Skip to main content
×

Welcome to Third Federal Online Banking.

Log In
mortgage-purchase--guide-v5_02

Whose House is This, Anyway? 

When buying a house, you need to determine who the legal owners of the house will be, who is going to be on the mortgage loan, and how the title will be held. Some spouses prefer not to be in title on their home, leaving the other spouse as the sole owner. This is sometimes done to limit potential liabilities of one of the spouses and protect the property from potential liens. Even if a spouse is not in title, they still have some property rights in most states. These are sometimes referred to as “homestead rights” or “dower rights.1”At least one person in title must also be an applicant on the mortgage loan.

Sometimes real properties are held in trust. A trust is a relationship where a person or company (the trustee) is under a legal obligation to deal with property owned by the trust (trust property) for the benefit of some other person or persons (beneficiaries) or for some specific purpose. People often place real property in trust to limit liability, avoid potential liens, or to purchase a home anonymously.

Bridge Loans

Bridge Loans

If you have significant equity in your current home that you’d like to use for the down payment on a new home, consider a bridge loan. Bridge loans are commonly used to buy a new home before selling an existing home. And once you do sell your current home, you can use the proceeds to pay off the bridge loan.
 

PMI Insurance

While lenders will make loans with a loan to value (LTV) as high as 95%, to offset risk, they often require private mortgage insurance (PMI) for any loans above 80% loan to value (LTV). PMI typically costs $40 to $80 per month.

LTV Based Rates

In addition to PMI, many lenders charge higher interest rates for loans with higher LTVs. Not Third Federal. We offer one rate. If you qualify, you get it — period.
Credit Score and Credit Report

Credit Score and Credit Report

Mortgage lenders evaluate your credit score and credit report to determine your credit worthiness. Many lenders then offer higher rates to borrowers with lower credit scores. Not Third Federal. We have one rate. If you qualify for a loan, that’s the rate you get.
 
Property Types

Property Types

Most mortgage lenders consider different types of property to represent different degrees of risk, and vary their product offerings accordingly. Common property types include:
Single-family residence (not attached to other property)
Condominium
Town house
Plan Unit Development (PUD)

Loan Amounts

Many lenders charge higher rates for higher loan amounts in order to hedge themselves against greater risk. That won’t happen at Third Federal. We offer the same rate, no matter how much you borrow. (Because you should never pay more for bulk.)


Closing Costs:

Closing costs are the costs paid by a buyer, or seller, or both, in order to purchase, sell or transfer real property. These closing costs are usually broken out into the categories below.

Escrow Deposits:

An escrow account holds funds that will be used to pay your real estate taxes and home owner's insurance. If your down payment is less than 30% of the purchase price, you’ll probably be required to set up an escrow account. You can also choose to set up an escrow account voluntarily. Escrow funds must be deposited by the time you close your loan.

Prepaid Interest:

Prepaid interest refers to a payment that covers the interest on your loan from the date of funding to the end of the current month. Prepaid interest is due at closing.

 
Mortgage Types: Which Loan is right for you?

Mortgage Types:

Which Loan is Right for You?


Adjustable Rate Mortgages

These allow you to combine a 15 or 30 year loan term with a shorter rate commitment. This allows you to amortize or calculate your payment over 15 or 30 years, keeping your monthly payment low but receive an interest rate commitment that's more appropriate for your situation. Adjustable rate mortgages are typically one to seven years of commitment, referred to as the initial rate period. After this period, adjustable rate mortgages reset annually Prime Rate minus 1.00%. The chart below outlines the most common adjustable rate mortgages.

 
 

Building a New Home

There are three types of loans commonly used to build a home.

1. Construction Loan:

Construction loans cover the home building time frame and are given to a customer who owns the lot and has signed a contract with a builder. You’re charged for interest on the amount that has been paid from the loan to your builder – this includes any loan funds that have been disbursed to pay closing costs, or to purchase or pay off a mortgage on your lot. Your construction loan will end when your home is complete and you will need to get permanent financing, which sometimes requires you to pay closing costs again.

2. Construction/Permanent Loan:

With a Construction/Permanent Loan the customer also typically owns the lot and the property during the construction phase. This loan offers a single loan for both the construction period and an ongoing mortgage once your home is completed. This type of loan automatically converts to a Permanent Loan without additional costs at the completion of the construction phase. The Construction/Permanent Loan can be either a fixed or adjustable rate of interest with basically the same terms and conditions as a Permanent Loan. It allows you and your builder up to twelve months to complete your home. During this construction period you will only be charged for interest on the amount that has been disbursed from the loan to your builder. Just like a construction loan, you will be billed for interest on a monthly basis. After your home is completed your loan will convert automatically to amortizing status and you will be responsible for payments of principal and interest on the funds the lender has loaned to you. There is no additional cost to convert your loan to a permanent loan status.

3. End Loan:

End loans are a form of permanent financing for people who are building a new home with a builder who will maintain ownership of the property until construction is complete. An end loan enables you to secure a loan and interest rate on your new home while it is being built. You make no payments for principal or interest until the title transfers to you.
mortgage-purchase--guide-v5_38
Tax Forms

Tax Deductibility

Interest on mortgages can be tax-deductible2, making these lending products very efficient forms of borrowing. Because of the tax-deductibility, the effective interest rate (or real cost to you) on these products is much lower than the actual rate charged by the lender.
 
 
Discount Points

Discount Points

Points are simply an optional method to buy down your interest rate. The cost of a point is equal to 1 percent of the loan amount that is due at closing. In exchange for paying this fee, your interest rate is reduced. Points are frequently tax-deductible and make most sense when you plan to stay in your home, or your loan, for at least 5 years.
 

Interest Rates, APRs, and Fully Indexed Rates

The interest rate is the actual rate that you pay and is used to determine your monthly payment. A lower interest rate means a lower monthly payment and lower interest expense.

The Annual Percentage Rate is a second rate that includes the effect of upfront closing costs, such as processing, appraisal, credit report, underwriting, loan origination fees and mortgage insurance premiums. Some costs are not included in APRs and different lenders calculate APR differently. APR also assumes that you will have the loan for the entire term, but most people sell or refinance before the loan matures. Consequently, the APR is not always the most accurate way to assess the total cost or all in cost of your mortgage or the best way to compare mortgages.

The fully indexed rate pertains to adjustable rate mortgages and estimates the future interest rate that a borrower will be charged after their adjustable mortgage resets. It’s calculated by adding a rate index, which is usually a commonly published benchmark for rates, such as the London Interbank Offered Rate (LIBOR) or the US Prime Rate. This index is added to a predetermined margin set by the lender and agreed upon in your loan note signed at closing. For example, Third Federal’s index is the US Prime Rate and its margin is minus 1.00%. So Third Federal’s fully indexed rate is Prime minus 1.00%. While the fully indexed rate may be the best approximation of the future interest rate at the time your adjustable rate mortgage is originated, interest rates fluctuate over time and your actual rate may be different then the fully indexed rate when it resets.

What’s the value of receiving a lower interest rate? If you find a lower rate—even just 1/4% or a 1/8% lower—you can save thousands of dollars over the life of your loan. The chart below shows the total cost of paying 1/8% higher rate over the life of your loan at various loan amounts3. Paying just 1/4% higher rate would be approximately double the cost.
 
Servicing Your Loan

Servicing Your Loan

It's a common practice in the mortgage industry for loans to be transferred or sold from one servicer to another. When this happens, your monthly payments are collected and processed by the new servicer and any questions or issues you have with your loan will also be handled by the new servicer. This can sometimes be problematic, especially when you are selling your house or refinancing your mortgage. When shopping for a loan, you may want to select a lender that services it's own loans.
 
Total Cost of Paying 1/8% Higher Rate
at Varying Loan Amounts
Varying Loan Amounts Graph

Rate Locks vs. Floating Rates

Since mortgage rates change daily, when you apply for a mortgage, you usually receive a rate lock or rate commitment equivalent to the lender's rate available on the date of application. That rate commitment is usually held for a specific number of days, usually until closing. This is meant to assure you a specific rate for when your mortgage closes, even if market rates have changed. Note: This does not guarantee that your loan will be approved or closed; it only means that, if approved, you have a specific rate commitment for a predetermined number of days.

While the intent of the rate lock is to make sure you are able to close with the application rate, if your rate lock is too short, this may not work out. Third Federal’s standard rate lock is 60 days. Most lenders offer a standard rate lock of 30 days but have longer rate locks available for an additional fee or increase in rate. When shopping for a loan it is important to make sure that your rate lock is long enough to cover you through your expected closing date.

Some customers prefer to take their chances that rates will be the same or lower when they get closer to closing. This is referred to in the mortgage industry as a floating rate. With a rate lock, the lender assumes the risk of rates changing between application and closing. With floating rates, the borrower assumes the risk of rates changing. Even with a floating rate, borrowers still have to lock in within 10 days of closing. A hybrid option that combines the best of both concepts is a rate lock with float down. Under this approach the customer has a rate commitment but if rates go lower before closing, the customer can receive the lower rate for free or for a nominal charge.
 

The Loan Process

mortgage-purchase--guide-v5_2624a407af94a96a379bb8ff0000576cff

Preapproval

We recommend that every buyer get preapproved even before shopping for a home. A preapproval lets you know the mortgage amount you qualify for and can be a great negotiating tool when you find the perfect home.

Loan Application

When you find a home, you and the seller will negotiate terms for the sale of the house. Items generally negotiated will be: purchase price, closing date and date of possession. These terms will be stated in a purchase agreement and signed by both parties. Once you have a signed purchase agreement, present it to your loan counselor. Your counselor will help you select the mortgage that best meets your needs. You will then complete a loan application.

You can apply for a loan in person, over the phone, or online. When you apply, you’ll need to provide income and asset documentation and verify your outstanding debts, and your lender will need to pull and review your credit. The process takes about 20 to 30 minutes. Most of the time when you apply for a mortgage you will receive an interest rate commitment (rate lock) at the time of application. This will protect you from a potential rate increase between the time you apply and the time your loan closes

Appraisal

After you apply, an appraisal of the property will be ordered to determine the property value. An independent licensed appraiser will perform this appraisal. They’ll look over the house and also consider sale prices of comparable houses in the neighborhood to determine an independent value of your new property.

Loan Approval

Once the appraisal is received, the loan file is submitted to the lender’s underwriting group. This group will review the file and make a determination on approval. Loan approval is usually obtained within three weeks of application.

Escrow: Title Work and Document Preparation

Escrow is the holding of funds and documents by a third party until all terms and conditions of a contract have been met. In a real estate transaction, a title company will hold the funds and documents until all of the instructions in the purchase agreement have been followed. The escrow agent has the obligation to safeguard the funds and documents and to disburse funds and convey title only until all provisions of the contract have been fulfilled. An escrow account will be established to hold funds, such as your down payment and the bank’s payment to the seller. The escrow agent will order a title exam to ensure that you’re receiving clear title to the property. Loan documents, like the mortgage note and deed, will be prepared for signing.

Signing/Closing

The documents will be sent to the escrow agent for both you and the seller(s) to sign. You will also bring any remaining funds that are due, such as the down payment, closing costs and evidence of homeowner’s insurance.

Title Transfer

Once all documents are signed and funds are collected, the escrow agent verifies that all conditions of the contract have been met, and the title is transferred. The loan generally closes the day after the title transfers, and funds are then disbursed to the seller. The entire process, from purchase application through closing, usually takes approximately 30 days. The title transfer and mortgage lien will be recorded at the county recorder’s office, usually within 90 days.

Loan Documents and Disclosures

The mortgage application and closing process includes numerous documents and disclosures that are presented to the borrower at various points in the process. The borrower must receive the first group of disclosures, sometimes referred to as “early disclosures,” within 72 hours of mortgage application. This includes the loan estimate and understanding your mortgage document. These documents summarize the loan you have applied for, and include loan amount, interest rate, term, loan type, and closing costs. The signing package includes the closing disclosure, loan agreement or note, and the mortgage (referred to as the “deed of trust” in some states). The note or loan agreement specifies the terms you are agreeing to as the borrower. It’s important to review this document because it specifies the loan terms that you are agreeing to as the borrower.

Tracking Your Loan Progress

Most lenders offer a service to track your loan status online from application to closing. At Third Federal, we offer an online loan status where you can check the status of your loan, view and sign loan documents, send documentation requested to process your loan, and view and print your appraisal.