You have prepared to purchase a home, and you understand some of the mortgage lingo. What do you do now?
When you are ready to buy a home, you should always get pre-qualified before going house shopping. This will allow the bank to pull and review your credit, figure your debt to income ratio, and ensure that you are looking in the right price range for your budget.
What can you expect during the process, and how do you know what product is best for you? Let’s find out.
There are a few things you will need to provide to your mortgage originator to obtain approval. This includes 30 days of your most current paystubs, two years of signed tax returns and W-2 forms, and 60 days of your most recent bank statements. The mortgage originator will process your information and make a recommendation of what mortgage products will work best for you.
Let’s talk about the different types of mortgage products.
Federal Housing Administration or FHA Loan- this type of loan requires a 3.5% down payment of the purchase price of the home. It is a fixed-rate loan, and loan terms are typically 15 or 30 years. There is a funding fee associated with this loan, currently 1.75%, and this can be added into your final loan amount. Also, monthly PMI (private mortgage insurance) is required.
Rural Housing Service or RHS Loan- this type of loan has no down payment requirement. However, income restrictions and property eligibility apply. The property you are purchasing must be located outside of the city limits of Bowling Green in Warren County. Most properties located in our surrounding counties will all qualify for a Rural Housing loan. RHS loans have a fixed rate, loans terms of 30 years, and also require monthly PMI.
Veterans Affairs or VA Loan- this type of loan offers 100% financing, but you must be a veteran or person currently serving in the armed forces. VA loans have a fixed rate, loan terms of 15 or 30 years, and require no monthly PMI.
Kentucky Housing Corporation or KHC Loan- this type of loan is only offered through KHC-approved lenders, which Citizens First Bank is an approved lender. KHC’s loans are subject to certain income and property restrictions. However, they do offer down payment assistance, even for FHA loans. KHC loans have a fixed rate, loan terms of 30 years, and require monthly PMI.
Conventional Loan- this type of loan requires at least a 5% down payment of the purchase price of the home. You can pay 20% down and avoid monthly PMI. Conventional loan rates can be fixed or adjustable and have 10, 15, 20, 25 or 30 year loan terms. The monthly PMI paid will depend on your loan-to-value ratio.
You have completed your application, provided all the upfront documents needed, and decided on a loan product. What happens now?
You would sign a purchase contract with the seller of the home and provide a copy to your mortgage originator. The originator will lock the interest rate on your loan and get your signature on all of the documents to submit for underwriting. You will be given a Loan Estimate that will include your closing costs, prepaids, and how much you will be expected to pay at closing.
Underwriting will analyze all of your information, verify everything you included on your application for accuracy, and contact the mortgage originator if they need more information from you. Don’t panic if your mortgage originator asks for more information; this is very common.
Additional information that is sometimes required is an additional paystub, additional year of tax returns and bank statements, retirement account statements, or explanation of an unexplained deposit into your bank account.
A title search and an appraisal will be ordered on the property you are purchasing. An attorney will complete the title search. A title search is the process of retrieving documents evidencing events in the history of the home to determine any liens on the property and ownership. An appraisal will determine the value of the home. The loan-to-value ratio of your loan is determined by using the appraised value or purchase price, whichever is less.
Once everything has been approved by underwriting, we are ready to schedule your closing. You will receive a Closing Disclosure three days before closing, which will include the final closing costs, prepaids, and the amount of money, if any, you will bring to closing. At your closing, an attorney or mortgage originator will go through every document with you to ensure you understand the terms and conditions of your loan. If there is something you do not understand, ask questions.
You have closed on your home, and you are ready to move in. Here are a few things to expect regarding your new mortgage loan. You will have a monthly mortgage payment due on the 1st day of each month; however, you do have a 15-day grace period before the payment is considered late. If you escrowed for your property taxes and homeowners insurance and you receive your annual tax bill or homeowners insurance bill, get this to your mortgage company as soon as possible. Be prepared for unexpected home maintenance, such as air conditioning/heating units or hot water heaters; homeownership can be costly. Most importantly, enjoy your new home!!
You can apply for a mortgage loan when it is convenient for you online at www.citizensfirstbank.com. Click “Mortgage Solutions”, then “click here to apply now” and complete the application. Once it is submitted, one of our mortgage originators will call you to discuss your mortgage options.