6.03-D Getting A Loan Students will understand the loan process related to home ownership.

What Types of Loans Are Used to Buy Homes? Conventional/Traditional- Fixed Rate Mortgage – Rate does not change – 15 year, 30 year most common Adjustable Rate Mortgage (ARM)  Not Recommended by Mrs. C! – APR can change, payments increase substantially – Lower payments in beginning to help get the dream home – Pay for longer time – May become “upside down” in loan (owe more than home is worth) FHA Loan – Lower income, federally insured VA Loan – Veterans of military service, federally insured

Tax Benefits of Home Ownership Mortgage interest is tax deductible for state and federal income taxes. Property taxes are tax deductible for state and federal income taxes. Increase in value not taxed for income tax until sold if no new home purchased

1.Credit Application 2.Documentation 3.Processing 4.Underwriting 5.Closing 6.Funding 4 Process of Obtaining Credit

Form used to provide information needed by a lender to make a decision about granting credit (approving a loan). Fill out completely, accurately, & honestly Requires signature of applicant, which indicates provided information is true C redit decision must be based on your ability to repay a loan, Other discrimination is illegal. Credit Application

Documentation Creditor will collect and verify necessary documentation for the extension of credit. – Examples: Bank statements, credit rating, credit card statements, past W- 2’s, etc. – Verify using phone, mail, physical documents

Lender/Creditor- business or individual loaning money Debtor/Borrower- person borrowing money Information provided by Credit Bureaus – Credit bureaus sell lenders credit information about credit users such as debt records, payment history, and if any action has been taken to collect overdue bills 7 Main Factors Examined for Granting Credit

Lender builds loan file – Evaluates credit worthiness Creditors examine factors about potential debtors when deciding whether to grant them credit – The C’s of Credit Worthiness Processing

Capacity – Will debtor be able to pay loan back? – How much debt can comfortably be handled? – Considers current income and debt levels Character – Honesty to pay debt when due – Earned by paying bills on time and being a trustworthy, reliable, stable person financially – References – people you have borrowed from in the past who indicate you paid on time Capital (money) – How much you have beyond what you owe – Current available assets that could be used to repay debt if income was unavailable Processing – The C’s of Credit Worthiness

Underwriter or loan officer – Review loan info for soundness, creditworthiness – Make decision about granting credit Where does credit info come from? – Consumer Reporting Agencies, Credit Bureaus – Company that compiles and keeps records on consumer payment habits. – Used to evaluate creditworthiness Examples: Equifax, Experian, and TransUnion Underwriting

Meeting by parties to contract to sign and close the deal – Representative explains terms of credit- usually loan officer – Attorney handles real property closing, e Be sure all details are legal to letter of law federal, state, banking guidelines – Debtor/creditor sign contract Contract is binding on signing parties Closing

KWYS – know what you’re signing READ and UNDERSTAND BEFORE signing any contract Don’t be afraid to ask questions! Ask a parent/guardian/adult to go with you! Contract – legally binding agreement between two parties Closing 12

Creditor issues money/funds to the debtor for the item purchased Example: mortgage company pays seller in full, debtor then pays mortgage company monthly installments to repay the loan Funding

– Legally binding documents that allow debtors to use credit to obtain goods and services – Debtors should know the content of the credit contract before signing such as: Amount of finance charges Repairs covered Add-on features Reduction of finance charge if contract paid in full prior to ending date Receive the copy of the contract Repossession conditions 14 Credit Contract

Steps in Order: 1.___credit application 2.___documentation 3.___processing 4.___underwriting 5.___closing 6.___funding Description of Activity  A. loan officer builds a loan file  B. borrower completes form info for lender to review  C. creditor issues money to the debtor  D. debtor/creditor sign contract  E. creditor collects and verifies information  F. loan officer reviews loan for creditworthiness Review Steps to Get Loan