Financing Made Easy
The best time to think about financing is before you find a property to buy. Read the information below and call or email us with any questions.
Contact one of our Real Estate Professionals for
a list of Qualified Mortgage Lenders or apply on-line:
Qualifying
Which comes first? The home... or the loan?
Shopping for a home is easier when you know how much you can spend. Today's lenders offer a wide variety of programs that will fit your needs, so familiarize yourself first with the various loan options available.
Ask yourself a few questions:
How quickly would you like to repay your loan? within 15 years, 20 years, 30 years?
How long do you expect to live in the house?
How do you expect your income to evolve in the next years?
Pre-qualification
This is a preliminary estimate of the amount of money a mortgage lender may be willing to loan you, based on the information you provided. Your loan officer will want to run a credit report.
Pre-qualification will let you know how much you can spend even before looking for your perfect home, and will enable your real estate professional to show you properties that you know you can afford.
Pre-Qualification is based on your monthly debt, income, length of employment etc. This is subject to verification by a loan processor.
Pre-approval
The smart way to shop for your home!
Pre-approval will define exactly how much the lender is willing to loan you, so you can begin your house hunting with the assurance that your financing is ready and waiting. It is like shopping with cash in hand.
Down payment
How much is your down payment going to be?
The down payment is the amount of cash you will pay toward the purchase of your home. Generally, the larger the down payment, the lower your monthly payments are going to be. Although down payments of 20 percent or more are common, homebuyers can put down as little as 5 to 10 percent. However, charges for Private Mortgage Insurance (PMI) will usually be added to loans with less then 20 percent down, and this will increase your monthly payments.
Mortgage application
Applying for a mortgage is much like applying for any other kind of loan. Because of the amount borrowed and the lengthy term of the loan, the approval process is more complicated than for other types of loans and it usually takes more time.
Your loan application will be evaluated based on three factors: your income and assets, your credit history, and the appraisal of the property you plan to buy. While verifying your application, your lender will request a credit history and a property appraisal to help in the decision making process.
You can speed up the approval process by collecting and organizing in advance all the documents necessary to process your loan.
Items needed for application
The information needed to process a loan application varies from case to case and with the type of mortgage.
The following list is just an example of what is typically needed, however, more information may be required. Consult your lender.
- Completed loan application form
- Copy of sales contract and all riders
- Place of residence of the applicant for at least the last two years
- Employer's names, addresses and year-to-date pay stubs.
- Information and account numbers on all cash assets: savings accounts, certificates of deposit, stocks, bonds, and cash values of life insurance policies.
- Copies of verification of additional sources of income including pension, Social Security, alimony, child support, disability benefits, etc.
- Divorce Decree, if applicable
- Social Security number
- Tax returns, for the last two years, including all schedules.
- Information on liabilities: charge accounts, car loans, student loans, credit union loans, alimony and child support
- If you are a veteran, discharge papers (form DD-214) or certificate of eligibility.
Your lender will give the exact list of what you need.
Closing costs
The closing costs for the buyer are:
- Down payment
- Loan application fee (covers the appraisal and credit report)
- Loan origination fee (or assumption fee if the loan is going to be assumed)
- Loan discount fee or points
- Transfer Tax stamps- State of Illinois and County Real Estate Transfer Tax Stamps
- City or Village Transfer Tax stamps, if applicable
- Buyer's title insurance
- 1st year prepaid homeowner's insurance
- 1st year prepaid PMI insurance, if applicable
- Inspections, if applicable
- Attorney, if applicable
- Interest from the date of closing till the end of the month (unless FHA or VA loans, which have no payment the first month, interest is paid in arrears)
- Escrow for real estate taxes (how much depends on the lender and on the month of closing) homeowner insurance and, if applicable, PMI
There will be a tax credit from the seller for the unpaid real estate taxes.
Types of lenders:
Savings and loans
The largest number of home loans for many years came from savings and loan associations, known as thrift institutions. Using as the source of funds the deposits made into savings accounts, these lenders made loans not only to their depositors but also to others who needed money for home purchase.
Deposits were often insured by the Federal Savings and Loan Insurance Corporation, so depositors felt secure. Note that all savings and loans are allowed to belong to the FSLIC, but only those institutions federally chartered are required to have FSLIC insurance. State chartered S &Ls may apply for the insurance if they desire.
Commercial banks
Construction loans are usually issued by commercial banks, which may also have an insurance protection for their depositors. If the banks have been federally chartered, their deposits must be protected by the Federal Deposit Insurance Corporation. Still all banks, whether or not federally chartered, may become members of FDIC to provide their depositors with federally insured deposits.
Construction loans are generally made for a short time at a high rate of interest. Upon completion of the construction, either builder or buyer will seek a permanent loan at lower rate of interest and for a longer term from other long-term loan source.
Life insurance companies
Life insurance companies provide loan money for large projects and often participate in the investment as partial owner. They lend for the purchase of shopping centers, large apartment buildings and multifamily units.
Mortgage bankers and mortgage brokers
The mortgage banker and the mortgage broker have become the nation's most popular sources of funds for home purchase. The specific difference between the mortgage banker and the mortgage broker is a matter of source of funds and servicing.
The banker lends - sometimes his own money - and services the loan. The broker brings the buyer and the lender together, and receives a fee for the service. He does not lend, nor does he service the loan.
Other sources
Pension funds and credit unions offer loans to their depositors, sometimes at attractive interest rates. They are also often known as participants in the secondary mortgage market. Mutual savings banks also are a source of home loans for their depositors.
Type of loans:
There are many types of mortgage loans, offered with a variety of interest rates, terms, and points: Finding the right one is as important as finding the right home.
- ARM (adjustable rate mortgage)
- Convertible ARM
- Fixed rate mortgage
- Conventional loan
- FHA financing
- VA financing
- Fannie Mae's Community Home Buyers Program
- Balloon mortgage
- Construction/end loan
- Jumbo loan
ARM (adjustable rate mortgage)
Adjustable-rate mortgage loan features an interest rate that moves up and down as market conditions change. ARMs usually offer a lower initial interest rate, but your mortgage payments may change periodically. Rate changes are based on an index such as the one-year Treasury Index or the cost-of-funds index (COFi). Your lender can describe the various ARM plans that are available and the index that will be used for its interest. With an ARM, you can generally qualify for a higher loan balance, with more flexible provisions, than you would with a fixed rate mortgage. This is because the interest rate during the first year of the loan is usually lower. ARMs usually have an Interest Rate CAP.
Convertible ARM
Some ARMs include a provision allowing conversion to a fixed rate mortgage at specified times, typically during the first five years of the loan. Some lenders charge a premium for this option, find out the exact conversion terms and costs from your lender. This will help you decide whether this is a cost-effective option.
Fixed rate mortgage
Fixed rate loans are offered for a variety of terms, but 15, 20 or 30 years are most common, and the monthly principal and interest payments will never change because the interest rate is fixed for the life of the loan.
Conventional loan
A loan secured by investors, but neither insured by the FHA nor guaranteed by V.A. Both fixed and adjustable rate loans are available with conventional financing.
FHA financing
A loan insured by the Federal Housing Administration (FHA) and made by an approved lender in accordance with the FHA's regulations. FHA requires that the property being purchased meets certain minimum standards. This mortgage may be easier to qualify for than a conventional mortgage, but it also has a lower maximum loan limit that varies depending on the average cost of housing in a given region. FHA loans require the borrower to pay Mortgage Insurance Premiums (MIP) if the down payment is less then 20%. Fixed and adjustable rates are available with FHA loans.
VA financing
A loan guaranteed by the Veterans Administration (VA) to a qualified veteran and made by an authorized lender on an approved property. Fixed and adjustable rates are available with VA loans. The VA charges borrowers a funding fee.
Fannie Mae's Community Home Buyer's Program (CHBP)
The CHBP offers low and moderate income borrowers a variety of flexibility on their mortgage financing, including less cash at closing because of lower down payment requirements, credit histories from nontraditional sources, waiver of reserves at closing, and closing costs funded from gifts, grants, or unsecured loans.
Balloon mortgage
Offers lower interest rates for a shorter term financing, usually seven years, and requires final payment or refinancing at the end of the term.
Construction/End loan
A mortgage that finances the construction of a home and converts to permanent financing when the home is completed. It allows buyers to deal with only one lender, file only one credit application and pay only one set of closing costs.
Jumbo loan
Loans over a specific amount (currently in the range of $300,000) are considered jumbo loans. The interest rates are often slightly higher.
|
Equal Housing Opportunity