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Buying House Frequently Asked Questions

Frequently Asked Questions

1. What does it mean to “pre -qualify”?
A process along which a likely homebuyer qualifies for a house mortgage before making an offer About a home. A loaning institution agrees to make a loan in the fixed amount to somebody it has prequalified.

2. My constructor commended that I get a pre-approval letter. What is a pre-approval letter, and why should I acquire one?
The loaner gives a commitment letter that tells the loaner agrees to furnish a mortgage to a homebuyer. Commitment letters assist you adjust realistic goals while you're house-hunting, provide the same negotiating power as a cash buyer and enables you to act quickly when the perfect home is found.

3. When mortgage loaners refer to "PITI" what are they referring to?
PITI is principal, interest, taxes, and insurance - the components of a monthly mortgage payment.

4. When my loan officer enquires me if I want to waive escrows, what exactly does she have in mind?
When you waive escrows, you take the responsibility of paying your taxes and insurance rather than having them included in your monthly payment. Waiving escrows may add a small fee to your closing costs. You can only waive escrows if your loan to value is 80% or less on your first mortgage.

5. What does my mortgage loaner mean by points or origination fee?
One point is equivalent to one percent of the loan amount. Points and origination fees are used to bargain down the rate of interest and are tax deductible on purchase transactions.

6. How does the yearly percentage rate differ from the interest rate?
The yearly percentage rate (APR) is the effective rate of interest for a loan if the calculation is based on the original loan amount less the closing costs. This is the rate that will appear on your preliminary Truth-In-Lending. Please note that the APR is higher than the interest rate on your Real Estate Mortgage Note.

7. How do I know what my rate of interest will be?
Upon your request, your loan officer will search for the lowest rate and “lock” your rate. The “lock-in” guarantees the homebuyer an interest rate provided the loan closes with that buyer and specified property within a set period of time. The property lock-in also specifies the number of points to be paid at closing.

8. Do I need to have a certain amount of money left after I buy my home?
Most loan programs require a cash reserve sufficient enough to make the first two mortgage payments (PITI).

9. What is the Debt-to-Income Ratio?
A ratio used by lending institutions to determine whether a person is qualified for a mortgage Debt-to-income is the total amount of debt, including credit cards and other loans, divided by total gross monthly income.

10. What is the difference between a FHA and a VA loan?
An FHA loan is a loan guaranteed by the Federal Housing Administration. FHA issues specific guidelines for mortgages. A VA loan is a loan guaranteed by the Veterans Administration. To obtain a VA loan, the buyer must have served in the Armed Forces.

11. What is Private Mortgage Insurance (PMI)?
PMI is insurance required to cover the lender should the buyer default on the loan. PMI is not tax deductible.

12. Do I always have to have PMI on my loan?
PMI can be eliminated by having a down payment of at least 20% or by obtaining a second mortgage with an 80-10-10 or an 80-15-5 loan program.

13. Will I have two separate payments if I have a second lien?
The second mortgage are often from another loaner than the first mortgage. Therefore, borrowers with a second mortgage will make two separate payments each month - one on the first mortgage and one on the second mortgage.

14. What does my loaner mean by “paper trail?”
A “paper trail” is copies of all paperwork necessary to prove a financial transaction: copies of all checks, deposit slips, loan paperwork, forms to liquidate assets, etc.

15. Why did I receive a Truth-In-Lending?
Truth-In-Lendings are sent to all buyers after a loan application has been made, regardless of whether they have a contract on a property. The Truth-In-Lending Act is a federal law requiring lenders to reveal all of the terms of a mortgage. The APR that a appears on your Truth-In-Lending will be higher than the interest rate on your Real Estate Mortgage Note.

16. Will I get a copy of my credit report and appraisal?
Upon request, we will send you a copy of your credit report. If we need a credit letter explaining any credit issues, we will notify you. You will receive a copy of your appraisal at your closing.

17. What inspections are mandatory by the loaner?
The loaner requires an appraisal on all transactions. A clear termite report is required on FHA transactions. If the appraiser recommends repairs or if repairs are mentioned in the contract, the lender will require that those repairs be done before closing. The appraiser will then perform a final inspection to assure that the repairs were completed. If the termite report recommends treatment, treatment is required. We will need a receipt showing the name and amount of chemicals used.

18. When will I find out what my final figure is for the total costs to close?
The title company will prepare a Settlement Statement detailing the closing figures. Your mortgage company will review this statement and provide you with an amount for closing. If you need this figure more than 24-hours before closing, call your mortgage company and request a new good faith estimate of closing costs. Remember to bring a cashier’s check made payable to the title company.

19. Where do I go for closing?
Your closing will take place at the title company. The title company’s name and address appears in your sales contract. Call your builder to schedule a time for your closing.

20. Where do I send my first mortgage payment?
Refer to your “First Payment Letter” in your closing documents to find out where to send your first mortgage payment. If you receive a statement from your new loaner prior to the due date of your first payment, send your payment to the new lender.
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