Transcript byron camañero

Managing the
Mortgage Maze
Choosing the mortgage that’s
right for you!
BYRON CAMAÑERO
Broker Associado
Understanding mortgages
• You’re ready to buy a home, but confused about
mortgages.
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What exactly is a mortgage?
What are their different types?
How big a loan can you get?
How will the type of mortgage you get determine how much
house you can afford?
Which mortgage is best for your budget?
What will my payments be?
Do I need to get pre-approved?
How long does it take to get a mortgage?
• Relax! We’re here to manage the mortgage maze
and arm you with the info needed to get the
mortgage that fits your needs.
What is a mortgage?
• Mortgage requires you to pledge your home as the
lender’s security for repayment of your loan
• Lender holds the title to your property until you
have paid back the loan plus interest.
• If you do not repay your mortgage loan, the lender
has the right to take possession of your house and
sell it in order to satisfy the mortgage debt.
What is a mortgage?
All mortgages have two features in common:
• Principal:
– Principal is the actual amount of money you borrow.
• Interest:
– Interest is the money you pay for use of the money you
borrow.
• How much interest you pay depends on the loan you choose.
• Interest you pay on your mortgage is tax deductible.
What is a mortgage?
• Amortization:
– You’ll repay your mortgage gradually with payments of
principal and interest.
– Payments are calculated so you’ll own your home debtfree at the end of a fixed period of time.
– First few years, most of payments will go toward the
interest you owe.
– Final years of loan, payment amounts will apply almost
entirely to the remaining principal balance.
– If you sell your home, you will be required to pay back any
remaining principal balance on your mortgage loan to your
lender.
Types of loan programs
Everyone has different needs so consider options.
Two basic mortgage issuers:
• FHA/VA
– Government-insured: Federal Housing Administration and
Veterans Administration
• Conventional (Fannie Mae and Freddie Mac)
– Conforming and non-conforming, such as jumbo
Two basic mortgage types:
• Fixed rate mortgages
• Adjustable rate mortgages (ARMs)
Fixed rate mortgage
• Fixed interest rate over the life of the loan.
• Commonly available as 15- and 30-year terms, but
also options for 10-, 20-, 25- and 40-year terms.
• Loan balance is amortized over the life of the loan
– 30-year fixed rate loan: you will make 360 equal payments
of principal and interest to pay off your loan.
• Advantage is rate and payment never changes;
long-term stability.
• Disadvantage is slightly higher interest rate.
Adjustable rate mortgage
• Interest rate adjusts over the life of the loan.
• Generally shorter terms than fixed rate loans; 1-, 3-, 5-, or
7-year terms.
• Interest rate is fixed for the first 1-, 3-, 5-, or 7-years and
then generally adjusts once a year within a 2 percent cap.
• 80 percent of all mortgages in the U.S. do not last longer
than seven years.
• Advantage – lower initial interest rate and payment.
• Disadvantage –rates will rise over time, could end up
higher than fixed rate loan; payments will increase.
Adjustable rate mortgage
If you are considering an ARM, be sure you know:
1.
What is the adjustment period (the time between
interest rate changes)?
2.
What index is used to determine the interest rate?
Make sure it is not too volatile.
3.
Does the introductory rate differ from the normal rate?
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What is the margin (percentage added to the index
rate each time your loan is adjusted)?
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What is the period adjustment cap?
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What is the lifetime adjustment ceiling?
Which loan is for me?
• Knowing what kind of loan you qualify for depends
on several variables, including your credit score.
– Generally, the higher your credit score, the better interest
rate and loan you can get.
– Poor credit? Not the end of the world. Can always improve
your score over time by demonstrating financial
responsibility or have someone co-sign the loan with you.
• Be realistic about what you can afford.
– More than just mortgage expenses…repairs and
maintenance, insurance, utilities etc.
• Loan professional can help identify loan programs
to meet your individual needs.
Understanding points, fees
• Not only do you have to understand what type of
mortgage you should choose, you have to understand the
costs associated with your mortgage.
• Purchase points (also known as “permanent buy-down” or “discount
points”): Optional up-front fee paid to the lender at closing
to lower your interest rate over the life of the loan.
– One point is equivalent to 1 percent of the amount of money
borrowed. ($300,000 loan, 1 point = $3,000 up front) Generally
generates 1/4 to 3/8 of a percent lower rate, depending on the
program.
• Fees are always associated with getting a mortgage.
– Can include charges for: ensuring the title to the home is clear; land
survey; home appraisal; underwriting; processing
– Lender should provide a good faith estimate up front.
What will my payment be?
Factors that affect your mortgage payment:
• The size of your down payment.
– May be as little as 3 or 5 percent.
– Less than 20 percent often means you’ll need private
mortgage insurance.
• The amount of your mortgage.
– Guideline for determining the amount of the mortgage you
may receive … monthly housing costs are no more than
28 percent of monthly gross(before taxes) income; or
monthly housing costs plus other long-term debts should
total no more than 36 percent of monthly gross income.
What will my payment be?
Factors that affect your mortgage payment:
• Your mortgage interest rate.
– Various types of loans may have different rates.
• The repayment term of the mortgage loan you
choose.
– Shorter repayment means you’ll owe less interest, but
have higher monthly payment.
– Longer repayment means you’ll have lower monthly
payment, but will pay more interest overall.
• Mortgage Calculators are a good tool for helping
determine how much of a mortgage you can afford
and what your payments will be.
Should I get pre-qualified?
• Yes! Show sellers you are serious and able to
purchase.
• Pre-qualification helps give you an idea how much
you might qualify to borrow.
– Not actually a loan application and doesn’t guarantee
you’ll get the loan.
• Pre-approval goes one step further. May receive a
letter stating how much you qualify to borrow.
– Still doesn’t guarantee financing as info is not verified.
• Actual approval is the best way to guarantee
you’ll have the financing to buy the home you
really want.
What do I need to apply?
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Picture ID
Proof of Social Security number(s)
Residence address(es) for past two year
Names and addresses for each employer for the past two years
W-2s and last two pay stubs
For each checking and saving account: name of financial institution,
address, account number and balance; last two months’ statements
For each current loan: name of lender, address, account number,
balance and monthly payment
If you are self-employed: last two years’ tax returns; year-to-date
profit and loss statement prepared by an accountant
Loan information and address(es) of real estate owned
Estimated value of furniture and personal property
Certificate of eligibility or DD214s (VA only)
Deposit for credit report and appraisal
Be sure to provide accurate and complete the information to
avoid delays or even being denied.
Final steps to closing
When you make a formal loan application, you will
receive:
• A truth in lending disclosure.
– In part, this includes info about annual percentage rate,
total finance charges, amount financed, total payments,
schedule of payments, late payment charges, prepayment
penalty (if any), and more.
• A “good faith estimate” of closing costs.
– This is an estimate of the approximate amount of money
you’ll need at closing and includes an estimate of fees.
Final steps to closing
Just before closing:
• Before closing, do a final “walk through” inspection.
Make sure all repairs have been made and no items
in your agreement have been changed/removed.
• Review all loan documents and your purchase
agreement. Make sure you understand what you are
signing.
Final steps to closing
At closing:
• Review and sign several documents
– Includes the HUD-1 settlement statement which lists all
closing costs and fees; mortgage note which says you
promise to repay the loan; mortgage or deed of trust with
legal description of the property; truth-in-lending statement
which includes annual percentage rate; monthly payment
letter showing breakdown of monthly payment.
• Pay closing costs
– Few loans come without closing costs; some lenders charge
less, but have higher interest rate
– May be able to roll closing costs into your loan
Final steps to closing
Enjoy your new home!
Questions?
BYRON CAMAÑERO
Broker Associated
4615 W. CENTURY BLVD.
INGLEWOOD, CA. 90304
(323) 521-3816
(323) 214-6845
http://byroncamanero.covertum.com