Finance Checklist
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Loan Types
The checklists are for
informational purposes only & is not a substitute for legal, tax or other
professional assistance.
5+ Key Components To Most Adjustable Rate
Mortgages
Index rate
The rate to which the interest rate on an
adjustable rate loan is tied. One of the more popular indexes used is the 1-year
U.S. Treasury bill.
Margin
The amount added to the index rate that
represents the lender’s cost of doing business.
Interest Rate Cap Per Adjustment
The maximum amount a borrower's interest
rate may increase or decrease at time of adjustment.
Life Cap
This is the ceiling that the note rate
cannot exceed over the life of the loan.
Amortization
A period of time in which gradual repayment
of debt occurs by means of systematic payments of principle and/or interest. At
the end of the time period the balance is zero.
Others:
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Convertibility Option
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Pre-Payment Option
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Payment Cap Option
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Deferred Amortization
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5 Questions To Ask Yourself When Shopping
For The Best Loan
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How long will I own this property? -
(The shorter the stay the more you should search for minimal closing costs
at
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the cost of a slightly higher rate).
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Is there a type of loan that makes me
feel most comfortable? - Some people want to know that their payment (P&I)
will never change (fixed rate).
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Does it matter to me who services the
loan (where and to what group am I making my monthly payment)?
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If given the choice, do I want to do my
own escrow accounts or would I prefer the lender handle this matter?
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Do I want a "brand name" lender (one I
know) or am I willing to try a company that's new to me?
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6 Ideas On How To Buy A Home With Little
Or No Money Down
Zero down payment, or little down
Conventional
Government Assistance Loans (check with
Local Municipal Housing Agency)
Seller Financing...second mortgage, or whole
thing
Gift from family or friend
Lease Option...Rent Credit
Partnership Program
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6 Items That Combine To Make Up Your
Monthly Mortgage Payment
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Principle balance: this represents the
money you originally borrowed and are paying back over the life of the
loan.*
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Interest on loan amount*
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Real estate taxes: Normally, 1/12 of the
most recent tax bill**
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Insurance (Home Owners): Normally, 1/12
of the yearly policy amount**
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Private Mortgage Insurance (PMI)***
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Assessments (if any, condo, townhome,
single family home)
* Almost every borrower’s payment will
include both principle and interest.
** Most borrowers have payments that will
include principle, interest, taxes and insurance (unless the lender doesn’t
require escrows of real estate taxes and insurance).
*** Some borrowers who have less than 20%
down are required to pay Private Mortgage Insurance (PMI). Depending on the type
of dwelling you purchase you may or may not be required to pay assessments.
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6 Of The Most Popular Mortgage Options
1. 30-year conventional fixed rate loan:
2. 15-year conventional fixed rate loan:
(also available in 10 & 20-year payment schedules)
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Monthly payments of principle and
interest remain the same over the life of the loan (no surprises)
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Substantial savings of interest over the
life of the loan (example: $100,000 loan at 8% amortized over a 30-year
period the total interest paid is $164,166.27. The same loan amount, same
interest rate amortized over a 15-year period is $72,017.41. The money saved
in interest is $92,148.86.)
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Payments are approximately 25-30% higher
when amortized over a shorter period of time (15-year amortization vs.a
30-year amortization)
3. No-Point / Zero Closing Cost Loans:
4. 7-year fixed rate balloon with a 30-year
amortization
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Slightly lower rate and/or less fees
than the conventional 30-year fixed rate loan
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Payment of principle and interest
remains the same over the 7-year period of time *Remember, at the end of the
7 years, you will need to pay off the remaining balance with either a lump
sum of cash or re-finance the remaining loan amount
5. Adjustable Rate Mortgages (ARM)
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There are many options with adjustable
rate mortgages; the most popular tends to be the 1-year adjustable rate
mortgage with a 30-year amortization schedule.
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Lower interest rate for the 1st year
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Easier to qualify for the loan amount
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You can qualify for a larger loan amount
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In a market when rates are going down, a
year ARM offers the ability to adjust downward at the
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1 year anniversary of your loan
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9 Things Most Lenders Focus On When
Evaluating A Property For Lending Purposes
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Type of property (residential,
commercial, agricultural, condo, PUDs, zero lot line, etc.)
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Location (urban, suburban, rural)
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Area Zoning
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Value Range
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Neighborhood (homogeneous/heterogeneous)
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Actual Age/Effective Age/Remaining
Economic Life
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Condition (repairs and predications)
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Special clearances (code compliance,
well and septic certifications, road maintenance, roofing, plumbing,
electrical, structural reports)
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Overall Marketability of Property
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12 Things To Consider When Getting A
Fixed Rate Loan
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Interest rate.
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Total number of points (including loan
origination fee).
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Annual percentage rate.
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Length (repayment term) of loan.
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How long is the rate quote guaranteed?
Explain.
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Is the loan assumable? If yes, explain.
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Is there a pre-payment penalty? If yes,
explain.
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Is PMI coverage required? If yes,
explain details including initial premium and renewal charges.
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What will my payment (P&I) be?
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What are the estimated closing costs of
this loan?
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What fees, if any, do we pay at
application? When are the other fees paid?
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Will my monthly payments include escrow
payments? Taxes? Insurance?
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14 General Questions To Ask All Lenders*
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Based on our situation, what looks to be
the best program for us? Why?
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What is the projected time for
processing and closing a loan?
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If PMI (Private Mortgage Insurance) is
required, when and how does it go away?
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What about your...Rates - Terms -
Fees...are they all negotiable?
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What standard underwriting guidelines do
you follow? Are there any special underwriting guidelines?
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What is your most popular loan program?
Why?
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Who services your loans?
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Six months to a year from now, what will
make this loan look good/bad to most borrowers?
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What are your standard and special fees?
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What, if any, escrow requirements exist?
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What if rates go down during the
"lock-in" period?
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Who is our contact person after
application for progress reports?
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What do you need from us to get our loan
approved?
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Do you have any concerns about our
ability to get a quick loan approval?
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26 Questions To Ask When Getting An ARM
Loan
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Initial Interest Rate
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Actual Note Rate
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Total number of points (including loan
origination fee)
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Annual Percentage Rate
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Length of loan
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Index used
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Today's value of said index
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Margin used
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Is there a payment cap? Explain.
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Does the loan have any potential
deferred interest? If yes, explain.
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Does the loan have the standard positive
amortization? If no, explain.
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How often is the rate subject to change?
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Is there a per adjustment interest rate
cap? If yes, what is it?
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Is there a lifetime interest rate cap?
If yes, what is it?
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Are the caps based on the note rate, or
the initial interest rate?
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How long is the rate quoted guaranteed?
Explain.
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Is the loan assumable? If yes, explain.
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Is there a prepayment penalty? If yes,
explain.
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Is there a conversion feature? If yes,
explain.
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Is PMI coverage required? If yes,
explain details including initial premium and renewal charges.
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What will be my initial payment (P&I)
be?
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Under a worst case scenario, show
monthly payments for the next ____ years.
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What are the estimated closing costs of
this loan?
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What fees, if any, do we pay at
application? When are the other fees paid? Explain.
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Will my monthly payments include escrow
payments (taxes & insurance, etc.)? Explain.
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Please explain all other details of this
program that we have not addressed.
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CASH STRAPPED? Down Payment Obstacles Can
Be Overcome With Some Creativity!
You have the monthly income and you have
good credit. Now there's only one thing standing in the way of you purchasing
your first home - the cash.
If you have relatives who'll give you the
cash you need, great. (U.S. tax law currently permits an individual to give a
gift of up to $10,000 per year to someone without triggering the gift tax).
Studies show approximately 15% of first-time buyers receive financial assistance
from a relative.
If you aren't likely to receive a gift or an
inheritance when you're ready to buy, there are a few other options you can
consider:
SELLER FINANCING
If you can qualify for an 80 or 90 percent
mortgage, but are missing some of the down payment, consider asking the seller
to take back a second mortgage for the amount you need. If you have 15 percent
of the purchase price (plus some cash for closing costs), you might ask the
seller to take back another 5 percent so you can qualify for an 80 percent
loan-to-value mortgage and avoid Private Mortgage Insurance.
MORTGAGES
Consult with your lender to see what the
limitations will be for that second loan. You might also ask the seller to take
back the entire mortgage (if he or she doesn't need the cash for another
purchase) which may be easier and cheaper than using a conventional lender.
LEASE WITH AN OPTION TO BUY
If you find a house you like, ask the seller
if you can rent with an option to buy. Typically, the seller will take a portion
of the monthly rent check and credit it toward the down payment. How much is the
credit? Anywhere from zero to 100 percent (but 33 to 50 percent is typical). You
may have to put up a non-refundable option fee but the amount of the fee is
negotiable. You should consult with an attorney to protect your interests.
ZERO DOWN PAYMENT LOANS
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Evaluating Yourself From A Lender's Point
Of View ...5 Critical Areas To Consider
1. Ability to repay the loan
2. Assets
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Liquid (savings, checking, CDs, etc.)
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Other (personal property, real estate,
etc.)
3. Liabilities
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Revolving and installment accounts
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Child support and alimony payments
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Pledged assets, unsecured loans
4. Attitude toward repayment
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Credit report
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Explanation of derogatory items
(judgments, late payments, tax liens, collections, etc.)
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Mortgage history rating
5. Qualifying ratios
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Normally, your total monthly housing
payment should not be more than 28% of your total gross monthly income
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Normally, your total monthly housing
payment plus your other monthly recurring debts combined should not be more
than 36% of your total monthly gross income
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5 Types Of Mortgages That Will Help You Save
Thousands*
1. Bi-Weekly
. . . save on interest
2. 10 and 15-year Loan versus 30-year Loan
. . . save on interest
3. GEM or Growing Equity Mortgage
. . . save on interest
4. No Pre-Payment Penalty Loan
. . . save on penalties
5. Private Financing
. . . save on closing costs
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The above checklist is
for informational purposes only & is not a substitute for legal, tax or other
professional assistance.
The lists were reproduced with permission of
"Your
Home Coach"
Serving the entire Dallas Fort Worth Real Estate
Market