Obviously an "approval letter" is by far the best. It not only provides you the borrower with the assurance that you can finance a home, but more important, it provides you with a very strong negotiating tool. Sellers are much more motivated to deal with a buyer who is serious and can prove it. They know that if the terms of a sale can be agreed upon and once the property appraises and passes your inspection, the transaction will take place. The guess-work is eliminated.

What constitutes loan approval?

As the borrower your credit can be approved but truly loan approval does not occur until the lender has been satisfied with the value of the home, by having an appraisal done. In some situations the lender also will require a survey or ILC (improvement location certificate) to be done to assure the home is within its legal boundaries. A title commitment is required by the lender to assure no other liens are currently on the property. Once all these items are satisfied the lender will "approve the loan."

Why is loan approval important to me?

Tennessee contracts have specific deadlines outlined for loan approval. This is important to a purchaser in that if the deadline is not met, the buyer is considered "out of contract". This means the borrowers earnest money can be held by the seller and worst yet, if the seller doesn't want to sell he doesn't have to.

The sad but true fact, even though the lender is in control of the loan process, they have no responsibility in the contract. It is the buyers responsibility to meet the contract dates. Here, once again I stress the importance of using a good, reputable local lender.

World War II (September 16, 1940 to July 25, 1947), Korean conflict (June 27, 1950 to January 31, 1955), and Vietnam era (August 5, 1964 to May 7, 1975) veterans must have at least 90 days' service. Veterans with service only during peacetime periods and active duty military personnel must have had more than 180 days' active service. Veterans of enlisted service which began after September 7, 1980, or officers with service beginning after October 16, 1981, must in most cases have served at least 2 years.

Persian Gulf Conflict. Basically, reservists and National Guard members who were activated on or after August 2, 1990, served at least 90 days and were discharged honorably are eligible. VA regional office personnel may assist with eligibility questions.

Members of the Selected Reserve, including National Guard, who are not otherwise eligible and who have completed 6 years of service and have been honorably discharged or have completed 6 years of service and are still serving may be eligible. The expanded eligibility for Reserves and National Guard individuals will expire September 30, 2003. Contact the local VA office to find out what is needed to establish eligibility. Reservists will pay a slightly higher funding fee than regular veterans.

Apply for a Certificate of Eligibility

A veteran who doesn't have a certificate can obtain one easily by completing VA Form 26-1880, Request for a Certificate of Eligibility for VA Home Loan Benefits and submitting it to one of the Eligibility Centers with copies of your most recent discharge or separation papers covering active military duty since September 16, 1940, which show active duty dates and type of discharge.

Apply first to gain negotiation power with the seller

Apply to a mortgage lender for the loan. If the lender is authorized by VA to do automatic processing, upon receipt of the VA or LAPP appraised value determination, the loan can be approved and closed without waiting for VA's review of the credit application. For loans that must first be approved by VA, the lender will send the application to the local VA office, which will notify the lender of its decision.

Go hunting for a home to purchase

Decide on a home you would like to buy and sign a purchase agreement.

Find a home and have your lender send out an appraiser

Most mortgage bankers know the system, so you really don't need to do anything here but choose a good mortgage banker, she/he will do the rest.

Last but not least…

Close the loan and move in!

Comments from a REALTOR…

Purchasing a home with a VA Loan is not as difficult as some lenders would like you to believe. VA Loans have significant benefits for our Veterans and should be considered when shopping for a home loan. There are a few pitfalls though. To avoid them it is important to have a solid strategy in place prior to writing an offer on a home. Call me and I'll be happy to discuss this with you.

How does this work? Without PMI, lenders typically require a 20 percent down payment. If buyers purchase PMI they can realize their homeownership with as little as a 3-1/2% down payment. PMI increases a purchaser's buying power.

Is there an alternative to paying PMI?

Yes, in recent years lenders have become more creative with financing. In order to eliminate the need to purchase PMI, it is now very common for borrowers to get a 1st and 2nd loan on a property. Here's how it works:

You have 5% to put down. You create a 15% 2nd mortgage, giving you a total of 20% to put down on an 80% mortgage. Typically the 2nd mortgage is at a higher interest rate than the first. Given this, the purchaser is more likely to pay the second off quicker in the meantime increasing equity in the home. You will usually do this through a conventional loan product.

The benefit of creating this type of loan is that the interest can be deducted. PMI cannot be deducted. The end result gives the purchaser more buying power than using PMI.

The only negative to this strategy is sometimes the lender ends up charging expenses on both loans, so you pay double closing fees. Once again, a good lender will know how to originate two loans simultaneously without charging a small fortune!

3 types of closing fees…

Downpayment – the amount you are paying for a down-payment on the home

Prepaids – pro-rated fees paid in advance. (fees that are pro-rated and placed into escrow many times for items such as property taxes, insurance, PMI, etc. )

Fees – just plain expenses, once paid they are spent!

The best way to communicate with your lender and broker is to tell them the "total amount for closing" should not exceed $X. Or you can ask, "What is the total amount I must bring to closing?" Either way should be safe!

Sample Closing Fees for Nashville

Credit Report - Usually around $60.00. Paid at the time of formal loan application. Non-refundable.

Property Appraisal Fee - Usually around $350 – $500. paid at the time of closing or at the time when you submit your loan application.

Underwriting Fee – Usually around $200 - $300

Flood Certification Fee - Usually around $15

Tax Service Fee – Usually around $75

Processing Fee – Usually around $100 - $175

Application Fee – Usually around $50 - $75

Employment Verification Fee – Usually around $30

Wire Fees - Usually around $20 - $40

Origination Fee – The lender's charge for loan processing and handling. Customarily 1% of the loan amount, paid by the buyer. This can also be a negotiation between you and your lender as this fee can be waived.

Discount Points - Vary with mortgage market conditions and may range from 0 – 5 or more. Each point is 1% of the loan amount. Points represent the difference between the loan's rate of interest and the discount to this interest that the lender will have to offer to sell the loan to a buyer of loans or a loan investor. Points may be paid by the buyer, seller or both.

Mortgagees Title Insurance – This amount varies depending on the price of the home. It can be as little as $500 but will generally be @ $1200 to $1800. The lender (who is the mortgagee) requires the borrower to have a title insurance policy to protect the mortgagee against title defects that would affect the loan. (NOTE: The seller or buyer can purchase a title policy for the protection of the buyers. Again, this is a negotiation that your agent works out at the time of the offer and binding contract)

Lender's Inspection Fee – Usually around $100.00 This is a charge for the lender's inspection of the home and paperwork associated with it.

Document Preparation – "Doc Prep" Usually around $50 to $100. This is a charge for completing and handling the paperwork associated with the loan. Usually around $200. A lender's fee.

Recording Fees – Usually about $100. Fees charged by the government for recording in the county records. The documents associated with the purchase (i.e. the warranty and trust deeds).

Pre-paid Items – These are collections in advance for loan interest, homeowners insurance and property taxes. Daily interest from the date of closing until the end of the month. One year's homeowner's insurance premium for the coming year. 2 to 3 month's in advance payment for the following year homeowner's insurance premium which is placed in the purchaser's escrow account. 2 to 4 month's worth of property taxes are placed in the purchaser's escrow account over and above the seller's credit to purchasers

State Documentary Fees - Tax Stamps run $3.70 per thousand dollars on the deed and Mortgage Tax Stamps run 1.5 pennies per thousand. (EX: A $100,000 home would cost $370.00 for state tax stamp and $150 for the mortgage tax stamp)

Settlement or Closing Fee – Usually $150 to $450

NOTE: Please don't assume things are done "just like back home…" customs differ from area to area. When in doubt question a fee and who customarily pays it.

Your money will be kept in the trust of the real estate company (or a designated title company) handling the listing and not turned over to the seller. Your deposit represents your sincerity in the attempt to purchase and is refundable if the offer is not accepted, or if you loan is not approved, providing all the necessary dates are met in a timely manner).

When do you pay?

You will submit earnest money with the purchase offer, anywhere from $500.00 and up. The more expensive the home the higher the earnest deposit. The amount like most elements of a contract is negotiable, however the more money you put down, the more serious your intent will appear to the seller. This check will be held by the listing broker until contract agreement, at which time your check will be deposited into the listing broker (or title companies') trust account. The listing broker brings these funds to the closing.

Loan Application

Loan application takes place anytime before selecting a home, but no later than five to seven days after the seller and the buyer agree. Fees are paid to the lender for credit reports and appraisals, approximately $300 to $500

Home Inspections

It is extremely wise and much advised to have your home inspected by a qualified inspector. Common practice is to use a single inspector for this task, however many times when purchasing an "older" home or a property that has questionable elements, a wiser decision is to use a professional in the field of question. For example, the property may have obvious roof damage. A normal inspector will only tell you the roof needs replacement, while a roof inspector will tell you how extensive the damage is and give an estimate as to the expense.

Estimated inspection fees

Home inspection: $150 – $600

Radon testing: $25 -$200

Lead $300 -$500

Mold $125+

Roof $50

Agent Fees

The agent fee for the buyer is paid by the listing broker (the seller pays the listing broker as per their listing agreement and the listing broker offers a % (called a co-operation fee) to the selling agent) The only exception to this is when a certain fee is agreed upon, in writing, in the Buyer Agency Agreement.

At Closing (30-60 days later)

Balance of your down payment plus closing costs. Closing costs range from approximately 2.5% to 3.5% of your loan amount.

NOTE: There are many ways to structure financing, some include rolling your closing costs into the loan, or even having the seller pay them. In any event the above outline is what to expect during a "normal" transaction. If you want or need to great "creative" there are numerous ways to do so. Call me and we can discuss alternatives!

Equity from the home you already own. Sell the home and use the proceeds to move into your next home. Or take out a second, rent the original home and use the equity to leverage your new home.

Home Equity Loan-Family member may have a considerable amount of equity built up in their own home that they were planning to borrow against in order to gift money to you. At some point in time it is beneficial for parents to start "gifting" to their children, as a form of tax advantage.

Life Insurance – If you have a cash value policy, it may have matured enough to provide additional funds to your down payment.

Stocks and bonds – You can either sell the stocks and bonds or use them as collateral on a loan for down payment.

Company Profit Sharing or Saving Plan – Check with your employer to see about the possibility of withdrawing or borrowing from this account.

Retirement Savings Plan (401K) – If your employer offers this type of plan, inquire about the possibility of withdrawing or borrowing from this account.

It is typically your option whether or not to lock-in an interest rate and discount points. In situations where your purchase agreement calls for a specific rate and points, you may be obligated to lock-in. Please consult your real estate agent for clarification.

What is a Lock-in?

A lock-in, also called a rate-lock or rate commitment, is our promise to hold a certain number of discount points for you, for a specific period of time, while you loan request is processed. (Discount points are additional charges imposed by us that are paid by you at settlement but can sometimes be financed by adding them to the mortgage amount, in a refinance transaction. One point equals on percent of the loan amount.) Typically you may lock-in the interest rate and number of discount points that you will be charged when you return your application to us, during the processing for the loan, when the loan is approved, or later, but always at least 5 business days prior to closing.

A lock-in that is given when you deliver your application for your loan may be useful because it's likely to take us several days or longer to prepare,document and evaluate your loan request. During that time, the cost of mortgages may change. But if your interest rate and discount points are locked in you should be protected against increases while your application is processed. This protection could affect whether you can afford the mortgage. However, a locked-in rate and discount points would also prevent you from taking advantage of price decreases.

It is important to recognize that a lock-in is not the same as a loan commitment. A loan commitment is our promise to make you a loan at a specific amount at some future time. Generally you will receive a loan commitment only after your loan application has been approved. The commitment will usually state the loan terms that have been approved, how long commitment is valid, and our conditions for making the loan.

Will you be charged for a Lock-In?

We may charge you an up-front fee for locking in the interest rate and discount points depending on the length of the lock-in and the type of loan for which you are applying. The fee typically will not be refunded if you withdraw your application or if you do not close the loan with us. If your application is denied, the fee is typically returned. You should discuss whether or not there will be any charges for locking-in your interest rate and discount points with your Loan Officer.

How long are lock-ins valid?

Usually we will promise to hold a certain interest rate and number of discount points for a given number of days, and to get these terms you must settle on the loan within that tie period. Lock-ins of 30, 45 and 60 days are common. You'll want to take into account any factors that may delay your closing. These may include delays that you can anticipate such as providing materials necessary to meet our underwriting requirements and, in case you are purchasing anew home, unanticipated construction delays.

What happens if the lock-in period expires?

If you don't settle within the lock-in period, you will most likely lose the interest rate and the number of discount points you have locked in. This could happen if there are delays in processing whether they are caused by you, others in the closing process, or us. For example, your loan approval could be delayed if we have to wait for any documents from you or from others such as employers, appraisers, builders, and individuals selling the home. If your lock-in expires, and market conditions have caused interest rates to fall, you will not be entitled to improved pricing based on current market conditions; rather, we will offer you substantially the same rate and points that were locked in under the expired lock-in agreement. If market conditions have caused interest rates to rise, we will offer you the loan based on the prevailing interest rate and points.,

NOTE from a Buyer's Agent: It is always a good practice to get everything in writing. When a lender provides you with a loan approval, get it in writing. The same holds true when a lender is quoting a rate and points or a rate lock…insist on it in writing!

Continue to What is PMI?.

Income

Salaried Borrower(s) 
W-2 forms for previous two (2) years
Most recent paycheck stub(s)

Commissioned/Bonus Borrower(s) 
Complete copies of previous two (2) years personal tax returns
Most recent paycheck stub(s)

Self-employed Borrower(s) 
Personal, partnership, S-Corp and/or Corporate tax returns for the previous two (2) years inclusive of all schedules and K-ls
Current, signed and dated, year-to-date financial statements, including balance sheet and profit and loss statement

Assets/Liabilities

Copy of past three (3) months statements on the following accounts: 
Checking
Savings
Brokerage Accounts
Money Market
Retirement Accounts
Other

Name and address for all creditors, Include account numbers, monthly payments, and balance owed for the following outstanding obligations: 
Mortgage Loans
Credit Cards
Personal Loans
Automobile Loans
Student Loans
Other

Miscellaneous

Residence address(es) for the past two (2) years

Complete mailing address for mortgage holder and/or landlord for previous two (2) years

Current lease for each rental property owned and previous two (2) years tax returns with all schedules

Copy of purchase contract on subject property and listing agreement or contract on existing home being sold

Copy of your cancelled earnest money checks

Copy of Divorce Decree, Separation Agreement and all addenda for all divorced parties. If divorce is not final, please provide a copy of the temporary orders

If refinancing, bring your previous Settlement Statement, Note, Homeowners Insurance Policy and Survey

A check to cover the cost of the credit report and appraisal

Additional documentation might be required, depending upon your specific situation. Keep in touch with the lender during the process to confirm they have everything they need. It's not uncommon to get into a file only to determine more documentation is needed. Maintaining patience is important throughout this process.

This is done by checking the following items:

Your credit history (the past 2 years)

Your checking account (bounced checks are not good)

Your income

Your FICO score (on conventional loans)

Almost everyone who has some sort of credit, some money set aside for a down payment and an income can get a loan. Now whether or not you want that loan may be a different story. Mortgage rates are proportional to the amount of risk the lender must take. If the credit history is bad, the risk will be off set by a higher interest rate.

The best way to qualify for a mortgage that you want is to have a nice clean credit report, little debt and pay all your bills on time, every time. Excessive consumer debt as in multiple credit cards lowers your FICO score. A hint to avoid this happening is to consolidate your debt on no more than three charge card.

Even if you have excellent credit it is a good idea to pull a credit report on yourself, prior to visiting the lender. In Tennessee you are allowed to do this free of charge once a year. (If you aren't in Tennessee or any of the "free" states, then you can pay a small fee to obtain a copy of your credit report.) There are more than one credit reporting companies and not all companies report to all credit bureaus, so be sure to request a credit report from all, just to be sure.

Here is how to contact the credit reporting agencies:

Equifax Equifax Information Service Center
P.O. Box 740241
Atlanta, GA 30374-0241
1-800-997-2493
You can also order your credit report from a secure section of the HYPERLINK "http://www.equifax.com" Equifax website.

Experian 
Experian National Consumer Assistance Center
P,O, Box 2104
Allen, TX 75013-2104
1-888-397-3742
You can print a credit report order from at the HYPERLINK "http://www.experian.com" Experian website.

Trans Union Corporation, Consumer Disclosure Center
P,.O. Box 390
Springfield, PA 19064-0390
1-800-888-4213
You can order a credit report online from HYPERLINK "http://www.transunion.com" Trans Union's website.

Be Pro-active…

By reviewing your credit report prior to visiting a lender, you will be able to straighten out any errors or disputed items and avoid any troublesome holdups down the road. If you see a disputed item, an error made by a faulty social security number, a name similar to yours, or a court ordered judgment you paid off that hasn't been cleared from the public records, clear it off now. By writing to the credit reporting agency, you can have them remove the items and save you time and aggravation later.

TIP: Make sure any outdated derogatory entries are deleted from your credit file. By outdated, anything over 7 years should be deleted (except bankruptcy which is 10 years).

TIP: Officially cancel inactive credit cards Even if you don't use a credit card, some lenders will assume that credit limit is available to you and use it in qualifying you. Therefore, if you don't use it and don't need it, cancel it. Too many credit cards even with no balance can keep you from getting a loan.

TIP: Hold off on making any major purchases until after you close on the loan. Many times people obtain a loan commitment then go out and charge a new car or a houseful of furniture, only to totally destroy the ratios on their loan commitment.

If you find you need assistance with any of these strategies, it's OK to sit down and talk with a lender. Explain your situation and what you are trying to do. A good lender will help you structure your finances, credit report and budget, keeping your best interest in mind.


 


Amortization - The gradual reduction of debt by means of periodic payments sufficient to pay principal and interest and thereby liquidate the debt.

ARM - Adjustable Rate Mortgage. A loan where the interest rate can change according to the index, caps, and margin.

Appraisal - An unbiased, professional estimate of a property's value based on style, appearance, quality of construction, improvements, usefulness, and the comparable value of nearby properties.

Balloon Mortgage – A short term loan, usually 5 to 7 years, that features a fixed interest rate, and a final large balloon payment for balance of the mortgage.

Borrower - A person who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.

Broker - One who, for a commission or fee, brings parties together and assists in negotiating contracts between them. In real estate transactions, the broker usually brings together the buyer and the seller.

Caps - The maximum or minimum amount by which the interest rate on an adjustable rate mortgage can change over each adjustment and over its life. For example a 2/6 cap means that the ARM cannot adjust more than 2% up or down each adjustment, or 6% from the start rate during its life.

Chattel - Personal property.

Closing - The final settlement of the transfer of property. Involves the buyer's signing the mortgage note and an exchange of title.

Closing Agent – Assures that all documentation related to the sale of a house has been completed properly, including the title search and title insurance. The closing agent explains all closing documents to the buyer and the seller, obtains their signatures where necessary, and records the documents.

Closing Costs – Fees and other charges paid by the buyer and seller at closing.

Closing Statement – A financial disclosure giving an account of all funds received and expected at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.

Co-Borrower – The person who is sharing the mortgage responsibility with the borrower.

Contingency - A clause within an Offer to Purchase or within the Contract For Sale that requires a certain condition be met before proceeding t closing.

Contract - An agreement between two or more parties to do or not to do a particular thing.

Contract for Sale – AKA: Conditional Sales Contract – A sales contract whereby the borrower has possession of the property, but seller retains ownership of the property until the buyer has fulfilled the obligations put forth in the contract.

Conventional Mortgage – A Mortgage not insured by the government, such as FHA or VA.

Counter Offer – The offer made by one party (buyer or seller) in response to an offer presented by the other.

Credit Report – A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

Debt-To-Income Ratio – Long-term debt expense as a percentage of monthly income.

Deed - The instrument that transfers title from the seller to the buyer.

Down Payment – The buyer's payment to the seller at closing for a percentage of the purchase price required by the buyer's mortgage loan.

Earnest Money – Money paid by the buyer to the seller at the time the Offer to Purchase is presented. Generally, earnest money is applied to the purchase price.

Equity - The home owner's interest in a property. It is different between fair market value and the current amount the owner owes on the property.

Fair Market Value – The price at which a property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.

FHA - Federal Housing Administration – A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lender.

FHLMC - Federal Home Loan Mortgage Corporation – A private corporation created by Congress to support the secondary mortgage market. It sells participation certificates secured by pools of conventional mortgage loans, their principal and interest guaranteed by the federal government through FHLMC. Popularly known as Freddie Mac.

First Mortgage – A mortgage that is a first lien on the property pledged as security.

FNMA - Federal National Mortgage Association – A private corporation created by Congress to support the secondary mortgage market. FNMA sells mortgage - backed securities backed by pools of conventional loans. Payment of principal and interest on these securities is backed by the US Government. Popularly known as Fannie Mae.

Gross Monthly Income – The amount of consistent and stable income that an individual receives each month. averaged over a period of time. This amount includes overtime pay, bonuses, commissions, and income from dividends and interest, provided that the individual can show a consistent history of receiving such income.

Hazard Insurance – A contract whereby, for an agreed premium, one party undertakes to compensate the other for loss on a specific subject by specified hazards, such as acts of God or war.

Homeowners Association – An organization of homeowners residing within a particular development whose major purpose is to maintain and provide community facilities and services for the common enjoyment of the residents.

Housing Expense Ratio – A home owner's percentage of their monthly income.

Index - A published financial benchmark used to help determine the interest rate for an adjustable rate mortgage on its adjustment. The margin is added to it.

Interest - Money paid for the use of money – that is, money paid for a loan.

Loan-To-Value Ratio – The relationship between the amount of a home loan and the total value of the property. For example if you receive a loan of $95,000 on ah home that costs $100,000, the loan-to-value ratio is 95%.

Margin - The amount added to the index to help determine the new interest rate of an adjustable rate mortgage.

Mortgage Insurance – A policy that allows mortgage lenders to recover part of their financial losses if a borrower fails to fully re-pay a loan. Mortgage insurance makes it possible to buy a home with as little as 3-1/2% down.

Offer To Purchase – A legally-binding, written contract that declares how much a buyer will pay for a house, provided certain condition are met.

Origination Fee – Similar to a point, it is a fee paid to lenders for originating the mortgage.

PITI - Principle, Interest, Taxes, and Insurance – the four main parts of a monthly mortgage payment.

Planned Unit Development -(PUD) – A subdivision having lots or areas owned in common and reserved for the use of some or all of the owners of the separately owned lots.

Discount Points – One point equals one percent of the total mortgage amount. This is a fee paid to lenders to get lower rate on the mortgage.

Pre-Approval - Having the loan processed, underwritten, and obtaining loan approval before an Offer to Purchase has been accepted by a seller.


Pre-Qualify – Preliminary indications on how large a mortgage a buyer can quality for.

Qualify - Ability to meet a lender's mortgage approval requirements.

Servicer - After a mortgage loan closes, the loan servicer collects the payments, manages escrow accounts, pays taxes and insurance, and manages delinquent payments. Lenders may often sell or "release" servicing to another business, which means that a home buyer will not necessarily send house payments to the original lender.

Title - The right of ownership and possession of a property.

Title Insurance – A policy that protects a buyer against errors or omissions or defects in the title of the property.

Veterans Administration – (VA) An independent agency of the federal government created in 1930. The VA home loan guaranty program is designed to encourage lenders to offer long-term, low down payment mortgages to eligible veterans by guaranteeing the lender against loss 
 


We Know the Nashville Territory

Are you looking to buy or sell a home? Let us at Lifestyles Realty assist you. We will take care of all the important and necessary details while you can attend to moving. Our business is helping you make the right decisions, guide you through negotiations, inspections and close on time. When it comes to Nashville real estate, we know the territory. For experienced help with your real estate needs call now...615-373-4350.

From there you will know how much you can afford each month for a mortgage payment. The process is rather simple, it's guidelines are determined by the various programs available.

Simply said you need an 1) income 2) good credit 3) a down-payment or at least closing costs to qualify for a mortgage.

There are three main categories of loans: FHA, VA and Conventional. All three are available in 15 and 30 year terms, with some programs having other loan term options. Within the three main loan categories are these loan types: Fixed Rate, ARMs, and Balloon loans. Both fixed rate and Balloon loans are available with buy-down options.

Mortgage program overview:

Federal Housing Administration (FHA) – Borrowers qualify under FHA guidelines. In most cases, both one-time and monthly mortgage insurance premiums are required regardless of amount of down payment. The minimum down payment starts as low as 3%. Your total housing expenses and all of your other obligated debt should not exceed 41% of your gross monthly income under FHA programs. The down payment can be from a gift or borrowed funds secured by collateral. FHA loans are offered to all and they have lower qualifying standards than conventional loans. Each area of Colorado has a different FHA maximum loan amount, so it is important to know how much that is when planning to finance using an FHA loan.

Veteran's Administration (VA) - Borrowers who are veterans may qualify under VA guidelines. There is no mortgage insurance, but here is a one-time funding fee. The borrower must be a veteran and provide a Certificate of Eligibility. Qualifying is based on net income, family size, and a provision for utilities and maintenance. Total housing expense and all other debt cannot exceed 41% of gross monthly income. Up to 100% financing is available. VA loans can only be used for "owner occupied" properties and you can use it over and over again, as long as each time the home gets sold and the VA loan is paid off.

Conventional - A conventional loan is any loan not insured or guaranteed by a government agency. For the most part, the standards for underwriting a conventional mortgage are established by the national secondary market investors, primarily the Federal National Mortgage Associations (FNMA) and the Federal Homes Loan Mortgage Corporation (FHLMC). All conventional loans over 80% to value will require PMI (Private Mortgage Insurance). There are many conventional loan programs.

Fixed-Rate Mortgage – Using a fixed-rate mortgage, your interest rate stays the same for the term of the mortgage, usually 30 years. Your principal and interest payment remains stable, making it easier to plan a monthly budget.

Adjustable-Rate Mortgage – With an ARM, your interest rate and monthly payments start out lower than with a fixed-rate, but your rate and payments can change either up or down, depending on where interest rates are that year.

Assumption - You may find a home with a mortgage loan you can "assume" from the previous owner. This practice used to be popular prior to the 1990's. Many times when a seller was unable to sell his home outright, they would let a buyer "assume" the mortgage. At times the new buyer didn't make the payments and the previous owner ended up without the house AND a bad credit rating. Now, most knowledgeable sellers refuse to let their homes be assumed and rightfully so! For the seller, it's just not worth taking the risk. As a buyer, if you find a seller willing to let you "assume" his loan, beware, it may or may not be a good deal.

Buy Downs – A buy down occurs when the interest rate and payment are reduced by paying increased discount points (as in permanent buy down) or when the payment is temporarily reduced by pre-paying the interest (as in a temporary buy down). When interest rates are very high and a seller is having trouble finding a buyer that can qualify for his home, he will sometimes "buy down" the rate in order for the buyer to qualify for his home. In another example; builders often use "buy downs" as a promotion to get buyers to buy their product. They pay the fees and the purchaser gets a lower interest rate.

Balloon Loan – A loan with an initial interest rate for a five or seven year period that is lower than the fixed rate. Payments are based on a thirty year amortization, but the loan balloons at the end of the five or seven years. This is a good loan for those who may not remain in their homes for more than this initial period. Similar loans are available that remain fixed for a period of time (3, 5, 7 and 10 years) and then converted to an ARM.

Zero Down Gift Assistance Programs – Basically these programs are used in conjunction with an FHA loan. The goal of the program is to assist buyers (not just first time buyers) to purchase a home with no money down. Since FHA guidelines require a minimum of 3% down-payment, the programs uses a "twist" to get the down payment. This can come from a family member or friend in the form of a gift. A gift letter must go the the mortgage lender as part of the contract.

Fair Isaac Credit Bureau scores range from approximately 375 to 900 points and are available through the three national credit data repositories (Equifax, TransUnion, and Experian). All of these three models are often referred to as "FICO" scores. The scoring programs at these credit bureaus area as follows:

FICO – Experian (TRW)

BEACON – Equifax

EMPERICA – Transunion

A Fair Issac Credit Bureau score (FICO) is calculated by a system of scorecards. In developing these scorecards, FICO uses actual credit data on illions of consumers, and applies complex mathematical methods to perform extensive research into credit patterns that forecast credit performance. Through this process, FICO identifies distinctive credit patterns. Each pattern corresponds to a likelihood that a consumer will make loan payments as agreed in the future. The score is based on all the credit-related data in the credit bureau report, not just negative data such as missed mortgage payments or bankruptcies.

The types of credit information used in the credit bureau scorecards are typically the same items an underwriter would use to make a credit decision. These could include the following:

Payment History

Public record and collection items

Severity, frequency and recent occurrence of delinquencies noted in trade line section

Outstanding Debt

Number of balances recently reported

Average balance across all trade lines

Relationship between total balances and total credit limits on revolving trade lines

Credit History

Age of oldest trade line

Number of new trade lines

Pursuit of New Credit

Number of inquiries and new account openings in the past year

Amount of time since most recent inquiry

Types of Credit in Use (number of trade lines reported for each type):

Bankcard

Travel and entertainment cards

Department store cards

Personal finance company references

Installment loans

Other

FICO observes a very large number of credit report histories of mortgage borrower to determine which credit report items or combination of items are the most predictive of future risk; this data indicates the amount each item contributes to an accurate assessment of credit risk.

Why did this credit file get the score it did?

To understand why a credit report scored the way it did, look at the four reason codes given with each score. These are the top reasons, in order of severity, why it did not score higher. Other factors may have contributed. These score factors help borrowers understand how to increase their score over time.

For score factors in the high range, the explanation codes merely point out reasons why the file did not score even higher.

How can a borrower increase their score?

Most credit reporting agencies make a special effort to quickly resolve disputed information affecting a mortgage decision. Consumers wishing to dispute items on their credit files with the credit repository can do so through the following numbers:

Equifax 800-685-1111 
Experian (TRW) 800-422-4879 
Transunion 316-634-8440

Why can't some files receive credit scores?

In order to receive a score, a credit bureau file must contain at least one account older than six months and one account that has been reported to the credit bureau within the past six months.

What does a score mean?

A credit score is a means of ranking potential borrowers based on the likelihood that they will pay their credit obligations as agreed. A higher score indicates better credit quality. If all other things are equal, borrowers with a credit score of 620, for example, are less likely to default on a loan than borrowers with a score of 600.

Score Range

Number of loans"good vs. *bad

Below 600

8 to 1

700-719

123 to 1

Above 800

1,292 to 1

Doesn't using the score mean fewer people will get the mortgage loans?

No, in fact, the opposite may be true. Credit scoring is just one of several ways that lenders and the secondary market decide whether to lend someone money and under what terms. The lender uses the Credit Bureau Score to determine if the borrower exceeds the acceptable level of risk for the product offered. If the score on a borrower's credit report is too low, that doesn't mean it is too low for other products.

A buyer representative, also known as a buyer's agent or buyer's broker can save you time and money by helping you focus on properties that fit your criteria. When the right home is found, the buyer representative will know how to package your offer so you get the house you want.

In most circumstances the buyer's agent does not cost the buyer, as the seller's agent shares in their compensation. So after considering this, why not hire your own buyer's representative and have some one on YOUR side?

How do I determine if my agent will make a good buyer's agent?

Agency disclosure: an agent should disclose "how" they can represent you and give you a choice.
A good agent should listen to your needs and respect them.
A good agent will ask questions, get to know you , your lifestyle and help evaluate those needs to locate the best property for you.
A good agent will familiarize you with the market, prices, locations, conditions so you will feel confident that you are doing the right thing when it comes time to purchase.
Look for the designation ABR. This means the agent has taken special training, provided a list of successfully closed transactions and has kept up – to – date on changes in the business of representing the buyer to a higher level. That's a skill you need.
ABR stands for Accredited Buyer Representative.

What will a buyer's agent do for me?

A buyer's agent can show you homes that are currently on the market, homes for sale by owner, new construction homes offered by builders and homes that may not be on the market yet.
A buyer's agent will provide market data to help you establish an offering price.
A buyer's agent can help you structure your offer, not by price alone, but by other factors, terms and conditions
A buyer's agent will negotiate on your behalf.
A buyer's representative will structure strategy to create a winning scenario. (It may not by about price, it could be getting the house when you are competing with other bidders!)
Much happens between writing an offer and closing, a buyer's agent will attend to the details in a timely manner. Making sure the transaction GETS to closing.

Review the Tennessee Buyer Broker Agreement

To be legal all real estate agreements must be in writing. If you are interested in reading the Tennessee Buyer Agency agreement, you can HYPERLINK "http://www.kristalsellsdenver.com/wp-content/files/buyer_broker_agreement.pdf" download it here. Your computer will need to have Adobe Reader installed. If you do not have Adobe Reader installed on your computer, you can click here to download it for free.

Do you have more questions? Please call my direct line…

You are welcome to call me to discuss the Buyer Agency agreement or any other question you may have about Tennessee Real Estate or Nashville real estate for Nashville and the metro area. I only ask that you are inquiring about Tennessee and not states where I am not licensed. I cannot help you with real estate questions not relating to Tennessee!

We Know the Territory

Are you looking to buy or sell a home? Let us at Lifestyles Realty assist you. We will take care of all the important and necessary details while you can attend to moving. Our business is helping you make the right decisions, guide you through negotiations, inspections and close on time. When it comes to Nashville real estate, we know the territory. For experienced help with your real estate needs call now...615-373-4350.

Many times a borrower is unaware the lenders are under strict document guidelines and loans cannot be approved without all the required documentation.

Borrower hears news reports about interest rates going up or down and tries to anticipate interest rate movement. (By the time the news is announced, the markets have already adjusted and /or changed again. Today the markets are extremely efficient),

Borrower writes a contract before a professional loan qualification analysts. Quite often a borrower cannot qualify for a loan to purchase the home and the deal is canceled.

Borrowers shop for a loan exclusively by rates, ignoring other fees, references, reputation, and track record fo the lender. (Junk fees add to the overall cost of a loan and missing a closing date through a botched loan can cost hundreds of dollars. Some have even found themselves without a home when a loan falls through at the last minute. Rates matter very little if the loan cannot be delivered as promised.

Borrower contracts for more than the loan pre-qualification amount. Upgrades and "just a little more house" can disqualify a borrower.

Buyers contract for home, apply for a loan then go out and finance a large item; car, vacation etc. that takes them beyond what they can qualify for, consequently losing the loan for the home.

Buyers try to purchase a home without professional advice. They learn (the hard way) that potential saving is often eaten up in wasted time, mistakes, and poor negotiation.

Buyers fail to use a "local" lender and opt to use "out of state" lender who is unfamiliar with local laws and customs. Lender fails to meet a deadline or hire an appraiser who is familiar with the housing market. In any event the transaction fails. Lenders do not have a vested interest in getting buyers loan closed. A local lender who has made a career by delivering timely loan commitments will hold themselves accountable, working with all parties to a success end.