FIRST-TIME HOMEBUYER’S GUIDE
All you need to know about the home-buying process
PURCHASING YOUR FIRST HOME?
A house is probably one of the biggest purchases you’ll ever make. At Carroll Bank & Trust, we strive to make this a great experience. Our team of loan officers are here to guide you in each step of the transaction.
Purchasing a home loan doesn’t have to be intimidating – especially when you understand the basics! We have developed this guide to help you understand the different mortgage loan types available and the steps you will take along the way to purchasing a home!
WHAT IS A CONVENTIONAL LOAN?
A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. Instead, the loan is backed by private lenders, and its insurance is usually paid by the borrower. When you meet with a lender, they’ll ask for documentation such as recent paystubs, tax returns, bank statements, and other financial information. They want to make sure you have a steady income and can make your monthly mortgage payments on time. You will also need a down payment to qualify for a conventional loan.
CONVENTIONAL LOAN BENEFITS
◌ Fast loan processing
◌ Low interest rates
◌ Reduced PMI
◌ Down payment options
◌ Various term lengths
WHAT IS AN FHA LOAN?
An FHA loan is a type of loan from the Federal Housing Association backed by the U.S. Department of Housing and Urban Development. FHA loans are helpful for buyers with limited savings or lower credit scores.
You’ll need to satisfy a number of requirements to qualify for an FHA loan. It’s important to note that these are the FHA’s minimum requirements, and lenders may have additional stipulations.
CREDIT SCORE
The minimum credit score for a FHA loan is 600.
DOWN PAYMENT FUNDS
If you have a credit score of 600 or higher, your FHA down payment can be as low as 3.5%.
DEBT-TO-INCOME RATIO (DTI)
The FHA requires a DTI of less than 50, meaning that your total monthly debt payments can’t be more than 50% of your pretax income. This includes debts that you aren’t actively paying. For student loans in deferment, your FHA loan underwriter will include 1% of the loan’s total as the monthly payment amount.
FHA LOAN BENEFITS ◌ Low closing costs ◌ Assistance to avoid foreclosure ◌ Down payments as low as 3.5% ◌ Various term lengths
ADDITIONAL REQUIREMENTS
The home must be appraised by an approved appraiser.
The home will be your primary residence.
You must occupy the property within 60 days of closing.
The property must meet HUD minimum standards.
WHAT IS A VA Loan?
A VA loan is a mortgage loan that’s issued by private lenders and backed by the U.S. Department of Veterans Affairs. It helps U.S. veterans, active duty service members, and widowed military spouses buy a home. This type of loan doesn’t require a down payment.
VA LOAN REQUIREMENTS
In order to be approved for this loan, military personnel have to meet the VA’s specific service requirements.
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You’re an active duty service member or an honorably discharged veteran who had 90 consecutive days of active service during wartime or 181 days of active service during peacetime.
Or, you’re a National Guard member with at least 90 days of active service, including at least 30 consecutive days under Title 32, Sections 316, 502, 503, 504, or 505.
If you were to go through the application process, you would need a Certificate of Eligibility (COE) to show mortgage lenders that you qualify for a VA loan. You can apply for a COE through the VA website, by mail, or through your lender.
Mortgage Guidelines VA LOAN BENEFITS
NO PREPAYMENT PENALTY
NO BORROW LIMITS
NO PMI
NO DOWN PAYMENT
MINIMUM CREDIT SCORE
Applicant must have a decent credit score and sufficient income to purchase a home. The financed home must serve as the primary residence.
CREDIT SCORE REQUIREMENTS
The minimum credit score to qualify for a VA loan is 600. It requires a lender to "review the entire loan profile to make a lending decision.”
VA LOAN DEBT-TO-INCOME RATIO
The VA also doesn’t specify a maximum debt-to-income ratio. But if the total debt-to-income ratio is over 41%, lenders will need to provide proof of an applicant’s ability to repay the loan.
DOWN PAYMENT REQUIREMENTS
Under most circumstances, you don’t need to make a down payment. However, if the purchase price of the home is greater than its appraised value, you may have to make up a portion of the difference. The VA funding fee is a one-time payment that the veteran, service member, or survivor pays on a VA-backed or VA-direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. This can be financed. Some veterans may be exempt from paying this fee; the COE will determine this.
VA FUNDING FEE
WHAT IS A USDA RURAL DEVELOPMENT GUARANTEED LOAN?
The USDA Rural Development Guaranteed Loan is a mortgage loan backed by the U.S. Department of Agriculture. This lending program allows low- and moderate-income buyers the opportunity to own a good home in eligible rural areas with 100% funding.
IN ORDER TO APPLY FOR A USDA RURAL DEVELOPMENT GUARANTEED LOAN, YOU MUST:
◌ Meet income-eligibility (cannot exceed 115% of median household income)
◌ Agree to personally occupy the dwelling as your primary residence
◌ Be a U.S. citizen, U.S. non-citizen national or qualified alien
◌ Be purchasing a home in an eligible rural area
For over 100 years, CB&T has been serving the customers of West Tennessee. We are thankful for the trust that has been placed in us, and we strive to continue to earn that trust daily. We believe in treating people the way we want to be treated. We believe in delivering excellent service and, in doing so, adding value to the lives of our customers,
communities, and shareholders. ~ Mike Cary , President and CEO
Once you decide you’re mentally, emotionally, and financially ready for homeownership, it’s a good idea to check your credit score, as it will largely determine the terms of your mortgage. If your credit score is lower than you’d like, due to missed payments or maxed out cards, it’s in your best interest to put off purchasing a home until your credit score rises.
TIME TO EARN SOME EXTRA CREDIT
With a few strategies and a commitment to smart money management, you can boost your score and save yourself a lot of money in the long run. Just follow these tips:
FIND YOUR SCORE.
Determine your credit score by obtaining a free credit report from one of the three main credit bureaus. Visit annualcreditreport.com or call 1.877.322.8228. Credit scores range from 300 to 850; a score around 700 is considered good, while anything above 720 is excellent. A score below 620 is generally considered poor. Once you know your starting point, you can create a goal credit score and map out a plan of how you will get there.
PAY DOWN YOUR CREDIT CARD BILLS.
DON’T CLOSE OLD ACCOUNTS.
A part of your credit score comes from how long you’ve had credit, and the longer a card is open, the higher your score will be. Keep old accounts open; they can help boost your score and balance out newer lines of credit.
Start by paying down your card with the highest interest rate first, and aim to get all balances below 50% of your credit limit. Since 33% of your credit score is based on the amount you owe, work on relieving your debt in any way that you can.
DON’T OPEN NEW CARDS THAT YOU DON’T NEED.
Avoid opening new cards at department stores or gas stations for one-time promotional discounts. New cards carry 10% of your credit score, and can bring down the average age of your credit, lowering your score even more.
Glossary OF COMMON HOME-BUYING TERMS
• A djustable-Rate Mortgage: An adjustable-rate mortgage (ARM) features interest rates that can increase or decrease in predetermined increments (based on market rates) after an initial fixed- rate period. • Appraisal: An appraisal is performed to determine a property’s market value. Appraisals are required by lenders before they provide financing to ensure that the home is worth the agreed- upon sales price. • C losing costs: These are fees you must pay when you close on a home. Expenses that may be covered in your closing costs could include attorney’s fees, the appraisal fee, recording fees, and more. • Contingencies: Contingencies are conditions outlined in a home offer that must be met before the buyer and seller are legally obligated to proceed with the sale. Two of the most common contingencies are financing contingencies and inspection contingencies. • D own payment: A down payment on a home is the portion of money you pay upfront. A 20% down payment is ideal, but may not be required. • E arnest money: This is a deposit given to the seller by a prospective buyer to show he or she is committed to purchasing the home. If the sale goes through, this money will be applied to the buyer’s down payment or closing costs. • Escrow: Escrow refers to the money or documents related to the purchase of a home that are held by an impartial third party until all conditions are met. • F ixed-Rate Mortgage: With this type of mortgage, the interest rate is fixed for the life of the loan – allowing for easy budgeting since the monthly payment amount does not change. • H ome inspection: The purpose of a home inspection is to determine the condition of a home before the buyer takes ownership. The inspector performs a visual examination of the home and provides the buyer with a written report of his or her findings.
• Maturity date: The maturity date of a mortgage refers to the date when the final payment is due.
• PITI: This acronym stands for Principal, Interest, Taxes and Insurance – the four components that typically constitute a monthly mortgage payment.
• Title: A title is a legal document that provides proof of an individual’s ownership of a property.
CONTACT US 800-684-0010 www.carrollbank.com
LOCATIONS
Bradford Branch 133 E. Main Bradford, TN 38316 731-742-2221
The Huntingdon Office 19510 W. Main Huntingdon, TN 38344 731-986-4401 McKenzie Branch 14950 S. Highland Drive McKenzie, TN 38201 731-352-2282 McLemoresville Branch 5626 Main Street McLemoresville, TN 38235 731-986-4805
Camden Branch 102 Highway 641 N. Camden, TN 38320 731-584-2909
Paris Branch 902 Mineral Wells Avenue Paris, TN 38242 731-642-6363 The Investment Center Located at Carroll Bank & Trust 19510 W. Main Huntingdon, TN 38344 731-209-1612
Eastside Branch 20515 E. Main Huntingdon, TN 38344 731-209-1640
Milan Branch 4105 S. First Street Milan, TN 38358 731-686-2026
ATMs are also available at each branch location.
Carroll Bank & Trust is an Equal Housing Lender. Loans are available on a fair and equal basis regardless of race, color, national origin, religion, sex, handicap, marital status, familial status. All loans are subject to credit approval and underwriting approval and programs may change at any time. NMLS# 401724
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