Frequently Asked Questions

Is it better to purchsae a home rather than rent?

The decision to rent or purchase a home are different for everyone. Purchasing can be a better choice depending on how long you plan to live in your home and the loan you choose. A home purchase gives you personal benefits such as a sense of investing in your community and pride for achieving the dream of homeownership. Interest payments on a mortgage are typically tax deductible (consult your tax advisor for more information). And importantly, as you continue to make mortgage payments, you’ll build home equity, as opposed to paying rent to someone else.

Should I get prequalified or preapproved before finding a home?

You don’t have to apply for a loan before looking for a property. It is, however, a good idea to get prequalified or preapproved before you find a home; many real estate agents will take your offer more seriously if you’ve been preapproved. Also by going through this process, you’ll have a better idea of the price range of homes that you might be able to afford.

What is the difference between prequalification and preapproval?

To get prequalified, you will need to provide the lender with some financial information such as your income and the amount of savings and investments you have. The lender will use this information to estimate how much money we may be able to lend you and therefore the price range of homes you can start looking at. To get prequalified the lender will request a formal credit check. The estimate of the loan amount provided to you does not guarantee you will ultimately be approved for that amount.

To get preapproved, however, you will need to provide the lender with financial documents including W-2 statements, paycheck stubs and bank account statements. The lender will use these documents to verify your financial status and request a formal credit check. A preapproval will help you when shopping for homes because sellers will have more confidence that you will be able to obtain a loan to purchase their house.

For both prequalification and preapproval, final approval will also depend on the property purchased.

How long will it take to get prequalified?

Prequalification can be a very quick process. It can take as little as 5 minutes. Prequalification is based on your income, assets, employment, any property information and credit report.

What are points and when should I pay them?

Paying points is a way to reduce your interest rate when you purchase or refinance your home. In essence, you pay up-front for a lower interest rate, reducing your monthly payments. One point is equivalent to 1% of your loan amount; one point on a $100,000 loan amount is equal to $1,000.

What are closing costs?

Closing costs are fees associated at the closing of a real estate transaction. The closing point is when the title of the property is transferred from the seller to the buyer. These typically include a loan origination fee, discount points, attorney’s fees, title insurance, appraisal, survey and any items that must be prepaid, such as taxes and insurance escrow payments. You’ll receive an estimate of the closing costs associated with your loan soon after you apply.

When should I refinance?

Any reduction in interest rates can reduce your mortgage payments. It’s generally a good time to refinance when mortgage rates are 2% lower than the current rate on your loan. It may be a viable option even if the interest rate difference is only 1% or less.

What are points and when should I pay them?

Paying points is a way to reduce your interest rate when you purchase or refinance your home. In essence, you pay up-front for a lower interest rate, reducing your monthly payments. One point is equivalent to 1% of your loan amount; one point on a $100,000 loan amount is equal to $1,000.

What is an APR?

The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the “true cost of a loan.” It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.

What does it mean to lock the interest rate?

Mortgage rates can change from the day you apply for a loan to the day you close the transaction. If interest rates rise sharply during the application process it can increase the borrower’s mortgage payment unexpectedly. Therefore, a lender can allow the borrower to “lock-in” the loan’s interest rate guaranteeing that rate for a specified time period, often 30-60 days, sometimes for a fee.

How is my credit judged by lenders?

Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).

What is an appraisal?

An Appraisal is an estimate of a property’s fair market value. It’s a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an “Appraiser” typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.

What is PMI?

PMI is Private Mortgage Insurance. Often, when your down payment is less than 20% of the purchase price of the home mortgage lenders may require PMI to protect them in case you default on your mortgage. The best way to avoid this extra expense is to make a 20% down payment, or ask about other loan program options.

What happens at closing ?

The “closing” is the last step in buying and financing a home. The “closing,” also called “settlement,” is when you and all the other parties in a mortgage loan transaction sign the necessary documents.

After signing these documents, you become responsible for the mortgage loan.

If you’re purchasing a home with a loan, the closing of your loan (the time when your loan becomes final and the funds are distributed) and the closing of your home purchase (when you become owner of your new home) typically happen at the same time. Once the closing is complete, you are legally required to repay the mortgage.

Your closing may include some or all of these entities:

• Your title insurance company
• An escrow company
• Your lender
• Your attorney (if you come from a state where attorneys conduct closings, or if you hire legal representation for your closing)
• The seller’s attorney