Handbook HUECU. home buying. A resource guide to HUECU Home Buying Benefits HARVARD UNIVERSITY EMPLOYEES CREDIT UNION

Transcription

1 HUECU HARVARD UNIVERSITY EMPLOYEES CREDIT UNION home buying Handbook A resource guide to HUECU Home Buying Benefits Benefits from HUECU...2 Understanding Your FICO Score...3 The HUECU Mortgage Process for Purchases...4 The Mortgage Process: Do s and Don ts...5 Purchase Documentation Checklist...6 Closing Costs and Escrows...7 FAQs on Mortgage Loans...8 HUECU.ORG P.O. Box , Cambridge, MA

2 home buying benefits from huecu The Real Estate Advantage Program (REAP) is a collaboration among HUECU, Coldwell Banker and Harvard University Housing to provide Harvard University faculty and staff, Harvard affiliates, HUECU members and their immediate family with an array of quality, expert services in real estate, home financing, moving and more. Getting Started with HUECU Call to register by phone Register online at HUECU.ORG/REAP First Time Home Buyer Benefits with HUECU.125% rate discount * $300 waived application and underwriting fees Discount on attorney fees $100 waived condo doc review 90 day rate lock FREE pre-approval good for 90 days HUECU Mortgage options Fixed rate mortgages (10,15,20 & 30 year terms) Adjustable rate mortgages (ARM) [3/3, 5/1,7/1,10/1] Jumbo mortgages (up to $2 million) Down payments as low as 3% * Primary residences (1-4 family) Second homes Investment properties CASh, coupons & rebates $50 coupon when you register for REAP $200 additional closing cost credit for REAP transactions Coldwell Banker Benefits Home sale assistance Household moving services Cash rebate after closing on your home Purchase/Sale Price Your Cash Rebate* $50,000-$99,999 $330 $100,000-$199,999 $440 $200,000-$299,999 $687 $300,000-$399,999 $962 $400,000-$499,999 $1,237 $500,000-$599,999 $1,512 $600,000-$699,999 $1,787 $700,000-$799,999 $2,062 $800,000-$899,999 $2,337 $900,000-$999,999 $2,612 $1,000,000-$1,099,999 ** $2,887 *Rates subject to change **Rebate increases for each additional $100, HUECU HOME BUYING HANDBOOK

3 UNDERSTANDING YOUR FICO SCORE Your Credit Scores (FICO Scores) are calculated from different pieces of credit data in your credit report. The data is grouped into five categories as outlined below. There are three main credit reporting agencies so in most cases you will have three FICO Scores. Most lenders use the middle score as your FICO Score when applying for a mortgage. Your FICO Scores consider both positive and negative information on your credit report. Late payments will lower your FICO Scores, but establishing or re-establishing a good track record of making payments on time will raise your score. FICO Scores are determined by weighing the following categories based on what is most important when establishing your credit score: payment history amount owed Length of credit history types of credit 10% 15% 10% FICO SCORE BREAKDOWN 35% CREDIT GRADES Your FICO Score is a factor lenders use to assess risk. In general, here is how the score relates to your credit grade: excellent 750 and up above average fair New Credit 30% poor 619 and below payment history Late payments can lower your credit score a little, or a lot, depending on how recent or severe the late payments are and how frequently they occur. Any previous bankruptcies, foreclosures, short sales, collection accounts and judgments will likewise have an adverse impact on your FICO Scores. amount owed High loan balances or maxed-out credit cards are considered a greater risk and can lower your credit score. Keep in mind that closing a credit card with an outstanding balance can also hurt your credit score. length of credit history types of credit Types of credit determines your mix of mortgages, installment loans and credit card accounts. You don t need to have every type of credit, and this isn t a key factor in determining your FICO Scores however, it may be more significant if your credit report doesn t have a lot of other information. new credit Opening new accounts is not a bad thing, but it may hurt your credit score if you apply for a lot of credit in a short period of time. Checking your credit report will not adversely affect your score. However, when you are shopping for credit applying for a car loan or credit card, for example these inquires remain on your credit report for two years. A large number of inquiries may adversely affect your score. In general, a longer credit history will increase your FICO Scores, but it s not a requirement. Your credit may also be affected by the age of your oldest and newest accounts, and how long it s been since you ve used certain accounts. 3 HUECU HOME BUYING HANDBOOK

4 Closing You sign a big stack of papers and walk away with the keys to your new home. 1 Express Pre- Approval Complete a simple online form and one of our Mortgage Loan Originators (MLO) will call and follow up to review your information and issue your Approved Homebuyer Certificate. 9 2 preparing to close Accepted Offer Before your closing, you ll obtain a Homeowner s Insurance Policy and provide it to HUECU. Your credit and employment are verified one last time and a Closing Disclosure (which reflects all terms, costs and escrows) is issued a minimum of 3 business days prior to closing. When the Purchase Offer you ve made on your new home is accepted, a Home Inspection is generally completed. If everything looks good, a Purchase and Sale agreement will be signed by you and the sellers. underwriting 8 After reviewing your application, supporting documentation and the appraisal, the Underwriter will approve your Mortgage and issue a Commitment Letter. Any additional conditions are gathered and reviewed. A clear to close will then be issued. THE HUECU MORTGAGE PROCESS FOR PURCHASES 3 Loan Application Now you can complete your loan application. This can be done online, by phone or with one of our MLOs in person at any HUECU branch. You will receive a Loan Estimate and Disclosure Package, which includes the terms of the loan and estimates of all closing costs. processing 7 4 During processing, HUECU is doing a lot of work behind the scenes: verifying employment, income and assets, reviewing credit, and requesting additional documents as needed. The appraisal is also ordered at this stage and once received, a copy is sent to you. Rate Lock 6 5 You may choose to lock your rate any time between application and up to 10 days prior to your closing. The rate lock is good for 90 days for First Time Homebuyers. When the loan is locked a lock fee deposit is collected. Once locked, your MLO will update your Loan Estimate. Documentation The supporting documents your MLO needs, such as paystubs, W2s and bank statements, can be uploaded through our website or dropped off at an HUECU branch. 4 HUECU HOME BUYING HANDBOOK

5 THE MORTGAGE PROCESS DO S AND DON TS DO S DON TS Keep all originals and have access to all of your pay-stubs, bank statements and other important documentation. Make your Earnest Money Deposit from your own personal bank account or acceptable gift funds. Notify Mortgage Loan Originator (MLO) if you expect to receive a grant or gift from a relative or not-for-profit organization. Keep a paper trail receipt of gift funds with gift letter, copy of check and deposit receipt. Provide all documentation for the sale of a car, personal items or real estate. Supply documentation of any Employee Assistance for down payment, closing costs or second mortgage. Notify your MLO of any employment changes such as recent raises, promotion, transfer, demotion, job loss or any other loss of income. Make timely payments on all current debt obligations, including any current mortgage, car, student loan or credit cards. Close or open any asset accounts or transfer funds between accounts. Deposit any money outside of your verified income source, particularly cash or funds from the sale of an asset. Change jobs/employers without inquiring about the impact this change might have on your loan. Open or increase any liabilities, including credit cards, student loans or other lines of credit. Make major purchases during the process, such as a car, furniture or appliances, that could reduce your assets or increase your indebtedness. Take a credit card advance or borrow funds for closing. Change your legal name. Take any unpaid time off or reduce your hours worked if paid hourly. Notify your MLO of any depletion of funds needed to close. Notify MLO of change of current address, phone or . Notify MLO of any deposit you expect to make not related to your income source or income tax refund. Notify MLO if you plan to be away for a period of more than three business days during the mortgage process. 5 HUECU HOME BUYING HANDBOOK

6 PURCHASE DOCUMENTATION CHECKLIST As part of the mortgage process, your qualifying income, liabilities and assets to close will be verified. Your credit will also be run to evaluate your creditworthiness. To expedite the process, once you apply, start gathering the following documentation: Purchase Purchase Offer and Purchase & Sales Agreement Copy of canceled Earnest Money Deposit check(s) Home Buyer Education Certificate for 3% down payments Income Earning statements: Recent pay stubs covering 30 days and W2s for the past two years If you are self-employed, receive commission, or own rental property: two years personal tax returns; two years business tax returns and a year-to-date business profit and loss, if required Additional income: Social Security Award Letter, Pension, Divorce Papers for Child Support or Alimony with evidence of receipt Assets Bank statements or printed on-line statements for checking, savings and other investment accounts covering the last 60 days Most recent retirement or 401k statements Gift letter, copy of gift check and deposit receipt (if applicable) Documentation on any Employer Assistance for down payment, closing costs or second mortgages Liabilities Debts will be obtained from the Credit Report Documentation for payments of Deferred Student Loans, negotiated payments on any other outstanding debts or private financing Copy of tax bills and homeowner s declaration page on any other properties owned Divorce Papers, Separation Agreement or Court Order documents for Child Support or Alimony 12 months canceled checks on co-signed loans, if required 12 months canceled checks on rent, if required Condominiums Executed Condominium Affidavit Condominium Budget, Master Insurance Policy and HO6 insurance Policy for the interior of the unit 6 HUECU HOME BUYING HANDBOOK

7 CLOSING COSTS AND ESCROWS There are closing costs associated with obtaining a mortgage. Additionally, in most cases you may be required to escrow your taxes and your homeowner s insurance. Below is a general list of HUECU estimated closing costs and escrows. When you apply for your mortgage you will receive a loan estimate where you will be able to review all fees associated with your specific mortgage request. Service Fee Application Fee $150 Underwriting Fee $150 Points 1% of the loan amount for each (No 0 point option available) Appraisal Fee per appraisal $350 - $550 Flood Determination $10 Tax Service Fee $93 Settlement Agent $750 Lender s Title Insurance $2.75 per $1,000 of the loan amount Other Title and Closing Fees $155 Survey $150 Recording Fee $402 Owner Title Insurance Prepaid Interest Prepaid Homeowner s Insurance Tax Escrows Homeowner s Escrow PMI Floor Insurance Recommended but not required Per Diem: based on the day of the month you close until the end of the month $600 - $ (1 year) 3-6 months of property taxes 2 months 2 month PMI premium (if applicable) 1 year policy (if applicable) First Time Home Buyer Benefits with HUECU.125% rate discount * Reduced closing costs $300 waived application and underwriting fees Discount on attorney fees $100 waived condo doc review 90 day rate lock FREE pre-approval good for 90 days Additional ad ons HUECU also offers a No Points No Closing Cost option for a higher rate. *Rates subject to change. **The above chart may not include all fees related to obtaining your loan. For example: some states have a Transfer Tax. In NH it is $.75 per $100 of the purchase price. ***Closing costs vary per loan and may be slightly different than those quoted above. 7 HUECU HOME BUYING HANDBOOK

8 FAQS ON MORTGAGE LOANS ELIGIBILITY EXPRESS PRE-APPROVAL WHO IS ELIGIBLE? In order to submit a mortgage or pre-approval application, you are required to be a member of the Credit Union. Membership can be accomplished by opening a share savings account for a minimum of $5 and it can be done at either a branch location or at HUECU.org. FIRST TIME HOME BUYERS WHO IS CONSIDERED A FIRST TIME HOME BUYER? A first time home buyer is considered to be someone who has not owned a home in the last three years. WHAT IS THE RATE DISCOUNT FOR FIRST TIME HOME BUYERS? First time buyers will receive a.125% reduction to the interest rate and a reduction in the closing costs. HOW DO FIRST TIME HOME BUYER BENEFITS WORK WITH A JOINT APPLICATION? In the case of joint applicants, the primary HUECU member with the Harvard affiliation must meet the definition of a First Time Home Buyer in order to recieve the benefits referenced above. WHAT IS EXPRESS PRE-APPROVAL? In most cases, real estate agents will request a letter of pre-approval ( Approved Homebuyer Certificate ) in order for you to submit and negotiate offers on homes for sale. This can be accomplished either in person with a Mortgage Loan Originator or by submitting an Express Pre-Approval at HUECU.org and there is no fee for this service. WHAT IS AN APPROVED HOMEBUYER CERTIFICATE? The Approved Homebuyer Certificate certifies that you are a qualified buyer and may give you an advantage over other prospective buyers who have not been pre-approved. HOW LONG IS YOUR APPROVED HOMEBUYING CERTIFICATE VALID FOR? The Approved Homebuyer Certificate will be valid for a period of ninety (90) days, but will not specify an interest rate, as your actual interest rate cannot be determined until you have an accepted offer on a property and have submitted a full mortgage application. INTEREST RATES HOW OFTEN ARE HUECU MORTGAGE RATES UPDATED? The Credit Union s mortgage interest rates are updated daily and will be posted on HUECU.org. HOW DO I LOCK IN AN INTEREST RATE? Your interest rate is not automatically locked in at the time your application is submitted. Once your application has been reviewed by a Mortgage Loan Originator, you will have the option of locking your interest rate. To lock an interest rate, the Credit Union will request a deposit of $500, which will be credited towards closing costs. HOW LONG WILL MY INTEREST RATE BE LOCKED IN FOR? First time buyers can lock their interest rate for a ninety (90) day period, while all other applicants will be offered a sixty (60) day lock period. 8 HUECU HOME BUYING HANDBOOK

9 ANNUAL PERCENTAGE RATE (APR) PRIVATE MORTGAGE INSURANCE (PMI) INCOME WHAT IS APR? APR is a broader measure of the cost to you of borrowing money. Your APR reflects not only the interest rate but also the points, application fee and other charges that you may be paying to get the loan. For that reason, your APR is usually higher than your interest rate. WHAT IS PMI AND WHO DOES IT PROTECT? PMI reduces the lender s risk. In the case of default the PMI will pay the lender a percentage of the loan. Lenders typically require PMI if you put down less than 20% of the home s value. It is usually paid monthly as part of your mortgage payment. Buyers with less money invested in a property are more likely to default on the loan and go into foreclosure, so requiring PMI mitigates the risk. Paying PMI is the trade-off for being able to buy a home with as little as 3% or 5% as a down payment. HOW IS MY INCOME VERIFIED? Paycheck stubs will be the primary source of income verification. Overtime can be used, as long as there is a two year history that can be verified. To include other income, such as a part-time job, a two year history is required and will be verified from paycheck stubs and W2 forms. HOW IS SOCIAL SECURITY AND RETIREMENT INCOME VERIFIED? HUECU will request copies of the award letters, as well as copies of bank statements verifying receipt of the income. CREDIT HOW IS MY CREDIT CHECKED WHEN APPLYING FOR A MORTGAGE? The Credit Union utilizes a merged credit report, which obtains data from the three major credit reporting agencies (Experian, Transunion and Equifax). Each agency will assign a credit score and the middle of the three scores will be used in evaluating your application. If there is more than one applicant, the lower of the two middle scores will be utilized. A brief written explanation may be required for any current or previous delinquencies of 30 days or more. Any accounts classified as either a charge-off, profit and loss or collection account may have to be paid in full prior to closing. HOW IS RENTAL INCOME VERIFIED? HUECU will request copies of your two most recent years tax returns, with the income coming from Schedule E. Leases may be requested if the investment property has been owned less than one year. HOW IS MY SELF-EMPLOYED INCOME VERIFIED? HUECU will request copies of your two most recent years tax returns, with the income coming from Schedule C (for a sole proprietor). If there is a corporation or partnership, additional documentation will likely be requested. CAN I APPLY FOR ADDITIONAL CREDIT DURING THE MORTGAGE PROCESS? If possible, please avoid applying for any additional credit while your loan is in process. The Credit Union will be obtaining an updated credit report approximately 48 hours prior to closing and any recent inquiries will have to be explained. Should there be any new obligations incurred, documentation will be required. 9 HUECU HOME BUYING HANDBOOK

10 DOWNPAYMENT WHAT DOES HUECU REQUIRE FOR A DOWN PAYMENT? HUECU s minimum down payment percentage is 3% of the purchase price. However, this applies specifically to HUECU s Home Ready product, which has income restrictions, or to the First Time Homebuyer Program. If you do not qualify for these programs, the minimum down payment percentage will be 5% of the purchase price. If your down payment is less than 20%, mortgage insurance ( PMI ) will be required. If mortgage insurance is required, the factor used in determining your monthly payment will be based on the loan amount and down payment percentage. CAN I USE GIFTED FUNDS FOR THE DOWN PAYMENT? If gift funds are being used, the donor will be asked to complete a gift letter indicating that there is no repayment required. All parties are encouraged to seek professional advice in order to determine whether there are any tax implications associated with the gift. CAN I USE STOCKS, MUTUAL FUNDS OR PART OF MY RETIREMENT FOR THE DOWN PAYMENT? If any of the funds are coming from a non-liquid account (i.e. stock, mutual funds, retirement, 401k), the funds will have to be moved to a liquid account (i.e. checking or savings) approximately 10 days prior to closing. If funds from a retirement/401k account are being used, borrowers are encouraged to seek professional advice in order to determine any possible tax implications. WHAT SHOULD I DO IF I HAVE TO MOVE FUNDS FROM ONE ACCOUNT TO ANOTHER TO MAKE A DOWN PAYMENT? If you will be moving funds from one account to another, please keep a paper trail (copies of the receipts for the withdrawals and deposits), as the underwriters will need to verify the source of any large deposits. PROPERTY TYPES ARE THERE ADDITIONAL REQUIREMENTS TO GET A MORTGAGE FOR A CONDOMINIUM? Please attempt to determine the percentage of the units in the building/ complex that are owner-occupied, as the Credit Union will require that it be at least 50% for the property to be eligible for approval. If the building/complex is a new construction or a conversion, please attempt to find out how many units there are in the project and how many have sold and closed. This may determine whether the property will be eligible for approval. The financial condition of the condominium association is critical, as the underwriters will need to verify that it has sufficient reserves (funds set aside for property repairs). ARE THERE ADDITIONAL REQUIREMENTS TO GET A MORTGAGE FOR A SINGLE FAMILY HOME? Does the property have a private septic system? If so, a Title V septic certification will be required prior to closing per Commonwealth of Massachusetts law. If the property is located on a private road, additional documentation may be requested. ARE THERE ADDITIONAL REQUIREMENTS TO GET A MORTGAGE FOR A MULTI-FAMILY HOME? For a two-unit property, the minimum down payment required is 15% of the purchase price. For a three or four unit property, the minimum down payment required is 20% of the purchase price. For the unit(s) that is/are rented, 75% of the monthly rent will be included in your monthly income calculations. Generally, reserves of six-month mortgage payments are required. PROPERTY APPRAISALS DOES HUECU REQUIRE A HOME APPRAISAL ON ALL LOANS? An appraisal is required on all mortgages. If there is a difference in the purchase price and the appraised value, the lower of the two values will be used in the underwriting process. The Credit Union will require that the appraiser s rating of the property s overall condition be average or better. If the appraiser notes any deferred maintenance for the property, the item(s) noted will likely have to be fixed prior to closing. WHAT IS REQUIRED FOR AN APPRAISAL IF THE PROPERTY IS A NEW CONSTRUCTION? For a property that is a new construction the initial appraisal can be completed based on plans and specs. All work on the property must be complete with a Certificate of Occupancy issued by the city or town prior to closing. HUECU s appraiser will need to re-inspect the property to certify completion prior to closing. 10 HUECU HOME BUYING HANDBOOK