Opening the Door to Your New Home. A Guide to Buying and Financing

Transcription

1 Opening the Door to Yor New Home A Gide to Bying and Financing

2 Contents Navigating Yor Way to Home Ownership...1 Getting Started...2 Finding Yor Home...9 Finalizing Yor Financing...13 Final Closing...14

3 Navigating Yor Way to Home Ownership Learning As Mch As Yo Can Bying a new home is an exciting event in yor life, and it s likely to be the most expensive prchase yo ll ever make. When yo decide to by a home, yo re making a major investment in yor ftre. Before making that commitment, it s important to be prepared so yo make the right decision. This gide covers the general steps involved in bying and financing a home. Use it to learn as mch as yo can abot what lies ahead. Then yo ll know the right qestions to ask later, and yo ll feel more at ease navigating yor way to home ownership. Understand the important advantages of home ownership Understand the Federal Government s Know Before Yo Owe mortgage initiative Understand yor pfront costs Determine a prchase price range that s realistic and comfortable Know how a real estate agent can help yo Know the basic principles of home loans Understand the paperwork yo need for a smooth loan process Whether yo re a first-time home byer or a repeat home byer, bying an investment property or a vacation home, the information here will help yo open the door to yor new home with great joy and satisfaction, knowing yo made the right decision. The Benefits of Bying Bying a home, rather than renting, comes with many benefits. A sond financial investment With each mortgage payment, the money yo pay toward the loan principal increases the percentage of yor home that yo own yor home eqity. For example, if yor home appraises at $350,000, and yor mortgage balance is $250,000, yo wold have $100,000 in eqity. With each mortgage payment, not only do yo increase yor personal investment in yor home, yo also increase yor net worth. As yor home vale increases, so does yor eqity. Whether yo have a 15- or 30-year loan, at the end of that time, the hose will be yors. Renters pay every month indefinitely and bild no home eqity. Property tax dedctibility on yor income taxes Yo may be able to dedct the mortgage interest and some portion of yor local property taxes. The savings cold be sbstantial, especially in the early 1

4 years of yor mortgage when yor payments will be mostly interest. Renters do not receive this tax break. Yo can make it yor own When yo live in a rental, there is sally very little yo can do to cstomize yor interior space. Renters are sally restricted---sometimes not allowed to even repaint walls. When yo own yor home, yo can design and decorate it the way yo want. Yo can develop a feeling of permanence in a place yo can call yor own. Getting Started Know Before Yo Owe The Consmer Financial Protection Brea (CFPB) s Know Before Yo Owe mortgage disclosre rles are designed to make sre yo, as a consmer, have the information yo need, in a form yo can easily nderstand and se, before making a bying decision. Yor lender will provide these simplified forms to yo when applying for and closing on a mortgage. The rles also allow yo more time to review yor mortgage docments. See more information at the CFBP s website, consmerfinance.gov. The Loan Estimate and Closing Disclosre were implemented to ease the process of taking ot a mortgage and to ensre yo know before yo owe. Loan Estimate: A Loan Estimate tells yo important details abot a mortgage loan yo have reqested. Use this tool to review yor Loan Estimate to make sre it reflects what yo discssed with the lender. If something looks different from what yo expected, ask why. Reqest mltiple Loan Estimates from different lenders so yo can compare and choose the loan that s right for yo. Closing Disclosre: Use this tool to doble-check that all the details abot yor loan are correct on yor Closing Disclosre. Lenders are reqired to provide yor Closing Disclosre three bsiness days before yor schedled closing. Use these days wisely now is the time to resolve problems. If something looks different from what yo expected, ask why. 2

5 Understanding Yor Credit History Yor credit score is a determining factor in yor ability to secre a loan and to repay it. Yor score is based on the information in yor credit report. It s very important to nderstand yor credit report and know yor credit score before yo work with a lender. When yo apply for a mortgage loan, yor lender collects as mch information abot yor finances as possible and decides whether lending yo money is a good risk. A higher credit score increases yor chances of approval for a loan. It s critical to make sre yor credit report is accrate. By law, yo re allowed to receive one free copy of yor credit report per year from each of the three major credit reporting agencies Eqifax, Experian and TransUnion. To get yor free credit report, go to AnnalCreditReport.com. Find additional information on Tower s wesite (see Resorces) abot how to improve yor credit and maintain good credit as well as on other sites like myfico.com and creditreport.com. Calclating Yor Bdget and Expenses Before yo start yor home search, it s important to get an idea of how mch a lender will be willing to give yo to prchase a home. The amont will depend on factors like how mch overall debt yo have, yor monthly income and how long yo ve been with yor crrent employer. To determine how mch home yo can afford, yo first need to nderstand how to calclate yor debt-to-income ratio and know what is inclded in yor monthly mortgage payments. Debt-to-income ratio A debt-to-income ratio is one of the first ways lenders measre yor ability to manage mortgage payments. A low ratio shows yo have a good balance between debt and income so lenders like to see a nmber between 41 percent and 45 percent. Some lenders have stricter gidelines, so the lower yor ratio, the better yor chances of a loan approval. 3

6 To calclate yor debt-to-income ratio, add p all of yor monthly payments yor new mortgage payment, credit card bills, car payments and all other debts, and divide the total by yor gross monthly income (generally, the amont of money yo ve earned before yor taxes and other dedctions are taken ot). Take a look at Mortgages at towerfc.org. Yo ll find information and calclators to help yo determine how mch home yo can afford, what yor payments will be and what the most advantageos term is for yo. Speak to a Tower loan advisor to help yo calclate yor income and expenses and to determine what yo can afford. For assistance, call or Monthly payment PITI is an acronym lenders se to describe the different components that make p yor monthly mortgage payment principal, interest, taxes and insrance. Principal: The actal amont of yor loan before the interest is added. A portion of the principal is sally paid off with each mortgage payment, thereby gradally redcing the otstanding balance yo owe and increasing yor home eqity. Interest: The amont a lender charges yo for borrowing the money to by yor home. It s given in terms of a percentage of the otstanding principal. Initially, the largest part of yor mortgage payment goes toward paying the interest. However, as time goes by, more of yor monthly payment goes toward paying the principal and less toward paying the interest. Yor mortgage rate can change periodically if yo have an adjstable-rate mortgage. For Tower s crrent mortgage loan rates, call the Member Service Center at or or check towerfc.org. Taxes: Many home owners also pay their real estate taxes as part of their mortgage payment. The lender passes these on to the local mnicipality (state, conty, and city or town) to pay for commnity schools, roads, police and other services. Taxes can be a significant part of yor total mortgage payment, and tax rates can vary significantly from area to area. So it s wise to find ot the local tax rate before yo prchase a home. Insrance: First is yor home owner s insrance, which may be collected by yor lender and paid to yor insrance company. Typical home owner s insrance protects yor home and property against fire or other damage. Secondly, yo may be reqired to have private mortgage insrance to protect the lender if yo defalt on yor loan. 4

7 Home owner s insrance Many lenders reqire that yo get a home owner s policy before settlement. Yo mst have a policy in place by closing day. Yor lender might reqire yo to pay the entire first year s premim at closing. Private mortgage insrance Yo may need to pay private mortgage insrance to yor lender if yor down payment is less than 20 percent of yor home s prchase price. Private mortgage insrance monthly premims vary based on yor type of mortgage loan. The premim is added to yor monthly mortgage payment. Before yo commit to paying for mortgage insrance, find ot the specific reqirements for cancellation. Mortgage insrance shold not be confsed with mortgage life, credit life, or disability insrance, which are designed to pay off a mortgage in the event of a borrower s death or disability. For most mortgage loans, private mortgage insrance may be removed when yo ve paid enogh principal to own more than 20 percent of the hose. Ask yor lender if there are other conditions that apply before private mortgage insrance may be eliminated. Calclate yor Total PITI P + I + T + I Principal Interest Property Taxes per month = Total PITI Insrance per month Yor total debt obligations (PITI, stdent loans, car loans, credit cards) shold be no more than 45% of yor gross monthly income. This percentage is a gideline and may vary by lender. Low down payment mortgages may have a stricter debt-to-income ratio reqirement. In Addition: Condo and HOA Fees Normally, yor mortgage payment will be the amont after yo ve added p yor PITI. Bt depending on the type of property yo prchase, there may be some additional expenses. Yo may also need to factor in Condominim and Homeowner s Association fees, many of which are paid monthly. Real estate contracts shold contain special addendms that disclose these fees and give the byers an opportnity to review the condo/homeowner s association rles and reglations before moving forward with a prchase. Money Down Now that yo ve calclated yor bdget and expenses, the next step is to consider yor down payment and closing costs. 5

8 Down payment The down payment is a percentage of the prchase price of the home. Yo pay it at final settlement. Most byers make a down payment on a new property. The down payment is not inclded in the loan amont. Some lenders have special, low down payment programs as low as $0 money down. Lenders may reqire 5 percent to 20 percent of the home prchase, depending on the type of mortgage loan. The higher the down payment, the lower yor mortgage loan will be. Yo may be reqired to have yor own fnds for the down payment. Tower s $0 down financing option removes the high down payment obstacle from bying yor dream home, especially for first-time home byers. Talk with a loan advisor for eligibility details. Not available in all states. Many first-time byers jst starting ot get help with the down payment and/or closing costs. Yor lender will ask to see a letter verifying this money is a gift, not a loan. A gift letter is a letter or form verifying that part of the down payment and/or closing costs is spplied by someone other than the borrower (sally from family, fiancé or domestic partner) as a gift that does not have to be repaid. According to the CFPB, some kinds of mortgage loans do not permit yo to se gifts for yor down payment. The CFPB also says yo mst present yor lender with a signed statement saying the money is a gift and not a third-party loan. Ask loan officers whether gift fnds are allowed and what docmentation of the gift is reqired for the mortgage options yo are considering. Loan Consmmation The closing (or settlement) is the final transaction to home ownership. It involves signing docments and paying costs associated with settlement, which cold range from 3 percent to 5 percent of yor mortgage amont. In addition to varios lender fees, closing costs inclde charges for property appraisal, escrow payments, a deed recording fee, and other items. The closing costs are de in fll on closing day. Yor lender will provide detailed information abot yor closing costs 3 bsiness days prior to closing. 6

9 Choosing the Best Mortgage A mortgage is a critical part of the home-bying process. When choosing the mortgage loan that best meets yor needs, consider the following: The length of the term Whether the rate is fixed or adjstable The available rates, point scenarios and rate lock period The closing costs The length of the mortgage application and approval process Reqired docments and application deposit Loan servicing Mortgage Options When shopping for yor loan, yo ll find a wide variety of mortgage options. The type of loan yo select and the interest rate will not only inflence yor total settlement costs bt will also determine yor monthly mortgage payment. Discss the different options available with yor lender. Mortgage loan types Most mortgages fall into two categories. A fixed-rate mortgage has repayment terms where the monthly interest payment does not change over time. A variable or adjstable-rate mortgage has an interest rate that can change periodically over the term of the loan. VA loans Veterans Affairs (VA) home loans are provided by some banks and mortgage companies. The VA garantees a portion of the loan, enabling the lender to provide yo with more favorable options, sch as low or no down payment. Low down payment loans Some lenders offer low down payment loans. Yo may be able to pay as little as 3 percent to 5 percent down. Jmbo loans A jmbo loan exceeds conforming loan limits set by the federal agencies, Fannie Mae and Freddie Mac. A jmbo mortgage is one way to by a highpriced or lxry home. If yo have a low debt-to-income ratio, a high credit score, and a large down payment, a jmbo loan may be right for yo. Loan Terms The length of time yo have to repay a loan is called the term. Most mortgages are 30-year loans. There are also 10-, 15- and 20-year options. In general, the longer the term of the loan, the lower yor monthly payments will be. 7

10 Yo can redce yor interest rate from yor lender when yo pay for points to lower yor monthly payment. One point costs 1 percent of yor loan amont and will redce yor interest rate. For example, if the amont yo borrow is $200,000, one point is $2,000. Points are assessed at closing and are also referred to as loan origination fees or discont points. Tower has mortgages to fit yor needs. Fixed-Rate Mortgages 30-, 20-, 15-, 10-year fixed Adjstable-Rate Mortgages 1/1, 3/1, 5/1, 7/1 ARMs Jmbo Mortgages Visit towerfc.org for loan amonts 100% Financing Little to No Money Down Tower s 100% financing option removes the high down payment obstacle, especially for first-time home byers. Not available in all states. See towerfc.org/mortgage Options for specific states. Based on credit nderwriting. Loan Servicing Servicing refers to the billing and processing of yor mortgage loan payments. Loans are sometimes sold and serviced by a lender other than the one from which yo originally borrowed. If this happens, both the original instittion and the new holder of yor loan are reqired to notify yo. When yo borrow at Tower, the servicing of yor mortgage loan will remain with Tower for the life of the loan. Preapproval After yo ve considered yor mortgage options, and before searching for yor new home, it s smart to have yor loan pre-approved. The pre-approval loan amont will be based on disclosed income, debts and assets. Yor pre-approval letter to the seller shows that yo are a serios byer. In some areas, real estate agents reqire a pre-approval letter before showing a byer a hose or sbmitting an offer to the seller. Yor pre-approval letter saves yo time when hose hnting. 8

11 How to get yor Tower pre-approval letter Choose the mortgage loan option that s right for yo. Visit Mortgage Options at towerfc.org. Begin the online mortgage application online-yo ll need to create a User ID and password. Important: Make sre to provide yor signed contract immediately to Tower after yor contract has been ratified to avoid loan processing delays. Finding Yor Home Searching Home Listings Make sre to take advantage of all the available options for finding homes on the market, inclding sing a real estate agent, searching for listings online and driving arond neighborhoods that interest yo in search of for sale signs. Also, pt ot feelers with yor friends, family and bsiness contacts. Yo never know where a good reference or lead might come from. Tower s HomeAdvantage program, in partnership with CU Realty Services, gives yo a wealth of information. See towerfc.org. Search MLS home listings Get real-time pdates Save home searches and receive Choose a local agent alerts View recently sold properties Research and compare prices Check property vales Track market trends Earn Cash Rewards * Research commnities * See towermychomeadvantage.com for complete details. Choosing a Real Estate Agent The details involved in bying a home can be confsing. Finding the right real estate agent is a great first step toward making the experience mch easier to navigate. Agents are paid on commission only when a hose is boght or sold. They are not salaried or horly workers. The seller pays the commission. Bt as a byer, yo can expect to pay an administrative fee. When yo re looking for a real estate professional to help yo, look for someone yo can relate to, someone who nderstands yor needs and has the expertise 9

12 and know-how to help yo find that perfect home. The more information yo can offer abot yorself and yor needs, the better the service yor agent will be able to provide, sch as: Help yo find a hose yo love Inform yo abot neighborhoods, local schools and pblic safety Make yor home search more efficient by narrowing yor choices based on yor preferences Recommend or sggest an offering price or give yo an opinion abot whether a particlar hose is priced too high or too low Strctre the offer with yor best interests in mind Answer yor qestions and provide gidance If yo want someone to represent only yor interests, look to hire a byer s agent one who works with byers, not sellers. Keep in mind the listing agent s first responsibility is with the seller. If yo se the same agent, there cold be a possible conflict of interest. Yor contract with any agent shold allow for an ot if yo are dissatisfied with the agent. Real estate agents can provide yo with a valable research tool called the Mltiple Listing Service (MLS), a database listing hoses for sale in yor area, often inclding pictres and nmeros details abot each hose. Be sre yor agent is an MLS member. With Tower s HomeAdvantage program, yo choose from a network of expert real estate agents who know the local market and will gide yo throgh every stage of searching for and bying a home. Tower can also recommend an agent. Call or Identify Mst Haves Everyone s idea of a dream home differs, so it s important to make a list of the featres and options yo wold like in a home. Consider yor priorities: pricing, location, style, size, amenities. Wold yo prefer a large kitchen or an extra bathroom? Wold yo trade a bigger yard for a shorter commte? Share yor priorities with yor agent. This will help yor agent limit the search to only those homes trly of interest to yo. Neighborhood Research No one neighborhood is right for every byer. Determining which commnity meets yor needs and yor bdget reqires research. Consider these factors as yo narrow yor search: Qality and availability of schools and libraries Proximity to work, major highways and mass transportation 10

13 Immediacy of shopping, religios centers, hospitals, recreation facilities and parks Property tax rates, tility and other commnity expenses as compared with similar homes in other neighborhoods (i.e., association fees, snow and trash removal, common grond maintenance) The condition of other properties in the neighborhood Where to Search for Yor Home Many byers today start searching for a new home on home search Web sites. Yo can reqest alerts from the site, which will notify yo when a home that fits yor list of priorities comes on the market. Most home listings are now available online, making it more convenient to view homes that meet yor specifications. Althogh yo can find volmes of sefl information online, it s a good idea to talk with an experienced agent who will focs on yor best interests. Yo can evalate a home first by looking at photos and a description online. In many cases, online home listings show virtal tors or videos that give yo the opportnity to see more. Tower s HomeAdvantage program provides yo with p-to-date MLS listings to find homes with the featres yo want. To register with HomeAdvantage, call or Making an Offer Once yo select a hose, yo ll make an offer to the seller, and, if accepted, secre a contract to by the property. Yor real estate agent will write the offer, which will inclde the prchase price, the type of financing, any contingencies (sch as a home inspection) and the proposed closing date. Yo and yor agent will work together to determine yor offer price based on a nmber of factors the most important of which are the comparable sales figres, or comps. This is a list of similar properties in the area that have recently sold. Along with the offer, yo ll typically inclde an earnest money deposit, a nominal amont to show that yo re serios abot the prchase. This deposit will become part of yor down payment, the total amont of cash for the home prchase that is not financed. This deposit shold be placed in an escrow accont maintained by a third party. The seller may accept yor offer to prchase, reject it, or make a conter-offer. 11

14 If the seller wants to change any part of the offer, yo may receive a conter-offer specifying those changes. Yo have the option to accept the conter-offer, decline it, or present a new offer. Contingencies and Other Provisions Yor offer also spells ot contingencies or conditions that mst be met before any contract becomes final. These inclde sch items as the reslts of a home inspection, yor sccess in obtaining financing, and the findings of an appraisal. Professional hose inspection For yor own protection, this is the time to hire a qalified professional home inspector who will evalate the physical condition of the strctre and the mechanical systems of the hose, or any items that shold be repaired or replaced. Ask if yor inspector is licensed as many states don t reqire certification. For specifics, conslt yor real estate agent and/or attorney. Yo can find an inspector throgh the American Society of Home Inspectors at ashi.com, along with a list of states that reqire licensing. It s a good idea to be present for the home inspection so the inspector can address any concerns or qestions yo may have. Obtaining financing This contingency states that the offer depends on whether yo can obtain mortgage financing for a stated amont at acceptable terms. It also will state how long yo have to obtain financing. If yo have a preapproval from yor lender, yo re a step ahead. An appraisal Before issing yo a mortgage, the lender will reqire a professional appraisal to be sre the hose has sfficient vale. An appraisal contingency will specify that the appraisal be ordered within a certain amont of days. Sometimes, a contract will reqire that if the property does not appraise high enogh, the byer may withdraw the offer. Additional inspections Yo may want to have other inspections and tests performed, sch as leadbased paint tests, radon tests and frnace heat exchanger inspections. In some parts of the contry, lenders will reqire a termite inspection. When yo re bying a new home with a well water system, lenders reqire a well inspection. Contact yor local pblic health department for more information. Yo may want to insert other provisions into yor offer. For example, yo might stiplate that the owner repair a cracked window before the closing date. Also, if certain items in the hose are inclded in the sale, sch as draperies or a dishwasher, make sre this is written into the contract. 12

15 Finalizing Yor Financing Now that yo have fond yor home and yor contract to prchase has been accepted, yo are ready to finalize yor mortgage financing. The loan preapproval yo obtained from yor lender gives yo a head start on completing the loan process. The Steps Yo Take Send yor contract to yor lender Pay the mortgage loan application fee Provide verifying docmentation. Select a title company to handle settlement Secre fnding for closing costs Yor mortgage lender will reqire certain docments, sch as paystbs, W2s, and bank statements. They will verify the information yo have provided and will contact yo if additional information is needed. Visit towerfc.org for a mortgage docment checklist. The Steps Yor Lender Takes Reviews yor contract, finalizes the mortgage loan amont, and locks in yor mortgage rate Sends yo an estimate of the closing costs Schedles the property appraisal, flood-prone area assessment and title search Sends yo a reqest for necessary docments inclding pay stbs, bank statements and conditions for loan approval Sends yo a copy of the property report final appraisal valation Works with the title company to finalize settlement preparation and docments Provides a Closing Disclosre otlining yor final closing costs Once yor loan is approved, yor lender will schedle yor closing. 13

16 Final Closing What to Expect The final closing transfers home ownership from the seller to yo and completes both the real estate sale and mortgage transaction. Yo sign all the necessary docments and the deed and deed of trst (also known as mortgage in some states) are sent for recording to the conty corthose. Closing procedres may be held at the title company s office, lawyer s office, real estate agent s office or lender s location. As the byer, it s yor choice to select the title company that will handle yor real estate title and settlement services at the final closing. Yor title company will represent yo and protect yor interests. Title search When yo prchase yor hose, yo receive title to the home. Certain title services will be reqired by yor lender to protect against liens or claims on the property. Title services inclde the title search, examination of the title, preparation of a commitment to insre, condcting the settlement, and all administration and processing services that are involved within these services. Many lenders reqire a lender s title insrance policy to protect against loss reslting from claims by others against yor new home. A lender s title insrance policy does not protect yo. If a title claim occrs, it can be financially devastating to an owner who is ninsred. If yo want to protect yorself from claims by others against yor new home, yo will need an owner s policy. To save money on title insrance, compare rates among varios title insrance companies. When it s time to close on yor new home loan, Tower Title Services will make yor closing qick, easy and seamless. Call or , or towertitle@towerfc.org. 14

17 Preparation As soon as yo receive yor lender commitment letter, yo shold confirm that everything is on schedle for closing. Be sre to provide all docmentation the lender reqested. Yor real estate agent will arrange a walk throgh of the home before closing to make sre it looks as yo expected and is in move-in condition. This final inspection gives yo the opportnity to verify the seller has completed all repairs agreed to in the sales contract. Check for damage yo didn t notice before. Make sre all appliances and systems are working and that any items the seller agreed to leave are in the hose. Prior to closing, yo ll receive a Closing Disclosre showing yo the final figre and a breakdown of all the closing costs (yo received a Loan Estimate shortly after yor loan was approved). Look over the disclosre to be sre all is in order. Bring yor home owner s insrance policy and/or receipt showing payment (sally for the first year s premim) to settlement. Closing docments The closing agent will condct the closing and explain each of the forms as yo sign them. Bring a certified check for the closing costs, inclding the balance of the down payment. Make sre yo careflly read and nderstand all the docments before yo sign them and qestion the closing agent if anything is not clear. At closing, the byer and seller each pay for certain closing costs. Who pays which costs depends on the cstom in the area where the home is located and on negotiations between yo and the seller. Other costs may inclde: Charges for appraisal Strctral pest inspection Loan docment preparation Credit report Tax Service Title Search Title Insrance Hazard Insrance Escrow Escrow is an accont separate from the mortgage accont. It holds deposit of fnds safely for payment of certain conditions that apply to the mortgage, sally property taxes, home owners and flood insrance, so the lender can pay those bills when they come de. 15

18 Congratlations! After all the docments are reviewed, explained, signed and exchanged and the seller is paid, yo the byer will be handed the keys to yor new property. Don t forget to ask for keys to the mailbox and shed, the remotes for the garage door opener and secrity codes, if any. Yo will receive ownership of the home in the form of the deed. The deed/title and deed of trst (or mortgage, in some states) will be recorded with the town or conty clerk. The closing process is complete. Yo have jst prchased yor new home. 16

19 To speak with a Tower loan advisor or to apply for a mortgage loan, call or To apply online or for crrent rates, visit towerfc.org.

20 7901 Sandy Spring Rd. Larel, MD towerfc.org All information is crrent as of Febrary 2018 and is sbject to change. Federally insred by NCUA. Eqal Hosing Lender Tower NMLS#