Answers to Your Mortgage Questions
Through our online prequalification process, a Loan Officer / Branch Manager will work with you to provide an approximate amount of money you can borrow BEFORE you look for a new home. Then, you provide more information and allow your Loan Officer / Branch Manager to run your credit report and verify your assets and income. We can even assist you to obtain a complete written credit approval (subject to an appraisal) before you make an offer on a home.
Your income ratio is your total monthly housing expense divided by your pre-tax 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 monthly income. Standard underwriting guidelines suggest 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 situation and the amount of your down payment.
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.
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%.
VA loans are for veterans who meet certain criteria, but 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 learn if you qualify for a VA loan, obtain an 1880 Form from your Loan Officer / Branch Manager. Once you have completed the form, submit the 1880 Form and your discharge papers or DD214 to your local VA office to determine your eligibility.
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 / Branch Manager for the different program options available.
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 without a two-year work history.
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%.
Notify your Loan Officer / Branch Manager, and they can lock in the interest rate recently quoted to you. 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.
Closing typically takes 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.
It is your responsibility to secure homeowner's insurance on the home you are purchasing prior to closing. Please contact your insurance company to purchase coverage that meets your loan requirements and your needs.
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.
Here are some general actions to avoid prior to and during the home-financing process until you receive professional mortgage guidance.
- Don't shop for a new home until you are prequalified.
- Do not pack and ship important 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.