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Demystifying Your Home Loan Options

There’s a home loan solution for just about any need whether you are a first time homebuyer or have less-than-perfect credit.


Types of Home Loans
• • • • • • • • • • • • •

What’s right for you?

There are usually other fees included as part of buying a home, called closing costs. Closing costs vary, but usually include:
Loan application fees and credit report fees Title search and insurance fees Lender’s attorney fees Property appraisal Inspections Survey Recording fees Transfer taxes Buyer’s attorney Documentary stamps on new note Points and origination fees Condominium application fee Escrow account balances/prepaids

There are many types of home loans available today. Whether you’re buying a home or looking for a better home loan program to get cash fast, consolidate debt or save money, there are options available.

You are notified of these costs upfront in what’s called a Good Faith Estimate — a written estimate of closing costs which a lender must provide you within three days of submitting an application. Closing costs may also be rolled into the total loan mount, so you have little to no out-ofpocket costs.

First Mortgage

When buying a home, borrowing money from a lender to purchase it is usually a part of the process. The first position home loan taken out on a property is called the first mortgage. When you take out a home loan or first mortgage on a property, you agree to pay the lender back over a certain period of time and pay interest charges.

Home Equity and Second Mortgage

The 2nd Mortgage, also referred to as a home equity loan, is usually a second loan taken out on a property. This loan option allows homeowners to use the available equity in their home — the difference between the current market value of the home and the amount still owed on it— as collateral to guarantee the loan will be repaid.


A second mortgage can be ideal for borrowers who need a set amount of cash to consolidate debt and other high interest debt. A second mortgage or equity home loan is also commonly used for:
• • • • • • • • Home improvement or repairs Buying a new or used vehicle School tuition and college costs Medical bills Weddings Vacations Start a business Other large purchases as investments, such as a boat, RV or even land


This is when a mortgage is “rewritten” on a property with terms that are generally more favorable to you, the borrower — usually a lower interest rate and lower monthly payments. This new mortgage pays off your existing mortgage and becomes the current mortgage on the property. Many homeowners refinance to get cash to consolidate debt into a low-interest, cash-out refinance home loan and eliminate high-interest debt and other loan payments.** With a cash out refinance loan you refinance your mortgage for more than you currently owe (up to the available equity you have in your home), and get cash back for the difference. You can then use that cash to pay off your other debt or for anything else you need —home improvements, a new vehicle or medical or education expenses. Other considerations before you refinance your existing home loan include:
• Closing costs can usually be rolled into your new mortgage balance, so usually there’s little or no cash needed to refinance • You could get a lower interest rate than on your original loan if your finances have improved or interest rates have gone down • Interest payments, as with all home loans, are tax deductible in most cases*

Home equity seconds can also offer financial and other benefits including:
• Lower interest rates than other forms of borrowing, such as credit cards, personal loans or auto loans • Flexible, easy ways to access the cash when you need it • Usually little paperwork needed • Interest payments are tax deductible in most cases*

* Please consult your tax advisor ** Refinancing or taking out a home equity loan or line of credit may increase the total number of monthly payments and/or the total amount paid when compared to your current situation.


Home Loan Terms
What they are and why they’re different
with a lower interest rate than fixed-rate mortgages. The drawback is that the rate does fluctuate. So if rates are going up, your ARM rate — and therefore, your payment — will likely, too. While many informed borrowers use ARMs as a versatile financial tool, this loan program may not be right for everyone. There are many benefits associated with this loan, but it is very important that you understand the risks as well.

Interest-Only Mortgages
Whether you have a first mortgage, second mortgage or are refinancing your existing mortgage, the terms of your home loan are an extremely important consideration. The terms of your mortgage generally determine how much interest you pay and the amount of time it will take to pay off the loan — typically 15 or 30 years. The most common loan terms include:

An interest-only mortgage allows you to pay only your home loan’s interest charges each month for a designated amount of time. After that period of time is up, your mortgage payments will include both interest charges and a portion of your balance (called the principal). This usually means a much higher payment. Many homeowners like the flexibility of interest-only mortgage loans because paying only the interest on the mortgage, means they can reduce their monthly mortgage payment and have more funds available for other needs. The interest-only loan does not come without drawbacks. While many informed borrowers may find the interestonly loan to be a versatile financial tool, this loan program may not be right for everyone. There are many benefits associated with this loan, but it is very important that you understand the risks as well. An obvious advantage of the interest-only loan is that your minimum monthly payments are lower.

Fixed-Rate Mortgages

A fixed-rate mortgage is a home loan option with an interest rate that’s fixed — in other words, it does not change for the life of the loan. These mortgages have the same payment every month and protect you from rising interest rates.

Adjustable Rate Mortgages

Adjustable Rate Mortgages (also called ARMs) offer an interest rate that changes periodically — typically every six months to a year, depending on your personal loan terms. One great benefit of ARMs is that they usually start off


However, you need to think carefully about always paying just the minimum interest-only payment since it will result in your principal loan balance staying the same, that is, it will not go down. This could be dangerous if your home does not appreciate in value or actually depreciates in value because you could then owe more than your home is worth. So before choosing an interest-only loan, it is important to consider how your situation will change:
• Will you sell after the interest-only period? • Do you expect to have a higher income after the interest-only period? • Will you plan to refinance before the interestonly period ends? • Do you live in an area where homes are appreciating or depreciating?

After that, the loan becomes an ARM, with the rate adjusting up or down every six or twelve months.

Should you consider a Hybrid?

This type of home loan is very attractive to the homebuyer who will only live in a home for a few years or plan to refinance before the fixed period ends. So, like with an interest-only mortgage, you should ask yourself:
• Do you plan to move before the adjustable-rate kicks in? • Do you expect to have a higher income after the fixed period? • Do you intend to refinance before the fixed period ends?

Hybrid Mortgages

A hybrid mortgage (sometimes called a two-step or combination rate mortgage) is a combination of a fixedrate mortgage and an adjustable rate mortgage (ARM). The initial rate on a hybrid may be fixed for the first three, five, seven or 10 years of the loan period.

Whether you choose to take a hybrid mortgage or go with a standard fixed mortgage, make sure you understand the terms before you sign, such as the beginning and end dates of each period and what the “cap” (or maximum amount) is on your loan rates.

Interest Rates
How are they determined?
Home loan lenders charge borrowers interest to borrow money from them. The interest rates that lenders can charge are determined by the Federal Reserve Board or Fed, a government-sponsored board that monitors the nation’s economy and sets interest rates to help control it. Read on to learn how rates for fixed-rate mortgages and ARMs are determined. When you lock in to a fixed-rate mortgage, you’ll enjoy a predictable monthly payment that will not increase or decrease over the life of the loan.

ARMs and Interest Rates

Fixed-Rate Mortgages and Interest Rates

Fixed-rate mortgages carry a stable interest rate that is usually based on Prime Rate. Prime rate is the Fed-set benchmark lenders usually use to determine what they will charge their borrowers.

The interest rate on ARMs change over time, depending on the terms of your loan. ARMs usually offer a low introductory interest rate and lower mortgage payment at the beginning. ARMs then adjust every 6 or 12 months, depending on the index on which it is based.


Shopping Around for a Home Loan
Rates, lenders and conditions are not always what they seem. It’s important to compare both bottom-line dollars and cents, as well as the lender behind the money so you can be assured you’re working with a lender who will look out for your best interests — not their own.

The Intangibles:

Consider these questions to narrow the list of lenders.

1. Who will service my loan?

Often the company initially quoting you rates on a home loan is only a broker or middleman who represents — or will sell your loan to — other banks or lenders who actually “service” the loan throughout its term. In fact, your loan may be sold to other lenders more than once, leaving you with the uncertainty of who to make monthly payments to, where to send correspondence, new account numbers and knowing whether or not payments have been correctly applied to your loan. Also be sure to ask about the service hours (can you reach them 24/7?), the service convenience (are there phone and Internet options?) and how qualified and empowered the customer service representatives are (can they make decisions and help solve your issues without transferring your call several times?).

3. How big is the institution behind my loan?

Many companies jump into the home loan market when rates are low and loan applications are plentiful, only to disappear and “sell” their loan portfolios when the opportunities tighten up. At any given time there are several newcomers making lots of “noise” about getting you a great loan. For a lender to stay in business for the long run, however, it takes expertise, experience and resources. Also ask about how many states the company is licensed in and how long they’ve been in business to better judge their experience.

2. How many applicants are approved?

Nobody likes rejection, especially when you’re working hard to find financial solutions. You want to work with a bank that understands the needs of both prime and non-prime borrowers (those with less-than-perfect credit). Ask about the historical approval rate for both categories, as some larger banks don’t even offer non-prime loans.

Consider the Facts:

Once you’ve narrowed the list of lenders, you’ll want to compare the loan options, taking the upfront, monthly and long-term costs into consideration. Use these Home Loan Bid Tools on the next page to help you compare the details.


Adjustable-Rate Mortgage (ARM) Loan Bid Tool:
Lender Name Date Phone number Contact person Program name Starting interest rate Index used for future rate determination Margin Periodic rate cap___% every__months___monthly payment may increase $__every___months Lifetime interest rate cap ___%, which translate into a $ ___monthly payment Negative amortization Points Fees Application and processing Credit report Appraisal Other Loan-to-value ratio allowed Loan amount allowed Term (number of years) Prepayment penalties Lender 1 Lender 2 Lender 3


Fixed-Rate Mortgage Loan Bid Tool:
Lender Date Phone number Contact person interviewed Loan program name Estimated monthly payment Rate lock terms Interest rate Points Fees Application and processing Credit report Appraisal Other Loan-to-value ratio allowed Loan amount allowed Term (number of years) Prepayment penalties Assumability Lender 1 Lender 2 Lender 3

Less-than-perfect credit? No problem.
There are a wide range of home loan solutions including fixed-rate mortgages, ARMs and home equity loans that may help you. With the right solution you may gain a budget-friendly way to rebuild credit, consolidate debt and get control of your finances.


Home Loan Checklist
Property Verification m Fully executed copy of purchase agreement m Legal description of property being purchased m Copy of listing sheet or property information sheet m If you are selling a home, you need to provide a
fully executed contract of the sale and a copy of the HUD-1 closing statement m Schedule of real estate owned, including name of lender, account number and original purchase price

Income Verification m Names and address of all employers for the last two
consecutive years

Other Documentation m A list of your addresses of residences for the last
two years

m W2s for the last two years m Pay stub(s) for the last 30 days
If you are self-employed, you need to provide: m Year-to-date profit m Signed tax returns for the last two years

m If you were a full-time student in the past two years,
a copy of your diploma or transcript m Social Security Number m Relocation agreement (if you were transferred into the area) m Check for the application fee (if required) m If you are not a resident of the United States, evidence of permanent residency issued by the INS (a green card or other documentation) m Names, addresses and phone numbers of parties involved in transaction

Asset Verification m Gift letter if you are receiving a monetary gift
from someone m Bank statements, including checking and savings accounts m Credit unions m Mutual Fund accounts m IRA, 401(k) accounts m Title of any car you own

Debt Verification m The most recent credit card statement, including

name of the creditor, addresses, account number and balance m Car loans m Outstanding student loans m Credit card accounts m Documentation of current mortgage or home equity loan (if applicable) m Name and address of present landlord m A copy of any divorce decree or separation agreement (if applicable) m A copy of bankruptcy proceedings (if applicable)


Countrywide Wants to Help You!
4 Out of 5 Home Loans Approved ‡
Our home loan experts are in the business of saying, “Yes”. We have approved 4 out of 5 home loan applicants‡ and can work with you to find a suitable solution. Personal Loan Consultants are available now and can explain the many types of flexible home loans that may meet your needs today — and in the future.

Within minutes, a Countrywide home loan expert can:
• Run your credit and obtain your Personal Credit Score • Explain home loan options • Estimate the equity available in your home • Calculate your monthly payments before and after the recommended loan • Estimate costs and fees and whether they can be roiled into the loan • Provide an estimated closing date

Countrywide: America’s #1 Home Loan Lender

When you work with the Countrywide family — America’s #1 home loan lender^ — you have access to more loan options. Plus, our national presence makes it easy to visit a local branch for a one-on-one discussion with a Personal Loan Consultant. You can also advantage of our home loan resources and convenient home loan terms. Just think, in no time you could be on your way to rebuilding credit and financial peace of mind.
‡ Based on the number of applications submitted and approved. ^ As ranked for 2005 by Inside Mortgage Finance (Jan. 27, 2006). © 2006

Countrywide Bank, FSB and Countrywide Home Loans, Inc. are Equal Housing Lenders. © 2007 Countrywide Financial Corp. Trade/servicemarks are the property of Countrywide Financial Corporation and/or its subsidiaries. All rights reserved. Full Spectrum® Lending is a division of Countrywide Home Loans, Inc. Countrywide Home Loans, Inc., 4500 Park Granada, Calabasas, CA 91302: Arizona Mortgage Banker License Number BK8805; Licensed by the Department of Corporations under the California Residential Mortgage Lending Act; Georgia Reg. #5929; Illinois Residential Mortgage Licensee (# 0139) by the Office of Banks and Real Estate, Mortgage Banking Division, 310 South Michigan Avenue, Suite 2130, Chicago, IL 60604, (312) 793-1409; Massachusetts Mortgage Lender License No. ML 1623; Licensed by the New Hampshire Banking Department; New Jersey (818) 313-6526, Licensed Mortgage Banker, NJ Department of Banking and Insurance; Licensed Mortgage Banker, NYS Banking Department; Registered with the Pennsylvania Banking Department; Rhode Island Lender’s License. Countrywide Bank, FSB, 1199 N. Fairfax St., Suite 500, Alexandria, VA 22314: Minnesota loans will be made by Countrywide Bank, FSB through its home loan financial centers. This is not an offer to enter into an interest rate lock-in agreement under Minnesota law. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply.

Call Countrywide Home Loans Today for a FREE Loan Consultation