Financing Your Home

The Fixed Rate Loan
A fixed rate loan is a loan in which the interest rate remains the same throughout the life of a loan.  Fixed rate loans usually are available for terms of 15 or 30 years.

The Adjustable Rate Loan
An adjustable rate loan is a loan in which the interest rate can adjust during the life of the loan.  The adjustable rate mortgage (A.R.M.) can be designed to adjust as often as every year or may not adjust for 3-10 years.  All adjustable rate loans have an annual cap, which means they cannot adjust more than that each year, and a life cap, which means they cannot adjust more than for the life of the loan. Some adjustable rate loans have a conversion clause allowing you to convert to a fixed rate loan at the time of the first adjustment.

Interest Only Loans
Interest Only Loans typically are adjustable every 3 or 6 months and the most common are tied to the LIBOR index (London).  There are two benefits to this loan:  a low monthly payment, and the ability to pre-pay principal at an time.  If you have an existing home to sell, and particularly if you are transferring from another city, this might offer a way for you to qualify for two mortgage payments until you sell your home.  Making regular payments of principal will enable you to build equity much faster than with a 30 year amortized loan.

The danger in this loan is in not making principal payments during the term of the loan.  You  could end up with a big balloon payment at the end of the term.  Be sure to discuss this and any other loan programs in detail with your loan officer.

Discount Points
Discount points may be paid by the Buyer at closing or may be included in the price of the home and paid by the Seller up to the allowable seller contribution.   One discount point equals one percent of your loan amount.  For example, one discount point on a $150,000 loan would be $1,500.   You may lower your interest rate by paying discount points.  Your particular loan program will dictate how much the Seller may pay toward discount points and closing costs.

Because discount points are considered prepaid interest, the amount you pay in discount points is tax deductible.

FHA Loans are available in many programs similar to Conventional loans.  Your Loan Officer can recommend a program that might best work for you.

Although the interest rate usually is 1/4 percent higher than conventional loans, the IMP (Mortgage Insurance Premium) is lower.  FHA also allows a higher debt ratio.  In Gwinnett County the FHA loan limit is $165,000.

One type of FHA you may hear about is the Nehemiah Loan.  This program allows first time home buyers with excellent credit and verifiable income to get into a home with very little money out of pocket.  The Seller is required to pay the 3% down payment, the 3% closing costs, and a 1% fee to the Nehemiah Foundation.  Although it may be agreeable to Buyer and Seller to increase the selling price to accommodate this program, unless the property is initially underpriced,  it may not appraise for an increased amount.  This  can become an unsurmountable obstacle just before closing.

VA Loans are available to qualified veterans who have VA entitlement.  For qualified veterans the benefit is the ability to obtain a 100% loan at a rate slightly higher than conventional.  Higher debt rations are allowed.  For first time users, the VA Funding Fee is 2.25% of the loan amount, usually rolled into the loan amount.  There is no mortgage insurance premium.  

You may be approved for a second VA loan.  If your original loan is not paid off at closing (sold as a "loan assumption")  the loan value would be deducted from your eligibility.   For the second time user, the VA Funding Fee is 3.3% of the loan amount. 

If you are going VA, be sure to order your CERTIFICATE OF ELIGIBILITY from VA well in advance.  You may do this online, as well as get other questions answered, at this Veteran's Administration web site:

http://www.homeloans.va.gov/lgyfaq.htm

Lenders

Before you begin your home search it is a good idea to be pre-qualified by a reputable mortgage lender.  Most Sellers expect the Buyer to be prequalified prior to making an offer to purchase a home.   A very rough guideline is that your house payment, including taxes and insurance, plus your other fixed debts, such as credit card payments, car payments, child support, student loans, etc., should equal no more than 36% of your combined gross income.

Pre-qualification is not loan approval.  It is based on an in file credit report and the information you share with the lender about your employment history, income, and debts.  Loan approval requires further documentation and verification.

If you find a mortgage company whose rates seem "too good to be true," expect some surprises in the form of discount points, junk fees, or a loan program that is not available when you get ready to close.  Be aware that the lender cannot lock in your interest rate without a Purchase and Sale Agreement.

The following are lenders from whom I have come to expect excellent rates and service.   Any of these folks would be very happy to help you determine your needs.  Feel free to mention my name.

 

  Recommended Lender With Years of Experience

Elaine Teague Primary Residential Mortgage, Inc. Direct:  770-309-8675 E-Mail:  eteague@primeres.com

In choosing a lender, ask yourself these questions:

How experienced is your loan originator?

Is your lender quick and  flexible, or does the loan package require a two day  turnaround after approval?

Where are the funds?   Do they have to come from another state?

If you have a question or problem at closing, is your lender immediately available?

Does your lender have a good working relationship with a closing attorney?

You can check out Georgia lenders on the web site for the Georgia Department of Banking and Finance.

Credit Scoring - Advice From the Experts

All lenders use credit scoring for conforming loans, and your credit score will affect the type of loan and the terms available to you, although there may well be other underwriting requirements in addition to the FICO scores.  Because the three reporting agencies report differently and may update at different times, your score may vary from one agency to another.  Typically, the lender will use your middle score.

If you are unsure of your credit rating, it would be a good idea to order a copy of your credit report in advance of applying for a loan.  This will enable you to correct any mistakes or pay off any old debts and have your credit report updated.  All credit reported remains on the report for SEVEN YEARS from the last date of activity, except for bankruptcies which are on the report for ten years.   The last activity is any change reported on your account, including your last charge, your last payment, or the date you paid off your balance.

You'll find a variety of offers for purchasing an online credit report, including  your credit scores at MyFICO.Com.  You can also obtain a free credit report from each of the reporting agencies by writing to them directly.  
 
 

EQUIFAX P. O. Box 740256 Atlanta, GA 30374-0256 800-675-1111 Fax:  888-978-0146 ecis@equifax.com

TRANS UNION P. O. Box 2000 Chester, PA 19022 800-916-8800 or 800-267-1440 Fax:  610-541-4286

EXPERIAN/TRW P. O. Box 9595 Allen, TX 75013 800-567-5470 800-879-3752

FICO credit scores are not used in FHA and VA loans, but your credit history will be considered. Here are some tips from Southern Mortgage Reporting/INFO1: 1.  Always make payments on time.  Delinquent accounts in the most recent  24 months have the most weight on your scores. 2.  Avoid inquiries (loan shopping).  Excessive inquiries may diminish your credit rating. 3.  Avoid store accounts, including 90 day "same as cash" offers, as most  stores sell their accounts to finance companies, and this will not look as favorable as a bank credit card or loan. 4.  Avoid balances of more than 10% of your available credit line on your cards.  Note:  It is not a good idea to consolidate all of your debt on one card.  A lower balance and longstanding good payment history on several cards is better than one larger balance. 5.  Legal actions such as judgments (court decisions), collections (a delinquent account which has been turned over to a collection agency),  and bankruptcies harm credit ratings. 6.  Check your credit reports regularly for accuracy.  If you find a mistake,  be sure to dispute it in writing and check to make sure it has been corrected. 7.  If you pay off an old debt, be sure to get a commitment from the creditor that your date of activity will not be changed at the time of the pay off  (otherwise, it may remain on your credit for seven years from the time of payoff).  NOTE:  Paying off a delinquent account will not remove this bad credit from your report.  It will remain for seven years from the date of last activity, but will show that it has been paid. 8.  If you decide to pay off and close an account, be sure that it has been reported that the account was closed at the consumer's request.

Documents Needed for Loan Application




1.  Check or cash for Credit Report and Appraisal Fees.  Approximately $350.00 total.

2.  Names, addresses, phone numbers and dates worked for each employer for the past two years.  Most recent pay stub.  W-2s for the past two years.

3.  A copy of your present driver's license and Social Security card.

4.  Names, addresses, account numbers and balances of all bank accounts you currently have open.

5.  A copy of your previous three months' bank statements on each open account (all pages of statement).

6.  Debts (credit cards and loans):  Names, account numbers, addresses, balances, and monthly payments.  Include accounts with zero balances and student loans.

7.  Current or recent mortgage holders, if any, with names, addresses, and account numbers.  Note:  this includes any equity loans you may have.

8.  Value of life insurance policies and the amount of their net value.

9.  Approximate value of personal property, such as furniture, appliances, jewelry, expensive camera equipment, etc.

10. Make, year and value of vehicles.

11. Copy of the Purchase Agreement on the home you are buying.

Special Circumstances

The following additional information may be required at loan application:

Self employed persons will need to supply the previous two year's tax returns, signed and with all attachments, and a signed Year to Date Profit and Loss Statement prepared by an accountant.  If you are incorporated, please bring two years' complete corporate tax returns.

Applicants with rental property will be asked to supply information on lenders and copies of rental or lease agreements.

If present home is pending sale or sold, a copy of sales contract and/or HUD 1 (Settlement Statement).

If you are applying for a VA loan, bring your Certificate of Eligibility and discharge papers (DD214).
 
 

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Related Topics
• Closing Costs
• Facts of Life for Buyers
• Agency Relationships
• Choosing an Agent
• Financing
• Home Inspections
• Termites
• Lease Purchases
• Gwinnett Information
• Fulton Information
• Links to Other Helpful Information