Planning Your Home Purchase
The Loan Process
Pre-Qualification & Pre Approval
Appraisal
Top 10 Don’t Do’s before Escrow Closes
Credit
Escrow & Title
The Importance of Title Insurance
Homeowner’s Insurance
Property Taxes
Closing Costs
Sample Advantage To Owning A Home

Planning Your Home Purchase

The purchase of a home is potentially the largest investment of your life. 

One of the key factors in purchasing a home is to work with both a credible and knowledgeable Real Estate Agent and Loan Officer.

What you should expect:

• Your Real Estate Agent should be diligently finding and showing homes that meet both your floorplan and financial expectations.
• Your Real Estate Agent should be working hard to negotiate the best deal possible for you,
• Your Real Estate Agent should work closely and effectively with a knowledgeable Loan Officer to get your Pre-Approval and find you the best loan product to fit your financial requirements.
• Your Loan Officer should spend time with you and work diligently to find the most effective financial solution to meet your specific requirements.
• Your Loan Officer should keep an open and ongoing line of communication with your Real Estate Agent throughout the entire purchase process.
• Your Loan Officer should keep you the borrower(s) fully informed throughout the entire purchase process.

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The Loan Process

1. Complete and sign the Loan Application. At this time you should be supplying your Loan Officer with all required documentation.
2. Pay Credit Report and Appraisal Fees to Loan Officer (if applicable)
3. Credit Report is ordered
   1. Application is input into Loan Origination System
   2. Appraisal is orderered
   3. Escrow is opened and check is requeste
   4. Preliminary Title Report is ordered
4.  Disclosures are printed and sent to borrower(s) for signature(s). Loan is submitted to lender(s) for Underwriting.
5. Loan Approval from Lender(s) All conditions are gathered from borrower(s) and submitted to lender to complete the approval process. The appraisal must be submitted to the lender by this time. Clients and Realtors are contacted
6. Conditions are accepted and approved by lender(s)
7. Loan Documents are ordered and submitted to Escrow for signature(s). Clients and Realtors are contacted.
8. Estimated Closing Costs asked for from Escrow to be reviewed to ensure that we meet expectations.
9. Confirmation of arrival of Loan Documents being sent to Escrow. Escrow will call borrower(s) to set up a signing appointment.
10. Loan Documents are signed. After documents are signed, they are sent to lender(s) to be reviewed for Closing. Realtor is called.
11. Funds required to complete the close of the transaction must be in Escrow four days prior to closing
12.  Loan is funded and transaction is closed.

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Pre-Qualification & Pre Approval

Purchase Loans

A Credit Report is run on the borrower(s) and a Loan Application is completed. The Loan Application can be completed in person, by phone or via the internet.

Both the Credit Report and Loan Application will be reviewed by BrightSky Financial and potential lenders to determine if the borrower(s) is qualified for the loan amount required and to determine which loan options are available.

A Pre-Approval will be provided to the Realtor and the borrower(s) in letter format. This Pre-Approval is subject to verification of the borrower(s) Income and potential source of funds for downpayment if required.

With your Pre-Approval, you and your Realtor can now feel more comfortable in shopping for your future home.

Other items of relevance that will need to be reviewed include:

• Closing Costs required from Borrower(s)
• Closing Cost Credits required from Seller(s)
• Maximum qualified Purchase Price
• Funds for downpayment
• Current Interest Rates

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Appraisal

Purchase

An Appraisal is asked to be ordered following the acceptance of the offer. Typically, it is the job of the Listing Agent to provide comparable sales information to the Appraiser. The Seller may be asked to provide a list of upgrades in your potential new home and what the values are of those upgrades.

Refinance

The selected Appraiser will call the homeowner to schedule an appointment. The Appraiser typically expects the payment for the Appraisal at the time of the appointment

* Please note BrightSky Financial will mail you a copy of the Appraisal after closing, unless requested earlier. 

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Top 10 Don’t Do’s before Escrow Closes

1. Change Employers or quit your job
2. Borrow money from any source(s)
3. Go on Maternity Leave, Get Married or Divorced
4. Go on Vacation and not be available to Lender
5. Sell Assets
6. Open new Bank Account or make abnormally large deposits
7. Move credit card balances from one Creditor to another
8. Apply for new credit (we do want unnecessary credit pulls during the Escrow process)
9. Transfer funds from one account to another
10. Purchase or shop for new vehicle

* Items listed above are the typical items that affect a Lender’s ability to close your loan transaction timely and or successfully. From the moment a loan transaction starts, to the time the transaction closes in Escrow, borrower credit scores, account balances, assets, debts, income and employment are reviewed and verified at multiple instances during the loan transaction. If any of the above items might occur during the loan transaction, please contact your Loan Officer before taking action so that your Loan Officer can take the
necessary steps to ensure the loan transaction continues and closes in a timely manner.

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Credit

A Credit Report on the borrower(s) may be run for a fee. BrightSky Financial will discuss the report with the borrower(s)to ensure you understand the findings and confirm the line items and balances are accurate.

The Credit Bureaus are as follows:

Experian (XPN)/Fair Issac Score
PO Box 9601
Allen, TX 75013-2104
Toll Free (888) 397-3742
www.experian.com

Equifax (EQ)/Beacon Score
PO Box 105873
Atlanta, GA 30348
Toll Free (888)841-7355
www.equifax.com

TransUnion (TUC)/Empirica Score
PO Box 4000
Chester, PA 19016
Toll Free (888)887-2673
www.transunion.com

On the basis of your bureau scores, a lender will determine loan eligibility and pricing. The following criteria could affect your scores:

1. Number of accounts
2. Number of late payments (and how delinquent those payments are or were)
3. Amount owed vs high balances
4. Length of time since account(s) was/were opened

For information on how credit scores are determines, please visit:

Fair, Issac and Company (FICO)
www.fairissac.com
200 Smith Ranch Road
San Rafael, CA 94903
(415) 472-2211

If applicable, BrightSky Financial can assist you with locating a credible Credit Repair organization. Please ask us for details.

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Escrow & Title

Escrow and Title are performed by the same company in Northern California. In other areas of California and the country, Escrow and Title may be performed by two separate companies or by an Attorney.

Escrow companies ensure that all interests of the parties to the transaction are met. The Escrow Officer’s job is to lawfully complete the necessary tasks in regards to you home loan.

Escrow companies collect legal legal and loan documents for signature, work closely with your home insurance provider to obtain a Homeowners Insurance Policy satisfactory to your lenders’ requirements. Escrow companies also collect and disperse funds related to your loan transaction.

Among other documents, the Escrow Officer will provide Escrow Instructions and a Statement of Identity. The Statement of Identity is a form which requests specific information about the borrower(s)’ personal history and is required to ensure that the Title to the property is accurately recorded at the close of Escrow.

The borrower(s) will receive a Preliminary Title Report. The Title Report lists items of record on your new home. The Title Division who prepares the report, searches public record for any liens against the borrower(s) or the home (previous loans of the Seller to be paid, Tax Liens or Judgements). The Title Division also searches the Tax Rolls to ensure Property Taxes are paid current.

The borrower(s) will be asked in which manner they would like to hold Title to their property. You will most often go to your Escrow/Title company facility to sign your loan documents.

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The Importance of Title Insurance

Upon the purchase of a home, what is actually acquired is Title to the property. The Title you receive includes ownership and use and possession of the land. 

Defects in Title can threaten your interest in the property as well as the security interest your mortgage lender holds in the property. Title Insurance protects the homeowner against current and future defects and hazards of Title.

Minimize the Risk

When you purchase that dream home the homeowner shouldn’t have to worry about Title defects that can be both unpleasant and more importantly, costly.

A Title Search is completed by the Title Division which reports all material objections to the Title. If there is a problem, it is typically found in the Chain of Title which is a historical view of ownership of the property being purchased. Title needs to be cleared before it can be properly conveyed to the new homeowner.

Some of the items that can be revealed through the Chain of Title and create problems are:

1. Easements
2. Notary Acknowledgements that are incorrect
3. Judgements and Tax Liens
4. Improper vesting of Deeds and Mortgages
5. Mortgages that are outstanding
6. Incorrect names

Title Insurance safeguards the homeowner to enjoy protection against many Title claims and possible losses. Lenders are much more willing to lend on properties with proper Title Insurance.

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Homeowner’s Insurance

When you purchase a home you are required to pay the 1st year of Homeowner Insurance premium on advance at the closing.

The borrower(s) chooses an Insurance Agent and let the Agent know how to contact your Escrow Officer. The Insurance Agent will forward a bill to the Escrow Officer and the bill amount will be added to the total amount of money needed to close your transaction.

The borrower(s) has two choices for paying the Homeowner’s Insurance.

 Impounds

The lender can be asked to open an Impound Account for the borrower with the upfront deposit of 1 year plus an additional 2 months premium (also upfront). After the upfront monies, 1/12th of your yearly Homeowner’s Insurance Premium will be included with the borrower’s monthly mortgage payment.

The lender is then responsible for making the annual payment of the borrower’s Homeowner Insurance Payment automatically.

Your Loan Officer should be explaining to you how Impounding your Homeowners and or Property Taxes early in the loan process. The decision to Impound or not needs to be made before Loan Documents are first drawn in order for the borrower to avoid having to pay to re-draw Loan Documents.

 No Impounds

The borrower is responsible for the monthly premium installments of their Homeowner’s Insurance.

* Please note with Condominium’s and in some cases PUD’s (Planned Unit Development) you do not need Homeowner’s Insurance because your Homeowner’s Association includes the Homeowner’s Insurance coverage. Verify this information with your Realtor.

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Property Taxes

California Property Taxes are typically calculated at 1.25% of the purchase price of the property(the percentage could vary some from City and or County). Your Escrow Officer can give you the specific amount of Property Tax you will be paying on your property.

Property Tax Installments in California come due twice (2) per year. The 1st Installment comes due April 10th and the 2nd Installment comes due December 10th.

Like Homeowner’s Insurance, Property Tax Installments can be paid by either Impounding or Not Impounding

Impounds

Again, like Homeowner’s Insurance, you will want to let your Escrow Officer know whether or not you would like to Impound your Property Tax Installments early on in the loan process to avoid the lender charging to re-draw your Loan Documents.

The lender will open and Impound Account. The borrower(s) will be required to bring in 4-7 months worth of Property Tax costs upfront to the Escrow Officer to be added to the total money needed to close the transaction. Starting with the 1st monthly payment 1/12th of the borrower’s Tax Bill will be included in the monthly mortgage payment.

The lender will be responsible for paying the borrower’s yearly Tax Installments when due. The borrower should be receiving a copy of the Tax Bill form the respective County of the property. The borrower should verify that taxes are being deducted by reviewing the monthly mortgage statement from the lender. If it is not shown being deducted on the monthly mortgage statements, please be sure to contact the lender to let them know.

No Impounds

If the borrower(s) chooses not to impound Property Taxes, the borrower is responsible for paying the Property Tax Installments on or before April 10th and December 10th. If paid after those dates, the borrower faces potential interest charges on the unpaid balance as well as possibly having a Lien placed on the property by the County.

* Supplemental Tax Installments

Upon the purchase of a home, borrower’s sometimes get a surprise when they open their Property Tax Bill and the Installment is much more than the borrower expected.

Typically, the first 6 months (can be longer) your Tax Bill will be based on the previous owner’s assessed value. The new Tax Bill is based on the borrower’s purchase price. An adjustment needs to be made for the difference between the previous owner’s assessed value and the new purchase assessed value. This difference is called the Tax Supplemental. The County updates their Tax Roll and you will receive one bill with the new assessment. The lender may or may not include the cost of the Tax Supplement in the impound account if you choose to Impound. 

Be sure to check with your Escrow Officer to be aware of any Supplemental Tax Installments ahead of time to eliminate any element of surprise in your Tax Bill.

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Closing Costs

Closing a loan whether it be a purchase or refinance requires services from a number of parties. Each service has an associated fee to close the transaction.

The types of costs you will see include:

Recurring/Pre Paid Costs (Not Fees)

These costs are pro-rated monies for the recurring costs you pay during the life of the ownership of your home. Examples include (Insurance, Taxes, Homeowner Association Dues, Mortgage Interest and if applicable, Mortgage Insurance)

Homeowner’s Insurance is collected 1 year in advance on a purchase. If the transaction is a refinance, the lender will verify that your Homeowner’s Insurance Policy is paid current. If borrower has chosen to Impound Homeowner’s Insurance, a portion of the annual premium will be collected upfront.

Property Taxes are pro-rated for the current tax period. If borrower has chosen to impound Property Taxes, a portion of the annual Installments will be collected upfront.

Mortgage Insurance (If Applicable – Typically required for a Loan to Value that is more than 80%) is collected

Homeowner Association Fees are pro-rated and collected upfront on Purchase transactions.

Non Recurring (One Time Fees)

Title Fees to pay for costs associated with Title Insurance

Escrow Fees to pay for services provided by the Escrow Company in handling the flow and close of the Transaction (includes expenses such as: Overnight Delivery fees, Notary Fees, Messenger Pickup/Dropoff)

Lender and Broker Fees to pay for the cost to Originate, Underwrite, Appraise and Process the loan transaction

There may be additional Miscellaneous Fees to pay for such items as Inspections and Warranties

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Sample of Financial Advantage to Own a Home (Single Borrower)
Example using 2007 Federal Tax Information

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