Mortgage Basics The Guidebook

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MANY PEOPLE DREAM OF OWNING THEIR OWN HOME,

BUT FEAR THAT THE PROCESS IS OVERLY

COMPLICATED OR OUT OF THEIR REACH EVEN

THOUGH A LOT OF RENTERS QUALIFY. T HIS BOOK

WILL SIMPLIFY THE PROCEDURE & ARM YOU WITH THE

KNOWLEDGE TO COMPLETE THE PROCESS.



Remember; don’t be scared to ask questions. Be sure to understand the

benefits and risks of the product you are considering.

If it sounds too good to be true, it might be.

Before you sign on the dotted line, contact me if you’ve got any questions.

Mohamed T Gulamali:

Individual Licenses:

Mortgage: NMLS 1128605 | P&C Insurance: BR-1170226

Phone: 516-900-3603

Cell: 646-571-5352

Fax: 888-507-5926

Email: [email protected]

Web: www.moresult.com

mailto:[email protected]


http://www.moresult.com/






MORTGAGE BASICS: T HEGUIDEBOOK

BYMOHAMED T. GULAMALI

Table Of Contents

1. Anti-discrimination Page 1

2.

Comparison of Renting vs. Buying Page 2

3. Benefits of Home Ownership -4

4. Pre-qualification & Preapproval Page 5

5. Types of Properties Page 6 – 10

6.

Mortgage Types Page 11

7. Qualifying for a Mortgage Page 12 – 16

8. Mortgage Payment Page 17 – 19

9. Glossary Page 20

10. Mortgage document checklist Page 21

11. Entire Process of Buying a Home Page 22

12. Basic Requirements & misconceptions Page 23 – 24

IMPORTANT NOTICE:

You do not have the right to reprint, resell, auction or re-distribute the

Mortgage Basics: The Guidebook



MORTGAGE B ASICS THE GUIDEBOOK

BYMOHAMED T GULAMALI

Mohamed T. Gulamali: Contact me with any questions

[email protected] www.moresult.com

1

CHAPTER 1:

A NTI-DISCRIMINATION

Banks aren’t supposed to discriminate when making residential

mortgages. Federal and State anti-discrimination laws prohibit it.

It is illegal to:

Refuse you credit when you qualify Discourage you from applying for a mortgage Offer you credit on terms that are negative, like a higher

interest rate compared to somebody with similar

qualifications

Close your account

Based on:

Race or Color

National Origin

Religion

Sex

Disability

Basis of sex

Marital status

Age

Source of income

Familial Status

BLOGS & VIDEOS AVAILABLE ON WEBSITE

PRE-QUALIFY WWW.MORESULT.COM

http://www.moresult.com/blog







http://www.moresult.com/pre-qualify2.html




















2

CHAPTER 2:

COMPARISON OF R ENTING VS. BUYING

Over time the principal & interest portion of your mortgage

payment will decrease till it’s paid off. This portion of your

mortgage payment will obviously be lower than the rent you would

have been paying with no end in sight. More importantly, you are

not throwing away your hard earned money on rent.

You got to live somewhere, so instead of paying off your

landlord’s home just pay off your own & increase your net worth!

Own or Rent Advantages Disadvantages

Renting

Short-termcommitment

Minimal repaircosts

No Taxincentives

Rent can beincreased

No building ofequity

Homeownership

Privacy

Investment

Stable housing

costs Pride of

ownership &communityties

Tax Incentives

Maintenance &Repairs






























3

CHAPTER 3:

BENEFITS OFHOME OWNERSHIP

1. Builds Wealth:

Through history property possession specifically home ownership

has been a financially savvy move. Usually home values increase

so with that logic today is the best time to buy low so that later you

can sell high in order to maximize your profit.EQUITY

Equity is the difference how much you owe on the home and howmuch the home is worth.

Equity = Home value - Mortgage debt

Factors that increase equity:

1.

Larger down payment when purchasing property2. Home value rose (renovations help but remember it alsocontingent on values within the area)

3. Lowering principal by consistently making mortgage payments over time.

4. Paying extra along with your mortgage payment (the excesswill go directly towards your principal)

Benefits of equity:1. More money you receive when you sell the property.2. Leverage when you cash out funds from your property

through a refinance or home equity loan3. Equity is an asset

2. Tax Benefits: There are numerous tax benefits to home ownership

below are a few of them.







4

The Schedule E portion of personal tax returns list the following deductions:

Advertising Management

Fees

Supplies

Cleaning &Maintenance

MortgageInterest paid

Property Taxes

Commissions Repairs Utilities

Insurance Legal & professional fees

Depreciation

Discount points: Money paid to lower the interest rate

PMI or MIP: Tax deductable as long as your AGI is under

$109,000 Married or $54,500 filing separately

3. Capital Gains Exclusion:

To qualify you just need to buy a home & live in it as your primary

residence for at least two years. When you sell you keep profits of

up to:

$250,000 if you are single

$500,000 if you are married

4. Build your Castle:

You can tailor fit the home to meet your needs. The upgrades you

make will likely also increase the value of your home.

5.

Benefits to Family:

Your Family will have stability knowing that they aren't going to

have to move and alter their lives, which can be traumatic. Besides

the pride of Home Ownership they will also be part of the

community along with all the benefits that it entails. A Financial

benefit is the access to vast equity in their future.







5

CHAPTER 4:

PRE-QUALIFICATION

& PRE-APPROVAL

PRE-QUALIFICATION:

Is an estimate of how large a mortgage you will qualify for.

To get pre-qualified, you go over your income and credit profile with a Loan Officer. Then fax or email over the

following for the Loan Officer to review:

2 recent Tax Returns

2 recent W2’s

30 days of Pay Stubs

60 days of Assets

PRE-APPROVAL:

Is a commitment by the lender, to make you a mortgage

loan. The lender checks your credit report and verifies your

income and assets. Not guaranteed a mortgage until the full

loan application and approval process.

Keep in mind Bank Pre-Approvals are not what they used to

be since using a big bank also forces you to play by the big

banks rules & they’ve also been reprimanded numerous

times.







6

CHAPTER 5:

TYPES OF PROPERTIES

Each type of home has benefits and disadvantages depending onyour needs and preference. Home buyers have several options themost relevant home options are:

Cooperative (co-op)

Condominium (condo)

Single Family home

Multi Family home (2-4 units)

CO-OP & CONDO

CO-OP CONDO

You are a shareholder You are a property owner

You receive a “proprietary

lease”You receive a deed to yourhome

Renting is usually restricted Renting is usually permitted

Board approval is usuallyrequired to buy

Board approval is usually notrequired to buy

Monthly maintenance charges

include property taxes

You pay your own property

taxes







7

You elect Board of Directors You elect board of managers

More affordable for first timehomebuyer

Prices are usually higher thanco-ops

Disadvantages

Shared Yard: Condo and Co-op yards are shared with the

entire building.

Special Assessments: If the association doesn’t have enough

money to cover repairs it will issue an assessment requiring

owners to pay a fee to cover the costs.

Size: Condos and Co-ops are typically smaller than a single

family property.

Storage: Condos and Co-ops typically have less storage due

to lack of basement, attic and garage.

Financing: Condos and Co-ops are usually harder to finance,

since banks are stricter due to the extra risk

Noise: Condos and Co-ops are often noisier than single

family properties since the units are attached on all sides.

Note: If you are interested in a condo, make sure to view it at night

or on the weekend as well to get an idea of how loud the neighbors

are and the quality of the soundproofing for the unit.







8

SINGLE FAMILY HOME

Advantages:

Living Area: Single family homes are typically larger.

Yard: You will have access to your own yard.

Storage: Single family homes generally have more storage

in the forms of a: basement, attic and garage than condos or

co-ops.

Expansion: It’s your prerogative to make any additions to

your home such as an adding a floor or an extension on the

side.

Financing: It is easier to obtain financing compared to a

condo.

Disadvantages

Maintenance: Maintenance issues such as repairs,

landscaping, and snow removal are your responsibility.

Price: Due to the numerous advantages single family homes

are more expensive than condos.






























9

MULTI-FAMILY

Advantages

Monthly Costs: The monthly net costs can be considerably

lower than owning a single family property if you live in one

of the units.

Investment Property: Multi unit properties are an ideal

investment because it generates monthly rent while normallyincreasing in value while still producing multiple tax

benefits.

Easier to qualify for a mortgage: Rental income counts

towards your income ratios within the majority of Mortgage

Products.

Disadvantages

Landlord Responsibilities: By renting out an apartment

you become a landlord. This requires all responsibilities that

come along with being a landlord along with the benefit of

income.

Size: Units are at times similar in size to condos.

Shared Yard and Driveway: The yard and typically the

driveway will be shared with your tenants depending on

terms of the lease.






























10

1-4 Family VS. Condo or

Homes Co-op

1-4 unit homes are more likely to increase in value condos &

co-ops

1-4 unit homes are easier to resell mostly because people

have a hard time envisioning paying a higher sales price for

a property where they have to pay additional maintenance

fees forever.

Most homebuyers would rather put that money into home

improvements of their own choosing.

Fewer outside Fees – There’s no getting around it: Condos

typically cost more to own than a single- family as far as

square footage. Not to mention, condo fees are subject to

increase, potentially raising your cost burden over time.

Financing Options are more numerous for Homes. They also

normally have access to lower interest rates and lower down

payment requirements.

2-4 unit properties have rental income






























11

CHAPTER 6:

MORTGAGE TYPES

To keep things simple as far as the mass public in NY is concerned

the two mortgage options are FHA & Conventional.

CHIEF DIFFERENCES BETWEEN

FHA & CONVENTIONAL

FHA CONVENTIONAL

Down PaymentMinimum 3.5% Minimum 5-15%

MIP or PMI

MIP: Monthly Fee

(cannot be avoided)

PMI: Monthly Fee

(if down payment is

less than 20%)

Rates Normally lower

rates

OccupancyOwner Occupied

only

Investment Option

Income Ratio Allows higher debt

ratios






























12

CHAPTER 7:

QUALIFYING FOR A MORTGAGE

There are 3 major factors in attaining a mortgage:

1. Income

2. Assets

3. Credit

INCOME:

The bank will verify your income and proof of employment in

order to make sure you are capable of covering the mortgage

payments, home owners insurance, property taxes, MI if applicable

along with your monthly expenses.

Income is the main factor in determining how much home you can

afford. Income used to qualify for a mortgage must have 2 years of

history, unless just graduated and the job is related to field of

study.


PRE

-QUALIFY

WWW

.MORESULT

.COM

ASSETS:

The bank will verify your assets chiefly to make sure you have

saved enough for the down payment. The minimum down payment

within the FHA program is 3.5% of the purchase price.

The more of a down payment you make the less of a risk you are




























13

and thus the bank will give you a lower interest rate.

Assets must have a full documented paper trail for 60 days. If youare using funds from a retirement account for the down payment

you will also be required to provide the Terms Of Withdrawal.

CREDIT

Lenders prefer borrowers with low balances, a long history of on-

time payments and a mix of credit utilization this would be

reflected within a good fico (credit score).

A good credit score is the most dominant determinant of your

mortgage rate & the higher your credit score is the lower your

interest rate will be. A credit score of 740 or more should qualify

you for the best

BLOG

Credit Tips: How to raise your score

WHAT IS CREDIT: A transaction based on a promise

An agreement for delayed payment of a loan or purchase

Best described as buy now & pay later or in installments



http://www.moresult.com/blog/credit-tips-how-to-raise-your-score-and-what-credit-is










14

CREDIT R EPORT

Information in your Credit

Report

Personal Identification

information

Your payment history

on accounts

Public records

Inquiries

Information NOT in your

Credit Report

Personal comments

from Creditors or debt

collection agencies

Your income

Payment history on

non-credit accounts

Criminal records

CREDIT SCORE

Credit Score: Number intended to measure how likely you are

to repay a loan. Scores range from 300 - 850 the higher the

score the better your credit is within the banks view.

Your fico Score: There are a total of 3 scores 1 from each

credit bureau which are:

Experian

Equifax

Transunion

Fico score is the one between the lowest and highest (the median

score)







15

Calculating your Score:

35% Punctuality of payment (pay on time) 30% Amounts owed (Balance no more than 30% of

credit limit)

15% Length of credit history (keep older cards active)

10% Types of credit used (mix of revolving and

installment debt)

10% Recent inquiries and accounts (limited credit

application)

WHO CAN SEE YOUR CREDIT

Your credit reports may be viewed by:

Anyone you authorize to review it

Lenders

Landlords

Employers

Insurance companies

Government agencies






























16

WAYS TO ORDER YOUR CREDIT REPORT

You have an option to a free credit report from each credit bureau

once every 12 months.

Ways to order:

1. Internet: 222.annualcreditreport.com

2.

Phone: 877-322-8228

Another option to find your score is to use

www.creditkarma.com it gives you two of your three

scores; it is also free and requires no credit card.



http://www.creditkarma.com/






























17

CHAPTER 8:

MORTGAGE PAYMENT

Elements of a Mortgage Payment:

Principal: The amount of money you actually borrowed

Interest: How lenders profit on the loan over time.

o Fixed: Interest rate stays the same through the loan

o Adjustable: Interest rate changes periodically.

May be lower than a fixed rate in the beginning but

is risky.

Taxes: Property Taxes

Insurance: Home Owners Insurance

PMI or MIP:

o Applicable to FHA loans

o Applicable to Conventional loans when down

payments are under 20%

Home Association (Maintenance) Fees:

o

Applicable to Condo’so Applicable to Co-ops (property taxes are usually

included within this fee for co-ops)






























18

HOW MUCH CAN YOU AFFORD?

General rule of thumb: Mortgage amount no more than 2.5

times gross annual income

Example $40,000 sustain mortgage of $100,000

$40,000 x 2.5 = $100,000

This equation isn’t written in stone and for this reason it’s

best to have a professional prequal i fy you.

R ATIOS: There are 2 ratios that have to be qualified for when

seeking a mortgage. These ratios are the:

Front End ratio

The Back End ratio

R ECOMMENDED EXPENSE R ATIOS

Housing Payment is your complete mortgage

payment with everything included

Front End

Ratio

(Housing Ratio)

=

Housing Payments

x 100Gross Household Income

Government Recommended Ratio: 31% or lower







19

Certain cases all ow a higher ratio

Back EndRatio

(Debt Ratio)

=Housing + Debt

Payments x 100

Gross Household Income

Government Recommended Ratio: 45% or lower

Certain cases all ow a higher ratio



HOMEOWNERS INSURANCE

Homeowners Insurance protects your home by covering

expenses faced if an unexpected crisis occurs. Your mortgage

lender will require you to purchase homeowners insurance as a

condition to receiving the loan.

Even after your mortgage is paid off, it is important to maintain

home owners insurance for your own protection.

Most Homeowners insurance policies include:

Property Damage

Personal Liability

Medical Payments

Living Expenses




























20

CHAPTER 9:

GLOSSARY

Note: A written promise to repay debt that includes terms of repayment.

Points: Fee 1 point equals 1% of the loan amount

Discount points: Fee for a lower interest rate

Loan To Value (LTV): The amount of the loan divided by the purchase

price (or value of the house if it’s a refinance)

Private Mortgage Insurance (PMI): Monthly fee if down payment is

less than 20% for conventional loans. Protects lender in case of default of

mortgage by the borrower due to risk

MIP: Monthly fee on FHA loans, but keep in mind FHA normally has

lower interest rates as well.

Amortization: a payment plan that enables you to reduce your debt

gradually through monthly payments.

Appraisal: Document from a professional that gives an estimate of a

property's fair market value also protects buyer from making a bad

investment.

Deed: Document that legally transfers ownership of property from the

seller to the buyer, it’s recorded on public record with the property

description and the owner's signature (also known as the title).

Rate Lock: a commitment by a lender to a borrower guaranteeing a

specific interest rate over a period of time.

Real Estate Agent: an individual who is licensed to negotiate and arrange

real estate sales

MORE TERMS AVAILABLE ON GLOSSARY

WWW.MORESULT.COM

http://www.moresult.com/residential-mortgage-glossary.html



http://c/Users/Mo/AppData/Roaming/Microsoft/Word/www.moresult.com














21

CHAPTER 10:

MORTGAGE DOCUMENT CHECKLIST:

Organize documents: When applying for a mortgage you must

document the below documents and include every page even the

blank ones

Purchasing a property can be a strenuous process, gathering your

documents in the beginning will save you a lot of time and stress.

BLOG: MORTGAGE DOCUMENT CHECKLIST

WWW.MORESULT.COM

Income

• 2 most recent Tax Returns

• 2 most recent W2's & 1099's if applicable

• 30 days of recent Pay Stubs

Assets

•60 days of recent Bank Statements

•Document any other Assets & Terms of

Withdrawal

ID

•Drivers License or Passport (any gov

photo ID)

•Copy of Social Security card


http://www.moresult.com/blog/how-to-buy-a-home-get-a-mortgage-step-by-step-guide

























22

CHAPTER 11:

E NTIRE PROCESS OF BUYING A HOME

• Complete Application with Loan Officer

• Fax or email documents from the DocumentChecklist

• Get Pre-Qualified with a loan officer

• With the help of a Realtor find your new Home andmake an accepted offer

• Sellers attorney will draw up the contract.• Terms of the contract will be reviewed by your

attorney after which you will sign and put down theearnest money (a portion of the downpayment)

STEP : PREPARATION

• File is processed and Docs are drawn up forsignature to submit the file.

• File is submitted along with your documents to the

bank.

STEP 2: ORIGINATION

• Approval is issued

• Income & Assets are verified

• Third party services are ordered such as Appraisaland Title

• Satisfy all conditions assigned by the Bank

STEP 3: UNDERWRITING

• Job is verbally verified and Credit ir reviewed tomake sure there are no changes

• File is cleared for closing

• Do a final walk through of the home

• Attorney will advise you on how much money youhave to bring to the table for the remainder of thedown payment and closing costs (if they were notrolled into the loan)

•

Close on your new home

STEP 4: CLOSING







23

CHAPTER 12:

BASIC R EQUIREMENTS & MISCONCEPTIONS There are a lot of misconceptions about how easy it is to obtain a

mortgage, the below most common issues will be addressed:

1. Down Payment

2. Credit

3. Income

1: DownPayment

Most borrowers falsely presume the down payment required to qualify for a mortgage isabout 20% of the purchase price, in actualitymost cases require 3.5% to qualify.

These funds can be from your own assets oreven from a gift through a family membersuch as a parent or sibling as long as norepayment is necessary, keep in mind acomplete paper trail is necessary for the fundsfor at least 60 days.

2: Credit

Score

Nearly half of all borrowers believe they needa credit score of 780 or more to qualify,fortunately they’re wrong.

In most cases a credit score of a 640 is morethan adequate to become a home owner.







24

3: Income

Allot of tenants think they can’t become homeowners because their income just isn’t

adequate enough. More often than not amortgage payment is extremely reasonableand can in fact be very close to how muchyou’re already paying in rent, keep in mindyour landlord likely uses your rent towards hismortgage payment.

A simple calculation is that your Total Incomea month should be double your total min debts(from credit) plus Mortgage Payment.

Bottom Line

If you want to find out if you qualify for a Mortgagecontact me and find out.



Mortgage Basics: The GuidebookBy: Mohamed T Gulamali

This E-Book is authored by Mohamed T Gulamali to help home

buyers get mortgage ready. As a leading voice in educating

buyers, Mohamed is proud to offer this material for free to anyoneto assist turn from renters into Home Owners.

Mohamed T Gulamali is a:

Licensed Mortgage Loan Officer NMLS ID 1128605

Licensed P&C Insurance license BR-117022

A professional Financial Blogger

Author

Mortgage Basics The Guidebook

Documents

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