Mortgage
Services
Finding your new home
can be an exciting time. Before you start your
serious house-hunting, take some time to make sure
you’re prepared for the home buying process.
Drummond Community Bank can help you with your home
financing needs, whether you’re staying in town or
relocating.
Financial
Calculators
Property
Appraisers
Chambers
of Commerce
Mortgage
Information
What
Should I Know About Buying A Home?
Benefits of Buying
Buying a home is a big decision. When making this
leap, it’s good to remember the benefits of this
investment. If you're currently renting, buying a
home may be an added tax benefit. Because your home
builds equity every month, you’ll save when you buy
it, while you live in it, and possibly make more
money when you sell it.
Costs of a Home
Do a little personal assessment before you walk out
your front door. Review your budget and factor in the
costs of owning a home. Are you able to maintain a
home and make the needed repairs? If you’re
thinking of a bigger home, are you factoring in
bigger utility payments as well? Don’t forget your
down payment and closing costs. Often, owning a home
can be cheaper than renting.
Making an Offer
All your searching has paid off and you’ve found
the home you want. But before you start thinking of
the perfect place to put your sofa, you need to get
your offer accepted. Knowing how much to offer may
take some thought-after all, the market conditions
really affect sale prices. You or your real estate
professional need to do a comparison market analysis
on recent home sales. You may be able to find the
sales information online through your county tax
office or you may have to make a trip to the
courthouse. Real estate professionals have an
advantage since most of the sales information is
recorded in the Multiple Listing Service for your
area. If you are working with a real estate
professional, ask to see the residential property
disclosure on the home and find out:
- What’s the
difference in asking price versus selling price
in recent sales?
- How long are the
houses in the neighborhood typically on the
market?
- How long has the
house you’re considering been on the market?
- Has the price been
reduced and by how much?
- Do you know of any
prior offers on the home?
You need this
information to make a reasonable offer. Everybody
wants to feel like they got a deal, but a seller may
not take a low offer seriously enough to counter. It’s
not uncommon in some areas for homes to sell well
above the asking price. Be prepared to go back and
forth during the negotiation process until a final
number is agreed upon. Remember that generally verbal
offers concerning real estate are not binding so make
sure that all changes to your offer to purchase
contract get made in writing and initialed by all
parties.
Purpose of Earnest Money Deposit
You need to include with your offer an earnest money
deposit to show “good faith” that you intend to
buy the home. The exact amount is up to you and the
seller, but usually is 1 to 4% of the offer price. At
closing, your money is applied toward the purchase
price or closing costs of the home.
What's Involved With Selling My Home?
Selling your home involves time, energy, and
marketing strategy. We can help provide you with
advice on getting your house in order so that you can
get it sold quickly.
Making the Decision
Before you start seriously looking at buying another
home, you may have to put your home on the market.
Weigh your options and assess your reasons for a
making a move. Are you being transferred? Needing a
larger home? If you want to have a smaller mortgage
payment, you may want to consider refinancing if the
current rates are lower than your fixed rate.
Preparing to Sell
As a seller, you have several factors to consider
regarding the sale and marketing of your home. You
can choose to sell your home “By Owner,” you
could choose to work with a real estate professional,
or you could do a combination of the two by using an
Internet based realty company to help you with the
sale.
Timing
If you’re not pressed to move right away, research
when the market is most productive for your area.
Generally, the home sales season starts to heat up in
March and goes throughout the summer, but your area
may be different if you live near a major city or
vacation spot.
Compare Sales
Do your homework. Check around to see what other
homes are selling for in your neighborhood. The rule
of thumb is to look at the recent home sales within
the last six months. If you live in a subdivision or
community, it’s a little easier to get an idea of
your home’s value and expected days on the market.
See if you can access the sales data online with your
county tax records. Most states and counties are
working toward updating and storing their records
online.
Proper Pricing
Sure you want to make as much as you can on the sale
of your home, but be careful not to price yourself
off the market. Think of your home as another product
that people want to buy. For instance, if you were
trying to sell your car and make it stand out on the
car lot, what would attract buyers? Low price and low
miles-the same is true with your home. The newer you
can make your home appear and the more competitive
you can be with your asking price, the greater your
chances are of a quick sale. It’s all in the
marketing.
Know Your Neighborhood
We’ve all heard that “location” is key to home
sales. When you’re putting your home on the market
include the attractive features of your neighborhood
on any advertising flyers. Buyers are interested in
your area schools, amenities, shopping centers, and
distances to cities and airports. Don’t assume that
all the buyers who come to see your home know the
selling features of the area-tell them.
Pre-Qualification
Before you apply for a mortgage, you need to know
your:
- Current monthly
income
- Current monthly
expenditures
- Desired monthly
mortgage payment
- Anticipated sale
price or home value
- Anticipated down
payment amount
How Mortgages Are
Approved
There are several
factors involved in the approval process of your
mortgage application.
- Income. When
you're qualifying for a loan, lenders usually
use your gross income (all the money you earn
before taxes) to determine the monthly mortgage
payment you can afford. Gross income may also
include the average of overtime pay and
commissions, and child support or alimony, if
you wish to have them considered.
- Monthly mortgage
payment as a percentage of your income. In
general, lenders require that your total
monthly mortgage payment — principal,
interest, property taxes, mortgage insurance,
hazard insurance and any homeowner association
dues — be no more than 28% to 33% of your
monthly gross income.
- Your total debt
situation. You may have car loans, student
loans, credit cards, child support, alimony or
other monthly expenses. In general, lenders
require that the total of all your monthly
expenses (excluding basics like utilities and
groceries) not exceed 45% of your gross monthly
income.
- Credit history. A
satisfactory record of paying your bills on
time is an important part of getting a home
loan. If you've had credit difficulties within
the past two years, a good explanation of any
late or missing payments on your credit report
will be taken into consideration.
- Employment
history. Lenders usually prefer to lend money
to people whose incomes have grown steadily
over the past several years and who have worked
consistently in the same or related
occupations. You will need to verify
employment. If you're self-employed, work on
commission or have been at your job less than
two years, you may need to provide additional
information about your work history.
- Property
appraisal. A professional appraisal is done to
determine the value of the home. An appraisal
is based on the home's condition and selling
prices of comparable properties in the area and
confirms that the property is worth the
purchase price you're offering for the home.
Reviewing Your
Credit
- Credit report.
After receiving a loan prequalification request
or application, the lender will request a
credit report from the credit bureau. The
credit bureau collects and organizes
information about people who have credit. The
information generally goes back seven to 10
years. This report includes your name, address,
employer, length of employment and previous
credit history. Credit history includes account
types, balances remaining, payment status,
collection information and inquiries.
- Lack of credit
history. Most traditional mortgage loans
generally require some kind of established
credit history. Some lenders offer flexible
home loan options for people with limited or no
established credit history. These options look
at other ways to establish credit worthiness,
such as timely payments of rent and utility
bills.
What you should
know about credit reports
Credit reports
document your financial behavior over the past seven
years — how much credit you have, how long you've
had it and whether you pay your bills on time, among
other things. Knowing what information is in your
report can help you identify any problem areas and
plan what steps you might take to correct them.
Three credit reporting agencies — Equifax,
TransUnion and Experian — maintain credit reports.
Lenders buy credit reports to help them decide
whether to offer you a prequalification. You can also
purchase a copy of your report from these agencies.
Your credit report contains information about:
- Credit accounts
and payment history
- Applications you
have made for loans and other time payments
- Personal
information, including your name address and
Social Security number
- Employment
information
- Legal actions (for
example, judgments, collections, bankruptcy)
Contact:
Equifax: www.equifax.com
TransUnion: www.transunion.com
Experian: www.experian.com
Your credit report also carries your credit score, a
numeric ranking between 300 and 850 that many lenders
use to decide whether you are creditworthy. The score
is used to help predict whether you'll repay a loan.
It's calculated using five sources:
- Payment history
- Amount owed
- Length of credit
history
- New credit
- Types of credit in
use
In addition to telling
lenders your creditworthiness, your credit score can
also influence the interest rate you pay. In many
cases the higher your score, the lower your interest
rate. Your credit score is available from the three
credit reporting agencies.
Financing
Costs and fees associated with getting a mortgage:
- Down payment. When
you borrow money for a home, you may be
required to contribute some of your own money
toward the purchase of the home. This money is
called your down payment. The amount you need
varies depending on the type of mortgage you
choose, the purchase price of the home and your
financial situation.
- Closing costs. In
addition to your down payment, you will need to
pay closing costs for processing your loan and
transferring the property ownership from the
seller to you, the buyer. Closing costs can
range from 3% - 5% of your loan amount,
depending on where you live, the loan you
choose and your closing date. In some cases,
you can finance certain closing costs in your
mortgage loan. When you apply for a loan, your
lender will give you an estimate of closing
costs, which may include:
- Origination fees, which are the costs of
processing your loan (including property
survey and appraisal)
- Items paid in advance, including
first-year mortgage insurance premium,
first-year hazard insurance premium and
first-year flood or earthquake insurance
premiums, if required
- Escrow account, an
account held by the lender into which the
homebuyer usually pays for city/county property
taxes, mortgage insurance, hazard insurance and
flood or earthquake insurance, if required
- Title insurance
charges
- Recording and
transfer charges
- Attorney's fees
- Mortgage payment.
When you make a mortgage payment, most of your
payment goes toward the principal and interest
of your loan. The principal is the remaining
balance of your loan, and the interest is the
cost of borrowing the money. Typically, all or
most of your interest payments are tax
deductible.1 In addition, a portion of your
mortgage payment is usually set aside in an
escrow account to pay property taxes, mortgage
insurance and hazard insurance.
- Mortgage
insurance. If your down payment is less than
20% of the home purchase price, you can expect
to pay some form of mortgage insurance. Home
loans that are insured let you buy a home with
a lower down payment than the lender would
otherwise require. Mortgage insurance costs
vary, depending on the amount of your down
payment and the type of loan you select.
Applying for Your
Loan
Information you may need to provide to apply for a
mortgage:
- Employment
information. Names, addresses and telephone
numbers of all your employers for the last two
years.
- W-2s. These are
the forms you get from your employer every year
to file your income tax returns. Usually you
will need to provide copies of your W -2s for
the two most recent years. You may also provide
other income information, such as social
security, pension, interest or dividends,
rental income, and child support or alimony, if
you choose to have them considered.
Self-employment income may also be considered.
- Pay stubs. Provide
your pay stubs that cover the 30-day period
before the date of your mortgage application.
- Federal income tax
returns. If you are self-employed, or more than
25% of your income comes from commission,
overtime or bonuses, you may need to provide
complete copies of federal income tax returns
you filed for the two most recent years.
- Bank statements.
You may need to provide statements from all
your accounts (checking, savings, mutual funds,
money markets, certificates of deposits, 401(k)
or other retirement accounts) for the last two
months to verify the exact amount of cash you
have available for your down payment and other
costs associated with your home purchase. For
certain mortgage loans, a portion of the down
payment may come from a gift from a family
member or a grant from a local down payment
assistance program.
- Current debts.
You'll need to provide the account numbers,
current balances and the minimum monthly
payments of all credit accounts, such as loans,
credit cards, child support and other payments
you make each month.
Underwriting
Once all the required
documentation has been gathered, your application is
submitted to underwriting. Underwriting is the
process of reviewing all of the information and
making a decision as to whether a borrower qualifies
for a loan. Underwriters evaluate your ability to
repay the loan (income), your willingness to repay
the loan (credit) and the value of the property that
you've identified (collateral).
- Loan application.
The information provided on your application
helps the lender answer basic questions such
as:
- What is the source of your income, and
is the source stable?
- Is your income adequate to cover the
expense of the new mortgage payment?
- How much long-term debt (debt that will
not be paid within the next 10 months) do
you have?
- Credit history.
Your credit history helps lenders evaluate your
ability to manage debt. It reflects how
repayment of your bills has been handled in the
past. In some cases where borrowers don't have
an extensive credit history, some lenders will
consider alternative payment records, such as
rental payments and utility bills.
- Property
appraisal. An appraisal provides an estimate of
the market value of the home that you wish to
buy and is based on similar homes sold in the
neighborhood. Lenders usually grant up to a
certain percentage of the property's value in a
mortgage loan. This percentage is called the
loan-to-value (LTV) ratio. The rest of the
property value is covered by your down payment.
- Hazard insurance.
Hazard insurance (sometimes referred to as a
homeowner's policy) protects you and the lender
from loss in the event the home is damaged or
destroyed by fire, storm or other hazards.
You're responsible for obtaining hazard
insurance prior to closing and for providing
proof of insurance to your lender. The lender
may also require additional insurance against
loss by flood or earthquake.
Closing the Deal
The closing is the final step in which the home is
transferred to you. Once your loan is approved, a
closing date is set. Depending on the laws of your
state, the closing may be conducted by either:
- Your lender
- A title insurance
or escrow company
- Your real estate
broker
- An attorney who
represents either you or the seller
Pre-closing activities
The purpose of the closing is to make sure the
property is ready to be transferred to you from the
seller. To ensure that the transfer can be made, the
lender normally prepares the following items ahead of
time:
- Title search and
report. Research of land records, court records
and other legal documents to determine if the
seller has a clear, marketable title to
transfer to you.
- Title insurance
binder. Indicates the result of the title
search and assures the lender the title to the
property qualifies for a title insurance
policy.
- Survey. Confirms
the property boundaries are as described in the
purchase and sale agreement. (A survey is not
required in all states.)
- Termite, well,
sewer or septic certificate. Certifies that the
sewage and water supply work properly and that
the property is free of termites and/or other
wood destroying insects. The sales contract
will state whether you or the seller is
responsible for these inspections and
certificates.
- Title insurance.
Title insurance protects your lender against
losses that may be incurred because of a defect
in the title, a forgery, a recording error,
claims of undisclosed or unknown spouses or
heirs, and other risks that did not appear in
the public records when the title search was
done.
- Hazard insurance.
Hazard insurance (also referred to as a
"homeowner's policy") protects you
and the lender from loss in the event the home
is damaged or destroyed by fire, storm or other
hazards. You are responsible for obtaining
hazard insurance prior to closing and for
providing proof of insurance to your lender.
The lender may also require additional
insurance against loss by flood or earthquake.
Document preparation
Several other documents must be prepared by the
lender before the closing:
- HUD 1 settlement
statement. An itemized list of the credits and
charges, for both you and the seller, based on
the contract terms.
- Loan documents.
Final loan documents that grant your lender a
lien against the property in order to secure
the repayment of your loan. These documents
include a promissory note, which is your legal
promise to repay the loan; and a deed of
trust/mortgage, the instrument that is recorded
in the public records.
- The deed.
Transfers ownership of the property to you. The
deed must contain a legal and accurate
description of the property.
Make sure you ask to
review all your settlement documents at least one day
before you sign them. Also consider asking your
attorney to review them.
At the closing, you will sign many documents,
including:
- Settlement
statement
- Note
- Deed of
trust/mortgage
You will probably be
required to pay any remaining down payment and
closing costs. A certified or cashier's check rather
than a personal check is usually required.
When all the necessary documents and releases are
recorded, you will receive the keys to your new home!
Your Rights As a
Consumer
Under the law every consumer has the right to equal
access to credit and the right to full disclosure of
all costs associated with obtaining a mortgage.
The Equal Credit Opportunity Act (ECOA) provides for
equal access to credit regardless of:
- Race
- Religion
- Age
- Color
- National origin
- Sex
- Marital status
- Income from public
assistance programs
There are additional
protections if you have a physical or mental
disability.
For more information on your housing rights, contact
the U.S. Department of Housing and Urban Development
(HUD) and request the Fair Housing — It's Your
Right brochure.
In addition, the ECOA requires that you be notified
as to whether your application has been approved as
requested, modified or rejected within 30 days of the
completed application. Specific reasons for rejection
must be given to you, in writing, at the time of
rejection or upon your written request for the
specific reasons.
An application is considered complete once the lender
has received all the information necessary to make a
loan decision. This may include such information as:
- Credit reports
- Employment/income
verifications
- Appraisals
- Approvals by
insurance companies
- Additional
information, as required
Additional consumer
protection laws include:
- Real Estate
Settlement Procedures Act (RESPA). RESPA
requires lenders to give you advance notice of
estimated closing costs in purchase and
refinance transactions.
- Truth-in-Lending
Act. The Truth-in-Lending Act requires all
lenders to fully disclose, in writing, the
terms and conditions of a loan including the
Annual Percentage Rate (APR), which reflects
the cost of obtaining credit.
Loan
Application
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