first time home buyer financing

First Time Home Buyer Guide

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Planning for homeownershipBuying a home is the single largest purchase that you are likely to make, and if you’ve never bought a home before, you probably have more questions than answers. At SunTrust Mortgage, Inc., it’s our goal to help our clients make solid choices about buying a home, which is why we’ve created this guide to homeownership. Our guide will help answer your questions about some of the major steps in the home buying process — like deciding if you’re ready to buy a new home, finding the perfect home, obtaining a mortgage, and closing on the purchase. And, if you find you have more questions after reading this guide, your SunTrust Mortgage loan officer is always available to provide you with additional information.

Ready to buy?

Before you begin preparing for the home buying process, you should determine if owning a home is right for you. Once you have considered the pros and cons, only you can honestly decide whether or not buying a house makes sense for your specific situation.

Following is a list of some things to consider before you get started:

Advantages of homeownership

1. A home is a place to call your own; it helps you become a part of the community and make a difference in the area where you live.

2. While rent payments typically increase each year, you can choose a loan program with monthly principal and interest payments that will stay the same for the life of your loan. This helps you budget better and plan for the future.

3. Most homeowners realize significant tax benefits from homeownership. Consult a tax advisor to discuss your specific situation.

4. A home is a personal investment involving your time and money — one that has the potential to increase in value.

Disadvantages of homeownership

1. There are no guarantees that a home will appreciate in value.

2. Homeownership usually costs more than renting.

3. You will be responsible for all repairs and maintenance of your home, which can be costly.

4. If you move frequently because of your job, owning a home may be more of a burden than you want.

5. If you own a home and do not keep up with your monthly mortgage payments, the mortgage lender could foreclose on your mortgage. That means you could lose your home and any equity you’ve built up.

Financial factorsOnce you've decided to buy a home, the next step is to consider how much you can afford. It's a good idea not to become "house poor," which means you don't want to spend every dime of your monthly income on debts, includingyour housing expenses. Many first-time home buyers discover that when they add up their total housing costs (monthly mortgage payment, moving costs, early repairs, real estate taxes, insurance, maintenance, etc.) the overall costs are more than they paid as renters. If this sounds like you, it's a good idea to set up a strict budget. If budgeting is new to you, SunTrust Mortgage will show you how to get started.

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Budgeting

There are three main reasons why a budget is critical in the home buying process:

1. A realistic budget will help you determine how much house you can afford.

2. A budget will help you determine if you can afford the extra expenses related to homeownership.

3. A budget will help you plan to save money for the down payment on your home, as well as develop good

saving habits for other financial goals, such as retirement or education expenses.

Preparing a budget

Budgeting is simply a management tool that helps you plan and keep track of how and when you are spending your money. By following a budget, you will be able to set goals for how you want to spend your income. Here's how to get started:

1. List all current, regular, net monthly income for your household.

2. List all current monthly expenses, including any money you set aside each month toward savings. Keep a record of your receipts so you can total expenses by each category at the end of the month. If you develop a budget, and then decide not to keep a record of your actual expenses, you've wasted your time!

3. After recording your actual expenses at the end of the month, you will be able to analyze whether or not your budget was realistic. You may need to go back and adjust your budget accordingly.

Appendix 1, located on pages 14 and 15 of this guide, presents you with a simple format that you can follow for preparing your budget. Try using this format, or one like it, to start your budget today. Once you have completed your budget, keep the following in mind:

1. If you have accounted for all of your expenses, including your savings, the difference between your projected and actual balance should be $0.00.

2. If you come up with a positive number, you may want to consider allocating the extra money toward your debt and/or savings.

3. If you come up with a negative number, you are spending more than you make. Review your budget

thoroughly to examine where you can trim your expenses.

How much can I afford?

Now that you have analyzed your current monthly expenses by preparing a budget, let’s discuss other factors you should consider. Many experts use a basic, easy formula to roughly determine how much someone can afford to pay for a house. The formula says you should multiply your pre-tax, or gross, annual income by two and a half. For example, if you have a total household income of $60,000, you should be able to buy a house worth $150,000. This quick ballpark figure is great; however, your buying power will ultimately depend on two things:

1. How much you have available for the down payment and closing costs.

2. How much a lending institution will agree to lend you.

Down payment

Most mortgage programs require you to make a down payment from your own cash when you purchase a home. The amount of the required down payment will vary, depending on the type of mortgage program for which you qualify.

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The size of the down payment will determine how large a mortgage you need, as shown in this example:

$230,000 Purchase Price -$11,500 5% Down Payment from Borrower’s Cash$218,000 Mortgage Amount

Closing costs

The down payment is just one of the costs associated with the home buying process. Home buyers usually pay other fees called “closing costs” or “settlement charges” which on average are between 4% and 10% of the mortgage amount. Closing costs usually include fees charged by the mortgage lender for originating and processing your loan, as well as other expenses charged by third parties for items such as surveys, inspections, title insurance, and settlement services. There are also fees charged by your local government, which is one of the reasons why geography can play a major role in how much your closing costs will be.

Here are a few examples of typical closing costs you might see: loan origination fee, appraisal fee, credit report, flood certification fee, attorney's fee, state taxes, and title insurance.

Borrowing power

In addition to the money you have set aside for a down payment and closing costs, the amount of money you can borrow will also determine how expensive a home you can buy. A lender will consider the following in determining how large a loan to grant you:

1. Your earnings.

2. Your existing debt.

3. Your credit history and credit score.

In the next section, we’ll take a look at how your earnings, existing debt, and credit history factor intoloan qualification.

Qualifying for a loanThere are certain requirements that a borrower must meet in order to be approved for a loan. Even if you don’t currently qualify for a loan, knowing what is required will help you prepare for purchasing a home in the future.

Loan approval requirements

SunTrust Mortgage will review your financial information to determine your past and future ability to handle the increased financial responsibility of buying a home. There are six primary areas of consideration forcredit approval:

1. Income — Do you have sufficient income to pay your new mortgage payment and other debts?

2. Income stability — Is your income received regularly?

3. Credit history — How have you handled your other credit obligations?

4. Housing increase — Is there a large increase from your current housing expense to your new mortgage payment?

5. Funds for closing — Do you have enough money saved up to pay the required down payment and closing costs for a new mortgage?

6. Property — Is the home you want to purchase worth as much or more than the loan you are getting?

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Qualifying guidelines

There are different kinds of mortgage programs, each with a unique set of qualifying guidelines. SunTrust Mortgage uses these guidelines to determine the maximum loan amount for which you might be eligible.

One of the guidelines is called a debt-to-income ratio. The standard debt-to-income ratio for the average mortgage program requires that:

1. Your monthly housing cost (including the principal and interest payment, real estate taxes, homeowner's hazard insurance, and, if applicable, mortgage insurance, flood insurance, homeowner's association dues and/or condominium fees) should typically total no more than 28% of your gross (pre-tax) monthly income.

2. Your monthly housing costs, plus other recurring debts such as auto loans and credit card payments, should total no more than 36% of your gross monthly income.

Basically, a household should spend no more than about 28% on housing debt and no more than about 36% on all debts, including housing. Remember, this is based on pre-tax dollars, so you still have to pay income taxes and have enough money left over to live comfortably within your budget.

If you are a low-to-moderate income home buyer, we understand that more of your income will be put toward your housing expense. SunTrust Mortgage has several mortgage programs designed for low- and moderate-income home buyers with the qualifying ratios set accordingly.

Appendix 2 on page 16 provides you with a simple spreadsheet to show you what your maximum mortgage payment would be, based on your current income and standard qualifying ratios. Again, some mortgage products may have more flexible qualifying guidelines, so this calculation should be used only as an estimate.

Credit history

Credit reports are a snapshot of your personal credit history. SunTrust Mortgage will review your credit report and credit score to see how well you have handled debt and credit in the past. You should be proactive and get a copy of your credit report before you shop for a mortgage. By doing this, you will be able to see if there are any problems with your credit and have an opportunity to fix them before you go through the home shopping and mortgage application processes.

Often, if you are rejected for a loan or other form of credit, your credit history is the culprit. Anyone who denies you credit must tell you why in writing.

Appendix 3 on page 17 provides you with the names of the three credit-reporting agencies, also known as credit bureaus. Call or visit the website of these agencies to get a copy of your credit report. Your SunTrust Mortgage loan officer will be happy to review the report with you and make suggestions on ways you can improve your credit score.

How can I increase my borrowing power?

If you are not happy with the amount you qualify for, there are other actions you can take besides purchasing a less expensive home. Consider these ideas:

1. Reduce your existing debt.

2. Wait until your income increases before applying for a mortgage.

3. Find a financing option that results in a lower down payment or a lower monthly mortgage payment.

4. If you are a low-to-moderate income home buyer, ask your SunTrust Mortgage loan officer if there are any programs offered in your area that provide grants to reduce the amount of money you would have to borrow.

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Home buying process

Pre-qualification*

Your SunTrust Mortgage loan officer can help you determine the loan amount you might qualify for through a“pre-qualification” process. Being pre-qualified before shopping for a home is very useful because it helps you shop for homes that fall within your price range. Real estate agents also appreciate home buyers who submit offers on homes with a pre-qualification letter in hand. That’s why you should always talk to your loan officer before you begin house hunting.

House hunting

Now that you are pre-qualified and have determined the approximate price of a home you can afford, you are ready for the next step — finding the perfect home for you! It is important to keep in mind what you feel comfortable paying. Your SunTrust Mortgage loan officer will help you determine the highest loan amount for which you may qualify, but only you can decide how much you feel comfortable paying each month. Remember your budget!

Before you shop, it is a good idea to make a "wish list." A real estate agent can assist you in determining your housing requirements by asking good qualifying questions. Don't waste your time looking at houses that do not meet your basic requirements. Listed below are some items you should consider before beginning your house hunt:

1. Do you have a specific school district preference?

2. Do you want a new or existing home?

3. Is there a specific location where you want to reside?

4. Are there certain features you can't live without?

The role of the real estate agent

In choosing a real estate agent, you may want to get references from people you know who have recently purchased homes. It is important to work with an experienced real estate agent who is familiar with the areas in which you are interested. You should feel comfortable working with the real estate agent. While you are not obligated to work with only one, you will probably choose to do so once you find a real estate agent you likeand trust.

* Pre-qualification is based on non-verified information and is not a commitment by SunTrust Mortgage, Inc. to make you a loan. Loan approval will be subject to, but not necessarily limited to, verification of all income, asset and liability information provided by you, satisfactory property appraisal, compliance with SunTrust Mortgage’s loan program guidelines and all required closing conditions such as survey and title examination.

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A real estate agent provides a variety of services, including:

1. Reviewing general qualifying requirements to help determine affordable homes for you to consider.

2. Reviewing your wish list and qualifications to compile a list of potential homes.

3. Making arrangements to show you homes that meet your requirements.

4. Providing information on neighborhoods, schools, real estate tax rates, and public services available in each neighborhood.

5. Working with other real estate agents to get your offer accepted by the seller.

6. Assisting you in the selection of a settlement agent, professional home inspector, and any other service providers you may require during the home buying process.

7. Helping to coordinate the many activities that must be handled during a real estate transaction.

In a typical real estate transaction, you will pay nothing for the services provided by a real estate agent. Agents are usually paid by the seller out of the sale proceeds; therefore, the listing agent ultimately represents the seller. As a first-time home buyer, you should consider working with an exclusive buyer's agent who is a real estate agent that will represent your interests as the buyer.

Negotiating a purchase

Make an offer that you feel is appropriate and makes you comfortable. You may choose to offer an amount lower than the asking price or request the seller pay some of your closing costs; your real estate agent should advise you if the amount you wish to offer is out of line and help you negotiate the purchase price.

You will be expected to provide an earnest money deposit when making the offer. This deposit will be held until loan closing and can be applied toward the cash you will need to bring to closing. Your real estate agent will present your offer to the seller or to the seller's real estate agent.

If your offer is not accepted, you should take your time in considering a counteroffer. Do not be pressed into acting too quickly, even if other buyers are waiting. Remember, this is probably the largest purchase you will ever make, so you must make sure you are comfortable with the price and terms of the agreement.

Once you and the seller have agreed to all terms in writing, the signed purchase and sale agreement becomes a legally binding contract. You will be expected to follow through on all terms of the transaction and not change your mind after your offer has been accepted by the seller.

Importance of a professional home inspection

A condition of purchase that many buyers choose to include in the agreement is a home inspection. The purpose of the pre-purchase home inspection is to provide you with useful information about the condition of the home and identify major deficiencies, if any, in the home's structure and components.

A home inspector is a professional who has been trained to examine the visual condition of residential properties and determine if they are free from discoverable major mechanical (heating, plumbing, electrical, etc.) or structural (walls, roof, foundation, etc.) deficiencies. A professional home inspector will tell you whether the roof or heating system will soon need major repair or replacement and if the electrical and plumbing systems are functioning properly. The inspector will also let you know if the major mechanical and structural systems are in overall satisfactory condition.

As the potential home buyer with an interest in the property, you would be expected to pay for the home inspection because the home will ultimately be your investment. Once you have chosen a home inspector, your real estate agent should be able to help you coordinate a time for the home inspection to take place.

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Mortgage financingYou’re looking at homes, considering a purchase, and talking to your loan officer about different mortgage programs. You may even be hearing a lot of unfamiliar terminology related to mortgage financing. Let’s review some of the more common terms you may encounter.

Components of your monthly mortgage payment

A typical monthly mortgage payment is made up of principal, interest, and an escrow. The principal portion of your mortgage payment is used to repay part of your outstanding principal balance (your loan amount). The interest is the fee you pay the lender for using the lender’s money. Principal and interest may sometimes be referred to as "P&I."

The escrow portion of your monthly mortgage payment is deposited into an escrow account. Escrow is money that is collected by the lender to pay the annual real estate taxes, homeowner’s hazard insurance premiums, and, if applicable, any mortgage insurance premiums and/or flood insurance. When your real estate tax and insurance bills come due, the lender pays these bills on your behalf from the proceeds in the escrow account. The lender does this to ensure these expenses are paid in a timely manner. The inclusion of real estate taxes and insurance to the P&I is often referred to as “PITI.”

Mortgage options

There are different kinds of mortgages designed for different kinds of borrowers. Your SunTrust Mortgage loan officer will help you determine which one is the best fit for your individual needs and goals. The following are some of the most common options available:

1. Fixed rate

Fixed rate mortgages are the most common type of mortgage financing. They have an interest rate that remains constant; therefore, monthly principal and interest payments do not change during the life of the loan.

2. Adjustable rate

Adjustable rate mortgages, or ARMs, have an interest rate that remains fixed for an initial period of time. At the end of the initial fixed period, the interest rate becomes variable and can adjust either up or down on a monthly, semi-annual, or annual basis. Consequently, principal and interest payments may increase or decrease at various times over the life of the loan.

3. Fully amortizing

With a fully amortizing loan, both principal and interest payments are made monthly for the life of the loan. The principal portion of the monthly mortgage payment is calculated to repay the outstanding principal balance in full by the end of the loan term, without a final balloon payment that is much larger than any earlier payments. Both fixed rate and adjustable rate loans can be fully amortizing.

4. Interest only

Payments on interest only loans consist exclusively of interest for a designated period of time, usually the first ten years of the loan’s term. During this time, the principal balance owed is not reduced. No equity is created in the home while making interest only payments unless the value of the home appreciates. After the interest only period ends, the monthly mortgage payment is increased to include enough principal to repay the outstanding principal balance in full by the end of the remaining loan term.

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Mortgage insurance

When a borrower makes a down payment of less than 20% of the purchase price of the home, the lender will require some type of mortgage insurance. This insurance protects the lender against loss if the borrower defaults on the loan. Loans are typically insured by private companies or the federal government. Listed below are different insurers of mortgages. Each mortgage insurer has its own down payment and qualification requirements.

1. Private mortgage insurance companies

Loans that are not insured by the federal government are called conventional loans (you may even hear these loans referred to as “Fannie Mae” or “Freddie Mac” loans). These loans are insured by private mortgage insurance (MI) companies. An MI company will require a minimum contribution from the borrower’s own funds to be used toward the down payment amount. Gift funds from a relative may be used for additional down payment or closing costs. The cost for monthly mortgage insurance will vary depending on the amount of the down payment and the borrower’s overall credit rating. The monthly mortgage insurance premium is collected with the monthly mortgage payment.

2. Federal Housing Administration

The Federal Housing Administration insures loans (referred to as “FHA loans”) which typically offer lower down payment requirements and more flexible qualifying guidelines than conventional loans. Gift funds may be used for 100% of the down payment and closing costs. FHA loans require both an upfront mortgage insurance premium, which can be financed into the loan amount, and a monthly mortgage insurance premium which is collected with the monthly mortgage payment.

3. USDA Rural Development

USDA Rural Development (RD) offers federally-insured, affordable home loans through its Guaranteed Rural Housing Loan Program. These loans are designed for low-to-moderate income families purchasing a home located in a rural area as designated by RD and require a guarantee fee, which must be paid upfront and can be financed into the loan amount. Effective October 1, 2011, a monthly mortgage insurance premium will also be required.

4. Department of Veterans Affairs

The Department of Veteran Affairs (VA) guarantees loans to veterans and active duty service members with VA eligibility, as well as loans to eligible reservists with six years of service. VA loans require a VA Funding Fee, which must be paid upfront and can be financed into the loan amount. There are no monthly mortgage insurance premiums.

Homeowner's hazard insurance

Homeowner's hazard insurance is a requirement whenever you borrow money to purchase a home. You pay the premium, protecting you and the lender from loss if a fire or storm destroys or damages your home. A homeowner's hazard insurance policy should include:

1. Personal liability insurance — protects you if someone sues you after being injured on your property.

2. Property coverage — protects against fire, theft and specific weather-related hazards.

It’s wise to shop around for your homeowner's hazard insurance, since rates can vary among different insurance companies. SunTrust Mortgage requires coverage up to the "replacement value" of the improvements to the property (including the house, garage, outbuildings, etc.). Your insurance agent will help you determine how much coverage you need.

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Flood insurance

A homeowner's hazard insurance policy does not provide coverage for damage caused by flooding. If the home you buy is located in an area that is at risk for flooding, you may be required to purchase a separate flood insurance policy.

Under federal law, lenders must obtain a flood certification on any loan secured by residential real estate. A flood certification indicates whether the property lies within a Special Flood Hazard Area (SFHA) as designated by FEMA (Federal Emergency Management Agency). If your property is in an SFHA, the lender will not be able to offer you financing unless you purchase a flood insurance policy.

Applying for a loanAfter the seller has accepted the purchase contract, you must apply for your loan. At first, this process may seem a little overwhelming; however, knowing what to expect makes it easier. As always, your SunTrust Mortgage loan officer will be able to assist you.

The application process

Here's what happens after you complete the loan application and give it to your SunTrust Mortgage loan officer:

1. Disclosures

SunTrust Mortgage will provide you with certain disclosures about your loan and forms for you to sign. These disclosures will include:

•GoodFaithEstimate — an initial estimate of the fees and charges you can expect to pay for the origination and closing of your loan. Because federal regulations require lenders to provide borrowers notice of any changes to closing fees, you may receive more than one Good Faith Estimate before your loan closes.

•Truth-in-LendingActDisclosure — a disclosure of key terms of the lending agreement including the Annual Percentage Rate, the total finance charges, the amount financed, and your payment schedule.

You will not be required to pay any fees until you have received these disclosures and signed the forms. Always ask your loan officer about anything you do not understand.

2. Signing forms and payment of fees

Should you decide to proceed with your mortgage financing through SunTrust Mortgage, you will need to sign and return several forms that will be sent to you with the initial disclosures, such as the Borrower’s Authorization Form and a 4506T (Request for Transcript of Tax Return). Once you have returned these signed forms to us, we may begin processing your loan. At this time, you will also be required to pay for your credit report and the property appraisal.

3. Loan processing

We will verify the information on your application, including your current and previous employment, income, bank accounts, rental payment history, and other credit references. We will also order your credit report and appraisal. Based upon the information that results from this process, you may be requested to provide explanations or additional documentation to explain items such as gaps in employment, newly opened checking or savings accounts, large deposits, past delinquent credit, or recent inquiries by creditors.

4. Loan decision

You will be notified of the final decision on your loan application. If for some reason your loan application is denied, you will receive written notification from SunTrust Mortgage with an explanation for the denial.

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Locking your rate

At some point during the application process, you will need to lock your interest rate. A rate lock or “lock-in” is the lender’s commitment to provide you with a particular interest rate for a definite period of time. Locking your rate protects you from rate increases that may occur between the time you apply for your loan and the time it closes.

Rate lock periods can vary in length, but 30-, 45- and 60-day periods are most common. The greater the lock-in period, the higher your interest rate will be. The reason interest rates are typically higher for longer lock-in periods is because interest rates change daily — sometimes several times in a single day. Therefore, the risk to lenders is greater when they must commit to giving you a certain interest rate for a longer period of time.

Discount points

Discount points are a form of prepaid interest. Lenders charge discount points in exchange for a lower interest rate. A discount point is equal to 1% of the loan amount. For example, on a $200,000 mortgage, one discount point would equal $2,000. Depending on the type of mortgage loan, a discount point will typically reduce an interest rate by .125% to .25%.

Because paying discount points lowers the interest rate, a borrower can benefit from lower interest payments over the life of a loan. However, to fully maximize the benefit of paying discount points, a borrower must plan on keeping the mortgage long enough so that the money they save from the decreased interest payments offsets or exceeds the discount points paid. Ask your SunTrust Mortgage loan officer to help you determine the number of months you would need to keep your mortgage in order to break even if you paid discount points.

Closing your loan

Preparing for loan closing

Once your loan is approved, you should begin planning for loan closing, or settlement. Together, SunTrust Mortgage and your real estate agent will assist you with the many details to be managed. This is the time when the purchase

transaction is completed.

Selecting the settlement agent

In different parts of the country, closings are variously conducted by lending institutions, title insurance companies, escrow companies, real estate brokers, or attorneys for the buyer or seller. SunTrust Mortgage will recommend a settlement agent to use or you may select your own. You get to choose who represents you at loan closing.

Title insurance

Before you purchase a home, your settlement agent will perform a title search. The title search determines if there are any pre-existing legal claims to the property that would limit your rights in the property or result in the property being seized if a debt or other obligation was not met by the current or past owners. If a title problem occurs after you have purchased the home, title insurance protects against any financial loss or damage as a result of any claims against the property, defects in the title to the property, and other matters that may affect your right to use and enjoy the property.

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Title insurance would offer coverage in the event that:

1. Someone claims to have an easement through the middle of your property.

2. Someone claims to be the true owner of a piece of your property.

3. A bank tries to foreclose on your home because a recorded Mortgage, or Deed of Trust, on the property was never satisfied by a past owner.

Types of title insurance

1. Lender's coverage — protects the lender's interest in the property and will defend that interest should any claims arise. SunTrust Mortgage requires you to obtain lender's coverage.

2. Owner's coverage — protects your interest in the property for as long as you own the property. SunTrust Mortgage does not require you to obtain owner's coverage; however, it is recommended that you obtain this coverage for your protection.

Legal documents

At closing, you will be asked to sign several documents. The more familiar you are with these documents, the more comfortable you will be on the day of closing.

1. The Note

This is your written promise to repay SunTrust Mortgage for the principal and interest of the loan. The Note will reflect the terms under which you are borrowing the money (interest rate, loan term, and information about late payment penalties, prepayment and default).

2. The Mortgage

The Mortgage, Deed of Trust, or Deed to Secure Debt is the legal document that secures the Note and gives the lender a claim against your home and land if you default on your monthly mortgage payments.

3. The Deed

This legal document passes legal title of the home and land from the seller to the buyer. The seller is responsible for the preparation of the Deed.

4. HUD-1 Settlement Statement

This document itemizes all of the costs related to the transaction. It indicates which party (buyer or seller) is responsible for payment of each item, and will summarize the amount of money you owe and the amount due to the seller at closing. You should request a copy of your HUD-1 from your settlement agent prior to closing so you can review this document; by law, the settlement agent must provide it to you the day before closing if you ask for it.

Final walk-through inspection

Your purchase agreement should include a clause allowing you to examine the property within 24 hours immediately prior to closing. This allows you to inspect the property for any damage and to make sure the seller has (where applicable) vacated the property and left any items negotiated in the contract.

Closing day

Your settlement agent or attorney will notify you, in advance, of the amount of money you will need for closing. You must make sure you have these funds available in advance of closing, and you must take a cashiers or certified check to closing (personal checks are not acceptable).

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Closing usually takes place in the office of the settlement agent or attorney. All final papers will be prepared for you to review and sign. SunTrust Mortgage will wire the funds to the settlement agent for the purchase of the home. The closing documents will be explained to you before you sign them, and you will receive a copy of all the documents for your records. Finally, the settlement agent will give you the keys to your new home. Congratulations, you’re a new homeowner!

Homeownership responsibilitiesNow that you have moved into your dream home, it’s time to think about the future. Your home is likely your most valuable asset by far, so it is critical to give it the attention it deserves.

Maintenance and repairs

It's your home now. When something breaks, you will have to fix it or pay someone else to fix it. Attention to regular maintenance can often help you avoid repairs, and prompt repairs can help you avoid more costly disasters.

Major repairs and home improvements

Sooner or later, you may need to hire an expert to help you with major repairs or home improvement. Perhaps you want to do the kitchen or bathroom remodel you promised yourself when you moved into your new home. The following guidelines can help you get such a project done right for a fair price.

1. Interview several contractors. Find one that listens to you and with whom you feel comfortable working.

2. Ask for references and check them. You might begin by asking friends and neighbors to recommend companies or individuals that have provided them with good service. Many counties and cities have a licensing process for home improvement contractors. If the repair job is relatively small or you're on a budget, you may get better service from an individual than from a large firm.

3. Get cost estimates, and find out whether these are estimates or firm bids. Often, especially on older houses, contractors will not give a firm bid because it's impossible to know until they start the work what they'll find and how hard it will be to fix.

4. To protect yourself, especially for a larger job, be sure you have a contract that specifies exactly what work is to be performed, when payments are due, and so on. Always hold back part of the payment until after the job is finished. If the job requires permits, find out who is responsible for obtaining them.

Understanding your obligations as a borrower

As a homeowner, you need to take the steps necessary to protect your investment, not only by caring for the property itself but also by making timely payments on your loan. SunTrust Mortgage currently offers several different options for making your monthly mortgage payment, beyond just mailing in a check. Our most popular and convenient method is SurePaySM ACH, our automatic* payment deduction service, which allows you to set up your mortgage payment to be debited from your bank account each month. We also offer an online bill pay service, ePay.

In the unlikely event your monthly billing statement does not arrive before your first monthly payment is due, SunTrust Mortgage will include a "First Payment Letter" in your settlement package. This letter provides you with the date of your first monthly payment, the amount of your payment, and the address where you must mail it.

Predatory lending and refinancing

Once you have been in your house for a while, you may consider refinancing your loan. Refinancing your loan can make sense and save you money if interest rates have dropped, but it must be done carefully. The amount of money you save by refinancing your existing loan should fully offset the cost of the refinance transaction.

*Sufficient funds must be in account at time of debit.

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Beware of predatory lenders who lend money against your home in a way that can harm you more than help. They may try to convince you to refinance a home for no good reason (other than for the lender to earn fees). While not all of the practices of predatory lenders are illegal, consumers should protect themselves.

Here are some warning signs of predatory lending:

1. The interest rate seems higher than reasonable.

2. The lender uses aggressive, high-pressure tactics.

3. You are rushed through the process and discouraged from taking time to read and understand what you are signing.

4. You are encouraged to refinance a loan you already have without being shown any real benefit.

5. The lender insists that you buy life insurance as part of the loan.

Using home equity responsibly

As you pay down your outstanding principal balance or if your home increases in value, you will build up equity in your home. At some point, you may even choose to borrow against this equity to make home improvements, pay down higher-rate debt, or cover a large, unexpected expense. There are a variety of ways to access your home’s equity, including equity loans, lines of credit, and “cash-out” mortgage refinances.

When used responsibly, home equity can be a wise choice to help manage your finances. Just remember to consider all of your options first. If you are not confident you can make the monthly payments, do not borrow against your home’s equity. Even with an equity loan or line of credit, you could potentially lose your home if you find yourself unable to make the monthly payments.

Avoiding foreclosure

As stated in your loan documents, your monthly mortgage payment is due on the first day of each month. By making this obligation a priority, you can avoid costly late charge assessments and maintain a good credit history. Should your financial circumstances change over time, and you find yourself having difficulties keeping up with your payments, we strongly encourage you to act immediately by calling one of our loan counselors in the SunTrust Mortgage Loss Mitigation Department at 800.443.1032, option 2. It’s in the best interest of you and SunTrust Mortgage to prevent the loss of your home through foreclosure. Remember, it’s our goal to help our clients be

successful homeowners. SunTrust Mortgage will do everything in its power to assist you with getting back on track.

Wrap upThe journey toward homeownership is very exciting. And with trusted resources like your SunTrust Mortgage loan officer to provide you guidance along the way, you’ll get the facts you need to make solid choices about your future.

We hope our guide has provided you with useful information about mortgage financing and the home buying process. If you have any questions or would like to find out how to get started on the road to homeownership with SunTrust Mortgage, speak with your SunTrust Mortgage loan officer, visit suntrustmortgage.com or a SunTrust Mortgage office, and let us know how we can help!

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PROJECTED ACTUAL DIFFERENCE

NETMONTHLYINCOME

Source 1

Source 2

Other Income

Total Income (A)

FIXEDEXPENSES

Rent/Mortgage

Electric

Gas/Oil

Water/Sewer

Telephone

Cellular Phone

Trash/Recycling Pickup

Cable (Including Internet Service)

Auto Payment(s)

Auto Insurance

Life Insurance

Child Support/Alimony

Medical Insurance

Child Care

Other

TotalFixedExpenses(B)

CREDITORPAYMENTS

Installment loans

Credit Card Payments

Total Creditor Payments (C)

Appendix 1

Monthly household budget

Date:

15

PROJECTED ACTUAL DIFFERENCE

FLEXIBLEEXPENSES

Savings

Groceries

Lunch (Work/School)

Eating Out

Entertaining/Hobbies

Laundry/Dry Cleaning

Clothing

Gasoline/Bus/Taxi/Subway

Newspaper/Magazines

Church/Charity

Tuition/Books

Salon/Haircuts

Auto Maintenance

House Maintenance

Doctor/Dentist

Pets

Parking/Tolls

Other

TotalFixedExpenses(D)

Addtotalexpenses(B+C+D=E)

Enter FIXED (B)

Enter CREDITOR (C)

Enter FLEXIBLE (D)

TOTALEXPENSES(E)

Subtractexpensesfromincome(A-E):

Enter TOTAL INCOME (A)

Enter TOTAL EXPENSES (E)

DIFFERENCE

Appendix 1 continued

Monthly household budget

Date:

16

Appendix 2

Calculating your maximum mortgage amount

Housing expense ratio (1)

Total gross monthly income (pre-tax) $

X 28% X . 28

Maximum allowable for mortgage payment (PITI) $ (1)

Total debt ratio (2)

Total gross monthly income (pre-tax) $

X 36% X .36

Maximum allowable for mortgage payment (PITI)before other debt $

Minus total monthly debt payment* $

Maximum allowable for mortgage payment (PITI) $ (2)

Lesser of (1) or (2) $ (3)

This figure (3) estimates your maximum allowable mortgage payment (PITI), given your current gross monthly income and debts.

Multiply (3) by 80% to estimate the portion of PITI that represents principal and interest (P&I) payment only $

MAXIMUM ALLOWABLE FOR P&I $ (4)

Divide the MAXIMUM ALLOWABLE FOR P&I (4) by the factor in the chart below that most closely represents today’s interest rate environment.

P&I divided by 30-year P&I factor = maximum loan amount

$ ____________________ ÷ ____________________ = $ ____________________ maximum loan amount

*This is the total monthly amount that you pay toward all revolving and installment debt loans, including car payment, credit card payments and bank loans.

30-year P&I factor

.004774

.005067

.005368

.005678

.005995

Interest rate

4.00%

4.50%

5.00%

5.50%

6.00%

30-year P&I factor

.006321

.006653

.006992

.007338

.007689

Interest rate

6.50%

7.00%

7.50%

8.00%

8.50%

Appendix 3

Credit reporting agencies

Under the Fair Credit Reporting Act, each of the credit reporting agencies (Equifax, TransUnion, and Experian) is required to provide you with a free copy of your credit report, at your request, once every twelve months. To order your free credit report, contact:

Annual Credit Report Request Service

https://www.annualcreditreport.com877.322.8228

To ensure that you are visiting the legitimate Annual Credit Report site, type the website address exactly as it appears above into the address bar on your web browser.

If you have already received a free credit report within the last 12 months, you may purchase additional reports by contacting one of these agencies:

TransUnion800.888.4213 transunion.com

Equifax800.685.1111 equifax.com

Experian800.311.4769 experian.com

17

18

Appendix 4

Glossaryofmortgageterms

Adjustable rate mortgage (ARM): A mortgage in which the interest rate is adjusted up or down periodically based on a pre-selected index; also known as a re-negotiable rate mortgage or a variable rate mortgage. ARM products have interest rates that may increase after loan consummation.

Amortization: Repayment of mortgage debt with periodic payments of both principal and interest, calculated to pay off the loan obligation at the end of a fixed period of time.

Annual Percentage Rate (APR): The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act and Regulation Z. Because it includes certain costs paid to obtain the loan, it is usually higher than the interest rate stated in the mortgage note. Aids in comparing the true cost of loans offered by lenders.

Application: An initial statement of a borrower’s personal and financial information which is required to approve a loan.

Appraisal: A formal written estimate of the current market value of a home and land. It also refers to the process by which a value estimate is obtained.

Balloon: A loan with monthly payments not sufficient to pay off entire loan debt, followed by a single “balloon” or lump-sum payment at the end of the loan term to pay off the remaining principal balance.

Buydown: An interest rate subsidy in the form of additional discount points paid by a builder, seller, lender, or buyer which results in either a permanent or temporary below-market interest rate. A temporary buydown typically lowers the interest rate during the first few years of the loan, resulting in lower initial monthly mortgage payments that will increase when the subsidy expires. A permanent buydown lowers the interest rate for the life of the loan.

Closing: The delivery of a Deed, financial adjustments, the signing of the Note, and the Mortgage or Deed of Trust, and the disbursement of funds necessary to consummate a sale or loan transaction.

Closing costs: Fees paid to effect the closing of a loan, such as origination fee, discount points, title insurance fees, survey fees and attorney's fees.

Combo loan: The combination of a first and second mortgage made at the same time and secured by the same property.

Conventional financing: Mortgage financing that is not insured or guaranteed by a government agency, such as HUD/FHA, VA, or USDA Rural Development.

Credit report: A report to a prospective lender on the credit history and credit score of a prospective borrower used to determine creditworthiness.

Credit score: A measure of credit risk derived from a statistical program and based on information contained within a credit report that lenders use to determine a borrower’s creditworthiness.

Debt-to-income (DTI) ratio: The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income.

Deed of Trust: The agreement used to pledge a home or other real estate as security for a loan.

Default: A situation in which the borrower fails to make his or her monthly mortgage payments, fails to pay the amount due on a loan, or fails to meet other requirements of the loan agreement.

Delinquency: Failure of a borrower to make timely payments under a loan agreement.

Discount points: A one-time charge imposed by the lender to lower the interest rate at which the lender would otherwise offer the loan. Each point is equal to one percent (1%) of the mortgage amount.

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Down payment: The difference between the sales price of real estate and the mortgage amount.

Escrow: Money collected by a lender as a part of the monthly mortgage payment and used for the purpose of paying a homeowner’s real estate taxes and insurance obligations.

Federal Housing Administration (FHA): A federal agency under the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting.

Fixed rate mortgage: A mortgage with an interest rate that remains the same for the term of the loan. Monthly principal and interest payments also remain the same.

Flood certification: A process in which the location of a property is examined to determine whether it falls within an area that is at risk for flooding.

Foreclosure: A procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.

GoodFaithEstimate(GFE): An estimate of the closing costs given to the borrower within three (3) business days after the lender receives a completed loan application.

Grossmonthlyincome: The total amount the borrower earns per month before any expenses are deducted.

Homeowner’s hazard insurance: An insurance policy insuring against multiple perils, commonly called a package policy, and made available to owners of private dwellings. There are wide variations in the coverage of such policies, which generally insure the dwelling and its contents.

HUD-1 Settlement Statement: A form utilized at loan closing to itemize the costs associated with purchasing the home.

Interest: The fee paid to the lender for the use of its money.

Interest only: A loan option that allows a borrower to make payments of only mortgage interest, instead of both principal and interest, during a set period of time. After the initial interest only period expires, payments increase to sufficiently pay off the existing mortgage debt over the remaining loan term. Monthly payments of interest only will not reduce the principal owed.

Loan to value (LTV) ratio: The ratio, expressed as a percentage, which results from dividing the amount being borrowed by the appraised value or selling price of the house.

Lock-in (Lock): A commitment obtained from a lender assuring a particular interest rate or feature for a definite time period. Protects borrower from interest rate increases between the time of loan application and loan closing.

Mortgage: The agreement used to pledge a home or other real estate as security for a loan.

Mortgage insurance: An insurance policy that allows a mortgage lender to recover part of its financial losses if a borrower defaults on a loan.

Origination fee: The lender's fee charged to a borrower to cover processing, administration and loan document preparation. The fee is usually a percentage of the loan amount.

PITI: Principal, interest, real estate taxes, homeowner's hazard insurance, and, if applicable, private mortgage insurance and/or flood insurance. Also called monthly housing expense.

Prepayment: Paying off the mortgage before maturity. At times, buyers may decide to refinance at a lower interest rate or to fully pay the mortgage before it is due. The Note will indicate if there is a fee for early repayment, also called a "prepayment penalty."

Prepaid expenses: A deposit made at the time of closing to create an escrow account. Can include real estate taxes, homeowner's hazard insurance, mortgage insurance and/or flood insurance and special assessments.

Prepaid interest: The amount of interest to cover the period from the closing date until the due date of the first mortgage payment.

20

Principal: The original balance of money lent, excluding interest. Also, the remaining balance of an outstanding loan, excluding interest.

Purchase agreement (sales agreement): A written agreement between the buyer and the seller stating the terms and conditions of a sale or exchange of property.

Real estate agent: A person licensed to sell real property, acting as an agent for others.

RealEstateSettlementProceduresAct(RESPA): A federal statute governing real estate lending practices and disclosures. Its main features pertain to the distributions of a good faith estimate of loan settlement costs and the HUD settlement booklet within three business days of making loan application.

Recording fees: Fees charged by a municipality for recordation of the Deed, the Mortgage/Deed of Trust, and at times, additional documents requiring public notice.

USDA Rural Development: A federal government agency that supports the development of rural communities by providing financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Settlement: The closing of a mortgage loan.

Survey: A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimension of any improvements.

Title: The means whereby the owner of land has the legal possession of the real property; the right to or ownership in land. In the case of real estate, the documentary evidence of ownership is the Deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, gift, or foreclosure of a mortgage.

Title insurance: A policy, usually issued by a title insurance company, which insures against defects in the title. The cost of the policy is usually a function of the value of the property and is often borne by the purchaser and/or seller. There are two types of policies: a Lender’s Policy which protects the lender’s interests and an Owner’s Policy which protects the buyer of the home and land.

Title search: An examination of public records, laws, and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject real property.

Truth in Lending Act (TILA): A federal statute that requires the disclosure of the Annual Percentage Rate and other information to home buyers shortly after they apply for a loan. The actual disclosure form is sometimes referred to as the TIL.

Underwriting: The decision whether to make a loan to a potential home buyer based on credit, employment, assets and other factors, and the matching of risk to an appropriate rate and term or loan amount.

Veterans Administration (VA) loans: A long-term, low or no down payment loan guaranteed by theDepartment of Veterans Affairs. Restricted to individuals qualified by military service or other entitlement.

Verification of Deposit (VOD): A form that requests and secures verifications of amounts of deposit at financial institutions. When a depository institution is also the applicant's creditor, the VOD verifies the obligations.

VerificationofEmployment(VOE): A form that requests and secures documentation of a mortgage applicant's income, work history and/or occupation to assist in the lender's credit investigation.

HOME BUYER’S GUIDE

7

Abstract of Title – complete historical summary of the public records relating to the legal

ownership of a particular property from the time of the first transfer to the present.

Adjustable Rate Mortgage (ARM) – also known as a variable-rate loan, an ARM is one in which the

interest rate changes over time, relative to an index like the Treasury index.

Agreement of Sale – also known as contract of purchase, purchase agreement, or sales agreement

according to location or jurisdiction. A contract in which a seller and buyer agree to transact under

certain terms spelled out in writing and signed by both parties.

Amortization – the process of reducing the principal debt through a schedule of fixed payments at

regular intervals of time, with an interest rate specified in a loan document.

Appraisal – a professional appraiser’s estimate of the market value of a property based on local

market data and the recent sale prices of similar properties.

Assessed Value – the value placed on a home by municipal assessors for the purposes of

determining property taxes.

When buying a home, it’s important to

understand the key concepts and terms.

A HOME BUYER’S GLOSSARY

The following is a list of terms to know:


8

Closing – the final steps in the transfer of property ownership. On or before the Closing Date, as

specified by the sales agreement, the buyer inspects and signs all the documents relating to the

transaction and the final disbursements are paid. Also referred to as the Settlement.

Closing Costs – the costs to complete a real estate transaction in addition to the price of the home.

These may include: points, taxes, title insurance, appraisal fees and legal fees.

Contingency – a clause in the purchase contract that describes certain conditions that must be met

and agreed upon by both buyer and seller before the contract is binding.

Counter-offer – an offer, made in response to a previous offer, that rejects all or part of it while

enabling negotiations to continue towards a mutually-acceptable sales contract.

Conventional Mortgage – one that is not insured or guaranteed by the federal government.

Debt-to-Income Ratio – a ratio that measures total debt burden. It is calculated by dividing gross

monthly debt repayments, including mortgages, by gross monthly income.

Down Payment – the money paid by the buyer to the lender at the time of the closing. The amount

is the difference between the sales price and the mortgage loan. Requirements vary by loan type.

Smaller down payments, less than 20%, usually require mortgage insurance.

Earnest Money – a deposit given by the buyer to bind a purchase offer and which is held in escrow.

If the property sale is closed, the deposit is applied to the purchase price. If the buyer does not fulfill

all contract obligations, the deposit may be forfeited.

Equity – the value of the property, less the loan balance and any outstanding liens or other debts

against the property.



9

Easements – legal right of access to use of a property by individuals, or groups, for specific

purposes. Easements may affect property values and are sometimes part of the deed.

Escrow – funds held by a neutral third party (the escrow agent) until certain conditions of a

contract are met and the funds can be paid out. Escrow accounts are also used by loan servicers

to pay property taxes and homeowner’s insurance.

Fixed-Rate Mortgage – a type of mortgage loan in which the interest rate does not change during

the entire term of the loan.

Home Inspection – professional inspection of a home, paid for by the buyer, to evaluate the quality

and safety of its plumbing, heating, wiring, appliances, roof, foundation, etc.

Homeowner’s Insurance – a policy that protects you and the lender from fire or flood, a liability

such as visitor injury, or damage to your personal property.

Lien – a claim or charge on property for payment of a debt. With a mortgage, the lender has the

right to take the title to your property if you don’t make the mortgage payments.

Market Value – the amount a willing buyer would pay a willing seller for a home. An appraised value

is an estimate of the current fair market value.

Mortgage Insurance – purchased by the buyer to protect the lender in the event of default

(typically for loans with less than 20% down). Available through a government agency like the

Federal Housing Administration (FHA) or through private mortgage insurers (PMI).

Possession Date – the date, as specified by the sales agreement, that the buyer can move into

the property. Generally, it occurs within a couple days of the Closing Date.



10

Pre-Approval Letter – a letter from a mortgage lender indicating that a buyer is approved for

a mortgage of a specific amount. It also shows a home seller that you’re a serious buyer.

Principal – the amount of money borrowed from a lender to buy a home, or the amount of the loan

that has not yet been repaid. Does not include the interest paid to borrow.

Purchase Offer – a detailed, written document which makes an offer to purchase a property, and

which may be amended several times in the process of negotiations. When signed by all parties

involved in the sale, the purchase offer becomes a legally-binding sales agreement.*

Title – the right to, and the ownership of, property. A Title or Deed is sometimes used as proof of

ownership of land. Clear title refers to a title that has no legal defects.

Title Insurance – insurance policy that guarantees the accuracy of the title search and protects

lenders and homeowners against legal problems with the title.

Truth-In-Lending Act (TILA) – federal law that requires disclosure of a truth-in-lending statement

for consumer loans. The statement includes a summary of the total cost of credit.

Title Search – a historical review of all legal documents relating to ownership of a property to

determine if there have been any flaws in prior transfers of ownership or if there are any claims

or encumbrances on the title to the property.

* The purchase offer and contract procedures vary by region.



11

There’s a lot you need to know to make the right

decisions – and also to avoid making the wrong ones.

And that’s particularly true in this current market.

The good news is that when you know what you’re doing,

and particularly when you’re working with a highly-

experienced real estate professional who does, this

market offers fantastic opportunities to get a great

home at a great price.

Owning versus renting

Without question, owning a home comes with risks and responsibilities that you don’t have to

worry about when you rent. These include things like a mortgage, property taxes, homeowner’s

insurance, maintenance and repairs, to name a few.

However, financial advisors, and homeowners themselves insist there are far more

advantages to owning:

It’s been shown over time that you’ll generally lose money by renting instead of owning your

own home. Why not build up equity in a home instead of paying your landlord’s mortgage?

Although there are periodic market drops, historically, owning a home has been a prime

financial investment.

You can take advantage of many ongoing tax benefits, like deducting the interest on

your mortgage and property taxes from your income tax.

Considerations for first-time home buyers

TO BUY OR NOT TO BUY

Buying your first home is a major step.


12

Owning a home isn’t just a smart financial investment; it’s also an investment in

a higher quality of life – particularly if you have a family or if you’re planning one.

There is a special kind of pride in the ownership and upkeep of a home that you

won’t get with renting.

Simply put, it just feels good to own your own home. You can decorate it any way you like, renovate

or build additions or personalize your landscaping. It’s your home.

Do you qualify to own?

To find out: go to your bank or another lending institution and allow them to perform a credit check

and analyze your financial situation.

You may be surprised to learn that there are many renters who financially qualify to own their own

homes, but don’t realize it. Are you in this category? It would be a shame if you wanted to own your

own home, but didn’t know you could.

Also, keep in mind you may be eligible for loans insured by the Veterans Administration (VA) or the

Federal Housing Administration (FHA).




13

Is it a good time to buy?

Generally speaking, if you’re financially qualified, your timing couldn’t be better. In fact, few

markets have ever offered the opportunities that currently exist for first-time home buyers,

because:

Home prices are still trending at bargain prices in many markets

Interest rates are still historically low which means you can lock-in a single digit

interest rate for 30 years

Foreclosures and short sales can still be found in many markets which means

a discount on already low market rate prices

New home inventory is starting to pick up providing some buyers with the

option to customize finishes and be the first to call that location home

The bottom line is that if you are currently renting but really want to own a home, this is a terrific

time to buy. Speak with a knowledgeable, experienced real estate professional about your options.

They will be able to assist you with getting the best financial support you qualify for, and you’ll also

get the scoop on many great real estate opportunities you might otherwise miss.

FYI - The legwork that a real estate professional does to help you find, finance, and

purchase a home generally won’t cost you a penny. The seller pays for it all!

The information above is based on market conditions

at time of this printing. Information is not to be relied

upon. Please consult a real estate professional.




14

Financing your home purchase

THE LOAN PROCESS

It’s rare to be able to pay all cash for your home.

So, for most of us, finding the right lender and

mortgage product is critical to buying.

There are many types of lending institutions, offering

a wide range of loans and special programs. It’s wise

to diligently research your options and shop around

for a mortgage with the same care as when looking

for a home.

Steps to secure the best mortgage for your needs.

Educate yourself about your options

Unfortunately, many people are suffering the consequences of having made poor – and perhaps

ill-advised – mortgage decisions. That’s why it’s crucial for you to learn as much as you can about

your mortgage options.

There are a host of loan types and programs available through thousands of banks, finance

companies, credit unions, and other assorted lenders. Also, there are equally as many sources of

information about mortgages. Websites like realtor.com®, books, news articles, seminars, mortgage

brokers, lenders, and knowledgeable real estate professionals can all help you wisely navigate your

way through the labyrinth of financing possibilities, so make use of them. And be sure to get a

few opinions.

In short, do your homework before you put your name on the line, because what you don’t know

could hurt you.

14


15

Sincerely examine your financial situation

Along with educating yourself about your loan options, you should ask yourself how much

mortgage and down payment you could really afford. Make yourself accountable. What might

you be giving up – not just every month, and also perhaps 20 years down the road – by extending

yourself further? Maybe taking on a larger mortgage will pay off greatly as an investment, maybe it

won’t. Be sure to weigh the risks and opportunity costs.

Along these lines, realtor.com® provides you with a variety of loan calculators that will help you

determine what your regular payments will likely be based on your projected down payment, the

loan principal, the interest rate, the mortgage term, and so on.

One other point to note is that some lenders will qualify you for the maximum they’re willing to

lend which may be more than you can truly afford. Additionally, be sure to factor all related taxes,

insurance, improvements, homeowner fees and all other potential costs into the equation. Make

a list of your monthly expenses, and project your financial commitments during the life of the

mortgage. This will provide a realistic figure of what you can afford.

When shopping for a loan you should consider two main sources: direct lenders and mortgage

brokers. Direct lenders have the money and make the decisions, but have a limited number of in-

house products to offer. Brokers are intermediaries who charge a fee, and can provide you with

loan options from many sources, which can often save you money overall. In this case, you might

consult your real estate professional as they often have beneficial connections.


THE LOAN PROCESS


16

Your basic mortgage options

Generally, there are two ways to go: a fixed-rate mortgage with an interest rate that remains the

same for the life of the loan, or an adjustable-rate mortgage (ARM) with a rate that adjusts up or

down, depending upon economic trends.

The advantages of a fixed-rate mortgage – particularly if you lock in at a low rate – are that they

protect you against the risk of rising interest rates, and their stability can also make it easier for

you to plan and budget your short and long-term expenses. Their down side is that they generally

have higher rates than ARMs at any given time, and by locking in you run the risk of being trapped

at a relatively high rate if interest rates fall.

Another consideration with a fixed-rate mortgage is the term. Shorter-term mortgages, like a

15-year, have lower rates than a 30-year. The shorter term and lower rate mean that you’ll pay

less interest over the life of the loan, although your monthly payments will generally be higher.

In contrast, an adjustable-rate mortgage’s (ARM) rate is commonly based on the U.S. Treasury

index for a one-year Treasury bill, although it may also be geared to other indexes. Generally,

lenders add 2-4% to the index rate to get their ARM rate. Initially, the rate is lower than the fixed

rate by a quarter point to two points or more. This rate will periodically adjust within set limits or

“caps” that are specified by the terms of the loan.

Finally, it must be reiterated that the loan you ultimately qualify for will depend on your credit

status. The best rates and terms are only available to those with solid credit so, if possible, pay off

your credit cards and make all other bill payments in full and on time.


THE LOAN PROCESS


17

Apply for a mortgage

Once you’ve reached a pending agreement with a seller to buy a home you’ll have all the details

you need to formally apply for a mortgage.

When you meet with your chosen lender to complete the application you’ll need to provide

information – if you didn’t during the pre-approval process – about your household income, job

tenure and stability, assets and existing debt, and regular expenses. This may take the form of pay

stubs, bank and investment statements, tax returns and other documentation. The lender will also

check your credit status.

During the application process you’ll discuss the different loan options and programs you qualify

for, as well as finalize the size of your down payment. If you place less than 20% down, the lender

may require the mortgage to be guaranteed by a third party such as the Veterans Administration

(VA), the Federal Housing Administration (FHA) or a private mortgage insurer(PMI).

As there are many important considerations and so much at stake, be sure to bring all of your

questions to the table. This includes asking the lender to explain all terms of the mortgage.

You may find that having a trusted and knowledgeable real estate professional by your

side to explain every aspect of the mortgage contract will increase your peace of mind.

Lastly, if you qualify for the loan you’re seeking, the lender will often have the home you’re buying

professionally appraised to ensure that it’s worth the purchase price.


THE LOAN PROCESS

first time home buyer financing

Education