Interest rates fluctuate based on a variety of factors including inflation, the pace of economic growth, and Federal Reserve policy. Over time, inflation has the largest influence on the level of interest rates. A modest rate of inflation will almost always lead to low interest rates, while concerns about rising inflation normally cause interest rates to increase. Our nation’s central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.
An adjustable rate mortgage, or “ARM” as it is commonly called, is a loan type that offers a lower initial interest rate than most fixed rate loans. The tradeoff is that the interest rate can change periodically, usually in relation to an index, and the monthly payment will go up or down accordingly.
You should weigh the risk that an increase in interest rates would lead to higher monthly payments in the future against the advantage of the lower payment at the beginning of the loan. With an ARM, you get a lower rate in exchange for assuming more risk.
For many people in a variety of situations, an ARM is the right mortgage choice, particularly if your income is likely to increase in the future or if you only plan on being in the home for three to five years.
Here’s some detailed information about how ARMs work.
With most ARMs, the interest rate and monthly payment are fixed for an initial period—usually one year, three years, five years, or seven years. After this time, the interest rate can change every year. For example, one of our most popular adjustable rate mortgages is a five-year ARM. The interest rate will not change for the first five years (the initial adjustment period) but can change every year afterward.
Our ARM interest rate changes are tied to changes in an index rate, so rate adjustments are based on actual market conditions at the time of the adjustment. The current value of most indices is published weekly in the Wall Street Journal. If the index rate moves up, so does your mortgage interest rate, and you will probably have to make a higher monthly payment. On the other hand, if the index rate goes down, your monthly payment may decrease.
To determine the interest rate on an ARM, we add a pre-disclosed amount (“margin”) to the index rate. If you’re still shopping for a mortgage loan, comparing margins from one lender to another can be more important than comparing the initial interest rate, since it will be used to calculate the interest rate you will pay in the future.
An interest-rate cap is a limit on the amount your interest rate can increase or decrease. There are two types of caps:
- Periodic or adjustment caps, which limit the interest rate increase or decrease from one adjustment period to the next.
- Overall or lifetime caps, which limit the interest rate increase over the life of the loan.
Since no one can predict the future, interest rate caps are very important. All of the ARMs we offer have both adjustment and lifetime caps. Please see each product description for full details.
“Negative Amortization” occurs when your monthly payment changes to an amount less than the amount required to pay the interest due. If a loan has negative amortization, you might end up owing more than you originally borrowed. None of the ARMs we offer allow for negative amortization.
Some lenders may require you to pay special fees or penalties if you pay off an ARM early. We never charge a penalty for prepayment.
Points are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them up front, at your loan closing, in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing. However, you will have lower monthly payments over the term of your loan.
To determine whether it makes sense for you to pay points, you should compare the cost of the points to the monthly payment savings created by the lower interest rate. Divide the total cost of the points by the savings in each monthly payment. This calculation provides the number of payments you’ll make before you actually begin to save money by paying points. If the number of months it will take to recoup the points is longer than you plan on having this mortgage, you should consider a loan program option that doesn’t require points to be paid.
The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR represents the estimated cost of financing over the full term of the loan. It includes the interest rate plus some (but not all) closing fees.
Since most people don’t keep a mortgage for the entire loan term, it may be misleading to spread the effect of some of these upfront costs over the entire loan term. Unfortunately, the APR also doesn’t include all the closing fees, and lenders are allowed to interpret which fees they include in the calculation. Fees for things like appraisals, title work, and document preparation are not included, even though you’ll probably have to pay them. For adjustable rate mortgages, the APR can be even more confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.
You can use the APR as a guideline to shop for loans, but you should not depend solely on the APR in choosing the loan program that’s best for you. Look at total fees, possible rate adjustments in the future if you’re comparing adjustable rate mortgages, and consider the length of time that you plan on having the mortgage.
Don’t forget that the APR is an effective interest rate – not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.
Mortgage interest rate movements are as hard to predict as the stock market. No one can really know for certain whether rates will go up or down.
If you have a hunch that rates are on an upward trend, you may want to consider locking the rate. Before you decide to lock, make sure that your loan can close within the lock-in period. If you’re purchasing a home, review your contract for the estimated closing date to help you choose the right rate lock period. If you’re refinancing, in most cases your loan could close within 30 days. However, if you have any secondary financing on the home that won’t be paid off, allow some extra time since we’ll need to contact that lender to process additional paperwork.
If you think rates might drop while your loan is being processed, you can let your rate “float” instead of locking. When you’re ready, you can lock your interest rate by contacting your Loan Officer by telephone.
A 15-year fixed rate mortgage gives you the ability to own your home free and clear in 15 years. And, while the monthly payments are somewhat higher than a 30-year loan, the interest rate on a 15-year mortgage is usually a little lower. With the lower interest rate and shorter term, you’ll pay less than half the total interest cost vs. a traditional 30-year mortgage!
The higher payments mean a 15-year mortgage is not for everyone. For most people, it makes sense to use a 30-year mortgage instead.
Who Should Consider a 15-Year Mortgage?
The 15-year fixed rate mortgage is most popular among younger homebuyers with sufficient income to pay off the house before their children start college. They own more of their home faster with this kind of mortgage, and can then begin to consider the cost of higher education for their children without having a mortgage payment to make as well. Other homebuyers who are more established in their careers, have higher incomes, and whose desire is to own their homes before they retire, may also prefer this mortgage.
Advantages of a 15-Year fixed rate mortgage:
- You own your home in half the time it would take with a traditional 30-year mortgage.
- You save more than half the amount of interest of a 30-year mortgage. Lenders usually offer this mortgage at a slightly lower interest rate than with 30-year loans – typically up to .5% lower. It is this lower interest rate added to the shorter loan life that creates real savings for 15-year fixed rate borrowers.
Possible disadvantages associated with a 15-year fixed rate mortgage:
- The monthly payment for this type of loan is roughly 10 to 15 percent higher than the payment for a 30-year mortgage.
- Because you’ll pay less total interest on the 15-year fixed rate mortgage, you won’t have the maximum mortgage interest tax deduction possible.
None of the loan programs we offer have penalties for prepayment. You can pay off your mortgage any time with no additional charges.
The interest rate market is subject to movements without advance notice. Locking in a rate protects you from interest rate fluctuations from the time your lock is confirmed to the day your lock period expires.
A lock is an agreement between the borrower and the lender that specifies the number of days for which a loan’s interest rate and points are guaranteed. Should interest rates rise during that period, we are obligated to honor the committed rate. Should interest rates fall during that period, the borrower must honor the lock.
When Can I Lock My Interest Rate?
In some cases, your online application will provide all the information needed and you’ll have the option to lock immediately after loan approval. Otherwise, you will be invited to lock your rate after we have reviewed your documentation and credit package. We will notify you via email or phone when you are able to request the lock.
We do not charge a fee for locking in your interest rate.
We currently offer 30, 45 and 60 day lock-in periods. This means your loan must close and disburse within this number of days from the day your lock is confirmed by us.
Immediately after you accept a lock online, a printable confirmation page is displayed for your records. In addition, a confirmation is sent to the email address you provided during your online application.
Once we accept your lock, your loan is committed into a secondary market transaction. Therefore, we are not able to renegotiate lock commitments.
A home loan often involves many fees, such as the appraisal fee, title charges, closing fees, and state or local taxes. During the early stages of applying for a loan, we will provide you with a loan estimate that will outline any fees you can expect so that there are no surprises during the application process. These fees vary from state to state and also from lender to lender. Any lender or broker should be able to give you an estimate of their fees, but it is more difficult to tell which lenders have done their homework and are providing a complete and accurate estimate. We take quotes very seriously. We’ve completed the research necessary to make sure that our fee quotes are accurate to the city level – and that is no easy task!
To assist you in evaluating our fees, we’ve grouped them as follows:
Third Party Fees
Third party fees are fees that we’ll collect and pass on to the person who actually performed the service. An appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee, and a title company or an attorney is paid the title insurance fees. Other fees that we consider to be third party fees include the settlement or closing fee, the survey fee, tax service fees, flood certification fees, and courier/mailing fees.
Typically, you’ll see some minor variances in third party fees from lender to lender since a lender may have negotiated a special charge from a provider they use often or chooses a provider that offers nationwide coverage at a flat rate. You may also see that some lenders absorb minor third party fees such as the flood certification fee, the tax service fee, or courier/mailing fees.
Taxes and Other Unavoidables
Fees that we consider to be taxes and other unavoidables include state/local taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose. If a lender gives you a quote that doesn’t include taxes and other unavoidable fees, don’t assume you won’t have to pay them. We do the research necessary to provide accurate closing costs, so you don’t have unexpected fees later.
Fees such as points, document preparation fees, and loan processing fees are retained by the lender and are used to provide you with the lowest rates possible.
This is the category of fees that you should compare very closely from lender to lender before making a decision.
You may be asked to prepay some items at closing that will actually be due in the future. These fees are sometimes referred to as prepaid items.
One of the more common required advances is called “per diem interest” or “interest due at closing.” All of our mortgages have payment due dates of the 1st of the month. If your loan is closed on any day other than the first of the month, you’ll pay interest from the date of closing through the end of the month at closing. For example, if the loan is closed on June 15, we’ll collect interest from June 15 through June 30 at closing. This also means you won’t make your first mortgage payment until August 1.
Per diem interest does not need to be considered when comparing lenders. All lenders will charge you interest beginning on the day the loan funds are disbursed—the only difference is when it will be collected.
If an escrow account will be established, you will make an initial deposit into the escrow account at closing so that sufficient funds are available to pay the bills when they become due.
If your loan requires mortgage insurance, up to two months of the mortgage insurance will be collected at closing. Whether or not you must purchase mortgage insurance depends on the size of the down payment you make.
If your loan is a purchase, you’ll also need to pay for your first year’s homeowner’s insurance premium prior to closing. We consider this to be a required advance.
A home is one of the most expensive and important purchases you will ever make. You, and especially your mortgage lender, want to make sure the property is indeed yours: That no individual or government entity has any right, lien, claim, or encumbrance on your property.
The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected.
Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders, and others who have an interest in real estate transfer. Title companies typically issue two types of title policies:
- Owner’s Policy. This policy covers you, the homebuyer.
- Lender’s Policy. This policy covers the lending institution over the life of the loan.
Both types of policies are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you probably already have an owner’s policy that was issued when you purchased the property, so only a lender’s policy is required.
Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in the company’s own title plant.
After a thorough examination of the records, any title problems are usually found and can be cleared up prior to your purchase of the property. Once a title policy is issued, if any claim covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights. They are also responsible to cover losses arising from a valid claim. This protection remains in effect as long as you or your heirs own the property.
The fact that title companies try to eliminate risks before they develop makes title insurance significantly different from other types of insurance. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen future event; say a fire, accident or theft. On the other hand, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past.
This risk elimination has benefits to both the homebuyer and the title company. It minimizes the chances that adverse claims might be raised, thereby reducing the number of claims that have to be defended or satisfied. This keeps costs down for the title company and the premiums low for the homebuyer.
With title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed.
Mortgage insurance is protection for the lender (not the borrower) in the event of default. The mortgage insurance company will reimburse the lender for all or part of losses they may have if the home is foreclosed on and must be sold by the lender.
If your down payment is less than 20 percent, or you are refinancing more than 80 percent of your home’s value, most lenders will require that you purchase mortgage insurance. Typically, mortgage insurance is not required for home equity loans. Although mortgage insurance is primarily for the benefit of the lender, it does allow homebuyers to purchase their home with a low down payment. The borrower pays the mortgage insurance premium on behalf of the lender.
The maximum percentage of your home’s value depends on the purpose of your loan, how you use the property, and the loan type you choose.
To lock your rate, simply contact your loan officer.
Absolutely! In fact, applying for a mortgage loan before you find a home may be the best thing you could do. If you apply for your mortgage now, we’ll issue an approval subject to you finding the perfect home. You’ll receive a pre-approval letter online instantly, which you can use to assure real estate brokers and sellers that you are a qualified buyer. Having a pre-approval for a mortgage may give more weight to any offer to purchase that you make.
After you’re pre-approved, simply call your Loan Officer once you’ve found the perfect home. You’ll complete your application and have an opportunity to lock in our great rates and fees. Then we’ll complete the processing of your loan.
A credit score is one of the pieces of information we’ll use to evaluate your application. Financial institutions have been using credit scores to evaluate credit card and auto loan applications for many years, but mortgage lenders only recently began using credit scoring to assist with loan decisions.
Credit scores are based on information collected by credit bureaus including the monthly record from your creditors about the balances you owe and the timing of your payments. A credit score is a compilation of all this information converted into a number that helps a lender determine the likelihood that you will repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender. Credit scores are calculated by comparing your credit history with millions of other consumers. They have proven to be a very effective way of determining credit worthiness.
Some of the things that affect your credit score include your payment history, your outstanding obligations, the length of time you have had outstanding credit, the types of credit you use, and the number of inquiries that have been made about your credit history in the recent past.
Credit scores used for mortgage loan decisions range from approximately 300 to 900. Generally, the higher your credit score, the lower the risk that your payments won’t be paid as agreed.
Using credit scores allows us to quickly and objectively evaluate your credit history when reviewing your loan application. However, there are many other factors when making a loan decision and we never evaluate an application without looking at the total financial picture of a customer.
An abundance of credit inquiries can sometimes affect your credit score, since it may indicate that your use of credit is increasing.
When shopping for a mortgage, don’t worry: The data used to calculate your credit score doesn’t include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry. Don’t limit your mortgage shopping for fear of the effect on your credit score.
There is no charge to you for the credit information we’ll access with your permission to evaluate your application online. You will only be charged for a credit report if you decide to complete the application process after your loan is approved. If you move forward in the loan process, an application fee of $25 will be collected. If you have a Richwood Bank account, we can easily pull this fee from your account so you don’t have to hassle with writing a check or have to make sure you have the right amount of cash.
Yes! However, the loan must be secured by something of value that you could borrow funds against, such as a car or another home. If you are planning on obtaining a loan for your down payment, make sure to include the details of this loan in the Expenses section of your mortgage application.
Gone are the days when it was necessary to verify every piece of data collected during the application. We use an automated underwriting system that compares your financial situation with statistical data from millions of other homeowners and uses that comparison to determine the level of verification needed. In many cases, a single W-2 or pay stub can be used to verify your income or a single bank statement can be used to verify the assets needed to close your loan.
Generally, the income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two-year period. However, based on your entire financial situation, we may not need full copies of your tax returns.
We’ll review and average the net income from self-employment that’s reported on your tax returns to determine the income that can be used to qualify. We won’t be able to consider any income that hasn’t been reported as such on your tax returns. Typically, we’ll need at least one, and sometimes a full two-year history of self-employment to verify that your self-employment income is stable.
In order for bonus, overtime, or commission income to be considered, you must have a history of receiving it and it must be likely to continue. We’ll usually need to obtain copies of W-2 statements for the previous two years and a recent pay stub to verify this type of income. If a major part of your income is commission earnings, we may need to obtain copies of recent tax returns to verify the amount of business-related expenses, if any. We’ll average the amounts you have received over the past two years to calculate the amount that can be considered as a regular part of your income.
If you haven’t been receiving bonus, overtime, or commission income for at least one year, it probably can’t be given full value when your loan is reviewed for approval.
We will ask for copies of your recent pension check stubs, or bank statement if your pension or retirement income is deposited directly in your bank account. Sometimes it will also be necessary to verify that this income will continue for at least three years, since some pension or retirement plans do not provide income for life. This can usually be verified with a copy of your award letter. If you don’t have an award letter, we can contact the source of this income directly for verification.
If you’re receiving tax-free income, such as social security earnings, in some cases we’ll consider the fact that taxes will not be deducted from this income when reviewing your request.
Typically, only income that is reported on your tax return can be considered when applying for a mortgage. Unless, of course, the income is legally tax-free and isn’t required to be reported.
Some lenders may offer a stated income program, which means that you can be qualified for a loan based on the income you state rather than that which can be verified. Usually these programs require larger down payments and offer interest rates that are substantially higher than regular mortgage rates. We do not offer stated income programs at this time.
If you own rental properties, we’ll generally ask for the most recent year’s federal tax return to verify your rental income. We’ll review the Schedule E of the tax return to verify your rental income after all expenses except depreciation. Since depreciation is only a paper loss, it won’t be counted against your rental income.
If you haven’t owned the rental property for a complete tax year, we’ll ask for a copy of any leases you’ve executed and we’ll estimate the expenses of ownership.
Often, two years’ personal tax returns are required to verify the amount of your dividend and/or interest income so that an average of the amounts you receive can be calculated. We’ll also need to review statements from your financial institution, brokerage statements, stock certificates or Promissory Notes to verify your ownership of the assets that generate the income.
Typically, income from dividends and/or interest must be expected to continue for at least three years to be considered for repayment.
Information about child support, alimony, or separate maintenance income does not need to be provided unless you wish to have it considered for repaying your mortgage loan.
Typically, income from a second job will be considered if a one-year history of secondary employment can be verified.
Having changed employers frequently is typically not a hindrance to obtaining a new mortgage loan. This is particularly true if you made employment changes without having periods of time in between without employment. We’ll also look at your income advancements as you have changed employment.
If you’re paid on a commission basis, a recent job change may be an issue since we’ll have a difficult time of predicting your earnings without a history with your new employer.
If you were in school before your current job, enter the name of the school you attended and the length of time you were in school in the “length of employment” fields. You can enter a position of “student” and income of “0.”
If my property's appraisal value is more than the purchase price, can the difference count toward my down payment?
Although it’s a great benefit for your financial situation if you are able to purchase a home for less than the appraised value, unfortunately our investors don’t allow us to use this “instant equity” when making our loan decision.
Gifts are an acceptable source of down payment, if the gift giver is related to you or your co-borrower. We’ll ask you for the name, address, and phone number of the gift giver, as well as the donor’s relationship to you.
If your loan request is for more than 80% of the purchase price, we’ll need to verify that you have at least 5% of the property’s value in your own assets.
Prior to closing, we’ll verify that the gift funds have been transferred to you by obtaining a copy of your bank receipt or deposit slip to verify that you have deposited the gift funds into your account.
If you’re selling your current home to purchase your new home, we’ll ask you to provide a copy of the settlement or closing statement you’ll receive at closing. This will verify that your current mortgage has been paid in full and that you’ll have sufficient funds to close on your new home. If you’re closing on both your new home and your current home on the same day, that’s no problem. Just bring your settlement statement with you to your new mortgage closing.
I am relocating because I have accepted a new job I haven't started yet. How should I complete the application?
Congratulations on your new job! If you will be working for the same employer, complete the application as such but enter the income you anticipate you’ll be receiving at your new location.
If your employment is with a new employer, complete the application as if this were your current employer and indicate that you have been there for one month. The information about the employment you’ll be leaving should be entered as a previous employer. We’ll sort out the details after you submit your loan for approval.
Yes. Generally, a co-signed debt is considered when determining your qualifications for a mortgage. If the co-signed debt doesn’t affect your ability to obtain a new mortgage we’ll leave it at that. If it does make a difference, we’ll ask you to verify that the other party on the co-signed debt has been making the required payments. If you can provide copies of their cancelled checks for the last 12 months, we’ll be able to ignore the debt.
Any student loan that will go into repayment within the next six months should be included in the application. If you’re not sure exactly what the monthly payment will be, enter an estimated amount.
If other student loans are reflected on your final credit report, but they won’t go into repayment in the next six months, we may ask you to verify this.
If you’ve had a bankruptcy or foreclosure in the past, it may affect your ability to get a new mortgage. Unless it was caused by situations beyond your control, we will generally require that two to four years have passed since the bankruptcy or foreclosure. It is also important that you’ve re-established an acceptable credit history with new loans or credit cards.
An installment debt is a loan that you make payments on, such as an auto loan, a student loan or a debt consolidation loan. Do not include payments on other living expenses, such as insurance costs or medical bill payments. We’ll include any installment debts that have more than 10 months remaining when determining your qualification for a mortgage.
An appraisal report is a written description and estimate of the value of the property you are purchasing or refinancing. National standards govern the format for the appraisal and specify the appraiser’s qualifications and credentials. In addition, most states now have licensing requirements for appraisers evaluating properties located within their states.
The appraiser will create a written report for us and we will promptly give you a copy, even if your loan does not close. To create the report, usually the appraiser will inspect both the interior and exterior of the home. In some cases, only an exterior inspection will be necessary. This is based on your financial strength and the location of the home. Exterior-only inspections usually save time and money, but if you’re purchasing a new home, you may be more comfortable with a full inspection.
After the appraiser inspects the property, they will compare the qualities of your home with other homes that have sold recently in the same neighborhood. These homes are called “comparables”, and they play a significant role in the appraisal process. Using industry guidelines, the appraiser will try to compare the major components (i.e., design, square footage, number of rooms, lot size, age, etc.) of these properties to the components of your home. To calculate the value of your property, the appraiser uses this data to adjust the price of each comparable sale (up or down) depending on how it compares (better or worse) with your property.
As an additional check on the value of your property, the appraiser also estimates the replacement cost for the property. Replacement cost is determined by valuing an empty lot and estimating the cost to build a house of similar size and construction. Finally, the appraiser reduces this cost by an age factor to compensate for depreciation and deterioration.
If your home is for investment purposes or is a multi-unit home, the appraiser will also consider the rental income that will be generated by the property to help determine the value.
Using these three different methods, an appraiser will frequently come up with slightly different values for the property. The appraiser uses judgment and experience to reconcile these differences and then assigns a final appraised value. The comparable sales approach is the most important valuation method in the appraisal because a property is worth only what a buyer is willing to pay and a seller is willing to accept.
It is not uncommon for the appraised value of a property to be exactly the same as the amount stated on your sales contract. This is not a coincidence, nor does it question the competence of the appraiser. Your purchase contract is the most valid sales transaction there is. It represents what a buyer is willing to offer for the property and what the seller is willing to accept. Only when the comparable sales differ greatly from your sales contract will the appraised value be very different.
In addition to verifying that your home’s value supports your loan request, we’ll also verify that your home is as marketable as others in the area. We certainly don’t expect that you’ll default under the terms of your loan and that a forced sale will be necessary, but as the lender, we’ll need to make sure that if a sale is necessary, it won’t be difficult to find another buyer.
We’ll review the features of your home and compare them to the features of other homes in the neighborhood. For example, if your home is on a 20-acre lot, or has a large accessory building, we’ll want to make sure that there are other homes in the area on similar size lots or with similar outbuildings. It is hard to place a value on such unique features if we can’t see what other buyers are willing to pay for them. In some areas, additional acreage or outbuildings could actually be a detriment to a future sale. Finding comparable properties can be more challenging in rural areas where it is more difficult to find homes that have similar features.
We’ll also make sure that the value of your home is in the same range as other homes in the area. If the value of your home is substantially more than other homes in the neighborhood, it could affect the market acceptance of the home if you decide to sell.
We’ll also review the market statistics about your neighborhood. We’ll look at the time on the market for homes that have sold recently and verify that values are steady or increasing.
As soon as we receive your appraisal, we’ll update your loan with the estimated value of the home. We will promptly give you a copy of any appraisal, even if your loan does not close.
Since the value and marketability of condominium properties is dependent on items that don’t apply to single-family homes, there are some additional steps that must be taken to determine if condominiums meet our guidelines.
One of the most important factors is determining if the project that the condominium is located in is complete. In many cases, it will be necessary for the project, or at least the phase that your unit is located in, to be complete before we can provide financing. The main reason for this is, until the project is complete, we can’t be certain that the remaining units will be of the same quality as the existing units. This could affect the marketability of your home.
In addition, we’ll consider the ratio of non-owner occupied units to owner-occupied units. This could also affect future marketability since many people would prefer to live in a project that is occupied by owners rather than renters.
We’ll also carefully review the appraisal to insure that it includes comparable sales of properties within the project, as well as some from outside the project. Our experience has found that using comparable sales from both the same project as well as other projects gives us a better idea of the condominium project’s marketability.
Depending on the percentage of the property’s value you’d like to finance, other items may also need to be reviewed.
Both a home inspection and an appraisal are designed to protect you against potential issues with your new home. Although they have totally different purposes, it makes sense to rely on each to help confirm that you’ve found the perfect home.
The appraiser will make note of obvious construction problems such as termite damage, dry rot or leaking roofs or basements. Other obvious interior or exterior damage that could affect the salability of the property will also be reported.
However, appraisers are not construction experts and won’t find or report items that are not obvious. They won’t turn on every light switch, run every faucet or inspect the attic or mechanicals. That’s where the home inspector comes in. They generally perform a detailed inspection and can educate you about possible concerns or defects with the home.
It’s a good idea to accompany the inspector during the home inspection. This is your opportunity to gain knowledge of major systems, appliances and fixtures, learn maintenance schedules and tips, and to ask questions about the condition of the home.
Federal Law requires all lenders to investigate whether or not each home they finance is in a special flood hazard area as defined by FEMA, the Federal Emergency Management Agency. The law can’t stop floods, but the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 help to ensure that you will be protected from financial losses caused by flooding.
We use a third party company that specializes in the reviewing of flood maps prepared by FEMA to determine if your home is located in a flood area. If it is, then flood insurance coverage will be required, since standard homeowner’s insurance doesn’t protect you against damages from flooding.
Licensed appraisers who are familiar with home values in your area perform appraisals. We order the appraisal as soon as the application deposit is paid. Generally, it takes 10-14 days before the written report is sent to us. If you are refinancing and an interior inspection of the home is necessary, the appraiser should contact you to schedule a viewing appointment. If you don’t hear from the appraiser within seven days of the order date, please inform your Loan Officer. If you’re purchasing a new home, the appraiser will contact your real estate agent, if you’re using one, or the seller to schedule an appointment to view the home. We will promptly give you a copy of any appraisal, even if your loan does not close.
We define manufactured housing as housing units that are factory built with a steel undercarriage that remains as a structural component and limits the structure to a single story. These types of manufactured homes are sometimes known as mobile homes. We do not consider other factory-built housing (not built on a permanent chassis), such as modular, prefabricated, panelized, or sectional housing, to be manufactured housing. If your home is one of these other factory-built housing types, please complete the application indicating that your home is a single family home.
In order to qualify for our loan programs a manufactured home must meet the following requirements:
- A manufactured home is any dwelling built on a permanent chassis and attached to a permanent foundation system.
- It must be a one-family dwelling that is legally classified as real property.
- The towing hitch, wheels, and axles must have been removed and the home must be permanently attached to a foundation system that meets state and local codes as well as the manufacturer’s requirements.
- The foundation system must be appropriate for the soil conditions for the site and meet local and state codes.
- The land on which the manufactured home is situated must be owned by you. We do not provide financing for manufactured homes located on rented or leased land.
- It must have been built in compliance with the Federal Manufactured Home Construction and Safety Standards that were established June 15, 1976. Generally, compliance with these standards will be evidenced by the presence of a HUD Data Plate that is affixed near the main electrical panel of the home or in another readily accessible and visible location.
- It must be at least double-width, 24 feet wide, and have a minimum 600 square feet of gross living area. The home’s condition must be acceptable to typical purchasers in the market area.
Closing & Beyond
The closing will take place at the office of a title company or attorney in your area who will act as our agent. If you’re purchasing a new home, the seller may also be at the closing to transfer ownership to you, but in some states that happens separately.
During the closing you will review and sign several loan papers. The closing agent or attorney conducting the closing should be able to answer any questions you have, or you can feel free to contact your Loan Officer if you prefer.
Your Loan Officer will contact you a few days before closing to review your final fees, loan amount, first payment date, etc. They will also provide you with a closing disclosure that specifically outlines all of the finals costs so you are well aware of what to expect when you get to the closing table.
The most important documents you will be signing at the closing include:
This document has replaced what was formerly known as the HUD-1 Settlement Statement and Final Truth in Lending Statement. The Closing Disclosure combines the two and provides an itemized listing of the final fees charged in connection with your loan and a full written disclosure of the terms and conditions of a mortgage, including the annual percentage rate (APR). If your loan is for a purchase, the closing disclosure (also known as CD) will also include a listing of any fees related to the transaction between you and the seller. If the loan is for a refinance, the CD will show the payoff amounts of any mortgages that will be paid in full with your new loan. This document will be signed by both the buyer and seller.
This is the document you sign to agree to repay your mortgage. The note will provide you with all the details of your loan, including the interest rate and length of time to repay the loan. It also explains the penalties you may incur if you fall behind in making your payments.
Mortgage / Deed of Trust
This document pledges a property to the lender as security for repayment of a debt. Essentially this means that you will give your property up to the lender in the event that you cannot make the mortgage payments. The Mortgage restates the basic information contained in the note and details the responsibilities of the borrower. In some states, the document is called a Deed of Trust instead of a Mortgage.
If your loan is a refinance, Federal Law states that you have three days to decide positively that you want a new mortgage after you sign the documents. This means that the loan funds won’t be disbursed until three business days have passed. The closing agent will provide more details at the closing.
In some areas of the country it is customary, and sometimes required by law, to have an attorney represent you at the closing. In other areas, attorneys are not as common at a real estate closing. Please contact the closing agent if you have questions about attorney representation. By all means, we recommend that you have an attorney at the closing if it would make you more comfortable. If your attorney has any questions about your new mortgage, please refer them to your Loan Officer. We’d be happy to provide any information necessary.
The most important documents you will sign at closing are the note and mortgage, sometimes called the deed of trust. Unless there are special circumstances, these documents are usually prepared one to two days before your closing. Other documents are prepared by the closing agent the day before or the day of your closing. If you would like copies of the completed documents to be sent to you after they are prepared, please contact your Loan Officer.
The closing agent acts as our agent and will represent us at the closing. However, your personal Loan Officer will contact you prior to closing to talk about your final documents and to provide a final breakdown of your closing fees. If you have any questions that the closing agent can’t answer during the closing, ask them to contact your Loan Officer by phone and we’ll get you the answers you need – before the closing is over!
If you won’t be able to attend the loan closing, contact your Loan Officer to discuss other options. If someone you trust is able to attend on your behalf, you can execute a Power of Attorney so this person can sign documents on your behalf. In other cases, we’re able to mail you the documents in advance so you can sign them and forward them to the closing agent. We’re sure to have a solution that will work in your circumstances.
We use a nationwide network of closing agents and attorneys to conduct our loan closings. We’ll schedule your closing to take place in a location near your home for your convenience.
We’ll deliver our loan documents and wire transfer your loan funds to the closing agent or attorney prior to closing so they’ll have plenty of time to prepare for your closing.
Automated monthly payments are available. You’ll receive an automated payment application at the loan closing. Simply return it at your earliest convenience to enroll in the automated payment program.