ACCESS BROKERAGE, INCORPORATED

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STEPS OF THE MORTGAGE PROCESS

by Jim Parker,

Exclusive Buyer Agent


STEP #1
:

WHAT MONTHLY PAYMENT CAN YOU "REALLY" AFFORD?

===LOAN AFFORDABILITY - Click here to calculate what home price you can afford===

Before contacting any lenders, perform some calculations to estimate monthly payments and see if any fit within your budget.

Try to limit your monthly payments to about 30% of your monthly gross income.

Ball Park Example: Divide the 30% of your monthly gross income by $6 to get a ball park loan amount in $1,000's. For example, $900 monthly payment (30% of $3,000 monthly gross income)/$6 => $150,000 loan (e.g., 900/6 x 1,000). Look for homes below your upper price range. If you find something less expensive that you like, you will be able to save money. It has been my experience that every $10,000 in home price means a noticeable difference in features of a home. This is just a guess at the principal & interest. Your final monthly mortgage payment you'll actually make will also include property taxes, mortgage insurance and hazard/homeowner's insurance (and don't forget any monthly allocation for HOA dues).

Use my Payments & Loans Worksheet for a more thorough calculation.

Note: You'll hear about front end & back end ratios. Front end ratio = ratio of monthly mortgage payment to gross income (Conventional loans require 28% or less). Back end ratio = monthly mortgage payment plus monthly auto loan, credit card, or other loan payments. (Conventional loans require 36% or less.) If neither ratio can be achieved, you may want to try an FHA loan.

MORTGAGE CALCULATOR & RESOURCE WEBSITES

Excellent Refinance Mortgage Calculator

Excellent Mortgage Calculator for Home Purchases - Please note: Add 20% to payment for homeowner's insurance, property taxes, and mortgage insurance

Mortgage Calculator from Zillow

Monthly Payment Calculator
Zillow
  • Check some of these sources:
  • STEP #2
    :

    The loan type you choose is determined by..."What's important to you?"

    STEP #3
    :

    Become familiar with the different types of mortgages available:

    Conventional (usually requires 5-20%+ down & less stringent appraisal guidelines and you may avoid mortgage insurance);

    FHA (usually requires only a minimum of 3.5% down but mandatory PMI); or

    VA (if you qualify, can be a 0% down program up to a certain loan amount but still carries a funding fee which can be financed).

    STEP #4
    :

    *****CHOOSING A LENDER*****

    (Don't forget to ask me about lenders and loans first):

    TALK WITH A FEW LENDERS WITHIN A 30 DAY PERIOD AND GET QUALIFIED/APPROVED FOR A LOAN

    Use my WORKSHEET OF QUESTIONS TO COMPARE LENDERS below as a guide when talking with lenders.

    You know your personal financial situation better than anyone else. To get a competitive comparison, talk with at least three mortgage companies within a 30 day period without a major reduction in credit scoring and learn about the rates and terms of their loans. Ask about the types of loans that fit your situation. Select one lender that offers solutions to your financing needs before you make an offer. You really don't want to be trying to select a lender at the same time you are making offers on a property because the contract will normally limit the amount of time to perform certain tasks to days not weeks. 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.)

    You'll need to prove two things to get a mortgage to buy a home:

    (1) You're legally earning enough money to make your monthly mortgage payments (i.e., what you can afford), and

    (2) You're an "acceptable" credit risk (i.e., your FICO score is sufficient) for making future payments.

    Once you provide proof to a legitimate, licensed mortgage lender, you should then be prequalified but not preapproved.

    The lender should give you a document (i.e., loan qualification letter) to prove to your agent and the Seller that you are "qualified" to purchase the property.

    Two levels of loan qualification exist:

    The difference between "prequalifying" and "preapproval" could make a major difference in your negotiations process. Generally, Agents and Sellers put more credibility into a pre-approval, since it suggests that the potential buyer has a stronger financial position.


    WORKSHEET OF QUESTIONS TO COMPARE LENDERS

    ===Click here for a "PRINTABLE PDF" version of the Lender Comparison Worksheet - Use it during discussions with lenders!===

    Lender Comparison Worksheet

    QUESTION

    LENDER #1

    LENDER #2 LENDER #3 COMMENTS
    Lender Name ___________ ___________ ___________ ___________
    Phone # # # # -

    Loan Program Names

  • What type of loan(s) best fit my specific buying situation?
  • What are your specific guidelines to qualify for these loans? (FICO scores, income level, employment, assets, liabilities, etc.)
  • Please explain how each is better than the others.
  • - - - -

    Loan term & Conditions

  • 30 years
  • 15 years
  • 3, 5, or 7 year fixed and then adjustable thereafter.
  • Are there any limits on seller contributions:

  • Closing costs (e.g., limited to 3% of sales price)?
  • Dollar limits for allowances for repairs?
  • Other restrictions?
  • - - - -

    Amount of down payment required for the specific program (Note: some programs offer NO money down programs)

  • Do you offer 100% finance loans (i.e., NO-DOWN PAYMENT)?
  • Do you have programs that DO NOT require closing costs?
  • What are their pros and cons for me?
  • - - - -

    Interest Rate:

  • 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.
  • When will the rate be locked (i.e., guaranteed) and when will I get written notice (i.e., interest rate lock letter) that the rate is locked?
  • How long can I lock my interest rate without penalty or payment - 30/60/90 days?
  • What are the ADVANTAGES & DISADVANTAGES of locking now?
  • How can I get a better interest rate?
  • - - - -

    Cost of 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.)
  • - - - -

    How can I eliminate Private Mortgage Insurance?(PMI or MIP on FHA Loan)Note: PMI on loans generated on or after 1-1-2007 is tax deductible, but only under certain circumstances.

  • Does the loan have a monthly PMI charge?
  • How much per month?
  • - - - -

    Loan Prepayment Penalty on Any Program I like?

  • Does the loan have a prepayment(i.e., paying your loan off early) penalty?
  • If so, what are the costs and terms?
  • - - - -

    Documentation:

  • What documentation will you need from me to qualify for the loan?W-2's, Bank and Investment Statements, etc,.
  • - - - -

    Length of time

  • How long will you take to process my loan (from date of loan application to loan approval)?
  • - - - -

    Using IRA Funds:

  • What are the pros & cons to use IRA retirement funds for a down payment? 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.

  • - - - -

    Escrows/Prepaids:

  • Will your lender allow the seller to pay prepaid escrows (i.e., 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?
  • - - - -

    Property Survey: Does the lender require one? (If not & you want it, ask the closing attorney to order it. 2-3 weeks.)

    - - - -

    May I make additional payments toward principle without penalties?

    - - - -

    Lender costs:

  • What are your fees: application, origination, appraisal, credit report, processing fees, and other charges? (Note: The lender you select will provide you a Good Faith Estimate of charges to back this information up.)
  • - - - -

    Flood Certification: When can I get certification that property is not in a Flood Zone? (Note: Usually a fast turnaround on this.)

    - - - -

    Good Faith Estimate:

  • When will you furnish a Good Faith Estimate(GFE)?
  • The GFE should reflect five separate major financial factors:
      INTEREST RATE: The rate of your loan(This is normally after you lock your rate so they can prepare a good faith estimate using the appropriate interest rate);
      MONTHLY MORTGAGE PAYMENT: including principal, interest, taxes, PMI and hazard/homeowner's insurance;
      CLOSING COSTS ESTIMATE: of "required" and "optional" closing costs;Please click here for my discussion of "Closing Costs and What Affects interest rates"
      ESCROWS or PREPAID ESTIMATE: Prepaid hazard/homeowner's insurance and property taxes to establish escrows; and
      AMOUT REQUIRED AT CLOSING ESTIMATE: amount required at closing.
  • - - - -
    Use this worksheet as a guideline. Add or change questions. It's not a complete list of questions that would fit your situation.

    STEP #5

    :

    After signing a purchase contract for a property, immediately provide the lender a copy and start the loan application process. The lender should then furnish you with a Good Faith Estimate (GFE) which provides total closing costs, monthly payments, and an estimated amount to bring to closing. See the last question in the worksheet above to understand what information the GFE provides.


    *****CLOSING A MORTGAGE*****

    WHAT DOES "CLOSING" MEAN AND WHAT HAPPENS AT CLOSING?

    The term "closing" simply means that you sign the final loan paperwork at an attorney's office and at the same time the title (i.e., ownership) of that property is transferred to you (i.e., sign on the dotted line on lots of forms). This "loan closing" (i.e., home purchase) process is where Buyer, Seller, and Lender finally meet to transfer money, property ownership, and keys.

    The closing attorney places all lender, attorney, Buyer and Seller related closing costs onto one two-page form (===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.). The first page summarizes what the Buyer and Seller will pay or receive. The second page details closing costs, prepaids(homeowner's insurance & property taxes), etc., and the balances are transferred to the appropriate Buyer/Seller columns on the first page. Important: 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

    Go to these other helpful areas of www.abuyeragent.com

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    Myths About
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    Questions
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    & General Information
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    Information

    TELL ME WHAT YOU ARE LOOKING FOR ON MY DESIRED FEATURES FORM

    SEND AN EMAIL WITH ANY QUESTIONS (Jim@abuyeragent.com)

    or just call me at 770-971-5418 (Office) or 770-265-7293 (Cell Phone)

    Return to Access Brokerage Website

    "James E. Parker is a licensed Real Estate Broker in only the State of Georgia and holds his license with Access Brokerage, Incorporated, located at 1634 Rex Drive, Marietta, GA 30066 north of Atlanta in Cobb County, Georgia that serves Atlanta metro area that includes the counties surrounding Atlanta, Georgia."