HUECU HARVARD UNIVERSITY EMPLOYEES CREDIT UNION

home buying Handbook

A resource guide to HUECU Home Buying Benefits

Benefits from HUECU...... 2 Understanding Your FICO® Score...... 3 The HUECU Mortgage Process for Purchases...... 4 The Mortgage Process: Do’s and Don’ts...... 5 Purchase Documentation Checklist...... 6 Costs and Escrows...... 7 FAQs on Mortgage Loans...... 8

HUECU.ORG ∞ P.O. Box 382609, Cambridge, MA 02238-2609 ∞ 617.495.4460 home buying benefits from huecu

The Real Estate Advantage Program (REAP) is a collaboration among HUECU, Coldwell Banker and Harvard University Getting Started with HUECU Housing to provide Harvard University faculty and staff, ∞ Call 800-396-0960 to register by phone Harvard affiliates, HUECU members and their immediate ∞ Register online at HUECU.ORG/REAP family with an array of quality, expert services in real estate, home financing, moving and more.

First Time Home Buyer Benefits with HUECU HUECU Mortgage options * ∞ .125% rate discount ∞ Fixed rate mortgages (10,15,20 & 30 year terms) ∞ $300 waived application and underwriting ∞ Adjustable rate mortgages (ARM) [3/3, 5/1,7/1,10/1] ∞ Discount on attorney fees ∞ Jumbo mortgages (up to $2 million) ∞ $100 waived condo doc review ∞ Down payments as low as 3%* ∞ 90 day rate lock ∞ Primary residences (1-4 family) ∞ FREE pre-approval good for 90 days ∞ Second homes ∞ Investment properties

CASh, coupons & rebates Purchase/Sale Price Your Cash Rebate* ∞ $50 coupon when you register for REAP $50,000-$99,999 $330 ∞ $200 additional closing cost credit for REAP transactions $100,000-$199,999 $440 $200,000-$299,999 $687 $300,000-$399,999 $962 Coldwell Banker Benefits $400,000-$499,999 $1,237 $500,000-$599,999 $1,512 ∞ Home sale assistance $600,000-$699,999 $1,787 ∞ Household moving services $700,000-$799,999 $2,062 ∞ Cash rebate after closing on your home $800,000-$899,999 $2,337 $900,000-$999,999 $2,612 $1,000,000-$1,099,999** $2,887

*Rates subject to change **Rebate increases for each additional $100,000.

2 HUECU HOME BUYING HANDBOOK UNDERSTANDING YOUR FICO® SCORE

Your Credit Scores (FICO Scores) are calculated from different pieces of credit data in your credit report. The data is grouped into five categories as outlined below. There are three main credit reporting agencies so in most cases you will have three FICO Scores. Most lenders use the middle score as your FICO Score when applying for a mortgage.

Your FICO Scores consider both positive and negative information on your credit report. Late payments will lower your FICO Scores, but establishing or re-establishing a good track record of making payments on time will raise your score.

FICO Scores are determined by weighing the following categories based on what is most important when establishing your credit score:

payment history 10% CREDIT GRADES Your FICO Score is a factor lenders use amount owed 10% to assess risk. In general, here is how 35% the score relates to your credit grade: FICO SCORE Length of credit history excellent 750 and up 15% BREAKDOWN above average 680-749 types of credit fair 620-680 New Credit 30% poor 619 and below

payment history types of credit

Late payments can lower your credit score a little, or a lot, Types of credit determines your mix of mortgages, installment depending on how recent or severe the late payments are and how loans and credit card accounts. You don’t need to have every type frequently they occur. Any previous bankruptcies, foreclosures, of credit, and this isn’t a key factor in determining your FICO short sales, collection accounts and judgments will likewise have Scores – however, it may be more significant if your credit report an adverse impact on your FICO Scores. doesn’t have a lot of other information. amount owed new credit

High loan balances or maxed-out credit cards are considered a Opening new accounts is not a bad thing, but it may hurt your greater risk and can lower your credit score. Keep in mind that credit score if you apply for a lot of credit in a short period of closing a credit card with an outstanding balance can also hurt time. Checking your credit report will not adversely affect your your credit score. score. However, when you are shopping for credit – applying for a car loan or credit card, for example – these inquires remain on your credit report for two years. A large number of inquiries may length of credit history adversely affect your score.

In general, a longer credit history will increase your FICO Scores, but it’s not a requirement. Your credit may also be affected by the age of your oldest and newest accounts, and how long it’s been since you’ve used certain accounts.

3 HUECU HOME BUYING HANDBOOK 4 Closing Express Pre- Approval Complete a simple online form and one of our Mortgage You sign a big stack of papers and walk 1 Loan Originators (MLO) will call and follow up to review your HUECU HOME BUYING HANDBOOK away with the keys to your new home. information and issue your Approved Homebuyer Certificate. 9 2

preparing to close Accepted Offer

Before your closing, you’ll obtain a Homeowner’s Insurance Policy When the Purchase Offer you’ve made on your new home and provide it to HUECU. Your credit and employment are verified is accepted, a Home Inspection is generally completed. If one last time and a Closing Disclosure (which reflects all terms, costs everything looks good, a Purchase and Sale agreement will be and escrows) is issued a minimum of 3 business days prior to closing. signed by you and the sellers. 3 8 underwriting THE HUECU Loan Application Now you can complete your loan application. This can After reviewing your application, supporting documentation and be done online, by phone or with one of our MLOs in the appraisal, the Underwriter will approve your Mortgage and MORTGAGE PROCESS person at any HUECU branch. You will receive a Loan issue a Commitment Letter. Any additional conditions are gathered FOR PURCHASES Estimate and Disclosure Package, which includes the and reviewed. A clear to close will then be issued. terms of the loan and estimates of all closing costs.

7 4 processing

During processing, HUECU is doing a lot of work behind the scenes: verifying employment, income and assets, Documentation reviewing credit, and requesting additional documents as needed. The appraisal is also ordered at this stage and once The supporting documents your MLO needs, received, a copy is sent to you. such as paystubs, W2s and bank statements, can be uploaded through our website or dropped off at an HUECU branch. Rate Lock 6 You may choose to lock your rate any time between 5 application and up to 10 days prior to your closing. The rate lock is good for 90 days for First Time Homebuyers. When the loan is locked a lock deposit is collected. Once locked, your MLO will update your Loan Estimate. THE MORTGAGE PROCESS DO’S AND DON’TS

DO’S DON’TS

∞ Keep all originals and have access to all of your ∞ Close or open any asset accounts or transfer funds pay-stubs, bank statements and other important between accounts. documentation. ∞ Deposit any money outside of your verified income ∞ Make your Earnest Money Deposit from your own source, particularly cash or funds from the sale of an personal bank account or acceptable gift funds. asset.

∞ Notify Originator (MLO) if you ∞ Change jobs/employers without inquiring about expect to receive a grant or gift from a relative or the impact this change might have on your loan. not-for-profit organization. ∞ Open or increase any liabilities, including credit ∞ Keep a paper trail receipt of gift funds with gift letter, cards, student loans or other lines of credit. copy of check and deposit receipt. ∞ Make major purchases during the process, such as ∞ Provide all documentation for the sale of a car, a car, furniture or appliances, that could reduce your personal items or real estate. assets or increase your indebtedness.

∞ Supply documentation of any Employee Assistance ∞ Take a credit card advance or borrow funds for for down payment, closing costs or second mortgage. closing.

∞ Notify your MLO of any employment changes ∞ Change your legal name. such as recent raises, promotion, transfer, demotion, job loss or any other loss of income. ∞ Take any unpaid time off or reduce your hours worked if paid hourly. ∞ Make timely payments on all current debt obligations, including any current mortgage, car, student loan or credit cards.

∞ Notify your MLO of any depletion of funds needed to close.

∞ Notify MLO of change of current address, phone or email.

∞ Notify MLO of any deposit you expect to make not related to your income source or income tax refund.

∞ Notify MLO if you plan to be away for a period of more than three business days during the mortgage process.

5 HUECU HOME BUYING HANDBOOK PURCHASE DOCUMENTATION CHECKLIST

As part of the mortgage process, your qualifying income, liabilities and assets to close will be verified. Your credit will also be run to evaluate your creditworthiness. To expedite the process, once you apply, start gathering the following documentation:

Purchase

Purchase Offer and Purchase & Sales Agreement

Copy of canceled Earnest Money Deposit check(s)

Home Buyer Education Certificate for 3% down payments

Income

Earning statements: Recent pay stubs covering 30 days and W2s for the past two years

If you are self-employed, receive commission, or own rental property: two years personal tax returns; two years business tax returns and a year-to-date business profit and loss, if required

Additional income: Social Security Award Letter, Pension, Divorce Papers for Child Support or Alimony with evidence of receipt

Assets

Bank statements or printed on-line statements for checking, savings and other investment accounts covering the last 60 days

Most recent retirement or 401k statements

Gift letter, copy of gift check and deposit receipt (if applicable)

Documentation on any Employer Assistance for down payment, closing costs or second mortgages

Liabilities

Debts will be obtained from the Credit Report

Documentation for payments of Deferred Student Loans, negotiated payments on any other outstanding debts or private financing

Copy of tax bills and homeowner’s declaration page on any other properties owned

Divorce Papers, Separation Agreement or Court Order documents for Child Support or Alimony

12 months canceled checks on co-signed loans, if required

12 months canceled checks on rent, if required

Condominiums

Executed Condominium Affidavit

Condominium Budget, Master Insurance Policy and HO6 insurance Policy for the interior of the unit

6 HUECU HOME BUYING HANDBOOK CLOSING COSTS AND ESCROWS

There are closing costs associated with obtaining a mortgage. Additionally, in most cases you may be required to escrow your taxes and your homeowner’s insurance. Below is a general list of HUECU estimated closing costs and escrows. When you apply for your mortgage you will receive a loan estimate where you will be able to review all fees associated with your specific mortgage request.

Service Fee

Application Fee $150

Underwriting Fee $150

Points 1% of the loan amount for each (No 0 point option available)

Appraisal Fee – per appraisal $350 - $550

Flood Determination $10

Tax Service Fee $93

Settlement Agent $750

Lender’s Insurance $2.75 per $1,000 of the loan amount

Other Title and Closing Fees $155

Survey $150

Recording Fee $402

Owner Recommended but not required

Prepaid Interest Per Diem: based on the day of the month you close until the end of the month

Prepaid Homeowner’s Insurance $600 - $1500 + (1 year)

Tax Escrows 3 - 6 months of property taxes

Homeowner’s Escrow 2 months

PMI 2 month PMI premium (if applicable)

Floor Insurance 1 year policy (if applicable)

First Time Home Buyer Benefits with HUECU Additional ad ons ∞ .125% rate discount* HUECU also offers a No Points No Closing Cost option for a higher rate. ∞ Reduced closing costs ∞ $300 waived application and underwriting fees *Rates subject to change. ∞ Discount on attorney fees **The above chart may not include all fees related to obtaining your loan. For example: some states have a Transfer Tax. In NH it is $.75 per $100 of the purchase price. ∞ $100 waived condo doc review ***Closing costs vary per loan and may be slightly different than those quoted above. ∞ 90 day rate lock ∞ FREE pre-approval good for 90 days

7 HUECU HOME BUYING HANDBOOK FAQS ON MORTGAGE LOANS

ELIGIBILITY EXPRESS PRE-APPROVAL

WHO IS ELIGIBLE? WHAT IS EXPRESS PRE-APPROVAL? In order to submit a mortgage or pre-approval In most cases, real estate agents will request a letter of pre-approval application, you are required to be a member of the (“Approved Homebuyer Certificate”) in order for you to submit and Credit Union. Membership can be accomplished by negotiate offers on homes for sale. This can be accomplished either opening a share savings account for a minimum of in person with a Mortgage Loan Originator or by submitting an Express $5 and it can be done at either a branch location or at Pre-Approval at HUECU.org and there is no fee for this service. HUECU.org. WHAT IS AN APPROVED HOMEBUYER CERTIFICATE? The Approved Homebuyer Certificate certifies that you are a qualified buyer and may give you an advantage over other prospective buyers who have not been pre-approved.

FIRST TIME HOME BUYERS HOW LONG IS YOUR APPROVED HOMEBUYING CERTIFICATE VALID FOR? The Approved Homebuyer Certificate will be valid for a period of ninety (90) days, but will not specify an interest rate, as your actual interest rate cannot be determined until you have an accepted offer WHO IS CONSIDERED on a property and have submitted a full mortgage application. A FIRST TIME HOME BUYER? A first time home buyer is considered to be someone INTEREST RATES who has not owned a home in the last three years.

WHAT IS THE RATE DISCOUNT FOR FIRST TIME HOME BUYERS? HOW OFTEN ARE HUECU MORTGAGE First time buyers will receive a .125% reduction RATES UPDATED? to the interest rate and a reduction in the closing costs. The Credit Union’s mortgage interest rates are updated daily and will be posted on HUECU.org.

HOW DO FIRST TIME HOME BUYER HOW DO I LOCK IN AN INTEREST RATE? BENEFITS WORK WITH A JOINT APPLICATION? Your interest rate is not automatically locked in at the time your application In the case of joint applicants, the primary HUECU is submitted. Once your application has been reviewed by a Mortgage Loan member with the Harvard affiliation must meet the Originator, you will have the option of locking your interest rate. To lock an definition of a First Time Home Buyer in order to interest rate, the Credit Union will request a deposit of $500, which will be recieve the benefits referenced above. credited towards closing costs.

HOW LONG WILL MY INTEREST RATE BE LOCKED IN FOR? First time buyers can lock their interest rate for a ninety (90) day period, while all other applicants will be offered a sixty (60) day lock period.

8 HUECU HOME BUYING HANDBOOK ANNUAL PERCENTAGE PRIVATE MORTGAGE RATE (APR) INSURANCE (PMI)

WHAT IS APR? WHAT IS PMI AND WHO APR is a broader measure of the cost to you of borrowing money. Your APR reflects not only the interest rate but DOES IT PROTECT? also the points, application fee and other charges that you may be paying to get the loan. For that reason, your APR is PMI reduces the lender’s risk. In the case of default the PMI will usually higher than your interest rate. pay the lender a percentage of the loan. Lenders typically require PMI if you put down less than 20% of the home’s value. It is usually paid monthly as part of your mortgage payment. Buyers with less money invested in a property are more likely to default on the loan and go into foreclosure, so requiring PMI mitigates the risk. Paying PMI is the trade-off for being able to buy a home with as little as 3% INCOME or 5% as a down payment.

HOW IS MY INCOME VERIFIED? CREDIT Paycheck stubs will be the primary source of income verification. Overtime can be used, as long as there is a two year history that can be verified. To include “other income,” such as a part-time job, a two year history is HOW IS MY CREDIT CHECKED required and will be verified from paycheck stubs and W2 forms. WHEN APPLYING FOR A MORTGAGE? The Credit Union utilizes a “merged” credit report, which obtains HOW IS SOCIAL SECURITY AND data from the three major credit reporting agencies (Experian, Transunion and Equifax). Each agency will assign a credit score RETIREMENT INCOME VERIFIED? and the middle of the three scores will be used in evaluating your HUECU will request copies of the award letters, as well as application. If there is more than one applicant, the lower of the copies of bank statements verifying receipt of the income. two middle scores will be utilized. A brief written explanation may be required for any current or previous delinquencies of 30 days or more. Any accounts classified as either a charge-off, profit and loss or collection account may have to be paid in full prior to closing. HOW IS RENTAL INCOME VERIFIED? HUECU will request copies of your two most recent years’ tax returns, with the income coming from Schedule E. CAN I APPLY FOR ADDITIONAL CREDIT DURING THE Leases may be requested if the investment property has MORTGAGE PROCESS? been owned less than one year. If possible, please avoid applying for any additional credit while your loan is in process. The Credit Union will be obtaining an updated credit report approximately 48 hours prior to closing and any recent inquiries will have to be explained. Should there be any HOW IS MY SELF-EMPLOYED INCOME VERIFIED? new obligations incurred, documentation will be required. HUECU will request copies of your two most recent years’ tax returns, with the income coming from Schedule C (for a sole proprietor). If there is a corporation or partnership, additional documentation will likely be requested.

9 HUECU HOME BUYING HANDBOOK DOWNPAYMENT PROPERTY TYPES

WHAT DOES HUECU ARE THERE ADDITIONAL REQUIRE FOR A DOWN PAYMENT? REQUIREMENTS TO GET A HUECU’s minimum down payment percentage is 3% of the purchase price. However, this applies specifically MORTGAGE FOR A CONDOMINIUM? to HUECU’s Home Ready product, which has income Please attempt to determine the percentage of the units in the building/ restrictions, or to the First Time Homebuyer Program. If complex that are owner-occupied, as the Credit Union will require that you do not qualify for these programs, the minimum down it be at least 50% for the property to be eligible for approval. If the payment percentage will be 5% of the purchase price. If building/complex is a new construction or a conversion, please attempt your down payment is less than 20%, mortgage insurance to find out how many units there are in the project and how many (“PMI”) will be required. If mortgage insurance is required, have sold and closed. This may determine whether the property will the factor used in determining your monthly payment will be eligible for approval. The financial condition of the condominium be based on the loan amount and down payment percentage. association is critical, as the underwriters will need to verify that it has sufficient reserves (funds set aside for property repairs). CAN I USE GIFTED FUNDS FOR THE DOWN PAYMENT? ARE THERE ADDITIONAL REQUIREMENTS TO GET A MORTGAGE FOR A SINGLE FAMILY HOME? If gift funds are being used, the donor will be asked to complete a gift letter indicating that there is no repayment Does the property have a private septic system? If so, a Title V septic required. All parties are encouraged to seek professional certification will be required prior to closing per Commonwealth advice in order to determine whether there are any tax of Massachusetts law. If the property is located on a private road, implications associated with the gift. additional documentation may be requested. ARE THERE ADDITIONAL REQUIREMENTS TO GET A MORTGAGE FOR A CAN I USE STOCKS, MUTUAL FUNDS OR PART OF MY MULTI-FAMILY HOME? RETIREMENT FOR THE DOWN PAYMENT? For a two-unit property, the minimum down payment required is 15% If any of the funds are coming from a “non-liquid” account of the purchase price. For a three or four unit property, the minimum (i.e. stock, mutual funds, retirement, 401k), the funds will down payment required is 20% of the purchase price. For the unit(s) have to be moved to a “liquid” account (i.e. checking or that is/are rented, 75% of the monthly rent will be included in your savings) approximately 10 days prior to closing. If funds monthly income calculations. Generally, reserves of six-month from a retirement/401k account are being used, borrowers mortgage payments are required. are encouraged to seek professional advice in order to determine any possible tax implications. PROPERTY APPRAISALS

WHAT SHOULD I DO IF I HAVE TO MOVE FUNDS FROM DOES HUECU REQUIRE A HOME APPRAISAL ON ALL ONE ACCOUNT TO ANOTHER TO MAKE A DOWN PAYMENT? LOANS? If you will be moving funds from one account to another, please keep a “paper trail” (copies of the receipts for the An appraisal is required on all mortgages. If there is a difference withdrawals and deposits), as the underwriters will need to in the purchase price and the appraised value, the lower of the two verify the source of any large deposits. values will be used in the underwriting process. The Credit Union will require that the appraiser’s rating of the property’s overall condition be average or better. If the appraiser notes any deferred maintenance for the property, the item(s) noted will likely have to be fixed prior to closing.

WHAT IS REQUIRED FOR AN APPRAISAL IF THE PROPERTY IS A NEW CONSTRUCTION? For a property that is a new construction the initial appraisal can be completed based on plans and specs. All work on the property must be complete with a Certificate of Occupancy issued by the city or town prior to closing. HUECU’s appraiser will need to re-inspect the property to certify completion prior to closing.

10 HUECU HOME BUYING HANDBOOK