Q. How will I know how much I can qualify for?
A.A Loan Officer can work with you to get you qualified BEFORE you look for a home. Based upon information you present to the Loan Officer at the loan application, they will determine the approximate amount of money that you will be allowed to borrow. You will be "pre-qualified" for that loan amount. By allowing your Loan Officer to run your credit report and verify your assets and income, your loan application can be submitted to the underwriter for a full credit approval. We can help you obtain a complete written credit approval (subject to an appraisal) before you make an offer on a home, if you desire.
Q. What are income and debt ratios?
A. The Income Ratio is your total monthly housing expense divided by your gross monthly income (before taxes). The Debt Ratio is your total monthly housing expense PLUS any recurring debts (i.e. monthly credit card minimum payment, car payments, or other loan payments) divided by your income. Standard underwriting suggests a maximum guideline of 28% on the Income Ratio and 36% on the Debt Ratio, but these ratios can vary based on the loan program, the financial strength of the borrower and the down payment.
Q. What are "Cash Reserves"?
A. Cash Reserves are the funds a borrower has remaining after their loan funds. The normal requirement could be monies equal to 2 months of the mortgage payment. The amount of Cash Reserves varies by loan program, but larger reserves are a strong compensating factor.
Q. How much money do I need for a down payment and closing costs?
A. There are loan programs available that do not require any down payment. These loan programs have higher interest rates and they may have a prepayment penalty. For most loans a minimum down payment of 5% is required plus money for closing costs, which average 3.5%. Some programs allow the down payment and/or closing costs to be a gift from a family member. A Loan Officer can advise you about these different types of loans.
Q. What is Mortgage Insurance?
A. 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 otherwise would not consider. Depending on credit scores and loan structure, mortgage insurance may be required when the down payment is less than 20%.
Q. What if I don't have any established credit?
A. If you do not have enough established credit, your Loan Officer can work with you to document alternate credit information. If you have been renting, we can obtain a rental rating from your landlord as a way of verifying your payment history. Or, we can contact your utility companies, phone service, cable companies or car insurance carrier to obtain a rating on your payment history. Not all loan programs will accept alternative documentation on your credit. There are both government and conventional programs that will accept this type of payment history to establish credit qualifications.
Q. What if I have had credit problems in the past or have filed bankruptcy?
A. Your credit payment history lets the Lender know your intentions to repay the loan. Therefore a good credit history is important, but a perfect credit history is not. Credit counseling agencies specialize in meeting with clients and reviewing your credit history. If you have any outstanding credit obligations that need to be dealt with, the credit agency can work with you and help you make arrangements to pay any outstanding debts that you may have. First time home buyers can also attend seminars that will go through the home purchasing process and requirements with you.
Q. What if I am new on my job?
A.A new job can work in your favor when you apply for your loan. Loan program guidelines look for a 2 year job history in the same field, but a job change for a better position is looked on favorably. If you are a recent college graduate, you may be able to obtain a loan even though you don't have a 2 year work history.
Q. What does "loan to value" mean?
A. Loan to value (LTV) is the loan amount divided by the lesser of the sales price or appraised value. For example, if you are paying 15% of the total cost of the home as a down payment, you would only be borrowing 85% of the total sales price from the lender. Therefore your LTV would be 85%.
Q. How do I "lock-in" my interest rate?
A. A Loan Officer can "lock-in" the interest rate quoted, over the telephone during their pre-qualification interview with you. We will provide you 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 the rate is locked. This may vary between 10 days and 60 days depending upon your projected closing date. Keep in mind that in Arizona, we lock properties, not people, so you will need to identify the property you are going to purchase in order to lock in your interest rate.
Q. What is an 80/10/10 and an 80/15/5?
A. An 80/10/10 is an 80% first lien, a 10% second lien and a 10% down payment. The 80/10/10 structure allows for 90% financing without mortgage insurance. When a borrower chooses to put less than 20% down for a down payment, he may either split the loan amount into two liens (80/10/10 for example), or he may opt to have one 90% lien and pay mortgage insurance (see below). In the same manner, an 80/15/5 is an 80% first lien, a 15% second lien and a 5% down payment.
Q. What do I need to bring to closing?
A. The closing will take place at either our office or the title company. Each borrower will need to bring a valid driver's license the day of closing. The funds due at closing must be in the form of either a cashier's check made out to the title company or a wire transfer. You may write a personal check up to $1,500.
Q. How much do I need to insure my home for?
A. It is your responsibility to secure homeowner's insurance on the home you are purchasing prior to closing. The minimum dwelling coverage required is the lesser of either:
a) The total combined loan amount
b) The replacement cost on the appraisal
Because you may begin shopping for homeowner's insurance before the appraisal is in, it may be necessary to begin gathering quotes with a minimum dwelling coverage of the combined loan amount. You will be notified of the replacement cost once your appraisal is in.
Q. What is the Annual Percentage Rate on my Truth in Lending Document?
A. 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.