FAQ
Purchase
A: An earnest money deposit is also frequently referred to as a good faith deposit. When a buyer purchases a home, they provide the seller’s real estate company a deposit to hold in their escrow account. The primary purpose of this deposit is to show a seller you are serious about purchasing their home. The amount that is deposited is subtracted from the final figure that a buyer pays at the closing table. In most cases, the larger the deposit, the stronger a purchase offer looks to a seller.
A: Buying a home can be a very solid investment. This being said, renting can also be a better option for some, depending on the circumstances. Across the country, interest rates are at record lows. Since the interest rates are so low, it actually can be cheaper to pay a mortgage right now than paying rent.
There are questions that you should ask yourself before deciding to buy a home. One of the most important things to consider is the length you plan on staying in a home, if you were to purchase. If the answer is only a few years, it’s likely the better decision is to continue renting. Another question to ask yourself is whether you are ready to take on the additional “responsibilities” of owning a home. When owning a home there will be general home maintenance that should be done, are you ready for that?
Buying a home is a great option in many cases, but not always.
A: A credit score numerically summarizes an individual’s credit history and gives a snapshot of their financial standing to a lender. Mortgage lenders use the score to decide who receives loans and at what interest rate. The higher the score means the better the chance of getting a loan with an attractive interest rate.
A: Saving for the down payment is the greatest obstacle for first-time homebuyers. Lenders expect between 3% to 20% for a down payment. It varies according to the lender’s requirements, and the type and length of the loan. Make a budget, set a goal, and stick with the plan. Saving and sacrificing is how most people come up with their first down payment
A: Pre-qualification: Getting pre-qualified for a mortgage gives first-time homebuyers an indication of how much they “might” qualify to borrow. This mortgage amount is not guaranteed because no information has yet been verified. A letter from the lender may only state that you are “likely” to be approved for a mortgage.
Pre-approved: Better yet is getting pre-approved for a mortgage, which is based on a real credit score, and it also puts real estate agents and home sellers at ease. The buyer has more to offer when making a deal and in a competitive market this can be a definite plus.
Refinance
A: Every lender has their own standards that you must meet to qualify for a refinance. Ask your lender what standards you must meet in the following areas:
- Credit score:Your credit score is a three-digit number that represents your experience managing credit and loans. Your lender should be able to tell you the minimum credit score you need to qualify for each type of loan.
- Debt-to-income (DTI) ratio:Your DTI is a percentage that tells your lender how much of your money goes to regular, recurring expenses. You’re less likely to have savings and more likely to miss a mortgage payment if you have a high DTI. Your lender should be able to show you how to calculate your DTI and tell you the maximum DTI you need by loan type.
- Home equity:Your home equity is the percentage of your loan principal that you’ve paid off. Most lenders require that you have at least some equity in your home before you can refinance. Your lender should be able to tell you how to figure out your current home equity as well as how much equity you need to qualify for a refinance.
A: Mortgage interest rates change on a daily basis and can vary wildly depending on how the market is moving. Though refinances take less time than getting your first loan, they still don’t close in a day. A rate lock allows you to lock in your interest rate and keep the same rate while your lender closes your loan. This can protect you against changes in market interest rates and keep your loan predictable.
Ask your lender if they offer rate locks. If they do, ask how long you can lock your rate for and if locks are free. You should also ask about the cost to extend your rate lock if your refinance takes longer than expected.
A: Depending on when you got your original mortgage loan, you may be familiar with the Closing Disclosure process. You’ll receive a Closing Disclosure 3 business days before you close on your refinance. It will include information about your new term, your APR and any closing costs you must pay. You must acknowledge that you had the chance to read and review your Closing Disclosure to your lender before they can schedule your closing meeting.
Ask your lender how you’ll receive your Closing Disclosure and how you can acknowledge it. Also ask your lender to walk you through the closing process. They should be able to tell you what to bring to closing, who will be there and what will happen in the meeting.
A: There are different types of refinances. The two most common are:
- Rate-and-term refinances:Your mortgage rate is the percentage you pay in interest on your loan. Your mortgage term is the length of time you must make payments on your loan. As the name suggests, a rate-and-term refinance changes the rate and term of your mortgage loan. For example, you can refinance a 15-year mortgage to a 30-year term. When you refinance your rate or term, your monthly payment changes without changing your principal balance.
- Cash-out refinance:A cash-out refinance allows you to accept a higher loan balance in exchange for taking cash out of your home equity. For example, let’s say you have a $100,000 principal balance on your loan and you want to pay off $20,000 worth of credit card debt. A cash-out refinance would allow you to take out a loan worth $120,000 and your lender would give you $20,000 in cash.
Ask your lender about the types of refinances they offer. Then ask about the benefits and drawbacks of each.
A: To determine how much value you can get from refinancing, do some simple math.
Anticipate closing costs to run about 2% to 4% of total loan value. These include things like appraisal, underwriting and title. So if your closing costs are $3,000 and you can save $200 a month by refinancing, it will take 15 months to break even.
“If you stay in your home longer than that, that’s a good indication that you’re going to get a lot of value out of this refi,” said Kevin Parker, vice president of field mortgage originations at Navy Federal Credit Union.
But if your savings are more modest, say just $50 a month, then it will take 60 months — or five years — to recoup. Even if you have no intention of moving today, a lot can happen in five years.
Reverse
A: The reverse mortgage is a national program available to homeowners age 62 and older providing you access your home’s equity without having to make a monthly mortgage repayment. You must continue occupying your home as your primary residence and continue paying your property taxes and homeowners insurance. The most popular reverse mortgage program is called the HECM which stands for Home Equity Conversion Mortgage and is insured by the FHA (Federal Housing Administration).
A: Often yes, after the balance of your reverse mortgage is paid off, all remaining equity will go to your heirs. One of the forms we provide you with before you close your loan is an amortization schedule so you will always know the principal balance of your loan, year by year. How much equity will remain will depend on such variables as how much money you draw, how long you stay in your home, home appreciation your home experiences and interest rates (if you have a variable interest rate loan).
A: You do not need to own your home free and clear to get a reverse mortgage. The proceeds can be used for any purpose, but any existing liens on the property must be paid off at closing. If the reverse mortgage is not large enough to cover your existing loan, you can still get the reverse mortgage by bringing in the additional funds from another account and still never have to make another house payment!
A: Yes, you can hold title in a trust but the lender and title company do require that they review the trust, and it must be approved. If you hold title in a trust you should let your Loan Officer know up front so he/she can get a copy of the trust and have it reviewed immediately so that there are no surprises later. Most trusts are prepared with lenders and their requirements in mind, so they are not a problem, but it is best to know as early on as possible.
A: There are no minimum credit score requirements to qualify for a reverse mortgage loan. However, lenders are required to complete a credit analysis focused on your last 24-month payment history. Because it is required that you maintain property taxes and your homeowner’s insurance as part of the ongoing agreement of the reverse mortgage lenders must also check that you meet a minimum residual income as part of the FHA financial assessment guidelines. Learn more about qualifications & eligibility.
A: Rates vary by program. For example, just within the HUD HECM loans you have fixed rates, monthly or annual adjustable rates. Adjustable-rate programs offer more flexibility in how you may receive the proceeds available to you such as a line of credit or a monthly payment plan, where fixed interest rates are only available as a single disbursement lump sum.
While FHA sets the maximum fees a lender may charge, each lender has their own ability to charge their going rate to your balance. It is advised that you shop around for the best terms like you would any other type of mortgage.