Objective & PayoffObjective & PayoffTo educate the first time home buyer so that they can confidently move forward in the home buying process.

Topics Covered:

Prequalifying for a mortgage Credit reports and scores Applying for a mortgage Gift Funds Good Faith Estimate

Here’s how prequalifying can help.....

The first step in the home buying process is The first step in the home buying process is to....to....

PrequalifyPrequalify

Prequalifying is best considered a tool to use during your search for a new home.

Affordability & Price Affordability & Price RangeRange

When you prequalify for a loan your credit report will be pulled. You will be asked to provide some basic

information such as monthly income and debts. This information is then used to determine how much you can afford to pay monthly on your mortgage loan. Knowing this allows you to focus your house hunting efforts on a particular price range of homes thus saving you time!

More Benefits....More Benefits....

• Being prequalified for a mortgage loan demonstrates to sellers and real estate professionals that you are serious and ready to buy. In addition it can give you an advantage when it comes to making an offer.

• Prequalifying will make your final mortgage loan application go faster since you have already provided much of your information

What is needed to What is needed to prequalify?prequalify?

A complete list of all debts (a credit report will be A complete list of all debts (a credit report will be pulled to obtain detailed information and credit pulled to obtain detailed information and credit scores)scores)

Employment informationEmployment information Annual IncomeAnnual Income A list of all bank and investment assetsA list of all bank and investment assets How much money are you planning to put down?How much money are you planning to put down?

It is important to remember that prequalifying does not mean that you have been approved for a loan. To obtain loan approval a full application and underwriter review is required.

Credit ScoreCredit Score

A credit score is a number that represents the likelihood that a person will repay a debt. It is used as a tool by lenders to evaluate risk.

There are three Credit Bureaus that collect and report credit history information on consumers.

They are....

Equifax Experian TransUnion

Mortgage lenders pull a tri-merged credit report which combines the information from all three of the bureaus. Each Bureau generates a credit score based on the information found in their particular database.

The median score from the three bureaus is the one that is used for qualifying for the mortgage loan.

Five Parts To Your Five Parts To Your Credit ScoreCredit Score

1. Payment History 35% Impact Paying debt on time and in full has the greatest positive impact on

your credit score.

2. Outstanding Balance 30% Impact The ratio between the outstanding balance and available credit

3. Credit History 15% Impact A longer credit history will increase your score

4. Type of Credit 10% Impact A mix of auto loans, credit cards and mortgages is more positive than

credit cards only

5. Inquiries 10% Impact Shopping for new loans and credit cards in a short amount of time is

negative

• Loan Amount

• Loan to Value (LTV)

• Level of Documentation

• Available Loan Programs

• Interest Rate

Begin to Gather these items....

Income * Earnings Statements: W-2 forms, recent pay stubs

* If self-employed, 2 years tax returns and P&L statement

* Additional income: social security, overtime, bonus, interest

veteran’s benefits, child support, etc....

Assets* 2-3 months statements for checking & savings accounts (all

pages)

* Most recent statements for all stock or investment accounts (all pages)

* Most recent statements for any retirement accounts (all pages)

Debts* A credit report will be pulled and the loan officer will notify you if

any

additional documentation is needed

* Documentation if alimony or child support payments are made

Property* Copy of purchase contract

* Copy of cancelled deposit check

Other* Drivers license or valid state ID

* Employment information for the past 2 years (including contact info)

* Residential street address for the past 2 years

* Contact info for landlord if applicable

* Complete copy of signed divorce decree and related documents

* Documents regarding child support if paying or receiving

* Any court documents relating to any bankruptcy action

* Gift Letter statement if any gift funds are used for the transaction

Both FHA and Conventional loans allow for gift funds.

Requirements for FHA Loans

No LimitNo Limit – All of the down payment and closing costs can be from a gift

Acceptable DonorAcceptable Donor – Family, employer, charitable organization, etc... Donor cannot be anyone involved in the transaction

Document the TransferDocument the Transfer – provide documents from each step of the transfer

Proof of SourceProof of Source – evidence the funds came from an account the donor owns

Signed Gift letterSigned Gift letter – must state the gift amount, repayment is not required, the donor’s information and that the money is not from any person that is a party to this transaction

• Borrower must contribute a minimum of 5% towards the down payment unless the gift amount is greater than or equal to 20% of the loan amount.

• Acceptable Donors: relative, domestic partner, fiancé / fiancée, church, employer, non-profit organization

• Gift Letter – must state the gift amount, that repayment is not required and the donors information

• Receipt of gift funds – must show proof that the funds have been deposited into the borrowers accounts or is being held by the closing agent

Requirements for Conventional Loans

The Basic rule FHA abides by is that the property must be habitable and safe for the

occupants

FHA will permit “as-is” appraisals on properties when minor property deficiencies exist. Repairs for minor cosmetic items is not mandatory.

Examples of items NOT requiring repair

Missing Handrails

Cracked window glass

Cracked or damaged exit doors

Minor plumbing leaks

Defective floor covering

Insect / organism damage

Worn-out countertops

Damaged wall and ceiling materials

Poor workmanship

Crawl space with debris

Lack of all-weather driveway surface

Examples of items REQUIRING repair

Leaking or worn out roofs

Evidence of structural problems

Defective paint surfaces in homes built before 1978

AppliancesAppliances

If Appliances are present, they must be in working order and meet all local codes. If they have been removed they must either be replaced or the appraiser must adjust the value of the property to reflect the missing items.

Heating and CoolingHeating and Cooling

FHA does not require a property to have a cooling system. They do require that properties above the freezing line (Lee County) have a heating system. Regardless, if either are present they must be fully operational and in good condition.

PoolPool

FHA requires any home with a pool to have a working pump that is able to circulate water. They also require that the water level be high enough that the pump can work.

Water clarity is not a requirement, but FHA does state that the quality of the water must not pose a health or safety risk.