A Guide to Homeownership MORTGAGE

Transcription

1 A Guide to Homeownership MORTGAGE

2 Table of Contents Pages Planning for Homeownership 1 3 Lender Qualifying Guidelines 4 5 Home Buying Process 5 6 Mortgage Loan Process 7 8 Closing on Your Loan 8 9 Homeownership Responsibilities Appendices 1. Monthly Household Budget Calculating your maximum mortgage amount 14 3 Credit Reporting Agencies Checklist of items to take to loan application meeting Glossary of Terms 18

3 Planning for homeownership Buying a home is the single largest purchase that you will ever make. If you are thinking of buying a home, SunTrust Mortgage, Inc. would like to help you prepare for this life-changing event. That is why we have prepared this Homeownership Guide for you. We would like to prepare you for your journey by taking you through the homebuying process step by step from deciding whether homeownership is right for you, to finding the perfect home for you, obtaining a mortgage, and closing on the sale. Are you ready to buy? Before you begin preparing for the homebuying process, you should determine if homeownership is right for you. Once you have considered the pros and cons, only you can honestly decide whether or not buying a house makes sense for your specific situation. Following is a list of some things to consider before you get started: Advantages of homeownership 1. A home is a place to call your own, it helps you become a part of the community and make a difference in the area where you live. 2. While rent payments typically increase each year, the principal and interest payments will stay the same on most mortgage loans for the life of your loan. This helps you to better budget and plan for the future. 3. Most homeowners realize significant tax benefits from homeownership.* 4. A home is an investment which can, and usually does, increase in value over time. It s the only investment you can live in at the same time. Disadvantages of homeownership 1. Homeownership usually costs more than renting. 2. You will be responsible for all repairs and maintenance of your home, which can be costly. 3. There are no guarantees that a home will appreciate in value. 4. If you move frequently because of your job, owning a home may be more of a burden than you want. 5. If you own a home and do not keep up with your mortgage payments, the mortgage lender could foreclose on your mortgage. That means that you could lose your home and the equity you ve built up. Financial factors Once you ve decided to buy a home, the next step is to determine how much house you can afford. It s a good idea not to become house poor, which means you don t want to spend every dime of monthly income on debts, including your housing expenses. Many first-time homebuyers discover that when they add up their total housing costs (monthly mortgage payment, moving costs, early repairs, taxes, insurance, maintenance, etc.) the overall costs are more than they paid as renters. If this sounds like you, it s a good idea to set up a strict budget. If budgeting is new to you, SunTrust Mortgage will show you how to get started. *Consult your tax advisor. 1

4 Budgeting There are three main reasons why a budget is so critical in the homebuying process: 1. A realistic budget will help you determine how much house you can afford. 2. A budget will help you determine if you can afford the extra expenses related to homeownership. 3. A budget will help you plan to save money for the down payment on your home, as well as develop good saving habits for other financial goals, such as retirement, or college tuition for your children. Preparing a budget Budgeting is simply a management tool that helps you keep track of how and when you are spending your money. By following a budget, you will be able to set goals for how you want to spend your income. Here s how. 1. List all current, regular net monthly income for yourself and any co-borrowers. 2. List all current monthly expenses. Keep receipts in your checkbook so that you can total expenses by each category at the end of the month. If you develop a budget, and then decide not to keep a record of your actual expenses, you ve wasted your time. 3. After recording your actual expenses at the end of the month, you will be able to analyze whether or not your budget was realistic. You may need to go back and adjust your budget accordingly. Appendix 1 located at the end of this Guide presents you with a simple format that you may follow for preparing your budget. Why don t you try using this format, or one like it to start your budget today? Once you have completed your budget, keep the following in mind: If you have accounted for all of your expenses, including your savings, the difference between your projected and actual balance should be $0.00. If you come up with a positive number, you may want to consider allocating the extra money toward your debt and/or savings. If you come up with a negative number, you are spending more than you make. Review your budget thoroughly to examine where you can trim your expenses. How much can you afford? There are several major areas regarding money that you need to examine to start the homebuying process. These areas will determine exactly how much you can afford to pay each month for your mortgage principal, interest, real estate taxes, homeowner s hazard insurance, and mortgage insurance ( PITI ). Now that you have analyzed your current monthly expenses by preparing a budget, let s discuss the other factors that you must consider. Many experts use a basic, easy formula to determine how much someone can afford in a house. The rule says that you should multiply your pre-tax, or gross, annual income by two and a half. For example, if you have a household income of $40,000, you should be able to buy a house worth $100,000. This quick ballpark figure is great, however, your buying power ultimately depends on two things: 1. How much you have available for the down payment and closing costs 2. How much a financial institution will agree to lend you 2

5 Down Payment Most mortgage loan programs require that a borrower make a down payment from their own cash when they purchase a home. The size of the down payment determines how large a mortgage you need, as shown in this example: $100,000 Purchase Price - 3,000 3% Down payment from Borrower s Cash $ 97,000 Mortgage Loan Amount The amount of the borrower s required down payment varies, depending on the type of mortgage loan program for which the borrower qualifies. SunTrust Mortgage has several loan programs that do not require a borrower to make a down payment. Your SunTrust Mortgage loan officer would be happy to share more in-depth information regarding loan programs that feature no down payment requirements. Closing costs Your down payment is just one of the up-front fees that you will pay during the homebuying process. Homebuyers also usually pay other closing costs, which on average are between 4% and 10% of the mortgage amount. Geography plays a major role in what closing costs will be. Here are a few examples of typical closing costs: loan origination fee, appraisal fee, credit report, flood certification fee, attorney s fee, state tax, title insurance, and document preparation fees. Your borrowing power In addition to your down payment, other factors that may limit how expensive a home you can buy will be how much you can borrow. The lender will consider two factors in determining how large a loan to grant you: 1. Your earnings 2. Your existing debt Components of your monthly mortgage payment Each monthly mortgage payment includes the repayment of a portion of the amount that you borrowed (principal) and the interest (the fee you pay the lender for using their money). This amount is referred to as the principal and interest ( P&I ). A homebuyer s monthly mortgage payment usually includes an added amount to cover the borrower s real estate taxes, homeowner s hazard insurance, flood insurance and mortgage insurance. The lender holds these additional amounts in a separate escrow account and then pays the tax and insurance bills when they come due. The lender does this to ensure these annual expenses are paid in a timely manner. The inclusion of taxes and insurance to the P&I is referred to as PITI. How can you increase your borrowing power? If you are not happy with the amount that you can qualify for, there are some things that you can do. You may need to lower your sights and purchase a less expensive starter home. However, before you stop here, you should consider these other ideas: 1. Reduce your existing long-term debt. 2. Wait to apply for a mortgage until your income increases. 3

6 3. Find a financing option that results in a lower down payment and a lower monthly mortgage payment. 4. Ask your SunTrust Mortgage loan officer if there are any programs offered in your area that provide grants to low-to-moderate income home buyers that would reduce the amount of money that you would have to borrow. Lenders qualifying guidelines Qualifying for a home You must meet certain qualifications to be approved for a loan. It is important to understand what these qualifications are so that you will know approximately how expensive a home you can afford. Even if you do not currently qualify for a loan, you should know what is required so that you can prepare for purchasing a home in the future. Obtaining a pre-qualification is your next step in buying a home. Real estate agents appreciate homebuyers who submit offers on their homes with a pre-qualification letter in hand! This is why you should always see your lender first. Loan approval requirements SunTrust Mortgage will review your past financial history to determine your past and future ability to handle the increased financial responsibility of buying a home. Six primary areas of consideration for credit approval are as follows: 1. Income Do you have sufficient income to pay your new house payment? 2. Income stability Is your income received regularly? 3. Credit history How have you handled your other credit obligations? 4. Housing increase Is there a large increase from your current housing expense to your new mortgage payment? If you have paid your past debt on time and have also saved money for emergencies, you will likely be able to handle the increased debt. 5. Funds for closing Do you have enough money saved up to pay the required down payment and closing costs? 6. Property Is the home that you want to purchase worth as much or more than the loan you are getting? Qualifying guidelines SunTrust Mortgage will use two qualifying guidelines to determine what size mortgage you are eligible for. They are as follows: 1. Your monthly housing cost (including mortgage payment, property taxes, homeowner s hazard insurance, flood insurance, mortgage insurance, and condominium fees, if applicable) should typically total no more than 33% of your gross monthly (before-tax) income. 2. Your monthly housing costs plus other long-term debts should total no more than 38% of your gross monthly income. 4

7 Basically, a household should spend no more than about 33% on housing and not more than about 38% on total indebtedness. Remember, this is based upon pre-tax dollars, so you still have to pay income taxes, and have enough money left over to live within your budget comfortably. SunTrust Mortgage has several mortgage products designed with low- and moderate-income homebuyers in mind. We understand that our customers who fall into this income range will have to put more of their income towards their housing expense, and so we have increased these ratios for them accordingly. Appendix 2 provides you with a simple spreadsheet to show you what your maximum mortgage payment would be based on your current income. Figure out how much of a mortgage payment you qualify for based upon the standard qualifying ratios on page 14. Credit history Credit reports are a snapshot of your personal credit history. Usually, if you are rejected for a loan or other form of credit, your credit history is the culprit. Anyone who denies you credit must tell you why in written form. Since you know that SunTrust Mortgage will review your credit report to see how well you have responded to debt and credit in the past, you should be proactive and get a copy of your credit report before you shop for a mortgage. By doing this, you will be able to see if there are any problems with your credit and have an opportunity to fix them before you go through the home shopping and mortgage application processes. Appendix 3 provides you with the names of the three different credit-reporting agencies. Please call or all three of these agencies to get a copy of your credit reports. A SunTrust Mortgage loan officer will be happy to review these reports with you and make suggestions on ways to improve your credit rating. The Home Buying Process House hunting Now that you are pre-qualified and have determined the approximate price of a home you can afford, you are ready for the next step finding the perfect home for you! It is important to keep in mind what you feel comfortable paying. Your SunTrust Mortgage loan officer will help determine the highest priced home for which you can qualify, but only you can decide how much you feel comfortable paying each month. Remember your budget! Before you shop, it is a good idea to make a wish list. A good real estate agent will assist you in determining your housing requirements by asking good qualifying questions. Don t waste your time looking at houses that do not meet your basic requirements. Listed below are some items that you should consider before beginning your house hunt: 1. Do you have a specific school district that you prefer? 2. Do you want a new or existing home? 3. Is there a specific location where you want to reside? 4. Are there certain features that you can t live without? The role of the Realtor In choosing a real estate agent you may want to get references from people you know who have recently purchased homes. It is important to work with an experienced real estate agent who is familiar with the 5

8 areas in which you are interested. You should feel comfortable working with the real estate agent. While you are not obligated to work with only one real estate agent, you will probably choose to do this once you find an agent that you like and trust. In a typical real estate transaction you will pay nothing for the services provided by a real estate agent. The agents are paid by the seller from sale proceeds; and, therefore, the agent represents the seller. However, a real estate agent can represent you as a buyer s broker. An agent can assist you with a variety of services, including the following: Review general qualifying requirements to help determine affordable homes to consider. Review your wish list and qualifications to compile a list of potential properties. Make arrangements to show you houses that meet your requirements. Provide information on neighborhoods, schools, property tax rates, and public services available to each neighborhood. Work with other real estate agents in getting your offer accepted by the seller. Assist you in the selection of an attorney, professional home inspector, and title and homeowner s insurance companies. Help to coordinate the many activities that must be handled during a real estate transaction. Negotiating a purchase Make an offer that you feel is appropriate and makes you comfortable. You may choose to offer a lower price or to request the seller pay some of your closing costs; your real estate agent should advise you if the price you wish to offer is out of line and help you negotiate the purchase. You will be expected to put down a deposit when making the offer. The deposit will be held in escrow until loan closing and can be applied towards the cash that you need to bring to closing. Your real estate agent will present your offer to the seller or to the seller s agent. If your offer is not accepted, you should take your time in considering a counter offer. Do not be pressed into acting too quickly, even if other buyers are waiting. Remember that this is probably the largest purchase you will have ever made, so you must make sure that you are comfortable with the price and terms of the agreement. Once you and the seller have accepted all terms in writing, the agreement becomes a legally binding contract. You will be expected to follow through on all terms of the transaction, and cannot change your mind after the offer has been accepted. The importance of a professional home inspection A contingency that many buyers choose to place on the contract is the home inspection. The intention of the pre-purchase home inspection is to provide the buyer with useful information about the condition of the residence and identify major deficiencies in the home s structure and components. A home inspector is a professional who has been trained to examine the visual condition of residential properties and determine if they are free from discoverable major mechanical (heating, plumbing, electrical, etc.) or structural (walls, roof, foundation, etc.) deficiencies. A professional home inspector will tell you if the roof or heating system will soon need major repair or replacement, and whether the electrical and plumbing systems are functioning properly. The inspector will let you know whether the major mechanical/structural systems are in overall satisfactory condition. 6

9 The mortgage loan process After the seller has accepted the sales contract, you must apply for your home loan or mortgage. At first, this process may seem a little overwhelming; however, as with anything, knowing what to expect makes it easier. Applying for a mortgage loan SunTrust Mortgage will assist you in completing a mortgage loan application, and you will be required to pay for your credit report and property appraisal at the time the application is completed. You need to sign a variety of forms so that SunTrust Mortgage can verify your rental or mortgage payment history, employment, savings and checking accounts, child care expenses, and any installment debt accounts. It will help expedite the process if you have all of your financial information gathered prior to your loan application. Appendix 4 provides you with a checklist of the most frequently requested information that you will need to provide. Use this checklist to gather information and documents prior to completing the loan application. Mortgage loan insurance Whenever a borrower makes a down payment of less than 20 percent of the purchase price of the home, the lender will require some type of mortgage insurance. This insurance protects the lender against loss if the borrower defaults on the loan. Listed below are the different insurers of mortgage loans. Each mortgage insurer has different down payment and qualification criteria. 1. Conventional/Mortgage Insurance ( MI ) Typically the MI Company will require the borrower to have a minimum down payment from their own funds invested in the transaction at least $500 or up to 30% of the sales price. A gift from a relative may be received for additional down payment or closing costs. The cost for MI varies depending on the amount of down payment that you make, your overall credit rating, and will be added to your monthly mortgage payment. 2. Rural Development Guaranteed Loan Program ( RD ) RD will insure loans that meet their guidelines and are located in rural designated areas. This program sets maximum income limitations as well as maximum loan amount limitations. 3. Veterans Affairs Guaranteed Loans ( VA ) VA will issue a guarantee on loans for 100 percent of the sales price for veterans with VA eligibility and for eligible reservists with six years of service. Specific VA qualifying guidelines must be met. 4. HUD-insured Loans (Federal Housing Administration or FHA ) The U.S. Department of Housing and Urban Development may also insure loans. Maximum loan amounts are calculated based on the acquisition cost (sales price + borrower-paid closing costs) and are limited by the HUD-designated limits. HUD-insured loans must meet specific property requirements, and HUD specified borrower-qualifying guidelines. A gift for the full down payment and closing costs is allowed. The application process Here s what happens after you and your loan officer complete the loan application: 1. Verification process You will be requested to sign forms authorizing SunTrust Mortgage to verify your current 7

10 and previous employment, bank accounts, rental payment history, and other credit references at the time of loan application. 2. Disclosure forms SunTrust Mortgage will provide you with certain disclosures about your loan. You should ask your loan officer about anything that you do not understand. 3. Payment of fees You will be required to pay for your credit report and the property appraisal. 4. Loan processing An individual will be assigned to assist with the processing of your loan. SunTrust will mail the verification forms and order your credit report and appraisal. Based upon the information that results from this process, you may be requested to provide explanations or additional documentation to explain items such as gaps in employment, newly opened checking or savings accounts, past delinquent credit or recent inquiries by creditors. 5. Loan decision You will be notified in writing of the final decision on your loan. If your loan is approved, you will receive a commitment letter, which indicates the terms of loan approval and conditions that must be met prior to the closing of the loan. Closing on your loan Preparing for loan closing Once your loan is approved, you should begin planning for loan closing or settlement. Together, SunTrust Mortgage and your real estate agent will assist you with the many details to be managed. This is the time when the sales transaction is completed. SunTrust Mortgage will provide your loan funds, the title to the property will be transferred to you, the sellers will receive their sales proceeds, and you will receive the keys to your new home. There are many forms that you are asked to sign or understand at closing. The more familiar you are with these forms the more comfortable you will be on the day of closing. Selecting the settlement agent You choose who represents you at loan closing. In different parts of the country, closings are variously conducted by lending institutions, title insurance companies, escrow companies, real estate brokers, or attorneys for the buyer or seller. You may be able to save money by shopping around for a settlement agent. Homeowner s insurance It is a closing requirement that you obtain homeowner s hazard insurance. You pay the premium, and you and the lender are protected from loss if a fire or storm destroys or damages your home. A homeowner s hazard insurance policy should include: Personal Liability Insurance This is to protect you if someone sues you after being injured on your property or by a member of your family. Property Coverage This protects you against fire, theft and specific weather-related hazards. SunTrust Mortgage encourages you to shop around for homeowner s hazard insurance. Your insurance agent will help you decide how much coverage you need. SunTrust Mortgage requires that you obtain coverage up to the replacement value of the improvements to the property (including the house, garage, outbuildings, etc.). 8

11 Title insurance Title insurance is defined as insurance against loss by reasons of liens and encumbrances upon the property, defects in title to the property and other matters that may affect your right to use and enjoy the property. Title insurance offers the following types of coverage: Someone claims to have an easement through the middle of your property A neighbor claims to be the true owner of a piece of your property A bank tries to foreclose on your home because a recorded mortgage or Deed of Trust on the property was never satisfied There are two types of title insurance: Lender s Coverage will protect the lender s interest in the property and will defend that interest should any claims arise. SunTrust Mortgage requires that you obtain lender s coverage. Owner s Coverage will protect your interest in the property for as long as you own the property. SunTrust Mortgage does not require that you obtain owner s coverage, however, it is recommended that you obtain this very reasonably priced coverage for your protection. Legal documents The Note This is your promise to repay SunTrust Mortgage for the principal and interest of the loan. The Note will reflect the terms under which you are borrowing the money (interest rate, term, late payments, prepayment, and default). The Mortgage The Mortgage or Deed of Trust is the legal document that secures the Note and gives the lender a claim against your house and land if you default on your payments. In effect, you have ownership and possession of the property, but the lender has an interest in the property (called an encumbrance) until the loan has been fully paid. The Deed This legal document conveys legal title from the seller to the buyer. The seller is responsible for preparing the deed. HUD-1 Settlement Statement This document itemizes all of the costs related to the transaction. It indicates which party (buyer or seller) is responsible for payment of each item and will summarize the amount of money that you owe and the amount due to the seller at closing. Both the buyer and seller are required to sign this document. You may request a copy of your HUD-1 from your settlement agent prior to closing so that you can review this document. Final walk-through inspection Your contract should have included a clause allowing you to examine the property within 24 hours immediately prior to closing. This allows you to make sure the seller has (where applicable) vacated the property and left any items that were negotiated in the contract and that there has not been any damage to the property. Closing day Your settlement agent or attorney will notify you, in advance, of the amount of cash you will need for closing. You must make sure that you have these funds available in advance of closing, and you must take a cashier s or certified check to closing (personal checks are not acceptable). 9

12 Closing usually takes place in the office of the settlement agent or attorney. All final papers will be prepared for you to review and sign. All forms will be explained to you before you sign them. Copies of all of the closing forms will be provided to you and the settlement agent will give you the keys to your new home. About 30 days after closing, you will receive a Welcome Kit from SunTrust Mortgage, with a file folder you may use to store your closing papers. The kit also includes valuable discount coupons and a informational booklet about your mortgage account. Homeownership Responsibilities Understanding your obligations as a borrower Now that you are a homeowner, you need to take the steps necessary to protect your investment. Remember that your mortgage is due on the first day of each month. If you do not sign up for e-pay or SurePay (our on-line bill pay or automatic monthly deduction), SunTrust Mortgage will mail a monthly billing statement to you after loan closing. In the unlikely event that your monthly billing statement does not arrive prior to the time that your first payment is due, SunTrust Mortgage will include a First Payment Letter in your settlement package. This letter provides you with the date of your first payment, the amount of your payment, and the address where you must mail your payment. Visit suntrustmortgage.com to set up monthly automatic deductions and never worry again about making your payment on time! Predatory lending and refinancing Refinancing your mortgage loan can make sense and save you money if interest rates have dropped, but it must be done carefully. The amount of money that you will save by refinancing your existing mortgage loan must fully offset the cost of the refinance transaction. Beware of predatory lenders who lend money against borrower s homes in a way that can harm the borrower more than help them. They may try to convince the borrower to refinance their home for no good reason (other than to earn fees). While not all of the practices of predatory lenders are illegal, consumers need to protect themselves. Here are some warning signs of predatory lending: 1. The interest rate seems higher than reasonable. 2. The lender contacts you even though you are not in the market for a loan. 3. They use aggressive, high-pressure tactics. 4. They rush you through the process and discourage you from taking time to read and understand what you are signing. 5. They encourage you to refinance a loan you already have without showing you any real benefit. 6. They insist on you buying life insurance as part of the loan. Don t borrow trouble If you are not confident that you can make the monthly payments, do not borrow the money. You could lose your home. Do not try to borrow your way out of debt. If you cannot make your current payments, getting a new loan is generally not the solution. We encourage you to seek help if you are having financial trouble. Your SunTrust Mortgage Customer Service Representative will be happy to suggest different agencies that will be able to assist you with evaluating your finances. 10

13 Avoiding foreclosure As stated in your loan documents, your mortgage payment is due on the first day of each month. By making this obligation a priority, you can avoid costly late charge assessments and maintain a good credit history. Even the most reliable borrowers sometimes fail to meet every payment on it s due date, and it is possible that there is a good reason for this failure. If you are having problems making your monthly payments, you must act immediately. If you do, you might avoid losing your home through foreclosure. SunTrust Mortgage will do everything in its power to assist you with getting back on track. Maintaining your home and building its value Now that you have moved into your American dream home, it s time to think about the future. Your home is likely your most valuable asset by far, so it is critical that you give it the attention that it deserves. Maintenance and repairs It s your home now, so when something breaks, you can t just call the landlord or building superintendent. For example, neither the property seller nor SunTrust Mortgage are responsible if the water heater breaks. You have to fix it or pay someone else to fix it. Attention to regular maintenance can often help you avoid repairs, and prompt repairs can help you avoid more costly disasters. Major repairs/home improvements Sooner or later you may need to hire an expert to help you with major repairs or home improvement. Perhaps you want to remodel your kitchen or bathroom that you promised yourself you would do when you moved into your new home. The following guidelines can help you get such a project done right for a fair price. 1. Interview several contractors. Find one that listens to you and with whom you feel comfortable working. 2. Ask for references and check them. You might begin by asking friends and neighbors to recommend companies or individuals that have provided them with good service. Many counties and cities have a licensing process for home improvement contractors. If the repair job is relatively small or you re on a budget, you may get better service from an individual than from a large firm. 3. Get cost estimates, and find out whether these are estimates or firm bids. Often, especially on older houses, contractors will not give a firm bid because it s impossible to know until they start the work what they ll find and how hard it will be to fix. 4. To protect yourself, especially for a larger job, be sure you have a contract that specifies exactly what work is to be performed, when payments are due, and so on. Always hold back part of the payment until after the job is finished. If the job requires permits, find out who is responsible for obtaining them. Wrap-up We hope that you have learned a lot about the home-buying and mortgage process. Remember that you can t be expected to know everything, but we hope that you have a clearer understanding of the issues. Good luck on your journey down the road to homeownership. Visit suntrustmortgage.com or a SunTrust Mortgage office, and let us know how SunTrust Mortgage can help you! 11

14 Appendix 1 Monthly Household Budget Date: NET MONTHLY INCOME Source 1 Source 2 Other income Total Income (A) PROJECTED ACTUAL DIFFERENCE FIXED EXPENSES Rent/mortgage Electric Gas/oil Water/sewer Telephone Cellular phone Trash pickup Cable (includes internet service) Auto payment(s) Auto insurance Life insurance Child support/alimony Medical insurance Child care Other Total (B) CREDITOR PAYMENTS Installment loans Credit card payments Total Payments (C) 12

15 Appendix 1 continued Monthly Household Budget Date: FLEXIBLE EXPENSES Savings Groceries Lunch (work/school) Eating out Entertaining/hobbies Laundry/dry cleaning Clothing Gasoline/bus/taxi Newspaper/magazines Church/charity Tuition/books Salon/haircuts Auto maintenance House maintenance Doctor/Dentist Pets Parking/tolls Other Total (D) PROJECTED ACTUAL DIFFERENCE EXPENSES: (B+C+D=E) FIXED (B) CREDITOR (C) FLEXIBLE (D) TOTAL EXPENSES (E) Subtract Expenses from Income (A E): Total income (A) Total expenses (E) Difference 13

16 Appendix 2 Calculating your maximum mortgage amount Housing expense ratio (1) Total gross monthly income (pre-tax) $ X 33% X. 33 Maximum allowable for mortgage payment (PITI) $ (1) Total debt ratio (2) Total gross monthly income (pre-tax) $ X 38% X.38 Maximum allowable for mortgage payment before other debt (PITI) $ Minus total monthly debt payment* $ Maximum allowable for mortgage payment (PITI) $ (2) Choose the lower of (1) or (2) $ (3) This figure estimates your maximum allowable mortgage payment (PITI), given your current gross monthly income and debts. Multiply (3) by 80% to estimate the portion of PITI that represents P&I payment only $ (2) MAXIMUM ALLOWABLE FOR P&I $ (4) Divide the MAXIMUM ALLOWABLE FOR P&I (line 4) by the factor in the chart below that most closely represents today s interest rate environment. Interest Rate 6.00% 6.50% 7.00% 7.50% 8.00% 8.50% 9.00% 9.50% 30-Year P&I Factor P&I divided by (P&I Factor) = maximum loan amount $ = $ maximum loan amount * This is the total monthly amount that you pay toward all revolving and installment debt loans, including car payment, credit card payments and bank loans. 14

17 Appendix 3 Send for a copy of your credit file 1. Equifax Cost of report: $9.00* Equifax Credit Information Services P.O. Box Atlanta, GA econsumer.equifax.com 2. Trans Union Cost of report: $14.95* P.O. Box 1000 Chester, PA tuc.com 3. Experian Cost of Report: $9.00* P.O. Box 2104 Allen, TX experian.com Contact one of these agencies to request a copy of your credit report. You are required to include a copy of a document showing name and address, such as a copy of driver s license, voter registration card, or billing statement that verifies your current address. When you request your credit file, you must provide the following information: Full name Any former address during the last five years, including zip Social Security number Date of birth Spouse s name (if married) *Subject to change by the credit reporting agency without notice. 15

18 Appendix 4 Checklist of items to take to loan application meeting* Property Information Purchase contract fully executed original Names, company, and telephone number for listing and selling real-estate agents Name, address, and telephone number for closing attorney (if known) Copy of check for earnest money deposit Copy of listing, including real estate taxes and lot dimensions Legal description of property being purchased Homeowner s hazard insurance agent s name, company, and phone number Name and telephone number of person(s) for appraiser to contact to access the property Employment Names, addresses, telephone numbers, and exact dates of employment with ALL employers over the past two years W-2/1099s for all employers for the past two years Signed personal federal tax returns including all schedules for the past two years Pay stubs for the previous 30 days If self-employed, signed company federal tax returns including all schedules for past two years If self-employed or commission, current (within past 3 months): Year-to-date Profit and Loss statement and Balance Sheet, reviewed and signed by an accountant without audit Award letter(s) or most current amendment for Social Security or retirement benefits. Include proof of payment (Direct Deposit or check stub) Copy of Note income must have 5 years or more remaining Rental agreement/leases (FHA requires one-year lease) for all tenants of real property owned Schedule of real estate on all real property owned to include property address and zip codes, property type, mortgage type (FHA, VA, conventional, private, etc.), date mortgage originated, mortgage balance, mortgage payment, rental income, and net income earned (positive and/or negative) on each property Proof of consistent receipt of child support and alimony if considered Assets Two months of current statements for ALL bank or credit union accounts (savings or checking) showing balances and account numbers. Stock and bond account statements including brokers names, addresses, account numbers, number of shares, and value Life insurance face amount cash value if any Year, make, and estimated value of all vehicles Gift letter funds will be verified in borrower s account * Not all items may apply to your application; ask your SunTrust Mortgage Loan Officer. 16

19 Appendix 4 continued Liabilities Names, addresses, balances, monthly payments, and account numbers for all vehicle loans, charge accounts, credit cards, and any other financial obligations Lenders names, addresses, balances, and monthly payments and account numbers for all mortgages. Include a copy of annual statement, a 12-month payment history, and the type loan (FHA, VA, conventional, and/or private) for each loan. Letter explaining any slow pays, collection accounts, judgments, or other credit problems Bankruptcy paper (petition, schedule of debts, and discharge) and a letter of explanation Other Addresses and dates of occupancy for ALL residences for the past two years Names and addresses of all landlords within the last two years Copies of Social Security cards If divorced, provide divorce decree and stipulations 17

20 Appendix 5 Glossary of Mortgage Terms Abstract (or search) of Title: A brief history of the legal ownership of a piece of property. Acceleration clause: A clause in a Deed of Trust or mortgage which accelerates or hastens the time when the debt becomes due; for example, most Deeds of Trust or mortgages contain a provision that the note shall become due immediately upon the sale or transfer of title of land or upon failure to pay an installment of principal or interest. Amortization: Repayment of mortgage debt with equal periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time. Annual mortgage statement: Report to the borrower of taxes and interest paid during the year and remaining principal balance. Applicant: One who applies for a real estate loan (the prospective borrower). Application: A form used to record pertinent information concerning a prospective borrower. This form is used for evaluating the applicant in terms of his or her credit standing and history, earning potential, ability to pay the real estate loan, and the property to be pledged as security. Appraisal: A formal written estimate of the current market value of a home and land. It also refers to the process by which a value estimate is obtained. Borrower: One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest. Broker: In real estate transactions, the broker usually brings together the buyer, seller, and the mortgage lender to assist them in negotiating a contract. Buydown mortgage: A mortgage with a below-market interest rate made by a lender in return for an interest rate subsidy in the form of additional discount points paid by the builder, seller, or buyer. Cancellation clause: A clause in a contract whereby either one of the parties is permitted to terminate the contract upon the occurrence of specific conditions set forth in the clause. For example, if the buyers are not certain whether they can secure a mortgage, they would insist on this clause to protect themselves in the event a mortgage is not secured. Certificate of Title: A document stating the name of the legal owner of the property, which often furnishes a legal description of the property. Chain of title: A list as far back as the records show of all transfers of ownership with a list of anything that may affect the title, such as easements or encumbrances. Chattel: Personal property. Closing: The delivery of a deed, financial adjustments, the signing of the Note, and the mortgage or Deed of Trust and the disbursement of funds necessary to consummate a sale or loan transaction. Closing costs: Fees paid to effect the closing of a loan, such as origination fee, discount points, title insurance fees, survey fees, and attorney s fees. 18

21 Cloud of title: A defect in the title, such as an encumbrance, a lien or a claim that may prevent the owner from transferring a clear title. Conventional financing: Mortgage financing that is not insured or guaranteed by a government agency, such as HUD/FHA, VA, or USDA Rural Development. Credit report: A report to a prospective lender on the credit standing of a prospective borrower, used to aid in the determination of creditworthiness. Debt-to-income ratio: The ratio, expressed as a percentage, which results when a borrower s monthly payment obligation on long-term debts is divided by his or her gross monthly income. Deed of Trust: A type of security instrument in which the borrower conveys title to real property to a third party (trustee) to be held in trust as security for the lender with the condition that the trustee shall reconvey the title upon the payment of the debt in full and conversely, will sell the land and pay the debt in the event of a default by the borrower. Deficiency judgment: A judgment against a borrower if the sale of pledged property at foreclosure does not bring in enough money to pay the balance due the lender, under the note. Delinquency: Failure of a borrower to make timely payments under a loan agreement. Deposit: Amount of money given to bind sale of real estate or to ensure payment; advance of funds in the processing of a loan. Down payment: The difference between the sales price of real estate and the mortgage amount. Earnest money: The deposit money given to the sellers by the buyers to show that they are serious about buying the house. This money is usually applied to the down payment if the contract is accepted. Federal Housing Administration (FHA): A federal agency with the Department of Housing and Urban Development that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. Foreclosure: A procedure in which a mortgaged property is sold to pay the outstanding debt in case of default. Good faith estimate: An estimate of the closing costs given to the borrower within three (3) business days after the lender receives a completed loan application. Gross monthly income: The total amount the borrower earns per month before any expenses are deducted. Homeowner s hazard insurance: A policy insuring against multiple perils, commonly called a package policy, and made available to owners of private dwellings. There are wide variations in the coverage of such policies, which generally insure the dwelling and its contents. Joint tenancy: The ownership of real estate for life by two or more persons, each having an undivided interest. Loan-to-value ratio: The ratio, expressed as a percentage, that results from dividing the amount being borrowed by the appraised value or selling price of the house. 19

22 Market value: The highest price that a buyer and the lowest price that a seller will accept, neither one being compelled to buy or sell. Maturity date: The date on which a mortgage indebtedness is completed if paid in accordance with the terms of the Note. Mortgage: A legal document that pledges a property to the lender as security for payment of a debt. Mortgage discount points: Points are a one-time charge made by a lending institution. A point is equal to 1 percent of the loan amount. Origination fee: The lender s fee charged to a borrower to prepare documents, make credit checks, inspect, and sometimes appraise a property. Usually this is equal to 1 percent of the loan amount. PITI: Principal, interest, real estate taxes, homeowner s hazard insurance and private mortgage insurance. Also called monthly housing expense. Prepayment: The buyer may be permitted to pay off the mortgage before maturity without penalty. At times, buyers may decide to refinance at a lower rate or to fully pay the mortgage before it is due. Prepaid expenses: The initial deposit at the time of closing for real estate taxes and homeowner s hazard insurance and the subsequent monthly deposits made to the lender for that purpose. Principal: The original balance of money lent, excluding interest. Also, the remaining balance of a loan, excluding interest. Private mortgage insurance: Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage. Realtor : A person licensed to sell and/or lease real property, acting as an agent for others, and who is a member of a local real estate board affiliated with the National Association of Realtors Realtor is a registered trademark of the NAR. Real Estate Settlement Procedures Act (RESPA): A federal statute and regulation published by HUD governing real estate lending practices and disclosures. It s main features pertain to the distributions of a good-faith estimate of loan settlement costs and the HUD settlement booklet within three business days of making loan application. USDA Rural Development: This agency provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere. Sales contract: A written agreement between the buyer and the seller stating the terms and conditions of a sale or exchange of property. Settlement: The closing of a mortgage loan. Survey: A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimension of any improvements. Title: The means whereby the owner of land has the just possession of the property; the right to or ownership in land. In the case of real estate, the documentary evidence of ownership is the deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, gift, or through foreclosure of a mortgage. 20

23 Title insurance: A policy, usually issued by a title insurance company, which insures against errors in the title search. The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and/or seller. Title search: An examination of public records, laws, and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject property. Truth-In-Lending Act: A federal law requiring disclosure of the annual percentage rate to homebuyers shortly after they apply for a loan. Underwriting: The decision whether to make a loan to a potential homebuyer based on credit, employment, assets and other factors, and the matching of risk to an appropriate rate and term or loan amount. VA loans: A long-term, low or no down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlement. Verification of Deposit: A form that requests and secures verifications of amounts of deposit at financial institutions. When a depository institution is also the applicant s creditor, the VOD verifies the obligations. Verification of Employment: A form that requests and secures documentation of a mortgage applicant s work history and/or occupation to assist in the lender s credit investigation. Notes 21

24 MORTGAGE suntrustmortgage.com SunTrust Client Commitment: SunTrust will never send s asking clients to provide, update, or verify personal or account information, such as passwords, Social Security numbers, PINs, credit or Check Card numbers, or other confidential information. Equal Housing Lender. SunTrust Mortgage, Inc., 901 Semmes Avenue, Richmond, VA is licensed by the Department of Corporations under the California Residential Mortgage Lending Act; is an Illinois Residential Mortgage Licensee; is a Lender in Massachusetts having Mortgage Lender license #s ML1216, ML0133, ML1432, ML1914, ML1913, ML1815, ML2411, ML1214, ML2442, ML2491, and ML2538; is licensed by the New Hampshire Banking Department; is licensed by the New Jersey Department of Banking and Insurance, toll free ; is a licensed lender in Rhode Island; is doing business in Arizona as Crestar Mortgage, 7250 N. 16th Street, Ste. 100, Phoenix, AZ 85020; and is doing business in New York at 145 Pinelawn Road, Suite 330, Melville, NY , SunTrust Banks, Inc. SunTrust is a federally registered service mark of SunTrust Banks, Inc. mkt R