Home Loan Center

Steps to Buying a Home

• Getting Started - Tips to help you enter the real estate market with confidence
• Calculating What You Need - How much cash do you need to buy a home & how to invest for the down payment
• Finding a Home - Helpful ideas to help you find the home of your dreams
• Making an Offer - Process of making an offer & negotiating a deal
• Finding a Loan - Learn about the loan option available & which ones fit your specific needs
• Final Steps - Learn about insurance, the closing process, & what to do after your loan closing.

Finding a Loan
Having a pre-approved mortgage lets you shop with confidence, defines you as a serious buyer to sellers and real estate agents, and accelerates the mortgage process.

• Financing Choices
• Tips for the Smart Loan Shopper
• Mortgage Checklist

30-year fixed-rate

• Key features: Interest rate remains the same for the life of the loan.
• Customer benefits: Provides protection against rising interest payments. Predictable payments make budgeting for the future easy.
• Homebuyer profile: Especially attractive in a low interest-rate environment and ideal if you plan to stay in your new home for at least 7 years.

15-year fixed-rate

• Key features: Same as 30-year, but with slightly lower interest rates.
• Customer benefits: Principal is paid off sooner, saving substantial money in interest payments.
• Homebuyer profile: Investment-minded homebuyers who can or wish to make higher mortgage payments can build equity faster.

Adjustable rate (1-year ARM)

• Key features: Interest rate (and monthly payments) can rise or fall as a result of annual rate adjustments, which occur throughout the term of the loan in response to a changing economy.
• Customer benefits: The initial interest rate (and monthly payment) is lower than that of a fixed-rate mortgage.
• Homebuyer profile: An ARM may be a good choice in a higher interest rate environment if you need a lower rate to qualify for financing or if you want to save money in the first year.
  Intermediate ARM
• Key features: Offers a fixed interest rate for a designated period (3, 5, 7, or 10 years) then adjusts annually. Often referred to as 3/1, 5/1, 7/1, and 10/1 ARMs.
• Customer benefits: Initial interest rate and monthly payments are lower than that of a fixed rate, so payments are more manageable during the introductory period. The rate is usually higher than the 1-year ARM, but payments are dependable for a longer period.
• Homebuyer profile: This option can be a practical financial-planning tool for forward-thinking homebuyers who intend to move in 3, 5, 7, or 10 years.

Convertible ARM

• Key features: Offers an option to convert your loan to a fixed-rate mortgage after a certain period of time (for example, anytime after the first year but before the beginning of the fifth year).
• Customer benefits: The advantage of a lower interest rate with an opportunity to change to a fixed rate when you can better afford it.
• Homebuyer profile: A good choice for homebuyers who need a lower qualifying rate today, but who may want to switch to a fixed rate in the future without refinancing.

Balloon loan

• Key features: Offers fixed payments for a period of time (usually 5 to 7 years), followed by one balloon payment of the remaining loan balance.
• Customer benefits: Interest rate is lower than that of a fixed-rate loan.
• Homebuyer profile: A popular choice of homebuyers who are certain they will move or refinance in 5 to 7 years.
  Renovation loan
• Key features: Finances the purchase of a home and provides the additional funds to improve or renovate it.
• Customer benefits: The amount of money than can be borrowed is based on the future value of the home after improvement.
• Homebuyer profile: Perfect for the homebuyer looking to purchase a “fixer-upper” or a house that requires remodeling to accommodate family needs.

New construction loans

• Key features: Offers two types of programs: one that finances the purchase of a newly constructed home and one that finances the actual construction plus the purchase of the finished home.
• Customer benefits: Loans for new construction offer options such as an extended rate lock or bridge loan.
• Homebuyer profile: Homebuyers purchasing a newly constructed home from a builder, or building their own home.
  Northwoods Bank has a variety of rate, term and cost options to answer homebuyer needs. Our Home Loan Center Lenders can recommend the financing solution that’s exactly right for you.
  The following page highlights are monthly payment amount examples for a $100,000 mortgage, assuming a 1% origination fee which is included in the APR. Certain closing costs may be charged that are not included in this calculation. Actual rates may vary depending on current market conditions, your credit data, the mortgage program you choose and the type of property being financed. A down payment of less than 20% may require mortgage insurance, which can increase the APR.
• 30-year fixed-rate mortgage: Fixed simple interest rate 7.875%, APR 7.990%, monthly payment $725.07 for 360 months.
• 20-year fixed-rate mortgage: Fixed simple interest rate 7.875%, APR 8.009%, monthly payment $828.68 for 240 months.

• What are the points and the interest rates?
• What is the Annual Percentage Rate?
• Does the lender have an interest rate “lock” and a “float option?”

A “point” is equal to 1% of the amount of your loan, and the more points you are able (or wish) to pay, the more you can lower your rate. Paying points is not a requirement, it’s simply an option lenders offer to accommodate their home mortgage customers.

Should you pay points? This often depends on how long you intend to stay in the home. If you are planning to sell in a few years, it may make sense to forego paying points and get a higher interest rate. However, if you plan on staying in your home for a long time, for example more than five years, then it might make sense to pay the points to get a lower interest rate. Points may be tax-deductible*. Your mortgage professional can help you calculate which option may benefit you.

When shopping for a mortgage, ask the lenders for the Annual Percentage Rate (APR) as well as the interest rate, so you can compare them to other available mortgage rates. The APR is the total finance charge on the amount of your loan, spread over the term of the loan, expressed as a percentage. The APR is always higher than the interest rate.
Here are examples of interest rates and APR’s **:

• 30 Year Fixed Mortgage: Interest rate: 8.00% APR: 8.106%
• 1-year Adjustable Rate Mortgage: Interest rate: 7.625% APR: 8.430%

Be sure to ask your lender about available rate lock and float options. The available rate lock means the lender guarantees the rate for a certain period, often from 30 days to 120 days. A float option allows you to float the rate, so you can follow interest rates and “lock in” your rate anytime up to five days before your closing. Keep in mind that lenders may charge a fee to elect one of these options; therefore, look closely at your own situation to see if either of these will benefit you.

A longer lock period protects your rate for a longer length of time, which can be helpful should rates increase before your closing. But if you lock in your rate and rates decrease, your loan will close at your originally locked in rate. No one knows if rates will go up or come down, so it’s impossible for a Home Loan Center Lender to tell you whether or not you should lock or float your rate. The decision is yours.

Homebuyers working with builders can sometimes lock their interest rates for up to one year to accommodate lengthy construction time frames. Check with your lender to see if this option is available.

* Consult your tax advisor for complete details.
** This chart is for illustrative purposes only. It assumes a 1% origination fee which is included in the APR. It assumes a 20% down payment. Certain closing costs may be charged that are not included in this calculation. Actual rates vary depending on current market conditions, applicant’s credit data, mortgage program and the type of property being financed.

Be Prepared
When you are ready to apply, please be prepared to provide the following application and property information:

• Application Information (for all applicants)
• Home address(es) for the previous two years
• Your social security number(s)
• Employment information for the previous two years including employer name, address and phone number
• Income information including salary, overtime, bonuses, commissions, dividends, interest, retirement and any other source of ongoing income
• Liquid assets including bank name, account type, balance, and source of down payment
• Other assets including the value of bonds, stocks, life insurance, retirement funds, jewelry, automobiles, etc.
• Liabilities including creditor names and outstanding balances for all debts including notes payable, 401(k) loans, life insurance loans, stock pledges, alimony, child support, co-sign loans, credit union loans, and other liabilities
• Real estate owned including property address, market value, outstanding liens, rental income, mortgage payments, taxes, insurance and maintenance dues
• Property Information
• Purchase contract
• Planned Unit Development (PUD), condominium or co-op
• Name of development or project
  • Phone number of the homeowner’s association (if available)
• New construction:
  • Year land or lot was acquired
  • Original cost of land/lot
  • Amount of liens
  • Estimated cost of construction
• Refinance loans:
  • Year property was acquired
  • Original cost of the home
  • Cost of improvements
  • Amount of liens
  • Description of improvements

When you apply for your loan, you’ll be asked to pay an application deposit which can be charged to a major credit card. This non-refundable deposit will be applied toward the cost of the property appraisal and credit report. If you apply in person, you have the option of paying this deposit by check.

Final Steps