YOUR GUIDE. To Home Ownership

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1 YOUR GUIDE To Home Ownership

2 FIRST TIME HOMEBUYER? There are many advantages of home ownership Home ownership is one of life s major events, and it provides some unique personal and financial rewards. It can provide lasting stability and security and a great place to relax at the end of the day. Here are a few things to consider if you re still undecided: Home ownership may offer you important tax benefits You ll have the potential to build equity. This is the portion of your home that you ve paid for, plus any rise in its value You can decorate and remodel your home to suit your personal tastes It s a potential investment, since your home s value may appreciate over the years You won t have to worry about your rent going up when your lease expires, or having to move if your rental property is no longer available or affordable

3 A TIMELINE FOR HOMEBUYERS 1. Meet with your Mortgage Loan Originator to discuss your home financing options. 2. Find your home, or pre-qualify for financing before you begin viewing homes. 3. Submit an offer if accepted, put down your earnest money deposit. 4. Complete a loan application your Mortgage Loan Originator will assist you. 5. Arrange a home inspection and review results of your home s appraisal. 6. Purchase homeowner s insurance and finalize any conditions. 7. Prepare for closing by reviewing comparing your Loan Estimate with your Closing Disclosure documents. 8. At closing, you ll sign your loan documents and finalize your purchase. 9. The title officer will ensure your Deed of Title is recorded. 10. Move into your new home and relax!

4 MEET YOUR HOME BUYING PROFESSIONALS THE MORTGAGE LOAN ORIGINATOR Your Stearns Mortgage Loan Originator has a single goal: to provide you with home loan options that meet your current budget and future financial goals. After reviewing your finances and income, your Mortgage Loan Originator can give you a good idea of how much home you can afford. You ll discuss the loan terms and options that you find suitable. After you apply for a mortgage, your Mortgage Loan Originator will help you source the documents needed for processing your application and help answer any questions you may have. THE REALTOR REALTORS can do much more than help you find the right home. They can provide details of surrounding neighborhoods, assist you with choosing a property, and help you negotiate a fair price with the seller. For example, if you ve found a home that s just what you want, but the carpets are worn, your REALTOR can help you make a counter-offer so you can afford to have the carpets replaced before move-in. And when you re ready to finalize your home purchase, your REALTOR will help you prepare for closing. THE TITLE OFFICER Title officers handle issues relating to your home s title or deed, ensuring there are no discrepancies such as overdue taxes, zoning restrictions or existing liens. If issues are discovered, your title officer will contact the seller and work to resolve them. THE ESCROW OFFICER Escrow officers are responsible for holding funds passing between a homebuyer, seller or lender (this is called earnest money ) in an escrow account. They must act as neutral third parties, as they re responsible that all aspects of a home sale go smoothly for everyone involved. THE INSURANCE AGENT Your insurance agent will help you choose a homeowner s insurance policy. It protects your home and its contents, covering most or all of its replacement value in case of fire, theft, or other damage. Homeowner s insurance coverage and deductibles differ, so ask your agent or provider to help you choose the coverage that best fits your needs. THE HOME INSPECTOR Home inspectors are independent contractors, hired by the buyers, who look for damages or issues within a property that need to be repaired. These could be anything from a termite infestation to structural damage. Your inspector s report may help you or your REALTOR negotiate the cost of repairs with the seller if any potential problems are identified. THE APPRAISER The appraiser is an independent contractor, hired by the lender, who is responsible for estimating the value of your new home to ensure a fair market price. This is done early in the loan process, as this helps to determine if your seller s asking price is reasonable. An appraiser s tasks include researching recent sale prices of similar homes in the area, and comparing these prices to what your seller is asking.

5 MAKE SURE YOUR HOME AND FINANCES ARE COMPATIBLE Before your Mortgage Loan Originator discusses your mortgage options or pre-approves you for a loan, you ll need to review your finances. This should include your monthly household budget, any current debts, and long-range financial goals. This will help you decide how much you can spend on a home. Next, your Mortgage Loan Originator will estimate an affordable payment with an equation called a debt to income ratio. Your debt-to-income (DTI) compares your total monthly debts to your monthly pre-tax (gross) income. An easy rule to follow is to keep your DTI ratio as low as possible, so you ll never feel stretched for cash between paychecks. How your credit score affects your loan: Your credit or FICO score plays a major role in home financing. Almost all mortgage projects require a minimum FICO score. Your score affects your loan s interest rate. Generally, a higher score earns you a lower interest rate and more loan options. There are loan programs available for buyers with minimal credit histories and less-than-perfect credit. Your Mortgage Loan Originator may recommend you order and review copies of your Equifax, Experian and Trans-Union credit reports at After helping you complete your loan application, your Mortgage Loan Originator will ask your permission to order a credit report. What s a FICO score? A FICO score is a computer-generated number that analyzes your past and current credit history and spending habits, and rates your ability to repay future debts. The name FICO is an acronym for Fair Isaac and Company. FICO was invented and founded in 1956 by engineer Bill Fair and mathematician Earl Isaac, with the first FICO scores introduced in A typical FICO score is based on the following factors: Timely credit payments Amount of debt owed Number of credit accounts currently open Number of credit inquiries (a credit inquiry is made when you apply for a new credit card or loan) Initial Loan Approvals To obtain an initial pre-approval, your Mortgage Loan Originator will need details of your employment, income and debts. Keep in mind that this pre-approval is conditional. Formal loan approval is not issued by the lender until you submit a formal loan application which includes additional information about the specific home you intend to buy and you and the lender agree on all of the details.

6 MAKING AN OFFER Once your REALTOR has helped you find the right home, it s time to prepare an offer. This is a written contract that includes the purchase price, down payment, loan amount, and initial deposit (also called earnest money). The offer will also contain details of any conditions that affect the offer, such as a request for the seller to repair damage found by your home inspector or a clause that stipulates that the contract is conditional upon approval of home financing by the lender. Because the purchase contract must conform to state and local laws, your REALTOR will prepare a draft of the offer before reviewing it with you. Your Completed Offer May Include: Offered price (this may be different from the seller s asking price) Seller s promise to provide clear title (ownership) The method by which real estate taxes, rents, fuel, water bills and utilities are to be adjusted (prorated) between buyer and seller Description of who will pay for title insurance, survey, termite inspections and other associated costs Type of deed to be given to the buyer Other requirements specific to your state, which might include an attorney s review of the contract or disclosure of specific environmental hazards Conditions the seller must respond to before the sale is formalized A closing date. This is usually 30 to 45 days from the day you and the home s seller sign your offer turning it into a legal contract and the day your loan closes. This gives you time to finalize your mortgage, and for the seller to carry out any mutually agreed repairs. Negotiating a Counter-Offer Your home s seller may want to change the proposed sales price or another part of your offer, such as a request for home repairs. This is called a counter-offer. If this happens, you re free to accept the seller s requests, or to re-negotiate with a new counter-offer of your own. Your REALTOR can help you come to a mutual agreement so you can proceed with your purchase. At this time, you ll be ready to produce an earnest money deposit and arrange a home inspection. Your REALTOR can assist you with both of these.

7 CHOOSING THE RIGHT HOME LOAN One major advantage of choosing Stearns Lending, LLC to finance your home is that Stearns is a direct lender. Mortgages are our only business, so we re able to offer you a wider array of loan choices. And your Mortgage Loan Originator will oversee your loan s processing, providing you with regular status updates. If you ve managed your money responsibly, this can pay off by qualifying you for conventional financing with a lower interest rate. Also, if your down payment is at least 20% of your new home s value, you won t be required to pay mortgage insurance. If you can t produce a big down payment, you may qualify for a Federal Housing Administration (FHA) loan* with a low down payment. You may qualify even if your credit is less than perfect. An FHA 203(k) Limited loan, also known as a rehabilitation loan, can help you buy the home you want if it needs some TLC or repairs. This loan provides additional funds so you can renovate, replace old carpets and fixtures, or modernize the electrical or HVAC system. (Terms and conditions apply.) Don t like surprises? A fixed-rate loan keeps everything simple and predictable, as your interest rate is locked from the start. Your payments will only change if you maintain an escrow account for taxes and homeowner s insurance, and only if the costs of these two items change. Veteran Affairs (VA) loans offer qualifying veterans the option to buy without a down payment. Since these loans are government-insured, they offer flexible credit requirements and limited closing fees. Active duty military may also qualify. Buying in a high-cost area? Building a custom home? Jumbo loans are available to qualifying borrowers who wish to finance properties up to $3 million. An adjustable-rate mortgage (ARM) loan starts out with a lower rate than a fixed-rate loan, but their rates are subject to market fluctuations after the initial fixed period. An ARM may be a good choice if you re planning to sell or refinance before the first adjustment (generally five to 10 years). A USDA Rural loan won t limit your home choices to a farm. Properties zoned rural may also qualify, in some cases even if the nearest city is just a few miles away. * Stearns Lending, LLC is an FHA Approved Lending Institution, and is not acting on behalf of or at the direction of HUD/FHA or the Federal government. Limited to certain Jumbo programs. Borrowers must qualify at a certain income level depending on the county where the property is located. The property must be in a designated rural area.

8 THE LOAN ESTIMATE AND OTHER DOCUMENTS After you complete an initial loan application, you ll receive: 1. Loan Estimate 2. Mortgage Servicing Disclosure 3. Other Disclosures A Loan Estimate is issued within three business days of submitting a loan application. It will explain the basics of your loan, including your closing costs and loan terms. This document itemizes all of the potential costs associated with a mortgage so it s easy to understand. It is also formatted so that you can compare the estimated costs against the final loan closing document the Closing Disclosure. The Loan Estimate consists of 3 pages: Page 1 provides a summary of the key loan terms and costs. The form identifies figures that show the basic loan terms (e.g., the principal and interest payment and loan costs) and figures that provide borrowers with affordability information (e.g., the total estimated monthly payment and estimated cash required to close). Page 2 itemizes the costs associated with the loan and with the real estate transaction. It also provides adjustable rate and adjustable payment information if applicable. This section outlines the cost of services provided to complete the loan. Page 3 provides three figures that borrowers can use to compare loan offers: In 5 Years, Annual Percentage Rate (APR), and Total Interest Percentage. It also lists disclosures mandated by statute, including disclosures for Appraisal, Assumption, Homeowner s Insurance, Late Payments, Loan Acceptance, Liability After Fore closure, Refinancing, and Servicing. There is also an optional borrower signature line so the lender can document receipt of the disclosure. Once you have reviewed your Loan Estimate and decide to move forward, you must inform your lender of your intent to proceed. This gives the lender permission to move forward with processing and underwriting your home loan. The Mortgage Servicing Disclosure is a one-page statement that tells you if the lender usually sells or retains the servicing rights to your loan after it closes. Other disclosures will explain the terms of your home appraisal, credit report, and occupation of your property. They may also provide you with information about your transaction that your State requires to be disclosed. Locking your interest rate A mortgage rate lock protects you from market rate fluctuations while your loan is being processed, so you won t have to worry about your costs associated with rising interest rates. If you re building a home, you may lock your rate for up to six months, with the option to float down and take advantage of falling rates. This is not an offer of a rate lock. This rate lock period may not be available in all situations. Float down option must be executed within 30 days of closing, but not less than 10 days before closing.

9 UNDERWRITING After your home s appraisal is complete, your Mortgage Loan Originator will send your application, supporting documents, and appraisal report to Underwriting. An underwriter compares your application details to the conditions of your loan and verifies your income, employment, and credit history before approving your loan. During this time, your Mortgage Loan Originator will contact you and let you know the status of your application, and if you need to produce additional documents. Keep in mind that if your income or credit card balances change during the underwriting process, your Mortgage Loan Originator will need to know as soon as possible. Otherwise, your closing may be delayed when your financial documents are reviewed just before closing. After the underwriter approves your loan application, your Mortgage Loan Originator and REALTOR will help you get ready for closing. This may include comparing your initial Loan Estimate to the Closing Disclosure that you ll receive 3 days prior to consummation of the transaction, so you can review the costs associated with your loan.

10 CLOSING This is a meeting when you ll sign your loan documents and receive the keys to your new home. A typical closing will include you, and co-borrowers, a closing agent and your REALTOR. You ll be asked to review and sign several important documents, and to produce a certified or cashier s check to cover your down payment, closing costs, prepaid interest, taxes and insurance. CLOSING DISCLOSURE Three days before the closing date on your sale s contract you will receive your Closing Disclosure. This 5-page document describes the terms of your loan and how much you will need to pay at closing. Page 1 provides a summary of key loan terms and costs. This mirrors the Loan Estimate previously provided to you. Page 2 itemizes Total Loan Costs, Prepaids (usually homeowner s insurance) and Escrow Account details. Page 3 provides a calculation of the Cash to Close amount and summarizes how the money flows among the borrower, the lender, and the seller. Page 4 breaks down what is and is not included in your escrow or impound account. Page 5 shows loan calculations including the Finance Charge and your total cost of credit stated as an Annual Percentage Rate. It also provides information on where you can go to have your questions answered. You are encouraged to compare the numbers on the Closing Disclosure to the Loan Estimate you received earlier. There should not be any significant changes other than those you have already agreed to. A typical set of closing documents also will include the following: Mortgage Note a formal promise to repay the mortgage loan. Affidavits and Declarations these formalize certain facts, such as your declaration that the property will be your principal residence. After you sign the documents, they ll be delivered to the funding department. Once your closing paperwork is reviewed, your loan will be funded.

11 ABOUT STEARNS Stearns Lending, LLC was founded in 1989 by its current Chairman, Glenn Stearns, when he was 25 years old. His commitment to serving customers with integrity and desire to make the American dream of home ownership come true for a greater population provided an ideal foundation for the company s expansion. Whether you re a first-time homebuyer or have purchased a house before, it s important to have the right mortgage partner. Stearns offers an array of mortgage products and solutions for today s borrowers. We re staffed with professionals who are passionate about giving our customers an exceptional loan experience. That s why I m proud to be a part of the Stearns team! Stearns Lending, LLC also operates under the trade name Stearns Home Loans in all states except for Arizona, Illinois, Massachusetts, and New York. This is not a commitment to lend. Program restrictions apply. Stearns Lending, LLC offers many loan products. Stearns Lending, LLC is a California Limited Liability Company headquartered at 4 Hutton Centre Drive, 10th Floor, Santa Ana, California (800) 350-LEND (5363) Company NMLS# 1854 ( Stearns Lending, LLC is licensed, registered, or exempt from licensing to conduct business in the following states which require license disclosure on advertising materials: Arizona Mortgage Banker License # ; Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act RMLA# ; Georgia Residential Mortgage Licensee #24066; Illinois Residential Mortgage Licensee #MB ; Kansas Licensed Mortgage Company #MC ; Massachusetts Mortgage Lender/Broker License #MC1854; Licensed by the Mississippi Department of Banking and Consumer Finance; Missouri Residential Mortgage Loan Broker License # ; Licensed by the New Hampshire Banking Department; Licensed by the N.J. Department of Banking and Insurance; Rhode Island Licensed Lender; Registered under Texas SML Mortgage Banker Registration; Virginia State Corporation Commission Lender/Broker License #MC-2184; Washington Consumer Loan Company License #CL For State of Nevada residents Stearns Lending, LLC is a mortgage lender promoting the loan products or services contained in this article; the business phone number that Stearns Lending maintains on file with the State of Nevada Department of Business and Industry is (714) This information is accurate as of January 23, Stearns Lending, LLC All Rights Reserved. SHL1860_

12 YOUR GUIDE To Home Ownership