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Please take some time to read the following important articles containing information all buyers
must know:
Things to Consider Before Buying A Home ~ Dos & Dont's ~ How Your Credit Score is Derived ~ Keep
Your Credit Clean ~ What to Expect at
Closing and a Moving Checklist.
Things To Consider Before Buying A Home
For many people, buying a home is the single biggest investment they will make in a lifetime. The so-called "right
time" is different for everyone. Before making a decision to buy a home, you will want us to help you determine the following:
Can You Qualify for a Mortgage?
The best way to determine this is to figure out your debt-to-income
ratio. As an example, if a loan program uses a 28/36 qualifying ratio, it means the homebuyer is allowed to spend no more
than 28% of his or her gross income on monthly mortgage payments and no more than 36% on total debt. Total debt includes car
and school loans, credit cards, child support and alimony. More specifically, if an individual earns $60,000 per year, his
or her monthly gross income is $5,000. Under the 28/36 guidelines, that person’s maximum monthly mortgage payment should
not exceed $1,400 while his or her total monthly debt should not exceed $1,800.
How Much Home Can You Afford?
Commonly paid in cash, down payments are based on a percentage of the home’s selling price and are due at closing.
If you are able to make a down payment of 20% or more, you can save money — between $20 to more than $100 a month —
and avoid the cost of mortgage insurance. If you don’t have 20% to put down on a home, remember that there are other
options out there. Many affordable mortgage programs exist, including a few that require little or no down payment. Additionally,
zero down payment programs are available for some veterans, active-duty military personnel and reservists.
How's
Your Credit?
All lenders require a credit report that contains personal financial information such as loan payment
information, bank and credit card accounts, and more. Your credit report will be obtained as part of our pre-approval process.
____________________________________________________________________ Dos & Don'ts Before Closing a Loan
Below are a few reminders of "do's and don'ts" that are helpful to know before you close on your loan.
- DO bring a cashier’s check made payable to the title company for the amount of your closing costs. This amount will
be given to you by us the day before or the day of your closing, after the title company provides a final HUD Settlement Statement
to us.
- DO alert us if your salary or other compensation changes from what is documented on your loan application.
- DO notify us if your address changes from what appears on your original loan application. We will complete rental and
mortgage verification for all of your residences within the last two years.
- DO acquire homeowner's insurance with minimum coverage equal to the amount of your total loan or the replacement value
of the house. DO share the agent’s name and phone number with us within 5 days of an executed contract.
- DO keep documentation on any large ($500 or more) and significant deposits into your bank accounts. This type of "paper
trail" is compiled of copies of all paperwork necessary to prove a financial transaction: copies of all checks, deposit slips,
loan paperwork, forms to liquidate assets, etc.
- DO report if you transfer funds from one account to another. Provide records on such transactions.
- DO verify that you have a clear termite inspection on the property. If the termite report is not clear, provide a receipt
for treatment that shows the chemicals and the amount used for treatment.
- DON'T acquire any additional lines of credit or make any large purchases on existing credit without first consulting us.
As examples, purchasing a car or buying major appliances for your new home will negatively change your debt-to-income ratios.
- DON'T change jobs without consulting us. A change in compensation could affect your ability to qualify. Borrowers must
have a two-year history of bonuses and/or commissions to be counted as income. As a quality control check, lenders may verify
employment on the day of closing.
- DON'T co-sign with anyone to obtain a line of credit or make a purchase. The payment will show up on your credit report
as an additional debt.
- DON'T negotiate your contract with an allowance and expect to get money back at closing. An allowance can be used to pay
closing costs and/or prepaids.
____________________________________________________________________
How Your Credit Score Is Derived
Developed in 1956, a Fair Isaac Corporation Score (commonly called the FICO Score) is a three
digit number ranging from 300-850 and is calculated according to the following risk factors:
Payment History (35% of score)
§ Payment information on many types
of accounts
§ Public record and collection items
§ Details on late or missed payments
– specifically:
ü how late they were
ü how much was owed
ü how recently they occurred
ü how
many there are
Amounts Owed (30% of score)
§ Amount owed on all accounts
§ Amount owed on different types of
accounts
§ Whether you are showing a balance
on certain types of accounts
§ How much of the total credit line
is being used
§ How
much of installment loan accounts is still owed
Length of Credit History (15% of score)
§ How long your credit accounts have
been established, in general
§ How long specific credit accounts
have been established
§ How
long it has been since you used certain accounts
New Credit & Inquiries (10% of score)
§ What kinds of credit accounts you
have and how many of each
§ Total
number of accounts you have
Types of Credit (10% of score)
§ How many new accounts you have
§ How long it has been since you opened
a new account
§ How
many recent requests for credit you have made
What
It Means
Once the borrower’s score is derived, most
lenders use a standard ‘grading’ system to categorize the results. While some lenders develop their own systems
for classification of scores, below is a general guide of score interpretation. Used as a general reference, this can help
you interpret the credit score you’ve been given based on a grading system typically used in schools:
|
CREDIT SCORE
670 and above
650
620
580
550
520
or below |
GRADE
A+ to A
A-
B+ to B-
C+ to C-
D+ to D-
E |
Fair Isaac Resolution Resources Helpline (800)
777-2066
____________________________________________________________________
Keep Your Credit Clean
Credit Cleaning Tips
- Review your credit report line-by-line, specifically search for errors, omissions, duplications, and "common name" errors.
- If you encounter errors, write out exactly what should be corrected and why. You are able to add 100 words or less to
your reports on questioned items.
- You can find assistance through credit counselors which are available through the various credit bureaus.
- Federal law requires credit bureaus to contact all creditors on items where mistakes were made. According to the Fair
Credit Reporting Act of 1971, if these firms fail to respond to you in writing within 30 days, they are obligated them to
remove the disputed items from your records.
- Most merchants are willing to negotiate customized repayment plans for those that find themselves with considerable debt.
- Chapter 13 bankruptcies stay on an individual's record for seven years. Chapter 7 bankruptcies stay on an individual's
for seven years.
Judgments, Garnishments, or Liens
Liens, garnishments, etc., typically are indicators of an unstable borrower. Any judgments, garnishments, or liens must
be paid in full. Prior to closing, proof that the judgment, garnishment or lien has been cleared must be obtained; this can
be reflected through a clear credit report supplement or a paid receipt form from the creditor. IRS tax liens also must be
paid in full. Standard property tax liens do not have to be recorded as paid in full since they are not yet due or payable.
Also, the borrower is obligated to provide a satisfactory letter of explanation.
Delinquent Child Support
Child support payments must be brought current, and specific documentation from the credit reporting agency evidencing
this fact must be in the file with NO EXCEPTIONS! Because of the seriousness of the delinquency/default, which in many states
can cause incarceration, the A letter from the court or the legal authority responsible for collection in the city/state (e.g.
district attorney, sheriff, etc.) is acceptable. A letter from an ex-spouse and copies of personal checks are not acceptable,
nor is an agreed upon, but not yet completed, payment plan.
Credit Bureaus:
There are a good number of reporting agencies that can provide you your credit score. Three of the leading services for
this are:
____________________________________________________________________
What To Expect At Closing
Out of the entire home buying process, closing costs can often the least understood pieces. At PrimeLending, we will take
the time to address your questions and guide you to answers.
Closing Costs
Although they tend to vary from lender to lender, closing costs generally are considered any costs tied to the purchases
of a new home. Today, these costs range from 2 and 7 percent of the home’s purchase price and include three basic categories:
Prepaid Expenses
Prepaid expenses include homeowner’s insurance, mortgage insurance and the costs to set up an escrow account. An
escrow account is when a lender will pay the annual insurance premiums and various taxes on the borrower’s behalf. The
amount that goes into this account is based on the first year’s premiums; an additional amount also is included to pay
for future premiums. Because they vary based on the type of property and the time of the closing, prepaid expenses are difficult
to determine.
Mortgage Points
A mortgage point is equal to 1 percent of the mortgage loan amount and actually helps reduce the loan’s interest
rate. For example, depending on prevailing rates, a $100,000 mortgage might be obtained at 7.75 percent with 2 points, or
at 8.25 percent with no points. Obtaining the lower interest rate would cut the mortgage payment by about $35 a month, but
would require $2,000 — or 2 points — up front at closing.
Out-Of-Pocket Expenses
Fees for appraisals, attorneys, credit reports, deed recording, tax services and other miscellaneous expenses make up the
out-of-pocket expenses. Usually performed by a third party, these fees for services are directly charged to the borrower.
The majority of out-of-pocket fees are necessary and legitimate; however, if the borrower encounters a fee that causes confusion,
he or she should ask the mortgage professional about it.
Purchasing a home is one of the largest financials investments
you can make. It’s vital that you understand it fully and completely so that you avoid unwelcomed surprises and are
confident in every step you take towards your new home.
____________________________________________________________________
Moving Checklist
4 Weeks Prior to Move
- Make a "Move" file folder to keep track of documentation and records of the moving process.
- Set up a calendar for your move to mark deadlines and reminders.
- Hold a garage sale to rid yourself of furniture, clothes and other items you'd prefer not to move.
- Contact a local charity to donate any unneeded furniture and items not sold in the garage sale.
- Collect boxes, tape, rope, wrapping/padding material and other moving supplies.
- Line up a moving company (or make reservations to rent a moving truck if you plan to move yourself).
- Gather doctors, dentists, other medical and school records.
- Put together (and keep accessible) all financial, tax, and employment documentation that may be needed during your loan
process.
- Contact your insurance company to transfer your policies (life, auto, homeowners).
3 Weeks Prior to Move
- Set a cutoff date with your current utility providers (this can include telephone, gas, electric, water, garage, and cable).
- Establish a start date for utility services at your new home.
- Let friends and relatives know of your upcoming move.
- Donate canned goods and other non-perishable food items to a local charity to save the expense of moving them.
- Verify your Voter Registration information and make any necessary changes in light of your move.
- Register your new address with your subscriptions to newspapers, magazines, and association memberships.
- Complete a change of address card with your local post office.
- Research and keep record of tax deductions on moving expenses.
2 Weeks Prior to Move
- Transfer stocks, bonds, bank accounts, and contents of safety deposit boxes to a trusted financial institution near your
new home.
- Organize the clothes you will be moving; separate them into suitcases, keeping those you need readily available.
- Review the moving checklist so far, making sure you are still on track for the move.
1 Week Prior to Move
- Drain outdoor equipment: water from hoses, propane tanks from barbecue grills, and gas and oil from lawn mowers.
- Discard any aerosol, paint, oils, and all flammable and/or toxic chemicals.
- Label items you need to easily access and place them in a separate room or closet.
- Schedule a pest control company to service your home before moving - especially on new construction.
- Clean your refrigerator and let it air out at least 24 hours before moving.
Move Out Day
- RELAX
- Load items and boxes that you'll need first last. (Those items packed last will be unloaded first.)
- Conduct a final walk through of your home once everything is out of the house; check cupboards, closets, behind doors,
attics, stairwells, overhead in the garage, outside the home, and any storage sheds.
Move In Day
- Prepare your new home before the moving trucks arrive; have it clean and be prepared to instruct where you’d like
items placed.
- Take some time, sit back, and enjoy your new home!
Remember...If
you are uncertain about what to do at any point of the loan process, please contact us, we are here for YOU!
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