Preparing for a home purchase

Getting your finances in order
There are 4 major factors considered when a lender reviews a mortgage applicant:

• Your income
• Your Savings
• How much debt you currently have
• Your credit history

All these factors will be analyzed to determine if a mortgage loan will be granted by assessing your ability to pay back the loan. Here are some tips to help

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Increase Savings and Reduce Debt
Reduce your expenses and defer major purchases till after procuring a mortgage loan. Create a budget and keep to it.

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Build Good Credit History
Make all your loan and credit card payments by the due dates. Balance your checkbook to avoid bouncing checks. File and pay both state and federal taxes on time. Review your credit report annually and make any correction to any credit problems. You may contact the following agencies to request a ?free? annual credit report.

If you discover errors, you must make every effort to correct them. If you have problems with your credit in the past, you must adjust your spending habits and begin making timely monthly payments in order to have a chance for a mortgage loan.

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Collecting your financial information
There are numerous documents that you must provide to your lender as part of the application process. Be sure to have them ready as they will play a role in determining how much you can afford to spend on a home.

• Tax returns for the last 2 years.
• W2's for the last 2 years.
• Paychecks for the last 30 days.
• Employer information for the last 2 years.
• Three months of statements for all asset accounts (savings, checking, CDs, IRA, 401K).
• List of outstanding debts.
• Verification of child support or alimony payments for the last 12 months, if applicable.

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Determine how much you can afford
First you must determine how much you can spend when buying a home. You must calculate your total income against your total monthly expenses. Second, determine how much your down payment will be, along with consideration for property taxes/insurance, and finally the closing costs for procuring a mortgage loan. Lastly, you must determine how much of a monthly mortgage payment you can afford. The loan calculator on this page can help you with this process.

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Mortgage Insurance
Typically, the down payment consists of 20% of the purchase price. If you cannot make a down payment of at least 20% of the purchase price or appraised value of the house (whichever is less), you will need mortgage insurance. The insurance is additional protection for the lender, guaranteeing compensation if you fail to repay the loan.

Here are 2 main types of mortgage insurance:

1. Federal Housing Administration (FHA)
With FHA insurance, anyone can obtain financing with less than 5% down. This is an attractive proposition for first time home buyers.

The maximum loan amounts FHA insurance will cover are subject to the prevailing values in an area and most often does exceed $125,000. Borrowers must pay a one-time insurance premium of 3.8% of the loan total. This can be paid at closing or financed into the amount of the loan.

2. Private Mortgage Insurance (PMI)
Borrowers can get a loan with as little as 5% down with PMI insurance added. There is no limit on the amount of the mortgage.

The premium varies from .3% to 1.2% at settlement and .3% to .55% a year thereafter. The rate depends on the type of mortgage and the size of the down payment. The more you put down, the lower the premium. It?s also lower on a fixed rate mortgage than on an adjustable rate mortgage. You may choose to pay a monthly premium, finance the premium into the loan, or pay the entire cost in one lump sum.

Once the balance on your loan drops below 80% of the purchase price or appraised value (whichever is less), you no longer have to pay premiums. However, you must contact your lender and insurance provider because the monthly premium payments do not automatically stop.

Our mortgage consultants can provide additional information about private mortgage insurance.

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Prequalifications
A prequalification by the credit union will assure you an amount that you are likely to qualify for a mortgage and will give you a comfort zone to work within when you begin shopping for a home.

Why prequalify?
The credit union will give you a letter stating the amount of the loan. In this way, you have an edge over other buyers indicating you have the means of financing the purchase of the home. Also, another benefit to the seller and real estate agent is with a prequalification, the loan process will go faster.

How to prequalify
Contact our Mortgage Department to speak with a mortgage consultant or complete the online application on this page.

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