California home loans

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Frequently Asked Questions about the Loan Process

 

What Documents Will I Need for My Loan Application?

What's Involved in the Closing Meeting?

What Costs Will I Pay at Closing?

How Do Lenders Decide Loan Approval?

What Decisions Do Credit Lenders Make?

What is Private Mortgage Insurance?

What Determines the Cost of a Mortgage?

What is a VA Loan?

What is a FHA Loan?

How Can I save on a Fixed Rate Mortgage?

What Is the CRA Grant Program?

Can I buy a Home with zero down (100% financing)?

What is a property appraisal?

What's the Point of Paying Points?

California home loans

 

What Documents Will I Need for My Loan Application?

 

When preparing a loan, the lender will ask for substantial documentation. Here's a list of what is usually required.

 

Personal Information

  • Address and telephone numbers of each borrower

  • Previous address(es) over the last seven years

  • Social Security number(s) of applicants

  • Age of applicant(s) and dependent(s)

  • Name and address of landlord(s) or lender(s) for the past two years and proof of payment

  • Current housing expense details (rent, mortgage payments, taxes, insurance)

Employment/Income

  • Name and address of employer(s) for the past two years

  • Pay stubs for the past 30 days W-2 forms for the past two years

  • A written explanation of any employment gaps

  • If you're self-employed you'll need:

  • Complete, signed Federal Income Tax Returns for the past two years (personal and corporate)

  • Year-to-date Profit and Loss Statement and Balance Sheet

Other Income

  • If you receive Social Security, a pension, disability or VA benefits you'll need:

  • A copy of your awards letter (or tax returns for the past two years)

  • A copy of your most recent check

Child Support

  • If you pay child support you'll need:

  • A copy of the divorce or separation agreement

  • Evidence of payment for the last 6-12 months (cancelled checks of pay history from the courts)

Rental Income

If you receive rental income you'll need:

  • A copy of the lease

Debt Disclosure - Credit Cards, Loans and/or Current Mortgages

  • Name and address of each creditor

  • Account number, monthly payment and outstanding balance for each

  • Proof of recent payment or current statement for each

  • Documentation of alimony or child support you are required to pay

  • Written explanation of any past credit problems

Loan Application for Home Purchase

  • A complete, signed copy of sales contract Mailing address and property description (if it's not in the contract)

  • A copy of your cancelled earnest money check Loan Application for Refinance

  • A copy of the deed

  • A copy of your hazard insurance policy

  • A copy of the property survey

  • Proof that your home has passed a termite inspection

Evidence of Funds for Down payment

  • If the down payment is a gift you'll need a signed gift letter, the giver's bank statement showing sufficient funds, a copy of the check and a deposit slip

  • If you have any recent large deposits or new accounts you'll need to show documentation

Other

  • If your loan is for new construction the lender will need to see plans and specifications

  • If there's a bankruptcy in your financial history you'll need complete documentation

Fees

  • Appraisal fee (approximately $350)

  • Credit report fee (approximately $50)

  • In some areas, a flood determination fee (approximately $20)

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What's Involved in the Closing Meeting?

 

Preparing for Closing
Many things must be taken care of before you come to the closing meeting. Ask your lender for a list of your responsibilities so you can arrive fully prepared.

 

Set a Closing Date


When choosing a closing date give yourself time to gather all your information and free up any necessary funds. The lender will need time to prepare and deliver loan documents (usually 3-5 days), home inspections must be scheduled and if any repairs are needed allow enough time for them to be completed. Also, if your rate is locked in, make sure you close before the deadline so you'll be guaranteed the quoted interest rate.

 

Other Required Items


Your lender will provide you with a commitment letter that lists all the other documentation that's required at closing. The following are common examples.

  • Survey - This shows the property's boundaries and any improvements made to it. It also details any encroachments on the property like fences or buildings. Major encroachments must be corrected before closing.

  • Termite Inspection - Many areas legally require homes to pass a termite inspection, and all FHA and VA loans require one. If a termite inspection is required you must bring the certification to closing.

  • Homeowner's Insurance - Lenders require you to carry insurance for the replacement cost of the property. Bring the policy with you to closing.

  • Title Insurance Policy - All lenders require title insurance to protect them against claims of property ownership by anyone other than the borrower. The title insurance issues the policy company after conducting a title search.

  • Flood Insurance - A flood insurance policy is necessary for any property located in a flood plain.

  • Water and Sewer Certification - If the property isn't served by public water and sewer facilities you'll need certification from the local government that you have a private water source and sanitary sewer facility.

  • Certificate of Occupancy - For a new home you'll need one of these before you move in. The builder should get it for you from the city or county.

  • Building Code Compliance - An inspection is often required to make sure the property conforms to current building codes. There will be an inspection fee, and the contract should specify who pays for any repairs needed to bring the home up to code.

Final Walk-Through


A day or two before closing it's a good idea to take one last look at the home to make sure repairs have been made, there's no new damage, and anything meant to be sold with the property is still there. You can do this on your own or with your real estate agent.

 

Closing Costs


One business day before closing your lender must allow you to review your

 

Settlement Statement


This is the final exact amount you'll owe at closing and it must be brought in the form of a certified or cashier's check. (Our Closing Costs Checklist can help you keep track of these expenses.)

 

The Closing Meeting


The legal sale and purchase of your home happens at the closing meeting which is attended by the buyer (you), the loan officer, the seller and any real estate agents or attorneys involved. (In some areas, closing is done by an agent without a meeting.)

 

Examination and Signing of Documents


At the closing meeting, the closing agent will review the settlement sheet with you and the seller and ask you both to sign it. This is also when you'll present evidence of insurance and inspections and sign all other loan documents.

 

Payment of Closing Costs


Once all papers are signed and in order you'll hand over the check for closing costs (the down payment is included in check) and the lender provides the remaining funds to purchase the house.

 

Transfer of Property


Congratulations! You now own your new home. After the meeting, the closing agent will record the mortgage and deed in your name with local government records and all funds will be disbursed.

 

Documents


During closing you'll sign stacks of important paperwork, including the following:

  • HUD-1 Settlement Sheet - This is the itemized list of closing costs your lender gave you the day before closing. After the closing agent completes it you and the seller both sign it.

  • Truth-in-Lending Statement - Given to you soon after you applied for your loan, it outlines the cost of the loan, gives you the APR (annual percentage rate) and defines the loan terms and number of payments.

  • The Mortgage Note - The mortgage (or promissory) note is legal evidence of your promise to repay the loan according to the agreed terms which this document outlines.

  • The Mortgage - This is the legal document that gives the lender a claim against your house if you fail to uphold the terms of the mortgage note. Although you have possession of the house the lender shares ownership until you pay off the loan, and can demand full payment or foreclosure if you default. Some states use a deed of trust instead that conveys title to a trustee until the loan is repaid.

  • Affidavits - These are documents required either by the lender or the law. Your lender can explain any affidavits you're asked to sign.

  • The Deed - This document transfers ownership to your name and is signed by the seller at closing. You'll get a copy at closing and the original will be sent to you after it's recorded.

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What Costs Will I Pay at Closing?

 

Closing costs vary according to lender, location and even from sale to sale. Some costs can be negotiated, reduced or even waived and some may be paid by the seller.

When you're doing your research, use this checklist to get a rough idea of what you'll pay at closing. The lender or closing agent will provide you with an exact total a day or two before closing.

 

Closing Costs Checklist

$______Down payment

$______Lender's points

$______Prepaid interest

$______Loan origination fee

$______Mortgage insurance

$______Credit reports

$______Appraisal(s)

$______Survey of property

$______Inspections

$______Homeowner's insurance

$______Attorneys' fees

$______Title search

$______Title insurance

$______Prorated property taxes

$______Recording fees

$______Closing taxes

$______Escrow account for and insurance

$______Other costs specified in purchase agreement

$______Other costs

 

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How Do Lenders Decide Loan Approval?

 

The Four "Cs" of Loan Approval

1. Capacity

2. Credit

3. Collateral

4. Character

Capacity


A lender will weigh your housing expenses and total debt against your monthly income to determine your ability to repay a loan.

Monthly Income - Your net monthly income. If you're self-employed or receive commissions or bonuses, the lender averages your monthly income over the last two years.

Housing Expenses - This is the monthly payment you'll have with the new loan, along with the monthly cost of insurance, property taxes and any homeowner's fees or other costs.

Total debt - Add up any current mortgages, credit card balances, child support or alimony payments, tuition, car loans or other installment loans that will take longer than 10 months to pay off and this is your total debt. If your monthly mortgage payment is less than 28% of your net monthly income, a lender will typically consider you qualified to repay the loan. That figure can even go as high as 36% depending on the buyer. For instance, many lenders will allow a first-time buyer's housing expenses to take up more of their income.

Credit


To find out what kind of credit risk you represent, your lender will investigate your:

  • Previous mortgage payment history

  • Rent payment history

  • Credit card use

  • Installment debt payment history

A few late payments on a credit card may not hurt you all that much. But collections, repossessions, foreclosures and bankruptcies can be serious problems. If you have a good explanation you may still be able to repair your credit rating and get approval.

 

Collateral


When you ask for a home loan, you're putting the home itself up as collateral. Naturally, the lender will want to know that the home is worth at least as much as the loan amount, which is why an inspection is required.

But they'll also want proof that you have the cash necessary for the down payment and closing costs. They'll seek verification of funds from sources including bank accounts, stocks, bonds, mutual funds, the sale of an existing property or any gifts from family members that will not have to be repaid.

 

Character


The way you conduct your financial transactions tells a lender a great deal about your fiscal character. If you take responsibility for your debts by paying your bills regularly and on-time, you will appear to have the integrity they're looking for in a borrower.

 

Other Compensating Factors


Many factors can sway a lender in your favor. The bottom line is that the lender wants to feel secure in loaning you money. Even if there are a few dings in your credit, if you appear to be a safe credit risk overall you should be confident your loan will be approved.

 

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What Decisions Do Credit Lenders Make?

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1. Loan Approval
Approval is often given with conditions, such as the sale of current property, that require documentation for final approval.

2. Loan Suspension
A loan is suspended when information is incomplete or questions remain unanswered in the loan application. The buyer must supply the needed information before a final decision can be made.

3. Loan Denial
There are a number of reasons why your loan may be denied, and you're entitled to know those reasons. If denial is based on your credit you're entitled to a free copy of that report.

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What is Private Mortgage Insurance?


Private Mortgage Insurance, or PMI, is insurance purchased by the buyer to protect the lender in case the buyer defaults on the loan. PMI is generally applied when you put down less than 20% of the home's purchase price. The reason is this:

With 20% down, you are considered a low risk. Even if you default the lender will probably come out ahead because they've only loaned 80% of the home's value and they can probably recoup at least that amount when they sell the foreclosed property.

But with 5% or 10% down, the lender has a lot more invested in the loan and if you default, they will almost surely lose money. This is why lenders require buyers to purchase PMI if they put down less than 20%. It's insurance that, no matter what happens, the lender will recoup its investment.

 

How does PMI increase your buying power?


In simplest terms, PMI allows you to put less money down, and the benefits are as follows:

  • If you have good credit but are short on cash for a downpayment you can put as little as 5% down.

  • It doesn't take as long to accumulate a 5% or 10% downpayment so you could buy a home much sooner than you anticipated.

  • A smaller downpayment allows you to purchase a larger or nicer home.

  • For repeat buyers, a smaller downpayment on the new home can free up cash from the sale of their previous home to use for other debts or expenses.

  • Your interest will be higher if you put down less than 20%, but that interest is tax-deductible.

What does PMI cost?


A Good Faith Estimate will be provided to you within a few days after we received your loan application. This disclosure will provide you with an estimate of your monthly PMI premium as well as the initial premium you'll need to pay at closing. Additionally, we will be providing you a disclosure on your rights (if applicable) to cancel the PMI.

 

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What Determines the Cost of a Mortgage?

 

There are five factors that determine the ultimate cost of a mortgage.

The principal, or amount of the loan, is the total amount you borrow (the purchase price minus your down payment).

The interest rate adds significantly to the cost of your mortgage. Fixed or adjustable, the interest paid at the end of the loan can exceed the original cost of the home itself. For instance, a $100,000 loan balance at 8.5% for 30 years will cost you $277,000 by the time the loan is retired.

The term of the loan is the length of time until the loan is paid off. A longer term means more interest and higher cost.

Points are interest paid on the loan and they're purely optional. You pay points at closing if you want to reduce the interest rate and make your monthly payments smaller. One point equals one percent of the loan amount.

Fees are paid to the lender at closing to cover the costs of preparing the mortgage. They can vary according to where you live and what type of loan you're securing.

While points and fees are not financed, they still contribute to the cost of the mortgage.

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What is a VA Loan?

 

Administered by the Department of Veterans Affairs, these special loans make housing affordable for U.S. veterans. To qualify you must be a veteran, reservist, on active duty, or a surviving spouse of a veteran with 100% entitlement.

A VA loan is simply a fixed-rate mortgage with a very competitive interest rate. Qualified buyers can also use a VA loan to purchase a home with no money down, no cash reserves, no application fee and reduced closing costs. Some states allow a VA loan for refinancing as well.

Many lenders are approved to handle VA loans. Your VA regional office can tell you if you're qualified.

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What is a FHA Loan?

 

FHA loans are designed to make housing more affordable for first-time homebuyers and those with low to moderate income.  The Federal Housing Administration, a division of HUD, is in the business of insuring loans. This feature alone has allowed lenders to provide home loans to millions of homebuyers, who otherwise may not have qualified.

Both fixed- and adjustable-rate FHA loans are available, and in most states, an FHA loan can be used for refinancing. The difference is, they're insured by the U.S. Department of Housing and Urban Development (HUD). With FHA Insurance, eligible buyers can put down as little as 3% of the FHA appraisal value or the purchase price, whichever is lower. Qualifying standards are not as strict and the rates are slightly better than with conventional loans.

Advantages of FHA:

  • Lower down payment - typically only 3% or less

  • No income restrictions

  • Affordably priced mortgage insurance (PMI)

  • Entire down payment can be a gift from family member

  • Non-owner occupant (family member) can help you qualify

  • Lower credit scores also considered

  • Limited credit history is acceptable

  • Past bankruptcies not always a roadblock to loan approval

  • Higher than average debt (credit cards, auto, etc) is acceptable

Listed below are recent maximum FHA loan limits:

1 unit

$208,000

2 units

$267,177

3 units

$322,944

4 units

$401,375


For limits in your city, Email us at info@caloanbiz.com or fill out our contact form   

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How Can I save on a Fixed Rate Mortgage?

 

Short Term Mortgages
You don't have to finance your home for 30 years. Granted, the payments will be lower, but you'll be paying them longer. You could, instead, opt for a period of 20, 15 or even 10 years, pay your home off sooner and save in interest.

Furthermore, lenders offer much more attractive interest rates with short-term loans, so your payments may not be as much as you'd think.

The table below shows you the interest savings on a $100,000 loan at 8.5% interest:

 

Term

Monthly Payment

Total Interest Accrued

30 yr

$768.91

$176,808.95

20 yr.

$867.83

$108,277.58

15 yr.

$984.74

$ 77,253.12

 

By paying $215.83 more a month on a 15-year mortgage, you'd save $99,555.83 in interest over a 30-year loan - and own the house in half the time.

 

Bi-Weekly Payments


Instead of paying 12 monthly payments you can choose to make 26 bi-weekly payments. Here's how it works.

Each bi-weekly payment is the equivalent of half a monthly payment, but at the end of the year, it totals 13 months instead of 12. A 30-year mortgage could be paid off in 22 years. If you only qualify for a 30-year loan, this is a fabulous way to increase your equity sooner and save on interest.

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What Is the CRA Grant Program?

Need free money? How about $2000? You may be eligible!

 

CRA Grant Program is being offered through approved lenders. This venture is designed to help low-to-moderate-income families buy their first home within designated census tracts (neighborhoods). The homebuyer is also able to buy OUTSIDE the census tracts (income restrictions apply)

CRA benefits:

  • $2000 Grant to help pay for your closing costs (Wow! That's free money.)

  • As little as 3% down payment

  • Entire down payment can be a gift from a family member

  • Fixed Rate programs

  • High debt-to-income is allowed (making qualifying much easier)

  • Not so perfect Credit is allowed

To qualify for the $2000 grant and flexible underwriting (easier approval), your Gross Annual Income cannot exceed limits set in the county you wish to buy.

$2000 Grant money criteria:

 

No Area Restrictions For your $2000 Grant (Buy anywhere you want)

Buy in designated census tracts ONLY to receive your $2000 Grant

City

Maximum Gross
Income

Maximum Gross
Income

Los Angeles

$41,034

$61,560

Orange

$54,633

$81,960

Riverside

$37,755

$56,640

San Bernardino

$37,755

$56,640

San Diego

$41,994

$63,000

Ventura

$52,633

$78,360

Santa Barbara

$41,674

$62,520

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Can I Buy a Home with Zero Down (100% Financing):

 

Application for this Fannie Mae loan is available through this website

Apply NOW.

Benefits:

  • 0% down payment

  • Conserve your cash for other uses

  • Higher Debt to Income Ratio is allowed (housing, auto, cards, etc)

  • Credit must be GOOD (based on FICO score)

  • Maximum Purchase Price $240,000

  • Excellent Fixed Rate Program

For ZERO DOWN, your income per year cannot exceed the maximum allowable (based on the county in which you buy.) See sample counties below:

 

L.A County

$71,820

Orange County

$95,450

Ventura County

$91,420

 

Note: A similar ZERO DOWN program (with higher maximum purchase price) is available even if your annual gross income exceeds the limits set for your county.

 

Borrower to show proof of U.S. citizenship (birth certificate or U.S. passport), or legal resident (green card).

 

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What is a property appraisal?

An appraisal is an estimate of value. It is not pure science, but rather an opinion. Which is why you may have two independent appraisers appraise the same property and come up with slightly different values.

An appraisal relies mostly on comparable sales, or "comps," as they are known in the biz. In other words, how does your home compare to other similar homes in terms of its location, size, amenities, and upgrades. Ideally, "comps" will be no more than a mile away from your home and have sold or listed within the past 6 months.

As for the surrounding neighborhood, schools, parks, shopping centers and proximity to employment typically have a positive effect on value. Where as proximity to busy thoroughfares (freeways), industry, noise and congestion will have a negative effect on value. By comparing your home against the others by way of pluses and minuses, the appraiser is able to come up with value.

Why is it needed?

Primarily to protect the interests of the lender. Since the lender will be lending you thousands of dollars on your home, it is only logical they would want to evaluate the risk properly. They need to determine what is the maximum loan amount they will lend against the value. In the industry jargon, that's called loan-to-value, or LTV.

However, the appraisal protects you, as well. If you were purchasing a home, you wouldn't want to pay $150,000 for a home that is worth only $120,000?

Who pays for the appraisal report, and how much does it cost?

The borrower pays for the appraisal in most cases. The fee ranges from $250 to $300 for a single-family-residence (SFR), more if you're buying or refinancing units. If you wish to get a copy of the report, simply make a request in writing, and a copy will be mailed to your home, usually 30 days after the close of escrow.

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What's the point of paying points?

1 point is 1% of the loan amount. You borrow $100,000 and are charged 1 point, your cost is $1000. Point or points are a way for a lender to recover the costs associated with originating a loan. You as the borrower pay the points.

Are points bad?

Not necessarily. Points and interest rate work in opposite directions. If you wish to pay no points, the rate on your loan will be higher. If you wish a lower interest rate, you'll need to pay point(s).

How do I decide?

Generally, if you plan on selling your home within the next two or three years, going with no points or low points is a worthwhile consideration. However, if you're planning on settling down for a few years, you'd be better off paying point(s) so you'll have the lower rate and the lower payment for years to come, saving you thousands in the long run.

Some lenders offer ZERO points, others 1 point, others 2 points. What's with that?

Let's use that $100,000 loan we discussed earlier. Let's assume the rate quoted on that given day is 7.250% with 1 point. (Remember? A $1000 cost.) There's a rule of thumb, that for every .250% "buydown" in the rate, a cost of an extra point is incurred. So, if you had wanted to buy down your loan to 7.000%, you'll need to pay the original 1 point plus the extra 1 point for buying the rate down for a total of two. ($2000). By the way, fractions of points are equally common. You may choose to pay half a point, a point and a half, etc. Interest rate and fee scenarios are best discussed with your loan consultant.

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