Below is a list of documents that we required when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation.
Your Property 1. Copy of Purchase Contract and all addendums 2. Verification of the deposit 3. Names, addresses and telephone numbers of all realtors, builders, insurance agents and attorneys involved 4. Copy of Listing Sheet and legal description if available (if the property is a condominium please provide HOA contact
Your Income 1. Copies of your pay-stubs for the most recent 30-day period 2. Copies of your W-2 forms for the past two years 3. Names and addresses of all employers for the last two years 4. Letter explaining any gaps in employment in the past 2 years
If Self-employed or receive Commission or Bonus, Interest/Dividends, or Rental income: 1. Provide full tax returns for the last two years PLUS year-to-date Profit and Loss statement (please provide complete tax return including attached schedules and statements. If you have filed an extension, please supply a copy of the extension.) 2. K-1's for all partnerships and S-Corporations for the last two years (please double-check your return. Most K-1's are not attached to the 1040.) 3. Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) including all schedules, statements and addenda for the last two years. (Required only if your ownership position is 25% or greater.)
If you will use Alimony or Child Support to qualify:1. Provide Divorce Decree/court order stating amount, as well as, proof of receipt of funds for last year
If you receive Social Security income, Disability or VA benefits: 1. Provide Awards Letter from agency or organization
Source of Funds and Down Payment 1. Sale of your existing home - provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement) 2. Savings, checking or money market funds - provide copies of bank statements for the last 3 months (please make sure they have your name and account number on statements)3. Stocks and bonds - provide copies of your statement 4. Gifts – If down payment is a gift from a relative, provide Gift Letter and proof of receipt of funds 5. Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation
What is an Appraisal ?Appraisal is a document that gives an estimate of a property's fair market value. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The appraisal is performed by an "appraiser" who is typically a state-licensed individual trained to render expert opinions concerning property values. In an appraisal, consideration is given to the property, its location, amenities as well as its physical conditions.
What Happens at Closing ?
At the closing, ownership of the newly purchased home is officially transferred from the Seller to you. It may involve you, the Seller, the Real Estate Agent, your Attorney, the Lender's Attorney, representatives from the Title or Escrow Firm, and a variety of Clerks, Secretaries, and other Staff. Closing can take as little time as an hour to sign all the forms and transfer ownership or it can take several hours, depending on the contingency clauses in the purchase offer (and any escrow accounts that may need to be set up).
Before you close on the house, you should have a final inspection, or walk-through, to make sure any repairs you requested have been made and that items which were to remain with the house (drapes, light fixtures) are still there.
In most states, settlement is done by a Title or Escrow Companies to which you forward all the materials and information along with the appropriate cashiers' check. The Title or Escrow Company will make the necessary disbursements. The Real Estate Agent or other representative of the Title Company will deliver the check to the Seller and the house keys to you.
Statutory costs are expenses you would have to pay to state and local agencies even if you paid cash for the house and did not need to take out a mortgage. They include the following:
Transfer Taxes are required by some localities to transfer the title and deed from the seller to you.
Recording Fees for Deed pay for the county clerk to record the deed and mortgage and change the property tax billing.
Pro-Rated Taxes such as school taxes and municipal taxes may have to be split between you and the seller because they are due at different times of the year. For example, if taxes are due in October and you close in August, you would owe taxes for 2 months while the seller would owe taxes for the other 10 months. Prorated taxes usually are paid based on the number of days (not months) of ownership. Some lenders may require you to set up an escrow account to cover these bills. If your lender does not require an escrow account, you may want to set up a special account on your own to make sure you have money set aside for these important, and large, bills.
Other State and Local fees can include mortgage taxes levied by states as well as other local fees.
Third-party costs are expenses paid to others such as inspectors or insurance firms. You would have to pay many of these expenses even if you paid cash for the house. Examples of third-party costs are as follows:
Attorney Fees: You will probably want to work with an attorney when buying a home. Attorneys usually charge a percentage of the selling price (three-fourths or 1 percent), but some may work for a flat fee or on an hourly basis.
Title Search Costs: Usually your attorney will do or arrange for the title search to make sure there are no obstacles (liens, lawsuits) to your owning the home. In some cases, you may work with a title company to verify a clear title to the property.
Homeowner's Insurance: Most lenders require that you prepay the first year's premium for homeowner's insurance and bring proof of payment to the closing. This insures that their investment will be secured, even if the house is destroyed.
Real Estate Agent's Sales Commission: The seller pays the commission to the real estate agent. If one agent lists the property and another sells it, the commission usually is split between the two. It's important to keep in mind that even the commission is negotiable between the seller and the agent.
Finance and Lender Charges
Most people associate closing costs with the finance charges levied by mortgage lenders. The charges you pay will vary among lenders, so it pays to shop around for the best combination of mortgage terms and closing (or settlement) costs. You may have to pay the following charges:
Origination or Application Fees: These are fees for processing the mortgage application and may be a flat fee or a percentage of the mortgage.
Credit report: When loan is applied for a credit report is always pulled, usually the report is $15.00, depending on the lender.
Points: A point is equal to 1% of the amount borrowed. Points can be payable when the loan is approved (before closing) or at closing. Points can be shared with the seller--you may want to negotiate this in the purchase offer. Some lenders will let you finance points, adding this cost to the mortgage, which will increase your interest costs. If you pay the points up front, they are deductible in your income taxes in the year they are paid. Different deductibility rules apply to second homes.
Lender's Attorney's Fees: Lenders may have their attorney draw up documents, check to see that the title is clear, and represent them at the closing.
Preparation of Amortization Schedule: Some lenders will prepare a detailed amortization schedule for the full term of your mortgage. They are more likely to do this for fixed mortgages than for adjustable mortgages.
Land Survey: Most lenders will require that the property be surveyed to make sure that no one has encroached on it and to verify the buildings and improvements to the property.
Appraisals: Lenders want to be sure the property is worth at least as much as the mortgage. Professional property appraisers will compare the value of the house to that of similar properties in the neighborhood or community, the appraisal is paid by the borrower and usually runs around $350.00.
Lender's Mortgage Insurance: If your down payment is less than 20%, many lenders will require that you purchase private mortgage insurance (PMI) for the amount of the loan. The reason for this is if you default on the loan, the lender will recover his money. These insurance premiums will continue until your principal payments plus down payment equal 20% of the selling price.
Lender's Title Insurance: Even though there is a title search for any obstacle (liens, lawsuits), many lenders require insurance so that should a problem arise, they can recover their mortgage investment. This is a one-time insurance premium, usually paid at closing; it is insurance for the lender only, not for you as a purchaser.
Inspections required by lender : If you apply for an FHA or VA mortgage, the lender will require a termite inspection.
Prepaid interest: Your first regular mortgage payment is usually due about 6 to 8 weeks after you close (for example, if you close in August, your first regular payment will be in October; the October payment covers the cost of borrowing money for the month of September). Interest costs, however, start as soon as you close. The lender will calculate how much interest you owe for the fraction of the month in which you close (for example, if you close on August 25, you would owe interest for 6 days). In some cases this is due at closing.
Escrow account: Lenders will often require that you set up an escrow account into which you will make monthly payments for taxes, homeowner's insurance, and PMI (Private Mortgage Insurance, if required). The amount placed in this escrow account at closing depends on when property taxes are due and the timing of the settlement transaction. The lender should be able to give you a close estimate of these costs at the time you apply for your mortgage loan.
What is RESPA ?
The Real Estate Settlement Procedures Act (RESPA) contains information on the settlement or closing costs you are likely to face. Within 3 days of the time you apply for the mortgage, your lender is required to provide you with a "good faith estimate of settlement costs," based on his or her understanding of your purchase contract. This estimate should give you a good idea of how much cash you will need at closing to cover pro-rated taxes, first month's interest, and other settlement costs.
The act also requires lenders to give you an information booklet, Settlement Costs and You, written by the U.S. Department of Housing and Urban Development, which discusses how to negotiate a sales contract, how to work with various professionals (attorneys, real estate agents, lenders), and your rights and responsibilities as a home buyer. It also shows an example of the uniform settlement statement that will be used at your closing.
One business day before you close, you are entitled to see a copy of the Uniform Settlement Statement with your figures on it so you will know just how much the final costs will be.
What is Truth in Lending ?
Mortgage lenders are required to give you a Truth in Lending (TIL) statement containing information on the annual percentage rate, the finance charge, the amount financed, and the total payments required. For adjustable rate loans, the "total payments" figure is estimated as a "worst case" scenario. The figure represents the payments you would make if your loan adjusted upward to the maximum rate allowed by annual and lifetime caps and then stayed there for the duration of the loan.
The TIL statement may also contain information on security interest, late charges, prepayment provisions, and whether the mortgage is assumable. If you have an adjustable rate loan, it may outline the limits on the adjustments (annual and lifetime caps) and give an example of what your next year's payment might be, depending on interest rates.