Harper Ray / Austin's Leading Residential Mortgage Lender
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Common Questions & Answers
How will I know how much home I can qualify for?
What are income and debt ratios?
What are "cash reserves"?
How much money do I need for a down payment and closing costs?
What is Mortgage insurance?
What are VA loans? Can I qualify for a VA loan?
What if I don't have any established credit?
What if I had credit problems in the past or have filed bankruptcy?
What if I recently obtained a new job?
What does "loan to value" mean?
How do I "lock in" my interest rate?
What is an 80/10/10 and an 80/15/5?
What do I need to bring to closing?
How much do I need to insure my home ?
What is the Annual Percentage Rate on my Truth in Lending Document?
Are there any actions I need to avoid before and during the financing process?
Q. How will I know how much home I can qualify for?
A. Through our online prequalification process, a Loan Officer will be able to work with you to provide an approximate amount of money you can borrow BEFORE you look for a new home. Once you provide more information and allow your Loan Officer to run your credit report and verify your assets and income, your loan application will be submitted to our underwriters for a full credit approval. We can even assist you to obtain a complete written credit approval (subject to an appraisal) before you make an offer on a home.
Q. What are income and debt ratios?
A. Your income ratio is your total monthly housing expense divided by your pretax monthly income. Your debt ratio is your total monthly housing expense plus any recurring debts, such as monthly minimum credit card payment, car payments or other loan payments, divided by your income. As a guideline, standard underwriting suggests a maximum of 28% for your income ratio and 36% for your debt ratio. However, these ratios may vary based on your loan program, your financial security and the amount of your down payment.
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Q. What are "cash reserves?”
A. Your cash reserves are the funds available to you after your loan closes. They demonstrate your ability to make payments on your loan, and different loan programs have varying cash reserve requirements. Some programs may require you to have assets equal to two to six months of your mortgage payment. Larger cash reserves can be a strong compensating factor, as they are indicative of your ability to consistently keep up with your mortgage payments. Depending on your loan program, cash reserves can be in the form of cash, stocks, bonds or investments.
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Q. How much money do I need for a down payment and closing costs?
A. Your Loan Officer will work closely with you, taking into account your financial goals and objectives, to structure the most advantageous home loan for your needs. Helping you determine how much you need for your down payment and closing costs to fulfill the requirements of the most beneficial financing program for your individual situation is one of the many things your Loan Officer will set out to do. Some of the many investors with whom we have lending relationships will allow us to structure programs by minimizing your down payment and financing up to 100% of the purchase price. Additionally, we strive to deliver home loans that will allow you to minimize your closing costs, and Cornerstone is highly competitive in that regard.
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Q. What is mortgage insurance?
A. Mortgage insurance insures lenders in the event of a borrower's foreclosure. It is paid for by the borrower, and allows lenders to grant loans that they would otherwise not consider. Depending on credit scores and loan structure, mortgage insurance may be required when the down payment is less than 20%.
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Q. What are VA loans? Can I qualify for a VA loan?
A. While VA loans are for veterans who meet certain criteria, active military personnel may also be eligible. They are guaranteed by the Veteran’s Administration, and they do not require a down payment. In some cases, the seller may be willing to pay for all or part of the closing costs, allowing qualified veterans to purchase a home with little or no money down.
To find out if you qualify for a VA loan, obtain an 1880 Form from your Loan Officer. Once you have completed the form, take the 1880 Form and your discharge papers or DD214 to your local VA office to determine your eligibility.
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Q. What if I don't have any established credit?
A. Your Loan Officer can work with you to document an alternative credit history. He or she can obtain a rental rating from your landlord, or we can contact your utility companies, phone provider, cable companies or car insurance carrier to obtain a rating on your payment history. While not all loan programs will accept alternative documentation on your credit, there are government and conventional programs that will accept this type of payment history to establish credit qualifications.
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Q. What if I have had credit problems in the past or have filed bankruptcy?
A. A good credit history is important because it assures the lender of your intention to repay your loan. However, a perfect credit history is not necessary. If your credit score is low, there are steps you can take toward improving your score. Contact your Loan Officer for individualized advice on how you can best improve you credit rating.
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Q. What if I recently obtained a new job?
A. While loan program guidelines look for a two-year job history within the same field, a change to a better position is considered favorable. If you are a recent college graduate, you may be able to obtain a loan even without a two-year work history.
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Q. What does "loan-to-value" mean?
A. Loan-to-value (LTV) is the amount of the loan divided by the lesser of the sale price or appraised value. If you pay 15% of the total cost of the home as a down payment, you would only need to borrow 85% of the total sales price. Therefore, your LTV would be 85%.
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Q. How do I "lock in" my interest rate?
A. Your Loan Officer can lock in the interest rate quoted to you over the telephone during the prequalification interview. You will be provided with a written Interest Rate and Price Determination Agreement, which details the interest rate and terms of the loan you have requested, as well as the period of time for which the rate is locked. This period may vary between 10 and 60 days, depending on your projected closing date.
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Q.What are 80/10/10 and 80/15/5 loans?
A. An 80/10/10 is a loan structure that allows for an 80% first lien, a 10% second lien and a 10% down payment. Usually, when a borrower pays less than 20% for a down payment, they are required to pay for mortgage insurance. The 80/10/10 allows for 90% financing without mortgage insurance and splits the loan amount into two liens. In the same manner, an 80/15/5 is an 80% first lien, a 15% second lien and a 5% down payment.
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Q. What do I need to bring to closing?
A. The closing will take place at the title company, and you and any other borrower named in the mortgage agreement must bring a valid driver’s license. Also, any funds due at that time must be in the form of either a cashier’s check made out to the title company or a wire transfer.
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Q. For how much do I need to insure my home?
A. It is your responsibility to secure homeowner's insurance on the home you are purchasing prior to closing. Please contact your insurance company to get coverage that best suits your needs.
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Q. What is the Annual Percentage Rate on my Truth in Lending Document?
A. The Annual Percentage Rate (APR) is the cost of your credit expressed as an annual interest rate. Points and other prepaid finance charges are factored into the APR to show the true yield on the loan, which is why the APR is often higher than your note rate. The APR can be compared to the APR on other loan programs to give you a consistent means of comparing rates and programs.
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Q.Are there any actions I need to avoid before and during the financing process?
A. It is best to talk to your Loan Officer about your individual situation, but here are some things to avoid prior to and during the home financing process until you can get professional mortgage guidance.
- It is best to wait to look for a new home until you are preapproved.
- Do not pack and ship documents you will need during the loan process, such as your W-2 forms, tax returns, bank statements and pay stubs.
There are also a number of actions you can take during the process that will require additional documentation, and to prevent confusion, should be avoided.
- Do not suddenly pay off your debts.
- Do not apply for new credit cards.
