Elix Financial Wellness presents Making The Leap? Stop Renting & Start Owning Today

YOUR FINANCIAL WELLNESS EXPERTS Making the leap? Stop Renting & Start Owning Today.

There’s a lot you need to know when you buy a house, especially if you’re a first timer. But, home buying doesn’t have to be an overwhelming experience.

You have the knowledge of Elements Financial’s experienced mortgage team to count on, and our unique First Time Home Buyer Program. It’s a tremendous offer that’s tough to find elsewhere, featuring: • 95% Financing • Gift funds can be used for down payments • No Private Mortgage Insurance (PMI) Required: That translates to an average savings of $1,500 per year when compared to a similar mortgage with PMI. • Loan amounts up to $275,000: To buy yourself a great starter home!

Become a homeowner with support of Elements. Call (800) 621-2105 to begin the mortgage process. And look to this guide before, during and after your home buying experience to find the answers you need.

Stop Renting and Start Owning Today What To Do & Not To Do Before Buying a House

If you’ve been thinking about buying a home, now is the time! Look for affordable homes in your area and low interest rates on home loans. Once you decide to take advantage of the wonderful opportunity to become a homeowner, here are some things to keep in mind:

DO call our credit union to speak with DO NOT change jobs/employers without inquiring a loan originator BEFORE contacting a real about the impact this change would have on the approval of estate agent. By knowing what you qualify your . for, you’ll be able to tell the realtor a realistic and comfortable price range. Also, we can DO NOT make major purchases (such as a new help you find a reputable agent in your area. car, furniture, appliances, electronics, etc.) as this may Be sure to inquire about this Realtor Rebate impact your qualification ratios. Please confer with your loan Program originator to have him/her calculate what your ratios are and how much additional debt, if any, you could take on and DO keep originals of all current pay still qualify. stubs, bank statements and other important financial documents. As a general rule, don’t DO NOT obtain and/or deposit unusually large throw out any paperwork for three months sums of money without notifying your loan originator. prior to your home loan application. FNMA/HUD guidelines require documentation for the source of these funds (such as a copy of your bonus check, copy of DO notify your loan originator if you plan your tax refund, copy of an insurance settlement, gift letter to receive gift funds for costs. with a copy of checks and deposit slips, etc.)

DO keep a paper trail of all funds DO NOT close/open or transfer any asset transferred or deposited to your accounts. accounts without inquiring about the proper documentation For example, if you sold stocks and put the required for your loan file. (For example, if you transfer all money in your share draft account to use the funds in your stock account to your savings account, for your down payment, keep all paperwork documentation is required.) related to the sale of the stock. DO NOT open or increase any liabilities, including credit cards, signature loans, etc. once you’ve applied for your home loan.

Again, the most important first step toward home ownership is calling the credit union and speaking with a loan originator (800) 621-2105, option 2 or applying online for your mortgage at elements.org. Even if you’re not sure you’re ready to buy, you have nothing to lose by investigating and planning ahead for this milestone. This way, you’ll learn what it will take to be fully prepared to purchase a home. Or, you’ll be pleasantly surprised to find out that you’re ready now!

Stop Renting and Start Owning Today Hunting for and Making The Offer On Your Home Once you’ve decided to buy and you’ve found a good (realtor) through Elements Financial, you are ready to hit the pavement and find your first house! Keep a few things in mind before you begin attending showings and open houses:

1) Think About What’s Important To You Now As Well As in the Next Few Years Determine your needs in a home and share those with your realtor. Consider and prioritize factors such as distance to work; shopping and dining in the vicinity; medical care nearby; traffic patterns; quality of schools, parks and libraries; etc.

2) Find a House That Matches Your Lifestyle If you work at home, you’ll need a decent office space. If you like to throw parties, you’ll want plenty of room to entertain. If you’re planning for a family, think about the floor plan of the living space and the number of bedrooms.

3) Research Market Conditions of the Neighborhood If you find a home you like, take into account the home’s asking price against recent home sales in that area. There are many questions to explore. How are the values trending; is the area up-and- coming or on a downward spiral? How long has that home been on the market? Are there other houses you like just as much or is this really the one you want?

4) Work with Your Agent To Extend an Official Offer There are several proper steps to follow and paperwork to submit when you’re ready to make an offer to a seller. Your agent will help you draw up a purchase agreement as the first step, a document that will specify the amount of your offer plus any stipulations such as any appliances or other fixtures you want to stay with the house and your preferred date of possession. You might need to offer earnest money or a small percentage of the asking price to indicate you are serious about your offer. Once you submit these items for consideration, you wait for the seller’s response, known as the counteroffer. At that point, you can choose to agree to the terms the seller presents back to you or design another counteroffer. The point is to work toward mutually acceptable terms.

Stop Renting and Start Owning Today Inspecting and Insuring Your Home

So, what’s the condition of the home you’re wanting to buy? Of course, you can get a visual indication of that during your showings but it’s important to realize there’s always more to a house than what meets the eye. That’s why you will want to hire a qualified professional home inspector to conduct an official home inspection. Ask for referrals from family and friends and be sure to hire someone who is fully licensed and insured. Your offer should be contingent on this inspection which should include testing of these systems and elements:

• Heating and Cooling • Roof, Gutters and Downspouts • Septic and Plumbing • Insulation & Ventilation • Electrical • Major Appliances • Walls, Floors, Ceiling and Foundation • Garage and any Structure Separate from the Home

Additionally, testing for radon, carbon monoxide and termites might cost you extra, but are a good idea. In many cases, you need not be present at the home inspection; however, it’s worth your time to be there and review the home with the inspector, giving you the opportunity to ask questions. After the inspection, you’ll be ready to create an action list of tasks that need to be completed. You can consider a combination of options once you have that list: • Ask the seller to make all of the repairs • Ask the seller to make some of the repairs and handle the rest when you move in • Renegotiate the asking price based on extent of what you’ll take care of yourself. • Withdraw your offer, take back your earnest money, and move on to another house.

If You Work Out a Deal After the Inspection, Congratulations!

You’re ready to take the next steps toward closing on your mortgage. But first, you’ll need to arrange for homeowner’s insurance on the property you’re buying. In fact, you’ll need to produce proof of this coverage at your closing. Do yourself a favor and shop around for the best price, beginning with the company who holds your auto policy. You might qualify for a multiple-policy discount which can save you hundreds of dollars annually.

Stop Renting and Start Owning Today What You Need To Know About Closing

Once you have done a final walk-through of the home you’re purchasing and you find the condition to be acceptable for possession, it’s time for your closing. This is the appointment at which you’ll officially become a homeowner. Along with you and your seller(s), you can expect to have the real estate agents for both sides of the transaction attend, as well as a company representative or attorney.

Before Closing

If you work out a deal after the inspection, congratulations! You’re ready to take the next steps toward closing on your mortgage. But first, you’ll need to arrange for homeowner’s insurance on the property you’re buying. In fact, you’ll need to produce proof of this coverage at your closing. Do yourself a favor and shop around for the best price, beginning with the company who holds your auto policy. You might qualify for a multiple-policy discount which can save you hundreds of dollars annually. • Be prepared to sign several documents, pay your seller, and obtain the keys to your new home, unless your seller has negotiated to stay in the home beyond the closing. In this case, the seller will typically owe you rent. • As a renter yourself, you will want to schedule your closing at a time when you can avoid paying more rent to your landlord than you have to. • Carefully review and be sure you understand your closing costs and . You’ll receive a loan estimate of these charges prior to closing. Costs will vary based on many factors such as your state of residence; however, you can get an idea of what you might be paying (See “Elements’ Sample Closing Costs”). • Don’t forget your driver’s license, a certified check (or wire depending on the amount due) for the amount you will owe at closing, and any other documents your lender or real estate agent has asked you to bring. After Closing

Your life might become a bit chaotic once your move begins. Before they get lost in the shuffle, store your important mortgage documents and the paperwork from your closing in a secure place where you’ll know exactly where to find it later. You’ll need to reference it to apply for tax credits that might apply to your situation. You’ll also need these files if you refinance or apply for a home equity loan down the road.

Stop Renting and Start Owning Today Sample Closing Costs

LOAN ESTIMATE: Based upon a $100,00 loan

TIEFF ...... 5.00 TAX LIEN EXAMINATION . . 87.00 SALES DISCLOSURE . . . . . 15.00 FLOOD DETERMINATION . . . . 9.00 TITLE SEARCH ...... 200.00 RECORDING FEE ...... 80.00 CREDIT REPORT FEE . . . . . 50.00 SURVEY ...... 150.00 ORIGINATION FEE ...... 900.00 If applicable APPLICATION FEE ...... 75.00 IRS FEE ...... 17.00 Due at application. Non-refundable. Transcript Processing. APPRAISAL FEE ...... 460.00 WIRE FEE ...... 25.00 Due at time of application if you have signed a purchase agreement. CLOSING PROTECTION LETTER 75.00 CLOSING FEE ...... 400.00 Title Company Fee. ...... 400.00 TOTAL CLOSING COSTS . . $2948.00 Title Company Fee.

Prepaids Prepaid Interest: up to 31 days Taxes: 2–8 months depending upon when the next installment is due Insurance: 15 months total (1 year paid to the insurance agent and 3 months at closing) The escrow account for real estate taxes and homeowner’s insurance can be waived if you put down a minimum of 20% equity.

Stop Renting and Start Owning Today Why Title Insurance?

Coverage known as title insurance protects against hidden title hazards that may threaten your financial investment in your home. Title insurance is not as well understood as other types of home insurance, but it is just as important. When purchasing a home, instead of purchasing the actual building or land, you are really purchasing the title to the property, the right to occupy and use the space. That title may be limited by rights and claims asserted by others, which may limit your use and enjoyment of the property and even bring financial loss. Title insurance protects against these types of title hazards.

Other types of insurance that protect your home focus on possible future events and charge an annual premium. On the other hand, title insurance protects against loss from hazards and defects that already exist in the title and is purchased with a one-time premium.

What Does Your Premium Really Pay For

An important part of title insurance is its emphasis on risk elimination to give you the best possible chance for avoiding title claims and losses. Title insuring begins with a search of public land records affecting the real estate concerned. An examination is conducted by a title agent or attorney on behalf of its underwriter to determine whether the property is insurable. The examination of evidence from a search is intended to fully report all “material objections” to the title. Frequently, documents that don’t clearly transfer title are found in the “title chain,” or history, that is assembled from the records in a search. Here are some examples of documents that can present concerns: • , wills and trusts that contain improper wording or incorrect names; • Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes; • Easements that allow construction of a road or utility line; • Pending legal action against the property that could affect a purchaser; or • Incorrect notary acknowledgments.

Through the search and the examination, title problems are disclosed so they can be corrected whenever possible. However, even the most careful preventative work cannot locate all hidden title hazards such as: • A forged signature on the , which would mean no transfer of ownership to you; • An unknown heir of a previous owner who is claiming ownership of the property; • Instruments executed under an expired or a fabricated power of attorney; or • Mistakes in the public records.

Title insurance offers financial protection against these and other covered title hazards. The title insurer will pay for defending against an attack on title as insured, and will either perfect the title or pay valid claims, all for a one-time charge at closing. Your home is your most important investment. Before you go to closing, ask about your title insurance protection, and be sure to protect your home with an owner’s title insurance policy.

Stop Renting and Start Owning Today Understanding Your Property Tax Bill

As a new homeowner, it’s going to be important for you to understand some background information on property taxes.

Property Taxes and Deductions

Property taxes are used to fund local government (counties, cities, towns and townships) and the services they provide (schools, fire protection, police, roads, etc.) Taxes are collected twice a year and are used to pay for the services provided during the previous calendar year. Property taxes are based on two main values: One is the value of your home or your assessed value. Assessed values are market-based assessments and are usually somewhat less than the market value. The second factor is the tax rate. This is figured by combining the taxing units (county, city, school, library, etc.) within each taxing district. The tax rate is expressed in dollars per hundred dollar of assessed value. This amount is reduced by a state credit — “Property Tax Replacement” — and is automatically deducted from your tax bill. The tax rate is then combined with your assessed value to produce your actual property tax amount. In the case of Indiana, there are several deductions available to homeowners, as follows: the homestead credit, mortgage deduction, over 65, blind/disabled, disabled veterans, and geothermal. Many of these deductions are filed by title companies during closings, but that is not the case in all situations. Property owners should make sure that any deductions they qualify for are filed with the county auditor. Be aware that there are statutory deadlines for filing for these deductions. Once the deduction has been filed, you do not need to re-file unless there is a new mortgage or a deed change on the home.

Property Tax Appeals

Indiana law provides a couple ways for taxpayers to contest the assessed value of their property. Both begin an the local level and can be appealed to the state only after a local review. One way begins with written notification to the township assessor requesting an informal review of the assessment. The request should detail the pertinent facts of why the assessed value is being disputed. It should also include the parcel number, property address, property owner name and contact information. Only a taxpayer can request a review of the current year’s assessed valuation. Following an informal conference with the local assessing official, the township assessor will make a recommendation either denying or approving the appeal. If denied, the township will forward the appeal to the county Property Tax Assessment Board of Appeals (PTABOA) for review. If PTABOA denies the appeal, instructions will be provided on appealing the decision to the Indiana Board of Tax Review. The other appeal process is done with the county auditor and is used to appeal objective issues such as errors in math or exemptions and deductions. The most important thing to remember about property tax appeals is the taxpayer must request a conference with the local assessing official no later than 45 days after receiving notice of a change in assessment or tax bill.

Stop Renting and Start Owning Today Why Flood Insurance

Flood waters can wreak havoc on a homeowner, so as you purchase your home consider purchasing flood insurance coverage for it. Here are a few key points to keep in mind:

Standard home insurance typically does not cover damage from flood waters

Most home insurance policies specifically exclude damage caused by flood waters, even if a weather-related event such as a hurricane is the catalyst.

Flood insurance allows the option of purchasing coverage specifically for your home or your belongings

Unlike a typical home policy, which includes coverage for both your home and belongings, the Standard Flood Insurance Policy allows you to purchase coverage tailored to your individual needs — your home, your personal belongings, or both.

Flood insurance coverage should equal the full reconstruction cost of your home

While some standard home insurance policies offer extended replacement cost coverage for your home, flood insurance will pay no more than the amount of coverage stated on your policy declaration page. That is why it is essential that you purchase coverage equal to the full reconstruction cost of your home so that you have adequate protection should a total loss occur.

For more specific information regarding flood insurance coverage, please visit the National Flood Insurance Program’s website at floodsmart.gov.

Stop Renting and Start Owning Today Home Buyer’s Glossary

This dictionary demystifies real estate jargon, from amortization to zoning. Provided compliments of Jim Hart of RE/MAX at the Crossing, Indianapolis, Indiana.

adjustable-rate amortization appraisal mortgage (ARM) The gradual repayment of a A written analysis of the estimated A mortgage that permits the lender mortgage loan by installments. value of a property prepared by to adjust the mortgage’s interest a qualified appraiser. Contrast rate periodically on the basis of amortization schedule with home inspection. changes in a specified index. Interest A timetable for payment of a rates may move up or down, as mortgage loan. An amortization appraised value market conditions change. schedule shows the amount of each An opinion of a property’s fair payment applied to interest and market value, based on an adjusted basis principal and shows the remaining appraiser’s knowledge, experience, The original cost of a property plus balance after each payment is made. and analysis of the property. the value of any capital expenditures for improvements to the property amortization term appraiser minus any depreciation taken. The amount of time required to A person qualified by education, amortize the mortgage loan. The training, and experience to adjustment date amortization term is expressed as a estimate the value of real The date on which the interest number of months. For example, for property and personal property. rate changes for an adjustable- a 30-year fixed-rate mortgage, the rate mortgage (ARM). amortization term is 360 months. appreciation An increase in the value of a adjustment period amortize property due to changes in market The period that elapses between To repay a mortgage with conditions or other causes. The the adjustment dates for an regular payments that cover opposite of depreciation. adjustable-rate mortgage (ARM). both principal and interest. assessed value affordability analysis annual mortgagor statement The valuation placed on property by A detailed analysis of your ability A report sent to the mortgagor (the a public tax assessor for purposes to afford the purchase of a home. borrower) each year. The report of taxation. An affordability analysis takes into shows how much was paid in taxes consideration your income, liabilities, and interest during the year, as well assessment and available funds, along with as the remaining mortgage loan The process of placing a value the type of mortgage you plan to balance at the end of the year. on property for the strict use, the area where you want to purpose of taxation. May also purchase a home, and the closing annual percentage rate (APR) refer to a levy against property costs that you might expect to pay. The cost of a mortgage stated as a for a special purpose, such yearly rate; includes such items as as a sewer assessment. agent interest, mortgage insurance, and Brokers, real estate agents loan origination fee. See points. assessment rolls (REALTORS®, sales associates, The public record of taxable property. licensees, etc.) are trained application and licensed to conduct real A form used to apply for a assessor estate transactions. Agents, mortgage loan and to record A public official who establishes however, must operate under the pertinent information concerning the value of a property supervision of a broker, and their a prospective mortgagor and the for taxation purposes. training is not as extensive. proposed security. Lenders use the information on the loan application to evaluate whether or not they can give the loan, and if so, the amount of money they can lend.

Stop Renting and Start Owning Today asset betterment brokerage Anything of monetary value that is An improvement that increases The bringing together of owned by a person. Assets include property value as distinguished parties interested in making real property, personal property, from repairs or replacements a . and enforceable claims against that simply maintain value. others (including bank accounts, buydown account stocks, mutual funds, and so on). bill of sale An account in which funds are held so A written document that transfers that they can be applied as part of the assignment title to personal property. monthly mortgage payment as each The transfer of a mortgage payment comes due during the period from one person to another. binder that an interest rate buydown plan is A preliminary agreement, secured in effect. assumable mortgage by the payment of an earnest A mortgage that can be taken over money deposit, under which a buyer buydown mortgage (assumed) by the buyer when a home offers to purchase real estate. A temporary buydown is a mortgage is sold. on which an initial lump sum payment biweekly payment mortgage is made by any party to reduce a assumption A mortgage that requires payments borrower’s monthly payments during The transfer of the seller’s to reduce the debt every two weeks the first few years of a mortgage. A existing mortgage to the buyer. (instead of the standard monthly permanent buydown reduces the See assumable mortgage. payment schedule). The 26 (or possibly interest rate over the entire life of 27) biweekly payments are each equal a mortgage. assumption clause to one-half of the monthly payment that A provision in an assumable mortgage would be required if the loan were a call option that allows a buyer to assume standard 30-year fixed-rate mortgage, A provision in the mortgage that gives responsibility for the mortgage from and they are usually drafted from the the mortgagee (the lender) the right to the seller. The loan does not need to borrower’s bank account. The result for call the mortgage due and payable at be paid in full by the original borrower the borrower is a substantial savings the end of a specified period for upon sale or transfer of the property. in interest. whatever reason. assumption fee blanket insurance policy cap The fee paid to a lender (usually A single policy that covers more A provision of an adjustable-rate by the purchaser of real property) than one piece of property (or mortgage (ARM) that limits how much resulting from the assumption more than one person). the interest rate or mortgage payments of an existing mortgage. may increase or decrease. See lifetime blanket mortgage payment cap, lifetime rate cap, periodic attorney-in-fact The mortgage that is secured by a payment cap, and periodic rate cap. One who holds a power of attorney cooperative project, as opposed to the from another to execute documents share loans on individual units within capital expenditure on behalf of the grantor of the power. the project. The cost of an improvement made to extend the useful life of a balloon mortgage breach property or to add to its value. A mortgage that has level monthly A violation of any legal obligation. payments that will amortize it over a capital improvement stated term but that provides for a lump bridge loan Any structure or component erected sum payment to be due at the end of an A form of second trust that is as a permanent improvement earlier specified term. The principal and collateralized by the borrower’s to real property that adds to interest on the loan are amortized over present home (which is usually for its value and useful life. a longer period than the actual term sale) in a manner that allows the of the mortgage. proceeds to be used for closing on a new house before the present home balloon payment is sold. Also known as swing loan. The final lump sum payment that is made at the maturity date of a broker balloon mortgage. A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

Stop Renting and Start Owning Today cash-out refinance closing cost item common area assessments A refinance transaction in which A fee or amount that a home buyer Levies against individual unit owners the amount of money received from must pay at closing for a single service, in a condominium or planned unit the new loan exceeds the total of tax, or product. Closing costs are made development (PUD) project for the money needed to repay the up of individual closing cost items such additional capital to defray homeowners’ existing first mortgage, closing costs, as origination fees and attorney’s fees. association costs and expenses and to points, and the amount required to Many closing cost items are included as repair, replace, maintain, improve, or satisfy any outstanding subordinate numbered items on the operate the common areas of mortgage liens. In other words, a HUD-1 statement. the project. refinance transaction in which the borrower receives additional cash closing costs common areas that can be used for any purpose. Expenses (over and above the price of Those portions of a building, land, and the property) incurred by buyers and amenities owned (or managed) by a Certificate of Eligibility sellers in transferring ownership of a planned unit development (PUD) or A document issued by the federal property. Closing costs normally include condominium project’s homeowners’ government certifying a veteran’s an origination fee, an attorney’s fee, association (or a cooperative project’s eligibility for a Department of taxes, an amount placed in escrow, and cooperative corporation) that are used Veterans Affairs (VA) mortgage. charges for obtaining title insurance by all of the unit owners, who share and a survey. Closing costs percentage in the common expenses of their Certificate of Reasonable will vary according to the area of the operation and maintenance. Common Value (CRV) country; lenders or REALTORS® often areas include swimming pools, A document issued by the Department provide estimates of closing costs to tennis courts, and other recreational of Veterans Affairs (VA) that prospective homebuyers. facilities, as well as common establishes the maximum value and corridors of buildings, parking areas, loan amount for a VA mortgage. closing statement means of ingress and egress, etc. A detailed cash accounting of a real certificate of title estate transaction showing all cash common law A statement provided by an abstract received, all charges and credits made An unwritten body of law based on company, title company, or attorney and all cash paid out in the transaction. general custom in England and used stating that the title to real estate is to an extent in the United States. legally held by the current owner. cloud on title Any conditions revealed by a title search comparables chain of title that adversely affect the title to real An abbreviation for comparable The history of all of the documents that estate. Usually clouds on title cannot properties; used for comparative transfer title to a parcel of real property, be removed except by a quitclaim purposes in the appraisal process. starting with the earliest existing deed, release, or court action. Comparables are properties like the document and ending with the property under consideration; they have most recent. collateral reasonably the same size, location, An asset (such as a car or a home) and amenities and have recently been change frequency that guarantees the repayment of a sold. Comparables help the appraiser The frequency (in months) of payment loan. The borrower risks losing the determine the approximate fair and/or interest rate changes in an asset if the loan is not repaid according market value of the subject property. adjustable-rate mortgage (ARM). to the terms of the loan contract. Competitive Market closing commission Analysis (CMA) A meeting at which a sale of a property Payment to a broker for services A comparison of the prices of recently is finalized by the buyer signing the rendered, such as in the sale or sold homes that are similar to a seller’s mortgage documents and paying purchase of real property; usually a home in terms of location, style closing costs. Also called settlement. percentage of the selling price of and amenities. At this meeting, ownership the property. of the property is transferred compound interest from the seller to the buyer. commitment letter Interest paid on the original principal A formal offer by a lender stating the balance and on the accrued and closing agent terms under which it agrees to lend unpaid interest. Presides over the closing; works on money to a home buyer. Also known the buyer’s behalf to transfer title and as a loan commitment. ownership from the seller to the buyer.

Stop Renting and Start Owning Today contingency cooperative project debt A condition that must be met before A residential or mixed-use building An amount owed to another. See a contract is legally binding. For wherein a corporation or trust holds installment loan and revolving liability. example, home purchasers often title to the property and sells shares of include a contingency that specifies stock representing the value of a single Debt-To-Income Ratio that the contract is not binding apartment unit to individuals who, in The ratio used to qualify potential until the purchaser obtains a turn, receive a proprietary borrowers for a loan. Compares total satisfactory home inspection report lease as evidence of title. monthly housing expense and other from a qualified home inspector. debt with total monthly income. cost of funds index (COFI) contract An index that is used to determine deed An oral or written agreement to interest rate changes for certain The legal document conveying title do or not to do a certain thing. adjustable-rate mortgage (ARM) to a property. plans. It represents the weighted- conventional mortgage average cost of savings, borrowings, deed-in-lieu A mortgage that is not insured or and advances of the 11th District A deed given by a mortgagor to the guaranteed by the federal government. members of the Federal Home mortgagee to satisfy a debt and Contrast with government mortgage. Loan Bank of San Francisco. See avoid foreclosure. Also called a adjustable-rate mortgage (ARM). voluntary conveyance. convertibility clause A provision in some adjustable-rate counteroffer deed of trust mortgages (ARMs) that allows the A new offer made in response to The document used in some states borrower to change the ARM to a an offer received. It has the effect instead of a mortgage; title is conveyed fixed-rate mortgage at specified of rejecting the original offer which to a trustee. timeframes after loan origination. cannot be accepted thereafter unless revived by the offeror. default convertible ARM Failure to make mortgage payments An adjustable-rate mortgage (ARM) covenant on a timely basis or to comply with that can be converted to a fixed-rate A clause in a mortgage that obligates other requirements of a mortgage. mortgage under specified conditions. or restricts the borrower and that, if violated, can result in foreclosure. delinquency cooperative (co-op) Failure to make mortgage payments A type of multiple ownership in which credit report when mortgage payments are due. the residents of a multiunit housing A report of an individual’s credit complex own shares in the cooperative history prepared by a credit bureau deposit corporation that owns the property, and used by a lender in determining A sum of money given to bind the giving each resident the right to a loan applicant’s creditworthiness. sale of real estate, or a sum of occupy a specific apartment or unit. money given to ensure payment or an credit reporting advance of funds in the processing of cooperative corporation agency (or bureau) a loan. See earnest money deposit. A business trust entity that holds An organization that prepares reports title to a cooperative project that are used by lenders to determine depreciation and grants occupancy rights to a potential borrower’s credit history. A decline in the value of property. particular apartments or units to The agency obtains data for these The opposite of appreciation. shareholders through proprietary reports from a credit repository leases or similar arrangements. as well as from other sources. discount points See point. cooperative mortgages credit repository Mortgages related to a cooperative An organization that gathers, records, down payment investment project. This usually refers to the updates, and stores financial and Part of the purchase price which multifamily mortgage covering the public records information about the the buyer pays in cash and does entire project but occasionally describes payment records of individuals who not finance with a mortgage. the share loans on the individual units. are being considered for credit.

Stop Renting and Start Owning Today dower encumbrance escrow disbursements The rights of a widow in the property Anything that affects or limits The use of escrow funds to pay of her husband at his death. the fee simple title to a property, real estate taxes, hazard insurance, such as mortgages, leases, mortgage insurance, and other property due-on-sale provision easements, or restrictions. expenses as they become due. A provision in a mortgage that allows the lender to demand repayment in full Equal Credit Opportunity escrow payment if the borrower sells the property that Act (ECOA) The portion of a mortgagor’s monthly serves as security for the mortgage. A federal law that requires lenders payment that is held by the servicer and other creditors to make to pay for taxes, hazard insurance, due-on-transfer provision credit equally available without mortgage insurance, lease payments, This terminology is usually discrimination based on race, color, and other items as they become due. used for second mortgages. religion, national origin, age, sex, Known as impounds or reserves in See due-on-sale provision. marital status, or receipt of income some states. from public assistance programs. earnest money deposit estate A deposit made by the potential equity The ownership interest of an individual home buyer to show that he or she A homeowner’s financial interest in in real property. The sum total of all is serious about buying the house. a property. Equity is the difference the real property and personal property between the fair market value owned by an individual at time of death. easement of the property and the amount A right of way giving persons other than still owed on its mortgage. exclusive listing the owner access to or over a property. A written contract that gives a licensed escrow real estate agent the exclusive right to effective age An item of value, money, or documents sell a property for a specified time, but An appraiser’s estimate of the physical deposited with a third party to be reserving the owner’s right to sell the condition of a building. The actual delivered upon the fulfillment of a property alone without the payment of age of a building may be shorter condition. For example, the deposit by a commission. or longer than its effective age. a borrower with the lender of funds to pay taxes and insurance premiums Fair Credit Reporting Act effective gross income when they become due, or the deposit A consumer protection law that Normal annual income including of funds or documents with an attorney regulates the disclosure of consumer overtime that is regular or guaranteed. or escrow agent to be disbursed upon credit reports by consumer/ The income may be from more than the closing of a sale of real estate. credit reporting agencies and one source. Salary is generally the establishes procedures for correcting principal source, but other income may escrow account mistakes on one’s credit record. qualify if it is significant and stable. The account in which a mortgage servicer holds the borrower’s fair market value eminent domain escrow payments prior to The highest price that a buyer, willing The right of a government to take paying property expenses. but not compelled to buy, would pay, private property for public use and the lowest a seller, willing but upon payment of its fair market escrow analysis not compelled to sell, would accept. value. Eminent domain is the basis The periodic examination of escrow for condemnation proceedings. accounts to determine if current Mae monthly deposits will provide A New York Stock Exchange company Employer-assisted housing sufficient funds to pay taxes, and the largest non-bank financial A special housing initiative that offers insurance, and other bills when due. services company in the world. It several different ways for employers to operates pursuant to a federal charter work with local lenders to develop escrow collections and is the nation’s largest source plans to assist their employees Funds collected by the servicer and set of financing for home mortgages. in purchasing homes. aside in an escrow account to pay the borrower’s property taxes, mortgage encroachment insurance, and hazard insurance. An improvement that intrudes illegally on another’s property.

Stop Renting and Start Owning Today Fannie Mae Properties FHA mortgage Government National Fannie Mae owns, manages, and A mortgage that is insured by the Mortgage Association has available for sale, single-family Federal Housing Administration (FHA). A government-owned corporation detached homes, two- to four- Also known as a government mortgage. within the U.S. Department of Housing unit properties, condominiums, and Urban Development (HUD). Created and townhouses in a variety of first mortgage by Congress on September 1, 1968, neighborhoods. The number, type, and A mortgage that is the primary GNMA assumed responsibility for sales price may vary substantially. The lien against a property. the special assistance loan program homes vary in age and may require formerly administered by Fannie Mae. repairs. Fannie Mae homes are sold fixed installment Popularly known as Ginnie Mae. through local real estate brokers The monthly payment due on a whose contact information is provided mortgage loan. The fixed installment guarantee mortgage in the Fannie Mae Properties for Sale includes payment of both principal A mortgage that is guaranteed search results on homepath.com. and interest. by a third party. Fannie 97® fixed-rate mortgage (FRM) guaranteed loan A financing option for a fixed-rate A mortgage in which the interest Also known as a government mortgage. mortgage that offers home buyers rate does not change during a 3 percent down payment loan the entire term of the loan. hazard insurance with a term between 15 and 30 Insurance coverage that compensates years. The mortgage features a flood insurance for physical damage to a property from loan-to-value (LTV) percentage of 97 Insurance that compensates fire, wind, vandalism, or other hazards. percent, and is designed to expand for physical property damage homeownership opportunities resulting from flooding. It is Home Equity Conversion for people with modest incomes. required for properties located in Mortgage (HECM) Borrowers must take a pre-purchase federally designated flood areas. A special type of mortgage that enables home-buyer education session to older home owners to convert the qualify for a Fannie 97 mortgage. foreclosure equity they have in their homes into The legal process by which a borrower cash, using a variety of payment options Federal Housing in default under a mortgage is deprived to address their specific financial needs. of his or her interest in the mortgaged Administration (FHA) Unlike traditional home equity loans, a property. This usually involves a An agency of the U.S. Department borrower does not qualify on the basis forced sale of the property at public of Housing and Urban Development of income but on the value of his or her auction with the proceeds of the sale (HUD). Its main activity is the insuring home. In addition, the loan does not of residential mortgage loans made by being applied to the mortgage debt. have to be repaid until the borrower private lenders. The FHA sets standards no longer occupies the property. for construction and underwriting but forfeiture Sometimes called a reverse mortgage. does not lend money or plan or The loss of money, property, rights, construct housing. or privileges due to a breach of home equity line of credit legal obligation. A mortgage loan, which is usually in a fee simple subordinate position, which allows the The greatest possible interest a fully amortized ARM borrower to obtain multiple advances person can have in real estate. An adjustable-rate mortgage (ARM) of the loan proceeds at his or her with a monthly payment that is own discretion, up to an amount that fee simple estate sufficient to amortize the remaining represents a specified percentage of An unconditional, unlimited estate balance, at the interest accrual the borrower’s equity in a property. of inheritance that represents the rate, over the amortization term. greatest estate and most extensive home inspection interest in land that can be enjoyed. It government mortgage A thorough inspection that evaluates is of perpetual duration. When the real A mortgage that is insured by the the structural and mechanical estate is in a condominium project, the Federal Housing Administration (FHA) condition of a property. A satisfactory unit owner is the exclusive owner only or guaranteed by the Department home inspection is often included of the air space within his or her portion of Veterans Affairs (VA) or the Rural as a contingency by the purchaser. of the building (the unit) and is an owner Housing Service (RHS). Contrast Contrast with appraisal. in common with respect to the land and with conventional mortgage. other common portions of the property.

Stop Renting and Start Owning Today homeowners’ association index interest accrual rate A nonprofit association that manages A number used to compute the interest The percentage rate at which interest the common areas of a planned unit rate for an adjustable-rate mortgage accrues on the mortgage. In most development (PUD) or condominium (ARM). The index is generally a cases, it is also the rate used to project. In a condominium project, published number or percentage, such calculate the monthly payments, it has no ownership interest in the as the average interest rate or yield on although it is not used for an common elements. In a PUD project, it Treasury bills. A margin is added to the adjustable-rate mortgage (ARM) holds title to the common elements. index to determine the interest rate with payment change limitations. that will be charged on the ARM. This homeowner’s insurance interest rate is subject to any caps that interest rate buydown plan An insurance policy that combines are associated with the mortgage. An arrangement wherein the property personal liability insurance and seller (or any other party) deposits hazard insurance coverage for a in-file credit report money to an account so that it can be dwelling and its contents. An objective account, normally released each month to reduce the computer-generated, of credit and mortgagor’s monthly payments during homeowner’s warranty (HOW) legal information obtained from the early years of a mortgage. During A type of insurance that covers a credit repository. the specified period, the mortgagor’s repairs to specified parts of a house effective interest rate is bought down for a specific period of time. It is inflation below the actual interest rate. provided by the builder or property An increase in the amount of money seller as a condition of the sale. or credit available in relation to the interest rate ceiling amount of goods or services available, For an adjustable-rate mortgage housing expense ratio which causes an increase in the general (ARM), the maximum interest rate, The percentage of gross monthly price level of goods and services. Over as specified in the mortgage note. income that goes toward time, inflation reduces the purchasing paying housing expenses. power of a dollar, making it worth less. interest rate floor For an adjustable-rate mortgage HUD median income initial interest rate (ARM), the minimum interest rate, as Median family income for a The original interest rate of the specified in the mortgage note. particular county or metropolitan mortgage at the time of closing. This statistical area (MSA), as estimated rate changes for an adjustable- jumbo loan by the Department of Housing rate mortgage (ARM). Sometimes A loan that exceeds Fannie Mae’s and Urban Development (HUD). known as start rate or teaser. mortgage amount limits. Also called a nonconforming loan. HUD-1 statement insurable title A document that provides an itemized A property title that a title insurance leverage listing of the funds that are payable company agrees to insure against The use of borrowed money at closing. Items that appear on defects and disputes. to finance an investment. the statement include real estate commissions, loan fees, points, and insurance binder liability insurance initial escrow amounts. Each item A document that states that insurance Insurance coverage that offers on the statement is represented is temporarily in effect. Because the protection against claims alleging by a separate number within a coverage will expire by a specified that a property owner’s negligence or standardized numbering system. date, a permanent policy must be inappropriate action resulted in bodily The totals at the bottom of the obtained before the expiration date. injury or property damage to HUD-1 statement define the seller’s another party. net proceeds and the buyer’s net insured mortgage payment at closing. The blank form A mortgage that is protected by the lien for the statement is published by the Federal Housing Administration (FHA) A legal claim against a property that Department of Housing and Urban or by private mortgage insurance must be paid off when the property Development (HUD). The HUD- (MI). If the borrower defaults on is sold. 1 statement is also known as the the loan, the insurer must pay closing statement or settlement sheet. the lender the lesser of the loss lifetime payment cap incurred or the insured amount. For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.

Stop Renting and Start Owning Today lifetime rate cap market value mortgage For an adjustable-rate mortgage (ARM), The price that a property will bring A legal document that pledges a limit on the amount that the interest under normal conditions on the open a property to the lender as rate can increase or decrease over market. The amount that an owner, security for payment of a debt. the life of the loan. See cap, interest under no obligation or compulsion rate ceiling and interest rate floor. to sell, is willing to sell for and the mortgage banker amount a buyer is freely willing to pay. A company that originates line of credit mortgages exclusively for resale in An agreement by a commercial bank master association the secondary mortgage market. or other financial institution to extend A homeowners’ association in a credit up to a certain amount for a large condominium or planned unit mortgage broker certain time to a specified borrower. development project that is made up An individual or company that brings See home equity line of credit. of representatives from associations borrowers and lenders together for the covering specific areas within the purpose of loan origination. Mortgage liquid asset project. In effect, it is a second-level brokers typically require a fee or a A cash asset or an asset that is association that handles matters commission for their services. easily converted into cash. affecting the entire development, while the first-level associations mortgage insurance loan handle matters affecting their A contract that insures the lender A sum of borrowed money (principal) particular portions of the project. against loss caused by a mortgagor’s that is generally repaid with interest. default on a government mortgage maturity or conventional mortgage. Mortgage loan origination The date on which the principal balance insurance can be issued by a The process by which a mortgage of a loan, bond, or other financial private company or by a government lender brings into existence a instrument becomes due and payable. agency such as the Federal Housing mortgage secured by real property. Administration (FHA). Depending on maximum financing the type of mortgage insurance, the loan-to-value (LTV) percentage A mortgage amount that is within 5 insurance may cover a percentage The relationship between the percent of the highest loan-to-value of or virtually the entire mortgage principal balance of the mortgage (LTV) percentage allowed for a specific loan. See private mortgage insurance. and the appraised value (or sales product. Thus, maximum financing price if it is lower) of the property. on a fixed-rate mortgage would be 90 mortgage insurance For example, a $100,000 home percent or higher, because 95 percent is premium (MIP) with an $80,000 mortgage has a the maximum allowable LTV percentage The amount paid by a mortgagor LTV percentage of 80 percent. for that product. for mortgage insurance, either to a government agency such as the lock-in merged credit report Federal Housing Administration (FHA) A written agreement in which the A credit report that contains information or to a private mortgage insurance lender guarantees a specified interest from three credit repositories. When (MI) company. rate if a mortgage goes to closing the report is created, the information within a set period of time. The lock- is compared for duplicate entries. mortgage lien in also usually specifies the number Any duplicates are combined to A lien or charge on the property of points to be paid at closing. provide a summary of your credit. of a borrower that secures the underlying debt obligations. lock-in period monthly fixed installment The time period during which the That portion of the total monthly mortgage life insurance lender has guaranteed an interest payment that is applied toward principal A type of term life insurance often rate to a borrower. See lock-in. and interest. When a mortgage bought by mortgagors. The amount of negatively amortizes, the monthly coverage decreases as the principal margin fixed installment does not include balance declines. In the event that For an adjustable-rate mortgage any amount for principal reduction. the borrower dies while the policy (ARM), the amount that is added to the is in force, the debt is automatically index to establish the interest rate on monthly payment mortgage satisfied by insurance proceeds. each adjustment date, subject to any A mortgage that requires payments limitations on the interest rate change. to reduce the debt once a month.

Stop Renting and Start Owning Today Multiple Listing Service (MLS) note rate PITI reserves A marketing organization composed The interest rate stated on a A cash amount that a borrower must of member brokers who agree to mortgage note. have on hand after making a down share their listing agreements with payment and paying all closing costs for one another in the hope of procuring notice of default the purchase of a home. The principal, ready, willing and able buyers A formal written notice to a borrower interest, taxes, and insurance (PITI) for their properties more quickly that a default has occurred and reserves must equal the amount that than they could on their own. that legal action may be taken. the borrower would have to pay for PITI for a predefined number of months. negative amortization original principal balance A gradual increase in mortgage The total amount of principal point debt that occurs when the monthly owed on a mortgage before A one-time charge by the lender for payment is not large enough to cover any payments are made. originating a loan. A point is 1 percent the entire principal and interest of the amount of the mortgage. due. The amount of the shortfall origination fee is added to the remaining balance A fee paid to a lender for processing a prearranged refinancing to create negative amortization. loan application. The origination fee is agreement stated in the form of points. One point A formal or informal arrangement net cash flow is 1 percent of the mortgage amount. between a lender and a borrower The income that remains for an wherein the lender agrees to offer investment property after the monthly owner financing special terms (such as a reduction operating income is reduced by the A property purchase transaction in in the costs) for a future refinancing monthly housing expense, which which the property seller provides of a mortgage being originated as an includes principal, interest, taxes, and all or part of the financing. inducement for the borrower to enter insurance (PITI) for the mortgage, into the original mortgage transaction. homeowners’ association dues, payment cap leasehold payments, and The limit on the amount the monthly preforeclosure sale subordinate financing payments. payment can be increased on an A procedure in which the investor adjustable-rate mortgage when allows a mortgagor to avoid foreclosure net worth the interest rate is adjusted. by selling the property for less than the The value of all of a person’s assets, amount that is owed to the investor. including cash, minus all liabilities. periodic payment cap For an adjustable-rate mortgage prepayment no cash-out refinance (ARM), a limit on the amount that Any amount paid to reduce the A refinance transaction in which the payments can increase or decrease principal balance of a loan before new mortgage amount is limited to during any one adjustment period. the due date. Payment in full on a the sum of the remaining balance of mortgage that may result from a the existing first mortgage, closing periodic rate cap sale of the property, the owner’s costs (including prepaid items), points, For an adjustable-rate mortgage (ARM), decision to pay off the loan in full, or a the amount required to satisfy any a limit on the amount that the interest foreclosure. In each case, prepayment mortgage liens that are more than one rate can increase or decrease during means payment occurs before the year old (if the borrower chooses to any one adjustment period, regardless loan has been fully amortized. satisfy them), and other funds for the of how high or low the index might be. borrower’s use (as long as the amount prepaid items does not exceed 1 percent of the personal property On a closing statement, items that principal amount of the new mortgage). Any property that is not real property. have been paid in advance by the seller, such as insurance premiums and some non-liquid asset PITI real estate taxes, for which he or she An asset that cannot easily See principal, interest, taxes must be reimbursed by the buyer. be converted into cash. and insurance (PITI) below. note A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Stop Renting and Start Owning Today prepayment penalty prorations recorder A fee that may be charged to a borrower Expenses either prepaid or paid in The public official who keeps records who pays off a loan before it is due. arrears, which are divided or distributed of transactions that affect real property between buyer and seller at closing. in the area. Sometimes known as a pre-qualification Registrar of Deeds or County Clerk. The process of determining how qualifying ratios much money a prospective home Calculations that are used in right of first refusal buyer will be eligible to borrow determining whether a borrower A provision in an agreement that before he or she applies for a loan. can qualify for a mortgage. They requires the owner of a property to give consist of two separate calculations: another party the first opportunity to prime rate a housing expense as a percent of purchase or lease the property before The interest rate that banks charge to income ratio and total debt obligations he or she offers it for sale or lease their preferred customers. Changes as a percent of income ratio. to others. in the prime rate influence changes in other rates, including mortgage quitclaim deed second mortgage interest rates. A deed that transfers without A mortgage that has a lien position warranty whatever interest or subordinate to the first mortgage. principal title a grantor may have at the The amount borrowed or remaining time the conveyance is made. secondary mortgage market unpaid. The part of the monthly The buying and selling payment that reduces the remaining rate cap of existing mortgages. balance of a mortgage. The limit on the amount the interest rate can be increased at each secured loan principal balance adjustment period in an adjustable- A loan that is backed by collateral. The outstanding balance of principal rate loan. The cap may also set the on a mortgage. The principal balance maximum interest rate that can be security does not include interest or any other charge during the life of the loan. The property that will be pledged charges. See remaining balance. as collateral for a loan. real estate principal, interest, taxes, Land; a portion of the earth’s survey and insurance (PITI) surface extending downward to The process by which boundaries The four components of a monthly the center of the earth and upward are measured and land areas are mortgage payment. Principal refers indefinitely into space, including determined; the on-site measurement to the part of the monthly payment all things permanently attached to of lot lines, dimensions and position that reduces the remaining balance it, whether naturally or artificially. of a house on a lot, including the of the mortgage. Interest is the fee determination of any existing charged for borrowing money. Taxes realist encroachments or easements. Surveys and insurance refer to the amounts Members of the National prepared from public records are that are paid into an escrow account Association of Real Estate called location surveys. Surveys each month for property taxes and Brokers use the term Realist. prepared on-site by a professional mortgage and hazard insurance. surveyor are called stake surveys. real property private mortgage Land and appurtenances, including title insurance (PMI) anything of a permanent nature A legal document evidencing a person’s Mortgage insurance that is provided such as structures, trees, minerals, right to or ownership of a property. by a private mortgage insurance and the interest, benefits, and company to protect lenders against inherent rights thereof. title company loss if a borrower defaults. Most A company that specializes in lenders generally require MI for a REALTOR® examining and insuring titles to loan with a loan-to-value (LTV) Members of the National Association of real estate. percentage in excess of 80 percent. REALTORS® use the term REALTOR®.

Stop Renting and Start Owning Today title insurance Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property. title search A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding. underwriting The process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower’s creditworthiness and the quality of the property itself. unsecured loan A loan that is not backed by collateral. VA mortgage A mortgage that is guaranteed by the Department of Veterans Affairs (VA). Also known as a government mortgage. wraparound mortgage A mortgage that includes the remaining balance on an existing first mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the first mortgage to the first mortgagee. zoning The division of a city or county by legislative regulations into areas (zones), specifying the uses allowable for the property in those areas.

Stop Renting and Start Owning Today Good Luck, But Not Good Bye!

Reviewing this guide is only the beginning of your home buying adventure. There’s so much more you will learn during this experience that we can’t even begin to predict for you. But one thing is for certain — if Elements Financial secures your mortgage business, we will be here for you every step of the way. Unlike our larger competitors, we take the extra time to walk you through this process, explain our paperwork, and make sure you understand every decision you’re making. We believe that buying a home and getting your mortgage should be a memorable experience in a purely positive sense. So, let’s begin a personalized conversation about your situation now. Call our Loan Originators toll-free, (800) 621-2105, option 2, or go ahead and apply for a preapproval within 15 minutes at elements.org.

Helpful Home Buying Resources: Realtor Rebate Program – 800.540.6251 Ameriprise Auto & Home Insurance – 800.239.9953

Stop Renting and Start Owning Today About Elements Financial

Elements is not a bank. Elements is not just a credit union. We are financial wellness providers with a national footprint. Our original partner is Eli Lilly & Company since 1930, and we now serve 100+ other organizations. Our 90,000+ members and their financial wellness come first at Elements.

Elements provides a variety of powerful financial products and services as solutions to our members’ financial goals and challenges. We do that while also providing considerable value and giveback to our member-owners through strong rates and low fees.

Our mortgage solutions specifically feature locally-based processing and underwriting from a team that works collaboratively under the same roof in downtown Indianapolis. They specialize in giving quick and reassuring answers to home buyers. The mortgage process at Elements becomes a dialogue and an experience rather than just another loan transaction.

As a well-capitalized $1.5 billion financial institution, we have the resources, staff and expertise to support you and your clients with unparalleled service, competitive rates and closing costs, and a lifelong relationship focused on their financial success.

Join us at Elements as we pursue the goal of financial wellness together.

Learn more at elements.org

Stop Renting and Start Owning Today