth within your field. This is especially true of first-time home buyers who cant point to a five-year payment history as proof of credit worthiness.
Are you a job jumper?

Additional Revenue Sources Many home owners have more than a paycheck to take care of routine expenses. Rental income, for example, is counted on a percentage basis when calculating your ability to pay. Lenders assume that rental properties will sit unrented for some period so only a portion of rental income is counted toward total household income. The percentage changes from lender to lender. Other sources of income include: investment income, residual income from the sale of a home or business, trust fund income, royalties,

business ownership and other common sources of household revenue. Alimony and child support dont usually factor into the household income calculations because these can change by court order. An Impeccable Payment History If you own a home, lenders carefully examine the payment history on your current mortgage. If you havent missed a payment in 10 years, lenders smile. If you missed two payments last year, they dont smile. Missing a single mortgage payment puts at risk your ability to secure home financing in the future. Percentage of Total Income Versus Household Expenses Lenders establish a range of percentages that they believe a family can pay each month toward total home maintenance. More liberal lenders allow up to 36% of gross household income to go to paying the mortgage, utilities, property maintenance and other expenses every homeowner knows all too well. It costs money to own a home and lenders want to make sure you can cover those monthly expenses for many years to come. At the low end, conservative lenders wont lend out more than 27% of gross monthly income to a potential home buyer. So heres a little exercise. total your gross household income from all sources. Then, calculate 27%, 32% and 36% of that figure to determine what a lender believes you can pay each month for total costs of home ownership. Using these general guidelines youll quickly determine what various mortgage lenders are willing to lend based on your ability to pay all the costs of homeownership. If you fall outside of the lenders safety zone, chances are, you arent getting the mortgage you hoped for. The Condition of the Property A mortgage lender is your partner in home ownership. You have a stake in the home and so does the lender and both want to insure the home is sound, the mechanicals are in good order and that the lender can recover its investment in the case of a foreclosure. Of course, you want to know the true condition of any home before you sign on the dotted line so a home inspection is a must-have for both buyer and mortgagor. A bad inspection report is good reason to walk away and keep looking. And even if you plan a DIY fix, lenders

are less likely to provide a loan on a home that needs work and plenty of it. Sound complicated? A little discouraging? Well, just remember that mortgage lenders want to give you the loan. Thats how they earn income to stay in business and generate loans for other home buyers. Mortgage lenders, from the bank on Main Street to on-line lenders who never see your face, want you in your home. They just want to make sure theyre protected, too. So, put on your best face. Look for homes that fall within the comfort zone of the lender. Dont push the envelop and fall in love with a home that you cant afford. Its a headache A construction loan often you dont need and a mortgage you requires more paperwork wont get. than a traditional mortgage loan However, when you find the right house in the right condition, when you demonstrate that youre a good credit risk, lenders line up to help you find the perfect mortgage for your circumstances. Just remember, you and the lender both want the sale to go through and both will work hard to see that it does.

Find The Right Home For You: Its NOT About The Paint
Many home buyers spend more time researching a car purchase than they do the purchase of a home. Your home is more than a place to keep your stuff. Its a financial asset that you live in. It keeps the rain off your head. Its the place for family gatherings, and its the place memories are made. Your home buy should be well considered, weighing pros and cons, developing a list of must-haves and extras. Finding the right home for you today and tomorrow requires research, a little education, an understanding of whats important to you and the right attitude toward home buying. Before you fall in love with a home, look at it clinically, impartially and as a financial investment. You may love the house but Americans buy and sell houses every 5.6 years so, consider how easy itll be to sell a home before you even put in an offer. Whats your limit? You need a number. A locked-down, etchedin-stone number. The maximum you can spend on a home, whether a single-family, a condo or a multi-family you buy as an investment. Talk to several lenders. Get pre-qualified to get a general idea of what you can expect a lender will give you.
Calculate a locked-down maximum you want to pay each month.

Dont forget closing costs. In some states, closing costs include legal fees, transfer fees, recording fees the list makes your head spin. Set aside enough to cover closing costs. Some people add closing costs to the total amount borrowed but in that case, youre paying off closing costs over 30 years, and thats a lot more than paying those costs at the time you take possession of your dream home. Factor your down payment but dont bust the bank. Save a little for emergencies and the unexpected. If all you household income is going to pay for the house, theres no money left over for things like family vacations and renovations down the line.

Calculate your down payment (the one that doesnt blow the budget out the back door), add expectations of what a lender will lend, and subtract closing costs. Then, subtract 5% of that figure and you have a conservative estimate of just what you can spend on your first or next home. Make a priority list Not as easy as it sounds because all members of the family have different priorities. The kids want their own bedrooms. Your spouse wants to be close to work. You want space for a garden. Time to make some trade offs. Start with the number one priority. Maybe its privacy. Or four bedrooms. A swimming pool or ocean views. Start with your top-most priority and build on that. How much space do you need? Number of bedrooms? Bathrooms? Amount of land? Family-friendly neighborhood? Good schools? Close to transportation? Easy commute? Room to garden? Make a list of what you must have and what youd like in your home. Thats your road map to home buying success.

Will your family grow? Plan for the future when buying a home.

Schedule a day for house hunting Call an agent from a recognized, certified real estate agency and schedule a day of house hunting. Discuss your list of priorities, give the agent a few days to do some market comparisons and research current inventory, and do five or six walk-throughs in a day. This does a few things. First, it saves time. A given, but house hunting can take months. Looking at five or six homes, within your price range, is a total time saver. Second, it keeps homes fresh in your memory so you can compare House A against House B to see which meets more of your priorities. Finally, a one-day tour of homes in a community is a crash course on market conditions and what you get for $X amount of money. Tip: Bring a camera and take lots of pictures of the homes you visit. You have a lot of choices to consider and pictures are great for jogging the memory.

Use the world wide web to start house hunting from home The chances of finding a home that meets all your priorities have improved thanks to the world wide web especially if youre planning to move three time zones to the right. The web is a great house hunting tool. Use it to narrow your search and save time BIG time. Most realty sites have search options so search by preference. Number of BRs, family room, Your home is where memories are made. square footage, information about the neighborhood and community even property tax assessments. You can find a lot of information on the web and save yourself a lot of time. Trade-off, compromise and be happy Dont expect to meet all of your priorities, but do expect to meet your top three to five. Just be willing to trade off and compromise. Okay, maybe your dream house is 10 minutes further from work, adding 20 minutes highway time, more mileage and higher gas costs. Are you willing to make that change in return for a fourth bedroom or more acreage? Only you can decide what trade-offs and compromises are acceptable but go back to your priority list. The home you ultimately purchase should meet three of your top five priorities and fall at or below the iron-clad dollar figure that you set early in the house hunting process. Take the time to do the legwork. Know the market, what you need and want and what you can pay. And remember, if this deal isnt working, theyll be another one tomorrow so patience, when home buying, is a virtue. With the right information and a business-like approach to your next home purchase, youll enjoy the security of ownership, building equity and creating those memories for a lifetime.

The Home Inspection: Check It Out Before You Check In

Buying a home is a process. Part of that process is signing a binder an agreement that you will purchase the home based on certain contingencies. A binder usually requires a nonrefundable down payment of 1% of the total purchase price so you, the buyer, would put up $2,400 on a home youve agreed to purchase for $240,000. You lose your binder if you back out of the deal for no reason. However, the binder should include escape clauses that allow you to back away under certain conditions. For example

A home inspection is essential to your familys peace of mind.

if you cant find a lender and are unable to secure a mortgage, the binder is voided. Thats why home sellers like pre-approved buyers rather than pre-qualified. The pre-approved buyer has already filled a fat file full of documentation and the lender has checked the documentation and approved the buyer. Another critical contingency that should be in the binder you sign is a clean inspection report. When buying a home, the last thing you want is a house that looks great but has leaky pipes, drafty windows and a roof that was installed when disco was king. Ask a friend to join you house hunting. A handy friend who knows how to stop a leak or spot a sagging joist can steer you away from properties that have deficiencies that can be seen by an experienced eye. If you dont know a ball cock from a ball peen hammer, ask a handy friend or family member to tag along on house hunting trips to save time. Read the binder twice. Then read it again. The binder is a legal document. It commits your money to the purchase of a home so take it seriously. Make sure youre covered. You can back out of the deal in the event that serious mechanical problems are discovered during the inspection. Then, be prepared to

walk away if the seller is unwilling to make concessions. Dont buy someone elses house headaches. Choose your own inspector. Your real estate agent may offer a recommendation for a home inspector we use all the time. Thats the problem. The agency uses the same home inspector. The agency accounts for a significant portion of the inspectors revenue. Theres bound to be a strong incentive to insure the sale goes through If you dont know a ball cock so the inspector may make some from a ball peen hammer, hire your own home inspector. judgment calls that arent in your best interests. Look in the yellow pages for a certified home inspector. You want the inspection to take place quickly. You want to be there during the inspection to make sure the inspector climbs up into the attic looking for leaks. And you want a written report. A written report is your ticket out of a bad deal, or a negotiating tool used to negotiate concessions from the buyer. What do inspectors look for? Professional home inspectors check the mechanicals of the home. They arent decorators or agents and, if you choose your own inspector, you can be sure to receive an impartial analysis of the plumbing, the electrical system, condition of the roof and basement, potential costs like an out-dated furnace and other issues related to the mechanical condition of the house. These professionals should test electrical sockets, flush the toilets, run the water, perform a water test, test for radon (an odorless colorless gas thought to be linked to cancer), climb up on the roof, shine a light down the chimney and, if the appliances are staying, test the burners on the stove. A thorough home inspection should take between one and two hours depending on the age of the home and visible signs of problems. Follow your chosen inspector as she examines your future home from rooftop to basement sump pump. Lenders want to see the inspection report.

A mortgage lender doesnt want to lend money on a home with lots of mechanical problems. They want a clean inspection report, too. It makes them sleep better at night. Thats one reason you may have to shop around for a lender if youre buying a handymans special real estate lingo for a home that needs a lot of work. The lender may ask how repairs will be made before finally approving the mortgage if serious mechanical problems are discovered during the inspection. Having DIY money in the bank often smoothes the approval process. Before hiring a home inspector, ask to see a copy of the report form most of these jack-of-all-trades use. It should include a detailed checklist of the items to be inspected. Make sure you provide a copy of the inspection report to the lenders that youre working with. Negotiating give-backs and concessions. If problems are discovered during the home inspection, you have two options. Which one you choose should be weighed carefully. First, if the home inspector uncovers serious mechanical issues during the inspection you can simply walk away from Renegotiate concessions from the deal. You get your 1% binder back, no the seller through your questions asked, because the binder is real estate agent. held by the agent and is NOT given to the buyer unless you renege for no good reason something to avoid at all costs. Your second option is to re-negotiate the agreed-upon price with the home owner and ask for a lower price, concessions and give-backs. For example, if the home inspection reveals that the wheezing, smoky furnace is on its last legs, check local furnace prices and request that the furnace be replaced or that the seller lower the house price to cover your expense of replacing an ancient but essential part of the home heat and hot water. Go down the list of problem areas discovered by the inspector. Do some quick research on the world wide web or make a few phone calls to contractors to get an idea of what itll take to fix a flooded basement or a crumbling patio.

Present these written fix-it estimates to the home owner and ask that the problems be fixed or that the price of the home be lowered so you have the cash to fix what needs fixing. Depending on how motivated the seller is there may be some give and take here but remember, if you cant arrive at terms that suit you there will always be another house coming to market that doesnt need a lot of work. Its your choice because, in the end, itll be your home. And you want to move in to a place that you know is sound, where everything works and you dont have to worry about replacing the central air conditioning next summer. Take the time to look at a prospective home from a purely mechanical point of view and save headaches and heartaches six months after you move in. Thats the home you want to buy.

Home Purchase Negotiations: Get The Most For The Least

Youve done your homework, youve talked with a couple of lenders, you have a real estate agent and youve studied the housing market where you intend to buy. Good for you. An educated home buyer makes an excellent negotiator. Once youve found the right home the home that suits your preferences, your living needs and your budget, its time to put in an offer. The offer you present to the home seller is legally binding. You sign a document that has teeth so its critical that you negotiate the best price without over-extending yourself in the alltoo-common bidding war between you and other buyers or you and the seller. The last thing you want when buying a home is to engage others in lengthy negotiations. Why? Because the longer Dont let your dream home turn into a nightmare during deliberations take the more you stand to price negotiations. lose in time, legal fees and other costs, including the loss of your initial binder that 1% of the total purchase price that demonstrates good faith on your part. Start preparing to negotiate. Get your financial records in order and submit them to the lender of choice, whether its the local bank on Main Street or an on-line lender that services the whole country. Submitting the paperwork and paying the app fee gets you pre-approved for a certain amount of mortgage money. This enables you to determine what you can bid and how high you can go. It also demonstrates that youre a serious buyer, not just a lookylook who takes house tours for fun. The process of getting prequalified (less paperwork) and pre-approved (more paper work, more time and an application fee) takes time. Submit your required paperwork early to have the pre-qualification or pre-approval in your hand before you start your house search.

It also takes time to find the right house. Oh, you may get lucky and find the right home on your first day out but for some home buyers, the right home may take months to find especially when the budget is tight or the market is active. Homes come and go quickly usually 60-90 days after theyre put on the market so be ready to take action when you find the right home. Locking in your initial offer. Laws vary from state to state but, typically, to make an offer on a home, a contract, called a binder, is required. A good-faith payment of 1% is also made at the time a binder is signed. This is the first step in the negotiating process. The good faith money is held by the real estate agency you work with. The binder includes several conditions that must be met by both buyer and seller. For example, a typical clause defines how long the buyer has to have the home inspected, i.e. The buyer has 14 business days from signing this agreement to have the home inspected. This protects home sellers who must take their homes off the market until you, the buyer, have the home inspected. On the other hand, if an Work with a real estate agent who inspection report identifies numerous knows the housing market to defects, the binder contains a clause handle price negotiations. that allows you to back out of the agreement a clause that protects you. Ask your real estate agent to explain the conditions and terms of the binder before your sign to make sure you understand your obligations and rights under the terms of the agreement. How much should you bid on a new home? A number of factors come into play when determining how much you should bid on a home: How quickly do you want or need to move in? (Another reason to prepare and start early in your home search). Most families want to be in place before the start of the school year, for example, so the kids can start on opening day. Or, you may have already

sold your current home so moving quickly to find your next home is essential. Are there other bidders on the home? You may not know this until you put in your bid but a good real estate agent should be able to tell you if the house your eyeing has seen a lot of activity so stay in touch with your agent. How much have you been pre-approved to borrow? If your initial offer is the max you have to buy a new home, theres no room to negotiate so never offer your best bid first. Leave some room to negotiate. You can always raise your offer but you cant lower it so dont be concerned about putting in a low-ball bid initially just to see how the seller reacts. Who knows? You might be pleasantly surprised. How long has the house been on the market? The longer a home goes unsold, the stronger your negotiating position. Sellers are often committed to the purchase of another home and carrying two mortgages is a real strain so you have some bargaining leverage when negotiating with a motivated seller. Is the home currently occupied? The home may be empty, the owners forced to move into their new home or worse, forced to give up their home during a foreclosure. A bank-owned home, called a short sale, is more likely to sell well below the asking price. Same is true of a home sitting empty but costing the owner a lot of money each month.

A good rule of thumb is to calculate your initial bid 5% to 10% below the asking price. So, a good bid for a home listed at $200,000 would be between $180,000 and $190,000 depending on how quickly you need to move and how much you want the home. It cant be said too often: if negotiations are not going your way, if you feel uncomfortable or over-extended, simply stop making counteroffers and start looking for another home. The right home is waiting for you. You just havent seen it yet. Look for creative financing solutions The primary consideration in any home purchase is cash but other factors often enter price negotiations on a home including: the condition of the home, the inspection report, the closing date (when

you sign the papers and take possession), owner financing options and other considerations. If you work with a savvy agent and a flexible mortgage lender you can often save tens of thousands of dollars on the cost of your next home. Work with these professionals to find the solutions you need to get your foot in the door. Home sweet home is a lot sweeter when you get it for your best price.