HOME LOAN

• Income proof: It is better to include at least two copies of pay stubs alongside other related documents pertaining to employment. In case if you are getting fixed income then it would be better to include a beneficiary letter that states total income earned.

• Tax returns: Provide at least previous two years tax returns. Suppose if you are self employed, the mortgage company would demand business and personal tax returns for a time period of two years. If you own a business you need to get business statement prepared by a chartered accountant.

• Records related to Bank account: Gather account number, address of your branch and get saving bank account statement for a period of 2 - 12 months. In some cases the mortgage company needs only last 2 months branch statements, but most of the lenders would need 12 months bank statement.

• Housing payments proof: Housing payment proof involves copy of lease agreement and 12 months cheques that represent timely rental payments.

• Major Asset's list: This list should include individual stocks like automobiles, real estate property, antiques, stock and insurance policy.

• Debts List: Prepare a list of debts that you are aware of like furniture loans, car loans, credit cards and student loans.

• Fixed versus adjustable-rate conundrum
• The second question you should ask is, "How long will you be in the house?" You probably can't answer with absolute certainty, but you can play the odds.
• Say, for example, you're single and buying a small condo but you can easily envision yourself married; or you've just started a family and plan to expand it at some point. 

Mortgage Loan 101 - How Much Mortgage Loan Debt is Right For You? - For generations investing in real estate, whether a home or commercial property has been a fairly safe investment. Most properties have held and even enjoyed small increases in value from one year to the next. An investment in real estate sometimes offered big financial returns, sometime small but usually always "safe" returns compared to other investments. After the financial crisis of 2008, the world of real estate and mortgage lending has changed for the near future. Some property values have decreased up to double digits. Increased unemployment has spurred record numbers of foreclosures. There are still many people looking to buy new homes though. Whether downsizing, upgrading, relocating for jobs or just hoping to take advantage of lower interest rates, there are many people wondering, "What kind of mortgage loan debt would I qualify for?" Some potential homebuyers have their sights set on a home before they've been through a loan qualification process and this can sometimes lead to less than ideal financial decisions. It's fun to ride around and look, research and dream but it is important to take a look at what kind of mortgage you can pre-qualify for and even then to determine is that's really a number that you can live with comfortably. How Lenders Determine Mortgage Loan Affordability: Well there is the standard that has been used by most lenders for years which is called the 28/36 rule. This is still a very helpful tool as long as applicants keep in mind that under this new real estate and banking culture, things have changed a bit. Lenders may tweak these numbers a few points for added security. They may also ask to see a portfolio for collateral and many are requiring more money down. Of course all of this usually stands on an applicant having an average or above credit rating. What is the 28/36 rule? Mortgage payments as well as property taxes and insurance shouldn't total more than 28% of your gross pay. Yes, that's gross pay, as opposed to net pay. That's the first number. Monthly outflow including mortgage payments, property taxes, insurance and installment debt such as credit cards, student loans, personal loans or car loans the cannot equal more that 36% of your gross pay. That's the second number. Here's an example for a household with an income of $84,000. If a household making $84,000 a year also had $500.00 worth of monthly installment payments, they could qualify for a mortgage of around $1,960.00 bases on the 28/36 rule. Is the maximum mortgage loan best for you? Most applicants are ecstatic to find that they qualify for the loan amount desired but before you sign on the dotted line, ask yourself a few important questions. If I take on this mortgage loan will I still have money left over for... -- Paying off other debts? -- Saving for retirement? -- Saving for college tuition? -- Travel or vacations? Remember, a higher mortgage payment also means: -- Higher taxes -- Higher monthly maintenance -- High homeowner's insurance It's important to understand how a mortgage debt loan number is estimated but even if you qualify, you may not want to take advantage of the maximum amount of debt that you qualify for. Leaving some room for emergencies as well as pleasures can help you enjoy any home more. By Jonathan Kraft

• The principal amount of the loan is the outstanding balance of the current loan (Rp1,000,000,000).

• Interest rate (6%) on the loan is the annual interest rate. You need to convert it into monthly interest rate.

• Term of the loan is 360 months (30 years). Since the amortization is a monthly calculation, the unit year is changed to month.

• The monthly payment amount is Rp5.999.500. The monthly payment amount remains the same, but the portion of principal and interest payments will change monthly.

•  The total number of lines under titles is 360 to record monthly payments.

•  Working paper will make the calculation can be done quickly because if done correctly, the equation is only entered once (or twice, because you used the calculation of the previous month to complete all the next calculation).

• If properly entered, simply pull the equation down and fill in the remaining cells to calculate the amortization throughout the loan term.

• It might be better if you set aside a separate set of columns and include key loan variables (eg monthly payments, interest rates) because you will be able to see the impact of changes on all variables throughout the loan term.

• An amortized loan, such as a mortgage or car, has a monthly payment terms. Therefore, you need to calculate the interest and principal portion of each payment each month.

• Look for monthly interest rates. From the previous example, (annual interest rate of 6% divided by 12 = monthly interest rate of 0.005).

•  Multiply principal with monthly interest rate: (Rp1,000,000,000 principal multiplied 0.005 = first month interest Rp5,000,000).

• Subtract the related monthly interest payments from monthly payments to receive principal payments: (payment Rp5.995.500 - interest Rp5,000,000 = principal payment of Rp995,500).

• Since some principal has been paid, the interest on the principal will be reduced. Each month, the portion of the principal payments from monthly payments will increase.

• Calculate the principal amount in the second month: (Principal Rp1,000,000,000 - principal payment of Rp995,500 = Rp99,904,500).

• Calculate interest on the second month: (Principal Rp99.904.500 x 0.005 = Rp4.995.000).

• Calculate the basic payment in the second month: (Rp5.995.500.55 - Rp4.995.000 = Rp1.000.500).

• The payment of principal in the second month (Rp1.000500) is larger than the first month (Rp995.500). Because the total principal balance is reduced monthly, the interest paid every month is also reduced so that the portion of interest payments on monthly payments is also reduced. In the first month the interest paid is $ 500. In the second month, the interest paid is only Rp4.995.000.

• As the required interest payments are reduced, the portion of monthly payments increases.

• Conduct some research. Learn what the trends are in your area (they differ from metro area to metro area) . Research some lenders and brokers and decide which might be best for you.

• Do a "break even analysis": compare how much your expenses will be with the amount of money you will save due to lower monthly payments and a lower interest rate. If you stay in your house after the "break even period", or however long it takes for you to recoup your losses, then you will save money refinancing. There are many calculators on the web nowadays that will help you weigh all the factors involved, including time, taxes, insurance, and all the applicable fees.

• Learn how to use an APR (annual percentage rate). It is designed to help you figure out what the true cost of the loan is so that the lender cannot, either intentionally or unintentionally, hide fees from you.

• Avoid any program that tacks on a penalty for advance monthly payments.

• If choosing an ARM program, it might not be advantageous to pay discount points to buy down the interest rate. Instead, use the points to buy down the margin, that way you'll save money over the entire loan term.

• Remember that due to the Federal Truth in Lending Law, the lender must disclose all fees to you. Be sure and get the fees up front and in writing, in a Good Faith Estimate. This will clarify all closing costs, as well as lock down your interest rate- make sure to specify the time period of the lock.

• Be prompt with paperwork, as this will help your officer to process your documents faster.

• Read everything thoroughly. Do not rush through the process- ask questions, be aware, and keep in contact with your loan officer.

• Know the exact amount of money you will need to cover all the closing costs, as well as any extra information you might need.

• Be aware of how much money is in your escrow account.

• Remember that a lot of the closing fees are negotiable.

• Not comparison shopping! You don't want to assume that your current mortgage lender has the best rates. They already have your business- where is the incentive to provide you with competitive prices?

• Not completing a break-even analysis. This is a major tool to help you decide whether the benefits will outweigh the costs.

• Not getting a Good Faith Estimate. This estimate is vitally important-not only will it tell you exactly what your rate is and what your closing costs are, but it will make sure the lender abides by them. Know that your lender is, by law, required to provide the estimate within three days of your completed loan application.

• Not reading all documentation carefully before you sign. Please never sign a document without reading through it thoroughly; and if you don' t understand something- ask! Chances are, you will not get another opportunity, and you don't want any surprises concerning your mortgage payments.

• Assuming that your lender will disclose all pertinent information to you. Under the Truth in Lending law, lenders are required to disclose certain things, but not others, such as whether or not your mortgage comes with a pre-payment penalty. Be sure and ask: if your mortgage does come with a penalty then try to get as low a fee as possible. Also, your GFE is just that- an estimate. Make sure to get the total lender fees and closing costs in writing, and have your lender sign it. This is protection against out of control fees at closing.

• Not locking down the interest rate, or failing to get the locked rate in writing. Until you “lock” your interest rate with your lender, it will be “floating” and that means it can increase during your negotiations and during the application process. It can also decrease, but the important thing is to lock the rate when you feel it is the right time, and make sure to get it in writing. If you have an ARM, get the margin in writing as well.

• Not getting pre-approved first. Don't confuse pre-qualification with pre-approval. Pre-qualification is a much shorter process, where the loan officer uses certain underwriting tactics to analyze how much of a mortgage you can afford to pay. Generally, there is no fee for pre-qualification. Pre-approval is a much more in-depth process, where the lender does at least a cursory check of your credit, income, assets, and occupation. Most realtors will not work with a buyer unless they are pre-approved, or at least pre-qualified, and it gives the buyer leverage when negotiating with the seller.

• Choosing a lender based on someone else's recommendations, especially your Realtor. Unless the person is a financial expert and works in the field, do not pick a lender completely based upon someone else's opinion. Do your own fieldwork.

• Not getting agreements in writing. This cannot be emphasized enough: any verbal agreements are overridden by those within the contract. The basic rule of thumb is that if it's not in writing, it doesn't exist.

• Buying a home without having independent inspections done. Would you buy a used car without having a mechanic inspect it first? Offer to pay for a series of independent inspections, including termite, roof, heating ducts, plumbing, and gas.

• What is mortgage insurance and how do I get it?

• When buying a new home, what is the best way to time it so that I'm not carrying two mortgages?

• What is the difference between a refinance and a second mortgage? Which one should I choose?

•  What can I expect at Closing? What are all the costs involved?

• A statement that the broker will be the customer's agent, and work on their behalf to try and obtain the best possible mortgage plan and interest rate to fit the customer' s needs.

• Fees delineated up front, including how the UMB's fee will be paid (percent of loan, hourly charge, fixed dollar amount, etc.) The price should include loan processing and should cover all of the UMB's fees.

• Known payments to third parties, with any credit due given directly to the customer.

• A confirmation that the UMB will lock the rate when specified by the customer and will provide them with a copy of the commitment letter from the lender.

• A statement concerning the disclosure of the lender's wholesale prices to the borrower.

• Brokers may seem like a more expensive option, but they do most of the loan paperwork themselves and so in return they get discounted prices from the mortgage companies. This wholesale rate is passed directly onto you in the form of an interest rate that can typically be from 3-8% lower then the standard rate offered by direct lenders.

• Brokers are in constant contact with a list of lenders that the average home buyer would not know about, including out-of-state lenders licensed in other states. They might be able to connect you with a company that otherwise you would never have known about. The variety of lenders ensures a wide variety of mortgage loans as well.

• They are highly knowledgeable as specialists in their field, and as your agent, they are usually highly motivated to see your loan approved.

• Brokers charge fees that can be quite pricey, and during the initial interview might tell you of an “ implicit ” service fee which they are not beholden to. They can later drum up added charges in a hundred different ways. Protect yourself and get the fee and other terms in writing in a mortgage broker commitment. Common information to include is the type of loan, the amount, the term, the lock period of your interest rate, a detailed account of all fees (including the broker fee, the origination fee, the application fee, etc.), the points, and the dollar amount of the appraisal and the credit report. This will turn the broker into your agent and cut out the markup that they would normally tack onto the wholesale prices from the lender. The previously agreed upon broker fee, as well as a separate processing fee, should be outlined in the agreement.

• One risk in employing a mortgage broker is that any mistakes they make are mistakes that you have to live with. A mistake made by a loan officer of a direct lender will often be resolved or corrected, but not so with a broker, who is an independent party.

• Conduct research. Comparison shopping is the most important groundwork you can do. Find out which mortgage loan program would be the best for you, what the average interest rates are in your area (they differ from place to place), how much of a mortgage you can afford (should not be more than 29% of your gross monthly income), and what your mortgage payments are likely to be. With every scenario and every different lender, obtain a Good Faith Estimate. Make sure that you try all different types of financial institutions, such as credit unions, mortgage banks, independent lenders, and so on.

• Pre-qualification/ Pre-approval. This step is crucial for those looking to buy a new home. Most good brokers will not work with a buyer unless they are pre-approved, and being pre-approved works in the buyer's favor because they are usually given precedence over other buyers. Pre-qualification is the small step before pre-approval, is usually free, and most times can be done over the internet. It is a quick assessment done by general underwriting methods, but without a credit inquiry. The pre-approval is a more in-depth assessment, where most of the application is completed and all that is left is the appraisal (if buying a house) and the final approval.

• Completion of Application. The application itself involves a huge amount of paperwork. Be prepared to bring all of the documents required of you, including but not limited to: pay stubs, tax forms including W-2's and tax returns, social security checks or proof of any other type of income, bank account numbers, account statements for the past 4 months, bank branch information, lists of stocks, bonds, and other investments, titles of vehicles that are free and clear, all and every type of bill or debt incurred (including credit cards, automobile loans, furniture loans, student loans, etc.), plus copies of any current mortgages and the purchase contract of your new home if buying.

• Approval. The approval can take anywhere from two weeks to a month and a half, depending on how timely you are in providing your loan officer with the correct documentation, and how motivated they are to see your case go through (they have many, many such cases). If you are a buyer, the appraisal for your new home is set and the house inspected. Then the loan is approved and the documents are signed, and you receive your funds usually within a week. After three days, your lender is required by law to send you an estimate of your mortgage payments, your interest rate, and your closing costs. During the whole process, make sure to keep in close contact with your loan officer.