Mortgage FAQ

What are my options if I have no down payment, or only a small down payment?

Right now the only zero down loan is a VA loan. FHA loans require only 3.5% down.

What is private mortgage insurance (PMI)? Do I have to pay it?

Private mortgage insurance is required if you borrow more than 80% of your homes value. This insurance protects the lender if you cannot make your payments. When you default on the loan, the insurance company pays the debt. The cost is added onto your loan, and will be approximately an additional one  percent.

What kinds of government loans are available to buyers?

HUD (US Department of Housing and Urban Development) is committed to increasing home ownership for Americans.  HUD oversees the FHA (Federal Housing Commission), and offers a variety of programs, including 203(K) loans to purchase a home that needs fixing up, financing for FHA-insured homes that have been acquired through foreclosure, and other FHA-insured loans. HUD has many programs.

FHA loans (offered by the Federal Housing Commission) are the most popular. They don’t actually make the loan; they guarantee loans requiring only a 3.5% down payment, and they have more lenient credit policies than conventional loans.

VA (Veteran’s Administration) loans are really guarantees for loans obtained by certain qualified veterans or other qualifying home buyers or refinancers such as unmarried surviving spouses.

What is the difference between a fixed rate mortgage (FRM) and an adjustable rate mortgage (ARM)?

A fixed rate mortgage is a loan with an interest rate that does not change for the life of the loan.

An adjustable rate mortgage is a loan with an interest rate that changes. ARM’s may start with a lower monthly payment than a fixed rate mortgage, however your monthly payment will likely go up in the future.

What is included in closing costs?

Closing costs will be about 3%-6% of your mortgage loan and commonly include:

Generally paid with application:

  • Appraisal Fee: fee for an independent appraisal of the house (required by the lender) to establish market value to factor into the determination of the loan amount
  • Credit Report Fee: a fee for the lender to obtain your credit report from one of the three recognized credit reporting bureaus (Equifax, TransUnion, and Experian). This report gives your credit history and a credit score which is used to determine qualifications and loan limits.

Generally paid at closing:

  • Survey Fee: (may be required) a survey to verify property boundaries
    Flood Certification Fee: (may be required) a minimal fee to verify that the property is not in a flood zone
    Title Search Fee: a fee to obtain a history of the property to establish if there are any legal claims on the property
  • Title Insurance: a lender’s title insurance policy is required to protect the lender in getting the balance of the loan repaid; an owner’s title insurance is also optional, protecting the buyer’s investment
  • Attorney Costs: paid for review of all documents needed to close your loan
    Recording and transfer charges: a small fee to record the purchase of your home
  • Origination points: a percentage-of-the-loan amount charged as a fee for the lender’s preparation of the loan
  • Discount points: an optional percentage-of-the-loan amount paid to obtain a lower interest rate
  • Escrow Accounts: (generally required) escrows for future fees that will be due related to the house, such as: Private Mortgage Insurance (required for loans financed at over 80% of value), Homeowner’s Insurance (often called “Hazard” or “Fire Insurance”), property taxes, and sometimes, interest.

Is there any way to speed up the loan approval process?

  • Becoming either pre-qualified (a preliminary analysis of your debt-to-income ratio), pre-approved (NOT a loan guarantee-but analysis of credit report and income and a correlating maximum loan amount and interest options), or obtaining a loan commitment (guaranteed under pre-set conditions) will help speed up the loan process. Pre-qualifications indicate that you are a more solid buyer. However, only a loan commitment is a guarantee that you will get the loan.
  • Another way to help speed up the loan approval process is to get your paperwork ready in advance.
    • Check your credit score and clean up any old items. Have explanations for any remaining questions on your credit report.
    • Gather any needed documentation such as personal identification, income verification and tax returns, employment history, and insurance commitments.
  • And, most important, when the loan officer asks for any information, always respond promptly.

What is the difference between a mortgage broker, a lender, and a loan officer?

A mortgage broker covers a broad basis, linking buyers with appropriate lenders, counseling borrowers, and even processing loans.

A lender is the institution or agency that will actually loan the money.

A loan officer is an employee of either a lender or a mortgage broker, generally finding borrowers, counseling, taking applications, and often, being involved in the loan processing.

What documents will be required to close a loan?

Documents required vary from loan to loan, but generally the following are required, often for up to two years back:

  • pay stubs, W2’s, 1099’s, tax returns, financial statements
  • bank statements
  • a list of any assets that you own
  • rental or mortgage history
  • employment history and current information
  • personal identification, including Green Card if applicable
  • purchase contract
  • Other pertinent items such as: Bankruptcy Discharge Notice or Divorce Decree
  • loan application

Is it more expensive to rent or to own?

Owning a home is often considered the better deal, but keep these considerations in mind:

  • many home owners do not build much equity in the first few years.
  • Homeowners costs often increase due to increased property taxes, increased insurance premiums and costs associated with maintaining a home.
  • These are other reasons that may make renting a better option:
  • Many maintenance and repair costs belong to the landlord.
  • Easier to relocate for a job opportunity without having the hassle of selling your home
  • Often, more convenient access to transportation, employment, retail, entertainment, and other common facilities

Do I need to check my credit prior to buying a house?

No, the lender will do that for you. If you look at it prior to a loan application, you run the risk of lowering your credit score. If your score is low, you can do specific things to increase your score such as paying down debt, increasing cash in the bank, and making payments consistently on time, over a period of time.

Where do the names Fannie Mae and Freddie Mac (loan regulating entities) originate?

The Fannie Mae entity was created in 1938 under President Franklin D. Roosevelt to help the home buying economy which was floundering at that time.

In 1968, Freddie Mac was chartered to provide competition. These are not government funded entities, only government sponsored, with the idea of creating national standards and guidelines to ensure a long-term healthy housing market.

They were dubbed these names from the acronyms of their respective government sponsored entities:

  • Federal National Mortgage Association (FNMA): Fannie Mae
  • Federal Home Loan Mortgage Corporation (FHLMC): Freddie Mac

What are points?

Points are a fee that is expressed as a percentage of the loan amount: one point is 1% of the loan amount.

Origination points are charged as a fee for some of the costs of obtaining the loan.

Discount points are basically a fee to reduce the interest rate, known as a rate “buy down.”

Licensed by the NV Division of Mortgage Lending lic# 204 & 3750, CA Dept of Corporations Lic# 603F053, CA Dept of Real Estate Lic# 01893025, CO Division of Real Estate, GA Dept of Banking & Finance Lic# 30815, IL Division of Banking Lic# MB.6760839, IN Dept of Financial Institutions Lic# 17189, IA Division of Banking Lic# 2011-0166, LA Office of Financial Institutions, MI Office of Financial & Insurance Regulation Lic# FL0017423, NM Financial Institutions Division Lic# 03619, State of New York Banking Dept Lic# A007398, OR Dept of Consumer & Business Services Lic# ML-4924, TX Dept of Savings and Mortgage Lending, UT Division of Real Estate Lic# 7776975, WA State Dept of Financial Institutions Lic# CL-14210, WI Dept of Financial Institutions Lic# 14210BA. NMLS ID: 14210.