Comprehensive Homebuyer Guide

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Getting a loan for your home is easier than you think. At Stockton Mortgage, our expertise and exceptional customer service will make buying your dream home a smooth and enjoyable experience! This comprehensive homebuyer guide will serve as a guide to prepare you for the process ahead, with an overview of each step from pre-qualification, to closing – and everything in between.

Loan Overview

  1. Speak to one of our SMC Mortgage Banker to discuss home buying needs and available options – loan options, rate and terms, payment options, documentation requirements, and more. Really dig in and pick their brain! You can also find out what type of loan and how much home can actually afford by getting pre-qualified in less than 24-hours.
  2. Once you’ve found your home, supply your SMC Mortgage Banker with the supporting documentation needed to submit your loan application.
  3. A credit report will be ordered following your authorization. You will be provided with an initial disclosure to review and sign an Intent to Proceed.
  4. An appraisal will be ordered.
  5. Your loan will be submitted to underwriting. If there are any conditions that need further documentation, your Mortgage Banker will let you know. Your Mortgage Banker will also let you know if the conditions are approved once the necessary documentation and letters of explanation are reviewed by the underwriter.
  6. Confirmation of Closing Disclosure and an updated credit report is reviewed.
  7. Your loan documents are requested and submitted for signing, and a closing date is scheduled.
  8. Funds for costs to close will need to be submitted at closing. A final credit check will be performed and you will sign the documents that transfer the ownership of your new home, as well as sign your mortgage paperwork.

The Basics

A bit about what you can expect from the people around you who are helping you in your pursuit of homeownership:

Your real estate agent: The primary job of your real estate agent is to find you the home that meets your wants and needs! Share with your real estate agent your list of must-haves and your price range. Your real estate agent should also be able to tell you if a property is a good investment or not, be familiar with your desired neighborhood, but most of all, be able to negotiate a good deal on your behalf.

Your SMC Mortgage Banker: Your SMC Mortgage Banker has the duty of originating your home loan by helping you select the best loan product to match your needs.

Your closing agent: Your title agent will ensure that the interests of all parties are met via collecting legal papers and loan documents for signature, facilitating the collection and dispersal of funds, and work with your insurance agent to obtain a homeowner’s insurance policy that satisfies the lender.

Your appraiser: An appraiser is a state-licensed professional who provides a report on an opinion of value on a property, which is required for processing your loan.

Your inspector: Should you elect to have a home inspection, an inspector is a trained and certified professional who performs a non-invasive inspection on your home and provides you with a detailed report of the findings.

Your Responsibilities

Knowing a bit about the types of loan products we offer at Stockton Mortgage can help you have a more productive conversation with your Mortgage Banker about what best suits you in your situation. Is it a Conventional Loan with a 30-year term and locked interest rate? A USDA Loan? Are you a Veteran? Here’s some general information about the types of loans and built-in options provided at SMC.

Conventional: A Conventional loan includes a flexible down payment arrangement requiring as little as 3% (for a single family with one first-time buyer) and in some scenarios will allow you to avoid PMI. This product is available in fixed, adjustable and a combination of rate options, with terms of 15, 20 or 30 years fixed; 5, 7, or 10 years ARM. A conventional loan can be used to obtain a variety of property types: primary residences, investment properties, second homes, 1-4 family residences, manufactured homes, planned unit developments, condos, and/or modular homes.

Jumbo: Jumbo loans function similarly to conventional loans with some of the same specifications. A Jumbo loan can be offered for loan exceeding $417,000, and can allow for up to 85% (LTV) loan-to-value. Terms and rates are the same as conventional loans, but require a minimum of 15% down payment.

FHA: This product, though called a Federal Housing Administration loan, is not actually provided through the FHA. The FHA does not issue mortgage loans, they issue mortgage insurance to mortgage bankers. FHA is popular with first time homebuyers because there are less rigorous qualification requirements and it usually requires as little as 3.5% down payment.

VA: VA loans are ideal for eligible Veterans, which offers 100% financing and zero down payment, no monthly mortgage insurance, low closing costs and flexible credit guidelines. Terms are the same as conventional, available for primary residences only.

USDA: A USDA Rural Development loan is great for buyers looking outside of the city limits. This program offers 100% financing – meaning no down payment. This loan is available with a fixed 30 year term, however income and location restrictions apply.

Standard FHA 203k: Standard FHA 203k is ideal for buyers who are looking to purchase a home in need of substantial renovations, or for refinance customers who are interested in renovating their current home. Its benefits include a down payment as little as 3.5%. In order to qualify for this product, the cost of repairs must exceed $35,000. The loan amount is determined by the estimated after-improved value of the home and the down payment percentage is calculated based on the total amount of the loan (mortgage cost and repair cost). The Standard 203k is necessary when purchasing a home that requires extensive repair work such as removing from, or adding to the structure of the home. It is import-ant to know that this type of loan requires the assistance of a 203k specialist mortgage banker, as well as a 203k home inspector. The terms are the same as the fixed conventional, 15, 20 or 30 years.

Streamline 203k: Streamline 203k is a smaller version of the Standard 203k and is designed for buyers who are purchasing a home that will require less significant renovations, or for refinance customers who are interested in renovating. For this product, buyers must be purchasing a home that requires less than $35,000 in renovations and does not include structural work. This loan is designed for customers who want to do smaller renovations, such as remodeling a room or installing new flooring. It also offers a down payment as little as 3.5%. Unlike the Standard 203k, it does not require 203k specialists. The terms are the same as the fixed conventional, 15, 20 or 30 years.

Loan Documents Needed

  • Color copy of driver’s license
  • Color copy of social security card
  • Copies of most recent paycheck stubs from the last 30 days
  • Social security award letter (if applicable)
  • Retirement pay documents (if applicable)
  • Copies of bank statement detailing the last 60 days of activity
  • Copy of most recent retirement account statement (if used for closing costs or cash reserves)
  • Copies of all 1099s and W-2s from the past 2 years (3 if using KHC or IN housing funding)
  • Copies of all federal tax returns with all schedules for the previous 2 years
  • Any addresses for the last two years
  • Copy of previous year property tax bill and homeowner’s insurance policy
  • Agent name and contact information for homeowner’s insurance company
  • Information on all outstanding loans and credit cards
  • Names and account numbers of creditors
  • All monthly payments and account balances
  • Copy of divorce decree and property settlement agreement (if applicable)
  • Child support documents (if applicable)
  • Copy of bankruptcy and final discharge documents (if applicable)
  • Judgement or lien releases (if applicable)

Appraisals & Inspections

An appraisal is a necessary opinion that must be obtained to determine the LTV (Loan-to-value) for a home purchase or refinance, and something you should plan on. An appraisal will tell you how much the house you want to call home is actually worth, by creating a report that evaluates several factors, including home sales in the neighborhood of your home, upgrades to the home and other factors.

An appraisal must be completed by an independent third party licensed appraiser after the offer on your home is accepted. It can vary in cost depending on the type of loan you pursue, so ask your SMC Mortgage Banker about budgeting for that. For a detailed explanation of the appraisal process and to learn more about what is concerned in an appraisal, check out our Appraisal Guide.

You may also want an inspection for the home you are looking to buy – inspections are not necessary to the homebuying process, but it is recommended. You can ask your SMC Mortgage Banker to recommend a reputable inspection company or find one on your own.

Credit Score

Qualifying for a mortgage can be made easier if you have already established a good credit score. There are many factors that contribute to your credit score, including payment history, amount of debt, types of credit, and number of inquiries. Typically, the higher your credit score, the more favorable are the rate and terms are for you. For more information on understanding your credit score, FICO, and even how to boost your score in the pursuit of homeownership, check out our Understanding Credit Guide.

Processing & Underwriting

The main duty of processing is to organize and validate your loan documents to ensure all the necessary documents are required for the underwriting process. It’s important to supply your SMC Mortgage Banker with the loan documents listed earlier, for a faster and smoother loan process.

And underwriter’s duty is to assess your ability to honor your loan, by looking at your employment record, your sources of income and your assets and analyze your detailed credit report. Underwriting is the final documentation phase and your response to document requests can largely affect the time it takes to underwrite the loan.

Things to NEVER do Before Closing

Because of Federal funding guidelines, verification of your credit profile as unchanging during the underwriting process is critical. Another credit report must be run before closing, and your SMC Mortgage Banker will be required to look for new credit card applications, increased balances and the minimum payments being made on existing cards, or new lines of credit. If the credit report varies from the initial report from the beginning of the application process, the application is subject to being re-written, delayed, and possibly turned down.

Erring on the side of caution, avoid this potential outcome by avoiding the following:

  1. Increase balances on existing credit cards or apply for new credit (There should be no credit checks occurring during the entire loan process).
  2. Purchase a car or shop for a car.
  3. Open a new bank account or make large deposits.
  4. Transfer funds from one account to another.
  5. Shift credit card debt from one creditor to another.
  6. Sell major assets.
  7. Go on vacation, making you unavailable to the lender.
  8. Borrow money from any source.
  9. Change employers or quit your job.

If anything changes in your employment status (i.e. you take medical or family leave) or in your marital status, be sure to inform your SMC mortgage banker. Failing to avoid the pitfalls from the above list may result in the underwriters recalculating your debt-to-income ratios to ensure it does not exceed the lender’s maximum DTI (and if it does, the loan will be denied). You may also be asked to account for non-disclosed liabilities through documentation and/or a letter of explanation to account for changes in the re-underwrite.

Title Insurance

When you purchase a home, you’re actually purchasing the title of ownership and possession of the land. It is possible that someone other than the owner could claim ownership or rights to the property by way of inheritance, forgeries, liens, creditor claims of past owners, undiscovered easements, or other defects undiscovered during the title search – which is where Title Insurance comes in.

Insuring Your Investment

Title insurance essentially protects you from hidden defects on your title that could surface at any time during the ownership of your property. There exist two types of title insurance: a lender’s policy, which assures the lender they have an enforceable lien on your property (however, this does not protect you in any way); and an owner’s policy, which protects you from defects prior to the date you were issued your policy and it covers the cost of any legal defense on your title.

Property Taxes

Property taxes can be paid one of two ways: if you’re financing 80% or more of the cost of your house, taxes are rolled into your monthly payment (referred to as Impounds) – each month, along with your principal, interest, and PMI, part of your payment will go towards 1/12th of your tax bill, and the lender will pay your tax bill when it comes due. No impounds means, an option available to those who have at least a 20% down payment, where you may pay your taxes yourself. Certain loan products require that your property taxes be impounded, so be sure to ask your SMC Mortgage Banker which options are available to you

Homeowners Insurance

When you purchase a home, it’s similar to purchasing a car in that you choose your own insurance agent. You’re encouraged to shop around for your insurance, or if you’re happy with the provider of your car insurance, ask them about bundling your homeowner’s insurance with your present car insurance policy. Your insurance agent will most likely provide you with different levels of coverage options, and once you make a decision, you will be required to pay the first year premium. Your insurance agent will be required to provide proof of insurance prior to closing. Impounds and no impounds apply here as well, but stipulations as to your LTV and loan products may affect your ability to choose one over the other, so make sure you ask your SMC Mortgage Banker or your insurance provider about your options.

PMI

Not to be confused with homeowner’s insurance, Private Mortgage Insurance (PMI) is required on loans where the down payment is less than 20%. PMI protects the lender in the event you default on your home loan, and should not be confused with homeowner’s insurance. If you have any questions about PMI, ask your SMC Mortgage Banker.

Closing

Prior to closing, you will be informed about your closing costs with the receipt of your Closing Disclosure. In any purchase or refinance, you’ll be given this detailed report that explains each item of the services and fees provided, and the amount of cash you will need to close your loan. In your Closing Disclosure, you’ll be informed of the recurring costs you’ll be expected to pay (your house payment, which will consist of your principal and interest payment, taxes, insurance, HOA fees and PMI (if applicable). You’ll also be informed of one-time fees for the services rendered, such as overnight delivery fees, title insurance, escrow, recording fees, loan processing, loan document and underwriting fees, appraisals, or any other miscellaneous fees.

 

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