We'll help you open the door. - Citizens One

We'll help you open the door.

A Guide to Home Financing

Lori

Customer

Table of Contents

Before You Look

4

The Costs of Purchasing a Home

4

Getting a Head Start: Prequalification

6

Choosing a Mortgage

7

Qualifying for a Mortgage

9

The Home Financing Process

11

Homeownership and Beyond

13

Loan Documentation

14

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We're here to help open the door to possibilities.

We know that there's a lot of pride and satisfaction that comes with owning your own home. It's a long-term investment that's at the center of your life, giving you a sense of stability and security. But we also know that buying a home can sometimes feel a little overwhelming. Which is why at Citizens One Home Loans?, we've dedicated ourselves to making home financing clear and easy to understand, so you can see your way forward with confidence.

We'll walk you through, step by step.

We'll guide you through the home financing process and provide you with all the information you need to make smart, informed decisions. We want to help you better understand the mortgage process and the types of financing options available to you, whether you're a first-time homebuyer or just haven't been through the mortgage process in a while. If you have questions about the information in this booklet or about home financing, speak with one of our mortgage loan officers. We're here to help you along the way to successful homeownership. It's never too early to explore your options.

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Before You Look

Financial preparation is the first ? and perhaps the most important ? step in the home buying process. And one of the first questions you'll need to answer is how much home you can afford. Your Citizens One loan officer can tell you how much financing you may be able to qualify for, but only you can decide how much you feel comfortable paying each month. Begin by taking a careful look at your household finances, including your savings, credit, income and debt. It's helpful to develop a monthly budget based on your current income and expenses so you can determine a realistically affordable mortgage payment. There are many useful tools and calculators available online, or you can ask your loan officer for assistance. Documenting your expenses and income will give you a clearer picture of your financial situation and help you prepare for the home buying process when the time comes to find a home loan.

The Costs of Purchasing a Home

Once you've taken a look at your monthly expenses, it's time to consider the actual costs of purchasing and maintaining a home.

Upfront Costs

Your upfront costs will typically include your down payment, the cost of the home inspection, your closing costs and moving expenses. The property listing agent may also ask you to put down a deposit, or earnest money, when you sign the purchase contract. This money will be credited back to your transaction at closing, but if you back out of the contract, you risk losing your deposit.

Down Payment Generally, down payment requirements range from 5% to 20% of the cost of the house, although some loan programs may offer smaller down payment requirements. However, for down payments less than 20%, you may also be required to pay mortgage insurance. If you are able to make a larger down payment, the initial equity you'll have in your home will be greater. Home Inspection A critical step in the home buying process is a home inspection. This is where you'll get a full picture of the home you are considering ? any possible defects or what repairs it may require. The cost of a home inspection may range from $200 to $900, depending on the rates where you live, but this unbiased examination of your potential new home is invaluable.

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Closing Costs Closing costs typically range from 2% to 6% of the loan amount depending on your area. These costs include fees charged by your state and local governments for the recording of documents as well as fees associated with origination and settlement of your mortgage. Some fees, like the cost of the appraisal, may be charged upfront by a lender before the loan closes. Moving Costs There are also costs associated with moving your household. Having your friends and family help you move can minimize the expense, but be prepared to pay for other things like the set up of new utilities such as cable and internet access.

Ongoing Costs of Homeownership

Homeownership truly does have some wonderful advantages. However, there are additional costs associated with being a homeowner that you may not incur as a renter. Be sure to consider these expenses in your monthly budget when deciding if owning a home is right for you. Your ongoing housing costs may include some or all of the following:

Monthly Mortgage Payment Your monthly mortgage payment will typically consist of principal, interest, and escrow. Escrow is money collected by the lender in order to pay your real estate taxes, homeowners hazard insurance, and if applicable, any flood insurance, mortgage insurance premiums, homeowner association dues or condo fees.

Real Estate Taxes A real estate agent or your locality's tax assessment office should be able to give you an idea of what the annual real estate tax would be on a home in your price range. Keep in mind that real estate tax rates and the home's assessed value can change from year to year, which could impact how much escrow you pay. The good news is real estate tax payments are often tax deductible, so remember to consult a tax advisor to determine your eligibility. Homeowners Hazard Insurance Homeowners hazard insurance coverage, also known as homeowners insurance, is required by all lenders to protect your home against loss due to legal liability, fire, theft, or natural causes. Not all types of peril are covered, so make sure you know what coverage your policy does provide. And, as you would for car insurance, shop around for the best rates and coverage that is right for you.

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Flood Insurance Lenders are required by federal law to obtain a flood certification for any loan secured by residential real estate. If your potential property is located within an area that the Federal Emergency Management Agency (FEMA) has determined to be at risk for flooding, you will need to purchase a separate flood insurance policy. Otherwise, the lender will be prevented from offering you financing. Mortgage Insurance If you make a down payment less than 20%, there's a pretty good chance you'll be required to pay mortgage insurance. This insurance offsets some of the risk the lender takes on when offering financing with a smaller down payment and covers a portion of the lender's loss if a borrower defaults on the loan. Depending on the mortgage program you choose, your mortgage insurance premium may be paid to a private company or a government agency, like the Federal Housing Administration (FHA). Homeowner Association Dues or Condo Fees Depending on the home you choose, there may be additional dues or fees that you are required to pay on a monthly basis. These fees are usually paid to a condo or neighborhood association to cover the cost of maintaining common areas or upkeep of amenities, such as a pool, clubhouse, etc. Each year you'll receive an escrow analysis statement from your lender that shows you how much was paid on your behalf for your real estate taxes and various insurance premiums. At that time, your lender may need to adjust the escrow portion of your monthly mortgage payment to make sure enough is being collected to cover any changes to your insurance premiums or real estate taxes.

Utilities and Home Maintenance Many times home buyers neglect to factor in the costs of local municipality utilities such as water, garbage removal, gas, and electricity into their budget planning. Be sure to consider these costs, especially if you are not currently accustomed to paying for these services. It also takes time and money to keep a property in top condition. Depending on the size and age of the house, maintenance costs can add up. When looking for a home to buy, take note of the age of items like the heating system or roof, as well as any home inspection results, to better prepare yourself for possible future expense.

Getting a Head Start: Prequalification

Once you've determined your potential budget, and before you begin searching for a home, it's important to get prequalified for a mortgage loan. Your Citizens One loan officer is ready to help. It's a simple process that doesn't take too long to complete, and you'll have peace of mind being one step closer to having your home financing in place.

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During the prequalification process, we'll ask you to provide some details about your income and financial status. Your credit report will also be reviewed. Based on this information, your Citizens One loan officer will help you determine how much you may be qualified to borrow and estimate what your monthly mortgage payments might be. You'll also receive a prequalification letter, which many sellers require prior to reviewing an offer. Becoming prequalified is an indication to a seller that you are serious about buying a home. In a competitive market, it can give you an advantage over buyers that are not prequalified.

Choosing a Mortgage

Selecting the right mortgage is central to the home buying process ? that's why it's good to understand your options. Having a basic understanding of the kinds of mortgages available will make it easier to determine which one best fits your needs. Your Citizens One loan officer will help you through this process.

Types of Mortgage Options

Citizens One Home Loans offers a full range of home loan programs with a variety of rate, term and cost options. Your loan officer will explain what programs might be available to you based on the qualities you desire and how much you have to contribute toward the down payment and closing costs.

Fixed Rate Just as the name would indicate, fixed-rate mortgages have an interest rate that doesn't change over the life of the loan. This type of mortgage offers you predictable monthly payments of principal and interest, and no matter how high mortgage interest rates rise, your loan will have the interest rate you locked into when you got it. Fixedrate loans are generally well suited to borrowers who plan on staying in their homes for a longer period of time, who have fixed or slowly increasing income, or who have a lower tolerance for financial risk. Adjustable Rate An adjustable-rate mortgage (ARM) does not have an interest rate that stays fixed over its lifetime. The interest rate on an ARM starts out fixed for a set number of years, after which it becomes variable and will go up or down with the market. This means a borrower's principal and interest payment may increase or decrease at various times. ARMs are usually considered by borrowers who don't plan on remaining in their home for very long or who believe rates will go down sufficiently enough to refinance before the fixed period ends. Because of its risks, the pros and cons of an ARM loan should be considered thoroughly.

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Fully Amortizing Borrowers with fully-amortizing mortgages will make both principal and interest payments over the life of the loan. The principal portion of the payment is calculated so that the outstanding principal balance will be repaid in full by the end of the term. A fully-amortizing loan can have either a fixed rate or an adjustable rate. Interest Only With an interest-only loan, borrowers make only monthly payments of interest for a set number of years before they begin to make principal payments. This option has its risk, because during the interest-only period the borrower is not building any equity in the home unless the house appreciates in value. There's also no guarantee that a home will appreciate in value. Once the interest-only period ends, the monthly payment increases, often substantially, to make sure the outstanding principal balance is repaid before the loan term ends.

Annual Percentage Rate (APR) Versus Interest Rate

When you shop for a mortgage, make sure you ask lenders for the Annual Percentage Rate (APR) as well as the interest rate. The interest rate is the cost to borrow the money. The APR is the total cost a borrower will pay for the loan and its origination, including interest, points and fees. This makes it easier for you to compare your total cost between multiple lenders. Keep in mind that interest rates fluctuate daily, so when you compare APRs among several lenders, you must look at APRs that are generated on the same day. Otherwise, you may not be comparing apples to apples.

Discount Points

Discount points are a one-time fee that a borrower pays to lower the interest rate. One point is equal to one percent of your loan amount. The more points you elect to pay, the lower your interest rate will be. Because paying discount points lowers your interest rate, you could benefit from lower interest payments over the life of your loan. However, if you don't plan on staying in your home long enough to maximize your interest savings, paying discount points may not be the best option. Talk to your Citizens One loan officer to determine how many months you would need to keep your mortgage to break even if you paid discount points.

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