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Your Mortgage

Successfully purchasing a home requires finding the best type of loan and terms for your situation. Several different loan products, each designed to meet a buyer's specific circumstances, are available. At Bank of the Ozarks, our experienced mortgage lenders will work with you to provide the best loan for your needs.

Following is some basic information to help you understand various elements involved in the mortgage loan process.

Types of Home Loans

There are three basic types of loans:

Conventional - Conforming and Jumbo
- Conforming loans are secured by government sponsored entities like Fannie Mae and Freddie Mac. These companies do not lend money directly to you, but work with lenders across the country, like Bank of the Ozarks, to offer mortgage loans to meet your needs. There are limits to the amount of these loans based on national average home prices.
- Jumbo loans are funded by private investors and are for loan amounts higher than the limits of a conforming loan. Jumbo loans usually carry a higher interest rate and some additional underwriting requirements.
Government Insured Loans

Designed to help people qualify for a home loan if they have low to moderate income and limited savings. Features include low to no down payment options; flexible income, debt and credit requirements; and down payment and closing costs that may be funded by a gift, grant or secured loan. The following federal government agencies guarantee qualified loans provided by lenders such as Bank of the Ozarks:
- FHA (Federal Housing Administration) - while a good option for some, there is one caveat to this type of loan. You must pay an up-front mortgage insurance premium of 1.5 percent of the loan balance, along with a monthly mortgage insurance fee.
- VA (Department of Veterans Affairs) - available to veterans, reservists and those on active-duty. A funding fee is charged for these loans:
  - Three-quarters of one percent of the loan amount for refinancing from a VA loan to a VA loan.
  - Two percent if you are using your VA eligibility for the first time.
  - Three percent if you have had a previous VA loan.
Subprime Loans

Bank of the Ozarks does not offer this type of loan, however, it is a possible option for those with credit in need of repair. Subprime loans were developed to help higher risk borrowers obtain a mortgage if they do not qualify for a conventional, FHA or VA loan. Because of the higher risk associated with lending to borrowers that have a poor credit history, subprime loans typically require a larger down payment and a higher interest rate. These loans are one way for you to get into the home you want at today's price. However, because of the higher interest rate, a subprime loan should be used as a short term solution - generally just two to four years. During that time, you can work to repair your credit and then refinance for a lower rate.

Repayment Structures

In general, the structure of your loan will fall into one of three basic categories. However, there are many hybrids and combinations of these structures available. Your Bank of the Ozarks Mortgage Lending Professional will help you figure out which is best suited for you.

Fixed Rate - the interest rate remains the same throughout the life of your loan, usually for a 15 or 30 year term. The fixed rate loan provides protection against rising interest rates because your rate is set for the life of the loan. This means that your payment will always be the same each month. The fixed rate loan is best for people who are on a fixed or limited income, those purchasing a home during a time when interest rates are comparatively low, and/or those who plan to stay in their home a long time.
Adjustable Rate (ARM) - the interest rate and your monthly payment can change during the life of the loan. ARMs usually offer a lower initial rate for the first one to ten years and then may change at pre-determined adjustment intervals - usually every six months or one year - based on financial market conditions. The ARM is a good option for those who expect to earn more in the future and/or expect to sell or refinance before the end of the initial rate period.
Balloon loans - are short-term mortgages (usually five to seven years) with a fixed payment during the term of the loan. However, unlike the 15 or 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term. At the end of the loan term there is still a remaining principal loan balance due as a single "balloon" payment.

Interest Rates

Mortgage rates are set by global financial markets through their bond trading activity and therefore generally rise and fall along with Wall Street securities. When shopping for a mortgage, you will have a better chance of obtaining the best possible interest rate if you know the current market trend.

When comparing interest rates, make sure you are getting a true comparison by looking at the Annual Percentage Rate (APR). Mortgage companies are required by the Federal Truth in Lending law to disclose the APR when they advertise rates.

There are many factors that contribute to determining how much interest you will pay on your mortgage, including:

Your credit history and credit score. A good credit history and debt-to-income ratio shows lenders that you are willing and able to make your mortgage payments. Both indicators are important in determining your interest rate. For example, if your income is barely enough to cover the monthly payments on your combined debts, you will more than likely pay a higher interest rate than if your monthly income is well in excess of your obligations - even if you have a history of always paying your bills on time. It is a good idea to check your credit report to make sure there are no errors prior to applying for a mortgage. Learn more about credit reports and credit scores.
Amount of down payment. Although it is possible to receive a low or no down payment loan, the interest rate on these loans is likely to be higher. The larger the down payment you are able to make, the better the loan-to-value ratio becomes and the better your interest rate will be. In addition, you will borrow less and pay interest on less money over the life of the loan, making for a lower monthly payment.
Term or length of time payments will be made on the loan. Shorter loan terms, for example 15 years versus 30, will save you thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher.
When possible, you should pay closing costs up front instead of wrapping them into the mortgage or you will pay interest on a few thousand dollars for the loan's full term.

Pre-Approval

We suggest you meet with a Bank of the Ozarks Mortgage Lending Professional for pre-approval of your loan before you begin shopping for a house. Once you're pre-approved, you will know how much you can afford and the maximum amount you will be able to finance.

There are several pieces of documentation you will need when you apply for a home mortgage loan. It will save time if you have this information available when you talk with a mortgage lender. The following checklist includes the basic information you and any co-borrower will need to supply when you make your loan application with Bank of the Ozarks.

Social Security Number and Date of Birth
Paystubs for the past two pay periods, including your most recent paycheck showing year-to-date earnings.
W-2 Tax Forms - original copies sent to you by your employers for the past two years.
If you are self-employed or work on a commissioned basis, you should bring a copy of your federal tax return forms for the past two years and a current year-to-date profit and loss statement.
Employer information - names, addresses and telephone numbers of employers for the past two years.
Account Information - account numbers and current balances of checking, savings and any other accounts.
Current Assets - value of Individual Retirement Accounts (IRAs), CDs, stocks, bonds, Life Insurance etc.
Personal Property - value of property that can include household goods, cars, etc.
Liabilities - auto loans, student loans, credit cards and other installment debt. You will need to provide name and address of each creditor, the monthly payment and total amount due.
Current and Previous Addresses - if you own a home, bring the property address, current market value, mortgage lender name, account number, current monthly mortgage payment and outstanding mortgage balance. If you're renting, bring the property address, name and address of the landlord, current monthly rent and previous address/landlords if you've lived at your current address for less than two years.
If you are separated or divorced, you should bring a copy of your divorce decree and separation agreement. Also bring documentation on alimony or child support payments you are required to make. If you wish to have alimony, child support, or separate maintenance income considered as a basis for loan repayment ability, bring documentation of the payments you receive. Proof of this income can be the clerk of court's history of payments or canceled checks for the past year.
If you include pension, disability, Social Security, or other public assistance as part of your income, you'll need to bring a copy of an award certificate or check from the issuing agency.
If you have a bankruptcy, foreclosure, or any judgments against you over the past seven years, you'll need to bring information related to the status. For bankruptcy this would include a copy of the bankruptcy discharge and schedule of both debts and assets. If there are judgments against you, you will need an attorney's letter that discusses the outcome of the proceedings.

Once you have made an offer to buy a house, you will need to provide your lender with an Agreement to Purchase including: a signed copy of the contract and any amendments, a copy of the listing form for the property, legal description of the property and receipts for down payment or deposits.

Interest rates can change over night, so once you've negotiated an interest rate with your lender, you should discuss locking in your rate. With a lock in or rate commitment, your lender promises to hold an agreed upon interest rate and a certain number of points for you, usually for a specific period of time, until your loan is approved.

Closing Costs

Mortgage loan transactions are governed by Federal regulations including the Truth in Lending Act and the Real Estate Settlement Procedures Act. When you apply for a mortgage loan, your lender will prepare what is called a "Good Faith Estimate" outlining the various closing costs associated with your loan. This includes both costs you will pay to the lender and other costs required but charged by others. Since the lender doesn't set the cost of items charged by others, the estimate is just that - an estimate or educated guess of what the costs will be. You should be aware that the actual costs may be more than estimated.

If you use the good faith estimate to compare costs between lenders, you should only compare the costs actually charged by each lender and not include the estimated cost of charges paid to others.

Following is a description of the various costs you may encounter when purchasing a home, including one-time fees and fees that you will pay periodically as long as you own the home.

Origination Fee. Often referred to as "points," this is the amount the lender will charge you for providing the loan. One point is equal to one percent of the amount of the loan. This is a customary and fair fee for the lender's services and is generally 1 - 2%. On a government guaranteed loan (FHA or VA) the origination fee is one point. Lenders may offer a lower interest rate if you are willing to pay more in points on the front end. Take time to do the math and decide what is best for you. While the up front fee may seem steep, a lower interest rate over the life of your loan could save you thousands of dollars. On the other hand, if you're going to live in your house for six years or less (which is the national average) paying more up front may not be the best deal for you.

Mortgage Broker Fee. If you're dealing with a mortgage broker you will sometimes find the points you are being charged here instead of under the origination fee. Broker processing fees, if charged, will also be included here. This is done to clearly state how much is being charged by the broker and how much is charged by the wholesale lender.

Processing/Underwriting/Administration/Document Preparation Fees. These are fees that are not necessarily part of the cost of the loan, but legitimate if not excessive. They are used by some lenders to offset their costs to originate and process your loan, or generate upfront income for the loan originator. You will likely find some combination of these fees on your good faith estimate. A reasonable combined total would be in the $400 - $700 range. However, don't be afraid to question what these fees cover, especially if the combined total seems high.

Appraisal Fee. An appraisal of the value of the property you plan to purchase is customarily required since the property will serve as collateral for your loan. Lenders will require that an appraisal be done by a licensed appraiser to determine if the price you are paying for the home is justified based on recent sales of comparable properties. In addition, VA and FHA loans require the appraiser to inspect certain items not necessarily associated with the value. The cost of an appraisal varies but should generally be in the $300 - 500 range.

Credit Report Fee. Your credit report and credit score are an important part of the loan process and a lender will always review your credit before granting you a loan. Credit reporting agencies charge the lender a fee to provide credit reports. The fee is generally in the range of $12 - $25. Learn more about credit reports and credit scores. One word of caution if you are shopping around for a loan - especially on-line using a site that sends your information to several lenders: Most lenders will pull your credit report as soon as you provide your social security number. This can generate several inquiries on your report which can lower your credit score.

Lender's Inspection Fee. This generally applies to new construction loans. Since the property is not finished when the initial appraisal is done, an inspection is performed after the loan is made to verify that construction is complete including installation of carpeting and flooring.

Tax Service Fee. Since liens resulting from non-payment of property taxes can sometimes take precedence over a first mortgage, your lender may employ an independent service to monitor property tax payments. If so, the fee which is usually between $70 and $80 will be passed on to you.

Flood Certification Fee. If the property you plan to purchase is in a federally designated flood zone, you will be required to purchase flood insurance. This fee covers the lender's cost of making that determination, usually through the services of an outside source, of whether the property is in a flood zone.

Pre-paid Interest. This is the amount of interest accrued from the time your loan closes to the date from which interest will be collected with your first payment. This usually happens when there are more than 30 days. For example, if your first payment is due on July 1 and your loan closes on May 15, you will owe 15 days of pre-paid interest to get the interest paid up to the June 1st.

VA Funding Fee. If yours is a VA loan, the Veterans Administration charges a fee for guaranteeing the loan. This is two percent of the loan balance for those using their VA eligibility for the first time. If you have had a previous VA loan the fee is three percent of the loan. When refinancing from a VA loan to a VA loan, the fee is three-quarters of a percent of the loan amount. This amount may be paid up front, or financed by adding it to the loan balance.

FHA Insurance Premium. On FHA loans, the borrower is required to pay an up-front mortgage insurance premium of 2.25 percent of the loan balance. This can be financed by adding it to the loan balance. However, a monthly mortgage insurance fee is also charged on FHA loans.

Homeowner's Insurance. This is insurance you purchase to cover any loss you might experience due to fire or other damage to the property and your possessions. Of course, this is always good insurance to have, but it is also something your lender will require that you provide, in an amount adequate to cover their interest in your property until the mortgage is paid. You will normally pay the first year's premium when you close on your loan.

Mortgage Insurance. In most cases, monthly mortgage insurance is charged if you are financing more than 80% of the value of the property. This insurance protects the lender in the event you default on your loan. Some first-time homebuyer programs require the first year mortgage insurance premium be paid in advance.

Escrow Payment. If you make a minimum down payment, you may be required to deposit funds into an escrow or impound account. This is your money, used by the lender to pay your annual homeowner's insurance premiums, property tax and mortgage insurance (if applicable). You will pay a certain amount into this account initially and then make monthly escrow payments along with your mortgage payment. The amount you pay initially is generally the amount owed for the first year payments