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What is Prequalification?
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A process by which a potential homebuyer qualifies for a home mortgage before making an offer on a house. A lending institution agrees to make a loan in the specified amount to the person it has prequalified.
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My real estate agent recommended that I get a preapproval letter. What is a preapproval letter, and why should I get one?
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The lender gives a commitment letter that states the lender agrees to provide a mortgage to a homebuyer. Commitment letters help you set realistic goals while you’re house-hunting, provide the same negotiating ability as a cash buyer and enable you to move quickly once the perfect home is found.
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When mortgage lenders refer to “PITI” what are they referring to?
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PITI is principal, interest, taxes, and insurance - the components of a monthly mortgage payment.
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When my loan officer asks me if I want to waive escrows, what exactly does it mean?
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When you waive escrows, you take the responsibility of paying your taxes and insurance rather than having them included in your monthly payment. Waiving escrows may add a small fee to your closing costs.
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What does my mortgage lender mean by points or orientation fee?
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One point is equal to one percent of the loan amount. Points and orientation fees are used to buy down the interest rate and are tax deductible on purchase transactions.
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How does the annual percentage rate differ from the interest rate?
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The Annual Percentage Rate (APR) is the effective rate of interest for a loan if the calculation is based on the original loan amount less the closing costs. This is the rate that will appear on your preliminary Truth-In-Lending. Please not that the APR is higher than the interest rate on your Real Estate Lien Note.
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How do I know what my interest rate will be?
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Upon your request, your loan officer will search for the lowest rate and “lock” your rate. The “lock-in” guarantees the homebuyer an interest rate provided the loan closes with that buyer and specified property within a set period of time. The property lock-in also specifies the number of points to be paid at closing.
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Do I need to have a certain amount of money left after I buy my home?
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Most loan programs require a cash reserve sufficient enough to make the first two mortgage payments (PITI).
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What is the Debt-to-Income Ratio?
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This is a ratio used by lending institutions to determine whether a person is qualified for a mortgage. Debt-to-Income is the total amount of debt, including credit cards and other loans, divided by total gross monthly income.
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What is the difference between a FHA and a VA loan?
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A FHA loan is a loan guaranteed by the Federal Housing Administration (FHA). FHA issues specific guidelines for mortgages.
A VA loan is a loan guaranteed by the Veterans Administration (VA). To obtain a VA loan, the borrower must have served in the Armed Forces.
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What is Private Mortgage Insurance (PMI)?
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PMI is insurance required to cover the lender should the borrower default on the loan. PMI is not tax deductible.
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Do I always have to have PMI on my loan?
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PMI can be eliminated by having a down payment of at least 20% or by obtaining a second lien with an 80-10-10 or an 80-15-5 loan program.
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Will I have two separate payments if I have a second lien?
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The second lien is often from a different lender than the first lien. Therefore, borrowers with a second lien will make two separate payments each month - one on the first lien and one on the second lien.
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What does my lender mean by “paper trail”?
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A “paper trail” is composed of the copies of all paperwork necessary to prove a financial transaction: copies of all checks, deposit slips, loan paperwork, forms to liquidate assets, etc
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Why did I receive a Truth-In-Lending?
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Truth-In-Lendings are sent to all borrowers after a loan application has been made, regardless of whether they have a contract on a property. The Truth-In-Lending Act is a federal law requiring lenders to reveal all of the terms of a mortgage. The APR that appears on your Truth-In-Lending will be higher than the interest rate on your Real Estate Lien Note.
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Will I get a copy of my credit report and appraisal?
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Upon request most lenders will provide you copies of your credit report and appraisal.
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What if Buyer’s Credit Report reveals credit issues?
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Their mortgage lender will help work through any obstacles to get final approval.
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How long will it take to obtain financing?
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Under normal circumstances 15-20 days should be adequate time for approval.
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What happens if the Lender cannot provide the interest rate stated in the contract?
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This situation would give the buyer a legal out of the contract.
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What if the Lender’s appraiser does not substantiate “value” of the property?
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Under normal circumstances the lender requires that the appraised value be that of the loan amount. However, buyer and seller could renegotiate.
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What if the Lender requires “repairs?”
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If closing is to take place, all repairs shall be completed prior to closing by designated party.
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What if the Lender rejects the property?
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In order for the property to close with that lender, all objections shall be cleared.
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What if the Buyer’s verifications are not returned?
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In order for the buyer to obtain approval for the loan, verifications will need to be supplied to the lender.
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What if “conditional” approval is issued and these conditions cannot be met?
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In order for the property to close with that lender, all conditions shall be satisfied.
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What if the loan is not approved within the time stated in the contract?
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An Amendment to the Contract shall be made extending the close date.
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How much are the closing costs?
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Depends on terms of the contract, insurance rates, mortgage & title fees and taxes.
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What if the property is not insurable?
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If a mortgage is to be obtained, the lender will require insurance. Therefore, the buyer will not be given the loan.
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What if the loan documents are not acceptable to the Buyer?
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The buyer has the right to reject loan documents if the lender has not fulfilled promise.
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What if the Underwriter has requirements?
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All underwriter requirements shall be satisfied before final approval is issued.
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What if termite certification is required?
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The property has to be inspected and cleared before closing.
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What happens if the Lender delays the closing?
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First of all, need to find out why and start the process of clearing up any problems. Then an Amendment to the contract extending the closing date should be prepared.
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What if the loan is not funded the same day of closing?
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Normally the buyer cannot get keys and move in until closing and funding has taken place.
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What if the loan documents and closing papers are not prepared in time for the contract closing date?
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An Amendment to the contract extending the closing date should be prepared.
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What if the Buyer’s “Lock–In” interest rate expires PRIOR to the closing?
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Depending on the lender and program, an extension might be available. However, there is always the chance that the buyer would lose the locked rate and be subject to current rates.
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