Sol Skolnick, Professor Home Loan - A STEP-BY-STEP GUIDE TO FINANCING YOUR HOME

A STEP-BY-STEP GUIDE TO FINANCING YOUR HOME

A STEP-BY-STEP GUIDE T TEP GUIDE TO FINANCING YOUR HOME OUR HOME

Sol Skolnick, Professor Home Loan

Table Of Contents

The 12 Steps To Home Ownership

Making the Loan Process Work for You

Please Don't Do Any of These 10 Things

Keeping The Loan On Track

Loan Providers & Mortgage Types

A Glossary of Mortgage Terms

Preface Buying a home is one of the biggest financial and emotional decisions you’ll ever make. My mission in mortgage lending is simple: empower buyers like you with the knowledge and support to navigate the process with confidence—not confusion. From our first conversation to the moment you get the keys, I’m here to make sure you feel informed, prepared, and in control. The strategies in this guide are drawn from years of hands-on experience and refined to help you avoid common pitfalls, secure the right loan, and make smart, sustainable choices. This book provides expert insights and practical strategies to help you navigate every step of the homebuying process with confidence. You'll learn how to assemble a trusted team of professionals, understand different types of lenders and mortgage options, and make informed decisions in any market. Whether you're a first-time buyer or a seasoned homeowner, this guide gives you the tools you need to successfully purchase the home that’s right for you. This updated edition reflects the latest regulations, market trends, and expert insights. Whether you’re buying your first home or your fifth, you’ll find the tools you need to move forward with clarity and confidence.

Solomon Skolnick NMLS# 70064 July 2025

About Sol Skolnick, olnick, Professor Home Loan

Meet Sol – Your Expert Guide to Sustainable Homeownership Sol (NMLS #70064) is a Senior Loan Originator. Known as "Professor Home Loan," he specializes in strategic mortgage planning that turns homeownership dreams into reality. With a deep understanding of the industry, Sol empowers his clients with the knowledge and options they need to select the right loan—one that aligns with their financial goals and lifestyle. With two decades of experience in residential mortgage origination, Sol has earned the prestigious 5-Star Mortgage Professional Award multiple times, a testament to his expertise and commitment to client success. Beyond his mortgage career, Sol is a published author and photographer, covering topics such as sustainable homeownership, civics, gardening, and the American cultural landscape. A New York City native, Sol and his family have called Westchester, NY home since 1989. He is deeply involved in his community, dedicating his time to various causes, including: • Foster Parenting for Guiding Eyes for the Blind, raising future service dogs • Kitchen volunteer for “God’s Love We Deliver”, helping to prepare and deliver food to those who are house bound • Past President of the Pleasantville School Board and Mt. Pleasant Public Library • Executive Director of the Pleasantville Music Festival, a a annual "Best of Westchester" event • Financial literacy instructor at Neighbors Link

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CHAPTER 1 The 12 Steps To Home Ownership o Home Ownership “ I will forever believe that buying a home is a great investment. Why? Because you can’t live in a stock certificate. You can’t live in a mutual fund .” – Oprah Winfrey Finding the right home is a major component of homeownership. Searching for and buying a home involves a process that includes many steps that need to come together before the home is “yours,” you make the move, and settle in. This chapter provides an overview of home-buying, breaking it down into 12 basic steps that will make the process clear, rewarding and less anxiety-provoking.

THE 12 STEPS TO HOME OWNERSHIP

1. Find Out What You Can Afford 2. Get Pre-Approved for a Loan 3. Create a List of Needs vs. Wants 4. Choose a Location 5. Engage a Real Estate Attorney 6. Engage a Buyer's Real Estate Agent 7. Choose a Home Type 8. Go Home Shopping 9. Make an Offer 10. Put Money in Escrow 11. Negotiate with the Seller 12. Close the Loan and Receive the Keys

1: FIND OUT WHAT YOU CAN AFFO U CAN AFFORD

This first step is essential. You have to establish your price range before you do anything else in the home-search and home- buying process. Develop and know your budget. Factor in the down payment and closing costs, and how much money you will need in liquid reserves (comprised of checking, savings, retirement, stocks etc.) after the closing. When developing your monthly budget include the mortgage payments, property taxes, homeowner's insurance, utilities, basic maintenance, and homeowners’ association fees (HOA) if they apply.

STEP 2: GET PRE-APPROVED FOR A LOAN

Home buyers contact mortgage lenders because the full cost of a home is generally more than the typical buyer can afford or often want to put into the asset at one time. The process of buying a home, is a major emotional investment, you will want to maintain control and make practical decisions based on your budget and goals. The best approach? A conversation with an experienced, licensed, mortgage originator with whom you will work closely. Together you will determine the appropriate budget for your home acquisition and monthly expenses that leads to a pre- approval for you to share with a real estate agent. Many real estate agents now require a pre-approval letter, or a Mortgage Credit Approval Letter also known as a TBD commitment (Property to Be Determined), or proof of funds before taking you on as a client. This assures the agent, and later assures the seller's agent and the seller, that you have the financial capacity to complete the deal. The differences between a pre-qualification, a pre-approval and an TBD commitment are discussed in the "Origination"

section of Chapter Three.

During the pre-approval process you will fill out a non-binding application that includes your income and assets, your employment and current housing situation. The lender will run your credit to determine your FICO scores from all three credit bureaus and examine your liabilities. This will allow the lender to understand your financial profile and your Debt to Income (DTI) ratio. Your DTI is determined by how much you will pay in housing expense: principal, interest, taxes, insurance (and association fees where applicable) referred to as PITIA, and existing debt, such as auto loans/leases, credit cards, student loans etc., in relationship to your earnings. Your Loan Originator will match this information with various loan programs to determine which will best suit you.

STEP 3: CREATE A LIS TE A LIST OF NEEDS V F NEEDS VS. WANTS

Clarify your priorities: Identify your must-haves (like bedroom count, bathrooms, garage, laundry) versus nice-to-haves (like a deck, gourmet kitchen, walk-in closets). Write them down to stay focused and avoid wasting time on homes that don’t fit your needs or budget.

STEP 4: CHOOSE A LOCATION

Location, location, location! You hear that term in real estate often. The house is located where it is, so be as certain as you can that the home is in a place that will be comfortable and convenient for you. Examine the housing market bearing in mind your price range and determine how an area aligns with your needs.

Factor in the neighborhood, the commute to work (if that applies

to you), the school districts, proximity to amenities and recreation facilities, crime statistics, noise, neighbors, parking, traffic, impending construction, or anything that could impact the desirability of a particular area for you.

STEP 5: ENGAGE A REAL ES GE A REAL ESTATE ATTORNEY

A real estate attorney is licensed to practice law and is conversant with all aspects of the home purchase process. Requirements governing the involvement of real estate attorneys vary from state to state and even within states. Even if you are in an area that does not require that you be represented by council you may find it reassuring to do so. Clarity Hiring an attorney from the beginning of your real estate transaction to review all agreements and contracts and assist in negotiations will ensure the maximum level of transparency and comfort. Savings The upfront fees of hiring a real estate attorney are modest in comparison to the possible financial impact of getting things wrong. A real estate attorney can safeguard you and your investment by thoroughly reviewing all legal documentation, handling negotiations and asking the questions you may not know to ask. A real estate attorney works for you, represents your needs and will negotiate on your behalf during the purchasing process. Your lawyer can act as a support to walk you step-by-step through the intricacies of real estate transactions, and also act as a safeguard, protecting you from the problems and issues you cannot see or predict. Experience Even if this is not your first real estate purchase, your real estate attorney has gone through this process more times than you

ever will in a lifetime. They have the institutional knowledge of working daily in the industry and have the local and state laws. It’s important to have the legal support to mitigate any risks that could delay, if not jeopardize, your real estate purchase. Closing There are many moving parts to the closing process, including the mortgage, title insurance, the deed and final inspection. Hiring a lawyer to review, adjust and prepare all closing documents–and ensure they are protecting you and your assets–can be reassuring.

STEP 6: ENGAGE A BUYER'S REAL ES UYER'S REAL ESTATE AGENT

“Real estate agent” and “REALTOR®” aren’t the same. All REALTORS® are licensed agents, but only those who join the National Association of Realtors can use the title. A buyer’s agent represents your interests in a purchase. While many agents work with both buyers and sellers, having the listing agent represent both sides—known as dual agency—can pose conflicts and is illegal in some states. As of August 2024, a t 2024, an agreement went into effect regarding how commissions to buyer's are negotiated and paid. Buyers' real estate agents must now have a written agreement with their clients before showing homes, clearly stating compensation terms. This ensures transparency and avoids surprises during the process. However, no agreement is needed for general inquiries or open house conversations. Before August 17, 2024, sellers typically paid both the buyer’s and listing agents' commissions, usually splitting the total fee. Now, it’s important to confirm whether the seller will cover your agent’s fee or if you, as the buyer, will be responsible.

Compensation Listings on MLS Also beginning August 17, 2024, offers of compensation can no longer be listed on multiple listing services (MLS); these are centralized databases used by real estate agents to share information about homes for sale. Compensation can still be listed elsewhere or discussed directly with your real estate professional. What Are Your Options for Paying Your Agent’s Commission? As a homebuyer who now may be required to cover your buyer’s agent’s commission, you have a variety of options. Cash. After negotiating and determining the commission amount, you may choose to pay your agent's commission in cash. This would be paid as an additional closing cost. Reduce Your Down Payment Amount To cover your agent’s commission, you could reduce your mortgage down payment amount. For example, let’s say you were planning on putting 10% down on your home and you negotiate a 3% commission for your Realtor. You could put 7% down, and re-allocate that additional 3% toward the buyer’s agent commission. Your loan originator can discuss different scenarios and ways to use your cash effectively. Negotiate Partial or All Buyer’s Agent Commission As part of your purchase offer, you could request that the seller pay all or part of the buyer’s agent commission. A partial agent commission, for example, could be for the seller to pay 1%. This reduces the amount of cash required at closing for you and transfers minimal cost onto the seller.

It's important to partner with an experienced, knowledgeable

real estate and mortgage professional. They can guide you through the rules, ensuring you understand your options and make informed decisions. A buyer's agent will find potential homes, communicate with the seller’s agents, and represent your interests when negotiating the purchase. They will identify properties, based on your pre- approval, that fit your budget and criteria, help you develop a competitive offer, negotiate on your behalf, and provide you with knowledge and support throughout the process. The agent has access to the Multiple Listing Service (MLS), where they can find more detailed information about individual properties than is available on real estate websites and apps. Insight into the area. Your agent can share insights on local amenities like restaurants, shops, events, and community vibe. However, due to Fair Housing laws, they can’t comment on crime rates, religion, economic status, or schools. Instead, they can direct you to trusted sources for that information. Go home shopping. Scrolling through listing photos just isn't the same as viewing a property in person. Your agent will work with a home's listing agent or owners (if the property is for sale by owner, FSBO) to schedule showings. They'll also fill you in on anything they learned about the sellers or the property from that communication. Help you make offers. Your real estate agent will consider and share insights on key factors, including: 1. Comparable Sales (Comps): Recent sale prices of similar homes in the area to gauge a fair offer. 2. Current Market Conditions: Whether it’s a buyer’s or seller’s market, which affects negotiation power. 3. Listing Price History: How long the home has been on

the market and any price changes. 4. Seller’s Motivation: Whether the seller is eager to move quickly, which could impact their willingness to negotiate. 5. Property Condition: Needed repairs or upgrades that may influence your offer price or terms. 6. Your Budget and Pre-Approval Status: Ensuring your offer aligns with your financing and comfort level. 7. Competition: If there are multiple offers, your agent may suggest strategies like offering over asking, shortening contingencies, or increasing earnest money. 8. Contingencies: What conditions to include, such as financing, inspection, or appraisal contingencies. 9. Closing Timeline: Matching or accommodating the seller’s preferred move-out date, when possible. Negotiate with the seller. The agent will inform you of the seller's response to your offer and advise you on the next steps, such as whether to accept a seller's counteroffer or negotiate price and terms. Refer you to other professionals. Your agent can refer you to other professionals, such as an insurance broker, movers, painters, electricians, plumbers, landscapers etc.

STEP 7: CHOOSE A HOME TYPE

When you’ve determined price range, needs vs. wants, and location, home type moves to the top of the list. 1. Single-family residences (SFR) are freestanding (detached) buildings. This type of structure doesn’t share a wall with another building.

2. A semi-detached home is a single-family dwelling that shares one or more common walls with another building. 3. A multifamily home is a residential property that consists of 2-4 individual units. Each unit will have its own entrance, kitchen space, bedrooms and bathrooms. 4. Townhomes are multi-floor homes with their own entrance and living space. Townhomes share two walls with neighbors unless the townhome is located at the end of a building. In some markets, the terms “townhome” and “townhouse” are used interchangeably. 5. Condominiums, known colloquially as condos, are buildings made up of individually owned units. They can look and feel like an apartment building or a community. You own the interior space of the unit. The common area is typically managed by a homeowner's association, with fees being assessed to owners for common area expenses. 6. Co-ops may physically resemble an apartment building, but the ownership model is different than any other type of residential real estate. The building is owned by a cooperative corporation. As a co-op owner you are a shareholder of the corporation that owns and manages the building. You are purchasing shares in the corporation that owns the building not an individual unit. As a shareholder you have the right to lease a specific unit for your own use. The cooperative corporation is run by a board of directors, elected by the shareholders, and are responsible for financial oversight, common area maintenance and repairs.

STEP 8: GO HOME SHOPPING

Now comes the exciting—and challenging—part: house hunting. Browse listings, visit open houses, and get a real feel for

what fits your budget and priorities. Focus on homes that meet your must-haves and some of your wants. The tricky part? Pay close attention to each property’s condition and details like water, sewage, utilities, and internet access—all of which affect livability and value. Prior to signing a contract hire a certified home inspector who will evaluate the following according to the American Society of Home Inspectors (ASHI): 1. Heating, Ventilation, and Air Conditioning (HVAC) 2. Interior plumbing and electrical systems 3. Roof and rain gutters 4. Attic, including visible insulation 5. Walls 6. Ceilings 7. Floors 8. Windows and doors 9. Foundation 10. Basement 11. Structural components The inspector isn’t going to tear the home apart to inspect piping and wiring. But the more exterior and interior parts of the home an inspector can access, the more complete the final report will be.

STEP 9: MAKE AN OFFER

Once you’ve found the right home—within budget, in the right location, meeting your needs, and fully inspected—it’s time to make an offer. This means proposing a purchase price, which could be above, below, or at the asking price, depending on market conditions. Verbal agreements don’t count; a formal offer requires legal documentation, like a Residential Purchase

Agreement—another reason why a skilled agent (and in many states, an attorney) is essential. Buying without an agent—especially as a first-time buyer—can lead to costly mistakes or even losing the deal. Real estate laws vary by state and change over time, so even experienced buyers shouldn’t assume the process is the same as before. If you're buying in a different state, expect different rules. Here are key things to know when drafting an offer. The offer: • must conform to local regulations and standards. • must mention the amount being offered as well as the actual asking price. • must include any terms and conditions on the purchase. • must be drafted and signed. • must be forwarded to the seller through an agent (your buyer’s agent or the seller’s agent). • is not a binding sale contract. • is the buyer’s offer on the house based on its current condition and according to the terms and conditions. • is subject to change if the seller doesn’t agree with your terms. • can be refused if the seller doesn’t accept the amount being offered. • becomes void if the seller makes any changes, and becomes a counteroffer, which you can accept, refuse, or change. In this last instance, which is actually quite common during this process, an offer turns into a counteroffer, which can turn into another counteroffer, and on it goes back and forth until both parties are satisfied, or until the buyer moves on and/or the

seller refuses to accept the buyer’s deal. The offer doesn’t actually become a contract until all parties agree to all terms, conditions, and changes in writing. So, now, what should be included in the drawn-up purchase offer? Here is a list of the most common items: • Physical address of the property. • Legal description of the property. • Price and terms and conditions of the purchase. • Seller’s promise to give clear title to buyer. • Target closing date. • Earnest deposit associated with the offer, as well as method of deposit. • Disposition of earnest deposit if deal falls through or fails. • Plans for adjusting taxes, fuel, and water bills between buyer/seller. • Who will pay for title insurance, land survey, home inspections, etc. • The deed to be granted. • State-mandated legal requirements. • Attorney review of contract. • Any disclosures. • The time after which the offer will expire. Something else to consider is contingencies. Many offers are made contingent upon a factor or event that must be resolved before the offer moves forward. The most common contingencies are home inspections, financing and appraised value. You can make your offer contingent on a satisfactory home inspection. If serious damage is found, the deal may be renegotiated or canceled—especially if the home is deemed

structurally unsound or unsafe.

For financing, the offer is made contingent on the buyer receiving a sufficient mortgage loan from a lender, or for current homeowners, contingent upon the sale of their home. Having as strong pre-approval or a Mortgage TBD commitment (Property is To Be Determined) is the way to avoid having financing sink your deal. Appraisals below the purchase price can jeopardize a deal. When this happens, it affects the loan-to-value (LTV) ratio. For example, if you agreed to buy a home for $600,000 with a 20% down payment ($120,000), your loan would be $480,000. But if the home appraises at $580,000, the lender will only finance 80% of that—$464,000. You’ll either need to renegotiate the price or cover the $16,000 shortfall yourself.

STEP 10: PUT MONEY IN ESCR Y IN ESCROW

Part of the home-buying process involves putting money into escrow; the buyer is expected to put an initial deposit (also known as "earnest" money) into escrow in order to make the contract binding, which then helps the contract move through and toward closure. Essentially escrow refers to a time period, not a place. Escrow is the period between 1) the time an offer of purchase is made on a property; and 2) the time when that property’s title is officially transferred from seller to the new owner. The escrow process is essential in cases in which the ownership of title will be changed. The money put into escrow, or the initial deposit amount collected as part of escrow, is considered as “earnest” money. How much money are you, the buyer, supposed to put into escrow? This is determined individually on the terms as

stipulated in the offer of purchase.

An escrow agent or the seller's attorney who specializes in this period and process will be involved. The agent serves as a third party who enjoys a neutral state between seller and buyer, and helps provide assurance to both parties. The agent is also heavily involved in the actual transaction to ensure the clauses of the offer will be met completely, accurately, and satisfactorily. Further, the escrow agent serves as the manager of the trust account that holds the funds that will cover the value of the transaction. The money collected from the buyer is held in escrow until the seller completes his or her obligations and transfers the title over to the buyer. After this transfer is authorized, verified, and completed, the payment is then remitted to the seller. The “earnest” money can be used to cover some of the down payment, the purchase price, and the closing costs.

STEP 11: NEGOTIATE WITH THE S TE WITH THE SELLER

Negotiation is one of the most critical—and challenging—parts of buying a home. Sellers want top dollar; buyers want the best deal. This push and pull is where strategy matters. A skilled buyer’s agent is essential here. They’ll guide you in reviewing comparable sales ("comps") to assess the asking price and build a strong offer. Citing those comps in your offer can show the seller you’ve done your homework, strengthening your position. Your offer may be accepted, countered, or rejected. A strong negotiation strategy—built with your agent—helps you respond effectively. Know your max budget, understand the market, and decide how much the home is worth to you.

Above all, keep emotions out of it. This is a business transaction. If the seller’s price is too high and not justified by the comps, be prepared to walk away. Knowing your limits—and sticking to them—is key to a successful outcome.

STEP 12: CLOSING THE LOAN AND RECEIVE THE KE AN AND RECEIVE THE KEYS

First, what is the closing process? In most cases, both the buyer and seller, along with their attorneys, and often their agents are present in a professional office setting. Essentially, it involves everything that’s needed to make the home sale and home purchase complete, legal, and finalized. Although nearly pro forma (“done as a matter of form” or “standard”), the closing process (also referred to as settlement) is meant to bring all the parties involved to the same happy conclusion. Before the process of closing can begin, the buyer must inspect the property by performing a final "walk-through" with their agent. The final walk-through should occur within 24 hours of closing. During the final walk-through, the homebuyer and their real estate agent will inspect the property to ensure that everything is functional and that any agreed-upon repairs have been completed to a professional standard. This includes ensuring all appliances, fixtures, and systems (HVAC, water, toilets etc.) work. You should also check that any items that were included in the sale, such as appliances, lighting fixtures or window treatments, are still present and in good condition. The final walk-through is also an opportunity to check for any new issues that may have arisen since the initial home inspection. For example, if the home has been vacant for a period of time, there may be new signs of pest or water damage. The closing process is actually a brief component, essentially involving the exchange of funds and documents to complete the transaction to which all parties have agreed, based on the

contract. The main “goal” of the closing process is to transfer the title of the property from former homeowner (seller) to new homeowner (buyer). It includes the final review of the title report and insurance, to make sure that there are no errors, unreported claims, or other flaws in the review of the property’s ownership. All property transfer taxes must be paid during closing. Further, you need to settle all other claims, including closing costs, legal fees, and adjustments. The closing agent is the party who is responsible for drawing up and finalizing the documentation regarding the home loan. They’re committed to the completion of all relevant and required paperwork so the property can officially be transferred from seller to buyer — the buyer gets the keys to the home; the seller gets the payment. Then, it’s the closing agent’s responsibility to subtract the funds required to pay existing mortgages and other costs related to the transaction. The closing agent must also ensure the deeds, loan documents, and other papers are prepared, signed, and submitted to the municipal offices that maintain property records. This seems like a lot, but there really is little work to be done by you, the buyer — the closing agent (often allied with the title company) take care of all the necessary documentation required by title companies, lawyers, and lenders. The final result of the closing process is that the buyer obtains the title to the property, the seller receives the payment, the agents receive their commissions, the lenders’ loans are fully documented in the public records, and the state government collects the taxes generated by the transaction.

CHAPTER 2 Making the Loan Process Work for You

“ This is the real secret of life — to be completely engaged with what you are doing in the here and now. And instead of calling it work, realize it is play .” – Alan Watts Understanding the loan process from start-to-finish is the best way to ensure smooth sailing and issue-free closing. Knowing what must be done, when it must be done — and subsequently that it was done — is the best strategy for success. Your team, your loan officer, buyer's agent, and attorney are the ones that make this happen for you. The loan process is comprised of four phases: origination, processing, underwriting, and closing. The origination of a loan is straightforward: you decide to enter into a loan agreement with a particular lender. This is the origin of the loan, i.e., origination. Processing is also just what it sounds like: the loan is processed by the lender. Processing usually includes filling out an application and authorization forms, answering questions, and providing personal documents to the lender. Once the loan is processed it moves to an underwriter. When a loan undergoes underwriting, a specialist compares the information in the application and any documents that you have provided with the lender’s requirements and standards for that particular loan instrument. We’ll go in-depth about underwriting 19

later on in this book.

Finally, we come to closing, where the loan is completed and funds are transferred to the seller and the seller's bank and the property is transferred to you. If you think of the whole process as these four simple steps, it has a straight forward path. A loan originates from somewhere, it is processed, it’s underwritten, and then it’s closed. Let’s focus on the three main categories that make up a typical mortgage: rate, type, and size.

HOW MORTGAGE INTERES GE INTEREST RATES ARE P TES ARE PRICED

Residential mortgage interest rates are priced based on a combination of factors, and the specific rate you receive can vary depending on your unique financial situation and the lender you choose. Here are some of the key factors that influence how residential mortgage rates are priced: Market Interest Rates: The overall interest rate environment plays a significant role in determining mortgage rates. Lenders often use benchmark rates like the U.S. Treasury yields as a starting point. When these benchmark rates rise or fall, mortgage rates tend to follow. Credit Score: Your FICO credit score is a crucial factor in determining your mortgage rate. Borrowers with higher credit scores generally qualify for lower interest rates because they are considered less risky to lenders. Lenders use credit scores to assess creditworthiness and your likelihood of repaying the loan. Loan Type: The type of mortgage you choose can affect the interest rate. Common options include fixed-rate mortgages and adjustable-rate mortgages (ARMs). Fixed-rate mortgages

typically have higher initial interest rates compared to ARMs but provide rate and payment consistency over the life of the loan. Loan Term: The length of your mortgage term also influences the interest rate. Shorter-term notes, such as 15-year loans, have larger monthly payments but come with lower interest rates (but higher individual payments) compared to 30-year loans. You will pay less interest over the 15-year (180 month) life of the loan. The rate is lower because lenders assume the risk for shorter period of time. Down Payment: The size of your down payment can impact your mortgage rate. A larger down payment typically results in a lower interest rate because it reduces the loan-to-value (LTV) ratio, which is the amount of the loan compared to the home's appraised value. The larger the down payment the more equity that you hold which lessens the risk to the lender. Debt-to-Income Ratio (DTI): Lenders evaluate your DTI ratio, which compares your monthly debt payments to your income. A lower DTI ratio indicates less financial risk and may in combination with other factors lower the interest rate. Property Type and Location: The type of property you're financing and its location can influence your interest rate. Lenders may have different rates for single-family homes, 2-4 family homes, coops, condos, vacation homes, and investment properties. Additionally, rates can vary by geographic region and local housing market conditions. Lender Policies: Different lenders have their own underwriting guidelines and pricing structures. Your loan officer will help match your needs with their programs. Economic Conditions: Broader economic factors, such as inflation, unemployment rates, and central bank policies, can

impact mortgage rates. These factors can lead to fluctuations in market interest rates. Ask your lender for the loan’s “par rate”—the interest rate that doesn’t require you to pay points or receive a lender credit. Paying points means paying upfront fees (typically 1 point = 1% of the loan amount) to lower your interest rate. Conversely, choosing a higher rate may earn you a lender credit, which can be used to offset closing costs.

TYPES OF MORTGAGE INSTRUMENTS

Residential loans are either “Fixed-Rate” mortgages or “Adjustable-Rate” mortgages. In a Fixed-Rate Mortgage (FRM), the interest rate is set for the entire term of the loan. A Fixed-Rate Mortgage offers consistency to borrowers because they’ll know exactly how much each monthly payment will be from the first day to the last day and how much principal and interest they will pay in total. Ask your mortgage originator for an amortization chart of your loan. The chart shows how much of your payment is assigned month by month to the interest the lender is charging and how much goes to principal which creates equity for you. The amount that goes towards paying interest is larger than the amount going towards principal at the beginning of the term. The amount going towards interest will diminish each month while the amount going towards your equity will increase. Most Fixed rate mortgages have higher interest rates than other types of mortgages because the lender is obligated to maintain the same rate for the length of the loan, which can be up to 30 years (360 months).

For some folks, committing to paying a bit more in interest is a

fair exchange for the peace of mind that they have a fixed amount to pay every month for the life of the loan. In that case, FRMs can be the ideal choice. However, if a borrower wants a lower interest rate at the beginning or does not see this purchase as a long-term hold, an adjustable-rate type is an alternative. The initial interest rate for an adjustable-rate mortgage (ARM) is typically lower than the FRM rate, but it is subject to change at specified intervals. So, an ARM (which amortizes over 30 years) can have a fixed-rate period for 5, 7 or 10 years. After the fixed period is over the rate is reviewed and adjusted every six months. The rate can go up or down within a specified cap range. The interest rate for ARMs is a combination of a margin (fixed percentage for the life of the loan) added to an economic index, such as The Secured Overnight Financing Rate (SOFR). SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. SOFR is subject to change every day and is posted in the Wall Street Journal. There is a minimum and maximum rate assigned to the loan so that the highest and the lowest rate for the life of the loan is written into your note. For example you choose a 7 year ARM at 6%. This rate remains the same for 84 months. Approximately 45-60 days prior to your rate change you lender will indicate the new rate based on the margin (fixed for the life of the loan) and the current level of the index. If your margin is 2.75% and the index is now 4.00% your new rate would be 6.75%. If the index is 3% your new rate goes down to 5.75%. Your initial note will tell you the maximum amount the rate can increase or decrease at any particular change and the minimum/maximum rate allowable for the life of the loan. Most ARMS issued from 2023 forward are reviewed every six months after the initial adjustment period has begun.

Borrowers who want lower monthly payments at the beginning

of the repayment process can benefit from an ARM. For example, a medical student who is making less money now than they hope to make in the future could benefit from a smaller monthly payment at the beginning, and then pay more later. A borrower whose intention is to own the house only for a few years may strategically choose an ARM with the intention of selling the home before the adjustment period begins. If a borrower chooses an ARM, they usually will have a choice between an amortizing ARM and an interest only ARM. An amortizing ARM is the most common type. With this type of mortgage, the lender calculates a monthly payment that will pay off the entire balance within the term of the loan (usually 30 years). However, since ARM loans don’t have a fixed interest rate, the payments can fluctuate over that time period. Rates can increase or decrease with a bottom rate and an upper limit clearly defined in your loan document. An Interest Only (IO) ARM has more stringent requirements for the borrower because the bank is allowing you to not pay principal for up to 10 years. This keeps their level of risk high for an extended period of time. This type of loan (30-year term) allows you to make interest payments (no principal) for a preset number of years. This is most often the first 10 years (120 months) even if the rate is subject to change earlier. The actual money that you borrowed (the principal) is then scheduled to be paid off during a 20-year term (beginning in month 121) with interest and principal applied each month, so that the loan is complete at the end of the 30-year (360 month) term. You may always pay principal on an owner occupied primary or secondary (such as a vacation home or pied-a-terre) residence even during the IO period without penalty. When you pay principle during the IO period the underlying balance is reduced in real time and your next mortgage payment (if the rate has not

adjusted) will be lower because the actual amount that you owe has been reduced.

TYPES OF MORTGAGE PROVIDERS

Lenders offer both conventional and government backed loan instruments. Government-insured loans include the Federal Housing Administration (FHA) program (low down payment), the Veterans Affairs (VA) program (veterans and active service members), and the United States Department of Agriculture (USDA) program for specified rural locations. More detailed descriptions of these providers appear in Chapter Six. Conventional (non-government) loans come either from the lender's portfolio, outside investors, or are sold to Fannie Mae and Freddie Mac. Fannie and Freddie are the two government- sponsored real estate enterprises known also as GSEs, but they are not government insured in the manner of the Federal agencies named above. Non-QM Loans (Non-Qualified Mortgage): are a type of mortgage loan that does not meet the criteria or "qualifications" set forth by the Consumer Financial Protection Bureau (CFPB) for conventional mortgages, often referred to as Qualified Mortgages (QM). The primary difference between Non-QM loans and conventional loans lies in the types of documents, underwriting and borrower eligibility requirements. Non-QM loans are often more suitable for business owners, the self-employed, recipients of 1099s, gig workers and those who have an ITIN. An Individual Taxpayer Identification Number (ITIN) is a tax processing number issued by the Internal Revenue Service. The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain, a Social Security number (SSN) from the Social Security Administration (SSA).

MORTGAGE AMOUNTS

The size of a mortgage is expressed as either conforming or non-conforming (also referred to as jumbo). The dollar limits to determine if it is conforming or jumbo are set by the Federal Housing Finance Agency (FHFA). A jumbo loan is one that is larger than the conforming price set by the FHFA. Non conforming (jumbo) loans will have different guidelines than smaller ones. In addition to requiring a higher income level they often set a lower allowable Debt to Income ratio, higher FICO credit scores, and larger amounts of assets in reserve in personal accounts after the closing. The conforming loan limits are reviewed once a year by FHFA but do not have to change. Currently (2025) conforming loan limits in most of the 48 contiguous states and Washington D.C. are $806,500 for a single-family home. The limit is higher for 2-4 family units. High-cost areas such as parts of Alaska, Hawaii, California, CT., and NY currently have a higher conforming limit for 1 -4 family units. Your loan officer will tell you exactly what the limits are in the area that you are planning to make your purchase. Now that you know about the mortgage options let’s become familiar with the people involved in making the mortgage process work.

THOSE INVOLVED IN THE LEND VED IN THE LENDING PROCESS

The first person engaged in the lending process is the mortgage loan officer (MLO or LO). The loan officer is the project coordinator, overseeing the transfer of information between you (the prospective buyer) and their organization’s processing and underwriting departments. The loan officer will be in direct

contact with the you from the beginning of the mortgage process all the way through closing. The loan officer is licensed with the National Mortgage Licensing System (NMLS). The loan officer’s licensing status can be verified with the NMLS at www.nmlsconsumeraccess.org. The site is simple: you enter in a loan officer’s name, address, and other important information. It will let you know if they are an active registrant in the federal database, if they are authorized to conduct business, and, if so, what organizations they are authorized to represent. The NMLS number is always displayed next to the LO's name on written and electronic material. Origination: The LO will chat with you to find out where you are in the process: What is your price range, where are you planning to look, when do you want to move, are you working with a Real Estate agent? Once rapport has been established between the LO and the borrower the application is entered. This causes loan disclosures and a request for documents to be sent to you. Once you have executed and returned the disclosures, and all income and assets documents are provided they are matched to the application and the transaction moves into the second phase, which is Processing. The processor works with the loan officer to handle the documentation and tasks. They will coordinate with the departments inside the lender's office to have the appraisal ordered and a bank attorney or closing agent to be selected. Before sending the application to the underwriter they will verify that all of the documents reflecting income, employment status and deposits match the information in the application, and a many other loan-related tasks. Once the loan processor assembles the loan package, they submit it to the underwriting department, beginning the third stage of the loan process: Underwriting is the process of poring through

the buyer’s submitted information and making sure it matches with the requirements of the loan product. The underwriter will focus on matching the applicant’s income, assets, credit information, property title, and home appraisal to the guidelines. During this process the underwriter may seek clarification or the further explanation of some of the information. These queries are referred to as "conditions". Once the conditions have been satisfied by you as the borrower the loan can be moved towards the closing department. ORIGINATION: PRE-QUALIFICATION, PRE-APPROVAL, A TBD (TO BE DETERMINED) C TERMINED) COMMITMENT LETTER The first step in the lending origination process can be a pre- qualification letter, a pre-approval letter or a "To Be Determined" (TBD) commitment. Many real estate agents require a pre- approval letter or proof of funds before taking you on as a client. This assures them, and later assures the seller's agent and the seller, that you have the financial capacity to complete the deal. With the drafting of a pre-approval letter, the lender pulls credit from all three bureaus, receives the FICO scores, analyzes the debts, verifies the prospective buyer’s income, down payment amount and source, liquid reserves available after closing, and ensures that income tax returns have been filed if that is a requirement of a particular product. Often the pre-approval process includes running the application through desktop underwriting. This confirms that the profile of the borrower conforms to the basic requirements of a particular loan instrument. The pre-approval is a very strong indicator that the borrower will be approved as long as their key information does not change before its time to close the loan. According to the Consumer Financial Protection Bureau (CFPB) “Prequalification and preapproval both refer to a letter

from a lender that specifies how much the lender is willing to lend to you, up to a certain amount and based on certain assumptions. These letters provide useful information but are not guaranteed loan offers" "There’s not a lot of difference between a prequalification letter and a preapproval letter. While there are some legal distinctions, in practice both terms refer to a letter from a lender that says the lender is generally willing to lend to you, up to a certain amount and based on certain assumptions. This letter helps you to make an offer on a home, because it gives the seller confidence that you will be able to get financing to buy the home. It is not a guaranteed loan offer." "Don’t worry about which word lenders use. Some lenders may use the word “prequalification”, while other lenders may call the letter a “preapproval”. In reality, lenders’ processes vary widely, and the words they use don’t tell you much about a particular lender’s process. The important thing is that the letter you receive provides enough information for sellers in your area to take it seriously.” The best way to make sure that the letter you have will serve its purpose is to have the loan officer explain to you and the realtor the criteria that their institution used to create the letter. A (TBD) "Property to be Determined" commitment letter however includes all of the elements of a pre-approval and then takes it one step further. The full application package is submitted to an underwriter who reviews the materials carefully to make sure everything matches the lending requirements. You will receive an actual loan commitment to lend to you pending the identification and approval of a specific property that you wish to purchase.

PROCESSING: A LOAN ESTIMATE

Once you have your sights set on a property and have your pre- approval letter in hand, your next step should be to obtain a Loan Estimate (LE) from the lender. This replaces the document known as the Good Faith Estimate (GFE) which was discontinued in 2015. A Loan Estimate (LE) is a three-page form that you will receive from the lender within three business days of applying for a mortgage. The form provides important information, including the estimated interest rate, monthly payment, and total closing costs for the loan. The LE also shows the estimated costs of property taxes and insurance, and how the interest rate and payments may change in the future. It explains which charges can change before settlement (closing) and which charges must remain the same. All lenders are required to use the same standard LE. The form uses clear language and is designed to help you better understand the terms of the loan. This makes it easier for you to compare loan features and costs.

Check These Item on Your Loan Estimate (LE) f e (LE) for Accuracy

• The spelling of your name. • The loan term, purpose, product, and loan type. • That the loan amount is what you are expecting. • Your monthly principal and interest. • Are there additional charges included in your payment? • Does your Estimated Total Monthly Payment match your expectations? • Are your estimated taxes and insurance, are or are not in escrow? • What are your estimated closing costs?

• Do you have enough cash on hand to pay your down payment and other estimated closing costs?

When you receive a LE, the lender has not yet approved or denied your loan application. The LE shows you the loan terms the lender expects to offer to you. When you move forward, the lender will ask you for additional documentation.

PROCESSING: INTENT T G: INTENT TO PROCEED

When the borrower is done shopping around and has decided which lender they would like to work with, they retrieve the Loan Estimate (LE) from the lending establishment and start the next step. Working with the loan officer you sign all loan disclosures, the Loan Estimate, and the “intent to proceed.” The "intent to proceed" evidences that you are interested in obtaining a loan from that particular lender. It does not commit the prospective buyer to get a loan from that lender. It simply states that you have signaled intent to proceed with the lender’s loan process under the terms described in the loan estimate.

PROCESSING: RATE LOCK

The world of loans and mortgages is fast-paced, and interest rates can change at any time. A mortgage rate lock guarantees the interest rate of your loan for a specified period to protect you from rate hikes through your contractual closing date. In a purchase deciding when to lock needs to take in to account the expected closing date. So, if your target closing date is 30 days from the signing of the contract you may want to lock for 45 or 60 days to protect against unanticipated delays by the seller or you or perhaps the lender. 31

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