MKT 10354-05 Homeowner v2.indd

A Guide to Homeownership
MORTGAGE
Table of Contents
Pages
Planning for Homeownership
1 –3
Lender Qualifying Guidelines
4 –5
Home Buying Process
5 –6
Mortgage Loan Process
7 –8
Closing on Your Loan
8 –9
Homeownership Responsibilities
10 –11
Appendices
1. Monthly Household Budget
12 –13
2. Calculating your maximum mortgage amount
14
3
15
Credit Reporting Agencies
4. Checklist of items to take to loan application meeting
16 –17
5. Glossary of Terms
18
Planning for homeownership
Buying a home is the single largest purchase that you will ever make. If you are thinking of buying a
home, SunTrust Mortgage, Inc. would like to help you prepare for this life-changing event. That is why
we have prepared this Homeownership Guide for you. We would like to prepare you for your journey
by taking you through the homebuying process step by step – from deciding whether homeownership
is right for you, to finding the perfect home for you, obtaining a mortgage, and closing on the sale.
Are you ready to buy?
Before you begin preparing for the homebuying process, you should determine if homeownership is
right for you. Once you have considered the pros and cons, only you can honestly decide whether or
not buying a house makes sense for your specific situation.
Following is a list of some things to consider before you get started:
Advantages of homeownership
1. A home is a place to call your own, it helps you become a part of the community and make
a difference in the area where you live.
2. While rent payments typically increase each year, the principal and interest payments will
stay the same on most mortgage loans for the life of your loan. This helps you to better
budget and plan for the future.
3. Most homeowners realize significant tax benefits from homeownership.*
4. A home is an investment which can, and usually does, increase in value over time. It’s the
only investment you can live in at the same time.
Disadvantages of homeownership
1. Homeownership usually costs more than renting.
2. You will be responsible for all repairs and maintenance of your home, which can be costly.
3. There are no guarantees that a home will appreciate in value.
4. If you move frequently because of your job, owning a home may be more of a burden than
you want.
5. If you own a home and do not keep up with your mortgage payments, the mortgage lender
could foreclose on your mortgage. That means that you could lose your home and the equity
you’ve built up.
Financial factors
Once you’ve decided to buy a home, the next step is to determine how much house you can afford.
It’s a good idea not to become “house poor,” which means you don’t want to spend every dime of
monthly income on debts, including your housing expenses. Many first-time homebuyers discover
that when they add up their total housing costs (monthly mortgage payment, moving costs, early
repairs, taxes, insurance, maintenance, etc.) the overall costs are more than they paid as renters. If
this sounds like you, it’s a good idea to set up a strict budget. If budgeting is new to you, SunTrust
Mortgage will show you how to get started.
*Consult your tax advisor.
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Budgeting
There are three main reasons why a budget is so critical in the homebuying process:
1. A realistic budget will help you determine how much house you can afford.
2. A budget will help you determine if you can afford the extra expenses related to homeownership.
3. A budget will help you plan to save money for the down payment on your home, as well as
develop good saving habits for other financial goals, such as retirement, or college tuition for
your children.
Preparing a budget
Budgeting is simply a management tool that helps you keep track of how and when you are spending
your money. By following a budget, you will be able to set goals for how you want to spend your
income. Here’s how.
1. List all current, regular net monthly income for yourself and any co-borrowers.
2. List all current monthly expenses. Keep receipts in your checkbook so that you can total
expenses by each category at the end of the month. If you develop a budget, and then decide
not to keep a record of your actual expenses, you’ve wasted your time.
3. After recording your actual expenses at the end of the month, you will be able to analyze whether
or not your budget was realistic. You may need to go back and adjust your budget accordingly.
Appendix 1 located at the end of this Guide presents you with a simple format that you may follow for
preparing your budget. Why don’t you try using this format, or one like it to start your budget today?
Once you have completed your budget, keep the following in mind:
• If you have accounted for all of your expenses, including your savings, the difference between
your projected and actual balance should be $0.00.
• If you come up with a positive number, you may want to consider allocating the extra money
toward your debt and/or savings.
• If you come up with a negative number, you are spending more than you make. Review your
budget thoroughly to examine where you can trim your expenses.
How much can you afford?
There are several major areas regarding money that you need to examine to start the homebuying
process. These areas will determine exactly how much you can afford to pay each month for your
mortgage principal, interest, real estate taxes, homeowner’s hazard insurance, and mortgage insurance
(“PITI”). Now that you have analyzed your current monthly expenses by preparing a budget, let’s
discuss the other factors that you must consider.
Many experts use a basic, easy formula to determine how much someone can afford in a house.
The rule says that you should multiply your pre-tax, or gross, annual income by two and a half.
For example, if you have a household income of $40,000, you should be able to buy a house worth
$100,000. This quick ballpark figure is great, however, your buying power ultimately depends on
two things:
1. How much you have available for the down payment and closing costs
2. How much a financial institution will agree to lend you
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Down Payment
Most mortgage loan programs require that a borrower make a down payment from their own cash
when they purchase a home. The size of the down payment determines how large a mortgage you
need, as shown in this example:
$100,000
- 3,000
$ 97,000
Purchase Price
3% Down payment from Borrower’s Cash
Mortgage Loan Amount
The amount of the borrower’s required down payment varies, depending on the type of mortgage
loan program for which the borrower qualifies. SunTrust Mortgage has several loan programs that
do not require a borrower to make a down payment. Your SunTrust Mortgage loan officer would be
happy to share more in-depth information regarding loan programs that feature no down payment
requirements.
Closing costs
Your down payment is just one of the up-front fees that you will pay during the homebuying process.
Homebuyers also usually pay other closing costs, which on average are between 4% and 10% of the
mortgage amount. Geography plays a major role in what closing costs will be.
Here are a few examples of typical closing costs: loan origination fee, appraisal fee, credit report,
flood certification fee, attorney’s fee, state tax, title insurance, and document preparation fees.
Your borrowing power
In addition to your down payment, other factors that may limit how expensive a home you can buy
will be how much you can borrow. The lender will consider two factors in determining how large a
loan to grant you:
1. Your earnings
2. Your existing debt
Components of your monthly mortgage payment
Each monthly mortgage payment includes the repayment of a portion of the amount that you
borrowed (principal) and the interest (the fee you pay the lender for using their money). This amount
is referred to as the principal and interest (“P&I”).
A homebuyer’s monthly mortgage payment usually includes an added amount to cover the borrower’s
real estate taxes, homeowner’s hazard insurance, flood insurance and mortgage insurance. The lender
holds these additional amounts in a separate “escrow” account and then pays the tax and insurance bills
when they come due. The lender does this to ensure these annual expenses are paid in a timely manner.
The inclusion of taxes and insurance to the “P&I” is referred to as PITI.
How can you increase your borrowing power?
If you are not happy with the amount that you can qualify for, there are some things that you can do.
You may need to lower your sights and purchase a less expensive starter home. However, before you
stop here, you should consider these other ideas:
1. Reduce your existing long-term debt.
2. Wait to apply for a mortgage until your income increases.
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3. Find a financing option that results in a lower down payment and a lower monthly mortgage
payment.
4. Ask your SunTrust Mortgage loan officer if there are any programs offered in your area that
provide grants to low-to-moderate income home buyers that would reduce the amount of
money that you would have to borrow.
Lenders’ qualifying guidelines
Qualifying for a home
You must meet certain qualifications to be approved for a loan. It is important to understand what these
qualifications are so that you will know approximately how expensive a home you can afford. Even if
you do not currently qualify for a loan, you should know what is required so that you can prepare for
purchasing a home in the future. Obtaining a “pre-qualification” is your next step in buying a home.
Real estate agents appreciate homebuyers who submit offers on their homes with a pre-qualification
letter in hand! This is why you should always see your lender first.
Loan approval requirements
SunTrust Mortgage will review your past financial history to determine your past and future ability
to handle the increased financial responsibility of buying a home. Six primary areas of consideration
for credit approval are as follows:
1. Income – Do you have sufficient income to pay your new house payment?
2. Income stability – Is your income received regularly?
3. Credit history – How have you handled your other credit obligations?
4. Housing increase – Is there a large increase from your current housing expense to your new
mortgage payment? If you have paid your past debt on time and have also saved money for
emergencies, you will likely be able to handle the increased debt.
5. Funds for closing – Do you have enough money saved up to pay the required down payment
and closing costs?
6. Property – Is the home that you want to purchase worth as much or more than the loan you
are getting?
Qualifying guidelines
SunTrust Mortgage will use two qualifying guidelines to determine what size mortgage you are
eligible for. They are as follows:
1. Your monthly housing cost (including mortgage payment, property taxes, homeowner’s
hazard insurance, flood insurance, mortgage insurance, and condominium fees, if applicable)
should typically total no more than 33% of your gross monthly (before-tax) income.
2. Your monthly housing costs plus other long-term debts should total no more than 38% of
your gross monthly income.
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Basically, a household should spend no more than about 33% on housing and not more than about
38% on total indebtedness. Remember, this is based upon pre-tax dollars, so you still have to pay
income taxes, and have enough money left over to live within your budget comfortably.
SunTrust Mortgage has several mortgage products designed with low- and moderate-income
homebuyers in mind. We understand that our customers who fall into this income range will have to
put more of their income towards their housing expense, and so we have increased these ratios for
them accordingly.
Appendix 2 provides you with a simple spreadsheet to show you what your maximum mortgage
payment would be based on your current income. Figure out how much of a mortgage payment you
qualify for based upon the standard qualifying ratios on page 14.
Credit history
Credit reports are a snapshot of your personal credit history. Usually, if you are rejected for a loan or
other form of credit, your credit history is the culprit. Anyone who denies you credit must tell you
why in written form. Since you know that SunTrust Mortgage will review your credit report to see
how well you have responded to debt and credit in the past, you should be proactive and get a copy
of your credit report before you shop for a mortgage. By doing this, you will be able to see if there are
any problems with your credit and have an opportunity to fix them before you go through the home
shopping and mortgage application processes.
Appendix 3 provides you with the names of the three different credit-reporting agencies. Please call
or email all three of these agencies to get a copy of your credit reports. A SunTrust Mortgage loan
officer will be happy to review these reports with you and make suggestions on ways to improve your
credit rating.
The Home Buying Process
House hunting
Now that you are pre-qualified and have determined the approximate price of a home you can
afford, you are ready for the next step – finding the perfect home for you! It is important to keep in
mind what you feel comfortable paying. Your SunTrust Mortgage loan officer will help determine
the highest priced home for which you can qualify, but only you can decide how much you feel
comfortable paying each month. Remember your budget!
Before you shop, it is a good idea to make a “wish list.” A good real estate agent will assist you in
determining your housing requirements by asking good qualifying questions. Don’t waste your time
looking at houses that do not meet your basic requirements. Listed below are some items that you
should consider before beginning your house hunt:
1. Do you have a specific school district that you prefer?
2. Do you want a new or existing home?
3. Is there a specific location where you want to reside?
4. Are there certain features that you can’t live without?
The role of the Realtor®
In choosing a real estate agent you may want to get references from people you know who have recently
purchased homes. It is important to work with an experienced real estate agent who is familiar with the
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areas in which you are interested. You should feel comfortable working with the real estate agent.
While you are not obligated to work with only one real estate agent, you will probably choose to do
this once you find an agent that you like and trust.
In a typical real estate transaction you will pay nothing for the services provided by a real estate
agent. The agents are paid by the seller from sale proceeds; and, therefore, the agent represents the
seller. However, a real estate agent can represent you as a buyer’s broker. An agent can assist you with
a variety of services, including the following:
• Review general qualifying requirements to help determine affordable homes to consider.
• Review your wish list and qualifications to compile a list of potential properties.
• Make arrangements to show you houses that meet your requirements.
• Provide information on neighborhoods, schools, property tax rates, and public services
available to each neighborhood.
• Work with other real estate agents in getting your offer accepted by the seller.
• Assist you in the selection of an attorney, professional home inspector, and title and
homeowner’s insurance companies.
• Help to coordinate the many activities that must be handled during a real estate transaction.
Negotiating a purchase
Make an offer that you feel is appropriate and makes you comfortable. You may choose to offer a
lower price or to request the seller pay some of your closing costs; your real estate agent should
advise you if the price you wish to offer is out of line and help you negotiate the purchase.
You will be expected to put down a deposit when making the offer. The deposit will be held in escrow
until loan closing and can be applied towards the cash that you need to bring to closing. Your real estate
agent will present your offer to the seller or to the seller’s agent. If your offer is not accepted, you should
take your time in considering a counter offer. Do not be pressed into acting too quickly, even if other
buyers are waiting. Remember that this is probably the largest purchase you will have ever made, so you
must make sure that you are comfortable with the price and terms of the agreement.
Once you and the seller have accepted all terms in writing, the agreement becomes a legally binding
contract. You will be expected to follow through on all terms of the transaction, and cannot change
your mind after the offer has been accepted.
The importance of a professional home inspection
A contingency that many buyers choose to place on the contract is the home inspection. The intention
of the pre-purchase home inspection is to provide the buyer with useful information about the
condition of the residence and identify major deficiencies in the home’s structure and components.
A home inspector is a professional who has been trained to examine the visual condition of residential
properties and determine if they are free from discoverable major mechanical (heating, plumbing,
electrical, etc.) or structural (walls, roof, foundation, etc.) deficiencies. A professional home inspector
will tell you if the roof or heating system will soon need major repair or replacement, and whether the
electrical and plumbing systems are functioning properly. The inspector will let you know whether the
major mechanical/structural systems are in overall satisfactory condition.
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The mortgage loan process
After the seller has accepted the sales contract, you must apply for your home loan or mortgage.
At first, this process may seem a little overwhelming; however, as with anything, knowing what to
expect makes it easier.
Applying for a mortgage loan
SunTrust Mortgage will assist you in completing a mortgage loan application, and you will be
required to pay for your credit report and property appraisal at the time the application is completed.
You need to sign a variety of forms so that SunTrust Mortgage can verify your rental or mortgage
payment history, employment, savings and checking accounts, child care expenses, and any
installment debt accounts.
It will help expedite the process if you have all of your financial information gathered prior to
your loan application. Appendix 4 provides you with a checklist of the most frequently requested
information that you will need to provide. Use this checklist to gather information and documents
prior to completing the loan application.
Mortgage loan insurance
Whenever a borrower makes a down payment of less than 20 percent of the purchase price of the
home, the lender will require some type of mortgage insurance. This insurance protects the lender
against loss if the borrower defaults on the loan. Listed below are the different insurers of mortgage
loans. Each mortgage insurer has different down payment and qualification criteria.
1. Conventional/Mortgage Insurance (“MI”)
Typically the MI Company will require the borrower to have a minimum down payment
from their own funds invested in the transaction at least $500 or up to 30% of the sales price.
A gift from a relative may be received for additional down payment or closing costs. The cost
for MI varies depending on the amount of down payment that you make, your overall credit
rating, and will be added to your monthly mortgage payment.
2. Rural Development Guaranteed Loan Program (“RD”)
RD will insure loans that meet their guidelines and are located in rural designated areas. This
program sets maximum income limitations as well as maximum loan amount limitations.
3. Veterans Affairs Guaranteed Loans (“VA”)
VA will issue a guarantee on loans for 100 percent of the sales price for veterans with
VA eligibility and for eligible reservists with six years of service. Specific VA qualifying
guidelines must be met.
4. HUD-insured Loans (Federal Housing Administration or “FHA”)
The U.S. Department of Housing and Urban Development may also insure loans. Maximum
loan amounts are calculated based on the acquisition cost (sales price + borrower-paid closing
costs) and are limited by the HUD-designated limits. HUD-insured loans must meet specific
property requirements, and HUD specified borrower-qualifying guidelines. A gift for the full
down payment and closing costs is allowed.
The application process
Here’s what happens after you and your loan officer complete the loan application:
1. Verification process
You will be requested to sign forms authorizing SunTrust Mortgage to verify your current
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and previous employment, bank accounts, rental payment history, and other credit references
at the time of loan application.
2. Disclosure forms
SunTrust Mortgage will provide you with certain disclosures about your loan. You should ask
your loan officer about anything that you do not understand.
3. Payment of fees
You will be required to pay for your credit report and the property appraisal.
4. Loan processing
An individual will be assigned to assist with the processing of your loan. SunTrust will mail
the verification forms and order your credit report and appraisal. Based upon the information
that results from this process, you may be requested to provide explanations or additional
documentation to explain items such as gaps in employment, newly opened checking or
savings accounts, past delinquent credit or recent inquiries by creditors.
5. Loan decision
You will be notified in writing of the final decision on your loan. If your loan is approved,
you will receive a commitment letter, which indicates the terms of loan approval and
conditions that must be met prior to the closing of the loan.
Closing on your loan
Preparing for loan closing
Once your loan is approved, you should begin planning for loan closing or settlement. Together, SunTrust
Mortgage and your real estate agent will assist you with the many details to be managed. This is the time
when the sales transaction is completed. SunTrust Mortgage will provide your loan funds, the title to the
property will be transferred to you, the sellers will receive their sales proceeds, and you will receive the
keys to your new home. There are many forms that you are asked to sign or understand at closing. The
more familiar you are with these forms the more comfortable you will be on the day of closing.
Selecting the settlement agent
You choose who represents you at loan closing. In different parts of the country, closings are
variously conducted by lending institutions, title insurance companies, escrow companies, real estate
brokers, or attorneys for the buyer or seller. You may be able to save money by shopping around for
a settlement agent.
Homeowner’s insurance
It is a closing requirement that you obtain homeowner’s hazard insurance. You pay the premium,
and you and the lender are protected from loss if a fire or storm destroys or damages your home. A
homeowner’s hazard insurance policy should include:
• Personal Liability Insurance – This is to protect you if someone sues you after being injured
on your property or by a member of your family.
• Property Coverage – This protects you against fire, theft and specific weather-related hazards.
SunTrust Mortgage encourages you to shop around for homeowner’s hazard insurance. Your
insurance agent will help you decide how much coverage you need. SunTrust Mortgage
requires that you obtain coverage up to the “replacement value” of the improvements to the
property (including the house, garage, outbuildings, etc.).
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Title insurance
Title insurance is defined as “insurance against loss by reasons of liens and encumbrances upon the
property, defects in title to the property and other matters that may affect your right to use and enjoy
the property.” Title insurance offers the following types of coverage:
• Someone claims to have an easement through the middle of your property
• A neighbor claims to be the true owner of a piece of your property
• A bank tries to foreclose on your home because a recorded mortgage or Deed of Trust on the
property was never satisfied
There are two types of title insurance:
• Lender’s Coverage – will protect the lender’s interest in the property and will defend that interest
should any claims arise. SunTrust Mortgage requires that you obtain lender’s coverage.
• Owner’s Coverage – will protect your interest in the property for as long as you own the
property. SunTrust Mortgage does not require that you obtain owner’s coverage, however,
it is recommended that you obtain this very reasonably priced coverage for your protection.
Legal documents
• The Note
This is your promise to repay SunTrust Mortgage for the principal and interest of the loan.
The Note will reflect the terms under which you are borrowing the money (interest rate, term,
late payments, prepayment, and default).
• The Mortgage
The Mortgage or Deed of Trust is the legal document that secures the Note and gives the
lender a claim against your house and land if you default on your payments. In effect, you
have ownership and possession of the property, but the lender has an interest in the property
(called an encumbrance) until the loan has been fully paid.
• The Deed
This legal document conveys legal title from the seller to the buyer. The seller is responsible
for preparing the deed.
• HUD-1 Settlement Statement
This document itemizes all of the costs related to the transaction. It indicates which party
(buyer or seller) is responsible for payment of each item and will summarize the amount of
money that you owe and the amount due to the seller at closing. Both the buyer and seller are
required to sign this document. You may request a copy of your HUD-1 from your settlement
agent prior to closing so that you can review this document.
Final walk-through inspection
Your contract should have included a clause allowing you to examine the property within 24 hours
immediately prior to closing. This allows you to make sure the seller has (where applicable) vacated
the property and left any items that were negotiated in the contract and that there has not been any
damage to the property.
Closing day
Your settlement agent or attorney will notify you, in advance, of the amount of cash you will need for
closing. You must make sure that you have these funds available in advance of closing, and you must
take a cashier’s or certified check to closing (personal checks are not acceptable).
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Closing usually takes place in the office of the settlement agent or attorney. All final papers will be
prepared for you to review and sign. All forms will be explained to you before you sign them. Copies
of all of the closing forms will be provided to you and the settlement agent will give you the keys to
your new home.
About 30 days after closing, you will receive a Welcome Kit from SunTrust Mortgage, with a file
folder you may use to store your closing papers. The kit also includes valuable discount coupons and
a informational booklet about your mortgage account.
Homeownership Responsibilities
Understanding your obligations as a borrower
Now that you are a homeowner, you need to take the steps necessary to protect your investment.
Remember that your mortgage is due on the first day of each month. If you do not sign up for e-Pay
or SurePay (our on-line bill pay or automatic monthly deduction), SunTrust Mortgage will mail a
monthly billing statement to you after loan closing. In the unlikely event that your monthly billing
statement does not arrive prior to the time that your first payment is due, SunTrust Mortgage will
include a “First Payment Letter” in your settlement package. This letter provides you with the date
of your first payment, the amount of your payment, and the address where you must mail your
payment. Visit suntrustmortgage.com to set up monthly automatic deductions and never worry again
about making your payment on time!
Predatory lending and refinancing
Refinancing your mortgage loan can make sense and save you money if interest rates have dropped,
but it must be done carefully. The amount of money that you will save by refinancing your existing
mortgage loan must fully offset the cost of the refinance transaction.
Beware of predatory lenders who lend money against borrower’s homes in a way that can harm the
borrower more than help them. They may try to convince the borrower to refinance their home for
no good reason (other than to earn fees). While not all of the practices of predatory lenders are illegal,
consumers need to protect themselves.
Here are some warning signs of predatory lending:
1. The interest rate seems higher than reasonable.
2. The lender contacts you even though you are not in the market for a loan.
3. They use aggressive, high-pressure tactics.
4. They rush you through the process and discourage you from taking time to read and
understand what you are signing.
5. They encourage you to refinance a loan you already have without showing you any real benefit.
6. They insist on you buying life insurance as part of the loan.
Don’t borrow trouble
If you are not confident that you can make the monthly payments, do not borrow the money. You
could lose your home. Do not try to borrow your way out of debt. If you cannot make your current
payments, getting a new loan is generally not the solution. We encourage you to seek help if you are
having financial trouble. Your SunTrust Mortgage Customer Service Representative will be happy to
suggest different agencies that will be able to assist you with evaluating your finances.
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Avoiding foreclosure
As stated in your loan documents, your mortgage payment is due on the first day of each month. By
making this obligation a priority, you can avoid costly late charge assessments and maintain a good
credit history. Even the most reliable borrowers sometimes fail to meet every payment on it’s due date,
and it is possible that there is a good reason for this failure. If you are having problems making your
monthly payments, you must act immediately. If you do, you might avoid losing your home through
foreclosure. SunTrust Mortgage will do everything in its power to assist you with getting back on track.
Maintaining your home and building its value
Now that you have moved into your American dream home, it’s time to think about the future.
Your home is likely your most valuable asset by far, so it is critical that you give it the attention that
it deserves.
Maintenance and repairs
It’s your home now, so when something breaks, you can’t just call the landlord or building
superintendent. For example, neither the property seller nor SunTrust Mortgage are responsible if the
water heater breaks. You have to fix it or pay someone else to fix it. Attention to regular maintenance
can often help you avoid repairs, and prompt repairs can help you avoid more costly disasters.
Major repairs/home improvements
Sooner or later you may need to hire an expert to help you with major repairs or home improvement.
Perhaps you want to remodel your kitchen or bathroom that you promised yourself you would do
when you moved into your new home. The following guidelines can help you get such a project done
right for a fair price.
1. Interview several contractors. Find one that listens to you and with whom you feel
comfortable working.
2. Ask for references and check them. You might begin by asking friends and neighbors to
recommend companies or individuals that have provided them with good service. Many
counties and cities have a licensing process for home improvement contractors. If the repair
job is relatively small or you’re on a budget, you may get better service from an individual
than from a large firm.
3. Get cost estimates, and find out whether these are estimates or firm bids. Often, especially
on older houses, contractors will not give a firm bid because it’s impossible to know until
they start the work what they’ll find and how hard it will be to fix.
4. To protect yourself, especially for a larger job, be sure you have a contract that specifies
exactly what work is to be performed, when payments are due, and so on. Always hold back
part of the payment until after the job is finished. If the job requires permits, find out who
is responsible for obtaining them.
Wrap-up
We hope that you have learned a lot about the home-buying and mortgage process. Remember that you
can’t be expected to know everything, but we hope that you have a clearer understanding of the issues.
Good luck on your journey down the road to homeownership.
Visit suntrustmortgage.com or a SunTrust Mortgage office, and let us know how SunTrust Mortgage
can help you!
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Appendix 1
Monthly Household Budget
Date:
PROJECTED
NET MONTHLY INCOME
Source 1
Source 2
Other income
Total Income (A)
FIXED EXPENSES
Rent/mortgage
Electric
Gas/oil
Water/sewer
Telephone
Cellular phone
Trash pickup
Cable (includes internet service)
Auto payment(s)
Auto insurance
Life insurance
Child support/alimony
Medical insurance
Child care
Other
Total (B)
CREDITOR PAYMENTS
Installment loans
Credit card payments
Total Payments (C)
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ACTUAL
DIFFERENCE
Appendix 1 continued
Monthly Household Budget
Date:
PROJECTED
FLEXIBLE EXPENSES
Savings
Groceries
Lunch (work/school)
Eating out
Entertaining/hobbies
Laundry/dry cleaning
Clothing
Gasoline/bus/taxi
Newspaper/magazines
Church/charity
Tuition/books
Salon/haircuts
Auto maintenance
House maintenance
Doctor/Dentist
Pets
Parking/tolls
Other
Total (D)
EXPENSES: (B+C+D=E)
FIXED (B)
CREDITOR (C)
FLEXIBLE (D)
TOTAL EXPENSES (E)
Subtract Expenses from Income (A – E):
Total income (A)
Total expenses (E)
Difference
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ACTUAL
DIFFERENCE
Appendix 2
Calculating your maximum mortgage amount
Housing expense ratio (1)
Total gross monthly income (pre-tax)
X 33%
Maximum allowable for mortgage payment (PITI)
$
X . 33
$
(1)
Total debt ratio (2)
Total gross monthly income (pre-tax)
X 38%
Maximum allowable for mortgage payment
before other debt (PITI)
Minus total monthly debt payment*
Maximum allowable for mortgage payment (PITI)
$
$
$
$
(2)
Choose the lower of (1) or (2)
$
(3)
X .38
This figure estimates your maximum allowable mortgage payment (PITI), given your current gross monthly
income and debts.
Multiply (3) by 80% to estimate the portion
of PITI that represents P&I payment only
$
(2)
MAXIMUM ALLOWABLE FOR P&I
$
(4)
Divide the MAXIMUM ALLOWABLE FOR P&I (line 4) by the factor in the chart below that most closely
represents today’s interest rate environment.
Interest Rate
6.00%
6.50%
7.00%
7.50%
8.00%
8.50%
9.00%
9.50%
30-Year P&I Factor
.00600
.00632
.00665
.00699
.00734
.00769
.00805
.00841
P&I divided by (P&I Factor) = maximum loan amount
$ ____________________ ÷ ____________________ = $ ____________________ maximum loan amount
* This is the total monthly amount that you pay toward all revolving and installment debt loans, including car payment, credit card payments and bank loans.
14
Appendix 3
Send for a copy of your credit file
1. Equifax
Cost of report: $9.00*
Equifax Credit Information Services
P.O. Box 740241
Atlanta, GA 30374
800-685-1111
econsumer.equifax.com
2. Trans Union
Cost of report: $14.95*
P.O. Box 1000
Chester, PA 19022
800-888-4213
tuc.com
3. Experian
Cost of Report: $9.00*
P.O. Box 2104
Allen, TX 75013-0949
1-888-397-3742
experian.com
Contact one of these agencies to request a copy of your credit report. You are required to include a
copy of a document showing name and address, such as a copy of driver’s license, voter registration
card, or billing statement that verifies your current address.
When you request your credit file, you must provide the following information:
• Full name
• Any former address during the last five years, including zip
• Social Security number
• Date of birth
• Spouse’s name (if married)
*Subject to change by the credit reporting agency without notice.
15
Appendix 4
Checklist of items to take to loan application meeting*
Property Information
_____
_____
_____
_____
_____
_____
_____
_____
Purchase contract – fully executed original
Names, company, and telephone number for listing and selling real-estate agents
Name, address, and telephone number for closing attorney (if known)
Copy of check for earnest money deposit
Copy of listing, including real estate taxes and lot dimensions
Legal description of property being purchased
Homeowner’s hazard insurance agent’s name, company, and phone number
Name and telephone number of person(s) for appraiser to contact to access the property
Employment
_____ Names, addresses, telephone numbers, and exact dates of employment with ALL employers over
the past two years
_____ W-2/1099s for all employers for the past two years
_____ Signed personal federal tax returns including all schedules for the past two years
_____ Pay stubs for the previous 30 days
_____ If self-employed, signed company federal tax returns including all schedules for past two years
_____ If self-employed or commission, current (within past 3 months): Year-to-date Profit and Loss
statement and Balance Sheet, reviewed and signed by an accountant without audit
_____ Award letter(s) or most current amendment for Social Security or retirement benefits.
Include proof of payment (Direct Deposit or check stub)
_____ Copy of Note income – must have 5 years or more remaining
_____ Rental agreement/leases (FHA requires one-year lease) for all tenants of real property owned
_____ Schedule of real estate on all real property owned to include property address and zip codes,
property type, mortgage type (FHA, VA, conventional, private, etc.), date mortgage originated,
mortgage balance, mortgage payment, rental income, and net income earned (positive and/or
negative) on each property
_____ Proof of consistent receipt of child support and alimony if considered
Assets
_____ Two months of current statements for ALL bank or credit union accounts (savings or checking)
showing balances and account numbers.
_____ Stock and bond account statements including brokers’ names, addresses, account numbers,
number of shares, and value
_____ Life insurance face amount – cash value if any
_____ Year, make, and estimated value of all vehicles
_____ Gift letter – funds will be verified in borrower’s account
* Not all items may apply to your application; ask your SunTrust Mortgage Loan Officer.
16
Appendix 4 continued
Liabilities
_____ Names, addresses, balances, monthly payments, and account numbers for all vehicle loans,
charge accounts, credit cards, and any other financial obligations
_____ Lenders’ names, addresses, balances, and monthly payments and account numbers for all
mortgages. Include a copy of annual statement, a 12-month payment history, and the type
loan (FHA, VA, conventional, and/or private) for each loan.
_____ Letter explaining any slow pays, collection accounts, judgments, or other credit problems
_____ Bankruptcy paper (petition, schedule of debts, and discharge) and a letter of explanation
Other
_____
_____
_____
_____
Addresses and dates of occupancy for ALL residences for the past two years
Names and addresses of all landlords within the last two years
Copies of Social Security cards
If divorced, provide divorce decree and stipulations
17
Appendix 5
Glossary of Mortgage Terms
Abstract (or search) of Title: A brief history of the legal ownership of a piece of property.
Acceleration clause: A clause in a Deed of Trust or mortgage which accelerates or hastens the time
when the debt becomes due; for example, most Deeds of Trust or mortgages contain a provision that
the note shall become due immediately upon the sale or transfer of title of land or upon failure to pay
an installment of principal or interest.
Amortization: Repayment of mortgage debt with equal periodic payments of both principal and
interest, calculated to retire the obligation at the end of a fixed period of time.
Annual mortgage statement: Report to the borrower of taxes and interest paid during the year and
remaining principal balance.
Applicant: One who applies for a real estate loan (the prospective borrower).
Application: A form used to record pertinent information concerning a prospective borrower. This
form is used for evaluating the applicant in terms of his or her credit standing and history, earning
potential, ability to pay the real estate loan, and the property to be pledged as security.
Appraisal: A formal written estimate of the current market value of a home and land. It also refers to
the process by which a value estimate is obtained.
Borrower: One who receives funds in the form of a loan with the obligation of repaying the loan in
full with interest.
Broker: In real estate transactions, the broker usually brings together the buyer, seller, and the
mortgage lender to assist them in negotiating a contract.
Buydown mortgage: A mortgage with a below-market interest rate made by a lender in return for an
interest rate subsidy in the form of additional discount points paid by the builder, seller, or buyer.
Cancellation clause: A clause in a contract whereby either one of the parties is permitted to terminate
the contract upon the occurrence of specific conditions set forth in the clause. For example, if the
buyers are not certain whether they can secure a mortgage, they would insist on this clause to protect
themselves in the event a mortgage is not secured.
Certificate of Title: A document stating the name of the legal owner of the property, which often
furnishes a legal description of the property.
Chain of title: A list as far back as the records show of all transfers of ownership with a list of
anything that may affect the title, such as easements or encumbrances.
Chattel: Personal property.
Closing: The delivery of a deed, financial adjustments, the signing of the Note, and the mortgage or
Deed of Trust and the disbursement of funds necessary to consummate a sale or loan transaction.
Closing costs: Fees paid to effect the closing of a loan, such as origination fee, discount points, title
insurance fees, survey fees, and attorney’s fees.
18
Cloud of title: A defect in the title, such as an encumbrance, a lien or a claim that may prevent the
owner from transferring a clear title.
Conventional financing: Mortgage financing that is not insured or guaranteed by a government
agency, such as HUD/FHA, VA, or USDA Rural Development.
Credit report: A report to a prospective lender on the credit standing of a prospective borrower, used
to aid in the determination of creditworthiness.
Debt-to-income ratio: The ratio, expressed as a percentage, which results when a borrower’s monthly
payment obligation on long-term debts is divided by his or her gross monthly income.
Deed of Trust: A type of security instrument in which the borrower conveys title to real property to
a third party (trustee) to be held in trust as security for the lender with the condition that the trustee
shall reconvey the title upon the payment of the debt in full and conversely, will sell the land and pay
the debt in the event of a default by the borrower.
Deficiency judgment: A judgment against a borrower if the sale of pledged property at foreclosure
does not bring in enough money to pay the balance due the lender, under the note.
Delinquency: Failure of a borrower to make timely payments under a loan agreement.
Deposit: Amount of money given to bind sale of real estate or to ensure payment; advance of funds
in the processing of a loan.
Down payment: The difference between the sales price of real estate and the mortgage amount.
Earnest money: The deposit money given to the sellers by the buyers to show that they are serious
about buying the house. This money is usually applied to the down payment if the contract is accepted.
Federal Housing Administration (FHA): A federal agency with the Department of Housing and Urban
Development that provides mortgage insurance for residential mortgages and sets standards for
construction and underwriting.
Foreclosure: A procedure in which a mortgaged property is sold to pay the outstanding debt in case
of default.
Good faith estimate: An estimate of the closing costs given to the borrower within three (3) business
days after the lender receives a completed loan application.
Gross monthly income: The total amount the borrower earns per month before any expenses are
deducted.
Homeowner’s hazard insurance: A policy insuring against multiple perils, commonly called a package
policy, and made available to owners of private dwellings. There are wide variations in the coverage of
such policies, which generally insure the dwelling and its contents.
Joint tenancy: The ownership of real estate for life by two or more persons, each having an undivided
interest.
Loan-to-value ratio: The ratio, expressed as a percentage, that results from dividing the amount being
borrowed by the appraised value or selling price of the house.
19
Market value: The highest price that a buyer and the lowest price that a seller will accept, neither one
being compelled to buy or sell.
Maturity date: The date on which a mortgage indebtedness is completed if paid in accordance with
the terms of the Note.
Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.
Mortgage discount points: Points are a one-time charge made by a lending institution. A point is
equal to 1 percent of the loan amount.
Origination fee: The lender’s fee charged to a borrower to prepare documents, make credit checks,
inspect, and sometimes appraise a property. Usually this is equal to 1 percent of the loan amount.
PITI: Principal, interest, real estate taxes, homeowner’s hazard insurance and private mortgage
insurance. Also called monthly housing expense.
Prepayment: The buyer may be permitted to pay off the mortgage before maturity without penalty.
At times, buyers may decide to refinance at a lower rate or to fully pay the mortgage before it is due.
Prepaid expenses: The initial deposit at the time of closing for real estate taxes and homeowner’s
hazard insurance and the subsequent monthly deposits made to the lender for that purpose.
Principal: The original balance of money lent, excluding interest. Also, the remaining balance of a
loan, excluding interest.
Private mortgage insurance: Insurance written by a private company protecting the mortgage lender
against financial loss occasioned by a borrower defaulting on the mortgage.
Realtor®: A person licensed to sell and/or lease real property, acting as an agent for others, and who
is a member of a local real estate board affiliated with the National Association of Realtors® Realtor®
is a registered trademark of the NAR.
Real Estate Settlement Procedures Act (RESPA): A federal statute and regulation published by HUD
governing real estate lending practices and disclosures. It’s main features pertain to the distributions
of a good-faith estimate of loan settlement costs and the HUD settlement booklet within three
business days of making loan application.
USDA Rural Development: This agency provides financing to farmers and other qualified borrowers
who are unable to obtain loans elsewhere.
Sales contract: A written agreement between the buyer and the seller stating the terms and
conditions of a sale or exchange of property.
Settlement: The closing of a mortgage loan.
Survey: A measurement of land, prepared by a registered land surveyor, showing the location of
the land with reference to known points, its dimensions, and the location and dimension of any
improvements.
Title: The means whereby the owner of land has the just possession of the property; the right to or
ownership in land. In the case of real estate, the documentary evidence of ownership is the deed that
specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be
acquired through purchase, inheritance, gift, or through foreclosure of a mortgage.
20
Title insurance: A policy, usually issued by a title insurance company, which insures against errors in
the title search. The cost of the policy is usually a function of the value of the property and is often
borne by the purchaser and/or seller.
Title search: An examination of public records, laws, and court decisions to ensure that no one except
the seller has a valid claim to the property, and to disclose past and current facts regarding ownership
of the subject property.
Truth-In-Lending Act: A federal law requiring disclosure of the annual percentage rate to homebuyers
shortly after they apply for a loan.
Underwriting: The decision whether to make a loan to a potential homebuyer based on credit,
employment, assets and other factors, and the matching of risk to an appropriate rate and term or
loan amount.
VA loans: A long-term, low or no down payment loan guaranteed by the Department of Veterans
Affairs. Restricted to individuals qualified by military service or other entitlement.
Verification of Deposit: A form that requests and secures verifications of amounts of deposit at
financial institutions. When a depository institution is also the applicant’s creditor, the VOD verifies
the obligations.
Verification of Employment: A form that requests and secures documentation of a mortgage
applicant’s work history and/or occupation to assist in the lender’s credit investigation.
Notes
21
MORTGAGE
suntrustmortgage.com
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numbers, PINs, credit or Check Card numbers, or other confidential information.
Equal Housing Lender. SunTrust Mortgage, Inc., 901 Semmes Avenue, Richmond, VA 23224 is licensed by the Department of Corporations under the California Residential
Mortgage Lending Act; is an Illinois Residential Mortgage Licensee; is a Lender in Massachusetts having Mortgage Lender license #s ML1216, ML0133, ML1432, ML1914, ML1913, ML1815,
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at 145 Pinelawn Road, Suite 330, Melville, NY 11747. ©2005, SunTrust Banks, Inc. SunTrust is a federally registered service mark of SunTrust Banks, Inc. mkt 10354-05 R05-05 314421