Mortgages and Financing
This section addresses information regarding finances, mortgages and the how the two affect each other. We feel as though this is one of the most important topics when you begin your home search. If you do not have a lender of preference, feel free to call us for some names used by us, our clients and our friends. Remember, the CHOICE IS YOURS and we can not guarantee or be held liable for the actions of any professionals linked to our web site. As always, you know the disclaimer! “Consult your lender, accountant, attorney and other professionals as appropriate for their advice and opinions. This skinny information was compiled from various sources and is deemed reliable. While it is believed to be accurate, it can not be guaranteed.”

Being “Pre-Approved” and Why that’s Important

Interviewing lenders is one of the first things you should do when you decide it is time to start looking for a home. To find a lender you can ask your friends and family which lenders they enjoy working with, check the local phone book or call us for the names of some lenders used by us, our clients or friends. It sounds simple, but be sure you know that choosing the lender is the buyer’s choice. Look at the “10 Questions to Ask Your Lender” article for tips on starting the search for a lender.

Once you decide on a lender, start the process of being “pre-approved”. When you are “pre-approved” you have a better idea of how much of a mortgage you can afford. When you find a property and decide to submit an offer, you can also call you lender and ask them for a property specific “pre-approval letter.” This letter can be submitted with your offer and indicates to the seller that you are serious about buying their home and have a head start on the loan process. Some sellers will make a choice between multiple offers based on the pre-approval status of the potential buyers!

Loan Application

There are several timelines involved in your contract to purchase real estate. One of the first “milestones” involves the loan. Per the standard residential SC Contract of Sale the purchaser has 5 business days to make loan application. Once a loan application is made, the lender immediately requests to verify the information given by the purchaser(s) on the loan application.  These requests are to employers, banks, creditors, and landlords.  The lender also orders credit reports and an appraisal on the property.

Once the lender receives the various pieces of information, they put it all together and forward to an underwriter to approve the loan.  The loan package usually will not be forwarded to the underwriter until all information requested has been returned to the lender.

If all information is returned promptly, a lender can have a loan ready to go to the underwriter in two to three weeks. Ask your lender about their timeframes for processing a loan. It is very important that the purchaser stay in contact with their lender. Give any request for information your immediate attention. We keep in touch with lenders as well to monitor the progress of your loan.

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How Big a Mortgage Can I Afford?

Not only does owning a home give you a haven for yourself and your family, it makes great financial sense, too.

This calculation assumes a 28 percent income tax bracket. If your bracket is higher, your savings will be, too.

Rent: _________________________

Multiplier: X       1.32

Mortgage payment: __________________

Because of tax deductions, you can make a mortgage payment—including taxes and insurance—that is approximately one-third larger than your current rent payment and end up with the same amount of income. Please seek financial advice from your lender and accountant.

For more help, use Fannie Mae’s online mortgage calculators.

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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8 Steps to Getting Your Finances in Order

Develop a family budget. Instead of budgeting what you’d like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses, such as car repairs, illnesses, etc., as well as predictable costs such as rent.

Reduce your debt. Generally speaking, lenders look for a total debt load of no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 percent and 28 percent of income, you need to get the rest of installment debt—car loans, student loans, revolving balances on credit cards—down to between 8 percent and 10 percent of your total income.

Get a handle on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one month. You’ll probably see some great ways to save.

Increase your income. It may be necessary to take on a second, part-time job to get your income at a high-enough level to qualify for the home you want.

Save for a down payment. Although it’s possible to get a mortgage with only 5 percent down—or even less in some cases—you can usually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent down payment.

Create a house fund. Don’t just plan on saving whatever’s left toward a down payment. Instead decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.

Keep your job. While you don’t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.

Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly.

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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Budget Basics Work Sheet

The first step in getting yourself in financial shape to buy a home is to know what you make and what you spend now. List your income and expenses below.

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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8 Ways to Improve Your Credit

Credit scores, along with your overall income and debt, are a big factor in determining if you’ll qualify for a loan and what loan terms you’ll be able to qualify for.

• Check for and correct errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.

• Pay down credit card bills. If possible, pay off the entire balance every month. However, transferring credit card debt from one card to another could lower your score.

• Don’t charge your credit cards to the maximum limit.

• Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.

• Don’t purchase big-ticket items for your new home on credit cards until after the loan is approved. The amounts will add to your debt.

• Don’t open new credit card accounts before applying for a mortgage. Having too much available credit can lower your score.

• Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.

• Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.

This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation. To obtain a complete copy of the publication, “Knowing and Understanding Your Credit,” visit http://www.homebuyingguide.org. 

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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5 Factors That Decide Your Credit Score

Credit scores range between 200 and 800. Scores above 620 are considered desirable for obtaining a mortgage. These factors will affect your score.

1. Your payment history. Whether you paid credit card obligations on time.

2. How much you owe. Owing a great deal of money on numerous accounts can indicate that you are overextended.

3. The length of your credit history. In general, the longer the better.

4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay promptly.

5. The types of credit you use. Generally, it’s desirable to have more than one type of credit—installment loans, credit cards, and a mortgage, for example.

For more on evaluating and understanding your credit score go to http://www.myfico.com.

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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10 Questions to Ask Your Lender

Be sure you find a loan that fits your needs with these comprehensive questions. It is a good idea to shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.

1. What are the most popular mortgage loans you offer?
   
2. Which type of mortgage plan do you think would be best for us? Why?
   
3. Are your rates, terms, fees, and closing costs negotiable?
   
4. Will I have to buy private mortgage insurance? If so how much will it cost and how long will it be required? NOTE: Private mortgage insurance usually is required if you make less than a 20 percent down payment, but most lenders will let you discontinue the policy when you’ve acquired a certain amount of equity by paying down the loan.
   
5. Who will service the loan? Your bank or another company?
   
6. What escrow requirements do you have?
   
7. How long is your loan lock-in period (the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if they drop during this period?
   
8. How long will the loan approval process take?
   
9. How long will it take to close the loan?
   
10. Are there any charges or penalties for prepaying the loan?

Used with permission from Real Estate Checklists & Systems (http://www.realestatechecklists.com).

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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10 Things a Lender Needs From You

1. W-2 forms or business tax return forms if you’re self-employed for the last two or three years for every person signing the loan.
   
2. Copies of one or more months of pay stubs from every person signing the loan.
   
3. Copies of two to four months of bank or credit union statements for both checking and savings accounts.
   
4. Copies of personal tax forms for the last two to three years.
   
5. Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.
   
6. Copies of your most recent 401(k) or other retirement account statement.
   
7. Documentation to verify additional income, such as child support, pension, etc.
   
8. Account numbers of all your credit cards and the amounts of any outstanding balances.
   
9. Lender, loan number, and amount owed on other installment loans—student loans, car loans, etc.
   
10. Addresses where you lived for the last five to seven years, with names of landlords, if appropriate.     

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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6 Creative Ways to Afford a Home

If your income and savings are making home buying a challenge, you might want to consider these options.

1. Investigate local, state, and national down payment assistance programs. These programs give loans or grants to cover all or part of your required down payment. National programs include the Nehemiah program (http://www.getdownpayment.com) and the American Dream Down payment Fund from the U.S. Department of Housing and Urban Development (http://www.hud.gov).

6. See if you can qualify for a short-term second mortgage to give you the money to make a higher down payment. This may be possible if you have a good income and little other debt. 

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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Choices That Will Affect Your Loan

• Mortgage term. Mortgages are generally available at 15-, 20-, or 30-year terms. The longer the term, the lower the monthly payment if the same amount is borrowed. However, you pay more interest overall if you borrow for a longer term.

• Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate for as long as you hold the mortgage and is usually a good choice if interest rates are low. An adjustable-rate mortgage (ARM) is designed so that interest rates will rise as interest rates increase; however they usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. ARMs are a good choice when interest rates are high or when you expect your income to grow significantly in the coming years.

• Balloon mortgages. Balloon mortgages offer very low interest rates for a short period of time—often three to seven years. Payments usually cover only the interest, so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.

• Government-backed loans. Government-backed loans, sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the U.S. Department of Veterans Affairs (www.va.gov), offer special terms, including lower down payments or reduced interest rates—to qualified buyers.

Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment. For help in determining how much your monthly payment will be for various loan amounts, use Fannie Mae’s  online mortgage calculators.

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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Home Equity Line or Home Equity Loan

Financial Moment:  A Home Equity Line or Loan (second mortgage) can help meet financial needs or provide a sense of security by knowing its available when needed.

The uses of a either a Loan or Line are many and I have listed some just to show the flexibility that one has with this type of loan product.

            Debt Consolidation
            Emergency Reserve
            Home Renovations
            Purchases
            School Tuition and other Expenses
            Vehicle Financing

Some important things to consider when looking over financing options are:
            Is this a short-term or long-term need?
            Do you plan to continue using the funds available as the loan is paid?
            Will an Equity Loan be a better choice instead of a Line of Credit?
            Are their any tax benefits if I do use a Home Equity Loan or Line?

These are all questions that need to be reviewed, and with the help of a really good banker and your accountant, the best decision can be made to help you reach your financial goals.

First Community Bank would love to be your partner in helping you reach your financial needs and goals.  Give us a call or visit our web site to see how we can help.

Ed Pearce, VP
West Columbia Office
First Community Bank
(803)-791-8810
http://www.firstcommunitysc.com

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Common Closing Costs for Buyers

Think about the costs involved with purchasing your next home. It is a factor to consider BEFORE you complete an offer to purchase real estate. Ask you lender to go over these amounts. We also explain closing costs in more detail with our clients.

Reprinted from REALTOR^® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS^®
Copyright 2005. All rights reserved. www.REALTOR.org/realtormag 

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