POST-CLOSING
Transfering the Title “Transfer of title” moves ownership of property from seller to buyer. Before this can happen, two events must take place:

• Delivery of the buyer’s funds. This is the check or wire funds provided by the lender in the amount of the loan.
• Delivery of the deed. A deed is the document that transfers ownership of real estate. The deed names the seller and buyer, gives a legal description of the property, and contains the (notarized) signatures of the seller and two witnesses.

Depending on the situation, one type of deed may benefit the buyer more than another. The real estate attorney can advise on this matter. TRANSFERING THE TITLE
Title to the property transfers to the buyer as soon as the seller places the deed into the hands of the buyer. The buyer doesn’t leave with the deed instead, the closing agent (who may be the real estate attorney) will take it to be recorded at the county clerk’s office. It will be mailed later to the buyer. back to top

Adjustable Rate Basics

An adjustable rate loan, most simply stated, means that your interest rate can be adjusted up or down over the months and years. By adjusting the interest rate your monthly payments might also change. In order to make an intelligent choice between a fixed rate and an adjustable rate loan, you ave to understand the jargon of the adjustable loan and how it works. For example: Your initial rate will be 8 percent. The base rate will be 9 percent, with semiannual adjustments. The index will be the floating Treasury Bill rate, and there will be a margin of 3 points over that. You will have an annual cap of 1 percentage point, a lifetime cap of 5 percentage points. Initial Rate: The initial rate might be an attractive rate. The initial rate will last until the first adjustment occurs, which is usually after six months. Base Rate: The Base rate is the interest rate on which the lifetime cap is calculated. If you have a lifetime cap of 5 percent, that means that your interest rate over the life of the loan cannot be greater than 5 points above the base rate. In the above example, the base rate is 9 percent, and the lifetime cap is 5 percent. That means that your interest rate over the life of the loan cannot exceed 14 percent. Index: The index is an arbitrary number, beyond the control of the lender, which is used to determine interest adjustments. The common indices are the so-called cost of funds for certain savings institutions or an interest rate that the U.S. government pays when it borrows money. In the example above, the index is based on the interest rate the U.S. government pays on its very short-term borrowings (Treasury Bills). All indices will move up and down as interest rate trends change. Margin: The index plus the margin equals the interest you’ll be required to begin paying at the start of each adjustment period. For example, if, after the first six months of your loan, the index has increased from 6.8 percent to 7.2 percent, the interest rate you will have to pay on your loan from that time on will be 10.2 percent: the index of 7.2 percent plus the margin of 3 percentage points. Similarly, if the index goes down, so will the rate you pay. Lifetime cap: This fixes the maximum interest rate you will pay during the life of the loan. The lifetime cap is added to the base rate to get the ultimate maximum. Annual Cap: The annual cap puts a limit on how much your payments can increase during the course of a year. (In some loans , this cap may be based on a shorter period of time, such as six months.) back to top

Do you qualify for a loan?

Like most people, you will probably wait until submitting a purchase contract on a home before applying for a mortgage. By then, not only will you know the specific property you want, but also how much you need to borrow. At that point, the lender will require that you fill out a loan application and reveal specific information about your current and past financial situations. The following checklist is a good place to start for gathering the information you will need:

• Original purchase contract (the loan officer will make a copy and return the original to you)
• Copy of earnest money (deposit) cancelled check
• Employment history details
• Last two years’ W-2 forms
• Last two years’ income tax returns
• Paycheck stubs for past 30 days
• Verification of secondary income (for example, investment accounts, bonuses, a part-time job, child support or social security income)
• Assets: Account numbers, balances and branch addresses
  • Checking
  • Savings
  • Stocks/bonds (current market values)
• Debts: Account numbers and addresses
  • Auto loan(s)
  • Boat loan(s)
  • Student loan(s)
  • Credit card
• Explanation of any credit problems (for example, previously declared bankruptcy, excessive credit card debt)
• Divorce or separation documents (if you receive or pay alimony or child support)
• Landlord’s name and phone number (if renting)
• Disposition of present home (if you already have a home, do you plan to sell it or rent it out?)
• Person who will give lender access to lender’s appraiser (name and phone number)
• Your check for appraisal, credit report and/or loan application fees (your lender will provide the cost information)

Pre-qualifying vs. Pre-approval
If at all possible, it is best to begin the loan approval process before you find the home of your dreams. Otherwise, you may hit a roadblock when you apply for a mortgage and the application is denied. If the seller has other buyers waiting, or needs to sell quickly, you may lose your chance for that particular property. There are two ways to help avoid this scenario: 1. Become pre-qualified for a loan: All you need to do is speak to a lender, who—based on asking you some questions about your finances—offers an opinion of the loan amount you are eligible to borrow. The lender doesn’t ask for any supporting paperwork to confirm what you say, and can change his or her mind when you come back to apply for a loan. There’s no charge for pre-qualification. 2. Become pre-approved for a loan: This process is more complex and sometimes involves a fee. The lender will want information about your employment, income and debts to prove that you are a good risk. Obviously, a lender’s pre-approval letter carries more weight with a seller than a prequalification letter because it is proof of your buying power on paper. Being pre-approved gives you an advantage when you’re among several buyers pursuing a property. Pay off other loans.
If at all possible, consider paying off any high-interest loans before applying for a mortgage. The more debts—like car loans or credit card balances—that appear on your mortgage application, the smaller the loan amount the lender will be willing to offer.

PRE-CLOSING
There are a few important matters to take care of between the day your offer is accepted and the day you hold the keys to your new home. The TOP FIVE IMPORTANT matters include: 1. INSPECTION
Major flaws are not uncommon, especially in older homes, and you’ll want to know what they are up-front. The home inspector is an objective third party who essentially gives your house a complete physical. He or she examines the property and reports on the condition of the structure and systems of the house, such as:

• Plumbing
• Electrical
• Foundation
• Heating and air conditioning
• Dry rot
• Boat docks
• Sea walls
• Pools

You may need to hire additional inspectors who are licensed in specific areas such as for termite damage and roof inspection. If the inspectors you hire find problems with the property you’re under contract to buy, the seller does not necessarily have to fix everything reported. Those items then become a matter of negotiation. Of course, your purchase contract must address your rights to negotiate, or you can’t do anything! Finding an Inspector
Since not all states license inspectors, finding a qualified home inspector isn’t always easy. The first place to start is to ask your real estate attorney for a referral. You can also talk to friends or colleagues who have recently bought a home. The American Society of Home Inspectors is a professional association which requires its members to pass exams and perform a minimum of 250 property inspections. Tips for hiring an inspector:

• Ask the inspector to provide a sample report. Make sure it’s legible, descriptive and very thorough. Good reports are booklets of information about your home, not just a series of checked or unchecked boxes.
• Find out what elements of the house are and are not included in the inspection.
• Talk to previous clients of the inspector who have owned their homes for a year or so. Find out if the inspector missed anything significant.
• Don’t consider your inspection a guarantee or warranty, but simply the best information possible at an affordable cost.
• Try to be on site during the inspection. You’ll learn things about your house you may never know otherwise, and it’s a great opportunity to ask questions.

2. APPRAISAL
No lender wants to lend you more money than the home is worth. So, after you apply for a loan, the lender will call for an appraisal of the home’s market value. Before a lender will approve your loan, the loan officer will hire (and you will pay for) an appraiser to determine the quality of the property and its fair market value. Lenders usually choose appraisers from a list of certified or licensed individuals connected with organizations like Appraisal Institute or National Association of Independent Fee Appraisers. The appraiser evaluates a home using three methods:

• 1. Comparative market analysis, which the appraiser uses to find a typical selling price of a comparable home, not necessarily the highest priced home in the area
• 2. Interviews with real estate agents and the appropriate government real estate tax personnel
• 3. Touring the property, taking into account the square footage, floor plan, number of rooms and baths, upgrades, overall condition of the home and the neighborhood

Keep in mind:

• Although you pay the appraisal fee, the appraiser works for the lender, which uses an appraisal as a final qualifier for finalizing the loan.
• If you question the results, you may want to engage your own appraiser for a second opinion.
• Appraisers often work on a tight deadline, right before closing. If the appraisal comes in lower than the selling price, it could throw a monkey wrench into your loan approval process.

back to top 3. TITLE INSURANCE
Title insurance protects you (and the lender) should something in the property’s history threaten your ownership rights. Imagine jumping through all the necessary hoops you have to jump through to buy a home, and then finding out your home is NOT yours! Unfortunately, many situations can stand between you and a marketable title, a condition that states evidence of your problem-free ownership rights to a particular property. The purpose of title insurance is to secure your legal claim to the property and protect you against title “defects”, legal rights to a property claimed by somebody else. Unfortunately, hidden defects can surface even after you’ve gone through closing, and can stand between you and a marketable title. With title insurance, the title insurer not only pays the costs if you’re ever forced to defend your ownership in court, but covers any financial loss if the title defects can’t be settled. To get a mortgage you have to buy a lender’s title insurance policy. This protects the lender against any title problems. But to protect YOUR interests, you need owner’s title insurance, as well. Although many companies sell title insurance, a lay title agency (one that’s not affiliated with a law firm) only prepares documents for closing and issues your title insurance policy. A lay title agency cannot:

• Prepare contracts
• Resolve title or inspection issues
• Give you legal advice regarding the content of documents you sign during the closing

A real estate attorney is trained in the complexities of real estate law and is best qualified to issue your owner’s title insurance policy. Since the fee for title insurance will be about the same with or without a real estate attorney, it just makes sense to get the added value of an attorney’s legal advice and counsel. What happens if defects are found?
A title search involves learning the legal history of a property. This is done by researching the public records to disclose the previous owners of record, prior deeds, mortgages, court judgments, proceedings and divorces, foreclosures, tax and construction liens, and other things that can affect title. If a title search reveals obvious defects, you can ask the seller to undertake legal proceedings to clear them, or, you can withdraw from the deal. There are also hidden defects which may not surface even in the course of a thorough title examination. One of these could put your ownership of the property in question even after you’ve closed, which is why title insurance is so critical. Your real estate attorney can help you rectify any problems down the road that occur as a result of these hidden defects. Some examples of hidden defects include the following:

• Lost or forged deeds
• Married seller who represents himself or herself as single
• Claims of undisclosed heirs
• Impersonation of another
• Clerical errors by courthouse clerks
• Incorrect legal description of property
• Contracts signed by minors or mentally incompetent persons
• Improperly probated will
• Confusion of title resulting from similar names

The purpose of title insurance is to protect against these types of defects. The title examination, by a trained professional, is the first line of defense

There are many mortgage products available on the market today. We can help you find out which one is right for you. Here are the most common options. Fixed Rate Mortgages (FRM’s)

• Interest rates stay constant for the life of the loan.
• Offered in 10, 15, 20, or 30 year terms.
• Payments are made up of principal and interest (P & I) portions and escrow portions. The P & I portion would not change for the life of the loan. Escrow amounts would pay for things like home owners insurance and property taxes. Escrow amounts may vary from time according to the cost of these items.
• If your loan requires that you carry Personal Mortgage Insurance (PMI), these payments would be added to your monthly payment amount until this mortgage would no longer be necessary. This is normally when you acquire 20% equity in the home.
• Fixed rate mortgages usually have low down payment requirements.

Adjustable Rate Mortgages (ARM’s)

• Also called variable-rate loans.
• Starts out with a lower interest rate, and changes according to market fluctuations. How often it changes depends on the terms of the loan. The most common adjustment term is once every year.
• ARM’s have limits, or caps, on the number of percentage points it can go up each year. It also has caps on how much it can go up for the life of the loan. This happens according to the terms of the loan you choose. For example- your mortgage starts at a rate of 4%. If you have a yearly cap of 2 points, and a life long cap of 6 points, this is what can happen to the percentage rate of your loan. At the end of one year your mortgage company can increase your rate by two points, to 6%. At the end of the second year, your mortgage company can increase your rate by 2 points, to 8%. (A total of 4 percentage points higher than the original term of the loan.) At the end of the third year, your mortgage company can increase your rate by 2 points, to 10%. A total of 6 percentage points higher than the original terms of the loan.) At this point you have had an increase of 6 percentage points and can no longer have your interest rate raised for the life of your loan. Of course these changes are tied to the index that your ARM is based on.
• A convertible ARM allows you to have the lower interest rates for the beginning of the loan, but the option to convert to a fixed rate loan when you choose. This usually requires a conversion fee as set up by your loan institution.

back to top Balloon Mortgages

• These types of mortgages allow you to carry a lower interest rate than most other types of mortgages.
• Terms of these types of mortgages are usually for 5 to 7 years. At the end of this time period a payoff payment, or balloon payment, is required to pay off the remainder of the loan.
• If you plan on staying in the house at the end of your loan period, you must refinance your loan amount into a conventional mortgage plan to make your balloon payment. (A FRM or an ARM.)

Interest Only Mortgages

• An option that can be attached to any type of loan, not an actual loan type.
• You pay only the interest on your borrowed amount for the beginning terms of the loan. This is usually between 1 and 5 years in length.
• At the end of your interest- only period you begin making payments based on the interest rate of the type of mortgage you chose- a FRM or an ARM. You have conventional principal and interest payments, plus any escrow amounts due.
• You do not save any money on your principal when choosing this type of loan. It only delays you paying your principal for a preset length of time. Your P & I payments will actually be higher after your interest only period, because your payments will be amortized according to the remaining time left on the loan. Example- A 5 year interest only option on a 15 year mortgage for $100,000.00. You will pay only the interest for the first five years, then you will pay P & I for only 10 years. Therefore, you will be paying off the $100,000.00 over 10 years instead of 15 years, making your payments higher.
• This option works best for people in certain monetary situations. The most common ones are if you do not make a set amount of money every month, such as being paid on commission or bonuses. Another one would be if you are expecting a lump sum payment of money in the forseeable future. A more risky reason would be if you are sure you can invest the money saved by doing this for a secure profit at the end of your interest only period.

Jumbo Loans

• Most loan institutions follow the Fannie Mae or Freddie Mac federal guidelines for loans. They have an established maximum loan amount of $359,650.00. Any loan above this amount would be considered a Jumbo loan.
• Jumbo loans usually carry a higher interest rate.

Adjustable Rate Mortgage - A mortgage in which the interest rate and payment changes periodically over the life of the loan based on changes in a specified index. The changes are usually subject to a cap. Amortization – The payment of a mortgage loan through monthly installments of principal and interest. The monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example 30 years) Initially, most of the payment goes to interest but over time more and more of the payment goes towards principal until it is all paid off. Annual Percentage Rate (APR) - The APR is a calculation based on a government formula designed to reflect the true annual cost of borrowing, expressed as a percentage. It includes the interest, points, mortgage insurance, and other various fees associated with the loan. The rate is also adjusted for the time value of money, meaning that dollars paid by the borrower early on carry a heavier weight than dollars paid years later. An important note, the APR is calculated on the assumption that the loan completes its full term, and is therefore potentially deceptive for borrowers who intend to sell early. Application Fee - Fees that some lenders charge upon application. It goes towards initial processing expenses like the property appraisal and credit report. Appraisal - A report that estimates the property’s fair market value based on an analysis of the sales of comparable homes in the same area. An appraisal is required by your lender and must be made by a qualified appraiser. Balloon Mortgage - A mortgage that typically offers low rates for an initial period of time (usually less than 10) years, and then requires that the balance is due or is refinanced by the borrower. The loan is typically amortized as if it would be paid over a thirty year period to keep monthly payments low. Cap - The limit on an adjustable rate mortgage that the payment or interest rate can be increased or decreased during each adjustment period (usually 6 or 12 months). Some ARMs also have a lifetime cap. Closing Costs - Costs that the borrower must pay at the time of closing, in addition to the down payment. There are two categories of closing costs, “non-recurring closing costs” and “pre-paid items”. Non-recurring closing costs are any items which are paid just once such as origination fees, discount points, attorney’s fees, credit report, title insurance and survey. “Pre-paids” are costs which recur during your loan, like property taxes and homeowners insurance. Your lender will estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which must be issued to you within three days of receiving a home loan application. Conforming Loan - A mortgage loan which conforms to all of the guidelines and is therefore eligible for purchase by the two major federal agencies that buy mortgages which are Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC). Credit scoring - an unbiased way of deciding who should receive credit. Weights or scores are associated with your personal credit attributes, such as your income, debt and the time spent at your current address. These scores are added to give a total credit score. The total credit score is a prediction of how likely a person with that score is to default on their loan. Discount Points (or Points) - The Amounts paid to the lender (based on percentage of the loan amount) to buy down the interest rate. Each point charged represents one percent of the loan amount; for example, one point on a $100,000 mortgage is $1,000. In general, paying one point on a 30 year fixed mortgage reduces your interest rate 1/8 (.125) of a percent. Fannie Mae (FNMA) – The nickname for Federal National Mortgage Association. Fannie Mae is a congressionally chartered and shareholder-owned company that is the nation’s largest source of financing for home mortgages. Federal Housing Administration (FHA) - An agency of the U.S. Department of Housing and Urban Development (HUD). They mainly insure residential mortgage loans made by private lenders. They also set the standards for construction and underwriting but do not plan or construct housing nor lend money. Freddie Mac - A common Nickname for Federal Home Loan Mortgage Corporation (FHLMC). They are a federally chartered corporation that purchases residential mortgages, and then sells and insures securities based on the mortgages to investors. Good Faith Estimate - A written estimate provided by the lender of the closing costs a borrower is likely to pay at settlement. This estimate must be provided to all loan applicants within three business days after a loan application is received. Hazard Insurance - Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, and certain other natural causes. Mortgage lenders often require the borrower to carry an amount of hazard insurance on the property that is at least equal to the amount of the loan amount. Jumbo Loan - A loan that exceeds the legislated purchase limits of Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac). Also called a non-conforming loan. Loan to Value Ratio (LTV) - The loan amount divided by the value of the property expressed as a percentage. Value is defined as the lower of sales price or appraised value of the property. Generally, the lower the LTV the more favorable the terms of the programs offered by lenders. Lock or Lock In - A designated period of time during which a borrower and a lender have agreed to a specific interest rate. Most locks are from 30 to 45 days. This usually involves paying a fee to the lender. Mortgage rates not “locked in” are subject to changing market conditions. Under some conditions, if you lock and the rates drop, the better rate can be obtained. Mortgage-Backed Security (MBS) - A security backed by a group of mortgages issued by the Federal Home Loan Mortgage Corporation (FNMA) and the Federal National Mortgage Association (FHLMC). Investors of mortgage backed securities receive payments derived from the interest and principal of the underlying mortgages. Mortgage Insurance (MIP or PMI) - Insurance purchased by the buyer that covers the lender against losses incurred as a result of a default on a home loan. This is generally required on all loans that have a loan-to-value higher than 80%. Also, FHA loans and some first-time buyer programs still require mortgage insurance regardless of the LTV. When you have accumulated 20% of your home’s value as equity, you can ask your lender to waive the PMI. Negative Amortization - A gradual increase in mortgage principal that occurs when the monthly payment is not large enough to cover the entire principal and interest due. This shortfall is added to the outstanding balance to create “negative” amortization. Origination Fee - The fee that a lender charges you for processing a loan. It is usually expressed as a percentage of the loan amount. Unlike points, the origination fee doesn’t impact the interest rate. It doesn’t usually include fees for appraisals, credit reports, inspections or loan document preparation. PITI - Stands for principal, interest, taxes and insurance which are the four components of your monthly mortgage payment. The payments of principal and interest go directly towards repaying the loan while the taxes and insurance (homeowner’s and PMI) goes into an escrow account to be paid on your behalf when they are due. Prepayment Penalty - A fee charged by a mortgage lender to a borrower who wants to pay off part or all of a mortgage loan in advance of schedule. The charge is generally expressed as a percent of the loan balance at the time of prepayment, or it can be a specified number of months interest. It is not allowed for FHA or VA loans. Reverse Mortgage - A loan that enables elderly homeowners, to use their home’s equity without selling their home or moving from it. A lending institution makes a check out to the homeowners each month. This payment is really a loan against the value of a home. Because the payment is a loan, it’s tax-free when the homeowners receive it. These loans are nonrecourse. Title Insurance - Insurance that protects lenders and homeowners against financial loss in a property because of legal disputes over the ownership of a property. Underwriting - The process of analyzing a loan application to determine the amount of risk for the lender making the loan. Underwriting involves evaluating the borrower’s creditworthiness and the property itself and then selecting the appropriate loan term and interest rate. Variable Rate - In a variable interest loan, the interest rate changes periodically in relation to an index. For example, the interest rate might be linked to the cost of US Treasury Bills and be updated monthly, quarterly, semi-annually, or annually. VA Loan - A loan backed by the U.S. Department of Veterans Affairs (VA). VA loans are made to honorably discharged veterans or their un-remarried widows or widowers. These loans require low or no down payment and offer low interest rates.

The APR (Annual Percentage Rate) of a loan is supposed to be an overall interest rate with all the applicable closing costs factored in. Unfortunately, not all lenders include the same costs so not all APRs are created equally. Use the APR as a general guide to the overall cost of the loan but keep in mind that you have to look at the details of what’s included to be sure.

You purchase discount points to lower your interest rate. Origination points are a fee paid to the originating lender which are part of the profit margin for the services that they provide. Both are measured as percentage of the loan amount and both are factored into the loan’s APR. Generally, points are deductible as long as the seller didn’t pay for them and origination fees are tax deductible provided they are expressed as a percentage.

Discount points enable you to lower your loan’s interest rate. They are basically prepaid interest, with each point equaling 1% of the total loan amount. By and large, when you pay a point on a 30 year mortgage, you can lower your interest rate by 1/8 (or.125) of a percentage point. When comparing loan rates, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Discount points are a good idea if you plan to stay in your home for some time since they will lower your monthly loan payment. Points are tax deductible when purchasing a home and sometimes you can negotiate with the seller to pay for some of them.

The loan to value ratio is the amount of money you borrow compared with the appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $100,000, you could borrow up to $95,000. The higher the LTV, the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, the higher LTV loans (over 80%) usually require a mortgage insurance policy.

Yes. Proof of a paid homeowner’s insurance policy is required at closing, so arrangements will have to be made before then. Plus, involving the insurance agent early on in the home buying process can save you money. Insurance agents are a great for tips on how to keep insurance premiums low and information on home safety.

The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing debts. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. Typically, mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, should be no more than 41% of income. The lender also considers your cash available for a down payment and closing costs, credit history, and employment history when determining your maximum loan amount.

No, your monthly payment can change for the following reasons:

• Escrow Analysis - At least once a year, your lender will analyze your escrow account, and adjust the portion of your monthly payment collected for real estate taxes, insurance, and other escrow items. Your new monthly payment amount shown on the analysis will typically be effective on the anniversary of your first payment due date.
• ARM Adjustments - If you have an adjustable rate loan, the interest rate and principal and interest (P & I) portion of your payment will change on a scheduled basis based on its index. To determine when your new payment will become effective, please refer to your loan agreement. If you have an escrow account, the escrow portion of your payment may change as well.

This is the lifetime of your loan. For example, most mortgages have an amortization of 30 years, meaning your mortgage will be paid off after 30 years.

In addition to the principal and interest portion of your monthly payment, the terms of your loan agreement allow the lender to collect funds from you for the payment of your real estate taxes, insurance bills, and sometimes other items. These additional funds are referred to as the escrow portion of your payment. They are collected throughout the year and paid on your behalf.

Quite probably, less than you think. Many first-time buyers are surprised to learn there is no fixed answer to this question. Usually, down payments range anywhere from three to twenty percent of the property’s value.

There is no simple answer to this question. The right type of mortgage for you depends on many different factors:

• Your current financial situation
• How much you expect your finances to change
• How long you intend to stay in your house
• Your tolerance for having your mortgage payment changing from time to time.

We can help you decide which loan program is best for you. Give us a call and we’ll review your situation with you and show you what programs you might like.

Based on the loan program you choose, the exact documents required will vary. In general, you should bring the following:

• Federal income tax statements and verification of any additional income
• Your two most recent W2’s.
• Current paycheck stubs
• Recent bank statements
• Asset and liability information (stocks, bonds, other real estate, etc.)

Fixed Rate Mortgage
With a fixed rate mortgage, you know exactly what your principal and interest payment will be each month for the life of your loan. It won’t change because your interest rate doesn’t change. Your taxes and insurance component of your payment towards escrow can change (and probably will) if your taxes and insurance change. Unfortunately, there’s no way to lock those in. If interest rates go up, you’re protected with a fixed rate mortgage. But, you won’t benefit if rates go down. You can always take advantage of falling rates by refinancing. Fixed rate mortgages might be right for you if:

• Want the security of a fixed principal and interest payment.
• Think that interest rates will go up.
• Are on a fixed or limited budget.

Adjustable Rate Mortgage (ARM)
Compared to fixed rate mortgages, Adjustable Rate Mortgages (ARMs) offer a lower interest rate to start, so your monthly payments are generally lower. But, the interest rate moves up and down with the market based on an “index“. Some of the more common indices include U. S. Treasury Bills, Cost of Funds Index (COFI) and the London Interbank Offered Rate (LIBOR). Most ARMs have an initial fixed rate period where the interest rate doesn’t change followed by the rest of the loan’s lifetime period where the rate is adjusted at predetermined intervals. Many ARMs have caps that limit how much your interest rate can change per period as well as for the life of the loan. Also be aware that there are some very low rates ARMs that start out with “discounted” rates. These discounted rates are below the market rate and will definitely go up at the first adjustment period. Adjustable rate mortgages might be right for you if:

• You want more property than you can qualify for now with a fixed rate.
• You are confident your income will increase or rates will not go up much.
• You plan on selling or refinancing within seven years of buying your home.

Jumbo Mortgages
Jumbo Mortgages or nonconforming loans exceed the loan limits set by the two publicly chartered corporations (Fannie Mae and Freddie Mac) that buy mortgage loans from lenders. The 2005 single family loan limit is $359,650. If you need to borrow more than that amount, you need a jumbo mortgage. These jumbo mortgages typically have a higher interest rate than conforming mortgages. FHA
The Federal Housing Administration (FHA) provides a loan guarantee program instead of the standard private mortgage insurance (PMI) so qualified borrowers can get a mortgage loan with a down payment as low as 3%. The FHA doesn’t make the loan but rather they guarantee the loan minimizing the lender’s financial risk. FHA loans usually offer fairly liberal qualifying criteria compared to Fannie Mae and Freddie Mac and involve small down payments. They offer both fixed and adjustable loans. Construction
Construction loans are used to finance the building of a new home rather than purchase an existing home. They are usually variable-rate loans that have interest only payments during the construction phase. Draws are scheduled based on the stages of construction to pay the builders. Many construction loans are construction-to-permanent which means that when construction is complete, the loan is converted to a normal mortgage. This has the advantage of a single loan with one closing.