• Top 12 FAQs

    1. HOW DO I KNOW IF I AM READY TO BUY A HOME?

    Deciding to purchase a home is a major decision for you and your family. You are doing the right thing by beginning with research. At Starkey Mortgage, we want to set our borrowers up for success, which is why our consultants are on hand to help you with your home buying considerations. Our experience in pairing thousands of families like yours with their dream homes has put us in a unique position to help you from the start.

    Here are some good indicators that you are financially ready to purchase a home:

    • A steady or reliable source of income such as a job or savings/investments
    • Regular employment or reliable source of income
    • A record of paying loans or bills without default
    • Long-term income to debt ratio makes it manageable to meet fixed and unexpected expenses
    • Money available for down payment and the ability to pay a mortgage and home insurance each month

     

    2. HOW DO I BEGIN THE PROCESS OF BUYING A HOME?

    Begin by identifying what is important to you and your family. First, identify a general geographic location that will suit your lifestyle. Location considerations include the logistics surrounding work commutes, school districts, and outdoor space. Next, look at what your home should provide you. How many bedrooms and bathrooms would be ideal? Do you need office or entertaining/guest space? Are you interested in construction a home, a move-in ready home, or a fixer upper?

     

    Next, meet with your Starkey representative to lay the foundation for your loan. He or she will help you determine a feasible home budget based on your financial situation and goals. It is important to begin the home-buying process with your budget in mind. If you are a fan of the home-buying shows on networks such as HGTV, you’ve probably noticed that people always begin with the end in mind and shop only those homes that are close to their lifestyle and budgetary goals. Understanding your financial capabilities before you beginning your house hunt is essential and can only benefit you. You will be able to appropriately narrow your search, and you may quickly find out that when you are pre-approved for a home loan, you will likely move to the top of the list when multiple buyers are interested in a home and time is a factor for the seller.

     

    After researching neighborhoods or homes that meet your criteria, make an appointment with your Realtor® to view a few homes. Take your time, ask questions, and take photos (if permissible) in order to “revisit” the top homes on your list.

     

    3. HOW DOES PURCHASING A HOME COMPARE TO RENTING?

    You are not alone in weighing this list of pros and cons. This is one of the top questions we hear as lenders. On one hand, renting generally allows maintenance free living and fixed monthly expenses—a plus for many people. On the other hand, home ownership provides an opportunity to build equity, take advantage of tax benefits, and make permanent improvements to your dwelling while gaining equity in your home for doing so. Consider that while there are many benefits of owning a home, homeowners are also responsible for repairs and upkeep.

     

    4. HOW DOES THE LENDER HELP DETERMINE THE RIGHT LOAN AMOUNT FOR MY SITUATION?

    The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. The lender also considers how much cash you are able to apply to your down payment and closing costs. Credit history, which can be obtained through a credit report {Link credit co. phone numbers that are provided in another answer} is also factored when determining your maximum loan amount.

     

    5. HOW CAN I LEARN MORE ABOUT THE SCHOOL DISTRICT FOR AN AREA I AM CONSIDERING?

    School districts are a big consideration for many families—one that many base their home-buying decisions on. You can obtain information about school systems by contacting the city or county school board. Your real estate agent also may be knowledgeable about schools in the area.

     

    6. HOW CAN I FIND OUT THE AMOUNTS HOMES ARE SELLING FOR IN CERTAIN COMMUNITIES AND NEIGHBORHOODS?

    Your real estate agent should be able to provide you with figures by showing you “comps” or comparable listings. If you are working with a Realtor®, ask him or her to access comparable sales and help you determine what price to offer, using comps as a factor.

     

    7. IS AN OLDER HOME A BETTER VALUE THAN A NEW ONE?

    The answer to this stems in personal preference and varies greatly from one person to the other based on what he or she values in a home. You should look at each home for its individual characteristics.

     

    Generally, older homes may be in more established neighborhoods, offer more character, and have lower property tax rates. People who buy older homes, however, should be prepared to maintain their home and making some repairs.

     

    Newer homes usually have modern architecture and systems, are usually easier to maintain, may be more energy-efficient, and can often be move-in ready. People who buy new homes may appreciate warranties that accompany their home systems or not want to be concerned with potential renovations and repairs in the short term.

     

    8. WHAT SHOULD I LOOK FOR WHEN WALKING THROUGH A HOME?

    In addition to comparing a home to your minimum requirements and wish lists, use the HUD Home Scorecard [link/reference?] to consider the following:

    • Is there enough room for both your present and your projected future needs?
    • Are there enough bedrooms and bathrooms?
    • Is the house structurally sound?
    • Do the mechanical systems and appliances work?
    • Does the yard meet your needs?
    • Do you like the floor plan or structural “bones” of the space?
    • Will your furniture fit in the space? Is there enough storage space? (Bring a tape measure and general measurements of your largest furnishings to better answer these questions.)
    • Does anything need to be repaired or replaced? Will the seller repair or replace the items?
    • Imagine the house in good and bad weather and in each season. Will you be happy with it year-round?

    Take your time and think carefully about each house you see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint.

     

    9. WHAT SHOULD I DO IF I AM FEELING EXCLUDED FROM CERTAIN NEIGHBORHOODS?

    The U.S. Department of Housing and Urban Development (HUD) can offer assistance if you think you are being unfairly excluded from a neighborhood or particular house. Contact HUD if you believe you are being discriminated against on the basis of race, color, religion, sex, nationality, familial status, or disability. HUD's Office of Fair Housing has a hotline for reporting incidents of discrimination: 1-800-669-9777 (1-800-927-9275 for the hearing impaired).

     

    10. WHAT DOES A HOME INSPECTOR DO, AND HOW DOES AN INSPECTION FACTOR INTO THE PURCHASE OF A HOME?

    An inspector checks the safety of your potential new home. Home inspectors focus especially on the structure, construction, and mechanical systems of the house and will make you aware of only repairs that are needed.


    The inspector does not evaluate whether or not you are getting good value for your money. Generally, an inspector checks (and gives prices for repairs on): the electrical system, plumbing, waste disposal, water heater, insulation and ventilation, heating, ventilation, and air conditioning (HVAC) system, water source and quality, potential presence of pests, foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector that is both qualified and experienced.

     

    It is a good idea to have an inspection before you sign a written offer since, once the deal is closed, you've bought the house “as is.” Or, you may want to include an inspection clause in the offer when negotiating for a home. An inspection clause gives you an “out” on buying the house if serious problems are found, or it gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause also can specify that the seller must fix the problem(s) before you purchase the house.

     

    11. WHAT STEPS NEED TO BE TAKEN TO SECURE A LOAN?

    The first step in securing a loan is to complete a loan application. To do so, you'll need the following information.

    • Pay stubs for the past 2-3 months
    • W-2 forms for the past 2 years
    • Information on long-term debts
    • Recent bank statements
    • Tax returns for the past 2 years (in some cases)
    • Proof of any other income
    • Address and description of the property you wish to buy
    • Sales contract

    During the application process, the lender will order a report on your credit history and a professional appraisal of the property you want to purchase. The application process typically takes between 1-6 weeks.

     

    12. HOW DO I CHOOSE THE RIGHT LENDER FOR MYSELF?

    Look for a company with a history of financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable since it will be easier for you to monitor the status of your application and ask questions. Plus, it's beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends, and your real estate agent for recommendations.


    Go to the lender's office and interview the loan officer or manager. As lenders, we can tell you that while we are often busy, it is refreshing when a purchaser or potential client takes an interest in how we handle our business. Your initial impression is usually right.

     

    Be sure you are comfortable with the answers you receive to the questions you ask. If you visit with a loan officer on the phone or in person and are confused, it is best to keep interviewing until you find someone who can communicate with you clearly about the details of your transaction. Be cautious about selecting a lender who has the "lowest rate in town." Most lenders will vary only slightly from day to day in the interest rates they offer. Take all the extra time you need to shop for your lender. You will be up-close and personal with your lender for quite some time.

  • COMMUNITY

    WHAT SHOULD I LOOK FOR WHEN DECIDING ON A COMMUNITY?

    Select a community that will allow you to best live your daily life. Many people choose communities based on schools. Do you want access to shopping and public transportation? Is access to local facilities like libraries and museums important to you? Or do you prefer the peace and quiet of a rural community? When you find places that you like, talk to people that live there. They know the most about the area and will be your future neighbors. More than anything, you want a neighborhood where you feel comfortable.

     

    HOW CAN I FIND OUT ABOUT COMMUNITY RESOURCES?

    Contact the local Chamber of Commerce for promotional literature or talk to your real estate agent about welcome kits, maps, and other information. You also may want to visit the local library. It can be an excellent source for information on local events and resources, and the librarians will probably be able to answer many of the questions you have.

  • TAXES AND INSURANCE

    HOW CAN I FIND INFORMATION ON THE PROPERTY TAX LIABILITY?

    The total amount of the home’s previous year's property taxes is usually included in the listing information. If it is not, ask the seller for a tax receipt or contact the local assessor's office. Tax rates can change from year to year, so these figures may be approximate.

     

    WHAT OTHER TAX ISSUES SHOULD I TAKE INTO CONSIDERATION?

    Keep in mind that your mortgage interest and real estate taxes will be deductible. A qualified real estate professional can give you more details on other tax benefits and liabilities.

     

    WHAT IS MORTGAGE INSURANCE?

    Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It is primarily required for borrowers making a down payment of less than 20%.

     

    HOW DOES MORTGAGE INSURANCE WORK? IS IT LIKE HOME OR AUTO INSURANCE?

    Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower cannot repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.

     

    DO I NEED MORTGAGE INSURANCE? HOW DO I GET IT?

    You need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs. Ask your lender for details.

     

    WHAT IS PMI?

    PMI stands for Private Mortgage Insurance or Insurer. These are privately owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMIs usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower, and they insure loans that exceed the FHA limit.

  • HOME SEARCH

    WHAT QUESTIONS SHOULD I ASK WHEN LOOKING AT HOMES?

    Many of your questions should focus on potential problems and maintenance issues. Does anything need to be replaced? What things require ongoing maintenance (e.g., paint, roof, HVAC, appliances, carpet)? Also ask about the house and neighborhood, focusing on quality of life issues. Be sure the seller or real estate agent's answers are clear and complete. Ask questions until you understand all of the information they have provided. Make a list of questions ahead of time to help you organize your thoughts and arrange all of the information you receive. The HUD Home Scorecard [link] can help you develop your question list.

     

    HOW CAN I KEEP TRACK OF ALL THE HOMES I SEE?

    If possible, take photographs of each house: the outside, the major rooms, the yard, and extra features that you like or ones you see as potential problems. And don't hesitate to return for a second look.

     

    HOW MANY HOMES SHOULD I CONSIDER BEFORE CHOOSING ONE?

    On average, homebuyers see 15 houses before choosing one. There is not a set number of houses you should see before you decide. Visit as many as it takes to find the one you envision for your family. If your search feels too lengthy or is not yielding results close to what you are seeking, set an appointment with your real estate agent to refine or expand your search parameters based on feedback from the most recent homes you visited.

  • ASSESSING THE HOME

    DO I NEED TO BE THERE FOR THE INSPECTION?

    Your presence is not required for an inspection, but it's a good idea. Following the inspection, the home inspector will be able to answer questions about the report and discuss any problem areas. This is also an opportunity to hear an objective opinion on the home you'd like to purchase, and it is a good time to ask general maintenance questions.

     

    ARE OTHER TYPES OF INSPECTIONS REQUIRED?

    If your home inspector discovers a serious problem, then a more specific inspection may be recommended. It is a good idea to consider having your home inspected for the presence of a variety of health-related risks like radon gas, asbestos, lead paint, or possible problems with the water or waste disposal system.

     

    HOW CAN I PROTECT MY FAMILY FROM LEAD IN THE HOME?

    If the house you are considering was built before 1978 and you have children under the age of seven, you will want to have an inspection for lead-based paint. It is important to know that lead flakes from paint can be present in both the home and in the soil surrounding the house. The problem can be fixed temporarily by repairing damaged paint surfaces or planting grass over affected soil. Hiring a lead abatement contractor to remove paint chips and seal damaged areas will fix the problem permanently.

     

    ARE POWER LINES A HEALTH HAZARD?

    There are no definitive research findings that indicate exposure to power lines results in greater instances of disease or illness.

     

     

    WHAT STEPS COULD I TAKE TO LOWER MY HOMEOWNER'S INSURANCE COSTS?

    Be sure to shop inquire at several insurance companies. Also, consider the cost of insurance when you look at homes. Newer homes and homes constructed with materials like brick tend to have lower premiums. Think about avoiding areas prone to natural disasters, like flooding.

    Other ways to lower insurance costs include insuring your home and car(s) with the same company, increasing home security, and seeking group coverage through alumni or business associations. Raising your deductibles lowers your insurance costs, but this exposes you to a higher out-of-pocket expense if you have to file a claim.

     

    IS HOMEOWNER'S INSURANCE MANDATORY?

    Yes. A paid homeowner's insurance policy (or a receipt for one) is required at closing, so arrangements will have to be made prior to that day. Plus, involving the insurance agent early in the home buying process can save you money. Insurance agents are a great resource for information on home safety, and they can give tips on how to keep insurance premiums low.

     

    IS THE HOME LOCATED IN A FLOOD PLAIN?

    Your real estate agent or lender can help you answer this question. If you live in a flood plain, the lender will require that you have flood insurance before lending any money to you. If you live near a flood plain, you may choose whether or not to acquire flood insurance coverage for your home. Work with an insurance agent to construct a policy that fits your needs and meets your lender’s requirements.

     

    WHAT ENVIRONMENTAL FACTORS SHOULD I CONSIDER BEFORE I BUY MY HOME?

    Always check to see if the house is in a low-lying area, in a high-risk area for natural disasters (like earthquakes, hurricanes, or tornadoes), or in a hazardous materials area. Be sure the house meets building codes. Also consider local zoning laws, which could affect remodeling or making an addition in the future. Your real estate agent should be able to help you with these questions.

     

     

  • PURCHASING YOUR HOME


    HOW DO I MAKE AN OFFER?

    Your real estate agent will assist you in making an offer, which will include the following information:

    • Complete legal description of the property
    • Amount of earnest money
    • Down payment and financing details
    • Proposed move-in date
    • Price you are offering
    • Proposed closing date
    • Length of time the offer is valid
    • Details of the deal

     

    Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer.

     

    HOW DO I DETERMINE THE INITIAL OFFER?

    Unless you have a buyer's agent, remember that the agent works for the seller. Make a point of asking him or her to keep your discussions and information confidential. Listen to your real estate agent's advice, but follow your own instincts on deciding upon a fair price. Calculating your offer should involve several factors: what homes sell for in the area, the home's condition, how long it has been on the market, financing terms, and the seller's situation. By the time you are ready to make an offer, you should have a good idea of what the home is worth and what you can afford. Be prepared for give-and-take negotiation, which is very common when buying a home. The buyer and seller often go back and forth until they can agree on a price.

     

    DO I NEED A LAWYER TO BUY A HOME?

    Laws vary by state. Some states require a lawyer to assist in several aspects of the home buying process while other states do not, as long as a qualified real estate professional is involved. Even if your state does not require one, you may want to hire a lawyer to help with the complex paperwork and legal contracts. A lawyer can review contracts, make you aware of special considerations, and assist you with the closing process. Your real estate agent may be able to recommend a lawyer. If not, shop around. Find out what services are provided for what fee, and whether the attorney is experienced at representing homebuyers.

     

    WHAT ARE "HOME WARRANTIES," AND SHOULD I CONSIDER THEM?

    Home warranties offer you protection for a specific period of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by homeowner's insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash-strapped.

  • BECOME MORTGAGE SAVVY

    WHAT IS A MORTGAGE?

    Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.

     

    WHAT IS A LOAN TO VALUE (LTV) AND HOW DOES IT DETERMINE THE SIZE OF MY LOAN?

    The LTV ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000) and would have to pay $2,500 as a down payment.

     

    The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV, the less cash homebuyers are required to pay out of their own funds. To protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require a mortgage insurance policy.

     

    WHAT IS EARNEST MONEY AND HOW MUCH SHOULD I SET ASIDE?

    Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.

     

    WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH?

    You will most commonly hear about two loan types: Fixed Rate Mortgages and Adjustable Rate Mortgages (ARM).

     

    With Fixed Rate Mortgages, your payments remain the same for the life of your 15-year or 30-year loan. The advantages to this are predictable payments and your housing cost remains unaffected by interest rate changes and inflation.


    With an ARM, payments increase or decrease on a regular schedule with changes in interest rates; increases are subject to limits

    There are two types of ARM:

    1. Balloon Mortgage - Offers very low rates for an initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)
    2. Two-Step Mortgage - Interest rate adjusts only once and remains the same for the life of the loan
       

    An ARM is linked to a specific index or margin. The advantage to this is that it generally offers lower initial interest rates, monthly payments can be lower, and the borrower may be able to qualify for a larger loan amount.

     

    WHEN DO ARMS MAKE SENSE?

    An ARM may make sense if you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and are not concerned about potential increases in interest rates. 

     

    WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS?

    30-year loan:
    In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions for the homeowner. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.

    15-year loan:
    The loan is usually made at a lower interest rate, and equity is built faster because early payments pay more principal.

     

    CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE?

    Yes. Choosing to increase your payment each month or make an extra payment at the end of the year can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.

     

    ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS?

    Yes. Lenders now offer several affordable mortgage options, which can help first-time homebuyers overcome obstacles that may have made purchasing a home difficult in the past. Lenders may now be able to help borrowers who do not have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or who have experienced income irregularities.

     

    HOW LARGE OF A DOWN PAYMENT DO I NEED?

    There are mortgage options now available that only require a down payment of 5% or less of the purchase price of the home. Some mortgages do not require a down payment at all. But the larger the down payment, the less you have to borrow and the more equity you will have in your home.

     

    Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you will also need money for closing costs, moving expenses, and potentially repairs and decorating.

     

    WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT?

    The monthly mortgage payment mainly pays off principal and interest. Most lenders also include local real estate taxes, homeowner's insurance, and mortgage insurance (if applicable). Be sure to inquire what is specifically included so you can plan for excluded expenses accordingly.

     

    WHAT FACTORS AFFECT MORTGAGE PAYMENTS?

    The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the amount of your mortgage payment.

     

    HOW DOES THE INTEREST RATE FACTOR IN SECURING A MORTGAGE LOAN?

    A low interest rate allows you to borrow more money than a high rate when comparing the some monthly payment. Interest rates can fluctuate as you shop for a loan, so ask lenders if they offer a rate "lock-in" which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.

     

    WHAT HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN?

    If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate less than your current one, refinancing is smart if you do not pay more in fees than you will save in the time you will live in the house.

     

    WHAT ARE DISCOUNT POINTS?

    Discount points allow you to lower your interest rate. They are essentially prepaid interest with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or .125) of a percentage point. When shopping for a loan, ask lenders for an interest rate with 0 points, and see how much the rate decreases with each point paid. Discount points are smart if you plan to stay in a home for some time since the points can lower the monthly loan payment. Points are tax deductible when you purchase a home, and you may be able to negotiate for the seller to pay for some of them.

     

    ARE THERE ANY COSTS OR FEES ASSOCIATED WITH THE LOAN ORIGINATION PROCESS?

    Yes. When you turn in your application, you will be required to pay a loan application fee to cover the costs of underwriting the loan. This fee pays for the home appraisal, a copy of your credit report, and any additional charges that may be necessary. The application fee is generally non-refundable.

     

    WHAT IS AN ESCROW ACCOUNT? DO I NEED ONE?

    Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance (if applicable), and property taxes. An escrow account is a good idea because it assures money will always be available for these payments. If you use an escrow account to pay property tax or homeowner's insurance, make sure you are not personally penalized for late payments since it is the lender's responsibility to make those payments.

     

    HOW ARE PRE-QUALIFYING AND PRE-APPROVAL DIFFERENT?

    Pre-qualification is an informal way to see how much you may be able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and the down payment you can afford. This helps you arrive at a ballpark figure of the amount you may have available to spend on a house without any obligation or lengthy application procedures.

     

    Pre-approval is a lender's actual commitment to lend to you. It involves assembling your financial records and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.

     

    HOW CAN I FIND OUT INFORMATION ABOUT MY CREDIT HISTORY?

    There are three major credit reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it is important to verify its accuracy. You’ll want to double check the "high credit limit," “total loan," and “past due" columns. It is a good idea to get copies from all three companies to assure there are no mistakes, since any of the three could provide a report to your lender. Fees ranging from $5-$20 are usually charged to issue credit reports, but some states permit citizens to acquire a free report annually. Contact the reporting companies at the numbers listed for more information.

     

    CREDIT REPORTING COMPANIES
    Equifax 1-800-685-1111

    Experian 1-888-524-3666
    Trans Union 1-800-916-8800

     

    WHAT IF I FIND A MISTAKE IN MY CREDIT HISTORY?

    Simple mistakes are easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are usually understanding about legitimate problems.

     

    WHAT IS A CREDIT BUREAU SCORE AND HOW DO LENDERS USE THEM?

    A credit bureau score is a number based upon your credit history that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details.

     

    HOW CAN I IMPROVE MY CREDIT SCORE?

    A credit score is accrued from many sources (for example, auto loans, utility providers, cellular phone provider) over many years. While there is not an instant way to boost your credit score, committing to diligence in paying bills on time, balancing your lines of credit or “income to debt ratio,” and reigning in unnecessary spending will all slowly help increase your credit score.

     

    WHAT SHOULD I DO IF I CANNOT MAKE A PAYMENT ON MY LOAN?

    Call or write to your lender as soon as possible. Clearly explain the situation and be prepared to provide him or her with financial information.

     

    ARE THERE ANY OPTIONS IF I FALL BEHIND ON MY LOAN PAYMENTS?

    Yes. Talk to your lender or a HUD-approved counseling agency for details. Listed below are a few options that may help you get back on track.

     

    FOR AN FHA LOAN:

    • Keep living in your home to qualify for assistance.
    • Contact a HUD-approved housing counseling agency (1-800-569-4287 or TDD: 1-800-483-2209) and cooperate with the counselor/lender trying to help you.
    • HUD has a number of special loss mitigation programs available to help you:
      • Special Forbearance: Your lender will arrange for a revised repayment plan, which may include temporary reduction or suspension of payments; you can qualify by having an involuntary reduction in your income or increase in living expenses.
      • Mortgage Modification: This allows you to refinance the debt and/or extends the term of your mortgage loan, which may reduce your monthly payments; you can qualify if you have recovered from financial problems, but net income is less than before.
      • Partial Claim: Your lender may be able to help you obtain an interest-free loan from HUD to bring your mortgage current.
      • Pre-foreclosure Sale: This allows you to sell your property and pay off your mortgage loan to avoid foreclosure.
      • Deed in lieu of Foreclosure: This lets you voluntarily "give back" your property to the lender; it won't save your house but will help you avoid the costs, time, and effort of the foreclosure process.
    • If you are having difficulty with an uncooperative lender or feel your loan servicer is not providing you with the most effective loss mitigation options, call the FHA Loss Mitigation Center at 1-888-297-8685 for additional help.

     

    FOR A CONVENTIONAL LOAN:

    • Talk to your lender about specific loss mitigation options.
    • Work directly with him or her to request a "workout packet."

     

    A secondary lender, like Fannie Mae or Freddie Mac may have purchased your loan. Your lender can follow the appropriate guidelines set by Fannie Mae or Freddie Mac to determine the best option for your situation.

    Fannie Mae does not deal directly with the borrower. It works with the lender to determine the loss mitigation program that best fits your needs. Freddie Mac, like Fannie Mae, will usually only work with the loan servicer. However, if you encounter problems with your lender during the loss mitigation process, you can call customer service for help at 1-800-FREDDIE (1-800-373-3343).

     

    In any loss mitigation situation, it is important to remember a few helpful hints. Do not sign anything unless you understand it completely. Explore every reasonable alternative to avoid losing your home, but beware of scams. For example, watch out for:

    • Equity skimming: a buyer offers to repay the mortgage or sell the property if you sign over the deed and move out.
    • Phony counseling agencies: these offer counseling for a fee when counseling elsewhere is often available at no charge.

     

    SHOULD I BE PRE-QUALIFIED BEFORE BEGINNING A HOUSE HUNT?

    We highly recommend pre-qualification for two reasons: 1) you will have an accurate idea about your financial qualifications (i.e., how much you can comfortably afford), and 2) it is actually easier to buy a home if you know in advance that you will be approved. You can make arrangements with most lenders to be "prequalified" for your purchase. Here's how to do it:

    1. Make an appointment to see your lender. Take your financial information, such as bank statements and W-2 forms, as well as paycheck stubs.
    2. The mortgage company will access your credit report and review your documents. At that time, you will be able to discuss different financing options and decide which type of loan is best for you.
    3. Most lenders will write you a prequalification letter that will let your Realtor®, as well as the seller of a property, know that you have been counseled and should be a preferred purchaser. It is a good feeling to have the pressure of worrying about the loan behind you and know that you can concentrate on finding that "dream home."

     

    CAN I QUALIFY FOR A HOME LOAN IF I HAVE PAST CREDIT PROBLEMS?

    We are finding many borrowers that have rearranged their priorities as well as their spending habits. Many have learned valuable lessons from their bad experiences and have come through their "healing time." They are now ready for home ownership.

     

    It is important to note that there is a big difference between a person who had a bad credit experience in his or her life and a person who is a bad credit risk.

     

    The main questions your lender will consider are:

    1. What happened? What was the cause of your particular problem?
    2. What did you do about it? Did you make every effort to try to work things out?
    3. What steps have you taken to ensure it does not happen again? Are you back on your feet? Did you make the right changes?

     

    The more difficult the credit problems, such as bankruptcy and foreclosure, the more important the explanation and the more healing time will be necessary. We have all had some pretty tough times at one point or another. Do not be afraid or embarrassed about trying to start again. Everyone deserves a second chance!

     

    CAN NON-CITIZENS QUALIFY FOR A HOME LOAN?

    Each loan type has different guidelines for citizens of other countries. FHA requires that the home you are buying in this country is your primary residence. You must have a Social Security card as well as all of the other documentation required for FHA buyers.

     

    Fannie Mae requires that you have permanent resident alien status - a green card. If you are a non-permanent resident alien, an additional down payment, as well as permission to work in the United States for extended periods through a work visa, is required, and you must occupy the property.

     

    Freddie Mac underwrites loans for permanent and non-permanent residents alike, with no special requirements for the latter. It is important that you make an appointment with your lender before you select a home so that you will be aware of the financing available for your particular situation.

     

    WHAT ARE SOME QUALIFYING TIPS FOR A BUYER RELOCATING WITH HIS OR HER COMPANY?

    The number one tip is—do not pack your personal papers! Mortgage loans are very precise and require documentation furnished by the borrower. Keep your financial records with you until your new loan closes. You may also be prepared by knowing the exact details of your relocation policy. These are a few of the items your lender will want to know:

    1. Will your company buy your present home or issue an equity advance?
    2. If your home does not sell, will your company make the payments for you until it does sell?
    3. Will your company pay your closing costs on your purchase? If so, will they advance the funds or reimburse you after closing?

     

    It is important to keep copies of any advance checks you may receive as well as all documentation on your move. It is much easier to keep all this documentation handy rather than to try to find it when you are trying to close.

     

    CAN A RECENT COLLEGE GRADUATE BUY A HOME?

    Most loan types are very interested in financing recent graduates. Many investors will use your college credits in your chosen field to determine your experience. In most cases, they also expect that you have established very little credit. This is acceptable as long as the credit you have established is good.

     

    WHAT IS AN 80-10-10?

    The phrase 80-10-10 is mortgage language used to refer to a financing option you could choose in an effort to avoid Private Mortgage Insurance (PMI). The “80” refers to an 80 percent first-lien mortgage. The first “10” refers to a 10 percent second-lien mortgage, and the third “10” refers to the required down payment of ten percent.

     

    One of the advantages of using this type of financing is the potential income tax deductibility of the interest on the second lien versus the non-deductible insurance payment of PMI. You also will have the guarantee that the second-lien financing will eventually be gone, and you will have only the first lien to pay monthly.

     

    HOW CAN WE BE SURE TO GET THE INTEREST RATE ADVERTISED BY A LENDER?

    Home loan interest rates change on a daily basis. They can change more than once a day. When you get a quote, it becomes your rate once you lock-in with your selected lender. A lock-in is a promise (in writing) to close your loan at a certain interest rate and points.

     

    You should have a lock-in agreement with clearly defined terms. These terms include an expiration date, interest rate, and points paid by buyer and seller, and they usually include the expectations you should have of your lender as well as those it has of you. Be sure you understand all of the rules involved.

     

    It is important that you know about your lender's strength and reputation. The promise offered to you is made more valuable by these two. Once you read this disclosure carefully and agree to the conditions, be sure you have a fully accepted and executed copy for your files. This is your contract with your lender and protects your interest rate.

     

    WHY DO MORTGAGE INTEREST RATES GO UP AND DOWN SO DRAMATICALLY?

    Many years ago, savings and loan institutions made the majority of home mortgage loans. They would often set a rate for new home loans for long periods of time - up to a month or so. As the lending industry has evolved, the buying and selling of mortgages has become very sophisticated, and there are many different investors making new home mortgage loans. The easiest indicator you can follow in watching the direction of interest rates is the bond market.

     

    Although interest rates usually have long periods of decline or increase, there are many days when rates may jump up or down dramatically -just as the bond market can. These are often referred to as "hiccups." When rates begin to go higher for a long term, it will be (as history has proven) a slow, steady increase. It is the trend you will want to follow. Is the overall trend up or down? Don't let those daily "hiccups" alarm you.

     

    IS THERE ANYTHING I SHOULD KNOW ABOUT NEW CONSTRUCTION FINANCING?

    Your loan will be approved well in advance, and you will want to be prepared as your home building progresses and you prepare to close. The following is a list of six helpful hints:

    1. Be sure you understand and can comply with all of the conditions of your loan approval.
    2. Let your lender know of any changes to be made to the house, the sales price, or any contract changes.
    3. Do not make any changes to your financial position without consulting your lender. It may not be wise to buy a new car before closing your mortgage loan if it affects your loan approval.
    4. Save copies of all major paperwork that might influence your loan. For example, save copies of any bonus checks you might receive.
    5. Notify your lender when you are within 60 days of closing. You will probably be at the building site and in communication with the builder to know this approximate date. It is important to notify your lender so that any updates that are necessary can be accomplished.
    6. Use extreme caution concerning setting your closing date and time. If you give notice where you are currently living and must be out by a certain date, it will be very uncomfortable if the home is not complete and will not pass final inspection. Many times buyers get approved for their home loan, begin construction, and then forget that the lender will require that the file be updated prior to funding into the permanent loan. When the house is finished, the builder will want to be paid. Ensuring that all payments and paperwork are in order as your home nears completion will likely help you avoid any unpleasant delays.
  • FINDING THE RIGHT LOAN AND LENDER

    HOW DO I CHOOSE THE BEST LOAN PROGRAM FOR ME?

    Your personal situation will determine the best kind of loan for you. By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best.

    • Do I expect my finances to change over the next few years?
    • Am I planning to live in this home for a long period of time?
    • Am I comfortable with the idea of a changing mortgage payment amount?
    • Do I wish to be free of mortgage debt as my children approach college age or as I prepare for retirement?

    Your lender can help you use your answers to questions such as these to decide which loan best fits your needs.

    WHAT IS THE BEST WAY TO COMPARE LOAN TERMS BETWEEN LENDERS?

    First, devise a checklist to track information from each lending institution. You should include the company's name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed.

    Speak with companies by phone or in person. Be sure to call every lender on your list on the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she also may be able to suggest a variety of different lender options to you.

    WHAT IS RESPA?

    RESPA stands for Real Estate Settlement Procedures Act. It requires lenders to disclose information to potential customers throughout the mortgage process. By doing so, it protects borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing, escrow account practices, and business relationships between closing service providers and other parties to the transaction.

    For more information on RESPA, call 1-800-569-4287 for a local counseling referral.

    WHAT IS A GOOD FAITH ESTIMATE, AND HOW DOES IT HELP ME?

    A good faith estimate is an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan.

    BESIDES RESPA, DOES THE LENDER HAVE ANY ADDITIONAL RESPONSIBILITIES?

    Lenders are not allowed to discriminate in any way against potential borrowers. If you believe a lender is refusing to provide his or her services to you on the basis of race, color, nationality, religion, sex, familial status, or disability, contact HUD's Office of Fair Housing at 1-800-669-9777 (or 1-800-927-9275 for the hearing impaired).

    WHAT RESPONSIBILITIES DO I HAVE DURING THE LENDING PROCESS?

    To ensure you do not fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:

    • Be sure to read and understand everything before you sign.
    • Refuse to sign any blank documents.
    • Do not buy property for someone else.
    • Do not overstate your income or your assets.
    • Do not overstate how long you have been employed.
    • Accurately report your debts.
    • Do not change your income tax returns for any reason.
    • Tell the whole truth about gifts.
    • Do not list fake co-borrowers on your loan application.
    • Be truthful about your credit problems, past and present.
    • Be honest about your intention to occupy the house.
    • Do not provide false supporting documents.

     

  • CLOSING

    WHAT HAPPENS AFTER I'VE APPLIED FOR MY LOAN?

    It usually takes a lender between 1-4 weeks to complete the evaluation of your application. It is not unusual for the lender to ask for more information once the application has been submitted. The sooner you can provide the information, the faster your application will be processed. Once all the information has been verified, the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up, and the lender will review the closing with you. After closing, you will be able to move into your new home.

    WHAT SHOULD I BE AWARE OF DURING THE FINAL WALK-THROUGH OF THE HOME PRIOR TO PURCHASE?

    This will likely be the first opportunity to examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as any work the seller agreed to do in response to the inspection. Any problems discovered previously that you find uncorrected should be brought up prior to closing. It will likely be the seller's responsibility to remedy the issues.

    WHAT MAKES UP CLOSING COST?

    There may be closing costs customary or unique to a certain locality, but closing costs are usually made up of the following:

    • Attorney's or escrow fees (yours and your lender's, if applicable)
    • Property taxes (to cover tax period to date)
    • Interest (paid from date of closing to 30 days before first monthly payment)
    • Loan origination fee (covers lender’s administrative costs)
    • Recording fees
    • Survey fee
    • First premium of mortgage insurance (if applicable)
    • Title insurance (yours and lender's)
    • Loan discount points
    • First payment to escrow account for future real estate
    • Taxes and insurance
    • Paid receipt for homeowner's insurance policy (and fire and flood insurance, if applicable)
    • Any documentation preparation fees

     

    WHAT CAN I EXPECT TO HAPPEN ON CLOSING DAY?

    You will present your paid homeowner's insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (e.g., remainder of down payment, prepaid taxes) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc.

    Once you are sure you understand all the documentation, you will sign the mortgage, agreeing that if you do not make payments, the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You will also sign a mortgage note promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.

    You will pay the lender's agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage then will be recorded in the state Registry of Deeds, and you will be a homeowner.

    WHAT DO I RECEIVE AT CLOSING?

    • Settlement Statement, HUD-1 form (itemizes services provided and the fees charged; it is filled out by the closing agent and must be given to you at or before closing)
    • Truth-in-Lending statement
    • Mortgage note
    • Mortgage or deed of trust
    • Binding sales contract (prepared by the seller; your lawyer should review it)
    • Keys to your new home

     

  • STATE, FEDERAL, AND PRIVATE PROGRAM RESOURCES

    WHAT IS THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT?

    The U.S. Department of Housing and Urban Development, also known as HUD, was established in 1965 to develop national policies and programs to address housing needs in the U.S. One of HUD's primary missions is to create a suitable living environment for all Americans by developing and improving the country's communities and enforcing fair housing laws.

    HUD helps people by administering a variety of programs that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available for lower- and moderate-income families through its FHA Mortgage Insurance program and its HUD Homes program. HUD owns homes in many communities throughout the U.S. and offers them for sale at attractive prices and economical terms. HUD also seeks to protect consumers through education, Fair Housing Laws, and housing rehabilitation initiatives.

     

    WHAT IS THE FHA?

    Now an agency within HUD, the Federal Housing Administration was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans. The FHA has helped more than 26 million Americans buy homes.

    With the FHA, you do not need perfect credit or a high-paying job to qualify for a loan. There is no minimum income requirement; however, you must prove steady income for at least three years and demonstrate that you have consistently paid your bills on time. The FHA makes loans more accessible by requiring smaller down payments than conventional loans. In fact, an FHA down payment could be as little as a few months rent – typically between 3%-5% with a minimum of 3% coming directly from the borrower's own funds.

    Anyone who meets the credit requirements, who can afford the mortgage payments and cash investment, and who plans to use the mortgaged property as a primary residence can apply.

    The FHA does have loan limits which vary throughout the country – see www.fhalibrary.com for details.

     

    WHAT IS THE DEPARTMENT OF VETERAN AFFAIRS (VA)?

    The Veterans Administration (VA) loan program is funded by community mortgage companies, but backed by the US Department of Veteran Affairs. Borrowers are eligible for VA Loans if the property to be purchased will be owner-occupied and they are Veterans, active military personnel, the military reserve, the National Guard, or in some cases are a surviving spouse.

    It may be possible for a veteran to obtain a 100% loan up to the current loan limit with no down payment, and the seller or builder is allowed to pay all of the veteran's closing costs, making the total cash required to purchase, in some instances, zero. If the veteran desires a higher priced home, he or she is generally required to make a down payment on the amount exceeding the current guaranteed loan limit. Historically, the Veterans Administration was more liberal than conventional lenders with regard to the veteran's credit standing and qualifying for the VA loan, but recent changes to VA underwriting practices now make the qualifying criteria similar to conventional mortgages.

     

    WHAT IS A BOND PROGRAM?

    Local programs for a city, county, or state bond loan are often, but not always geared to first-time home buyers. The property needs to serve as the borrower’s primary residence. The bond programs are sponsored by regional Housing Finance Agencies (HFA), who try to provide a rate that may be 1/2 to 3/4 of a percent lower than the current market rate, resulting in lower loan payments for the borrower. Other advantages of a bond program loan are tempered fees and potentially stronger purchasing power.