DO STAY CURRENT ON ALL EXISTING DEBT
One 30 day late can drop your credit score 30-75 points. Remember, lenders will re-pull your credit report several days before settlement.
DO MAKE SURE YOUR TAXES ARE COMPLETED AND FILED FOR THE LAST TWO YEARS
Lenders need to get tax transcripts directly from the IRS in addition to receiving copies of the returns from you.
DO TELL YOUR LENDER IF YOU HAVE ANY ADDITIONAL INCOME TO YOUR PRIMARY JOB
If you have a second job, we may be able to use that income in qualifying. If you have an LLC or side business, we will need to know how much that business earned on your tax return “Schedule C”.
DO CONTACT YOUR LOAN OFFICER IF YOU ARE USING GIFT FUNDS, MOVING MONEY OR CHANGING JOBS
We can discuss the potential impact and proper procedures for documenting these situations.
DON’T DEPOSIT LARGE SUMS OF MONEY OR ANY CASH
Lenders need to verify the source of all deposits into your accounts up to 60 days before application. You will be asked to provide documentation and a paper trail. If you have deposits that are not payroll related notify your Loan Officer right away.
DON’T TRANSFER MONEY BETWEEN ACCOUNTS
Lenders need to verify enough funds to complete the settlement. Moving money between accounts can make this difficult. Consult your Loan Officer if you need to position funds for down payment or closing.
DON’T USE A CHECK FROM A RELATIVE, FRIEND OR CREDIT LINE FOR THE DEPOSIT ON YOUR CONTRACT
Funds used other than those we have verified in your accounts will need to be documented as a gift or re-paid prior to settlement. If you need to do this, contact your Loan Officer to discuss the documentation requirements.
DON’T CHANGE ANYTHING ABOUT YOUR CURRENT EMPLOYMENT
Changing jobs, being laid-off, taking medical leave or “giving notice” can adversely affect your mortgage approval. Lenders will re-verify your employment several days before settlement.
DON’T APPLY FOR NEW CREDIT OF ANY KIND EVEN IF YOU ARE PRE-APPROVED)
Do not respond to invitations for new lines of credit or accept point of sale discounts to open accounts. The companies will always pull a credit report and this could have an adverse affect on your credit score. Lenders will re-pull your credit report several days before settlement.
DON’T USE CASH, CASHIERS CHECK FOR THE DEPOSIT ON YOUR CONTRACT
Cash is not an acceptable source of funds.
DON’T MAKE ANY LARGE PURCHASES ON YOUR CREDIT CARDS
Furniture, appliances, computers, cars, etc can all cause additional debt payments in your qualifying ratios and a drop in your credit score. Also, remember a car lease is a debt and will be included in your ratios.
DON’T CLOSE CREDIT CARD ACCOUNTS
If you close a credit card account, it can affect your ratio of debt to available credit which comprises 30% of your credit score.
DON’T PAY OFF COLLECTIONS OR CHARGE OFF ACCOUNTS
Unless your lender specifically asks you to in order to secure your loan. Often times, paying off old collections causes a temporary drop in your credit score.
DON’T CONSOLIDATE DEBT TO ONE OR TWO CARDS (EVEN IF THEY ARE LOWER INTEREST)
Reporting of these balance changes may not show on the credit report in enough time for loan approval. Once again, we don’t want to change your ratio of debt to available credit and it is beneficial to keep good credit history on the books.
DON’T MAX OUT OR OVER CHARGE EXISTING CREDIT CARDS
Running up credit card balances above 50% of the avail credit line is one of the fastest ways to bring your credit scores down.
DON’T RAISE A RED FLAG TO THE UNDERWRITER
By changing address, co-signing a loan for someone or changing your name. The less activity that occurs while your loan is in progress, the smoother things will go
Attention all Buyers! Know your terms**…
Closing costs … closing costs include many different expenses that must be paid at the time of settlement. Some of the closing costs expenses you must pay are title insurance, deed recording, escrow required by your lender, interest, prorated taxes and down payment just to name a few.
Interest Rate – the amount your lender charges you for borrowing money (they make money y loaning you money – that’s why they do it)
Interest – Simple vs. Compounding … The calculation of simple interest is equal to the principal amount (total amount borrowed) multiplied by the interest rate, multiplied by the number of periods.
For a borrower, simple interest is advantageous, since the total interest expense will be less without the effect of compounding. For a lender, compound interest is advantageous, as the total interest expense over the life of the loan will be greater.
Annual Percentage Rate– An annual percentage rate (APR) is the yearly rate charged for a loan or earned by an investment.
- An APR may not reflect the actual cost of borrowing because lenders have a fair amount of leeway in calculating it, excluding certain fees.
- APR shouldn’t be confused with APY (annual percentage yield), a calculation that takes the compounding of interest into account.
APRvs.AnnualPercentageYield(APY)
APR only accounts for simple interest but the Annual Percentage Yield
(APY) takes compound interest into account, therefore, a loan’s APY is higher than its APR.
- The higher the interest rate—and to a lesser extent, the smaller the compounding periods—the greater the difference between the APR and APY.
- Here’s an example: Compare an investment that pays 5% per year with one that pays 5% monthly. For the first month, the APY equals 5%,
** The information provided herein is not to be construed as legal or financial advice.You should retain an attorney and/or consult your mortgagelender orbanker if you have any questions regarding the terms described herein.
the same as the APR. But for the second, the APY is 5.12%, reflecting the monthly compounding.
So remember! APR (simple interest) does not account for the compounding of interest (APY) within a specific year: APR It is based only on simple interest but APY is based on compounding interest so APY over the course of time will be higher
Mortgage… A mortgage is a loan – provided by a mortgage lender or a bank. The mortgage loan is memorialized (written down) in a document that will be filed with the Recorder of Deeds or Register’s Office in the county where your property is located. The mortgage document ensures that your lender is recognized as having a security interest in the property you borrowed money to buy. In other words, until your property is paid off, it is used as collateral for your loan from the bank or mortgage lender.
MortgageRate…the rate of interest charged by a lender or bank
Down Payment –an initial payment made when something is bought on credit. For example, if you buy a home for $250,000.00 and you are borrowing $200,000 your down payment would be $50,000.
Mortgage Insurance…mortgage insurance protects the lender’s investment.
It is usually charged to a buyer when a down payment of less than 20% is paid on a property – mortgage insurance allows for a lender to recover sums loaned to the buyer in the event the buyer does not pay the loan as agreed.
Promissory Note – a signed document containing a written promise to repay you’re the loan from your lender on the agreed upon terms
Recording …filing at the county courthouse where your property is located to ensure that rights to a property are legally recognized
Offer–proposed terms of an agreement that you would like to make with another party
Acceptance…the agreement to the terms offered/proposed by another party
Escrow … property held by a third party for a specific time or until the happening of a condition, at which time the property is to be handed over by the third party to the person for whom/which it is being held
- Here’s an example: A portion of your mortgage payment may be held in escrow by your mortgage lender to ensure that property taxes on your home will be paid on time. When the taxes are due the mortgage company pays the tax bill form your escrow account.
Title … legally recognized rights to the possession and ownership of property. A clear title is required for all real estate transactions. Title companies do a search of public records (recordings) to check for claims (legal filings) or liens (judgments) of any kind against a property before a “clear title” is issued.
Title Search – a search that examines public records to confirm a property’s legal ownership and to see if there are any claims or judgments against the property. Incorrect surveys, outstanding building code/municipal violations or unpaid taxes, fees or judgments are examples of things can make a property’s title “dirty.”
Title Insurance – A policy that provides insurance coverage protecting you from third-party claims on a property that don’t show up in the initial title search and arise after a real estate closing. Title insurance protects you and your lender from damages that could result from liens, encumbrances, or defects affecting property’s title or actual ownership.
Common claims filed against a title are back taxes, liens (from mortgage loans, home equity lines of credit (HELOC), easements).
Quick tip:Traditional insurance protects against future events and title insurance protects against past events
Deed …a document used to transfer ownership of property from one party to another
Closing –also known as “settlement”, closing is when a property is legally transferred from seller to buyer and all expenses (closing costs) associated with the transaction are paid so that the deed can be recorded
Proration of Taxes – splitting a property tax bill between parties when a property is transferred from one party to another to ensure that the seller and the buyer pay their share of the taxes at closing.
Resale Certificate … also known as a “Use and Occupancy Certificate” or “U&O”. Not every transaction requires this document. A resale certificate issues after an inspection by local authorities and identifies what type of property is being transferred, that the property is suitable for occupancy and in compliance with all building and municipal codes.
Appreciation – a property’s increase in value between the day of purchase and a future date
Appraisal…an analysis of what a property is worth. Lenders require an appraisal to protect their investment by making sure that a property is worth at least the amount of money they are loaning you to buy it
