1.

What is the difference between Pre-qualified and Pre-approved?

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2.

What type of documentation must I provide to the lender to receive a loan?

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3.

What is a Rate Lock and how does it work?

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4.

If I co-sign a loan for a child or friend, will this effect my qualifying for a mortgage?

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5.

Student loans – do I have to count my student loan payments?

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6.

What are ratios and how do they affect my loan?

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7.

What is a credit score or FICO score?

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8.

What if I have had some credit issues in the past?

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9.

How does a bankruptcy affect getting a mortgage?

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10.

Do I need to have an appraisal done when I purchase a home?

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11.

Can I receive a copy of my appraisal?

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12.

What is a First-time Homebuyer and what programs are available?

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13.

What are job history requirements?

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14.

What is a FHA loan?

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15.

What is a VA loan?

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16.

What is PMI, MIP or the VA Funding Fee?

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17.

What is a down payment and do I have to make one?

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18.

What are points?

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19.

What are closing costs and pre-paids, how much should they be and who pays them?

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20.

What is PITI?

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21.

What are Assumable loans?

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22.

What are junk fees? And how can they affect my loan?

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23.

What are Bi-Monthly payments and are they beneficial to a homeowner?

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24.

What is title insurance and why do I need an owner’s policy?

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25.

15 or 30 year term?

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26.

Rental properties – can I get a loan to purchase one?

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27.

What if I want to buy a lot or small acreage and build on it later?

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28.

What is an ARM or Adjustable Rate Mortgage?

Answer
29.

What are the Index and Margin associated with an ARM?

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30.

What is a Reverse Mortgage?

Answer

Q :

What is the difference between Pre-qualified and Pre-approved?

A :

Being pre-qualified means that you have given your loan officer your personal information as far as income and assets and a credit report has been received on you. Based upon that information, the lender calculates your income to debt ratios and assists you in determining what type of loans will fit your needs.

To be truly "pre-approved", the lender must have copies of your W-2s, current pay stubs, bank statements divorce decrees, etc. that will make up your loan file. This information is then submitted to an underwriter who then issues the approval subject to an appraisal of the property.

 
Q :

What type of documentation must I provide to the lender to receive a loan?

A :

Almost every loan requires that you provide at least the previous year’s W-2, copies of your last 30 days pay stubs, bank statements (all pages) for the past 30 days. If you have had a bankruptcy or are divorced, then additional documentation will be required. Also if you are applying for a VA or FHA loan they require more documentation.

Stated income or No Income Verification loans have different guidelines. You need to talk to your lender about their specific requirements for these types of loans.

 
Q :

What is a Rate Lock and how does it work?

A :

A rate lock is a mechanism wherein you can lock the interest rate in for a specific period of time while your loan is being fully processed and underwritten. You can also elect to let the interest rate "float" if you think that the markets might improve. Due to the fact that there are so many outside influences on the U.S. money markets today, we find that interest rates at times can be very volatile.

Rate locks are typically for 15 to 60 days with additional lock programs available for long term new construction loans. When you lock in an interest rate you are locked into that rate. If rates go up you are protected from having to pay a higher rate. In the same light if rate go down, you still will close at the rate that you locked in at.

Always request that any interest rate selection, either locking or floating, be given to you in writing so there is never any question as to the status of your interest rate.

 
Q :

If I co-sign a loan for a child or friend, will this effect my qualifying for a mortgage?

A :

Yes! If you co-sign with anyone, it will appear on your credit report as a debt. In some cases if the loan has been in effect for at least 12 months, you can provide copies of checks from the other party showing that they are making the payments (note of warning – you can not be on a joint account with the person making the payments to eliminate the debt).

The other – and more important – issue is if that other individual is making the payments on time and is the account current. If they are not, it will be reflected on your credit report and this could affect the type of loan that you can obtain. Remembers, as a co-signer, you are ultimately responsible for that debt if they don’t pay it.

 
Q :

Student loans – do I have to count my student loan payments?

A :

If you graduated and are working, then yes you must count your student loan payments in your debt ratio. If you are still in school and will not be graduating for at least twelve (12) after your first mortgage payment is due, then a minimum payment will be determined on the payment calculator on the student loan web site and that payment will be counted in your debt ratios.

 
Q :

What are ratios and how do they affect my loan?

A :

In the past ratios were a very important part of the mortgage loan process. There are two ratios that most lenders look at, the "front" and the "back" ratio. The front ratio is determined by dividing your total house payment (PITI) by your gross monthly income. The back ratio is dividing your total debts  (PITI, car loans, credit card payments, child support/alimony, student loan payments, etc.) by your total gross income. Ratios typically can be in the 31/43 range. Recently QMR (Quality Mortgage Rule) regulations were enacted and part of those rules are Ability To Repay (ATR) standards. Every loan will be reviewed for these ATR standards.

 
Q :

What is a credit score or FICO score?

A :

All three major credit bureaus (Equifax, Trans Union and Experian) now issue a credit score for any individual who has used credit in the last seven years. Credit scores range from 350 to 850 points. The higher the credit score, the better the borrower. Most conventional loans required a minimum score of 620 and the FHA and VA loans required 580. There are programs for individuals with lower scores but interest rates and costs will be higher. FICO was the first score developed and is now synomous with credit score.

 
Q :

What if I have had some credit issues in the past?

A :

The best thing that you can do is make an appointment to see one of our loan originators and have them pull a credit report for you. They can help you examine the report for errors that need to be corrected. They can help you figure out what accounts need to be paid and what accounts should be left alone until you are ready to close on a home purchase. Due to how credit scores look at delinquent accounts you do not always want to pay off something immediately. Our experienced staff can help you determine what needs to be taken care of now and what needs to wait.

 
Q :

How does a bankruptcy affect getting a mortgage?

A :

Depending on the type of mortgage you are seeking and if you have a down payment you can get a mortgage as soon as two years after the final discharge of the bankruptcy. Credit must be re-established with NO late payments since filing the bankruptcy, FHA and VA require a minimum of two years after the final discharge and conventional loans require a minimum of seven years.

 
Q :

Do I need to have an appraisal done when I purchase a home?

A :

Typically yes you do. The property is a very large part of the loan process and lenders need to the assured that there is value in the property in case of a loan default. In rare cases an appraisal might be waived and a new process called an AVM (Automated Valuation Method) will be used. Those situations typically are for individuals with high credit scores and larger down payments.

 
Q :

Can I receive a copy of my appraisal?

A :

Yes, we will provide you a copy of the appraisal at least three days prior to closing.

 
Q :

What is a First-time Homebuyer and what programs are available?

A :

A first-time homebuyer is defined as someone who has not owned a primary residence in the past three years. To prove this, borrowers are required to provide copies of their last three years Federal tax returns to show that they have not claimed mortgage interest.

Several programs are designed for the first-time buyer. The State of Kansas has a semi-annual program that you must income qualify for. It can provide up to 20% down payment.

 
Q :

What are job history requirements?

A :

Lenders look at the previous 24 month employment history. You don’t necessarily need to be on the same job for 24 months, but they look at the type of work to see if they are similar. Also if you have been in school and have received a degree or certificate in the field that you are entering, the degree/certificate counts as having worked in that field.

 
Q :

What is a FHA loan?

A :

FHA refers to the Federal Housing Authority and the loans are typically easier for buyers with lower credit scores and less money to put as a down payment. The FHA appraisals are more stringent that a conventional appraisal. Safety and Soundness is always a big consideration on the appraisals. The interest rate has typically been lower than conventional financing on FHA loans.

 
Q :

What is a VA loan?

A :

The VA loan is one that is insured by the Veterans Administration and is available to any person who has served a minimum of two years in any of the United States military branches, and who is still active duty or has received an honorable discharge. Individuals who are or have served in the Reserves or Guard must have six years of service before they are eligible.

The VA loan requires no down payment and veterans may negotiate with the seller to pay all or part of the loan closing costs and pre-paids which can make it possible to purchase a home for little or no money down.

 
Q :

What is PMI, MIP or the VA Funding Fee?

A :

Lenders of conforming loans require some type of protection (insurance) to cover the top part of their risk. On conventional loans this insurance is Private Mortgage Insurance (PMI) and is required unless you make a down payment of at least 20%. This is a monthly charge that is included in the mortgage payment. PMI rates vary by state and loan to value. Federal law mandates that the PMI be dropped on conventional loans when the loan-to-value drops to 78%.

FHA’s insurance is Mortgage Insurance Premium (MIP) and is two prong insurance in that they have an up-front premium that is financed in the loan and then a monthly premium. Their insurance is required on all loans. Again it is regulated by Federal law and will be paid for entire term of the loan.

VA loans have a Funding Fee that is based on the number of times the veteran has used their Certificate of Eligibility. It is an up-front fee and is added to the mortgage amount and is financed for the life of the loan. There is no refund since it is financed in the loan. Veterans with at least a 10% military disability are exempt from paying the funding fee.

 
Q :

What is a down payment and do I have to make one?

A :

A down payment is an amount that you, as a buyer/borrower, put down as a vested interest in the piece of property. These typically range from 3% to 20% of the purchase price. This down payment reduces the risk to the lender of the borrower defaulting on the mortgage loan.

 
Q :

What are points?

A :

Points are one way that a borrower might lower their interest rate on a mortgage loan. When looking at interest rates, there is a "par" rate which is typically a lower rate than what is being quoted by a lender. To get that rate or buy a rate down, you have to pay points. One point is one percent (1%) of the loan amount. The lower the interest rate the higher the points. It is not always in the best interest of the consumer to pay higher points for the lowest rate. Check with one of our mortgage loan officers to see which is best for your situation.

 
Q :

What are closing costs and pre-paids, how much should they be and who pays them?

A :

Closing costs vary from state to state but typically would include a credit report, an appraisal, title insurance, closing fee, underwriting fee, flood certification, doc prep, recording fee, registration tax and survey (optional). Depending on loan size, these should be approximately $1,500 to $2,000.

Depending on the loan type, you might also pay an origination fee and/or discount points. These are quoted as a percentage of the loan amount, i.e. 1% origination fee and 2 discount points (2%). Typically these fees are paid to "buy the interest rate down".

Pre-paids are the first year’s homeowner insurance premium, setting up the homeowner insurance and the property taxes in escrow (typically 2 or 3 month’s payment), flood insurance and escrow if required, and interest from the day of closing to the first of the next month.

Both the closing costs and pre-paids can be paid by buyer or seller. This is negotiated in the purchase contract. Depending on the loan type, sellers are limited to paying a maximum of 3-6% of the purchase price in these fees.

 
Q :

What is PITI?

A :

PITI refers to the Principal, Interest, Taxes and Insurance that make up the monthly mortgage payment. A lender uses the PITI to qualify a borrower for the loan.

 
Q :

What are Assumable loans?

A :

A loan assumption is when an individual(s) takes over another person’s mortgage. Basically all loans originated since 1989 are what are referred to as "qualifying assumptions" which means that the new buyer has to qualify with the lender, both income and credit wise, before they can take over the loan. The FHA and VA loans are the typical loans that still have the assumption feature but some of the conventional ARMs have the feature as well.

Never Quit Claim your property over to someone else as this does not relieve you of any liability to the lender. The only way for this to happen is for the lender to approve the new buyer and give you what is called a Release of Liability.

 

 
Q :

What are junk fees? And how can they affect my loan?

A :

First of all you need to remember that all lenders get their money to lend from the same sources and they all need to "make" the same income as other lenders to survive in the business world. So when you see or are offered a lower interest rate and/or points on a loan, you need to see where the lender is making up the difference in their income or the "yield" on the loan.

This income has taken on the name of what is known as "junk fees". Lenders have come up with all types in interesting names for these fees but some of the most commonly used ones are tax service fee, processing fee, application fee, doc prep (document preparation) fee, underwriting fee, escrow analysis fee and administration (admin) fee. All of the fees are legal but can add to the total cost of obtaining a mortgage.

To really compare loans being offered, you need to get a Good Faith Estimate and Federal Truth-In-Lending disclosure so you can compare the actual costs. You may be surprised that the lower interest rate offering is not the best loan.

 
Q :

What are Bi-Monthly payments and are they beneficial to a homeowner?

A :

If you make bi-monthly payments you are in essence making one additional principal payment a year which in turns pays the loan off faster. There are very few lenders who offer this as a true payment option but there are a number of companies who will offer to do this for you for a fee. Don’t pay that fee! You can do this yourself and apply the fee as additional principal payment. All you need to do is divide your monthly principal figure by 12 and add this additional amount to each of your monthly mortgage payments. This pays the loan off faster and saves you thousands of dollars in interest over the life of the loan.

Most lenders will not accept payments made in two halves since it is not the full payment amount required for the month and secondly they are not set up to accept these type of payments. Companies that charge to do this often keep the extra amount that would be applied to your principal and earn interest on it and then at the end of the year send it to the lender to apply to your principal. These types of companies are not regulated by any laws so if you elect to use one of they make sure that they are a reputable firm and not some fly-by-night company that won’t be there at the end of the year with your money.

 
Q :

What is title insurance and why do I need an owner’s policy?

A :

The lenders title insurance policy guarantees them that they are in first mortgage lien position of record and that no other liens will be placed before theirs. The owners title insurance policy insures the owner as proper owner of the property and guarantees no one else can come in and lay claim to the property.

 
Q :

15 or 30 year term?

A :

What are the advantages/disadvantages of a shorter loan term? The advantage is that the interest rate will be lower than a 15 year interest rate. You build equity in the home quicker and save thousands of dollars interest. The disadvantage is that the payment is higher and may be difficult to qualify for. Most conforming fixed 30 year loans do not have pre-payment penalties and sometimes it in the customer’s best interest to do a 30 year loan and then make additional principal payments. This way if the borrower has a period in their life that making the higher payment would be a burden to their finances, they could make just the regular 30 year payment.

 
Q :

Rental properties – can I get a loan to purchase one?

A :

Loans are available for the purchase of rental or non-owner occupied properties. These loans typically require a 10% down payment and the interest rate will be higher than an owner occupied property. Lenders count 75% of the rental income to off set the PITI on the property. Any negative rent will be used in calculating your debt ratio.

 
Q :

What if I want to buy a lot or small acreage and build on it later?

A :

The standard minimum down payment on an undeveloped piece of real estate is 20%. Most of these loans are offered through smaller local banks that have an interest in future residents to their communities.

 
Q :

What is an ARM or Adjustable Rate Mortgage?

A :

With an ARM your interest rate is not fixed for the term of the loan. The interest rate changes periodically and the payment may go up or down. The starting interest rate is typically lower than what a fixed rate is. Depending on the type of ARM you select your payments could change every year, every month, every six months, every three years or every five years. Each ARM is tied to an index such as the One Year Treasury Security and has a margin that is used to determine what the rate will be when the time comes for the payment adjustments.

 
Q :

What are the Index and Margin associated with an ARM?

A :

Each adjustable rate loan has an index and margin that are used to determine the interest rate each time that the rate is adjusted. The margin is a set figure and typically ranges from 2% to 4% - the lower the margin the better.

There are several different ARM indexes. All indexes must be available to a consumer, i.e. published in the Wall Street Journal or other easily readable publications. When looking at an ARM, have your loan officer show you comparisons of different indexes and margins to help you make an informed decision.

 
Q :

What is a Reverse Mortgage?

A :

A Reverse Mortgage is using the equity in your home to provide you with additional monthly income, funds to pay off your current loan, funds to set up a line of credit or to provide you with a lump sum of money to invest or do what you want or a combination of these options. The minimum age is 62 of the youngest borrower. There are no payments – monthly or otherwise – required. The interest is compounded and deferred and added to the principle balance and is not due until the last borrower vacates the house for a period of twelve months or dies. The heirs never will owe more than the property sells for.