What Should I Know Before I Start?

Standing In The On-Deck Circle

What is a home loan toolkit?

The toolkit helps you calculate how much you can afford for a home, gives you questions to ask your lender, and features worksheets and checklists to fill out during the process. Home Loan Toolkit (download)

Who created home loan toolkit?

The home loan toolkit was created by the Consumer Financial Protection Bureau (CFPB). The CFPB is a 21st century agency that implements and enforces federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive.

What does home loan toolkit contain?

Your home loan toolkit: A step-by-step guide is a concise booklet that guides home buyers through the home loan process. Contains interactive worksheets, checklists, research tips, terms, and conversation starters to help home buyers shop with confidence for the home loan that suits their needs.

What law requires home loan toolkit?

Regulation X – Real Estate Settlement Procedures Act (12 CFR 1024) requires the lender provide the booklet to each person from whom the lender has received an application for a mortgage loan. The lender has THREE business days from the completion of a mortgage application to provide the buyer with the home loan toolkit.

What are the FOUR C’s for qualifying for a mortgage?

Capacity, Capital, Collateral and Credit.

Capacity To Pay Back The Loan

Lenders look at your income, employment history, savings and monthly debt payments, and other financial obligations to make sure you have the means to comfortably take on a mortgage.

One of the ways that lenders verify your income is by reviewing several years of your federal income tax returns and W2s, along with current pay stubs. They evaluate your income based on:

• • The source and type of income (e.g., salaried, commission or self-employed)
  • How long you’ve been receiving the income and whether it’s been stable
  • How long that income is expected to continue into the future

Lenders will also look at your recurring monthly debts or liabilities, such as:

• • Car payments
  • Student loans
  • Credit card payments
  • Personal loans
  • Child support
  • Alimony
  • Other debts that you ‘re obligated to pay

Capital

Lenders consider your readily available money and savings plus investments, properties and other assets that you could access fairly quickly for cash.

Having money saved or in investments that you can easily convert to cash, known as cash reserves, proves that you can manage your finances and have funds, in addition to your income, to pay the mortgage. Cash reserves might include:

• • Savings
  • Money market funds
  • Other investments that can be converted to cash, such as Individual Retirement Accounts (IRAs), Certificates of Deposit (CDs), stocks, bonds or 401(k) accounts

Along with cash reserves, other acceptable sources of capital might include:

• • Gifts from family members
  • Down payment or closing cost assistance programs
  • Grants or matching funds programs
  • Sweat equity

When you apply for a mortgage, the lender may need to verify the source of any large deposits in your bank account to ensure they’re coming from an allowable source. That is, that you obtained the money legally and that it was not loaned to you.

Lenders may also look at the last two months of statements for your checking and savings accounts, money market accounts, or investment accounts to evaluate how much capital you have.

Collateral

Lenders consider the value of the property and other possessions that you’re pledging as security against the loan.

In the case of a mortgage, the collateral is the home you ‘re buying. If you don’t pay your mortgage, the mortgage company could take possession of your home, known as foreclosure.

To determine the fair market value of the home you’d like to buy, during the homebuying process your lender will order an appraisal of the property that compares it to similar homes in the neighborhood.

Credit

Lenders check your credit score and history to assess your record of paying bills and other debts on time.

Many mortgages also have minimum credit score requirements. In addition, your credit score could dictate the interest rate that you get and how much of a down payment will be required.

Even if you are a renter, or don’t have plans to buy right now, it’s a good idea to get smart about credit and know ways you can build and maintain strong credit health.