* PITI = Principle, Interest, Taxes, & Insurance

(Ex. 4% interest rate for 3 years interest only then it would adjust 5% points to 9% full principle, Interest, Taxes & Insurance (PITI). This is called an Adjustable Rate Mortgage or ARM).

Here is what that math would look like on that same $200,000 home:

EXAMPLE: $200,000 principle with 100% financing = loan of $200,000 with a 3-year fixed loan at 5.5% interest:

* ITI = Interest, Taxes, & Insurance

When the loan adjusts on the 37th month of the loan, here is the math:

* PITI = Principle, Interest, Taxes, & Insurance

THE REALITY CHECK

• Your principle remained the same because you were only making interest payments for 3 years.
• You have no equity in the home because you put no cash down at purchase.
• If the house was appraised higher than what it is really worth or if the area home values fall for any reason in the first 10 years of the loan, you will be upside down in the loan. Meaning you owe more than what the house will sell for in the market.

OUTCOMES

If you can’t make the mortgage payment and have to sell your house you will likely receive less money than you owe the lender. Your bank will not renegotiate your loan. Then your loan is foreclosed on and you STILL owe money to the bank. Therefore:

• Your credit is ruined for at least seven years
• You are now seriously in-debt

What You Really Need to Know About Shopping for Mortgage Loans

Before applying for a mortgage, ask yourself these questions:

1. Is it better for me to purchase or rent?
2. Is my lifestyle conducive to home maintenance and yard work or would I rather not have to bother with the upkeep?
3. Will I get a big refund on my income taxes or will I have to pay at the end of the year?
4. How will I pay to replace my roof if it starts leaking? How will I pay for a new furnace if the heat stops working in the middle of winter? Will I have enough money after my monthly bills to cover unexpected expenses such as these?
5. Why do I want to own a home? Do I want to provide stability for me and my family or am I just trying to impress others?

Assuming you are still reading, you must be convinced that homeownership is still worth pursuing. With that in mind, here are the items you need to get and review before proceeding:

1. Get copies of three credit reports and scores for yourself and anyone else whose name will be on the loan. You can get these free (once per year and in some states twice per year) off the internet by going to www.annualcreditreport.com.
2. You should purchase your FICO score or credit scores from all three credit agencies. The cost for each is generally under $15.

STOP!!!! If your average credit score (add all three scores and divide by 3 to get the average) is under 660 you have some credit challenges that may need to be corrected before proceeding.

The higher your credit score, the lower the interest rate you will pay for the money borrowed.

3. Your monthly budget with all income and expenses (including entertainment such as movie rentals, eating out, etc. as well purchases such as cigarettes, alcohol, etc.) Your current monthly expenses should not exceed more than 33% of your gross monthly income.

STOP!!!! If your expenses exceed 33% of your income you may need to wait until you can pay off some of your debt before proceeding with a mortgage loan application.

4. Social Security numbers of all loan applicants
5. Your complete addresses for the past 2 years (if renting the complete name and address of landlords for past 2 years)
6. Employer names, addresses, and gross income earned for all applicants over the previous 24 months (two years W2’s or 1099’s are preferred)

STOP!!!! If you don’t have or can’t get proof of your income for the past 24 months, you are going to be a prime candidate for a Sub-Prime Mortgage Loan.

That means you will pay:

• highest interest rates
• more in up front points
• higher fees
• higher pre-payment penalties

This doesn’t mean you will not get a loan, it simply means you REALLY need to read and understand this guide so you can get the best loan possible and not get into a bad, very costly loan.

1. Copies of previous two years tax return forms (have all forms and schedules available, and in order)
2. Copy of last two most recent year-to-date pay stub
3. Name, address, account number, monthly payment, and current balance for: installment loans, revolving charge accounts, student loans, mortgage loans, and auto loans (though the loan originator or broker will pull your credit, that information may not be current)
4. Name, address, account number, and balance of all bank and/or brokerage deposit accounts, including: checking, savings, stocks, bonds, 401K, 403B, etc.
5. Three months most recent statements for all bank and/or brokerage deposit accounts as listed in #7
6. If you choose to include income from Child Support or Alimony, you’ll need copies of the court orders. Make certain support shows up on the bank statements for verification if you receive it monthly.