Getting a home loan does not have to be a laborious, confusing process. This guide was created to help you understand and prepare for the home loan process.
What is the first step in Buying a New Home?
There is a tremendous amount of information available to potential homebuyers on how to purchase and finance a home. But often the sheer quantity of advice can be confusing. You will be glad to know that there is plenty of help available to you. First, determine the price range you can afford. You can do this by pre-qualifying or getting a pre-approval. Pre-qualifying for a loan is a good way to get started if you are just thinking about buying a home. If you want to get an estimate of the loan amount you can afford, you should prequalify. It takes very little effort on your part and will give you a “ballpark” figure. If you are serious about buying a home soon, pre-approval is the way to go. The pre-approval process is more comprehensive and gives you a rocksolid commitment of the loan amount you can afford. A Hayward Capital, Inc. representative will be happy to give you a confidential evaluation of your purchasing power. You will know how much house you can afford and the amount of your monthly payment beforehand.

When you are ready to apply for your home loan
If you are like most homebuyers, you will want the approval process to be quick and smooth. The best way you can ensure this is to be prepared with the information and documents you will need when you meet with your representative at Hayward Capital, Inc. The Loan Application Checklist included in this booklet summarizes this information. Gather as many items on this list as you can before you meet with your Hayward Capital, Inc. representative. Although you may have supplied some of the information when you were pre-qualified, please have it available when you apply for your mortgage. Your Hayward Capital, Inc. representative will assist you in filling out the application. Together, you will once more review the loans you have looked at and decide on the type and term of mortgage that suits you best. We look at four general areas when we review your application. These are:
  • Your history of past credit. What were the amounts and terms of loans you have had in the past?
  • Type of credit. Have you had real estate, auto, personal, or installment loans?
  • Handling of credit. Are your accounts current? Is there a bankruptcy or financial judgement in your history?
  • Lapses in employment or debt repayment. How many unexplained lapses are there and for how long?

When the application is complete, we will begin the process of verifying the information you have given us. We are likely to request some or all of the following:
  • Verification of Employment (VOE)- a form we send to your employer to complete that confirms your income. If self-employed, tax returns and profit and loss statements will be required.
  • Credit Report- this lists your outstanding debts and contains information about your payment history.
  • Verification of Deposit (VOD)- we mail this to your financial institution that will confirm you have the funds for your down payment, closing costs, and additional savings in reserve (if required for your loan).

What Happens Next?
What happens in the 30 to 60 days it takes to get approval and close your loan? First of all, your application sets into motion a course of action including these professionals and processes:
  • Loan Officer
  • Underwriter
  • Appraiser
  • Processing
  • Insurance
  • Funders

Your Loan Officer is the person who assists you in the selection of your loan program and interest rate. He or she will answer your questions about the loan process, and assist you in completing the loan application. Your loan officer is also your point person and will communicate with all parties on behalf throughout the loan approval process.

Processing is next in the chain. The information in your file and completed application is verified using the requests of verification. During processing of the loan, you will be sent the federal and state disclosures. At this time credit reports are ordered and any missing information is obtained. Throughout this time your Hayward Capital, Inc. representative will keep you informed of the status of the loan.

During this period the request is made for an independent appraisal of the property you want to buy. The appraisal will determine whether the property would be sufficient security for your loan. To place an opinion of value on the house, the Appraiser inspects the property and compares it to similar properties nearby that were recently sold. Based on the sales price of comparable homes, the appraiser issues a Uniform Residential Appraisal Report which renders the property’s fair market value.

Mortgage Insurance Coverage
There are three types of Insurance coverage in the mortgage process. These involve mortgage insurance, title insurance, and hazard insurance.

Mortgage insurance protects the lender against any loss if the homebuyer defaults. It may be requires on your loan if the loan-tovalue is 80 percent or higher. The “loan-tovalue” (LTV) is the percentage of the amount borrowed compared to the value of the property. A 90 percent loan-to-value ratio means that the loan amount is 90 percent of the appraised value of the property (or the purchase price, whichever is lower). If mortgage insurance is required for your loan, we will obtain it for you at your expense. Title Insurance insures that the property is free and clear of all liens and encumbrances except those noted in the title report. Title insurers write two types of Insurancpolicies: the owner’s policy and the lender’s policy.

Hazard Insurance provides compensation for the loss caused by fire, wind, of other natural disasters. We require all borrowers to provide proof of insurance in the case of disaster. In some cases, depending on the property location, separate flood or earthquake insurance may also be required. As soon as the appraisal and all other documents are in, the loan processor submits your file to the Underwriter for the final review based on the information collected. The underwriter will attempt to determine whether:
  • You are able and likely to make consistent, timely payments on the loan, and
  • The loan can be justified by the property’s value.
In some cases, the underwriter may request additional information from you in order to make a final decision. As soon as the underwriter approves your loan, we will notify you.

Closing At Last
Closing is the final step in the home buying process. At closing you will settle all the details of the purchase and receive title to your new home. You will sign your final loan documents with Escrow. Your loan officer will instruct you on what to bring to the closing. In general, arrangements for hazard insurance are required before the loan can close, and the first year’s premium must be paid in advance. You will also need a cashier’s check or arrange for a wire transfer of funds for your down payment and closing costs. The documents you sign will include the mortgage Note, which is your promise to repay the loan. It indicates the terms and conditions of your loan and how it will be repaid. You will also sign a Deed of Trust rather than a Mortgage; however, both documents serve the same function.

You will also sign a Settlement Statement. Created by the federal department of Housing and Urban Development, this statement itemizes all the closing costs of the buyer and seller. It provides a summary of transactions of both parties by showing how the funds are transferred between the buyer, seller, lender, and any other parties involved in the sale. It also shows the net amount due from you and the net amount paid to the seller.

Your Partner in Home Financing:
By now you should feel more comfortable about what happens when you finance your home. There is always some anxiety associated with applying for a mortgage, but when you understand the process, waiting for the approval is less worrisome. And, wherever you are in the process there is always friendly assistance from your Hayward Capital, Inc. loan professionals. Working with Hayward Capital, Inc. means you will have one of the foremost residential mortgage experts as your partner. Unlike other financial institutions, home loans are all we do, and we do it will. We believe that financing a home should be a straightforward process, open to anyone who has the desire and the motivation to do what it takes. The mortgage professionals at Hayward Capital, Inc. specialize in finding the right loan for each borrower. We work hard as a team to make the loan process as simple and convenient as possible for you. Give us a call and we will show you how our team of mortgage professionals is ready to put its expertise to work for you.

You Have Choices:
The 30-year fixed mortgage was once the standard of the industry. Now you can choose from a variety of mortgage types with shorter terms, adjustable rates, balloon payments, hybrid loans (fixed loans that become adjustable), interest rate buydown, and equity based second mortgages. There are even loans for people with less than perfect credit. Your Hayward Capital, Inc. representative can explain the advantages of each loan program so you can have the information you need to decide which loan is best for you.

Our many loan programs are designed to meet your unique financial needs. That may include the need for a lower down payment, higher qualifying ratios, smaller monthly payments, or the ability to build equity faster, among others. Before you can decide whether a program meets your needs, you should understand how the various loans work. The full range of products and programs we offer include:
  • Fixed-rate mortgages
  • Adjustable-rate mortgages
  • FHA and VA mortgages
  • Balloon mortgages
  • Temporary buydown mortgages
  • Less-than-perfect credit programs
  • Other loan programs

Fixed-Rate Mortgages:
Available in 30-, 20-, and 15- year terms, fixed mortgages have traditionally been the preferred method of financing the purchase of your home. Principal and interest are amortized- or spread out- over the term of the loan so that each monthly payment is equal. The advantage of a fixed- rate mortgage is that you know that your monthly payment will never change for the entire term of the loan.

The 30-year fixed rate-mortgage is still the most popular way to finance a home. Because monthly payments are amortized over 30 years, they will be lower than the 15- and 20-year loans. However, equity-or your stake in ownership- in the house builds at a slower pace.

With a 15-year fixed-rate mortgage, you will pay less than half the total interest that is paid over the life of a 30-year mortgage. However, monthly payments will be higher, making the 15-year mortgage more difficult to qualify for.

The 20-year mortgage offers substantial interest savings over the 30-year mortgage, but features monthly payments that more borrowers can afford. Again, borrowers build equity more quickly than with the 30-year mortgage.

Adjustable-Rate Mortgages:
If you choose an adjustable-rate mortgage (ARM), you will generally qualify and start at a lower interest rate with lower monthly payments than a fixed-rate mortgage. The ARM has an interest rate that can increase or decrease over the life of the loan. This means your monthly payments will also increase or decrease depending on the current interest rate. Changes in the interest rate are based on the financial index to which the loan is tied. Common financial indices are the One-Year Treasury Index (One-Year T-Bill), the 11th District Cost of Funds (COFI), the London Interbank Offered Rate (LIBOR), the Constant Maturing Treasuries (CMT, an average of Treasury and Bills with different terms), or the Monthly Treasury Average (MTA). Each index reacts differently to interest rate fluctuations. Some react quickly, others are averaged over several months and move more slowly.

ARMs also feature a loan factor known as a “margin”, which is added to the index for your loan. Your margin (which will remain constant over the life of the loan) will typically range from two to four percent. The margin plus the index equals the interest rate you will pay. ARM loans limit the highest rate that can be charged during the life of the loan. The limit is based on the current rate when your loan is granted plus a “spread”. The top limit is the “cap”. Caps are set to safeguard your loan from changing dramatically, or rising above affordability.

Most ARM loans also feature a semi-annual cap or annual cap, depending upon your loan. This limits the amount of increase at each adjustment interval. A typical annual cap might be two percent, which means your loan interest rate cannot change more than two percent, up or down, in a given year. A lifetime cap will limit the amount of rate increase or decrease over the life of your loan. For example, if your loan’s initial rate was six percent and your lifetime cap was six percent, your interest rate could, in worst-case scenario, never rise above twelve percent. Adjustable-rate mortgages are usually less expensive over the life of the loan then fixed-rate loans- especially in the early years. Additionally, the lower starting rate of an ARM can allow borrowers to qualify more easily for a loan or for a more expensive home. Your Hayward Capital, Inc. representative will be happy to explain the features and benefits of our many different ARM programs available.

FHA or VA Mortgages:
The Federal Housing Administration (FHA) makes loans available to buyers with modest income and savings. You are eligible for an FHA loan if you meet the standards for credit history, stability and income, and have sufficient funds to cover closing costs. FHA loans are available for purchase and refinance, in fixed- and adjustable rate loans.

Among the most attractive features of the FHA loan are a lower down payment (as little as three percent, and even lower) and higher qualifying ratios. Additionally, you can borrow part of the closing costs and finance the mortgage insurance. FHA loans are also fully assumable to qualified borrowers at the original interest rate- a very attractive feature should you decide to sell your house. There are limits to the size of FHA loans, but they are generous enough to handle moderately priced homes.

If you are a veteran of the U.S. Armed Forces, including the Army Reserve or National Guard, you could qualify for a VA loan. VA loans are fixed-rate and feature lor no-down payments.

Balloon Mortgage:
An excellent cost-saving loan for the homeowners who plan to move within five to seven years is a balloon mortgage. Borrowers save in two ways:

first, the interest rate for a balloon loan is typically half a percentage point lower then the current rate for a 30-year fixed rate mortgage. Second, the loan is amortized over 30 years, resulting in manageable payments. At the end of the initial term of the loan, usually five to seven years, the loan becomes due. At that time or before, the homeowners can refinance the loan or sell the home to pay back the loan’s balance.

Some balloon mortgages allow you to convert to a fully amortizing, fixed-rate loan at the end of the initial period. To qualify for the option, you will need to demonstrate a solid payment record and continued financial ability to pay off the loan.

Temporary Buydown Mortgage:
A temporary buydown is a fixed-rate loan in which the payment rate is bought down to a lower rate for the first few years of the loan. For instance, a “2-1 Buydown” features a payment rate that is two percent lower than the actual rate of the note for the first year and one percent lower than the note rate the second year. The difference between the payment rate and the note rate is paid from a subsidy fee held in escrow by the lender. The borrower usually qualifies for the loan at the lower start rate.

Less-Than- Perfect Credit Programs:
Hayward Capital, Inc. offers a full range of loans for all types of homebuyers and homeowners. The needs of people who buy homes or refinance existing loans are as different as the homes in which they live. For that reason, we offer loans for the people who have had financial uncertainty in the past- missed a payment or two- or who have less-than-perfect past credit. Often an unexpected event, such as interruption of employment, a serious illness, or divorce, may result in a less-than-perfect credit record. Our product line includes loans to help everyone qualify for a home loan, whether it is for a purchase or refinance. We are flexible and have terms to match every credit need.

Other Loan Programs:
Many different loan types are available; one to fit every loan need. Hybrid loans combine features of various loan programs in order to match the needs of a particular homebuyer or housing situation. They have fixed rates for three, five, seven, or ten years, and then typically adjust every year thereafter for the life of the loan. In some ways, these hybrids offer the best of both worlds between the fixed- and adjustablerate family home loans. They offer the peace of mind of a standard fixed-rate loan, but usually at a lower cost. And they offer the advantage of an adjustable by allowing the borrowers to ride lower interest rates without refinancing, but defer any risk of higher payments for three, five, seven, or ten years. Our equity loans are second mortgage loans with either a specific amount or a revolving line-of-credit and a choice of fixed- or adjustable-rates.