SELECTING A MORTGAGE LENDER

1. Choose a Mortgage Company: Securing finances to purchase your central Florida home requires a decision that you may have to live with for many years, so spend time comparing the terms and conditions of different lenders, before making your choice. There are a number of ways to find a willing lender, whether through traditional print ads, Realtor referrals or Internet sources. There are also several considerations to keep in mind when shopping for the right lender and program:

• Price - Consider the competitiveness of a lender's terms with that of others, especially for mortgage rates, interest rates, and additional closing costs and points.
• Diversity of products available - Price is important but by no means should it be your only determining factor. How extensive is the lender's range of offered loan programs? Check the availability of the loan program most appropriate to your credit profile and property.
• Rapport - Do your lenders and brokers communicate effectively and thoroughly? Are they attentive and prompt? You are looking for someone you can work with and trust every step of the way.
• Connections - Check whether the lender has access to local loan approval committees that understand your goals as a borrower.

2. Choose a Loan: Though there are many different kinds of loans available today, these three are the most commonly used:

• Fixed loan - This long-term option requires monthly payments that will remain the same (fixed) throughout the duration of the loan. The loan term may vary from fifteen to thirty years.
• Adjustable rate mortgage (ARM) - The loan rate here will be determined by factors such as the Federal Funds rate index, readjustment intervals, and capitalization rate. The initial interest rate can be as much as 2 to 3 percent lower than a comparable fixed rate mortgage. This can make homeownership more affordable. However you should first examine all factors and consider the downside risks before selecting this option.
• Hybrid loan - Also known as an intermediate or convertible ARM, it offers a fixed interest rate for a specified initial period before it 'switches' to an ARM and adjusts with the market every six months or every year thereafter.

Consult with your mortgage lender to determine which loan type and program would best correspond with your resources and needs.

UNDERSTANDING FINANCING

Don't be intimidated by the jargon used in financing. Here are a number of key terms you will encounter frequently in your loan application process:

• Credit Report - Request your lender to order one from a third party credit agency such as Equifax, Experian or Trans Union. A credit report should contain information on all your outstanding loans and repayment history, and will typically cost under fifty dollars.


• Application/processing fee - This is the lender's fee for determining your capacity as a borrower and will usually be charged upon closing of the loan. Expect a price tag of a couple of hundred dollars.


• Annual percentage rate (APR) - The APR expresses the sum total of all your borrowing costs as a interest rate percentage charged on the loan balance.


• Indexes - Changes in indexes such as the Federal Funds Rate and the Treasury Bill are used to periodically readjust the interest rates in adjustable rate mortgages (ARMs).


• Points - When mortgage companies are competing by offering lower interest rates, they may charge you a "point", a one-time pre-paid interest fee, calculated as a percentage of the loan. Points are considered part of the cost of credit to the borrower, and part of the investment return to the lender. They may range from 0.25% to 2% of the loan balance, and are usually paid up front. One point equals 1%.


• Appraisal cost - This is the fee charged by an independent appraiser who may be hired by your lender to evaluate the property's purchase price, condition and size in relation to similar recent neighborhood sales. This information is necessary to the lender because it ensures repayment in case the borrower defaults, forcing the lender to sell the property.


• Miscellaneous fees - Various costs can be incurred during the processing of your loan request, such as notary, courier, county recording fees and title company escrow fee.


• Pre-payment penalties - A prepayment penalty is a provision of your contract with the lender that states that in the event you pay off the loan early, you will pay a penalty. Penalties are usually expressed as a percent of the outstanding balance at time of prepayment, or a specified number of months of interest. They often decline or disappear altogether with the passage of time.

RECEIVING PRE-APPROVAL

How is pre-approval different from pre-qualification? What are the advantages of each, and which option would be the best for you?

• Pre-Qualification: - This is an assessment by the lender, based on certain basic information given by the borrower (e.g. employment, income, asset information, current monthly debt, and credit worthiness). Based on this quick evaluation the lender makes a tentative decision to pre-qualify the borrower for a certain loan amount. This does not commit the lender to a loan, rather it is only an opinion of the lender.
• Application/processing fee - This is the lender's fee for determining your capacity as a borrower and will usually be charged upon closing of the loan. Expect a price tag of a couple of hundred dollars.
• Annual percentage rate (APR) - The APR expresses the sum total of all your borrowing costs as a interest rate percentage charged on the loan balance.

LOAN APPLICATION & PROCESSING

1. Brokers and Lenders: The lender or creditor is the party who 1) disburses or provides funds to the borrower at the end of a successful loan application process, and 2) receives the note attesting the borrower's obligation to repay. The broker, meanwhile, acts as an intermediary between the borrower and the lender and serves as the applicant's main contact throughout the process. The mortgage broker usually receives a service fee from the lender for customer services rendered.

2. Loan application forms: Most loan application forms can be downloaded from a lender's website. Fill out all forms accurately and completely, and contact your lender for any questions or clarifications.

3. Documentation: Keeping your Papers in Order. It is highly recommended to keep an organized file containing both originals and copies of all documents accumulated throughout the entire application process, including:

• 2 years of W-2 forms from your employer, or 2 years of tax returns for those who are self-employed
• Recent pay stubs
• 3 months of bank and money market statements
• Brokerage, mutual fund and retirement account statements
• Proof of other income sources (alimony, trusts, rental income, etc.)
• Credit card statements
• Auto / boat / student / miscellaneous loans
• Drivers' license or form of ID
• Copies of visa or green card (for non-US citizens)
• Copies of existing mortgage debts (for those applying for a home equity line of credit or another mortgage)

4. Underwriting: Underwriters, hired by lenders, are analysts who examine all the data from a borrower's property and transaction, and ultimately determine whether or not mortgages should be issued to the applicant. Loan approval committees will use underwriters' reports during their deliberations to evaluate the property and the applicants' creditworthiness. Your broker may contact you frequently in the course of the loan application process, so prompt communication is necessary to keep the process running smoothly.

FUNDING

1. Signing: Once you have received approval from your lender to close or fund your loan, the signing can begin. Before this happens, be sure to verify and finalize all the documents, and to supply any additional requirements - such as photo IDs or cashiers' checks. The final loan documents are usually signed in the presence of a notary, at the offices of a title company.

2. Wiring Funds: Your down payment is either automatically deducted or wired-in the latter case, the money is electronically transferred between financial companies. Make sure that the wiring instructions, as well as all important numbers must be clarified and checked for accuracy by both parties.

Congratulations, your Orlando home loan is now funded! Tie up any loose ends by confirming the money transfer with your broker and filing all pertinent documents of the transaction.