Home Loan Learning Center

	Conventional	FHA	USDA	VA
Max Loan Amount	$766,550.00	$498,257.00	Based on income	$766,550.00
DTI Ratio	50%	55%	43%	55%
Down Payment	3% to 5%	3.5%	0%	0%

FHA Loan:	An FHA Loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration.  FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise been able to afford.
VA Loan:	A VA Loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs.  The VA loan allows veterans 100% financing without private mortgage insurance.
USDA Rural Housing Loan:	Single Family Housing Guaranteed Loan program or Section 502 loans are primarily used to help households purchase homes in rural areas.  The USDA loan allows for 100% financing without private mortgage insurance.
DTI Ratio:	Debt-to-Income Ratio indicates the percentage of income that goes toward paying all recurring debt payments, including mortgage, interest, mortgage insurance, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.
Down Payment:	The difference between the investment price and the loan amount.
Closing Costs:	All the cost that a lender requires to obtain a loan.
Fixed Rate:	A constant interest rate that does not change for the term of the loan.
Adjustable rate:	An interest that can change during the term of the loan on an annual basis.
Rate Buy Down:	Lowers your interest rate for a given duration on a fixed mortgage reducing your monthly mortgage payment.
Credit Report:	A report that contains a person’s credit history.
Appraisal:	A report that gives the current market value of the home.
Term:	The number of years to pay off a loan.
Points:	1% of the loan amount a lender may charge.
Pre-Paids:	Expenses that the lender requires being paid upfront. (Homeowners Insurance, Escrow Accounts, Interest)
Short Interest:	Interest collected from the date of closing to the end of the month.
Mortgage Insurance:	Insurance required by the lender for loans with less than 20% down payment.
Home Owners Insurance:	Insurance required by the lender to replace the homes value in the case of disaster.

The FBC Mortgage calculator will give you a good idea of how much home you can afford. Factors such as income, credit history, the size of your down payment, your employment, and residence history will influence how much money you can borrow.

Remember, affording a new home involves more than just the amount you borrow. Be sure to also consider the up-front costs as well as the ongoing costs of home ownership.

Mortgage application fees
Mortgage application fees include “origination” (or “service”) fees. These can be flat fees or based on 1%-2% of the total purchase price. Also included are appraisal, underwriting and credit reporting fees, which can be built into your closing costs.

Earnest Money
Earnest money (also known as a “good faith deposit”) is a deposit you, as the prospective buyer, put down when you make an offer on a house. As the word “earnest” implies, this deposit represents your serious intention to buy. If your offer is one of several  made on the house, the amount of earnest money you put down could influence the seller’s decision in your favor. There are a few factors that can influence the amount of earnest money you decide to put down when you make an offer. Your realtor will help you determine the amount of earnest money you should put down in order to put you in the best position.

Down Payment
Often you can get a lower mortgage rate by making a higher down payment. Down payments range from 0% to 20% or more of the total cost of the home. 15% to 20% is somewhat standard. Important note: Paying mortgage points up front can also help lower monthly payments and the interest rate on your home mortgage.

Mortgage Points
Mortgage points are a fee paid when you take out your home mortgage loan. It’s essentially a form of pre-paid interest, paid up-front, in exchange for a lower interest rate and lower monthly payments. This practice is known as “buying down” your interest rate.

Each mortgage point represents 1% of the amount of the mortgage. For example, on a $130,000 mortgage, one point represents $1,300; two points represents $2,600, and so on. You may be required to pay a number of points as an origination fee, as a closing cost, or as part of the down payment. However, some points are optional. Your realtor will help you through the decisions regarding payment of mortgage points.

Typically, buying additional points is done to lower the rate on a fixed-rate mortgage. Buying points for an adjustable rate mortgage provides a discount on only the initial fixed period of the loan. For that reason, people don’t normally buy additional points for an adjustable rate mortgage.

When buying mortgage points, PAY ATTENTION TO THE NUMBERS. Paying more up front will reduce the interest rate and save you money over the long term, but not over the short term. The longer you plan to live in your new home, the better the chance you reach the “break-even” point, where the interest you saved offsets your initial cash outlay. If you have a shorter-term plan and limited cash, or if you would benefit more from a larger down payment, paying points may not give you the greatest benefit. Talk with your mortgage loan originator about whether buying points is the best option for you.

Closing Costs

• Mortgage application fees (see above)
• Mortgage points (see above)
• Attorney fees
• Inspections and surveys
• Title insurance and title search
• Escrow deposit
• City recording fees

Final closing costs usually range from 2% to 4% of the total loan amount. Some buyers are allowed to roll closing costs into their mortgage loan, allowing them to pay off these costs as the mortgage is paid down. Closing costs are all paid at once, and can include:

Home Ownership Expenses
Owning a home requires a financial commitment beyond your monthly mortgage payment. Prior to signing for a home mortgage, it is important to have a good idea of all the costs involved in home ownership. Home ownership costs can include:

• Mortgage insurance (required for most mortgages with down payments less than 20%)
• Home insurance
• Utilities
• Repairs
• Property taxes

Planning and Saving Tips
If you’re still saving for your first home, here are some tips that can help.

• Saving for a higher down payment can mean a lower APR and lower monthly payments.
• Maintaining a regular and reliable income improves your standing with lenders.
• Combining stated income with a partner or spouse can give you an advantage.
• Consistently paying your bills on time contributes to a good credit score.
• Limiting your monthly debt also helps improve your credit score.
• In general terms, your mortgage payments should represent less than 28% or your income.

Building sound finances and a rock-solid credit score before you buy will help you afford more home. This can also help you compete more effectively for the house you want; make it easier to handle the up-front costs of buying a home; and make home ownership more fun and easier to manage.

Mortgage Type	Key Benefits	Worth Considering if You…
Conventional Fixed-Rate The lowest fixed interest for eligible buyers	Best fixed rates No interest-rate surprises	Plan to stay in your home for a long period of time. Have an established credit history Can put at least 5% down on a home
Adjustable-Rate (ARM) The lowest rate for first 3-10 years of loan for eligible buyers	Lowest short-term rates Initial lower monthly payments Initial rate period of 3-10 years, then rates can adjust up or down	Know you’ll be moving within the next few yearsHave an established credit history Can put at least 5% down on home
Jumbo The lowest rates for higher-priced properties	Increased purchase limits Competitive rates Fixed-rate ARM options	Buying a home that exceeds conforming loan limits ($417,000 in most areas)Have an established credit history Can put at least 20% down on a home
FHA Government-backed loans with flexible guidelines	Low down payments Flexible qualification guidelines Fixed-rate and ARM options	Limited funds for down payment No established credit history or past credit challenges
VA Government-backed loans for military members	Low or no down payment No mortgage insurance requirement Flexible qualification guidelines Fixed-rate ARM options	Active military or veteran Surviving spouse of service member who died as a result of military service
Construction Loans	Convenient financing for new construction Construction-to-permanent loan options	Building a new home to your specifications Buying a lot for a future home
Investment Property LoansFinancing for properties that generate income	Financing for residential rental property with 1-4 units Variety of loan options

The APR helps you compare payments and total cost between mortgage offers. A mortgage APR is just one of the many factors to consider when shopping for a mortgage loan.

In most cases, it makes sense to choose a mortgage loan with a lower APR. However, sometimes a loan offer with a lower APR will require you to pay mortgage points or other fees. If you would rather use that money toward a down payment or to buy appliances and furniture for your new home, you might choose a loan with a slightly higher APR.

While the APR makes it easier to compare mortgage offers, you’ll want to weigh all of the factors involved in getting a mortgage loan. These include:

• Size of your down payment
• Closing costs
• Money to furnish your home
• Money to maintain your home

What is the difference between APR and interest rate?
Simply put, the interest rate reflects the current cost of borrowing. However, the APR provides a more accurate cost of borrowing by taking the interest rate as a starting point and accounting for lender fees.

What is a credit score?
A credit score (also called FICO score) helps lenders determine their risk in lending you money. Your history of paying bills and your monthly debts determine your credit score, which can range from 300 (worst) to 850 (best). A score of 740 or above is generally considered “excellent.”

There are three national credit bureaus (Equifax, Experian and TransUnion) that maintain credit reports. FICO summarizes the results into three FICO scores, one for each bureau. Usually, the three scores are similar, but they may differ based on the different information collected by each credit bureau.

How important is my credit score?

• Income
• Employment history
• Current monthly debts
• Size of the loan you want
• Size your down payment

Your credit score is critical when it comes to applying for a mortgage loan. But it’s not the only factor to affect the outcome of your loan application. Lenders also take into consideration your:

Finding your credit score
For a fee, FICO will provide your credit score(s) upon request. You can also get one free copy of your credit reports from each credit bureau every 12 months via annualcreditreport.com. If you have evidence that any information in your credit record is incorrect, you can dispute it. It is a good idea to check your credit reports regularly for errors, especially if you are planning a major purchase, such as a house.

What kind of information does my credit report contain?
Debts such as credit cards, auto loans, student loans and personal loans show up automatically in your credit reports. At the same time, if a creditor chooses to report late payments to credit bureaus, these will appear on your report. If you are late on a payment, you can call the organization to ask about their late-payment policy and whether the organization will report your late payment.

Maintaining Good Credit
Making a habit of paying your bills on time is the best way to ensure your credit remains in good standing. Many creditors report past-due payments after 30 days, while others wait as long as 90 days. Healthcare providers usually don’t report late payments until much later, if at all.

A Word of Caution
Each time you apply for a loan or credit card, the application is reported to the credit bureaus. When lenders see multiple applications reported in a short period of time, this can discourage them from giving you a loan.

How does my credit score affect my mortgage rate?
The lower your credit score is, the higher your mortgage rate will be. If your credit score isn’t what you want it to be, good payment habits and a low debt-to-income ratio (DTI) can improve your score over time.

What credit score do I need to get a mortgage loan?
Although there isn’t a specific minimum score required to get approval for a mortgage loan, it is important to maximize your score before starting the home-buying process. A better credit score will help you qualify for and secure the best mortgage rate. Government-backed mortgages like FHA loans have lower credit score requirements than conventional fixed-rate loans and ARMs.

Mortgage Pre-Qualification
Mortgage prequalification is a simple assessment of whether your debt-to-income (DRI) ratio fits FBC Mortgage guidelines for home loans. It also provides an estimate of how much you may be able to borrow – and that’s a good step in your home-buying journey.

While your DTI number is informative, keep in mind you could qualify to borrow more than you can afford to spend. You need to factor in your other living expenses and needs, such as furnishing your new home and monthly bills.

Getting pre-qualified does not require a commitment from you or the bank. Pre-qualification is not an actual loan application and does not factor in your credit history. Even if you do pre-qualify, having an unfavorable credit history may prevent you from securing a mortgage loan. If you have concerns about your credit history, talk to your loan originator to find out what options may be available to you.

When you become pre-qualified, you may ask your realtor or loan originator to provide a letter stating how much you could borrow. Give this letter to your real estate agent to show you are serious about taking the next steps to buy a home.

You can seek pre-qualification online or by talking to a mortgage loan originator.

Pre-Approval
Mortgage pre-approval involves the same steps as a mortgage application. After you provide detailed information about your income and assets, the lender’s underwriters review it. If approved, you’ll receive a commitment by the lender for a specific loan amount. When you apply for a mortgage, you’re actually applying for credit to purchase a specific property.

Your pre-approval shows you have the resources to make the purchase and enables you act quickly when you find the right home. From the seller’s point of view, a pre-approved buyer is more attractive than prospective buyers without pre-approval. By proving you have the bank’s backing, your mortgage pre-approval helps you negotiate on price, and could serve as the deciding factor when sellers receive multiple bids.

Do not apply for pre-approval until you are fairly certain you will make an offer on a home within the next 90 days. Unlike getting pre-qualified, a pre-approval involves requesting a copy of your credit history and examination of your application and other documents you provide. A pre-approval will show up as an inquiry on your credit report and is only good for a certain amount of time.

If you decide to proceed with the loan, you may also be required to pay an application fee and pre-pay for the home appraisal and other costs. An estimate of costs or fees to be paid at the mortgage closing will be determined at this stage of the process.

To get pre-approved, you’ll need to provide some personal information and financial documents including detailed proof of your income for the past two years. You can start your mortgage application by contacting a mortgage loan originator.

You can provide much of this information on your application. At some point in the loan approval process, the lender may request other types of documents in addition to those stated here.

Mortgage pre-qualification checklist:

• Full name
• Current address
• Estimated annual household income
• Estimated monthly household debt expenses

Mortgage pre-approval checklist:

• Residential addresses for the past two years
• Landlord names and addresses for the last two years, if you rented during that time
• Employment and income history
• Paycheck stubs from the last 30 days showing your year-to-date earnings
• W-2 or I-9 tax forms (issued by your employer) for the past two years
• Personal assets
• Bank account statements from the two most recent months for all checking and savings accounts
• Any other asset statements from the past two months for CDs, IRAs, stocks, bonds or other securities you intend to use for your down payment
• Current real estate holdings including property address, current market value, mortgage lender’s name and address, loan account number, balance and monthly payment
• Personal debt
• A list of any new monthly debts not listed on your credit report (auto loans, student loans, mortgage loans, credit cards, etc.), including creditor name, address, account number, minimum monthly payment amount and outstanding balance on each account

Additional documents may be required at your mortgage closing. Your real estate agent and mortgage loan originator will work closely with you at each step of the mortgage process. They can also let you know which documents will be needed when you close on your new home.

Buying real estate is more formal than buying a car. It involves written proposals exchanged between your real estate agent and the seller’s agent. When you decide to make an offer, “how much” is a decision we recommend you make with your agent.

A good real estate agent will conduct a Comparative Market Analysis (CMA) and help you negotiate based on knowledge of the true market value of the home you want to buy. Remember it is always important to understand how much house you can afford before committing to a price.

Helpful Hints
Here are some tips and tactics for making an offer on a house. Discuss these with your real estate agent.

• Show that you’re serious. From the seller’s point of view, a pre-approved buyer is more attractive than someone without a pre-approval letter. Pre-approval can help you negotiate on price and it can be a deciding factor for sellers who receive multiple bids.
• Put some skin in the game. “Earnest money” is a deposit on the house you want to purchase. It minimizes the risk a seller could sell to another buyer – or take the house off the market — while your offer is pending.
• Leave the room to negotiate. Don’t call your first offer your “best” or “final” offer if you’re willing to go higher. In a competitive market, you can put an escalation clause in your offer, agreeing to go a small amount above the highest bid – but before you do, decide on the maximum amount you’re willing to increase your offer.
• Low ball with caution. Bidding low may be a good strategy in a weak market, but if your bid is too low, the seller may reject your offer without even trying to meet you in the middle. If you want to make an offer that’s significantly below the asking price, explain why in specific but polite terms.
• Time on the market matters. If a house has been on the market for only a few days, the seller is less likely to give you a price break than if the house has been sitting for weeks or months. The reason WHY the seller is selling can provide a clue regarding the seller’s willingness to wheel and deal.
• Make it easier for the seller. For example, if you can agree to set up your housing inspection quickly – and to take responsibility for small repairs that may come to light – your offer will be more attractive than a competing offer that requires the seller to take care of all pre-closing repairs.
• Remember: Sellers are people, too. Sellers are often attached to their homes and want to leave them in good hands. An offer letter that explains why you want the house (e.g. to live closer to an elderly relative or to raise your family) can sometimes make a difference.

The closing is a meeting between the buyer, the buyer’s agent, the seller, the seller’s agent, and a closing agent. The closing agent is either an attorney or a representative from the title company who manages the ownership paperwork.

Through the course of the closing, several documents are reviewed and signed. Once all costs due at closing have been paid and the paperwork has been signed, you collect the keys and prepare to move into your new home. 

What are closing costs?
As part of the mortgage application process, you’ll receive a Good Faith Estimate (GFE). This indicates your potential closing costs. By law, an itemized list of closing costs must be provided within three business days of your mortgage application, and final closing costs should reasonably reflect the GFE. Your lender will also provide a Settlement Statement (HUD-1) outlining your closing costs within a day of your closing. Some closing costs on a house can be rolled into the mortgage loan.

Who pays closing costs?
Both the buyer and seller usually take part in paying closing costs. However, in certain situations the buyer may be able to negotiate an agreement where the seller pays a larger portion, or all of the closing costs.

Closing costs can include:

• An origination fee
• Discount point(s)
• An appraisal fee
• Credit report
• Title search
• Recording fees

How much are closing costs?
Closing costs typically cost between 2% and 5% of the purchase price, but can vary depending on your lender, location and property. Since closing costs depends on the purchase price, it’s important to work with your real estate agent to decide how much to offer on a house.

How long does it take to close on a house?
Many factors go into determining how long the closing process can take; it primarily depends on your lender. You should receive an estimated closing date on your purchase agreement. The type of mortgage loan can also impact how long it takes to close on a house. For example, FHA loans often take longer than conventional loans. Make sure to check with your real estate agent for regular updates on the timeline for closing on your house.