Home Buyer Guide by Southern Trust Mortgage

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table of contents Introduction

10 Reasons to Own

Step 1: Meet with Your Loan Officer

Priority Approval

Reasons Why You Should Choose Us

Step 2: Find an Agent and a Home

Finding a Home

Step 3: Making an Offer

Step 4: Processing

What Not To Do

Step 5: Underwriting

Step 6: Closing

Your Loan at a Glance

Popular Loan Programs

The Components of a Mortgage Payment

Closing Costs

Glossary Terms

WE’VE MADE THE HOME BUYING PROCESS HOW IT SHOULD BE:

simple, creative & consistent Buying a home is a big decision. Whether you’re buying your first home, moving up, or purchasing an investment property, you’ll find a simple and stress-free home lending experience at Southern Trust Mortgage. We’ve based our home loan process on empathy for the home buyer. We understand the process can be overwhelming and we want to help you enter the housing market with the knowledge and power you need to ultimately land in the perfect home with the right mortgage to fit your needs.

reasons to own

EQUITY Money paid for rent is money that you’ll never see again, mortgage payments let you build equity in your home.

2. SAVINGS Building equity in your home is a ready-made savings plan. And when you sell, you may be eligible for tax-free gains.

3. PREDICTABILITY Unlike rent, your fixed-rate mortgage payment doesn't go up over time. However, keep in mind that property taxes and insurance costs will rise.

4. FREEDOM The home is yours. You can decorate any way you'd like and also benefit from your investment for as long as you own the home.

5. STABILITY Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.

* Tax savings are subject to change based on annual legislation.

6. FINANCIAL SECURITY According to the Federal Reserve, homeowners have an average net worth of $184,000, while renters average a net of just $4,000. This is because homeowners are building equity.

7. ADDITIONAL INCOME Investment properties give homeowners the opportunity to receive additional sources of income through home / room rentals.

8. LOWER DOWN PAYMENT Historically, it was customary to make a down payment of 20% of the home’s sale price, which prevented many people from being able to consider homeownership. Today, there are many affordable loan products that require little or nothing down.

9. TAX SAVINGS Mortgage interest and private mortgage insurance may be tax deductible. For the first few years of a mortgage loan, it is typical that the vast majority of your payment is made up of interest. For many, that can mean significant tax savings.*

10. OPPORTUNITY In today’s market, the affordable housing prices, large inventories of homes available, and low mortgage rates provide a great opportunity for many first time homebuyers.

step I: meet with your loan officer

Until recently, the home buying process usually went something like thisâ&#x20AC;&#x201D;find a home you love, try to obtain financing, and then start the waiting game of getting the mortgage approval. This process has left many home buyers disappointed. Many find out too late that they arenâ&#x20AC;&#x2122;t approved for the amount they hoped to borrow. Others have lost the home they had their heart set on while waiting too long for their mortgage approval. Instead, you could meet with your Southern Trust Loan Officer. Your Loan Officer will take your application and order a credit report. With our Priority Approval program, youâ&#x20AC;&#x2122;ll get a fast and fully underwritten credit decision in just one day! This approval gives you the confidence to shop for a home knowing that you can make a competitive offer that will stand out to sellers.

priorit y approval

Priority Approval from Southern Trust Mortgage is designed to give home buyers a fast and fully underwritten credit decision in one day. This approval gives you the confidence to shop for a home knowing that you can make a competitive offer that will stand out to sellers.

KEY ADVANTAGES OF PRIORITY APPROVAL • Borrowers can shop with confidence • Agents gain more certainty up-front • Loan Approval at the beginning stages of the process • Loan Approval with Automated Underwriting System (AUS) Income / Asset documentation • AUS findings determine documentation requirements • You decide if Priority Approval is right for you and your borrower

APPLICATION Loan Officer (LO) takes complete application and runs AUS

I PA REQUESTED

COMPLIANCE Compliance completes “Initial Discl Compl” date in PCL, completion of this date in conjunction with “Priority Approval Req” date (previously completed by LO with initial disclosure request will push the loan to the Priority Approval Review queue)

4 1003 UPDATE After receipt and review of Borrower(s) Income and Asset documentation, LO updates initial 1003 application as applicable and re-runs AUS to ensure accuracy based on documents received

LO completes dates in PC Lender (PCL); “Initial Discl Req” and “Priority Approval Req”, requesting upfront disclosure and their desire for a Priority Approval underwriting review

INCOME & ASSETS LO requests Income and Asset documentation per AUS findings

TAX RETURNS

If applicable, LO submits Tax Returns to STM Income Specialist for income calculation

FINISH LINE Our reviewers and underwriters take over from here to provide an underwriting decision within one day of submission to the underwriting queue

choose us REASONS WHY YOU SHOULD

We believe in making the home buying process simple, creative and consistent.

ESTABLISHED PURCHASE MONEY LENDER More than 85% of our loans are for the purchase of a home. We make our living satisfying the unique needs or our valued clients.

STAYING AHEAD OF EMERGING TECH We believe in engaging with our customers in ways they’ve come to expect in the modern world. When you get your home financing with us, you’ll enjoy a modern application and progress updates throughout the loan process.

A GROWING COMPANY WITH SMALL BUSINESS VALUES We have all the resources youâ&#x20AC;&#x2122;ll find at a big company, but we treat our customers like family.

PROVEN TRACK RECORD OF PERFORMANCE Southern Trust has experienced functioning profitably in all types of real estate and economic environments for over 20 years.

UNRIVALED SERVICE We believe in making the home buying process simple, creative and consistent. Our company has been structured to offer programs and services that accomplish that goal.

PRIORITY APPROVAL INITIATIVE Priority Approval is designed to give you a fast and fully underwritten credit decision in one day. This gives you the confidence to shop knowing that you can make a competitive offer and close on your new home quickly.

step 2:

find an agent and a home Using a real estate agent to facilitate your side of the home buying process is a wise choice. With their expertise, they're able to negotiate the most competitive price and terms for your new home. Combine their skills and your Priority Approval letter and you've got a powerful combination that is bound to get the attention of a seller.

THE IMPORTANCE OF CHOOSING A PROFESSIONAL REAL ESTATE AGENT

• Helps you assess your wants and needs to find the perfect match between what you can afford and the home that best suits your needs.

• Gets the right price. Your real estate agent is a specialist who knows the market inside and out so you can get the best price possible.

• Keeps your personal style in mind when selecting properties to show you.

• Allows you to make your own decisions. A professional agent works for you and respects your opinion. They will not try to force you into a decision you don’t feel comfortable with.

• Has access to all the properties for sale in your desired area. “For Sale” signs and newspaper ads are not always a true reflection of everything that is on the market. Your real estate agent knows everything that is available at any given time. • Helps you negotiate. Once you’ve found the home you want to buy, your real estate agent will write up your offer and present it to the seller. This gives you the best opportunity to have your contract accepted.

• Helps protect your rights. Real estate laws have become increasingly complicated; therefore, your real estate agent is there to assist you in every way. • Does not charge you anything. Your real estate agent’s services are absolutely free to you—the seller pays their commission.

The next step in the home buying process is to identify the type and size home you want, then select the area(s) in which you want to look.

finding a home Simply put, key to the home search process is knowing what you’re looking for. Among other things, that means distinguishing between “musthaves” and “like-to-haves”. That said, here are a few recent facts about the search process that might put your experience in perspective:

• Almost 90% of buyers use the internet to search for homes • The typical buyer searches for 12 weeks and views approximately 12 homes • 81% of buyers view real estate agents as very useful in the search process

step 3: Making an offer

Once you find the perfect home, you and your agent will write the contract and negotiate with the seller and their agent, if they're using one. Speak with your Loan Officer about locking your interest rate.

step 4: Processing

Once you're offer has been accepted, your agent will work on scheduling a home inspection and our lender will check all of your required documents to make sure they are completed properly. If any issues arise, you and your loan officer are notified. Based on the results of the home inspection, your appraisal will be ordered to determine the fair market value of the property you are purchasing and you will receive a Loan Estimate and a Truth-in-Lending Statement, which will show your annual percentage rate (APR).

what not to do DURING THE APPLICATION OR LOAN PROCESS

• DON’T CHANGE YOUR JOB If you change jobs before or during the loan process it can create real problems in qualifying for a home loan, particularly if your new job is in a different line of work or at a lower rate of pay. It can also create time delays as the new job will need to be verified.

• DON’T CHANGE BANKS OR MOVE YOUR MONEY Moving your money to a new bank interferes with the verification process. It is best to leave your money where it is until your loan closes, unless otherwise recommended by your loan officer.

• DON’T MAKE ANY MAJOR PURCHASES Many borrowers make the mistake of buying a new car or making another major purchase without realizing the impact it can have on their ability to buy a home. A new monthly payment can affect the amount you can qualify for and actually make it difficult to get your loan approved.

• DON’T DEPOSIT CASH Don’t deposit any cash or money into your accounts other than funds that can be documented, such as pay checks or gift checks.

• DON’T CLOSE CREDIT CARD ACCOUNTS If you close credit card accounts, it can affect your ratio of debt to available credit, which has a 30% impact on your credit score. If you really want to close an account, do it after you close your mortgage loan.

• DON’T APPLY FOR NEW CREDIT OF ANY KIND If you receive invitations to apply for new lines of credit, don’t respond. If you do, that company will pull your credit and this will have an adverse effect on your credit score. Likewise, don’t establish new lines of credit for furniture, appliances, computers, etc.

• DON’T FAIL TO DISCLOSE FINANCIAL / CREDIT INFORMATION Surprises during the loan process can make it difficult for the lender to approve your loan. Disclosure to the loan officer up front allows time to work on potential problems.

step 5: underwriting

Once processing is complete, your loan file goes to one of our underwriters, a trained creditrisk analyst who will do everything possible to help you receive loan approval. You may need to provide initial and additional verification documents to them. When you're approved, you will receive a commitment letter that explains the terms of your loan.

step 6: closing

Congratulationsâ&#x20AC;&#x201D;You're a homeowner! At closing, a closing agent will review the terms of your loan and explain each document. The closing agent will also provide you with a copy of the Closing Disclosure (CD), which shows all the costs related to the closing.

Your loan at a glance HOW THE UNDERWRITER REVIEWS YOUR LOAN

THE PROPERTY

YOUR CREDIT HISTORY

The property is the lender’s “collateral” for the loan. The value, marketability, and condition of the property are extremely important. The underwriter looks at the appraisal for this information.

Your credit history is an indication of your willingness to repay the loan. The underwriter looks closely at your past payment record (your credit report) in determining this. Any consistent patterns of late payments, collections, etc. are not looked at favorably.

YOUR INCOME

Bankruptcies, foreclosures, deed in lieu, and consumer credit counseling generally must be discharged for a number of years, depending loan program, unless it is reverified that extenuating circumstances exist. Reasonable explanations for all derogatory credit will need to be provided. All outstanding collections, liens, and judgments may need to be paid off at closing depending on loan program. (Consult your Loan Officer about any credit questions you may have.)

The underwriter looks carefully at your ability to repay the loan. Your job stability and gross income (in relation to your expenses) is critical in this regard. Most income must be verified as having been received for the most recent two years to be used for qualifying purposes.

YOUR EMPLOYMENT HISTORY A stable history of employment in the same line of work is considered ideal. “Job-hopping” is not looked upon favorably because it may lead to unstable income. However, if you have switched jobs within the same line of work for advancement in that field, there should be no problem.

YOUR DEBTS The amount of debt you have affects your ability to repay the loan. Excessive use of credit will not be looked upon favorably. These factors affect the final loan decision.

YOUR ASSETS You must demonstrate your ability to save money and manage your financial affairs. We must verify the “source of funds” or where the money for the down payment and closing costs came from. Once you’ve applied, refrain from moving money around (for example, paying off bills, making large purchases, etc.) without first consulting your Loan Officer about the best way to do it. This may confuse where your assets are located and delay the processing / underwriting of your loan.

popular loan programs

ADJUSTABLE & FIXED RATE MORTGAGE Get the lowest rate we offer with an adjustable rate mortgage (ARM) or lock in a long term low rate with one of our fixed rate options like an FHA, VA, or USDA loan!

FHA An FHA home loan makes qualifying for your new mortgage easier. Whether you want to refinance or buy, itâ&#x20AC;&#x2122;s our most flexible loan and has a low down payment option.

VA VA Loans are designed to offer military homebuyers incredible benefits such as zero down payment. The VA charges a funding fee that can be financed and in some cases this fee is waived.

USDA With low interest rates, flexible guidelines, and up to 100% financing available, USDA home loans are ideal for rural buyers.

JUMBO Jumbo loans are available for loan amounts over the conforming loan limit. Fifteen-year, 30-year, VA, and Jumbo mortgage options are available, depending on your area.

HOME LOAN PROGRAMS FHA

USDA

Conv

Jumbo

Min. Down Payment

3.50%

3.00%

10.00%

Typical Down Payment

3.50% 5.00%

5.00% 20.00%+

10.00% 30.00%

Max Loan Amount

Per County

$424,100

$424,100 (2-4 units can be higher)

Primary $2,000,000 2nd $1,000,000

Mortgage Insurance

YES: 1.75% Up-Front, financed and 0.85% Annualized (paid monthly)

NO: But has Up-Front Funding Fee financed (Usually 2.15%)

YES: 1.00% Up-Front, Financed and .35% annualized (paid monthly)

YES: if < 20% down

Additional

Max Debt-toIncome Ratio 55%

Eligible Veteran & Residual Income

Property & Max Income Limits 115% of median household

Max Debt-toIncome Ratio 45%

See Loan Officer

Occupancy

Owner: 1-4 Units, Condo, PUD

Owner: Single Family, Condo, PUD

Owner / Investor / 2nd Home: 1-4 Units, Condo, PUD

1-2 Unit & Condo Owner and 2nd Homes

Special Programs

203k Rehab

N/A

Homestyle Renovation

N/A

THE COMPONENTS OF A

mortgage payment Your monthly mortgage payment is made up of several components. This housing expense is commonly referred to as “PITI” or Principal, Interest, Taxes, and Insurance. PMI (see below) and homeowner’s association dues may also make up a portion of your total payment.

PRINCIPAL

INTEREST

The original balance of money loaned, excluding interest. Also, the remaining balance of a loan, excluding interest. Interest is calculated based on the principal.

The charge, in dollars, for the use (loan) of the money.

PMI (PRIVATE MORTGAGE INSURANCE) TAXES The county / parish assessor determines the property tax based on the value of your home. An “escrow” account, set up by the lender, is a trust account in which a portion of the monthly payment is credited so that funds will be available for the payment of taxes and insurance. This way, the lender actually pays your tax bill for you. (Supplemental taxes usually are still the responsibility of the homeowner).

HAZARD / HOMEOWNERS INSURANCE An insurance policy that pays for loss on a home from certain hazards, including fire. You obtain homeowner’s insurance from your own insurance agent. The standard policy pays replacement costs, minus depreciation based on actual cash value. Talk to your insurance agent about the different types of insurance available. Hazard insurance is also escrowed with the taxes.

Depending on the amount of your down payment, you may be required to have PMI (anything less than 20% down usually requires PMI). Loans with small down payments involve substantially more risk for the lender, so they need protection should the loan go into foreclosure. Due to this insurance, lenders are able to offer loans with lower down payments.

FHA

On most FHA loans, an up-front fee for mortgage insurance, called MIP, is charged. This fee can be financed to keep your closing costs lower. A monthly mortgage insurance payment is made based on the unpaid balance of the loan. VA

The VA charges a funding fee, which may also be financed (No fee required for disabled vet).

closing costs An overview of the types of closing costs you may incur on your loan. When you apply for your loan, you will receive a Loan Estimate of Settlement Charges and a booklet explaining these costs in detail.

LOAN ORIGINATION FEE

DOCUMENT PREPARATION FEE

This fee covers the lenderâ&#x20AC;&#x2122;s administrative costs in processing the loan. It is a one-time fee and is generally expressed as a percentage of the loan amount.

There may be a separate, one-time fee that covers preparation of the final legal papers, including the note and deed of trust.

APPRAISAL FEE

PREPAID INTEREST

This is a one-time fee that pays for an “appraisal”, a statement of property value required on most loans. The appraisal is made by an independent fee appraiser.

Depending on the day of the month your loan closes, this charge may vary from a full month’s interest to just a few days interest. If your loan closes at the beginning of the month, you could pay up to the maximum amount. If your loan closes near the end of the month, you will only have to pay a few days interest.

PMI Private Mortgage Insurance—depending on the amount of your down payment, you may be required to pay a monthly fee for mortgage insurance (which protects the lender against loss due to foreclosure). You may also be required to put a certain amount for PMI into a special reserve account (called an escrow account) held by the lender.

CREDIT REPORT FEE This fee covers the cost of the credit report, which is processed by an independent credit reporting agency.

LOAN DISCOUNT

TITLE INSURANCE FEES There are two title policies that protect from loss due to a defect in the title—a buyer’s title policy that protects the new homeowner and a lender’s title policy to protect the lender. These are both one-time fees.

MISC. TITLE CHARGES The title company may charge fees for a title search, title examination, document preparation, notary fees, recording fees and a settlement or closing fee. These are all one-time charges.

Often called “points”, a loan discount is a one-time charge used to adjust the yield of the loan to what market conditions demand. One point is equal to 1% of the loan amount.

TAXES & HAZARD INSURANCE Depending on the month you close, property taxes will be prorated between you and the seller. You will also need to pay an entire year’s hazard insurance premium up front (homeowner’s insurance). In addition, you may be required to put a certain amount for taxes and insurance into a special reserve account (escrow account) held by the lender.

Glossary terms

ARM

ASSUMABLE MORTGAGE

Adjustable Rate Mortgage loan with an interest rate that changes during the term of the loan.

Purchaser takes ownership of real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage.

AMORTIZED LOAN A loan that is paid in equal installments during its term.

APR Annual Percentage Rate—a required Truth in Lending Act disclosure for consumer loans. It is a calculation of the cost of credit as a yearly rate and shown as a percentage. It is often higher than the interest rate because it incorporates prepaid finance charges that are not interest.

BILL OF SALE Document used to transfer title (ownership) of personal property.

BROKER A state-licensed agent who, for a commission or a fee, represents property owners in a real estate transaction.

BUYDOWN

An estimate of real estate value, usually issued to standards of FHA, VA and FNMA / FHLMC. Recent comparable sales in the neighborhood is the most important factor in determining value.

A process that allows a borrower to obtain a lower interest rate on a mortgage by paying discount points to a lender. A temporary buydown will reduce the interest rate paid during the first few years of the loan. A permanent buydown reduces the interest rate over the entire life of the loan.

APPRECIATION

CLOSING COSTS

An increase in the value of a property due to changes in market conditions or other causes. The opposite of depreciation.

A general term to describe the fees that a borrower will pay at closing. Sometimes called “settlement fees.”

APPRAISAL

CLOUD ON TITLE

EQUITY

Any condition that affects the clear title to real property.

The value of real estate over and above the liens against it. It is obtained by subtracting the total liens from the value.

CONSIDERATION Anything of value used to induce another to enter into a contract, i.e., money, services, a promise.

DEED A written instrument, which when properly executed and delivered, conveys title to real property.

DISCOUNT POINTS A loan fee charged by a lender of FHA, VA or conventional loans to increase the yield on the investment. One point = 1% of the loan amount.

That portion of a mortgagorâ&#x20AC;&#x2122;s monthly payment held in trust by the lender to pay for taxes, hazard insurance, and other items as they become due.

FAIR ISAAC Credit reporting known as FICO (normally an average of credit scores taken by three national credit bureaus: FICO, Experian, TransUnion)

FANNIE MAE

The part of the purchase price paid in cash, up-front.

Nickname for Federal National Mortgage Corporation (FNMA), a tax-paying corporation created by congress to support the secondary mortgages insured by FHA or guaranteed by VA, as well as conventional loans.

EASEMENT

FHA

The right to use the land of another.

Federal Housing Administrationâ&#x20AC;&#x201D;an agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders.

DOWN PAYMENT

ENCUMBRANCE Anything that burdens (limits) the title to property, such as a lien, easement, or restriction of any kind.

ESCROW PAYMENT

The FHA sets standards for construction and underwriting, but does not lend money, plan, or construct housing.

LEASE PURCHASE AGREEMENT Buyer makes a deposit for future purchases of a property with the right to lease property in the interim.

FHA INSURED MORTGAGE A mortgage under which the Federal Housing Administration insures loans made, according to its regulations.

FIXED RATE MORTGAGE A loan that fixes the interest rate at a prescribed rate for the duration of the loan.

LOAN ESTIMATE This document lists the estimated fees you will have to pay to get the loan. It also identifies who is expected to provide services and receive fees in connection with your loan, such as credit bureaus, appraisers, and closing agents.

LTV FORECLOSURE Procedure whereby property pledged as security for a mortgage is sold to pay the debt due to default.

FREDDIE MAC

Loan to Value Ratioâ&#x20AC;&#x201D;the ratio of the mortgage loan principal (amount borrowed) to the propertyâ&#x20AC;&#x2122;s appraised value (selling price). Example: on a $100,000 home, with a mortgage loan principal of $80,000, the loan to value ratio is 80%.

Nickname for Federal Home Loan Mortgage Corporation (FHLMC), a federally controlled and operated corporation to support the secondary mortgage market. It purchases and sells residential conventional home mortgages.

HUD The U.S. Department of Housing and Urban Development.

MORTGAGE / DEED OF TRUST

POINTS

A legal document that pledges a property to the lender as security for payment of a debt.

A fee charged to reduce the interest rate on the loan. One “point” is equal to 1% of the principal amount of the loan.

MORTGAGE INSURANCE

PMI

An insurance policy that protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies, or is unable to meet the obligations of the mortgage contract.

Private Mortgage Insurance (also known as MI) required to be paid for by the borrower to protect the lender in the event payments are not made on time; most often required when the loan amount exceeds 80% of the purchase price.

Mortgage insurance can refer to private mortgage insurance (PMI), qualified mortgage insurance premium (MIP), insurance or mortgage title insurance. The common trait is the obligation to make the lender or property holder whole in the event of specific cases of loss.

NOTE A written promise to pay a certain amount of money.

ORIGINATION FEE A fee paid to a lender for services provided when granting a loan, usually a percentage of the face amount of the loan.

RATE LOCK The agreement between the borrower and the lender (or broker) that, as long as the loan is closed within a certain period of time (for example, 30 or 60 days), the interest rate on the loan will be set (locked) at an agreed-upon rate. A “rate lock” agreement must be in writing or it will be unenforceable.

SECOND MORTGAGE ( Also known as Second Deed of Trust / Junior Mortgage / Junior Lien ) an additional loan imposed on a property with a first mortgage. Generally, a higher interest rate and shorter term than a “first” mortgage.

CLOSING DISCLOSURE (CD) A financial statement rendered to the buyer and seller at the time of transfer of ownership, giving an account of all funds received or expended.

TENANCY IN COMMON Ownership by two or more persons who hold an undivided interest without right of survivorship. (In event of the death of one owner, his/her share will pass to his/ her heirs.)

TITLE INSURANCE An insurance policy that protects the insured (buyer or lender) against loss arising from defects in the title.

UNDERWRITING Detailed process of evaluating a borrowerâ&#x20AC;&#x2122;s loan application to determine the risk involved for the lender. Underwriting usually involves an in-depth analysis of the borrowerâ&#x20AC;&#x2122;s credit and income history, as well as an examination of the value and quality of the subject property.

u o y k n tha

We are excited to be part of your journey to make home happen for you!

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Southern Trust Mortgage LLC - NMLS #2921 (www.nmlsconsumeraccess.org) lends in the following states: DC (Lic. #MLB-2921) DE, MD, NC, OH, PA, SC (Lic #MLB -2921), TN, WV, and VA. Southern Trust Mortgage LLC dba Southern Residential Lending LLC lends in: GA (Mortgage Lender Lic #16579) FL and NJ. Southern Trust Mortgage LLC is proud to be an Equal Housing Lender and Equal Opportunity Lender.