Step 1: Before You Begin
Before you begin the home buying process, there are several key steps to help make your home buying experience run smoothly.
#1: Figure Out What You Can Afford
Let us estimate how much you can afford - what price range are you considering and, most importantly, what is the maximum monthly payment you are comfortable paying. Call any one of our loan consultants for free assistance to determine:
*How much home you potentially can afford
*The monetary difference between renting and owning
*How much you generally need to earn to qualify for a certain mortgage
*What your estimated monthly payments might be
The traditional housing-to-income ratios is 28 percent while the traditional expense-to-income ratio is 36 percent. This means that your total monthly housing payment - including mortgage principal and interest, insurance, real estate taxes and any condo monthly assessments - should not exceed 28 percent of your before-tax monthly income. Then, when adding in all other consumer debt payments, the total figure typically shouldn't exceed 36 percent of your gross monthly income. However, each person's financial situation varies, so discuss what's right for you with your Evergreen Mortgage Masters loan advisor. Our advisors have loan options which may not be common to the general market. We can research among our extensive network of banking relationships, each bank offering over 50 different programs, to see which is best for you and your family.
#2: Reduce Your Debt
The fewer credit cards you carry - and the lower the balances - the better. That's especially true if you have other debts such as a car or student loan. However, don't pay down or pay off balances with cash intended for a down payment before speaking to one of our specialists. Even if you choose a low-down payment option, you're going to need cash available to pay the down payment and closing costs.
We have credit experts available who can guide you on ways to improve or correct your current credit situation or scores.
#3: Solidify Your Savings
If you're like most people planning on buying a home, you need to reduce your spending to save up for a down payment and closing costs. It's never too early to review your spending, cut out excess spending and set a budget. One of our qualified loan advisors can help you set your savings goals to achieve the “American Dream” of homeownership.
#4: Review Your Credit
It's important to understand if there are problems or errors that could affect your ability to qualify for a loan. To do this, you'll want us to obtain a copy of your credit report to review with you. Because these reports contain your credit history, it's important that you're aware of what they contain - and whether the information is accurate. You might have excellent credit, but it is not uncommon to find an error in your report. Look for mistakes, such as accounts that are not yours. When you find errors, contact the creditors by phone or mail to correct the error or retain one of our credit experts to do it for you. Once you can provide written confirmation from the creditor of the corrections, we can expedite the update of information with the three major credit bureaus.
More commonly, negative credit items may be reflected on your report which you have been unable to clear up until now. We have a recommended team of professionals who will be able to help you negotiate down your collections or compile the necessary documentation to clear erroneous information from your report. Sometimes this makes all the difference in the type of loan for which you may qualify. If you have previously heard "no" from a mortgage professional, click here and get started today.
Once we have completed the above steps and we know what you can afford, Evergreen Mortgage Masters will pre-qualify you, which provides you conditional proof of your ability to get a loan from us or one of our banks, up to a specified amount. Although our pre-qualification letter doesn't guarantee a specific loan to you, it does give you a rough idea of where you stand--and puts you one step closer to a purchase. Contact Evergreen Mortgage Masters today to get the pre-qualification process started, and take the first step toward purchasing the home of your dreams.
Step 2: Get The Loan That's Right For You
When you obtain a mortgage loan, you borrow the principal, the amount of money required to pay for the property, and you pay interest, what the lender charges you to borrow the money. The way the payments are spread out over the life of the loan, you pay more in interest than principal in the early years, which gradually reverses itself as the loan ages.
Mortgage loans come in a variety of flavors, one of which will best suit different borrowers with diverse situations. To find the best loan for your needs, discuss your short and long term plans, your financial goals and your risk tolerance. Here are some scenarios to consider, along with the best generally recommended home loan types for each. Individual borrower situations vary. Contact one of our Loan Advisors for specifics on what is best for your situation.
A fixed rate loan has a principal and interest payment that stays the same for the entire term of the loan. Loan terms can range from 10 to 40 years, though the most common is a 30-year loan. Although, if you want to pay off your home by the time you retire or your children are in college, a shorter term may be an excellent way to ensure you have freed up your income for other goals later in life. Fixed rate loans are the most stable and the least flexible loans. They are recommended if you are planning to keep your home for many years, can easily qualify for the loan amount, and expect overall interest rates to increase or remain the same.
If you plan to sell or refinance your home in just a few years, an Adjustable Rate Mortgage (ARM) is usually a good choice for holding rates down for a set number of years of owning a home. This may be a good option to enable a growing family to qualify for more home now or if you have short term plans to sell or refinance your home in the next 3, 5, 7, or 10 years..
If you are comfortable with the calculated projection of higher interest rates or payments in the future if it means you can qualify for a larger mortgage right now, Adjustable Rate Mortgages or Temporary Buydowns are a great solution for people with incomes that are going to grow and who will quickly refinance or be able to afford a larger payment in a few years if interest rates rise.
Step 3: Picking Rates, Points and APR
At first, making sense of interest rates, points and annual percentage rates (APR) can be daunting. But it doesn't need to be and our professionals can help guide you through the decision making process. Like choosing the right loan type, it's all about choosing the down payment and monthly payment that fits your needs and lifestyle. Let us help you choose the right loan for your home.
See How Your Interest Rate Affects Your Payment
The interest rate on a loan is used to calculate your monthly payment. The higher the interest rate, the higher your monthly payment. The lower the interest rate, the lower your monthly payment.
Lower Your Rate and Payment with “Points”
Also known as a loan's "origination fee” or “discount fee", points are fees paid to the lender at closing. Each point is equal to one percent of the loan amount. For a $100,000 loan, one point equals $1,000. Two points would be $2,000.
If you have the available financial resources and intend to keep the home for the long term, it may make sense to pay higher points at the time of closing in order to secure a lower rate, thus lower payments, over the longer term. Ask one of our loan specialists to show you how points affect rates and discuss the benefits of either option. If you're low on upfront cash, then go for fewer points. Points you pay on a home purchase mortgage may be tax deductible. Make sure to consult your tax advisor for more details.
Know When to Lock
If you're afraid rates are headed up, protect your buying power by requesting a lock on the rate at the time you apply for your loan. We monitor the rates on a daily basis and our professionals can guide you on this important decision.
What should you look for in a rate lock? Make sure it allows enough time for your loan to be processed and closed. This is important because some lenders may offer rate protection for a short period of time, say 10 days - not long enough for many loans or home sales to reasonably be completed. If you exceed the lock-in period and your rate expires, the lender may not honor the rate you locked.
It is also possible your rate lock may be contingent upon a quick delivery of your full loan package – a typical example of this is a 30 day lock which is contingent upon the lender receiving the full package within 10 days of committing to the rate lock. This means time is of the essence in providing all your documentation.
We monitor the rates and can advise you to lock if it appears rates will be rising. The moment your lender locks the rate, that's the rate you'll get provided you qualify for that particular loan. But be careful. Rates are difficult to predict just like the stock market. And if rates suddenly shoot up, you could find yourself with a higher monthly payment than you planned or, even worse, be unable to afford the home of your dreams.
Step 4: Getting Pre-Approved
A pre-approval letter is a powerful bargaining tool in your search for a new home. It shows the sellers that you're serious. Many buyers find that they have increased negotiating clout if they are pre-approved before they conduct their home search. Plus, if you're pre-qualified, it's a snap to apply for full approval once you've found your dream home - or want to begin building one.
While a pre-qualification is an estimate of what you can afford based on the information you provided, a pre-approval indicates that a lender has taken a detailed look into your financial background and examined your credit. In addition, a pre-approval means the lender has committed to lending you a specific amount of money, pending certain property details.
The advantages of securing a pre-approval, rather than waiting to apply for a loan once you've found a home, include being able to shop for a home knowing exactly what you can afford and overcome possible qualification problems early in the home buying process. You are also able to present a much more solid offer to sellers, because it includes a guarantee that you can afford the home.
To secure a pre-approval, contact Evergreen Mortgage Masters and one of our loan advisors will work with you to gather and submit your financial information. It is critical to make sure you submit all your documentation to us at once and rapidly. We'll then review your documentation and your credit report. Once you qualify, we'll provide you with a written pre-approval for a loan up to a certain loan amount, down payment and interest rate, subject to the terms of the pre-approval letter. Once you've found a home and are ready to make an offer, your pre-approval letter from Evergreen Mortgage Masters will assure the seller you are a qualified buyer, and will be able afford the home of your dreams.
To apply for pre-approval, you'll need the following information:
- Names, dates of birth, and Social Security Numbers for all borrowers
- Current and Previous residence addresses for the last two years
- Pay stubs to cover the most recent 30 days of earnings
- Statements covering the most recent 2 months of activity for bank or investment accounts
- W-2 forms for the last two years
- Tax forms for the last two years
We'll review your application, documentation, and with your permission, check your credit report. After we've determined that your financial situation supports your ability to repay the loan, and subject to a full underwriting review, your Evergreen Mortgage Masters loan advisor will send you a letter of pre-approval. At Evergreen Mortgage Masters, our company’s mission is to make the home loan process easy and understandable.
Step 5: Processing Your Loan
What You Need to Provide
Before your loan application can be underwritten, you will need to supply Evergreen Mortgage Masters with certain personal documentation. This may have been provided during the prequalification process and may include:
- W-2 Forms: These allow the underwriter to scrutinize your income stability and job history, which will directly affect your buying power and help reveal how great a risk you might be to the lender.
- Profit-and-Loss Statements (for the past two years): If you're self-employed, this helps substantiate your income. If your gross income appears low, remember your business expenses are often "written back" in tax deductions. Lenders usually require profit-and-loss statements, at least for the current year (year-to-date).
- Pay Stubs: These will help confirm current your income level and verify your employment. Upon closing, most lenders will reconfirm your employment, especially if a substantial amount of time has passed since the loan was underwritten.
- Bank Statements (two months worth): Statements for your checking, savings and other accounts indicate your resources. Underwriters generally hope to establish that the average amount required for a down payment has been maintained over time, not recently obtained. Deposits which appear to vary from your usual pattern may require additional documentation.
- Other Assets: These include the value of bonds, stocks, life insurance, retirement funds, jewelry, automobiles, etc.
- Investment Statements: Include these statements for stocks, bonds and other investments.
- Tax Returns (two years' worth): As a borrower, these returns provide a wealth of financial information. Underwriters look for red flags that could reveal an unforeseen debt in the case of an audit. They are typically required when an applicant is self employed or has a significant ownership interest in a business, or derives a significant portion of earnings from commission sales or construction trades.
- Liabilities: These include creditor names and outstanding balances for all debts including notes payable, 401(k) loans, life insurance loans, stock pledges and alimony.
- Telephone Numbers and Addresses of Your Workplace: These allow the lender to verify your income. If you work for a larger company such as Boeing, Microsoft, and other major companies, your employer may provide verification through www.theworknumber.com. It is recommended you provide us with a 6 digit salary key code for the most accurate verification of your income and employment.
- Telephone Numbers and Addresses of your Landlord: If you are currently renting, typically an underwriter will review evidence of your rental payment history as a basis to support the responsible repayment of your mortgage. If you rent from a private individual, you may be required to also provide cancelled checks to support your rental payment history.
- Real Estate Owned: This includes property address, market value, outstanding liens, rental income, mortgage payments, taxes, and insurance and maintenance dues.
- Property Information: You'll also need to provide information about the property you plan to finance. This may include:
Name of development or project if Planned Unit Development, Condominium, or Co-Op
Phone number of the homeowner's association (if applicable)
If you already own the property:
Year the land or lot was acquired
Original cost of land/lot
Amount of current liens on property
Estimated cost of construction including plans, contracts, permits, if applicable
What Goes On At Our End
After you submit the property information for approval, we'll order your title and escrow settlement.
Next, a licensed and experienced real estate appraiser will look over the property and submit a report to us. This lets us determine if the home is worth enough to support your loan and the price you agreed to purchase the property for. A final underwriting will take place that involves analyzing the appraisal report and your ability to repay the loan to determine our risk as a lender.
Once your loan has been pre-approved, the next step is to work with your loan officer to decide if you should lock your rate if you have not already done so. Locking in your rate ensures that your interest rate won't increase before you close your loan. Rate lock options include 30, 45, or 60 days. However, timing is everything, and locking may not be the right choice for you. It's best to consult with your Evergreen Mortgage Masters loan advisor.
Step 6: Closing Your Loan
The closing (or settlement) is the actual transfer of ownership from the seller to the buyer. At the closing, you will sign the paperwork, pay the final closing costs which we will have already discussed with you, and finally take ownership of your new home. Your Evergreen Mortgage Masters loan advisor will work with you to schedule a closing date, which is indicated on your purchase agreement. Although the closing process varies by state, many activities are standard. For the closing costs and downpayment, you'll need to obtain a certified or cashier's check or arrange to wire the funds to the closing agent.
What Happens at Closing
Closing costs and practices vary depending where you live, the type of property you're buying (house, condo or co-op) and individual circumstances. In some states, a neutral third party, usually an escrow company that is mutually chosen by the buyer and seller, transacts the entire closing process. In others, title companies customarily oversee the process. In the remainder, attorneys are engaged. Your Evergreen Mortgage Masters loan advisor can tell you what to expect.
The closing, typically held at a title and trust company, is the final hurdle to calling the house your home. In many cases, you and the sellers will meet with the closing agent at separate appointed times. If you would like your Evergreen Mortgage Masters professional to attend the closing with you, feel free to discuss it with them in advance. It is not necessary since we have already covered the information and many of the forms with you in previous meetings or discussions.
The steps below explain what usually happens during and after closing:
1. The closing agent reviews the settlement sheet with you. Both you and the seller sign the settlement sheet.
2. Signatures are collected for loan documents, such as the mortgage or deed, note and Truth-in-Lending statement. Evidence of the required insurance and inspections is presented.
3. If everyone agrees that the papers are in order, you submit a certified or cashier's check to cover your down payment and closing costs. (Or, in some proceedings, it is drawn from an escrow account established for your home purchase.)
4. After an acceptable review of the documents, the lender sends a wire for funds covering the amount of the new home loan to the closing agent.
5. If your monthly payments are to include property taxes and insurance, a new escrow account ("impound" or reserve) is established.
6. Upon receipt of the wire, certain documents are sent to be recorded in the county records.
7. Congratulations! You are done! Be sure to make arrangements with your real estate agent on how you will obtain keys and any other information regarding access to your new home.
Key Closing Documents You'll Receive
HUD-1 Settlement Sheet
This itemizes the services provided and the charges to the buyer and the seller. You should be allowed to review this form shortly before your closing meeting so you know your closing costs in advance.
Truth-in-Lending (TIL) Disclosure
You should be presented with the initial TIL disclosure within three business days of applying for a home loan. It outlines the costs of your loan and discloses the annual percentage rate (APR) and other terms of the loan, including the finance charge, the amount financed, the payment amount and the total payments required. Since it's possible that the APR calculated at the time of your loan application will change a little before closing, your lender is required to present you the final version of your TIL disclosure at or prior to the closing meeting.
Deed of Trust or Mortgage (also known as the Security Instrument)
This document conveys a lien in your property as security for repayment of your home loan. (This means that if you default on your loan, your lender has the right to foreclose your ownership interest and take possession of the property).
The mortgage (or promissory) note represents your promise to pay the lender according to the agreed terms. It includes the dates on which your home loan payments must be made and the location to which the payments must be sent.
Step 7: From Contract to Closing
We want your mortgage process to be as stress-free as possible. By following this checklist, it will guide you in your preparations. Use it in combination with the background information on this site.
In many states, it is necessary to obtain a lawyer. Also, if you haven't already done so, choose a notary (this is sometimes prearranged by the title company, so it's good to ask in advance). Arrange for the signed purchase offer to be delivered to him or her as soon as possible. Review the fees and disbursements, anticipated adjustments, property transfer tax, mortgage deductions and other closing costs. Talk to your real estate agent or attorney about how you plan to be registered on title.
Satisfy any outstanding conditions, such as financing or a home inspection, within the time frame set by the offer. Be sure you fully understand how to keep the contract alive, and how to cancel it if the conditions can't be satisfied.
Once your mortgage application has been approved, have the mortgage commitment sent to your agent and/or attorney.
Any tenants must either cancel their leases or sublease their current premises, if permitted. How much prior written notice is needed will vary, so check it out with your landlord and/or attorney.
Arrange insurance coverage to take effect on closing. Be sure the insurance agent provides your agent and/or attorney with written confirmation before closing, showing the name of the insuring company, the amount of coverage, its expiration date and the name of any lenders in the loss payable clause. Coverage should be for the full insurable value of the building only (not the land), on a replacement cost basis.
Normally it will be you (or your lawyer) who contacts the water, electric and gas utilities to have the meters read on closing, new accounts set up in your name and final bills sent to the seller. Many buyers do a "double-check" a few days before closing, just to be sure. Contacting the telephone and cable TV companies is also your responsibility.
Plan to meet your agent and/or attorney a day or two before closing to review and sign all closing documents. Don't wait for the actual closing date, when so many other things must be done. At that time you should deliver the money needed for closing, in certified funds, payable to your escrow company or attorney in trust. Be sure to get information about any payments due right after closing - the mortgage, property taxes or condominium maintenance.