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Home Buyer’s Guide

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Pursuing Home Ownership

The mortgage team at LegacyTexas has prepared this Buyer’s Guide to assist you in preparing for your purchase, making informed decisions, securing the best financing and finding the right home.

If you want to learn more about the mortgage process or have questions about the information in this guide, just let us know. One of our expert loan officers will be glad to assist you.

We wish you much success as you begin this exciting journey.

Congratulations on your decision.

Table of Contents

Before You Begin ��������������������������������������������������������������������� 2

Getting Started ������������������������������������������������������������������������ 4

Searching for a Home ��������������������������������������������������������������� 5

Next Steps �������������������������������������������������������������������������������� 6

Loan Types ������������������������������������������������������������������������������� 7

Underwritting �������������������������������������������������������������������������� 8

Terms to Know����������������������������������������������������������������������� 10

Home Buyer Checklist ���������������������������������������������������������� 12

Congratulations on your decision.

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Before You Begin

1. How soon do you plan to purchase a home?

Immediately In the next few months More than a year

2. What is your credit score?

Under 580 581-619 620-679 680-720 721+

Very Poor Poor Fair Good Excellent

Your credit score can have a major impact on your mortgage. Borrowers with higher credit scores generally have more loan options at lower interest rates.

While a credit score can range from 300 to 850, most are somewhere between 600 and 700. Several factors influence your credit score, including current and previous account information reported by credit card companies, lenders, banks, municipalities and collection agencies.

35% On-time payment history30% Current credit usage15% Credit history10% Recent credit inquiries10% Types of credit accounts

If you are unsure of your credit score, you can order a FREE copy of your report at www.annualcreditreport.com.

Important questions to answer.Before You Begin Your Search

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Important questions to answer.Before You Begin Your Search

3. What is your annual household income?

4. What are your current assets and monthly debts?

Liquid Accounts

Checking & Savings $

Investments

Stocks, 401(k), IRAs, etc. $

Life Insurance

Cash value $

Other

Cash and items of value $

Total Cash And Assets $

Home Loans Mortgage, HELOC, etc. $

Auto Loans Include co-signer loans $

Credit CardsInclude co-signer accounts $

Personal LoansStudent, unsecured, etc. $

Other ObligationsChild support, alimony, etc. $

Total Debt $

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5. What price range do you have in mind?

6. How much do you have available for a down payment? 20% • Recommended by many lenders • Co private mortgage insurance (PMI) required 3.5 to 5% • Certain government (FHA) and conventional loans 0% • Select programs and VA loans

Monetary Gifts

Many lenders will allow you to use gifted funds toward your down payment. However, you will need to provide documentation stating the money is indeed a gift and will not be repaid.

In some cases, down payment assistance may be available. Ask your mortgage lender for details.

Remember, you will also be responsible for paying closing costs and additional fees. See Page 8 for more information.

7. How long do you plan to live in your home?

1 Year 2-5 Years 5-10 Years 10+ Years

$

$

1. Find a trusted lender

2. Pre-approval

3. Choose a Realtor®

4. Search for a home

5. Sign your contract

6. Inspection / Option period

7. Submit full application with all documents

8. Loan processing & underwriting

9. Title / Survey

10. Arrange for home insurance

11. Close on your new home

Choosing the Right Mortgage Lender

Finding the right mortgage lender is about much more than finding the lowest rate. A good mortgage loan officer will be experienced, answer all of your questions, provide honest feedback and do what is best for your personal financial situation.

Be sure to ask these questions:

• How and when can l reach you?

• Will I be working directly with you?

• What loan options are available?

• How will you decide which loan is right for me?

• Will you be with me at closing?

Pre-Approval

Pre-approval does not guarantee a loan but does help determine how much you can borrow.

Pre-approval Steps:

1. Complete official mortgage application.

2. Provide your lender with necessary documentation.

3. Your lender will calculate the specific amount for which you are approved.

4. Your lender will provide you with a pre-approval letter.

Once you receive your pre-approval letter, connect with a reputable real estate professional who can guide you through the home search process and assist you when it’s time to make an offer and write a contract. If you need a recommendation, ask friends, family members or your mortgage lender.

Now that you’ve taken a closer look at your financial picture and have given more thought to purchasing a home, it’s time to get started. Steps in the home buying process include:

Steps in the Home Buying Process Getting Started

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What home features are most important to you?Searching for a Home

Property Location Rating Total(20 point max) Notes / Description Rating (1=low; 5=best)

Kitchen / Dining 1 2 3 4 5Living Areas (Living Family) 1 2 3 4 5

Bedrooms / Bathrooms 1 2 3 4 5Exterior / Yard 1 2 3 4 5 “Offerable”

Maintenance Needed e.g. Roof, windows, upgrades, paint, furnace, AC, flooring, etc. Y / N

maybeLikes (describe major items) e.g. home style, levels, parking, heating,

water, plumbing, appliances, schools, commute, deck, shopping, traffic, garageDislikes (“deal breakers”)

Property Location Rating Total(20 point max) Notes / Description Rating (1=low; 5=best)

Kitchen / Dining 1 2 3 4 5Living Areas (Living Family) 1 2 3 4 5

Bedrooms / Bathrooms 1 2 3 4 5Exterior / Yard 1 2 3 4 5 “Offerable”

Maintenance Needed e.g. Roof, windows, upgrades, paint, furnace, AC, flooring, etc. Y / N

maybeLikes (describe major items) e.g. home style, levels, parking, heating,

water, plumbing, appliances, schools, commute, deck, shopping, traffic, garageDislikes (“deal breakers”)

Property Location Rating Total(20 point max) Notes / Description Rating (1=low; 5=best)

Kitchen / Dining 1 2 3 4 5Living Areas (Living Family) 1 2 3 4 5

Bedrooms / Bathrooms 1 2 3 4 5Exterior / Yard 1 2 3 4 5 “Offerable”

Maintenance Needed e.g. Roof, windows, upgrades, paint, furnace, AC, flooring, etc. Y / N

maybeLikes (describe major items) e.g. home style, levels, parking, heating,

water, plumbing, appliances, schools, commute, deck, shopping, traffic, garageDislikes (“deal breakers”)

Property Location Rating Total(20 point max) Notes / Description Rating (1=low; 5=best)

Kitchen / Dining 1 2 3 4 5Living Areas (Living Family) 1 2 3 4 5

Bedrooms / Bathrooms 1 2 3 4 5Exterior / Yard 1 2 3 4 5 “Offerable”

Maintenance Needed e.g. Roof, windows, upgrades, paint, furnace, AC, flooring, etc. Y / N

maybeLikes (describe major items) e.g. home style, levels, parking, heating,

water, plumbing, appliances, schools, commute, deck, shopping, traffic, garageDislikes (“deal breakers”)

5

It’s time to complete your full mortgage loan application. Have these items ready for your mortgage lender:

rValid Photo ID

rProof of Income (W-2s and most recent pay stubs)

rFederal Income Tax Returns (previous two years)

Next Steps

Congratulations on Finding a Home

6

rBank Statements (previous two months)

rDivorce Decree (if applicable)

rExplanation of Any Large Deposits

Your Mortgage TeamMortgage Loan Officer

The mortgage loan officer will work to select the right mortgage for you. They will take you through the various financing options and make sure you understand the mortgage process.

File Manager/Processor

The file manager and processor will likely be your main contacts once your application is complete. They will go through the process of collecting additional documentation and verifying all aspects of your loan.

Appraiser

The appraiser evaluates the inside and outside of the property, the neighborhood, and other factors to determine the value of the property. This is an important step in the approval of your mortgage.

Underwriter

The underwriter carefully examines all aspects of the mortgage loan and verifies that all pieces of the application, documentation, and appraisal are accurate and meet loan guidelines.

Title Company

The title company ensures the ownership of a property is valid and issues title insurance to protect you against claims on a title. A settlement agent will provide and explain your closing documents with you.

Fixed

Fixed Rate loans give you the peace of mind that your rate and payments will never change. This makes budgeting and planning your financial future simple. Fixed rate loans are a great option if you plan to live in your home for a long time.

Pros Cons

• Simplified budgeting and planning.

• If interest rates rise, you are protected with your fixed rate loan.

• The principal and interest part of the loan payment never changes.

• If interest rates fall, you may need to refinance to get a better interest rate.

Adjustable Rate Mortgage (ARM)

Adjustable Rate Mortgages give you a fixed rate for a portion of the loan, and then the interest rate adjusts yearly. ARM mortgages are hybrids that work together with your short and long term goals.

Terms are normally 3/1, 7/1, and 10/1. The first number is how long the rate is fixed. The 1 indicates that the rate changes once per year after the fixed period ends.

Pros Cons

• May have lower initial interest rates than fixed rate loans.

• Principal and interest does not change during the fixed period.

• If interest rates fall, you can take advantage without refinancing.

• At the end of the fixed rate period, interest and payments may increase.

Next Steps

Congratulations on Finding a Home

The Pros and Cons

Loan Types

Government & Low Down Payment

The federal government sponsors the FHA, VA and USDA mortgage programs. Customers who meet the individual program requirements can usually get lower down payments and qualify with lower credit scores than other loan programs require.

Federal Housing Authority (FHA)

• Reduced income and credit requirements

• Mortgage insurance is required

Department of Veterans Affairs (VA)

• Current or former member of U.S. Armed Forces

• Funding fee is applicable

Portfolio Loans

If you are a small business owner, a doctor, have a gap in employment due to relocation, seasonal/commission-based income or a unique set of borrowing circumstances, a good lender can work to find the right mortgage for you.

• Doctor Loans

• One Time Close Construction Loans

• Purchase/Refinance Plus Improvements

• Lot Loans

A good mortgage lender will take time to listen and understand your needs and goals before making a recommendation on the type of loan that will work best for you.

Important Considerations• How long do you plan to live in the home?

• What is the interest rate environment like?

• Could you still afford your monthly payment if rates rise significantly?

7

During the Underwriting ProcessStart to finish, the underwriting stage can take several weeks or even months. A good mortgage lender will keep you informed each step of the way and will let you know what to expect.

By following these guidelines, you can do your part to help ensure a smooth process and keep your closing on schedule.

Timely Responses During underwriting, you may be asked to provide additional documentation. In order for your loan to close on time, be sure to respond as quickly as possible to your lender’s requests.

Borrowers Dos and Don’ts

Do… Don’t…Keep all accounts current: mortgage, car payments, credit cards, utilities, etc. Make expensive purchases or buy any real estate.

Keep copies of pay check stubs and statements on bills you’ve paid off during the loan process. Take on additional debt or apply for credit.

Contact your lender before taking on new credit obligations that could jeopardize the loan. Change jobs unless in the same field for equal or better pay.

Switch banks, open new accounts or transfer money within existing accounts.

Withdraw funds from retirement or brokerage accounts.

The underwriting stage is complete, and it will soon be time to close. Funds needed for your home purchase include the down payment, closing costs and prepaids.

Closing Down Payment This is a percentage of your home’s sale price, usually between 3.5% and 20%. The amount you bring will be discussed in detail with your loan officer to determine the best loan structure for your needs.

Closing Costs These are generally fixed fees between the lender, title company and third-party vendors to originate and close the transaction. Your first payment will likely be included in your closing costs.

Prepaids These are the amounts needed for accurate accounting of your loan and include the prepaid daily interest, homeowners’ insurance and establishment of the escrow account.

Escrow Escrow is when mortgage payments are made to the escrow holder. The escrow holder holds the amount needed for taxes and makes the payment to the mortgage company and tax assessor.

• Required on loans above 80% LTV• Required on all government loans

How the Process Works

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Closing Documents

Documents Provided By DueCopy of your Driver’s License or ID You At closing

Proof of home insurance (if required) You 3 – 5 days prior to closing

Funds to close (cashiers check or money order) You At closing

Survey Seller, if applicable At closing (if needed)

Proof of required repairs (if necessary) Seller At closing

Mortgage Note Lender At closing

Title Insurance Title company At closing

Deed Title company At closing

Additional Closing Information

Closings typically take place at a title company office and last 1 ½ to 2 hours. A good mortgage lender will be with you at closing.

Congratulations… the home is yours!

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ADJUSTABLE-RATE MORTGAGE (ARM)

A home loan in which the interest rate changes periodically based on a standard financial index. Most ARMs have caps on how much an interest rate may increase.

ANNUAL PERCENTAGE RATE (APR)

A standardized method of calculating the cost of a mortgage, stated as a yearly rate, which includes such items as interest, mortgage insurance and certain points or credit costs. Because it includes these other items, it is higher than the interest rate a lender will quote.

APPRAISAL

A written report by a qualified appraiser estimating the value of a property.

CLOSING COSTS

Expenses incurred by buyers and sellers when transferring ownership of property. Closing costs normally include an origination fee, attorney’s fee, taxes, escrow payments, title insurance and sometimes discount points. Lenders must provide estimates of closing costs to prospective home buyers.

DEBT-TO-INCOME RATIO

Your debt-to-income ratio is the comparison of your gross income to housing as compared to your non-housing expenses. The FHA usually requires your monthly mortgage payment to be no more than 29% of your monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of your income.

DOWN PAYMENT

The amount of a property’s purchase price that the buyer pays in cash and does not finance with a mortgage. Most mortgage lenders require a cash down payment of 5 percent, 10 percent or 20 percent of the sale price, though some lenders have zero-down mortgage programs. You can often lower your mortgage payment or afford a more expensive house by putting more money down. If you come up with less than 20 percent of the buying price, you may have to obtain private mortgage insurance, or PMI, to protect the lender before your loan is approved.

ESCROW

An account in which a neutral third party holds the documents and money in a real estate transfer until all conditions of a sale are met. Also, an account in which money for property taxes and insurance is held until paid; money is added to the account every time a mortgage payment is made.

Terms to Know

EQUITY

Equity is the difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in your new home. There are three ways to build equity in your home: paying principal on your mortgage, making home improvements and determining if the average market value of your real estate has appreciated over time.

FHA LOANS

FHA loans are loans insured by the U.S. Department of Housing and Urban Development. FHA loans are designed to make housing more affordable, particularly for first-time homebuyers. FHA loans typically permit borrowers to buy a home with a lower down payment than conventional loans or refinance with less home equity. Current FHA loan limits vary depending on home type and home location.

FIXED-RATE MORTGAGE

A home loan in which the interest rate will remain the same through the life of the loan, most often 15 or 30 years.

FORECLOSURE

The legal process by which a homeowner in default on a mortgage is deprived of interest in the property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

GUIDELINE RATIOS

There are two guideline ratios used to qualify you for a mortgage. The first is called the front-end ratio, or top ratio, and is calculated by dividing your new total monthly mortgage payment by your gross monthly income. The second is called the back-end, or bottom ratio, and is equal to your new total monthly mortgage payment plus your total monthly debt divided by your gross monthly income.

HOMEOWNERS INSURANCE

An insurance policy that includes hazard coverage, covering loss or damage to property, as well as coverage for personal liability and theft.

INTEREST RATE

A basic mortgage payment is made up of principal and interest. The principal is how much money you borrow from the lender. The interest rate is the cost the lender charges you, the borrower, for borrowing that money, which is secured by a property. The amount of interest you owe the lender depends on the interest rate and the loan amount – the lower the interest rate, the less interest you owe.

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JUMBO LOAN

Jumbo loans are mortgages larger than the limits set every January by government agencies such as Fannie Mae and Freddie Mac. These government agencies purchase the underlying securities from mortgage originators. Anything below the limit set by the government is considered a conforming loan eligible for purchase, while loans above that limit are non-conforming jumbo loans and are subject to slightly higher interest rates. The current jumbo loan amount is anything above $417,000.

LOAN TO VALUE

Loan-to-value (LTV) is the ratio of how much you borrow compared to the value of the home you’re borrowing against. It is calculated as the home value divided by the amount borrowed.

MARGIN

The amount of percentage points, or spread, added to the index to come up with the rate your adjustable-rate mortgage will charge after each adjustment.

ORIGINATION FEE

A loan origination fee (also referred to as points) is a fee that is charged by a lender to cover the administrative costs of processing a loan. The origination fee is used in the calculation of the annual percentage rate, varying from 0.5% to 2% of the loan amount. For example, an origination fee of 2% on a $200,000 loan is $4,000. Whenever a transaction as heavily documented as a mortgage is arranged, there are inevitably costs and fees associated with ensuring the paperwork is processed correctly.

PITI

PITI is the abbreviation for Principal, Interest, Taxes and Insurance, the components of a monthly mortgage payment. Payments of principal and interest go directly towards repaying the loan while the portion of the PITI payment that covers taxes and insurance (homeowner’s and mortgage, if applicable) go into an escrow account to cover the fees when they are due.

POINT

Factored into the loan’s APR, a point equals 1 percent of a mortgage loan. Some lenders charge “origination points” to cover expenses of making a loan. Some borrowers pay “discount points” to reduce the loan’s interest rate.

PRINCIPAL

The amount of debt, excluding interest, left on a loan.

Terms to Know

PRIVATE MORTGAGE INSURANCE (PMI)

An insurance policy that protects the lender against default on loans by providing a way for mortgage companies to recoup the costs of foreclosure. PMI is usually required if the down payment is less than 20 percent of the sale price.

TERM

The period of time that covers the life of the loan. For example, a 30-year fixed loan has a term of 30 years.

TITLE

The title is the actual document that gives evidence of ownership of a property. The title also indicates the rights of ownership and possession of the property. Individuals who will have legal ownership in the property are considered “on title” and will sign the mortgage and other documentation. Before your closing, a title search will be conducted to ensure that a proper chain of ownership for the property is documented, and that it is not subject to any unacceptable liens.

TITLE INSURANCE

A policy that guarantees that an owner properly has title to a property and can legally transfer title to someone else. Should a problem arise, the title insurer pays any legal damages. A policy may protect the mortgage lender, the home buyer or both.

UNDERWRITING

Mortgage underwriting includes a review of the potential borrower’s credit and employment history, financial statements and a judgment of the quality of the property. The person who completes the underwriting services is called an underwriter.

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| | Loans subject to credit approval. NMLS# 440732

Amount of Pre-Approval $

Offer Amount $

Final Offer $

Date Offer Accepted _____ / _____ / _____ (month/day/year)

Submitted Full Application _____ / _____ / _____ (month/day/year)

All Requested Documents Sent

Date Rate Locked In _____ / _____ / _____ (month/day/year)

Locked in Rate (APR) % Mortgage Type

Term Length

Estimated Down Payment $

Estimated Monthly Payment $

Appraisal Amount $

Date of Inspection _____ / _____ / _____ (month/day/year)

Closing Date/Time _____ / _____ / _____ (month/day/year)

Down Payment Amount $

Title Company Name

Address of Title Company

Insurance Company Name

Insurance Policy Complete _____ / _____ / _____ (month/day/year)

First Payment Due Date _____ / _____ / _____ (month/day/year)

Home Buyer Checklist

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LegacyTexas.com/Mortgage

Notes: