Q: Should you speak with a Mortgage Professional BEFORE house hunting?
A: Absolutely! It is important to speak to your Mortgage Professional prior to starting the house hunting process. Most real estate agents will require that you have been pre-approved before they take you to see homes. In addition, when you find a home and make an offer, the Listing Agent will want to know that you have already applied for a loan and been pre-approved. This also provides information to you as to how much you will qualify for and avoid wasting time seeing homes outside of your scope of approval. Additionally, it may open your eyes to other options available prior to searching for homes, such as fixer-upper loans, etc.
Q: What is a Pre-Qualification?
A: This is a basic review of your information such as employment, income, assets, and credit from a basic conversation with a home buyer. No documents are provided and no credit report is pulled. Based on information provided, your Mortgage Professional can provide possible loan programs, maximum purchase price, loan amount, and payment that you will qualify for.
Q: What is a Pre-Approval?
A: This takes the pre-qualification to the next level and is best to have BEFORE househunting commences. This is what your real estate agent will require before they begin showing homes to you. A loan application is completed and the required documents are submitted. The Mortgage Professional will pull a credit report, review the application & documents provided, and get a pre-approval through the automated underwriting system. A pre-approval letter will be provided to your agent. This letter is not binding on the lender; as it is still subject to an appraisal on the home you contract on and any other conditions needed by the lender. If your financial situation changes, specific dates expire, or interest rates rise, your lender must review your situation prior to a final loan approval.
Q: How does my credit affect the loan?
A: Lenders will look at your ability to repay the loan AND your willingness to repay the loan. These will dictate the type of loan and rate they are willing to offer to you based on the risk that has been presented to them. They look at your ability to repay the loan by determining what your debt to income level is. By using the new housing payment plus all other monthly debt that you must repay, then dividing by the gross monthly income, they will determine if it is within the required ratio tolerances allowed. Next they review the credit score to determine the the likelihood of you paying back the loan. Past delinquencies, derogatory payment history, current debt level, length of credit history, types of credit, and the number of recent inquiries are all considered in credit scores. Recent inquiries and new debt will cause your score to decrease. Having credit history that has been established for a long period of time (10 years or more) will increase the score. Learn more about credit scoring by clicking here.
Q: Why is my credit score different than what my credit card provided to me?
A: The criteria that each type of lending institution requires is different for a mortgage loan, car loan, or credit card,etc. It is typical that the scores provided when you apply for a car loan or a credit card will be significantly higher than one received for a mortgage loan becasue those types of institutions offer much smaller amounts of credit.
Q: What is a home inspection?
A: A home inspection is when a paid professional inspector inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and are paid by the buyer. The inspection usually takes place within one week of the purchase contract between buyer and seller has been signed.
Q: Do I need a home inspection?
A: While a home inspection is not required, it is highly recommended. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Structural, plumbing, electrical, and roof problems represent significant and complex systems that are expensive to fix.
Q: Should I include an inspection contingency in my offer?
A: An "inspection contingency" protects you as a buyer in a purchase offer by allowing you to cancel closing on the deal if an inspector finds problems with the property and the seller is not willing to fix the requested items. As soon as the seller accepts a written offer, the document becomes a legally binding contract. An addendum to the purchase contract can be written to include a contingency for any repairs found to be needed or related items the seller must take care of before closing. If these are not dealt with, and you have such a clause in your contract or contract addendum, you can delay or possibly cancel the closing. If it's not stated in the contract, you could face losing your earnest money deposit if you choose to cancel the contract due to needed repairs. There also may be costly legal implications stemming from backing out of a contract. You usually will have the right to choose the inspector (and be responsible for paying for the inspections). In addition to an overall inspection for structural soundness, you can request a satisfactory pest control inspection report, roof inspection report, or contingency for no potential environmental hazards such as asbestos or radon gas. Contingency clauses should satisfy the concerns of both the buyer and seller. Buyers also can protect themselves by inserting additional necessary contingencies. Indicate which items like curtains and appliances are to remain with the house. Then stipulate you have the right to a walk-through inspection the home within 24 hours of closing to make sure all is in order.
Q: Can I negotiate the price on brand new homes?
A: It can be difficult to negotiate the sales price with a builder because they may claim their prices are based on fixed construction costs, yet it doesn't hurt to try. What's the worst they can say, "No?" Experts say builders are more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most builders want to move people in quickly so the project picks up momentum. Later, builders may be more inclined to accept lower offers when only a few units remain or if they've been on the market for longer than they expected. If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a builder will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example.
Q: What are closing costs?
A; You incur closing costs to obtain the loan on your new home. Along the journey to purchase or refinance, many different services are provided. Some are charged in advance such as for the credit report and appraisal and others are charged to you at the time of closing. The entire process is highly regulated, which results in very controlled and straight-forward costs. In our presentation of loan programs, we’ll make the total costs clear and offer you various options. These options generally include the best rate available, as well as low-to-no-closing-cost options.
Q: What are pre-paids and escrows?
A: Pre-paids are items that are paid at the time of closing used to pay for items in advance; such as the first year premium of home insurance, and interest on the loan from the day of closing to the end of that particular month. Escrows for taxes and insurance are collected at closing to start your escrow account. You will continue to add to this account each month when you make your payment which typically consists of your loan principal, interest, taxes, insurance, and mortgage insurance, if required. This may be referred to as your PITI = principal, interest, taxes, and insurance. The lender will access these funds each year when the insurance and taxes are due, paying for them using your escrowed funds on your behalf.
Q: Do all loans require escrow accounts?
A: If you are taking out an FHA, VA, or USDA loan, escrow accounts are required. Conventional loan requirements will vary depending on the Lender and the amount of down payment.
Q: What are PMI and MIP?
A: PMI and MIP are different types of mortgage insurance. If you have less than 20% equity in a purchase or home you already own, and are obtaining a conventional loan, Private Mortgage Insurance (PMI) will be required. This will automatically be removed from the loan when your loan balance reaches 78% of the lower of the original purchase price or appraised value. Mortgage Insurance Premium (MIP) is used if an FHA loan is being obtained. If there is less than 10% equity in the property, the MIP will remain on the loan for the entire life of the loan.
Q: How can I get rid of mortgage insurance?
A: The best way to get rid of mortgage insurance is to refinance your current loan. If you have an FHA loan, the ONLY way to remove mortgage insurance is to refinance to a conventional loan. However, if you have the patience and at least 20% equity, contacting your current lender and requesting the PMI be removed is an option. They will provide information as to their requirements to make this happen. You will need to abide by their requirements to the letter. They will require that you pay for an appraisal to be prepared by an appraiser they desgnate directly. If you do not have 20% equity in the property yet, but have cash to pay down the mortgage to 78%, they will remove the PMI. Refinancing may be a better option than paying down an existing loan. Be sure to check current rates first.
Q: Why do I need an appraisal?
A: A real estate appraisal is used to determine the value of the property by a disinterested third party to the transaction. Appraisers are hired by an appraisal management company requested by the lender. The appraiser evaluates market conditions to assist in the value determination. Not only is the property value assessed at this time, but the property's amenities and physical condition are also taken into consideration. The final value of the property is decided when a complete report including research and the accumulation of other relevant data are completed. Appraisals are required by lenders when a loan is being obtained to finance the purchase or refinance of a particular property. The appraisal is the lenders' assurance that they are not over-lending on the property and your assurance that you are not spending too much for the property. Appraisals should be completed to obtain a loan, determine insurance costs, and to assist you in making your purchase decision.
Q: What is the difference between a condo & a townhome?
A: Generally it is how the project was platted. Condos have a higher density than townhomes and do not have ownership in the land the unit sits on. The Covenants, Conditions, and Restrictions will indicate if there is any land ownership. Many real estate agents will incorrectly list condos as townhomes. It is important to do your homework to understand the designation. Financing requirements are different for condos than they are for townhomes. It is important to read the Covenants, Conditions and Restrictions for any condo or townhome you intend to purchase. These tell you what is and what is not allowed in the community. These will also tell you if the land is included or just the "air space within the unit." It is also important to review the budget to verify there are sufficient funds to cover any community improvements and insurance deductibles.
Q: What is closing?
A: This is the BIG DAY; the one we have all been working for. This is the day you will sign all your final loan and title documents. You will then own the home and be responsible for repaying the loan provided. YOU GET TO MOVE IN! YEAH!!!!
Q: Are fixers a good idea?
A: You can find distressed properties or fixer-uppers in most communities, even wealthier neighborhoods. A distressed property is one that has been poorly maintained and has a lower market value than other houses in the immediate area. Ascertaining whether the property you're interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost. Some experts suggest that buyers who take this route try to find a "cosmetic fixer" that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping, and new appliances. Experts recommend avoiding run-down houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it. The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's rehab budget.
Q: What kind of financing is available for fixer-uppers?
A: Depending on the degree of fix up needed and the purpose of buying the fix up will determine the type of lending. For minimal repairs, less than $50,000 & no structural issues, an FHA 203k loan is avaialable for owner-occupant borrowers. For homes with more serious repairs and/or a person that will fix and flip the property, there are companies that provide fix and flip loans at higher rates and terms usually 6 months or less.
ACADEMY NATIONAL MORTGAGE CORPORATION - NMLSR #191799
SERVING ALL OF COLORADO
Phone: 303.987.0622 / Cell/Text: 303.902.0082