Common Questions from Prospective Homeowners
Pre-qualification estimates the loan amount you might qualify for based on basic information you provide. However, it’s not a guarantee of approval, and the lender has no obligation to offer you a loan. This process involves an informal interview with a licensed loan officer, and you'll receive a letter with the estimated loan amount, which can be used when making an offer on a property.
Pre-approval, on the other hand, is a more in-depth process. It requires you to submit a formal application, and your credit and finances will be carefully reviewed. A pre-approval letter gives you a stronger position to close quickly and negotiate with sellers. It's highly recommended to obtain pre-approval before starting your home search.
Absolutely! While you can make changes to the property itself, the location remains fixed. Factors like commute times, school districts, and the availability of nearby amenities—such as parks—are key aspects that impact your lifestyle and can only be changed by moving. When evaluating a property, its location is just as crucial as its condition.
During the loan application process, a few key factors are considered:
Points are upfront interest payments that help lower your interest rate on both fixed-rate and adjustable-rate mortgages. 1 point equals 1% of your loan amount. Paying points reduces your interest rate, but you pay for this reduction upfront.
This depends on your circumstances. Consider the following:
For long-term mortgage holders, paying points may make sense to lower monthly payments. However, if you're planning a short stay or intend to sell within 5-7 years, you may want to reconsider paying points.
While interest rates are a major factor, it’s equally important to work with a reputable mortgage broker who can guide you to closing. You should compare interest rates, closing costs, and, most importantly, the lender’s ability to get you to the closing table. A good mortgage broker will provide clear, written details about your loan and pre-approval. Recommendations from family, friends, and trusted professionals are valuable, as positive past experiences are often an indicator of future satisfaction.
Also, ensure you understand the total cost of the loan and all the terms. Be cautious of pre-payment penalties, large down payment requirements, or hidden fees, as they can sometimes outweigh the benefits of a lower interest rate.
- Form 1003, the residential loan application
- Tax returns for the past two years, all pages
- W2s and/or 1099s for the past two years
- Two most recent pay stubs (if you are getting a direct deposit, please contact your HR department to get actual copies of your pay stubs)
- A copy of your Government ID
- If you own rental units, rental agreements and tax returns for the past two years
- Your last two bank statements, all pages, and the most recent statements for mutual funds, retirement accounts or stock accounts.
- Settlement agreements or divorce agreements if applicable
- Letter explaining how you will use refinance proceeds if you’re looking for a cash-out refinance.
- Non-citizens must present their Green Card, H-1 or L-1 Visa
- If you’ve ever filed for bankruptcy, provide a schedule of creditors, discharge notices.
- If this is your second loan, include the first mortgage note
- If you apply for refinancing and you pay a maintenance or common charges, provide a copy of it
When reviewing a loan application, we evaluate several key factors to determine your eligibility:
- Credit history: We check your credit report to assess your past financial behavior.
- Employment history: Stability in your employment helps determine your ability to repay the loan.
- Assets: We review your savings, investments, and other resources to ensure you have sufficient funds for the down payment and other costs.
- Property value: The value of the property you're purchasing helps determine the loan amount and whether the investment is sound.
- Occupancy intent: We look at whether you plan to use the property as your primary residence, a second home, or an investment property.
- Additional factors: Any other relevant details specific to your situation may also be considered in the evaluation process.
A FICO score is a credit score developed by the Fair Isaac Corporation that helps creditors assess your likelihood of repaying debts. It is calculated by credit reporting bureaus using various factors, including:
- Payment history
- Employment history
- How long you’ve had credit
- Credit utilization vs available credit
- Derogatory credit items (collections, charge-offs, etc)
A credit report includes several key details that reflect your financial behavior:
- Identifying information: Personal details such as your name, address, Social Security number, and date of birth.
- List of debts and accounts: A history of your credit accounts, including credit cards, loans, and mortgages.
- Bills sent to collection agencies, bankruptcies, suits, etc.: Any negative events, such as accounts in collections or legal actions like bankruptcies.
- Inquiries made on your credit in the past two years: This includes any requests from lenders or other entities for your credit report.
Raising your credit score may take time, but here are some actions you can take:
- Pay your bills on time: Avoid late payments, as they negatively impact your score.
- Reduce credit balances: Lowering your debt-to-credit ratio can help improve your score.
- Avoid frequent credit applications: Applying for too much credit can harm your score.
- Establish credit history: If you don’t have any credit, start building your credit by applying for a credit card or loan.
Yes, errors on your credit report can be fixed. Report the issue to the credit reporting agency and the creditor involved. You may also want to work with a credit repair specialist to ensure all errors are corrected.
It's generally not advisable to move money around in ways that could raise red flags. Adding untraceable funds (like cash) to your accounts can create complications and may affect your approval.
Mortgage rates fluctuate based on supply and demand in the economy. Key factors include:
- Inflation
- Economic growth
- The Federal Reserve's monetary policy
- Bond and housing markets
Additionally, your personal financial health can impact the rate you receive.
These loans allow you to avoid paying points or fees upfront by agreeing to a higher interest rate. They’re particularly popular for first-time buyers or people who don't have a lot of cash for fees. If you plan to resell within a few years, this could be a good option, as the higher rate won’t be as costly over time. However, long-term homeowners may find it more expensive in the long run due to the higher rate.
A rate lock is an agreement from your lender to hold a specific interest rate for a set period while you finalize your loan. This protects you from rising rates, but it may also prevent you from benefiting if rates drop during that period.
Yes, lenders can sell your mortgage to another company. If this happens, the new lender assumes all terms of the original agreement, meaning your rate and payment stay the same. Only the entity you make payments to changes.
Even if a lender goes out of business, your mortgage terms won’t change. Typically, another lender will buy the mortgages, and you will continue making payments as before.
Private Mortgage Insurance (PMI) protects the lender if you default on the loan. If your down payment is less than 20%, you’ll likely need to pay PMI. The larger your down payment, the lower your PMI cost will be.
Before making a large purchase, consult your loan officer. Major purchases can affect your credit or debt-to-income ratio and potentially harm your loan approval process.
If you’re planning to change jobs during the loan process, inform your loan officer. Stability in employment is important, and lenders prefer at least two years of consistent work history.
A home inspection helps you understand the property’s condition, potentially saving you from costly repairs down the road. It can also give you leverage in negotiations with the seller.