Mortgage Frequently Asked Questions
- What factors determine mortgage approval?
- What are the advantages of home ownership?
- How much of a down payment is needed to buy a home?
- What are discount points?
- What is credit scoring?
- What is PMI?
- What is the difference between pre-qualification and pre-approval?
- If I have been late on one payment or default on one loan, will that disqualify me from getting a mortgage?
- Why was my mortgage transferred to another lender?
What factors determine mortgage approval?
Lending guidelines require that prospective borrowers meet the following four categories to qualify for a mortgage:
Funds: Do you have enough cash for your down payment and closing costs? Do you need a gift from a relative? Will you have a cushion left after you purchase your home? Funds must be verified when purchasing a home.
Income: Can you repay the debt? For most loans, we will ask for employment information; occupation, length of time at your current position and how much you earn. Income is verified by your employer and by having two years of W2s and 1040's with all supporting schedules and on month of pay stubs, showing year-to-date income.
Credit History: Will you repay the debt? Your credit history includes how much you owe and how timely your payments have been. We will run a credit report for verification and confirmation of your credit history. Late payments and derogatory reportings must be explained and possible documented.
Appraisal: We will have your home appraised to ensure that its value is sufficient to secure your mortgage.
What are the advantages of home ownership?
The advantages of home ownership are both financially and personally fulfilling. The financial benefits range from accumulating home equity to writing off interest when filing taxes. The personal gains center on the psychological boosts that go hand-in-hand with the financial ones of security, stability and control:
|Stop Answering to a Landlord|
|Stability||Consistent payments||Root yourself in a community|
|Flexibility of refinancing||No more potential rent increases that may force you to move and cause anxiety|
|Control||Customize a mortgage||You create your environment in color and design and develop|
|Manage the marketability of your home||A sense of belonging in your neighborhood|
How much of a down payment is needed to buy a home?
As you begin planning the purchase of your home, you’ll want to make sure that you understand the options available in financing your purchase. Whether you’re a first-time home buyer or a repeat buyer, your choice of financing will make a difference in the home you purchase.
Down payment amounts can vary based on a number of factors from loan programs to credit qualifications and can range from as low as zero percent under the VA and USDA loan programs and go up from there.
Some buyers will place 20% down or more to buy a home. Others will choose a down payment of less than 20%. With today's mortgage insurance options, 20% down payment is not necessarily mandatory. Ask your Mortgage Loan Originator about your best options today.
What are discount points?
Discount points are what the borrower pays the lender. The lender charges a point that precisely represents one percent of the mortgage amount. For example, a $100,000 loan with 1 point means the lender charges $1,000 for the lower interest rate. This charge is due at settlement.
What is credit scoring?
Good credit is essential in today's lending environment. If your pay your bills on time, you are generally considered a low risk borrower. Credit scores range from 350 to a high of 850. The score represents a statistical evaluation of how likely you are to pay your obligations. The lower your credit score, the more likely you are to default on your payments.
Bankruptcies, collections and late payments weigh most heavily your credit score. Accelerated Mortgage Services Mortgage Loan Originators are experts in assessing your credit and in helping you to improve it by providing the tools you need to repair incorrect reportings and assisting you in settlement negotiations. Ask your Mortgage Loan Originator today for help!
What is PMI?
Private Mortgage Insurance (PMI) is often a necessary expense that accompanies buying a house with less than 20% down in cash.
By definition, PMI is insurance designed to protect the lender from individuals who default in their loans and who have less than 20% equity in their property. Therefore, lenders require PMI to insure the risks of foreclosure.
PMI has its upside for buyers, too. Many home buyers can't afford a 20% down payment. PMI allows these people to purchase property years earlier than they otherwise would have been able to. PMI enables buyers the flexibility of getting a mortgage with a much lower down payment. Mortgage insurance is a tax deductible expense and will automatically be removed at the time you have paid your loan down to 80% of the original amount.
What is the difference between pre-qualification and pre-approval?
Pre-qualification differentiates itself from pre-approval, as a pre-qualification is not a commitment to lend. It only gives you an idea of how much home you can afford, based on your disclosure of income, assets, and debts owed.
Pre-approval requires us to pull your credit and have you complete a pre-approval package. This package contains all required forms and disclosures as well as your signed authorization to pull credit. With your past two months bank statements and pay stubs for thirty days, we ensure commitment in full, after verifying your employment and financial information. Accordingly, the credit report and statements determine what underwriting guidelines we can follow to approve your loan. We then send this loan package to a lender to gain a formal loan approval in writing from an underwriter. Your home loan is now pre-approved. We can now print out a loan approval letter or loan commitment if you will. You can share this letter with your realtor. This letter let’s the realtor know what your approved for so you can shop and secure a home in your approved price range.
You have cash-buying power with a pre-approved mortgage. This allows you to confidently negotiate the best price on the home you desire. In instances of tough competition between your offer and others, you carry clout with pre-approval that almost guarantees you win, especially when your competitor does not have a mortgage commitment from a lender.
If you just want to know approximately how much you can afford, pre-qualification is for you. If you’re a serious buyer, ready to shop for a new home and prepared to commit, then become pre-approved. We will provide an approval letter for you and your realtor. With this letter you can begin to shop in cofidence for a home in your the price range that you have been approved for.
If I have been late on one payment, or default on one loan, will that disqualify me from getting a mortgage?
Late payments will not necessarily keep a mortgage application from being approved. People whose past credit problems have been resolved can also qualify under certain circumstances. Talk to your Mortgage Loan Originator to see what we can do to help you qualify.
Why was my mortgage transferred to another lender?
When you take out a mortgage with a mortgage company or a bank, there is always a possibility that the lender will “sell” or “transfer” the servicing of your loan to another institution. “Servicing” means the collection of payments and management of operational procedures related to a mortgage. When servicing is sold, it means that another lender will be taking your payments, handling your escrow accounts, paying your insurance and taxes and answering your questions. This may happen right after you close on the loan, several months, or several years later.
The practice of selling or “transferring” the servicing of your loan is legal and very common in the mortgage industry. When the servicing is sold, it is usually packaged in a bundle with lots of other loans. Some mortgage companies only originate loans and sell or transfer the servicing immediately. It is more cost-effective for these companies to do this because servicing is not a part of their business. It is not uncommon to get your mortgage from a neighborhood lender and have it transferred to an institution in another state. It is also possible for your mortgage servicing to be transferred more than once during the life of your loan.
Whether or not your servicing is sold has nothing to do with the quality of your loan or your payment history. It has, in fact, nothing whatever to do with you personally. Your note defines the terms of your loan and DOES NOT change, no matter who the servicing company may be.