mortgage basics the guidebook
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7/23/2019 Mortgage Basics The Guidebook
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MANY PEOPLE DREAM OF OWNING THEIR OWN HOME,
BUT FEAR THAT THE PROCESS IS OVERLY
COMPLICATED OR OUT OF THEIR REACH EVEN
THOUGH A LOT OF RENTERS QUALIFY. T HIS BOOK
WILL SIMPLIFY THE PROCEDURE & ARM YOU WITH THE
KNOWLEDGE TO COMPLETE THE PROCESS.
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Remember; don’t be scared to ask questions. Be sure to understand the
benefits and risks of the product you are considering.
If it sounds too good to be true, it might be.
Before you sign on the dotted line, contact me if you’ve got any questions.
Mohamed T Gulamali:
Individual Licenses:
Mortgage: NMLS 1128605 | P&C Insurance: BR-1170226
Phone: 516-900-3603
Cell: 646-571-5352
Fax: 888-507-5926
Email: ceo@moresult.com
Web: www.moresult.com
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MORTGAGE BASICS: T HEGUIDEBOOK
BYMOHAMED T. GULAMALI
Table Of Contents
1. Anti-discrimination Page 1
2.
Comparison of Renting vs. Buying Page 2
3. Benefits of Home Ownership Page 3-4
4. Pre-qualification & Preapproval Page 5
5. Types of Properties Page 6 – 10
6.
Mortgage Types Page 11
7. Qualifying for a Mortgage Page 12 – 16
8. Mortgage Payment Page 17 – 19
9. Glossary Page 20
10. Mortgage document checklist Page 21
11. Entire Process of Buying a Home Page 22
12. Basic Requirements & misconceptions Page 23 – 24
IMPORTANT NOTICE:
You do not have the right to reprint, resell, auction or re-distribute the
Mortgage Basics: The Guidebook
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MORTGAGE B ASICS THE GUIDEBOOK
BYMOHAMED T GULAMALI
Mohamed T. Gulamali: Contact me with any questions
ceo@moresult.com www.moresult.com
1
CHAPTER 1:
A NTI-DISCRIMINATION
Banks aren’t supposed to discriminate when making residential
mortgages. Federal and State anti-discrimination laws prohibit it.
It is illegal to:
Refuse you credit when you qualify Discourage you from applying for a mortgage Offer you credit on terms that are negative, like a higher
interest rate compared to somebody with similar
qualifications
Close your account
Based on:
Race or Color
National Origin
Religion
Sex
Disability
Basis of sex
Marital status
Age
Source of income
Familial Status
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Mohamed T. Gulamali: Contact me with any questions
ceo@moresult.com www.moresult.com
2
CHAPTER 2:
COMPARISON OF R ENTING VS. BUYING
Over time the principal & interest portion of your mortgage
payment will decrease till it’s paid off. This portion of your
mortgage payment will obviously be lower than the rent you would
have been paying with no end in sight. More importantly, you are
not throwing away your hard earned money on rent.
You got to live somewhere, so instead of paying off your
landlord’s home just pay off your own & increase your net worth!
Own or Rent Advantages Disadvantages
Renting
Short-termcommitment
Minimal repaircosts
No Taxincentives
Rent can beincreased
No building ofequity
Homeownership
Privacy
Investment
Stable housing
costs Pride of
ownership &communityties
Tax Incentives
Maintenance &Repairs
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Mohamed T. Gulamali: Contact me with any questions
ceo@moresult.com www.moresult.com
3
CHAPTER 3:
BENEFITS OFHOME OWNERSHIP
1. Builds Wealth:
Through history property possession specifically home ownership
has been a financially savvy move. Usually home values increase
so with that logic today is the best time to buy low so that later you
can sell high in order to maximize your profit.EQUITY
Equity is the difference how much you owe on the home and howmuch the home is worth.
Equity = Home value - Mortgage debt
Factors that increase equity:
1.
Larger down payment when purchasing property2. Home value rose (renovations help but remember it alsocontingent on values within the area)
3. Lowering principal by consistently making mortgage payments over time.
4. Paying extra along with your mortgage payment (the excesswill go directly towards your principal)
Benefits of equity:1. More money you receive when you sell the property.2. Leverage when you cash out funds from your property
through a refinance or home equity loan3. Equity is an asset
2. Tax Benefits: There are numerous tax benefits to home ownership
below are a few of them.
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The Schedule E portion of personal tax returns list the following deductions:
Advertising Management
Fees
Supplies
Cleaning &Maintenance
MortgageInterest paid
Property Taxes
Commissions Repairs Utilities
Insurance Legal & professional fees
Depreciation
Discount points: Money paid to lower the interest rate
PMI or MIP: Tax deductable as long as your AGI is under
$109,000 Married or $54,500 filing separately
3. Capital Gains Exclusion:
To qualify you just need to buy a home & live in it as your primary
residence for at least two years. When you sell you keep profits of
up to:
$250,000 if you are single
$500,000 if you are married
4. Build your Castle:
You can tailor fit the home to meet your needs. The upgrades you
make will likely also increase the value of your home.
5.
Benefits to Family:
Your Family will have stability knowing that they aren't going to
have to move and alter their lives, which can be traumatic. Besides
the pride of Home Ownership they will also be part of the
community along with all the benefits that it entails. A Financial
benefit is the access to vast equity in their future.
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5
CHAPTER 4:
PRE-QUALIFICATION
& PRE-APPROVAL
PRE-QUALIFICATION:
Is an estimate of how large a mortgage you will qualify for.
To get pre-qualified, you go over your income and credit profile with a Loan Officer. Then fax or email over the
following for the Loan Officer to review:
2 recent Tax Returns
2 recent W2’s
30 days of Pay Stubs
60 days of Assets
PRE-APPROVAL:
Is a commitment by the lender, to make you a mortgage
loan. The lender checks your credit report and verifies your
income and assets. Not guaranteed a mortgage until the full
loan application and approval process.
Keep in mind Bank Pre-Approvals are not what they used to
be since using a big bank also forces you to play by the big
banks rules & they’ve also been reprimanded numerous
times.
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6
CHAPTER 5:
TYPES OF PROPERTIES
Each type of home has benefits and disadvantages depending onyour needs and preference. Home buyers have several options themost relevant home options are:
Cooperative (co-op)
Condominium (condo)
Single Family home
Multi Family home (2-4 units)
CO-OP & CONDO
CO-OP CONDO
You are a shareholder You are a property owner
You receive a “proprietary
lease”You receive a deed to yourhome
Renting is usually restricted Renting is usually permitted
Board approval is usuallyrequired to buy
Board approval is usually notrequired to buy
Monthly maintenance charges
include property taxes
You pay your own property
taxes
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You elect Board of Directors You elect board of managers
More affordable for first timehomebuyer
Prices are usually higher thanco-ops
Disadvantages
Shared Yard: Condo and Co-op yards are shared with the
entire building.
Special Assessments: If the association doesn’t have enough
money to cover repairs it will issue an assessment requiring
owners to pay a fee to cover the costs.
Size: Condos and Co-ops are typically smaller than a single
family property.
Storage: Condos and Co-ops typically have less storage due
to lack of basement, attic and garage.
Financing: Condos and Co-ops are usually harder to finance,
since banks are stricter due to the extra risk
Noise: Condos and Co-ops are often noisier than single
family properties since the units are attached on all sides.
Note: If you are interested in a condo, make sure to view it at night
or on the weekend as well to get an idea of how loud the neighbors
are and the quality of the soundproofing for the unit.
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SINGLE FAMILY HOME
Advantages:
Living Area: Single family homes are typically larger.
Yard: You will have access to your own yard.
Storage: Single family homes generally have more storage
in the forms of a: basement, attic and garage than condos or
co-ops.
Expansion: It’s your prerogative to make any additions to
your home such as an adding a floor or an extension on the
side.
Financing: It is easier to obtain financing compared to a
condo.
Disadvantages
Maintenance: Maintenance issues such as repairs,
landscaping, and snow removal are your responsibility.
Price: Due to the numerous advantages single family homes
are more expensive than condos.
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MULTI-FAMILY
Advantages
Monthly Costs: The monthly net costs can be considerably
lower than owning a single family property if you live in one
of the units.
Investment Property: Multi unit properties are an ideal
investment because it generates monthly rent while normallyincreasing in value while still producing multiple tax
benefits.
Easier to qualify for a mortgage: Rental income counts
towards your income ratios within the majority of Mortgage
Products.
Disadvantages
Landlord Responsibilities: By renting out an apartment
you become a landlord. This requires all responsibilities that
come along with being a landlord along with the benefit of
income.
Size: Units are at times similar in size to condos.
Shared Yard and Driveway: The yard and typically the
driveway will be shared with your tenants depending on
terms of the lease.
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1-4 Family VS. Condo or
Homes Co-op
1-4 unit homes are more likely to increase in value condos &
co-ops
1-4 unit homes are easier to resell mostly because people
have a hard time envisioning paying a higher sales price for
a property where they have to pay additional maintenance
fees forever.
Most homebuyers would rather put that money into home
improvements of their own choosing.
Fewer outside Fees – There’s no getting around it: Condos
typically cost more to own than a single- family as far as
square footage. Not to mention, condo fees are subject to
increase, potentially raising your cost burden over time.
Financing Options are more numerous for Homes. They also
normally have access to lower interest rates and lower down
payment requirements.
2-4 unit properties have rental income
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Mohamed T. Gulamali: Contact me with any questions
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11
CHAPTER 6:
MORTGAGE TYPES
To keep things simple as far as the mass public in NY is concerned
the two mortgage options are FHA & Conventional.
CHIEF DIFFERENCES BETWEEN
FHA & CONVENTIONAL
FHA CONVENTIONAL
Down PaymentMinimum 3.5% Minimum 5-15%
MIP or PMI
MIP: Monthly Fee
(cannot be avoided)
PMI: Monthly Fee
(if down payment is
less than 20%)
Rates Normally lower
rates
OccupancyOwner Occupied
only
Investment Option
Income Ratio Allows higher debt
ratios
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CHAPTER 7:
QUALIFYING FOR A MORTGAGE
There are 3 major factors in attaining a mortgage:
1. Income
2. Assets
3. Credit
INCOME:
The bank will verify your income and proof of employment in
order to make sure you are capable of covering the mortgage
payments, home owners insurance, property taxes, MI if applicable
along with your monthly expenses.
Income is the main factor in determining how much home you can
afford. Income used to qualify for a mortgage must have 2 years of
history, unless just graduated and the job is related to field of
study.
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ASSETS:
The bank will verify your assets chiefly to make sure you have
saved enough for the down payment. The minimum down payment
within the FHA program is 3.5% of the purchase price.
The more of a down payment you make the less of a risk you are
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and thus the bank will give you a lower interest rate.
Assets must have a full documented paper trail for 60 days. If youare using funds from a retirement account for the down payment
you will also be required to provide the Terms Of Withdrawal.
CREDIT
Lenders prefer borrowers with low balances, a long history of on-
time payments and a mix of credit utilization this would be
reflected within a good fico (credit score).
A good credit score is the most dominant determinant of your
mortgage rate & the higher your credit score is the lower your
interest rate will be. A credit score of 740 or more should qualify
you for the best
BLOG
Credit Tips: How to raise your score
WHAT IS CREDIT: A transaction based on a promise
An agreement for delayed payment of a loan or purchase
Best described as buy now & pay later or in installments
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CREDIT R EPORT
Information in your Credit
Report
Personal Identification
information
Your payment history
on accounts
Public records
Inquiries
Information NOT in your
Credit Report
Personal comments
from Creditors or debt
collection agencies
Your income
Payment history on
non-credit accounts
Criminal records
CREDIT SCORE
Credit Score: Number intended to measure how likely you are
to repay a loan. Scores range from 300 - 850 the higher the
score the better your credit is within the banks view.
Your fico Score: There are a total of 3 scores 1 from each
credit bureau which are:
Experian
Equifax
Transunion
Fico score is the one between the lowest and highest (the median
score)
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Calculating your Score:
35% Punctuality of payment (pay on time) 30% Amounts owed (Balance no more than 30% of
credit limit)
15% Length of credit history (keep older cards active)
10% Types of credit used (mix of revolving and
installment debt)
10% Recent inquiries and accounts (limited credit
application)
WHO CAN SEE YOUR CREDIT
Your credit reports may be viewed by:
Anyone you authorize to review it
Lenders
Landlords
Employers
Insurance companies
Government agencies
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WAYS TO ORDER YOUR CREDIT REPORT
You have an option to a free credit report from each credit bureau
once every 12 months.
Ways to order:
1. Internet: 222.annualcreditreport.com
2.
Phone: 877-322-8228
Another option to find your score is to use
www.creditkarma.com it gives you two of your three
scores; it is also free and requires no credit card.
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Mohamed T. Gulamali: Contact me with any questions
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CHAPTER 8:
MORTGAGE PAYMENT
Elements of a Mortgage Payment:
Principal: The amount of money you actually borrowed
Interest: How lenders profit on the loan over time.
o Fixed: Interest rate stays the same through the loan
o Adjustable: Interest rate changes periodically.
May be lower than a fixed rate in the beginning but
is risky.
Taxes: Property Taxes
Insurance: Home Owners Insurance
PMI or MIP:
o Applicable to FHA loans
o Applicable to Conventional loans when down
payments are under 20%
Home Association (Maintenance) Fees:
o
Applicable to Condo’so Applicable to Co-ops (property taxes are usually
included within this fee for co-ops)
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HOW MUCH CAN YOU AFFORD?
General rule of thumb: Mortgage amount no more than 2.5
times gross annual income
Example $40,000 sustain mortgage of $100,000
$40,000 x 2.5 = $100,000
This equation isn’t written in stone and for this reason it’s
best to have a professional prequal i fy you.
R ATIOS: There are 2 ratios that have to be qualified for when
seeking a mortgage. These ratios are the:
Front End ratio
The Back End ratio
R ECOMMENDED EXPENSE R ATIOS
Housing Payment is your complete mortgage
payment with everything included
Front End
Ratio
(Housing Ratio)
=
Housing Payments
x 100Gross Household Income
Government Recommended Ratio: 31% or lower
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Certain cases all ow a higher ratio
Back EndRatio
(Debt Ratio)
=Housing + Debt
Payments x 100
Gross Household Income
Government Recommended Ratio: 45% or lower
Certain cases all ow a higher ratio
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HOMEOWNERS INSURANCE
Homeowners Insurance protects your home by covering
expenses faced if an unexpected crisis occurs. Your mortgage
lender will require you to purchase homeowners insurance as a
condition to receiving the loan.
Even after your mortgage is paid off, it is important to maintain
home owners insurance for your own protection.
Most Homeowners insurance policies include:
Property Damage
Personal Liability
Medical Payments
Living Expenses
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CHAPTER 9:
GLOSSARY
Note: A written promise to repay debt that includes terms of repayment.
Points: Fee 1 point equals 1% of the loan amount
Discount points: Fee for a lower interest rate
Loan To Value (LTV): The amount of the loan divided by the purchase
price (or value of the house if it’s a refinance)
Private Mortgage Insurance (PMI): Monthly fee if down payment is
less than 20% for conventional loans. Protects lender in case of default of
mortgage by the borrower due to risk
MIP: Monthly fee on FHA loans, but keep in mind FHA normally has
lower interest rates as well.
Amortization: a payment plan that enables you to reduce your debt
gradually through monthly payments.
Appraisal: Document from a professional that gives an estimate of a
property's fair market value also protects buyer from making a bad
investment.
Deed: Document that legally transfers ownership of property from the
seller to the buyer, it’s recorded on public record with the property
description and the owner's signature (also known as the title).
Rate Lock: a commitment by a lender to a borrower guaranteeing a
specific interest rate over a period of time.
Real Estate Agent: an individual who is licensed to negotiate and arrange
real estate sales
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CHAPTER 10:
MORTGAGE DOCUMENT CHECKLIST:
Organize documents: When applying for a mortgage you must
document the below documents and include every page even the
blank ones
Purchasing a property can be a strenuous process, gathering your
documents in the beginning will save you a lot of time and stress.
BLOG: MORTGAGE DOCUMENT CHECKLIST
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Income
• 2 most recent Tax Returns
• 2 most recent W2's & 1099's if applicable
• 30 days of recent Pay Stubs
Assets
•60 days of recent Bank Statements
•Document any other Assets & Terms of
Withdrawal
ID
•Drivers License or Passport (any gov
photo ID)
•Copy of Social Security card
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CHAPTER 11:
E NTIRE PROCESS OF BUYING A HOME
• Complete Application with Loan Officer
• Fax or email documents from the DocumentChecklist
• Get Pre-Qualified with a loan officer
• With the help of a Realtor find your new Home andmake an accepted offer
• Sellers attorney will draw up the contract.• Terms of the contract will be reviewed by your
attorney after which you will sign and put down theearnest money (a portion of the downpayment)
STEP : PREPARATION
• File is processed and Docs are drawn up forsignature to submit the file.
• File is submitted along with your documents to the
bank.
STEP 2: ORIGINATION
• Approval is issued
• Income & Assets are verified
• Third party services are ordered such as Appraisaland Title
• Satisfy all conditions assigned by the Bank
STEP 3: UNDERWRITING
• Job is verbally verified and Credit ir reviewed tomake sure there are no changes
• File is cleared for closing
• Do a final walk through of the home
• Attorney will advise you on how much money youhave to bring to the table for the remainder of thedown payment and closing costs (if they were notrolled into the loan)
•
Close on your new home
STEP 4: CLOSING
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CHAPTER 12:
BASIC R EQUIREMENTS & MISCONCEPTIONS There are a lot of misconceptions about how easy it is to obtain a
mortgage, the below most common issues will be addressed:
1. Down Payment
2. Credit
3. Income
1: DownPayment
Most borrowers falsely presume the down payment required to qualify for a mortgage isabout 20% of the purchase price, in actualitymost cases require 3.5% to qualify.
These funds can be from your own assets oreven from a gift through a family membersuch as a parent or sibling as long as norepayment is necessary, keep in mind acomplete paper trail is necessary for the fundsfor at least 60 days.
2: Credit
Score
Nearly half of all borrowers believe they needa credit score of 780 or more to qualify,fortunately they’re wrong.
In most cases a credit score of a 640 is morethan adequate to become a home owner.
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MORTGAGE B ASICS THE GUIDEBOOK
BYMOHAMED T GULAMALI
Mohamed T. Gulamali: Contact me with any questions
ceo@moresult.com www.moresult.com
24
3: Income
Allot of tenants think they can’t become homeowners because their income just isn’t
adequate enough. More often than not amortgage payment is extremely reasonableand can in fact be very close to how muchyou’re already paying in rent, keep in mindyour landlord likely uses your rent towards hismortgage payment.
A simple calculation is that your Total Incomea month should be double your total min debts(from credit) plus Mortgage Payment.
Bottom Line
If you want to find out if you qualify for a Mortgagecontact me and find out.
7/23/2019 Mortgage Basics The Guidebook
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Mortgage Basics: The GuidebookBy: Mohamed T Gulamali
This E-Book is authored by Mohamed T Gulamali to help home
buyers get mortgage ready. As a leading voice in educating
buyers, Mohamed is proud to offer this material for free to anyoneto assist turn from renters into Home Owners.
Mohamed T Gulamali is a:
Licensed Mortgage Loan Officer NMLS ID 1128605
Licensed P&C Insurance license BR-117022
A professional Financial Blogger
Author
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