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Mortgage Loan | Home Loan | Condo Loan – Client Handbook – Presented to You By Your Personal Mortgage Consultant: Rob Smith, Mortgage Banker

Mortgage Loans | Home Loans | Condo Loans
Mortgage Banker | Mortgage Lender
Client Handbook

Presented to You By Your Personal Mortgage Consultant:

Rob Smith, Mortgage Banker – W.J. Bradley – Home Mortgages

Serving borrowers in Spanish Fort, Daphne, Fairhope, Point Clear, Gulf Shores, Orange Beach, Fort Morgan, and all areas of Baldwin County, Alabama.

Call Rob now – (251) 422-5710
Apply online for a loan now!

A Guide to Understanding the Mortgage Process

Real estate agent and buyer begin the search for the home.  Buyer chooses a lender and may request pre-approval of his/her loan.
The buyer becomes the Borrower and completes the loan application with the information that includes employment and income data for the past two years, financial information on assets and liabilities and any other data that could affect the loan decision.
Lender orders property appraisal and credit report, mails verifications of employment and deposits and follows up for replies.
Lender reviews documents as they are received.  These documents include credit reports, verifications of asset, income, and appraisal.  In addition, debt and payment histories are reviewed and verified.
·         Title insurance is ordered,
·         Closing is scheduled with an attorney,
·         Homeowner’s insurance is ordered.
Underwriter reviews the entire package.  If there are questions, it is extremely important for the Borrower to respond immediately.
·         Borrower obtains loan proceeds
·         Borrower presents check for balance of down payment and closing costs
·         Loan closes, and
·         Borrower moves into the new home
Obtaining an affordable mortgage depends not only on what you feel you can afford but, more importantly, on what a lending institution says you can afford.  Before lenders will issue a commitment to lend large sums of money, they must be assured that you can afford to repay the loan and that the value of the property is sufficient collateral to guarantee repayment of the loan in case of default.
You may have already noticed there is much more to the loan process than selecting an interest rate.  My sincere desire is to guide you through the process and relieve any anxiety you may be feeling.  In order to be considered for a mortgage, we look at five distinct areas of your finances and the property.
We must first determine the amount of cash that you have available for a down payment and closing costs.  There are guidelines that govern the allowable sources of funds for the down payment and closing costs and documentation required to verify these funds.
We need to determine how much income is available to qualify for the loan, where it is coming from, and how long it is likely to continue.  All income used to qualify for the mortgage loan must be verifiable.
Your gross monthly income, coupled with your monthly debt obligations, is used to determine the ratios for approval of your loan.  Length, type and stability of employment are also key factors to consider.
As lenders, we will look at your credit report and any other credit references to determine how much credit you have been extended, what types of credit are available to you, how timely the payments have been made and how much your total monthly obligations are.
It is necessary to make sure that borrowers’ obligations don’t exceed acceptable ratios for both the monthly housing payment and the total of all monthly debts.  The ratios consist of a housing ratio and a total monthly debt ratio.  The housing ratio is calculated by comparing the proposed principal, interest, taxes and insurance (PITI) payment on the loan for which you are applying to your gross monthly income.  Similarly, the total monthly debt ratio is calculated by comparing the total of all your monthly obligations including PITI, credit card payments and installment loans with your gross monthly income.
The final piece to the mortgage puzzle is the difference between the loan amount and value of the property.  A property appraisal is conducted to determine value.  Appraisers are licensed by the state and base their determination of value on the prevailing market.
Numerous types of loan products are available to borrowers today.  They break down into two basic categories — fixed rate and adjustable rate mortgages.
Fixed rate mortgages have been around the longest.  People generally have more experience with this type of mortgae.  Very simply stated, fixed rate mortgages have an interest rate and monthly payment that remain the same over the term of the loan, regardless if that term is for 10, 15, 25 or 30 years.
The second type is the adjustable rate mortgage (ARM).  ARMs have an interest rate that increases or decreases over the life of the loan based upon the interest rate environment.  Since their introduction in response to unprecedented high interest rates of the early 80’s, ARM loans have developed into the most diverse group of mortgages ever created.  The description provided in this handbook provides a very basic overview of some of the major components of an ARM.  For a detailed discussion of the program that will best meet your needs, please give me a call.  It is my belief that for most home buyers today, an ARM is the best mortgage option.
ARM loans are typically named according to their adjustment interval.  For example: a “3/1 ARM” is fixed for the first three years and then becomes a one-year adjustable rate mortgage for the remainder of the 30 year term.
ARMs with initial fixed periods are very popular because they have a lower initial interest rate than a 30-year fixed.  This stability, coupled with the realization that the homeowner may not have the mortgage for longer than the short fixed period, has added to their popularity.
When considering which type of ARM to get, you need to be aware of the factors that affect this type of mortgage as described below:


The index is the financial instrument used as the foundation for determining future rates as adjustments are made.  There are several indexes that are used in the mortgage industry — T-Bill, LIBOR, Prime and Cost of Funds.


The margin is the amount the lender adds to the index to arrive at the adjusted rate to provide a satisfactory yield for his investment.  Margins vary and can be a key factor in selecting the right loan for you.


ARMs have limits as to the amount they are allowed to adjust at each interval or change period.  This is called a cap.  Caps can be applied to the interest rate or the payments; this varies with the type of loan you choose.
The Annual Percentage Rate or “APR” is the cost of the loan in percentage terms, taking into account various loan charges, of which interest is only one such charge. This is not the Note rate for which the borrower applied.
Other charges which are used in calculation of the Annual Percentage Rate are Private Mortgage Insurance or FHA Mortgage Insurance premiums (when applicable) and Prepaid Finance Charges (loan discount, origination fees, prepaid interest and other credit costs).
The APR is calculated by spreading out these charges over the life of the loan, which result in a rate higher than the interest rate shown on your Mortgage/Deed of Trust Note.  If interest was the only Finance Charge, then the Note rate and the Annual Percentage Rate would be the same.
Prepaid Finance Charges are certain charges made in connection with the loan and which must be paid upon the closing of the loan.  These charges are defined by the Federal Reserve Board in Regulation Z and the charges must be paid by the borrower.  Some examples of such charges are:  Loan origination fees, “Points” or Discount, Private Mortgage Insurance or FHA Mortgage Insurance and Tax Service Fee.  Some loan charges are specifically excluded from the Prepaid Finance Charge such as appraisal and credit report fees.
Prepaid Finance Charges are totaled and then subtracted from the Loan Amount (the face amount of the Deed of Trust/Mortgage Note).  The net figure is the Amount Financed as explained below.
The amount of interest, prepaid finance charge and certain insurance premiums (if any) which the borrower will be expected to pay over the life of the loan.
The Amount Financed is the loan amount applied for less the Prepaid Finance Charges.  Prepaid Finance Charges can be found on the Good Faith Estimate and Settlement Statement (HUD-1).  For example, if the borrower’s note is for $100,000 and the Prepaid Finance Charges total $5,000, the Amount Financed would be $95,000.  The Amount Financed is the figure on which the Annual Percentage Rate is based.
This figure represents the total of all payments made toward principal, interest and mortgage insurance (if applicable) over the life of the loan.
The dollar figures in the Payment Schedule represent principal, interest, plus Private Mortgage Insurance (if applicable) over the life of the loan.  These figures do not include tax and insurance escrows or any temporary buydown payments contributed by the seller.
If the purchaser is obtaining a loan and the property is not a condo, a survey is typically required.  An existing survey may be provided by the seller, as long as the closing attorney determines it is acceptable.  If not, a new survey may be ordered by the closing attorney.  A house location survey, without corner markers, is sufficient.  If you would like the markers, request this through the attorney’s office.
The closing attorney will review the survey for anything that might affect the validity of the seller’s title.  Items included on the survey are: location of fences, driveways, decks, outbuildings and any other improvements to the property to be sure that there are no encroachments onto neighboring property and vice versa.
Most contracts are contingent on a home inspection. This is usually done by a professional inspector who is hired by the buyer.  The home inspector makes a detailed inspection of the home and prepares an evaluation that lists any defects found in the structure, utility systems and appliances.  If problems are found, the buyer is not obligated to proceed with the purchase unless the seller agrees to correct the problems.  Home inspections usually cost from $150 to $200 and are well worth the investment.  I am able to recommend an inspector who has provided good service in the past.

Termite Inspections

A termite inspection report shows that the property is free from termites and other wood destroying insects.  These inspections usually cost around $50.  A copy of a clean termite inspection report is not typically required before the lender will release the documents for closing, but it is recommended for your protection.

Walk Through Inspections

Your contract provides for a “walk through” just prior to closing to determine that the condition of the property is as it was when the contract was signed.  Normally, both the listing and selling agents are present.   The walk through should take about an hour.  Any discrepancies will be identified and plans will be made to correct them prior to the closing.
The appraisal of the property being purchased is one of the most misunderstood facets of the buying process.  Typical questions asked about the appraisal process are answered for your below.
Before the lender will make a loan on a property, an estimate of value is required.  It is common for lenders to require that appraisals conform to the Uniform Standards of Professional Appraisal Practice.  This is done so that consistent, detailed information is provided on all appraisals providing for protection for both the bank’s and the buyer’s investments.  The Appraisal provides an estimate of the value of the property.  The information in the appraisal is necessary to evaluate whether or not the property is adequate security for the loan.  An appraisal is a report made by a qualified person setting forth an opinion or estimate of value.  An independent appraiser inspects the property, neighborhood and at least three other properties of comparable size and style.
Appraisers are licensed by the state in which they work.  These individuals undergo an extensive 2-year “on the job” apprenticeship with an experienced appraiser.  The final opinion of value is based primarily on the experience and logic of the particular appraiser who completes the report.
The fee for a standard conventional residential appraisal is generally $350.  If a government mortgage (FHA or VA) is being used, the fee is regulated by the governing agencies and typically costs $400.
If the subject property is valued at $700,000 or above, the cost may be more.  In addition, some investors may require more than one appraisal.
You are entitled to a copy of the appraisal…after all, you paid for it!  As a service to my clients, I will provide a copy of the appraisal after I receive it from the appraiser.
Immediately after loan application, the lender will order an appraisal of the property.  It will generally be completed within two to three days.  The appraisal is submitted with the loan package for review by the underwriter.
An appraisal is simply a supported estimate of value.  There are three approaches to estimating market value of a property:  the Cost Approach, the Income Approach and the Sales Comparison Approach, (a.k.a. Market Data Approach).  The cost approach measures the value of a house from what it would cost to reproduce it.  The income approach relies on the analysis of income generated by the property to determine value.  This approach is not generally used for assessing the value of single family homes because these homes are not typically used for generating income.  The approach which tends to be weighted most heavily is the Sales Comparison Approach.  This approach identifies what similar properties have sold for in the same market place over the last two to eight months, and then adjusts the values of the comparables to make them “more like” the subject.
Insurance is a basic ingredient in most real estate transactions.  From protecting lenders against a borrower’s default in mortgage payments to guarding the owner’s investment from loss due to accident, illness or death, the insurance industry can provide policies to cover all potential risks.  In many instances, a buyer must provide the lender with several different types of insurance in order to meet loan commitment requirements.  The following is a brief summary of the forms of insurance that may be required in residential real estate transactions.
If a property is located in a designated flood zone, a lender will require the borrower to secure a flood insurance policy.  This type of coverage is not included as part of a homeowners policy
Hazard Insurance is a type of casualty insurance that covers damage to or destruction of the improvements from specific hazards such as fire and wind.  Lenders require this type of coverage on all properties as a condition of loan approval.
In addition to protecting against damage to improvements, homeowner’s insurance protects against the loss or damage to personal property, injuries to occupants and guests, vandalism and living expenses in case the insured premises becomes untenable.  HMC, Inc requires only a hazard insurance policy, but as a practical matter most buyers take a full homeowner’s protection package if they intend to live in the house.
A Disability Insurance policy makes mortgage payments when the insured is unable to work due to illness or injury.  This type of insurance is not required by the lender as a condition of loan approval.  The buyer may choose this insurance based on his/her own personal needs.
A Mortgage Life Insurance policy — generally a decreasing term policy —pays off the mortgage upon the death of the insured.  Again, this type of insurance is not required by the lender, but may be obtained by the buyer based on his/her own personal needs.
Mortgage Guarantee Insurance protects a lender against losses resulting from a borrower’s default.  In case of a default, if a foreclosure proceeding does not provide sufficient funds to satisfy all moneys due, then the mortgage insurance company makes up the deficit.
For conventional loans, mortgage guarantee insurance — often called MI — is required when a borrower finances more than 80% of the purchase price.  For loans insured by the Federal Housing Administration (FHA), this type of insurance is required regardless of the amount of down payment.
Owning land is one of the most precious values of freedom enjoyed in this country.  You can buy it, sell it, invest in it and trade it as you see fit.  But any change in ownership, to be legal, requires a formal exchange of title (deed).
A deed is a written document that creates or transfers an interest in a property.  When recorded, the deed puts the world on notice of the estate or ownership of an interest in property — it is not a complete history of the title to the property it conveys.  To learn the history of a property and see how it may affect the current ownership, it is necessary to conduct a thorough examination of the title.
The process of examining the title begins with locating the deed of the current owner and then researching backward and forward in time through the land records to determine what, if any, limitations there may be to the ownership, use and enjoyment of the property.  Court dockets are then reviewed to determine if any of the prior or current owners were involved in legal proceedings that could affect title to future owners.  In addition, assessment records must be checked to determine the status of taxes and other municipal fees that can be levied against property.  Those findings are then reviewed; and based on this final report, the settlement agent prepares a title insurance binder which outlines the scope and limitations of the title insurance coverage. Findings from either the search of the court dockets or assessment records, such as a judgment against a previous owner that placed a lien on the property, or a tax lien against a previous owner, may indicate that other parties may have a legal interest in or a claim against the property.
One of the most frequently asked questions I hear at closing is, “What is title insurance?”  This question arises because the buyer is required to pay for title insurance for the lender – which is mandatory and decides whether to purchase owner’s coverage — which is optional.
Unlike other kinds of insurance that protect against losses from future events, title insurance affords protection from past events which may or may not be part of the public record.  No matter how extensive and exacting the title search may be, the possibility of “hidden risks” remains . Although rare, these hidden risks, if found after the loan has closed, could affect your ownership rights to the property.  Some of these hidden risks are listed below:
Claims of missing heirs                                  False personations
Forgeries                                                         Improperly probated wills
Clerical errors                                                  Confusion due to similar names
Fraud                                                               Unsatisfied claims not shown in the records
Misinterpreted wills and trusts                        Deeds executed under expired or false power of attorney
Because lenders understand the potential impact of the “hidden risk” of any real estate transactions, they require a title insurance policy to protect the amount of money they loan for the purchase of the property.  These “hidden risk” make the purchase of title insurance for yourself a most prudent and inexpensive one time investment.
The settlement is the culmination of the purchase process.  Shortly after finalizing the sales contract you will select a closing attorney or escrow company.
The closing attorney/escrow company is responsible for ordering the title examination and survey, providing the mortgage lender with a title insurance commitment, implementing steps to be sure the seller can convey marketable title, and scheduling the actual time and place for the closing.  The closing attorney or escrow company will receive the loan documents from the lender and will finalize preparations for closing following the loan instructions included with these documents.
The closing itself usually takes about thirty minutes.  During the closing, numerous documents are explained and signed, funds are received and disbursed and the keys are delivered.  In many instances, buyers need to coordinate settlement to coincide with the arrival of their movers and cannot afford delays.  Choosing a reputable, experienced closing attorney is crucial to a smooth settlement.  I can refer you to an attorney with whom we work if you do not know one.
The closing will be conducted by an attorney or closing/escrow agent who will explain the various documents you will sign.  Most attorneys walk you through this at your own pace.  If you are feeling rushed, just ask him or her to slow down.
Many of the forms signed at closing are required by law and are signed by everyone who obtains a mortgage loan.  Most documents only require that you check the spelling of names and addresses and sign the form.  By all means, however, know what you are signing.  If you have a question, ask!
The Settlement Statement, often referred to as the “HUD-1”, summarizes the financial aspects of the transaction.  For this reason it is the document that warrants the closest scrutiny at closing.  Basically, the HUD-1 translates the terms of your sales contract and mortgage commitment into numbers and acts as a balance sheet for an accounting between buyer and seller.
The attorney will provide you a copy of the HUD-1 two days prior to settlement for your review.  At that time I will go through the statement line by line with you, either in person or by phone, whichever is more convenient for you.
This is a written promise from you, the borrower, to pay the lender a definite sum of money at an agreed interest rate over a stipulated period of time.  You should check to make sure that all of the variables just mentioned are correct.
You will need to bring a certified check or bank check in the stated amount, made out to the attorney.   A piece of photo identification may be required.
Thank you for choosing HMC, Inc for your current home purchase!
Below is a list of important phone numbers to use during the mortgage process:
Mortgage Consultant
Rob Smith – serving borrowers in Spanish Fort, Daphne, Fairhope, Point Clear, Gulf Shores, Orange Beach, Fort Morgan, and all areas of Baldwin County, Alabama.

Rob and Renee Smith
Loan Officers
1535B Schillinger Road S
Mobile, AL 36695

Rob: (251) 243-0254
Rob eFax: (877) 603-8117
Renee: (251) 243-0249
Renee eFax: (877) 623-0142

Provided by

Rob Smith

Alabama Mortgage Consultant
Alabama Mortgage Lender
Homes Loans | Condo Loans | Conventional Loans Jumbo Loans
Fairhope | Daphne | Point Clear | Spanish Fort
Gulf Shores | Orange Beach | Fort Morgan
(251)422-5710 cell

e-mail Rob


August 25, 2008 - Posted by | alabama, Baldwin County, Beach Real Estate, Daphne, Fairhope, fort morgan, Gulf Coast, Gulf Shores, Ono Island, orange beach, Point Clear, real estate, Spanish Fort | , , , , , , , , , , , ,

1 Comment »

  1. Your fonts are too small, it’s hard to read.

    Comment by outdoorsla | August 26, 2008 | Reply

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