Guide to
Mortgages
BUYING A HOME
BUILDING A HOME
REFINANCING
Trust People First For Your Mortgage Needs
People First is committed to providing our members with quality mortgage
products that are both competitive and affordable. Our Mortgage Professionals will analyze your needs and fit you into the mortgage product that works
best for you. Whether purchasing a home or refinancing, we will guide you
through the mortgage process from beginning to end.
Save Hundreds of Dollars in Mortgage Fees
A great benefit of financing your mortgage with People First is the
hundreds of dollars you can save in fees at closing of your mortgage loan.
You can save on broker’s fees, underwriting fees and more. On an average
$100,000 mortgage loan you could save approximately $1,200 which could
be spent on moving expenses or items for your new home.
Inside Our Mortgage Guide
Types of MortgageS
Types of Mortgage Products
Page 3
People First offers a variety of
competitively priced mortgage
products to meet the specific needs
of each individual. After reviewing
your application our Mortgage
Professionals will recommend the
best option for you. Our mortgage
rates can be found on our web site
at www.PeopleFirstCU.org, click on
Rates and then Mortgages. Our
most popular mortgage products
are listed below.
We offer a variety of mortgage products
ranging from Fixed and Variable Rate
Mortgages to FHA Mortgages for First
Time Home Buyers.
Refinance Your Mortgage
Loan Page 4
Sometimes refinancing your mortgage
makes sense. Review the reasons that can
help you make that decision and the steps
you will need to take.
Purchasing a Home?
Get Pre-Approved. It’s Free! Page 5
Smart consumers want to know what they
can afford before they shop.
CU Realty Real Estate Rebate
Program Page 5
A free service that saves you time, money
and the hassle of buying or selling a home.
Steps in the Mortgage Process
Page 6
Find out what information will be required
and the steps involved.
Glossary of Terms Page 7
Definitions of the most commonly used
mortgage terms.
2
Fixed Rate Mortgages
The fixed rate mortgage has been
the most popular mortgage used in
America for years. With a fixed rate
mortgage, your interest rate remains
constant for the length of your loan
so monthly principal and interest
payments never vary.
Many homebuyers select a fixed rate
mortgage if they want the security
and peace of mind of knowing that
their monthly payments will not
Guide to Home Mortgages
change. People First Federal Credit Union offers various fixed rate terms of loans,
including conventional and jumbo, as well as FHA, VA, and state bond programs
which require little or no down payment.
Adjustable Rate Mortgages (ARM)
An Adjustable Rate Mortgage (ARM) usually offers an initial lower interest rate
and initial lower monthly payments than a fixed rate mortgage. However, the
interest rate with an ARM may increase or decrease over the term of the
mortgage. To protect you against rapid rate increases, most ARMs have an
interest rate “cap” or “ceiling.” Some ARMs have a convertible feature that allows
you to convert an ARM into a fixed rate mortgage at specific time periods.
FHA Mortgages
The FHA (Federal Housing Administration) mortgage is a great way to obtain
financing, particularly if you are purchasing your first home. This type of mortgage
helps you get started because it requires a low down payment (as low as 3.5%),
minimal credit history, and allows flexible underwriting guidelines. FHA mortgages
are available in both fixed and adjustable rate programs.
Remodeling Mortgages
Does your current home or the new one you’re buying need improvements
or repairs? Or, are you interested in adding an addition to your existing property?
If so, then remodeling loans can assist you. A remodeling loan enables you to
refinance both the purchase (or refinance) and repairs for the property.
Remodeling loans can include repairs as well as updates and eligible improvements. Most importantly, there is only one mortgage payment. Remodeling loans
are available in conventional and FHA mortgages with fixed and adjustable rates.
Bridge Loan Mortgages
If you currently own a home, the equity from the sale of that home will enable
you to purchase a new home. However, if your present home hasn’t sold prior to
the closing of your new home, then a “bridge” or “swing” loan would help. A bridge
loan provides interim financing and enables you to buy a new home before you
sell your existing one by using the equity in your current home, whether or not
it is sold or listed for sale. People First will collateralize the bridge loan by recording
a mortgage against this property, and full payment will be required upon its sale/
closing, with an initial term of 6 months.
Construction/Permanent Mortgages
Now you can build your dream home and obtain permanent mortgage
financing with a construction-to-permanent loan. A construction-to-permanent
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loan can make your home building process simple because People First has flexible guidelines, and there’s only one closing. Plus, extended options are available
just in case problems or inclement weather prolong the time it takes to build
your home. Upon completion, the mortgage becomes a permanent 15 or 30
year fixed rate mortgage with no additional costs or closing documents. You can
choose a construction term of up to 12 months and a customized draw system
to fit your individual needs.
Piggyback Mortgages
A piggyback mortgage involves the use of two separate mortgages in a
purchase or refinance transaction (the second is referred to as a “piggy back”). It
is primarily used to eliminate private mortgage insurance, but it also may lower
your monthly mortgage payment. It also provides greater tax deductibility
(please consult your tax advisor) and helps build equity in your home faster.
REFINANCING YOUR MORTGAGE LOAN
There are many reasons why someone would want to refinance their home.
A few of the more common reasons are listed below.
• To obtain cash for home improvements, education and purchase
opportunities
• To move from an adjustable rate mortgage to a fixed rate mortgage –
consider how long you think you will be in your home and potential
interest rate changes
• To provide a means of consolidating your debt – paying off high interest
rate loans or credit cards
• To lower the interest rate on your mortgage – generally speaking, it pays
to refinance if you can get an interest rate at least 1.5 percentage points
lower than what you are currently paying
• To reduce the term or length of your loan – doing so can save you
thousands of dollars in interest
To help you decide if refinancing can benefit you, complete the following
exercise. It calculates how long it will take you to recoup the cost of a refinance.
1. Calculate the total cost to refinance – example: $2,000
2. Calculate the monthly savings – example: $100 a month
3. Divide the result of #1 by the result of #2 - example:
$2,000/$100 = 20 months
The homeowner, in the example above, would have to plan on living in
the home for at least 20 months following the refinance of their mortgage to
recoup the cost of $2,000.
4
Guide to Home Mortgages
PURCHASING A HOME?
Get pre-approved. It’s free!
Smart consumers will take this step before they begin the process of
shopping for a home. Why? Finding out how much you can afford saves you
wasted time and money. To start the pre-approval process, apply online at
www.PeopleFirstCU.org or make an appointment with a Mortgage Professional
by calling 610.797.7440 or 1.800.446.5598 extension 612.
CU Realty Real Estate Rebate Program
Our CU Realty Rebate Program streamlines the home buying and selling
process for credit union members by providing you with a TRUSTED and
experienced real estate agent. Our program will help you with everything from
finding a knowledgeable Realtor, to looking for a new home and/or determining
your current home’s value. The CU Realty services are FREE to all members
of People First.
How do I earn a rebate? When you select
an Approved Realtor from this program, you will
earn a cash rebate of 20% of your agent’s commission at closing, based upon the sale price of
the home. It doesn’t make any difference if you
are buying or selling a home, you can earn this rebate when you enroll in the
CU Realty program and use one of our Approved Realtors.
To learn more about the CU Realty Program pick up a detailed brochure in
our lobby, go to www.curealty.com or call and speak to a representative at
1.800.203.9014.
E s tim at e d S av in g s
Home Sale Price
Member Rebate
$100,000
$600
$200,000
$1,200
$400,000
$2,400
$600,000
$3,600
Rebates are awarded to buyers and sellers registered in the CU Realty program before they begin
their home search or sale and who use a Realtor from the Approved Agent network. Examples in the
chart above are based on a 3% commission rate; broker/agent’s commissions may vary.
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5
Glossary of Mortgage Terms
STEPS IN THE MORTGAGE PROCESS
When you are ready to apply for a mortgage for a home purchase or refinance,
begin by completing a mortgage application. Sometimes the mortgage process
can be overwhelming but not to worry, People First will stay with you every step
of the way.
Step 1: Completing a Mortgage Application
Apply for your mortgage online at www.PeopleFirstCU.org or call 610.797.7440
or 1.800.446.5598 extension 612 for questions or to make an appointment.
When applying at a branch we recommend you bring the following information
to your appointment for both you and your joint applicant, if applicable.
• Employer name(s), address(es) and phone number(s) for the last two years
• W-2 for the last two years and one months’ recent pay stubs
• If self-employed, last two years’ tax returns with all schedules
• Place of residence for the last two years
• Most recent bank statements for the last month, include all pages
• All investment company names, addresses, account numbers and balances
• Debtors names, addresses, account numbers, balances and monthly
payments for all open loans and credit cards
• If this is a purchase, fully executed agreement of sale signed by both
buyer(s) and seller(s)
• $350.00 appraisal fee in the form of a check, made payable to People
First FCU
Step 2: A Mortgage Professional will contact you to review your application
and discuss the mortgage product to best fit your needs.
Step 3: A Mortgage Professional will verify your employment and assets
and review your credit history.
Step 4: An Appraiser will appraise the property.
Step 5: An Underwriter will review your file for final approval.
Step 6: Upon approval, an appointment will be scheduled for the closing
with you and your settlement agent.
Acceleration clause. A provision in a mortgage that gives the lender the right to demand payment of the
entire outstanding balance if a monthly payment is missed.
Adjustable-rate mortgage (ARM). A mortgage that permits the lender to adjust its interest rate
periodically on the basis of changes in a specified index.
Amortization. The gradual repayment of a mortgage by installments.
Amortization schedule. A timetable for payment of a mortgage showing the amount of each payment
applied to interest and principal and the balance remaining.
Annual percentage rate (APR). The total yearly cost of a mortgage stated as a percentage of the loan
amount; includes such items as the base interest rate, primary mortgage insurance, and loan origination
fee (points).
Appraisal. A professional opinion of the market value of a property.
Assessed value. The valuation placed upon property by a public tax assessor for purposes of taxation.
Assumable mortgage. A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.
Assumption. The transfer of the seller’s existing mortgage to the buyer.
Binder. A preliminary agreement, secured by the payment of earnest money, under which a buyer offers
to purchase real estate.
Cap. A provision of an ARM limiting how much the interest rate or mortgage payments may increase
or decrease.
Cash reserve. A requirement of some lenders that buyers have sufficient cash remaining after closing to
make the first two monthly mortgage payments.
Clear title. A title that is free of liens or legal questions as to ownership of property.
Closing. A meeting at which the buyer signing the mortgage documents and paying closing costs finalizes
a sale of a property. Also called “settlement.”
Closing costs. Expenses (over and above the price of the property) incurred by buyers and sellers in
transferring ownership of a property. Also called “settlement costs.”
Commitment letter. A formal offer by a lender stating the terms under which it agrees to lend money to a
homebuyer.
Condominium. A form of property ownership in which the homeowner holds title to an individual dwelling
unit, an undivided interest in common areas of a multi-unit project, and sometimes the exclusive use of
certain limited common areas.
Contingency. A condition that must be met before a contract is legally binding.
Conventional mortgage. Any mortgage that is not insured or guaranteed by the federal government.
Convertible ARM. An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under
specified conditions.
Cooperative. A type of multiple ownership in which the residents of a multi-unit housing complex own
shares in the corporation that owns the property, giving each resident the right to occupy a specific
apartment or unit.
Credit report. A report of an individual’s credit history prepared by a credit bureau and used by a lender
in determining a loan applicant’s creditworthiness.
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Guide to Home Mortgages
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Deed. The legal document conveying title to a property.
Deed of trust. The document used in some states instead of a mortgage; title is conveyed to a trustee
rather than to the borrower.
Default. The failure to make a mortgage payment on a timely basis or to otherwise comply with other
requirements of a mortgage.
Delinquency. A loan in which a payment is overdue but not yet in default.
Deposit. A deposit made by the potential home buyer to show that he or she is serious about buying
the house.
Home Inspection. A Home Inspection is an examination of a residential dwelling, performed for a fee,
which is designed to identify defects within specific components of a dwelling.
Homeowner’s insurance. An insurance policy that combines personal liability coverage and hazard
insurance coverage for a dwelling and its contents.
Homeowner’s warranty (HOW). A type of insurance that covers repairs to specified parts of a house for a
specific period of time. The builder or property seller as a condition of the sale provides it.
Interest. The fee charged for borrowing money.
Depreciation. A decline in the value of property; the opposite of “appreciation.”
Interest rate cap. A provision of an ARM limiting how much interest rates may increase or decrease per
adjustment period or over the life of a mortgage. See also Lifetime cap.
Down payment. The part of the purchase price which the buyer pays in cash and does not finance with
a mortgage.
Joint tenancy. A form of co-ownership giving each tenant equal interest and equal rights in the property,
including the right of survivorship.
Due-on-sale clause. A provision in a mortgage allowing the lender to demand repayment in full if the
borrower sells the property securing the mortgage.
Late charge. The penalty a borrower must pay when a payment is made after the due date.
Easement. A right of way giving persons other than the owner access to or over a property.
Equal Credit Opportunity Act (ECOA). A federal law that prohibits lenders from denying mortgages on
the basis of the borrower’s race, color, religion, national origin, age, sex, marital status, or receipt of income
from public assistance programs.
Equity. A homeowner’s financial interest in a property. Equity is the difference between the fair market value
of a property and the amount still owed on the mortgage.
Lien. A legal claim against a property that must be paid off when the property is sold.
Lifetime cap. A provision of an ARM that limits the highest rate that can occur over the life of the loan.
Loan commitment. See Commitment letter.
Loan servicing. The collection of mortgage payments from borrowers and related responsibilities of a loan
servicer.
Equity loan. A loan based on the borrower’s equity in his or her home.
Loan-to-value percentage (LTV). The relationship between the unpaid principal balance of the mortgage
and the appraised value (or sales price if it is lower) of the property.
Escrow. The holding of documents and money by a neutral third party prior to closing; also, an account held
by the lender (or servicer) into which a homebuyer pays money for taxes and insurance.
Lock-in. A written agreement guaranteeing the home buyer a specified interest rate provided the loan is
closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
Fair Credit Reporting Act. A consumer protection law that regulates the disclosure of consumer/credit
reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s
credit record.
Mortgage. A legal document that pledges a property to the lender as security for payment of a debt.
FHA mortgage. A mortgage that is insured by the Federal Housing Administration. Also referred to as a
“government” mortgage.
First mortgage. A mortgage that has first claim in the event of default.
Fixed-rate mortgage. A mortgage in which the interest rate does not change during the entire term
of the loan.
Flood insurance. Insurance that compensates for physical property damages resulting from flooding. It is
required for properties located in federally designated flood areas.
Forbearance. The lender’s postponement of foreclosure to give the borrower time to catch up on overdue
payments.
Foreclosure. The legal process by which a mortgaged property may be sold when in default.
Graduated payment mortgage. A mortgage that starts with low monthly payments that increase at a
predetermined rate. The initial monthly payments are set at an amount lower than required for full
amortization of the debt.
Mortgage banker. A company that originates mortgages exclusively for resale in the secondary market.
Mortgage broker. An individual or company that for a fee acts as an intermediary between borrowers
and lenders.
Mortgage insurance. See Private mortgage insurance.
Mortgage insurance premium (MIP). The fee paid by a borrower to FHA or a private insurer for mortgage
insurance.
Mortgage margin. The set percentage the lender adds to the index value to determine the interest rate of
an ARM.
Mortgage note. A legal document obligating a borrower to repay a loan at a stated interest rate during a
specified period of time; the mortgage note is secured by a mortgage.
Mortgage interest rate. The rate of interest in effect for the monthly payment due.
Mortgagee. The lender in a mortgage agreement.
Mortgagor. The borrower in a mortgage agreement.
Hazard insurance. Insurance coverage that compensates for physical damage to a property from fire, wind,
vandalism, or other hazards.
Negative amortization. A gradual increase in the mortgage debt that occurs when the monthly payment
is not large enough to cover the entire principal and interest due. The amount of the shortfall is added to the
unpaid principal balance to create “negative” amortization.
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Guide to Home Mortgages
9
Notice of default. A formal written notice to a borrower that a default has occurred and that legal action
may be taken.
Seller-take-back. An agreement in which the owner of a property provides financing, often in combination
with an assumed mortgage.
Origination fee. A fee paid to a lender for processing a loan application; it is stated as a percentage of the
mortgage amount.
Settlement. See Closing.
Owner financing. A property purchase transaction in which the property seller provides all or part of the
financing.
Payment cap. A provision of some ARMs limiting the amount by which a borrower’s payments may increase
regardless of any interest rate increase; may result in negative amortization. See Adjustable-rate mortgage.
PITI. Stands for principal, interest, taxes, and insurance — the components of a monthly mortgage
payment.
Planned unit developments (PUDs). A planned unit development is a project or subdivision that consists
of common property that is owned and maintained by an owner’s association for the benefit and use of the
individual PUD unit owners.
Settlement sheet. The computation of costs payable at closing that determines the seller’s net proceeds
and the buyer’s net payment.
Survey. A drawing or map showing the precise legal boundaries of a property, the location of improvements,
easements, rights of way, encroachments, and other physical features.
Tenancy by entirety. A type of joint ownership of property that provides right of survivorship and
is available only to a husband and wife.
Tenancy in common. A type of joint ownership in a property without right of survivorship.
Title. A legal document evidencing a person’s right to or ownership of a property.
Title Company. A company that specializes in examining and insuring titles to real estate.
Points. A one-time charge paid to the lender to reduce the interest rate. One point equals 1 percent of the
amount of the mortgage.
Title insurance. Insurance to protect the lender (lender’s policy) or the buyer (owner’s policy) against loss
arising from disputes over ownership of property.
Preapproval. The process of determining the ability of an applicant to obtain a mortgage loan. The
determination is based on verification of income, assets and credit history.
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.
Prepayment penalty. A fee that may be charged to a borrower who pays off a loan before it is due.
Transfer tax. State or local tax payable when title passes from one owner to another.
Prequalification. The process of obtaining a preliminary determination of the amount of credit for which
an applicant may qualify. This determination is based on unverified information.
Truth-in-Lending. A federal law that requires lenders to fully disclose, in writing, the terms and conditions
of a mortgage, including the APR and other charges.
Principal. The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces
the outstanding balance of a mortgage.
Underwriting. The process of evaluating a loan application to determine the risk involved for the lender. It
involves an analysis of the borrower’s creditworthiness and the quality of the property itself.
Private mortgage insurance (PMI). Insurance provided by nongovernment insurers that protect lenders
against loss if a borrower defaults. Fannie Mae generally requires private mortgage insurance for loans with
loan-to-value (LTV) percentages greater than 80 percent.
VA loan. A loan that is guaranteed by the Department of Veterans Affairs. Also referred to as a “government”
mortgage.
Purchase and sale agreement. A written contract signed by the buyer and seller stating the terms and
conditions under which a property will be sold.
Qualifying ratios. Guidelines applied by the lenders to determine how large a loan to grant a home buyer.
Radon. A radioactive gas found in some homes that in sufficient concentrations can cause health problems.
Rate lock. See Lock-in.
Real estate sales professional. A person licensed to negotiate and transact the sale or purchase of real
estate.
Real Estate Settlement Procedures Act (RESPA). A consumer protection law that requires lenders to
give borrowers advance notice of closing costs.
Refinancing. The process of paying off one loan with the proceeds from a new loan using the same property
as security.
Rent with option to buy. See Lease-Purchase Mortgage Loan.
Second mortgage. A mortgage that has a lien position subordinate to the first mortgage.
Secondary mortgage market. The buying and selling of existing mortgages.
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Guide to Home Mortgages
PeopleFirstCU.org
11
People First Federal Credit Union
A Valuable Collection of Member Services
People First Federal Credit Union provides a myriad of convenient
services for you. And, our list continues to increase as we make every
effort to respond to the needs of our growing membership.
Accounts
• Share/Savings
• Share Draft/Checking
• Holiday & Vacation
• Money Market
• Individual Retirement
Accounts
• Share Certificates &
IRA Share Certificates
24-Hour Services
• Automated Teller Machines
• Visa® Debit Card
• Telephone and Internet
Loan Applications
• Tellerphone
• PC Access/Bill Payer
• Mobile Access
Loans
• Signature Line of Credit/
Overdraft Protection
• Home Equity Loans/Lines
of Credit
• Automobile Loans
• Bill Consolidation Loans
• Home Mortgages
• Credit Cards
Other Services
• Direct Deposit
• Automatic Transfer/
Payroll Deduction
• Money Orders
• Travelers Checks
• Safe Deposit Boxes
• Savings Bonds
• Wire Transfers
• eStatements • eNotices
• CU Realty Real Estate
Rebate Program
Business Services
• Commercial Lines of Credit & Mortgages
• Visa® Platinum Credit Card • Merchant Services
• Visa® Debit Card • Share Draft/Checking
For detailed information:
• Visit our website at www.PeopleFirstCU.org
• Call our Member Service Center at 610.797.7440 or 1.800.446.5598
To apply for a loan:
• Apply for all loans at www.PeopleFirstCU.org
• Apply for consumer loans and credit cards by calling our
24-Hour Loan Center at 1.877.531.5126
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