homeownership

Housing Ratio

(front end ratio) the percentage of your gross income that you can spend on housing. typically lenders allow a maximum housing ratio of 31% remember that your full mortgage payment consists of PITI. Monthly gross income x .31 = Estimated PITI

8 steps to shop around for the best mortgage

1 - shop around for the best mortgage 2 - apply for the mortgage 3 - The lender reviews your credit and provides you with a preapproval letter 4- shop for a home 5- make an offer 6 - the lender begins final loan processing 7 -the underwriting process begins 8 the loan closes

closing costs

3-6% of loan amount

buyer's agent

A broker who represents a buyer in a real estate transaction.

conventional loan

A conventional loan is any mortgage that is not government-insured or guaranteed. These loans are made by private lenders, such as banks and credit unions. Conventional loans tend to have the best interest rates, and to qualify, you usually need excellent credit, steady employment, and a pretty good income. A 20% down payment isn't always required, but in that case you usually need to buy PMI. Most conventional loans are also "conforming" loans, and the two terms are often used interchangeably.If you don't have 20% down, the lender will probably require private mortgage insurance

purchase agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

collateral

As you've learned, your home is the collateral for the loan, which means the lender can take possession of it if you default. To protect themselves, lenders order an appraisal of the property to make sure it's worth at least the loan amount.

capacity

Capacity is your monthly income and how stable it is. Is your income high enough and stable enough to cover a mortgage and home expenses? To determine this, lenders review your income, employment history, and earning potential.

capital

Capital is the cash you have on hand to pay the upfront costs of homeownership. Not only the down payment, but also closing costs and moving expenses.

if you can afford a loan

Down payment assistance programs Community land trusts Nonprofit and community developers Habitat for Humanity Cooperative housing Contract for deed

FICO

FICO scores range from 350 to 850, and it usually takes at least a 680 to qualify for a mortgage with good interest rates and lower fees. Some lenders will take other things into consideration, but still, the higher your score, the better! Payment history (35%) Amounts owed (30%) Length of credit history (15%) New credit (10%) Credit mix (10%)

government loan

Government loans are popular with first-time homebuyers because they're designed to make buying easier. They often have more flexible credit standards, require a lower or no down payment, or waive mortgage insurance. Let's review some options. Select each option for more information.

Insurance

Insurance includes homeowners insurance and, if required by the lender, private mortgage insurance (PMI).

Interest

Interest is what the lender charges for lending you the money to buy your home

How do you prequalify?

Lenders use two qualifying ratios to determine how much you can afford. That is, how much of your gross income can comfortably go toward mortgage payments. They're the housing ratio and the debt-to-income ratio.

Apply for the mortgage

Once you've weighed your options, apply for a loan with your first choice. Here's a list of the documents most lenders require for any mortgage application. Check off the ones you already have at hand, and make a note of the ones you need to start gathering. If you've already done all your budgeting, you'll be in good shape for this step.

In the language of lending, PITI refers to

PITI refers to principal, interest, taxes, and insurance.

correct order of a mortage

Preapproval Purchase agreement Underwriting Closing

PMI

Private mortgage insurance (PMI) is sold by private insurance companies and protects the lender if you can't repay your mortgage. Many loan products require PMI if your down payment is less than 20%, which is the case for most people.PMI isn't forever. You can cancel PMI once you've paid at least 22% of the original loan amount, or if an appraisal shows that your home has appreciated and your equity is more than 20%

Taxes

Taxes are 1/12th of the yearly property taxes on your home

who works directly for the buyer?

The Homeownership Advisor, real estate agent, and home inspector work directly on your behalf. The others work on behalf of the lender

Principal

The principal is the original amount you borrowed from the lender

listing agent

a broker or agent who only represents the seller

seller's agent

a broker or agent who only represents the seller

loan estimate

a document that describes important facts about your loan and gives you an estimate of your closing cost.

facilitator

a real estate agent who helps complete the purchase agreement, usually when the buyer has decided not to use a buyer's agent

escrow

a special account used to hold monthly payments toward annual property taxes, homeowner's insurance and if applicable mortgage insurance. most lenders require first time homebuyers to escrow property taxes and insurance to guarantee that those bills get paid. its one way they protect their collateral. f your lender requires escrow payments, you might be able to opt out after five years, but only if you've paid more than 20% of the original loan amount. Just be sure to budget for those big tax and insurance payments as periodic expenses.

underwriter

after the loan is processed, the underwriter approves your loan on behalf of the lender. makes sure the loan is correct, can you afford the monthly mortgage, is your credit history solid? underwriting is done manually and can take up to 2 months.

insurance agent

before you can close on your mortgage you have to prove that you've purchased enough homeowner or hazard insurance.

4 C's of credit

capital capacity collateral credit history

loan closes

closing, also known as a settlement, is the final step in the mortgage process. you sign all the final documents and the lender funds the loan and pays the seller, plus anyone you owe fees to. the home is now yours!

Preapproval

comes later, when you start seriously looking at homes. A lender agrees to loan you a specific sum based on your actual loan application, as long as you meet certain conditions. A preapproval letter from a lender gives you more negotiating power with sellers because it shows you have the funds to back up your offer. More on that later in the course.

how to get preapproved

complete your initial loan application. The lender does an extensive check on your finances and credit report. If everything checks out, the lender will state the exact amount they're willing to loan you. the preapproval is good for a set amount of time, usually 60-90 days

Home appraiser

determines the homes value and confirms for the lender that its' worth the price you plan to pya.

real estate attorney

documents and reviews any offer. protects your rights, duties are clearly defined, helps resolve issues like title insurance and environmental laws. needed to review closing documents

Which one of these is not an example of upfront costs? Moving expenses Earnest money First year's mortgage payments Closing costs

first year's mortgage payments that are not an upfront cost

A lender uses these tools to help prequalify you for a mortgage

housing ratio and debt-to-income ratio.

underwriting process begins

if everything in the loan estimate is acceptable to you, youll tell the lender to proceed with the loan. the lender will then turn things over to the underwriter, who confirms that all the key factors on your application. meet the lenders guidelines, and that tax, title, insurance, and closing requirements have been met. you might be asked for more information such as your most recent pay stub and bank statement or proof of homeowners insurance. sometimes borrowers are required to meet additional conditions at this point, such as paying off another loan or coming up with a larger down payment. you have to meet all the conditions before the loan can close.

Home inspector

looks for major issues you need to be aware of before buying a home. water/structural damage, code violations, old roof, bad foundation

shop for a home

once youre preapproved, you can start shopping for a home knowing just how high you can go for the right place

Credit history

our credit history shows lenders what kind of risk you are. Do you use credit in moderation? Do you pay your bills regularly and promptly? Lenders typically require 12-18 months of positive history: modest balances, no late or missed payments, etc.

CONFORMS

roadly speaking, conventional mortgage loans fall into one of two categories: conforming, which includes most loans, or nonconforming, which are less standardized. Conforming loans They meet the underwriting guidelines established by the government-sponsored enterprises (GSEs) of Fannie Mae and Freddie Mac Interest rates tend to be lower than for nonconforming loans There's not much flexibility if you don't meet the loan requirements They have maximum loan amounts set by the GSEs Nonconforming loans They do not meet GSE guidelines They include "jumbo loans" that exceed the conforming loan limit They're not guaranteed or insured, so the lender is at risk if you default The lender determines the interest, rates, fees, and loan requirements, which can vary widely — making it especially important to shop around

Prequalification

s when a lender (or a Homeownership Advisor) gives you an informal estimate of how much you can borrow, based on your gross income and debts. You won't necessarily be approved for that amount, but the quick estimate is helpful when you're shopping around for a mortgage.

closing agent

sometimes called an escrow officer. represents the title company and facilitates the final transaction. makes sure all documents are correct

debt-to-income ratio

sometimes called the back-end ratio, is the percentage of your gross income that you can spend on housing plus debt payments. This ratio varies by loan product, but it's often in the 41%-43% range.

AMORIZED

the process of paying off debt and interest over a set period of time.

make an offer on a home

through your real estate agent, you make an offer. if the seller accepts you can sign a purchase agreement

the lender begins final loan processing

with the purchase agreement in place, you now contact your lender so they can start processing the loan. Your lender is required to give you a loan estimate (LE) within three business days of receiving a complete application for a mortgage. (The application won't be complete until it includes the property address.) This standardized three-page form makes it easier for you to understand the terms of the loan. Along with the loan estimate, the lender will also give you a Consumer Finance Protection Bureau booklet titled "Your Home Loan Toolkit." If you're applying for an adjustable-rate mortgage, you'll also receive the "Consumer Handbook on Adjustable-Rate Mortgages" (CHARM).