The process of finding a loan to purchase a home is almost as simple:
You should talk with at least three mortgage companies within a 14 day period without a major reduction in credit scoring. Ask about the types of loans that fit your situation.
Note: The "closing" simply means closing (ie, signing on the dotted line) the loan. The closing narrows all the lender, attorney, and related closing costs onto one form, two pages. The first page summarizes what the Buyer and Seller will pay or receive. The second page details the commissions, closing costs, prepaids(homeowner's insurance & propery taxes), etc., and the balances are transferred to the proper columns on the first page. Click here to review the HUD-1 Real Estate Settlement Statement that you will see with final numbers in the columns perhaps 24 hours prior to closing or at the loan closing in the attorney's office. Hint: Compare the numbers that the lender gives you with the Settlement Statement form with your Exclusive Buyer Agent to understand if "all" closing costs are accounted for and within reason for Georgia.
The lender you work with needs to furnish you a Good Faith Estimate (GFE) which itemizes number for you. See the last question in the list below to understand what information the GFE provides. Ask each lender for their "par" rate of interest. (This is the interest rate you would pay without paying discount points. Each discount point will cost $$$ to reduce your rate by about 0.125%. Divide monthly savings into cost of discount point(s) to determine payback period.)
What monthly payment can you afford? A "shoot from the hip" response to this question should be 30% of your monthly gross income. You will hear about front end and back end ratios. Simply the front end ratio is the ratio of monthly mortgage payment to gross income.(Conventional loans require 28% or less.) The back end ratio is the monthly mortgage payment plus monthly car credit card, or other loan payment. (Conventional loans require 36% or less.) If neither ratio can be achieved, you may want to try FHA or VA type loans.
Before asking your first question, you must first decide what is important to you from the list above. Compare responses to questions below from each lender.
LOW MONTHLY PAYMENT?
LOW DOWN PAYMENT?
LOW CLOSING COSTS?
| QUESTION | LENDER #1 |
LENDER #2 | LENDER #3 | COMMENTS |
|---|---|---|---|---|
| ______ | ______ | ______ | ---- | |
| # | # | # | ---- | |
Loan Programs What programs are available that FIT MY SPECIFIC SITUATION? What are the interest rates for these loans? Note: Record rates for 15 year & 30 year loans; 80%1st Mortgage & 10-15% 2nd Mortgage; Adjustable Rate; Interest Only: 100%; FHA/VA; First-Time-Homebuyer loans; or Special Circumstance Loans. What are your guidelines to qualify for these loans?(FICO scores, income level, employment, assets, liabilities, etc.) Please explain how each is better than the others. |
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Loan term |
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Down payment required for the specific program |
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Interest Rate |
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Discount Points (Percentage of Loan to drop interest rate)How much do loan discount points cost? What is the payback period? (36 or fewer months is acceptable. |
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Down Payment required (Note: some programs offer NO money down programs) Do you offer 100% finance loans (ie, NO-DOWN PAYMENT)? Do you have programs that DO NOT require closing costs? What are their pros and cons for me? |
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Private Mortgage Insurance (PMI or MIP on FHA Loan) |
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Loan Prepayment Penalty Does the loan have a prepayment(ie, paying your loan off early) penalty? If so, what are the costs and terms? |
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Documentation What documentation will you need from me to qualify for the loan?W-2's, Bank and Investment Statements, etc,. |
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Length of time How long will you take to process my loan (from date of loan application to loan approval)? |
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Using IRA Funds What are the pros & cons to use IRA retirement funds for a downpayment? Consult a CPA too. Note: IRS Publication #590 states the will permit up to $10,000 for down payment without penalty, but appropriate taxes are charged and you have a period of time to pay it back without penalty. |
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Escrows/Prepaids Will your lender allow the seller to pay prepaid escrows (ie, property taxes and homeowner's insurance)in the agreed upon closing costs? Will the lender allow me to pay annual property taxes and homeowner's insurance directly? |
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Property SurveyDoes the lender require one? (If not & you want it, ask the closing attorney to order it. 2-3 weeks.) |
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May I make additional payments toward principle without penalties? |
- | - | - | - | Lender costs. What are your fees: application, origination, appraisal, credit report, and other charges? |
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Flood CertificationWhen can I get certification that property is not in a Flood Zone? |
- | - | - | - | Good Faith Estimate When will you furnish a Good Faith Estimate(GFE)? The GFE should reflect:
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