Buy a Home

Mortgage terminology can be confusing, here’s a list of some common terms to keep in mind:

CLOSING COSTS

The costs you’ll pay at the time of purchase. These include things like the origination fee (usually 1% of your loan amount), commitment fee, appraisal fee, attorney fee, title insurance, homeowners insurance, recording fees, flood certification fee, etc.

DOWN PAYMENT

The amount of the purchase price that you’re paying up-front. Typically, lenders require a specific down payment in order to qualify for the mortgage.

PREPAYMENT

Making early or extra payments towards the principal. Prepayment can shorten the length of your mortgage and lower the total amount of interest you pay over time.

PRINCIPAL

The amount of money that you borrow for your mortgage.

EQUITY

The difference between the value of your home and what you still owe on your mortgage loan.

HOMEOWNER’S INSURANCE

AKA “hazard” insurance. Before you close on your mortgage, you will need to purchase a one year homeowner’s insurance policy with the minimum dwelling coverage of your loan amount.

LOAN TO VALUE

The percentage of your loan amount divided by your purchase price or appraised value, whichever is the lesser amount. Example: $150,000 loan amount divided by $175,000 purchase price/appraised value = 86% Loan-to-Value (LTV)

PRIVATE MORTGAGE INSURANCE

Insurance that protects the lender if you stop making payments on your loan. Required for loans with less than 20% down payment and the premium is paid in your escrowed portion of your monthly payment.

ESCROW PORTION OF YOUR PAYMENT

The monthly amount that is equivalent to 1/12th of your annual property tax bill and 1/12th of your homeowners insurance premium that is added to the principal and interest portion of your payment. If you borrow more than 80% of your home’s value/purchase price, you’ll be required to pay a monthly premium for Private Mortgage Insurance (PMI) in your escrow payment. Luckily, Credit Union PMI rates are significantly lower than other mortgage providers!

ORIGINATION FEE

The origination fee for a mortgage loan is part of the closing costs to be paid by the Buyer and is typically 1% of the loan amount. Origination fees are usually broken down into mortgage points, which are expressed as a percentage of the loan amount. So if the loan amount is $100,000 and theres a $1,000 origination fee, you are paying a 1% origination fee/point.

Credit approval is an application for financing that helps determine which homes are in your price range. To get credit approved, you provide the same paperwork you would when making a formal loan request. The Loan Officer will ask you for employment and income verification and deposit and loan information. They will also pull a credit report to assess your credit history.

Credit approval assures your application is approved for a loan, but is not a mortgage contract.

Your Loan Officer will use the financial information you provide to estimate the max mortgage you should aim for. Typically, your monthly house payment should be around 28 percent of your total gross monthly income. Your total monthly debt, including your estimated house payment and other monthly debts, should not be more than 36 percent of your gross monthly income.

Of course, these figures vary between lenders and loan products. How much you can afford also depends on the interest rates and your down payment at the time of purchase. To get an idea of what you can afford, talk to a Loan Officer today. We’ll work with you to find a solution that fits your lifestyle.

You can learn even more about Credit Approval on our blog »

Homes aren’t one-size-fits-all. Neither are home loans. At Allegacy, we begin by evaluating the big picture before offering a personal solution designed to fit your lifestyle. Once your offer has been accepted by the sellers and signed by all parties (Buyers, Sellers, and all Agents) your Loan Officer will need the fully executed Purchase Agreement as quickly as possible so that the process can begin.

Here are some of the items each applicant will be asked to provide to Allegacy:

• You must be a member
• Funds to cover the appraisal fee
• Driver’s license and social security cards
• Most recent pay stubs (covering at least one month of pay)
• Two years proof of income
  • If employed, last two year’s W-2 statements
  • If self-employed, last two year’s tax returns with all schedules
  • If disability income, last two months of statements showing deposit
• Last two month’s bank statements for any deposit/loan accounts not at Allegacy
• Most recent 401(K) statement
• Written explanation for any adverse credit
• If home is in a community with restrictive covenants or by-laws, we will need a copy as well as contact information for the Home Owner’s Association
• If separated or divorced, a recorded copy of your separation/divorce settlement

Start the loan. Once agreed-upon terms have been presented to the seller and your offer has been accepted, it’s time to contact your lender to start gathering the information required to finalize the purchase.

Find an inspector. Though not required, having a home inspection is a good idea. The inspector will examine the home and note any items of concern that could affect the value of the property. If there are any red flags, you have the option of asking the seller to take care of it or making the repair yourself. Your realtor and your lender can help you find a good inspector.

Appraisal. Your lender will request a licensed appraiser to visit the property and assess a value based on the recent sales of similar properties to determine the market value of the property.

Loan approval. Once the appraisal and loan documents have been reviewed by an underwriter, it’s time to schedule your loan closing with an attorney.

Loan closing. At the loan closing, your attorney will have you sign many documents. These documents will transfer ownership of the property to you. You will also sign the loan documents and pay the amount that isn’t covered by the loan proceeds. Your lender will let you know what this amount will be during the loan process.

Still have questions? Reach out to a Loan Officer today. We’re here to help.