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Prequalifying

After evaluating your income, assets and employment, your Loan Consultant can give you an idea of the mortgage amount for which you may qualify.

 

The loan approval process generally begins with an initial interview where you and your Loan Consultant will discuss the your income and long term debts. This step is called pre-qualification* and it can help you shop for affordable properties in the correct price range.

The loan approval process generally begins with an initial interview where you and your Loan Consultant will discuss the your income and long term debts. This step is called pre-qualification* and it can help you shop for affordable properties in the correct price range.

Ability to Repay

When a lender makes a decision about a mortgage application, they consider many basic factors: all based on your ability to repay the loan. To ensure your loan is truly affordable, a lender will verify your employment and income. Your monthly Debt to Income ratio – your total income, minus monthly credit payments and other debts — will also be considered.

*A pre-qualification is not an approval of credit and does not signify that underwriting requirements have been met.


 
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Financing 

Total Monthly Payments

Your monthly mortgage payment typically is made up of four components: principal, interest, taxes, and insurance, together known as PITI. The principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. The interest is the fee charged for borrowing money. You can determine the amount of principal and interest by using our Mortgage Payment Calculator.

Taxes refer to property taxes your community levies which are generally based on a percentage of the value of your home. The lender usually collects 1/12th of the yearly property tax bill each month. The lender collects taxes in advance and places the money in an escrow fund.

Lenders won't let you close on your home loan if you don't have hazard insurance to cover your home and your personal property against losses from fire, theft, bad weather and other causes. The insurance amount is collected and paid much like the taxes. Each month 1/12th of the insurance bill is collected and stored in an escrow account until the bill is due. Even if you pay cash for your home, it is a good idea to buy hazard insurance in the event your home is damaged or destroyed.

Principal and interest comprise the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period of time. With amortization, your initial monthly payments are largely interest, and as the loan matures, a greater portion of your payment is allocated toward the principal.

 

Escrow Account Basics

Mortgage escrow accounts are special accounts set up in which money is held to pay property taxes, fire and hazard insurance premiums, mortgage insurance premiums, and other escrow items.

Escrow accounts ensure that these items are paid in a timely fashion. They guarantee that there is always enough money to pay these bills when they are due so that the homeowner avoids the risk of lapsed insurance coverage or delinquent taxes. With escrow accounts, homeowners do not have to worry about coming up with several large, lump sum payments, each with different due dates, throughout the year.

Mortgages have lower rates and down payments because of escrows accounts. Escrows accounts protect the interest of investors of home mortgage loans by making them more attractive and secure as investments. Escrow accounts also benefit local governments by providing a more efficient, less expensive means of tax collection.


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Insurance

Things to know about insurance for your home.

Homeowners Insurance Information

When you insure your home, you should insure your home for the total amount it would cost to rebuild your home if it were destroyed. If you don't have sufficient insurance, your insurance company may only pay a portion of the cost of replacing or repairing damaged items.

There are three ways to insure the structure of your home:

  1. Replacement Cost: Insurance that pays the policyholder the cost of replacing the damaged property without deduction for depreciation, but limited to a maximum dollar amount.
  2. Guaranteed Replacement Cost: Insurance that pays the full cost of replacing damaged property, without a deduction for depreciation and without a dollar limit. This coverage is not available in all states and some companies limit the coverage to 120 percent of the cost of rebuilding your home. This gives you protection against such things as a sudden increase in construction costs due to a shortage of building materials.
  3. Actual Cash Value: Insurance under which the policy holder receives an amount equal to the replacement value of damaged property minus an allowance for depreciation. Unless a homeowner's policy specifies that property is covered for its replacement value, the coverage is for the actual cash value of the home.

For a quick estimate of the amount to rebuild your home, multiply the local building costs per square foot by the total square footage of your house. To find out the building rates in your area, consult your local builders association or real estate appraiser.

Factors that will determine the cost to rebuild your home:

  • The square footage of the structure
  • The type of exterior wall construction: frame, masonry (brick or stone) or veneer
  • The type of roof
  • Attached garages, fireplaces, exterior trim and other special features like arched windows.

How Are Premiums for Title Insurance Determined?

Title Insurance Premiums are determined by the amount and type of coverage provided. Unlike other insurance premiums, however, the title insurance premium is paid only once as the policy is effective for so long as title or "ownership" remains in the name of the insured-in, or his heirs or devises. Rates are filed with the insurance commissioner who regulates the activities of title insurers.

Title Insurance

A policy of title insurance is a contract of indemnity between the insured and the insuring company relating to the title to the land described in the policy, protecting the insured against loss of damage by reason of defects, liens or encumbrances of the insured title existing at the date of the policy and not expressly excepted from its coverage.

The policy is issued after a complete search and examination of the public records and shows the condition of the record title, including any money obligations outstanding against the property, easements and other matters which may affect the rights of ownership, possession and use of the property.

Title insurance protects the "record" title, insuring it is good subject only to the exceptions expressly set out in the policy. lt also insures against certain matters which do not appear of record, such as forgery, identity of parties, incompetence of former owners, interest of missing heirs, and status of individuals not having the "right" to sell property.

What Risks Are Not Covered?

The standard owners policy and standard mortgage policy are based on public records of the recording district in which the land is located. It does not insure against matters which would only be disclosed by actual inspection or survey of the property. It does not insure against certain matters not shown by the public records such as unrecorded easements, liens or money obligations; unrecorded utility rights of way, public or private roads, community driveways and other types of encumbrances, or against the rights or claims of persons in possession of the property which are not shown by the public records.

Can Protection Be Obtained Against Matters Not of Record?

Upon application, the issuing company may specially cover matters which are disclosed by a physical inspection and/or a survey of the property, subject to any exceptions which the inspection will determine to be proper. An additional risk premium is charged for this type of coverage. Insurance of this kind is called extended coverage.

Flood Insurance

Flooding is not covered by a standard homeowners insurance policy.

To determine if you need flood insurance, ask your insurance professional, mortgage company or neighbors about the flood history in your area. If there is a potential for flooding, you should consider purchasing a policy that covers the structure and your personal belongings.

Flood insurance can be purchased from an insurance agent or company under contract with the Federal Insurance Administration (FIA), part of the Federal Emergency Management Agency (FEMA). Flood insurance is only available where the local government has adopted adequate flood plain management regulations under the National Flood Insurance Program (NFIP).


Closing Costs

These represent the costs of your home before closing.

 

Closing costs are the actual expenses incurred in the origination of a new home loan. Some of the costs are related to your loan application, such as the expense of a credit report on all applicants. Other fees are related to the house itself, such as the property appraisal. Others are payment to the lender for processing your application, such as the loan origination fee.

Because different states have different fees and taxes that are a part of costs, it's impossible to provide an estimate here.

 

Because different states have different fees and taxes that are a part of costs, it's impossible to provide an estimate here.

Common closing costs can include processing and underwriting fee, mortgage insurance premium, appraisal fee, the cost of a credit report, tax service fee and other fees. Escrow accounts are required for many loans and require cash deposits at closing.

After your initial meeting with a mortgage professional, you will receive an itemized Loan Estimate that includes all the estimated costs to close your loan.