- Consult with a mortgage broker to learn how much you are qualified to borrow – discuss mortgage conditions, required documentation, loan limit, debt ratio, etc.
- Submit proof of income and a credit report to obtain Pre-Approval.
- Once the attorney review is completed, submit all mortgage-related documents to the mortgage company.
- The mortgage company orders an appraisal through a third party.
- If the contract price is in line with the appraisal value and the mortgage application is approved, the Mortgage Commitment Letter is issued.
- Within 30 days of closing, the mortgage rate can be locked.
- Obtain property insurance following the mortgage company’s guidelines.
- Receive and review the Closing Disclosure from the mortgage company.
- Sign all mortgage documents during the closing.
- Proof of Income – 2 years of tax return, W2 Form, or 1099-Misc Form
- Proof of Employment – 4-5 recent pay stubs
- Proof of Funds – Issued from the bank
The down payment amount must be available in the bank account - Identification – Photo ID
- Social Security Card
- Credit Report or agreement to Credit Review
- Proof of business if self-employed
Conventional Loan
A conventional loan is a home mortgage that isn’t insured by a government agency. Conventional loans often meet the down payment and income requirements set by Fannie Mae and Freddie Mac, and they often conform to the loan limits set by the Federal Housing Finance Administration (FHFA). The requirements vary from lender to lender, but 620 is typically the minimum credit score needed to obtain a conventional loan, and 740 is the minimum score you need to get a good mortgage rate. The term of a conventional mortgage is usually 15, 20 or 30 years.
Jumbo Loan
A Jumbo loan is a type of loan that exceeds the conforming limits set by the Federal Housing Finance Agency (FHFA) in your area. In 2020, the baseline limit set for a jumbo loan is $510,400 for single family and $653,550 for two families for most of the country and $765,600/single, $980,325/two-families for most of New Jersey counties. Unlike conventional mortgages, a jumbo loan is not eligible to be purchased or guaranteed by Fannie Mae or Freddie Mac.
FHA Loan
An FHA loan, backed by the Federal Housing Administration, comes with many benefits including low down payments, easy credit scores, and flexible requirements for income. As of 2020, a buyer can borrow up to 96.5% of the value of a home or a 3.5% down payment and a credit score can be as low as 580 to qualify. The downsides of an FHA loan are the fact that it is required to pay PMI (private mortgage insurance) until equity reaches 20% and the loan limit is $765,000 in most counties in northern New Jersey.
FHA 203K Rehab Loan
An FHA 203K Rehab Loan, backed by the Federal Housing Administration, allows buyers to borrow money for both the purchase of a home and for home renovation in a single loan. This is a loan for the fixer-upper buyer planning to renovate for residential purposes, not for investment purposes. To qualify for an FHA 203k loan, a buyer needs to meet the same requirements as any other FHA loan. The Limited 203K provides a smaller loan option – up to $35,000 and Standard 203K program is used for larger projects over $35,000 and this usually involves a special consultant at the borrower’s expense.
Adjustable Rate Mortgage
An adjustable rate mortgage is a loan in which the interest rate applied on the outstanding balance varies throughout the life of the loan. An ARM loan has an initial fixed rate for a period of time, then the rate becomes adjustable, meaning the interest rate resets periodically. The decision to go with an adjustable rate mortgage or with a fixed rate mortgage will depend upon your personal situation.
Fixed Rate Mortgage
A fixed rate mortgage offers predictable payments and protection against rising interest rates. The interest rate on a fixed rate mortgage is fixed for the term of the loan, thus offering the benefit of always knowing what your loan payments will be.
VA Loan
A VA loan is a no down payment mortgage issued by private lenders and partially guaranteed by the Department of Veterans Affairs (VA). Eligible borrowers – veterans, reservists, active service members and spouses can use a VA loan to purchase a home as their primary residence only. There’s no mortgage insurance with VA loans, but there is a VA Funding Fee and it can be rolled into the loan amount.
Fix & Flip Loan
Fix-and-flip loans are short-term loans used by real estate investors to purchase and renovate a property to then sell for a profit. These renovations range from minor improvements to a complete reconstruction of an existing home. Lenders, either bank or hard money lenders, typically only offer this loan to experienced investors. Hard money lenders offer non-conforming loans for commercial or investment properties, accepting property or assets as collateral instead of having requirements for credit score or income level.
Portfolio Loan / Bank Statement Program
The Portfolio Loan and Bank Statement Program are a special loan for a borrower who does not qualify for traditional financing standards to get approved for a mortgage. Offered only at select banks, it requires a relatively high credit score and a higher down payment. You may be charged a higher interest rate or different fees in exchange for less stringent qualifying requirements.
| ADJUSTABLE RATE MORTGAGE | A mortgage loan that allows the interest rate to be changed at specific intervals over its term |
| AMORTIZATION | The gradual paying off of debt on an installment basis |
| ANNUAL PERCENTAGE RATE | The cost paid each year to borrow money, including not just interest rate, but all other fees and charges |
| BALLOON MORTGAGE | A mortgage loan that is not amortized, usually paid in a lump sum at the end of 5 or 7 years |
| CONVENTIONAL LOAN | A mortgage loan that is not insured or guaranteed by government agencies |
| DISCOUNT POINT | A fee paid by the borrower to a lender to reduce the interest rate (1 Point = Pay 1% of Loan = Decrease rate by 1/8% |
| FANNIE MAE | A part public, part private corporation that buys and sells mortgages in the secondary money market |
| FHA LOAN | A real estate loan that is insured by the Federal Housing Administration; 3.5% Down Payment |
| FIXED RATE MORTGAGE | A mortgage loan with an interest rate that does not change during the entire term of the loan |
| FREDDIE MAC | A federal agency that buys mortgages in the secondary money market from commercial banks |
| GINNIE MAE | A federal agency that provides special assistance for federally aided housing programs in the secondary money market |
| INTEREST | The cost to borrow money, usually expressed as a percentage of the amount borrowed |
| JUMBO LOAN | A loan that exceeds the mortgage amount eligible for purchase by Fannie Mae ($765,600 in Bergen County, as of 2020) |
| LENDER | The financial institution providing funds for the mortgage |
| LOAN ORIGINATION FEE | Fees paid to the mortgage lender for processing the mortgage application |
| LOAN TO VALUE RATIO | The relationship between the loan amount and the total value of the property (e.g. A $100,000 home with a down payment of $20,000 has a LTV of 80% or $80,000) |
| LOCK IN RATE | A written agreement guaranteeing a specific mortgage interest rate for a certain amount of time |
| MATURITY DATE | The date on which a mortgage loan is scheduled to be paid in full |
| MORTGAGE | A loan for purchasing a home taking the property as collateral |
| MORTGAGE BROKER | An individual or firm that brings borrowers and lenders together for loan origination |
| MORTGAGE COMMITMENT | A commitment by a lender outlining the amount they will loan to a qualified borrower on a particular piece of real estate |
| MORTGAGE RATE | The interest rate you pay to borrow money to buy your property |
| PRE-APPROVAL | Indication from the lender to a prospective borrower regarding how much money they will be eligible to borrow when applying for a mortgage loan; necessary when submitting an offer |
| PRINCIPAL | The amount borrowed that must be paid back, not including accrued interest |
| PRIVATE MORTGAGE INSURANCE | Insurance for a mortgage loan that protects the lender from loss in the event of default by the borrower, usually applies to a loan with a down payment of less than 20% |
| REFINANCE | Getting a new mortgage, where the current mortgage is replaced, usually for changes to interest rate |
| SECONDARY MORTGAGE | The marketplace for the sale and purchase of existing mortgages (Fannie Mae, Freddie Mac, Ginnie Mae) |
| UNDERWRITING | The process used to determine loan approval including reviewing the borrower’s credit score and ability to pay the mortgage |
| VA MORTGAGE | A mortgage loan guaranteed by the U.S. Department of Veteran Affairs |