Home Buying 101Welcome to

JENNIFER MARTINESVice President of Lending

• 9+ years in the credit union industry• Graduated from Michigan State University with a

Bachelor of Science degree in Psychology.• Began my career in credit unions in 2007 as a part

time teller and have held several different positions within the credit union.

• Active in the credit union advocacy movement speaking on behalf of credit unions and our members to educate lawmakers on the legislative issues that will have the biggest impacts on our organizations and our membership.

AGENDA

• Getting Started• Credit History• Budget • Product Overview• Prequalifications

GETTING STARTEDBefore you apply for a mortgage: • Know what your credit history looks like• Look at your budget– What can you afford for a monthly mortgage payment?

• Down payment– How much will you put down to purchase a home?

• Mortgage Products – Fixed or Adjustable Rate?– What type of term?

CREDIT HISTORY

CREDIT HISTORYIt is important to know what your credit history looks like: • A credit score is like a grade at school– Excellent credit is an “A”; Poor credit is an “E”

• Your credit score dictates the rate you get• It also affects your eligibility to obtain a mortgage– Most mortgage programs require a credit score of 620 and above

HOW MUCH DO YOU PAY FOR BAD REPAY HISTORY?

$100,000 home loan paid over 30 years:

CREDIT STATUS RATE PAYMENT COST OF BAD CREDIT

Perfect 4.25% $495.00 $0.00

Mildly Damaged 5.50% $569.00 $27,469

Damaged 6.50% $633.00 $51,269

CREDIT SCORE WEIGHTThe most recent 12 months of activity has a 40% impact on your credit score!

The most recent 36 months of activity has a 90% impact!

COMPONENTS OF A CREDIT SCORE

• 35% = payment history• Do you pay your bills on time?

• 30% = capacity - amounts owed to creditors• Do you owe a lot of money to a lot of people?

• 15% = length of credit history• How established is your credit history?

• 10% = new credit• Are you increasing your debt obligations?

• 10% = type of credit in use• Healthy mix = both secured and unsecured loans

ITEMS THAT MAY AFFECT ELIGIBILITY FOR A MORTGAGE

• Bankruptcy • Foreclosure • Deed in lieu of foreclosure• Short sale • Collections• Repossessions (other than a mortgage)• Current delinquencies

TIPS TO IMPROVE YOUR CREDIT SCORE

• Ensure credit bureau data is accurate• Focus on bringing currently delinquent loan accounts current. • Pay down the credit cards first that are near their limits.• Pay down total revolving balances, but do not close these accounts• Move revolving balances to installment debt – do not close the

revolving accounts• Minimize new accounts.

HOW TO GET A COPY OF YOUR CREDIT REPORT

You can get a FREE credit report from each of the 3 credit bureaus once per year.• You can order your credit report directly from the credit bureau • Equifax – 800-685-1111 – Equifax.com• Experian – 888-397-3742 – Experian.com• TransUnion – 800-888-4213 – Transunion.com

• Visit www.annualcreditreport.com

Note: Credit scores are not free but are available to be purchased.

BUDGETPLANNING AHEAD

An acceptable Debt Ratio for a mortgage is 43% or less

STUDENT LOANS• Be aware of how much student loan debt you

have• Too much student loan debt may disqualify you

from obtaining other types of debt, like a mortgage or auto loan.

• If loans are in deferment 1% of the loan balance is used to calculate a “payment” for your student loans

• Student Loans cannot be included in bankruptcy

BEING A CO-SIGNER• Being a co-signer or a co-borrower on a debt makes you equally

responsible for repayment of the debt.

• Debts that you are a co-signer or co-borrower on will be included in any debt ratios calculated regardless of whether or not you are the person making payments.

• Before co-signing on a loan, ask yourself:• “If I had to make payments on this loan, can I afford it?”

• “How will this affect me from obtaining other types of credit?”

BASED ON ANNUAL INCOME WHAT SHOULD MY MORTGAGE

PAYMENT BE?• 25% of your monthly income

• Example: Annual Salary $50,000

• Monthly Income $4,166

($50,000 divided by 12)

• Mortgage Payment should be $1,041.00

($4,166 multiplied by 25%)

DOWN PAYMENT• How much do you want to put down on the

purchase of your home? • 3% - First Time Home Buyers Only• 5%• 20%

• Multiple sources can be used for your down payment.

• Down payments must be documentable.

PRIVATE MORTGAGE INSURANCE• Most mortgage products require Private Mortgage Insurance

(added if the Loan to Value exceeds 80%)

• PMI premiums are added into your monthly mortgage payment

MORTGAGE PAYMENTYour full mortgage payment includes:• Principal and Interest• Escrow Payments– Homeowner’s Insurance– Real Estate Taxes

• Monthly Private Mortgage Insurance (PMI) Premium

MORTGAGE PAYMENTBased on a 30 Year Mortgage $100,000 Mortgage $200,000 MortgagePrincipal and Interest (4.25%) $ 491.94 $ 983.88Monthly Escrow –Homeowners Insurance

$ 67.00 $ 85.00

Monthly Escrow – Taxes

$ 325.00 $ 527.00

Private Mortgage Insurance Monthly Premium*

$ 72.00 $ 144.00

Total Monthly Mortgage Payment $ 955.94 $ 1,739.88

*Based on 5% down payment, 680 credit score and 38% DTI

FUNDS TO BRING TO CLOSING• Down Payment - A percentage of the purchase price.• Closing Costs - Fees and costs to obtain the mortgage loan• Escrow Deposit - Funds required to fund your escrow account in order

to pay the property taxes and insurance when they are due• Tax Proration’s – Money owed to the seller for taxes already paid• Homeowner’s Insurance – 1st year of upfront premium to insure the

home

RAINY DAY!Don’t forget to also plan for that rainy day! Financial Experts say:• 3 months of monthly income for a

“rainy day” fund• Are you prepared to cover an

unexpected expense?

CHECKLIST PRIOR TO APPLYING• Do I have enough saved for my down payment and closing

costs?• Can I afford the monthly payment including escrow?• Will I have enough left over to cover unexpected home repairs?

If you answered yes to all of these questions…..

TIME TO GET PRE-QUALIFIED!

WHAT FACTORS GO INTO A MORTGAGE APPROVAL?• Income and Employment– How long have you been on the job?– Do you make enough to support the mortgage payment in addition to

your other debts?

• Credit Score and Repayment History– What does your credit report look like?– Are you making your payments on time?

WHAT FACTORS GO INTO A MORTGAGE APPROVAL?

• Assets– Do you have enough for a down payment and closing costs?

• Property– What is the value of the property? Does the value support the

amount being asked for?

SHOP FOR A MORTGAGEThis is the biggest purchase consumers will make in their lifetime.

Take the time to shop and compare!

SHOP FOR A MORTGAGEKeep the following things in mind as you shop around:• Service– Are they giving you the great service you deserve?

• Products– Do they offer the products that will best fit your needs?

• Rates– Are you getting the best rate you qualify for?

• Fees– What fees will I be paying and how does that compare to others?

FEES VS. COSTS• Fees are charged and collected by the lender– Origination Fee– Closing Fee (Refinance)

• Costs are charged by a 3rd Party and are required for the transaction– Closing Fee (Purchase)– Appraisal– Title Insurance– Inspection

• Fees will change from lender to lender but 3rd party costs should be relatively the same across all lenders

FREESTAR FINANCIAL MORTGAGE PRODUCT TYPES

Fixed Rate Mortgage• Terms from 10 years to 30 years• Rate is fixed for the life of the loan• As low as 3% down payment • PMI required until Loan to Value is below 80%

FREESTAR FINANCIAL MORTGAGE PRODUCT TYPES

Adjustable Rate Mortgage (aka ARM)• Flexible Terms

– 3/3 Year Adjustable– 5/5 Year Adjustable– 7/7 Year Adjustable

• Rate is fixed initial term and will adjust in increments of 3, 5, or 7 years based on product– Example: A 3 year ARM will have a fixed rate for 3 years and the rate will adjust every 3 years

• Payment amortized over 30 years • As low as 10% down payment • NO PMI required

FREESTAR FINANCIAL MORTGAGE PRODUCT TYPES

VA Mortgages• Available for qualifying Veterans• 15 or 30 Year Terms• 0% down payment• No PMI

BEFORE YOU LOOK FOR YOUR NEW HOMEGet Prequalified!• Contact the lender of your choice and get approved before you

look at homes• Prequalification letters will outline the terms and loan amounts

you are pre-approved for• This gives you the ability to “throw your hat into the ring” and

bid on the purchase of your dream home• Prequalification letters are generally good for 90 days

THINGS TO REMEMBER WHILE IN THE PROCESS OF GETTING A MORTGAGE

• Start shopping for a homeowner’s insurance policy as soon as possible

• DO NOT obtain new credit– New credit may disqualify you from obtaining the mortgage

• A prequalification is not a 100% guarantee. – If your financial situation changes or there are other changes to other qualifying

factors it may affect your ability to obtain a mortgage.• Documentation, documentation, documentation!

GETTING READY FOR CLOSING• Expect the mortgage process to take approximately 30-45 days

from the date of the purchase agreement• Know how much you need to bring to closing• Review all of your documents– There should be no surprises at the closing table

• Ask questions along the way • You may not get your keys at closing

SUMMARY• Review your credit history• Look at your budget and your savings plan• Think about what product will work best for your financial

goals• GET PREQUALIFIED• Review all documentation and ask questions

Questions?FreeStar Financial Credit Union

Real Estate Lending586-466-7800 opt. 2

mortgages@freestarfinancial.com