1. How does a lender decide the maximum loan amount that I can afford?
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The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the Federal Housing Authority, monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41% of income. In addition, the lender considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.
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2. What are the different types of loans available and what are the advantages of each?
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The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay $2,500 as a down payment. The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.
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3. What are some advantages associated with 15 and 30-year loan terms?
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30-Year: In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.
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15-year: Loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal.
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4. What if the lender refuses to grant me loan because of my race?
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Lenders are not allowed to discriminate in any way against potential borrowers. If you believe a lender is refusing to provide his or her services to you on the basis of race, color, nationality, religion, sex, familial status, or disability, contact HUD`s Office of Fair Housing at 1-800-669-9777 (or 1-800-927-9275 for the hearing impaired).
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5. What is a credit bureau score and how do lenders use them?
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A credit bureau score is a number that is based upon your credit history. Your score is used to determine whether or not you will likely repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details.
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6. How can I find out information about my credit history?
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There are three major credit-reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it`s important to verify its accuracy. Check your credit report carefully to make certain that there are no mistakes. It`s a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$10, are usually charged to issue credit reports but some states permit citizens to acquire a free one.
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7. How can I improve my score?
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There are no easy ways to improve your credit score, but you can work to keep it acceptable by maintaining a good credit history. This means paying your bills on time and not overextending yourself by buying more than you can afford.
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8. What if I find a mistake in my credit history?
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Simple mistakes are easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders usually understand that legitimate problems sometimes arise.
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9. What is the Federal Housing Administration?
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The Federal Housing Administration is an agency within HUD. The agency was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans. The FHA has helped more than 26 million Americans buy a home.
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10. How can the FHA assist me in buying a home?
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The FHA works to make homeownership a possibility for more Americans. You do not need perfect credit or a high-paying job to qualify for a loan. The FHA makes loans more accessible by requiring smaller down payments than conventional loans. A FHA down payment could be as little as a few months rent.
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11. How can I obtain a FHA insured loan?
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Contact a FHA-approved lender such as a participating Mortgage Company, bank, savings and loan association, or thrift. For more information on the FHA and how you can obtain an FHA loan, visit the HUD web site or call a HUD-approved counseling agency at 1-800-569-4287 or TDD: 1-800-877-8339. In addition, you can find your local HUD office by referring to the Government section in your phone book.
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12. Can I carry debt and still qualify for FHA loans?
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Yes. Short-term debt does not count as long as it can be paid off within 10 months. And some regular expenses, like child care costs, are not considered debt. Talk to your lender or real estate agent about meeting the FHA debt-to-income ratio.
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13. Can I pay my loan off ahead of schedule?
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Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.
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14. Can I qualify for a FHA loan without credit history?
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Yes. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details.
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15. How much income do I need to qualify for a FHA loan?
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There is no minimum income requirement. But you must prove steady income for at least three years, and demonstrate that you`ve consistently paid your bills on time.
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16. Are FHA loans assumable?
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Yes. You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is stream- lined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.
17. Can I roll closing costs into my FHA loan?
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No. Though you can`t roll closing costs into your FHA loan, you may be able to use the amount you pay for them to help satisfy the down payment requirement. Ask your lender for details.
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18. How can I receive a discount on the FHA initial mortgage insurance premium?
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Ask your real estate agent or lender for information on the Homebuyer Education Learning Program (HELP). The HELP is structured to help people begin the home buying process. It covers such topics as budgeting, finding a home, getting a loan, and home maintenance. In most cases, completion of this program may entitle you to a reduction in the initial FHA mortgage insurance premium from 2.25% to 1.75% of the purchase price of your new home.
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19. What are the steps involved in the FHA loan process?
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With the exception of a few additional forms, the FHA loan application process is similar to that of a conventional loan. With new automation measures, FHA loans may be originated more quickly than before. And, if you don`t prefer a face-to-face meeting, you can apply for a FHA loan via mail, telephone, the Internet, or videoconference.
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20. What is a FHA 203(b) loan?
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This is the most commonly used FHA program. This loan offers a low down payment, flexible qualifying guidelines, limited lender`s fees, and a maximum loan amount.
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21. What is a Title I loan?
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A lender grants a Title I loan, the loan is insured by the FHA. A Title I loan is used to make non-luxury renovations and repairs to a home. It offers a manageable interest rate and repayment schedule. Loans are limited to between $5,000 and 20,000. If the loan amount is under 7,500 a lien is not required against your home. Ask your lender for details.
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22. What is an Energy Efficient Mortgage (EEM)?
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An EEM allows a homebuyer to save future money on utility bills. This is done by financing the cost of adding energy-efficiency features to a new or existing home as part of a FHA-insured home purchase. The EEM can be used with both 203(b) and 203(k) loans. Basic guidelines for EEMs are as follows: The cost of improvements must be determined by a Home Energy Rating System or by an energy consultant. This cost must be less than the anticipated savings from the improvements. One and two-unit new or existing homes are eligible. Condominiums are not eligible. The improvements financed may be 5% of property value or $4,000, whichever is greater. The total must fall within the FHA loan limit.
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23. What is the FHA Bridal Registry Program?
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Just as you might register at a department store for wedding gifts, the Bridal Registry Program allows couples to register with a lender and open up an interest-bearing account. Family and friends can deposit wedding gifts of cash into this account. These gifts can then be applied toward a down payment on a home. Ask your lender for details.
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24. What qualifies as income for the FHA?
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Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as long as they are steady. Special savings plans-such as those set up by a church or community association may also qualify. Income type is not as important as income steadiness with the FHA.
25. What is the FHA loan limit?
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FHA loan limits vary throughout the country, from $115,200 in low-cost areas to $208,800 in high-cost areas. Because these maximums are linked to the conforming loan limit and average area home prices, FHA loan limits are periodically subject to change. Ask your lender for details and confirmation of current limits.
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26. What other loan products or programs does the FHA offer?
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The FHA also insures loans for the purchase or rehabilitation of manufactured housing, condominiums, and cooperatives. It also has special programs for urban areas, disaster victims, and members of the armed forces. Insurance for ARMS is also available from the FHA.
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27. What types of closing costs are associated with FHA insured loans?
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Except for the addition of a FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan outlined in Question 63. The FHA requires a single, up-front mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing (or 1.75% if you complete the HELP program- see Question 91). This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term. After closing, you will then be responsible for an annual premium – paid monthly – if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.
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28. What is the debt-to-income ratio for FHA loans?
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The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt.
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29. How does the interest rate factor into the mortgage loan?
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A lower interest rate allows you to borrow more money with a lower monthly loan payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate lock-in that guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.
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30. I have applied for my loan, now what?
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It usually takes a lender between 1-6 weeks to complete the evaluation of your application. It is not unusual for the lender to ask for more information once the application has been submitted. The sooner you can provide the information, the faster your application will be processed. Once all the information has been verified the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up and the lender will review the closing with you. You will be able to move into your new home after closing.
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31. What is the difference between pre-qualifying and pre-approval?
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Pre-qualification is an informal way to see how much you may be able to borrow. You can be pre-qualified over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house. Pre-approval is a lender`s actual commitment to lend to you. It involves assembling financial records and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.
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32. What is mortgage insurance?
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Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. Mortgage insurance is required primarily for borrowers making a down payment of less than 20%.
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33. Is mortgage insurance like home or auto insurance?
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Yes. Mortgage insurance requires payment of a premium. Mortgage insurance is for protection against loss, and is used in the event of an emergency. If a borrower cannot repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.
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34. Do I need mortgage insurance? How do I get it?
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You need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs. Ask your lender for details.
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35. What is PMI?
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PMI stands for Private Mortgage Insurance or Insurer. These are privately owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI`s usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.
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36. What is a good faith estimate and how does it help me?
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A good faith estimate lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply the estimate within three days of your application so that you can make accurate judgments when shopping for a loan.
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37. What is RESPA?
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RESPA stands for Real Estate Settlement Procedures Act. This Act requires lenders to disclose information to potential customers throughout the mortgage process, by doing so; it protects borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices, and business relationships between closing service providers and other parties to the transaction.
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38. What can I expect to happen on the closing day?
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You’ll present your paid homeowner’s insurance policy or a binder and receipt showing that the premium has been paid.
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The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable).
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The seller will provide proofs of any inspection, warranties, etc.
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Once you’re sure you understand all the documentation, you`ll sign the mortgage, agreeing that if you don’t make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses.
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You’ll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.
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You’ll pay the lender`s agent all closing costs and the agent will provide you with a settlement statement of all the items for which you have paid.
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The deed and mortgage will then be recorded in the state Registry of Deeds, and you will be a homeowner.
39. What do I get at closing?
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Settlement Statement
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Truth-in-Lending Statement
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Mortgage Note
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Mortgage or Deed of Trust
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Binding Sales Contract (prepared by the seller; your lawyer should review it)
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Keys to your new home
40. What is included in the closing costs?
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There may be closing costs that are customary or unique to a certain locality, but closing costs are usually made up of the following:
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Attorney`s or escrow fees (yours and your lender`s if applicable);
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Property taxes (to cover tax period to date);
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Interest (paid from date of closing to 30 days before first monthly payment);
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Loan Origination fee (covers lenders administrative cost);
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Recording fees;
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Survey fee;
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First premium of mortgage Insurance (if applicable);
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Title Insurance (yours and lender`s);
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Loan discount points;
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First payment to escrow account for future real estate taxes and insurance;
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Paid receipt for homeowner`s insurance policy (and fire and flood insurance if applicable); and
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Any documentation preparation fees.
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41. What are my responsibilities during the lending process?
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To ensure you won`t fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:
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Be sure to read and understand everything before you sign.
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Refuse to sign any blank documents.
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Do not buy property for someone else.
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Do not overstate your income.
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Do not overstate how long you have been employed.
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Do not overstate your assets.
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Accurately report your debts.
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Do not change your income tax returns for any reason. Tell the whole truth about gifts. Do not list fake co-borrowers on your loan application.
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Be truthful about your credit problems, past and present.
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Be honest about your intention to occupy the house.
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Do not provide false supporting documents.
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42. What is a FHA 203(k) loan?
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This is a loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller`s existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic requirements for 203(k) loans are as follows:
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The home must be at least one year old.
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The cost of rehabilitation must be at least $5,000, but the total property value including the cost of repairs must fall within the FHA maximum mortgage limit.
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The 203(k) loan must follow many of the 203(b) eligibility requirements.
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Talk to your lender about specific improvement, energy efficiency, and structural guidelines.
43. How does my credit history impact my ability to qualify?
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The FHA is generally more flexible than conventional lenders in its qualifying guidelines. The FHA allows you to re-establish credit if:
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Two years have passed since a bankruptcy has been discharged;
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All judgments have been paid;
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Any outstanding tax liens have been satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue; and
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Three years have passed since a foreclosure or a deed-in-lieu has been resolved
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44. Can I exceed the Loan ratio?
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You may qualify to exceed the current ratio if you have:
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A large down payment;
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A demonstrated ability to pay more toward your housing expenses;
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Substantial cash reserves;
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Net worth enough to repay the mortgage regardless of income;
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Evidence of acceptable credit history or limited credit use;
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Less-than-maximum mortgage terms;
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Funds provided by an organization; or
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A decrease in monthly housing expenses.
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45. What are the different types of loans available and what are the advantages of each?
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Fixed Rate Mortgages: Payments remain the same for the life of the loan
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Types :
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15-year
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30-year
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Advantages :
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Predictable
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Housing cost remains unaffected by interest rate changes and inflation.
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Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits
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Types
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Balloon Mortgage – Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)
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Two-Step Mortgage – Interest rate adjusts only once and remains the same for the life of the loan
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ARMS Mortgage The terms are linked to a specific index or margin.
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Advantages
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Generally offer lower initial interest rates
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Monthly payments can be lower
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May allow borrower to qualify for a larger loan amount
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46. How do I choose a loan?
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Your personal situation will determine the best kind of loan for you. By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best.
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Do you expect your finances to changeover the next few years?
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Are you planning to live in this home for a long period of time?
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Are you comfortable with the idea of a changing mortgage payment amount?
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Do you wish to be free of mortgage debt as your children approach college age or as you prepare for retirement?
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Your lender can help you use your answers to questions such as these to decide which loan best fits your needs.
47. What is a Mortgage Lock-In?
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When you`re looking for a mortgage, you`re likely to shop among lenders for the most favorable interest rate, and the lowest points and other up-front charges. When you find the most favorable terms and the lender that you want, you`ll apply to that lender. But when you get to settlement, will you actually receive the terms you applied or bargained for? Or will you find that the rate has changed-and that your costs have gone up? Lock-ins on rates and points might offer you a way to ensure that what you shop for is what you get.
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This brochure explains what these arrangements mean:
All About Lock-Ins
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In most cases, the terms you are quoted when you shop among lenders only represent the terms available to borrowers settling their loan agreement at the time of the quote. The quoted terms may not be the terms available to you at settlement weeks or even months later. Therefore, you should not rely on the terms quoted to you when shopping for a loan unless a lender is willing to offer a lock-in. What Is a Lock-In? A lock-in, also called a rate-lock or rate commitment, is a lender`s promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan application is processed. (Points are additional charges imposed by the lender that are usually prepaid by the consumer at settlement but can sometimes be financed by adding them to the mortgage amount. One point equals one percent of the loan amount.) Depending upon the lender, you may be able to lock in the interest rate and number of points that you will be charged when you file your application, during processing of the loan, when the loan is approved, or later. A lock-in that is given when you apply for a loan may be useful because it`s likely to take your lender several weeks or longer to prepare, document, and evaluate your loan application. During that time, the cost of mortgages may change. But if your interest rate and points are locked in, you should be protected against increases while your application is processed. This protection could affect whether you can afford the mortgage. However, a locked-in rate could also prevent you from taking advantage of price decreases, unless your lender is willing to lock in a lower rate that becomes available during this period.
It is important to recognize that a lock-in is not the same as a loan commitment, although some loan commitments may contain a lock-in. A loan commitment is the lender`s promise to make you a loan in a specific amount at some future time. Generally, you will receive the lender`s commitment only after your loan application has been approved. This commitment usually will state the loan terms that have been approved (including loan amount), how long the commitment is valid, and the lenders conditions for making the loan such as receipt of a satisfactory title insurance policy protecting the lender.
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Will Your Lock-In Be in Writing? Some lenders have preprinted forms that set out the exact terms of the lock-in agreement. Others may only make an oral lock-in promise on the telephone or at the time of application. Oral agreements can be very difficult to prove in the event of a dispute.
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Some lenders` lock-in forms may contain crucial information that is difficult to understand or that is in fine print. For example, some lock-in agreements may become void through some unrelated action such as a change in the maximum rate for Veterans Administration guaranteed loans. Thus, it is wise to obtain a blank copy of a lenders lock-in form to read carefully before you apply for a loan. If possible, show the lock-in form to a lawyer or real estate professional. It is wise to obtain written, rather than verbal, lock-in agreements to make sure that you fully understand how your lender`s lock-ins and loan commitments work and to have a tangible record of your arrangements with the lender This record may be useful in the event of a dispute.
Will You Be Charged for a Lock-In? Lenders may charge you a fee for locking in the rate of interest and number of points for your mortgage. Some lenders may charge you a fee up-front, and may not refund it if you withdraw your application, if your credit is denied, or if you do not close the loan. Others might charge the fee at settlement. The fee might be a flat fee, a percentage of the mortgage amount, or a fraction of a percentage point added to the rate you lock in. The amount of the fee and how it is charged will vary among lenders and may depend on the length of the lock-in period.
What Options Are Available for Setting the Mortgage Terms? Lenders may offer different options in establishing the interest rate and points that you will be charged, such as:
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Locked-In Interest Rate-Locked-In Points. Under this option, the lender lets you lock in both the interest rate and points quoted to you. This option may be considered to be a true lock-in because your mortgage terms should not increase above the interest rate and points that you`ve agreed upon even if market conditions change.
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Locked-In Interest Rate-Floating Points. Under this option, the lender lets you lock in the interest rate, while permitting or requiring the points to rise and fall (float) with changes in market conditions. If market interest rates drop during the lock-in period, the points may also fall. If they rise, the points may increase. Even if you float your points, your lender may allow you to lock-in the points at some time before settlement at whatever level is then current. (For instance, say you`ve locked in a 10 1/2 percent interest rate, but not the 3 points that went with that rate. A month later, the market interest rate remains the same, but the points the lender charges for that rate have dropped to 2 1/2. With your lender`s agreement, you could then lock in the lower 2 1/2 points.) If you float your points and market interest rates increase by the time of settlement, the lender may charge a greater number of points for a loan at the rate you`ve locked in. In this case, the benefit you might have had by locking in your rate may be lost because you`ll have to pay more in upfront costs.
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Floating Interest Rate-Floating Points. Under this option, the lender lets you lock in the interest rate and the points at some time after application but before settlement. If you think that rates will remain level or even go down, you may want to wait on locking in a particular rate and points. If rates go up, you should expect to be charged the higher rate.
Because practices vary, you may want to ask your lender whether there are other options available to you.
How Long Are Lock-Ins Valid? Usually the lender will promise to hold a certain interest rate and number of points for a given number of days, and to get these terms you must settle on the loan within that time period. Lock-ins of 30 to 60 days are common. But some lenders may offer a lock-in for only a short period of time (for example, 7 days after your loan is approved) while some others might offer longer lock-ins (up to 120 days). Lenders that charge a lock-in fee may charge a higher fee for the longer lock-in period. Usually, the longer the period, the greater the fee.
The lock-in period should be long enough to allow for settlement, and any other contingencies imposed by the lender, before the lock-in expires. Before deciding on the length of the lock-in to ask for, you should find out the average time for processing loans in your area and ask your lender to estimate (in writing, if possible) the time needed to process your loan. You`ll also want to take into account any factors that might delay your settlement. These may include delays that you can anticipate in providing materials about your financial condition and, in case you are purchasing a new house, unanticipated construction delays. Finally, ask for a lock-in with as few contingencies as possible.
What Happens if the Lock-In Period Expires? If you don`t settle within the lock-in period, you might lose the interest rate and the number of points you had locked in. This could happen if there are delays in processing whether they are caused by you, others involved in the settlement process, or the lender. For example, your loan approval could be delayed if the lender has to wait for any documents from you or from others such as employers, appraisers, termite inspectors, builders, and individuals selling the home. On occasion, lenders are themselves the cause of processing delays, particularly when loan demand is heavy. This sometimes happens when interest rates fall suddenly.
If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate and points. If market conditions have caused interest rates to rise, most lenders will charge you more for your loan. One reason why some lenders may be unable to offer the lock-in rate after the period expires is that they can no longer sell the loan to investors at the lock-in rate. (When lenders lock in loan terms for borrowers, they often have an agreement with investors to buy these loans based on the lock-in terms. That agreement may expire around the same time that the lock-in expires and the lender may be unable to afford to offer the same terms if market rates have increased.) Lenders who intend to keep the loans they make may have more flexibility in those cases where settlement is not reached before the lock-in expires.
How Can You Speed Up the Approval of the Loan? While the lender has the greatest role in how fast your loan application is processed, there are certain things you can do to speed up its approval. Try to find out what documentation the lender will require from you.
Much of the information required by your lender can be brought with you when you apply for a loan. This may help to get your application moving more quickly through the process. When you first meet with your lender, be sure to bring the following documents:
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The purchase contract for the house (if you don`t have the contract, check with your real estate agent or the seller).
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Your bank account numbers, the address of your bank branch and your latest bank statement, plus pay stubs, W-2 forms, or other proof of employment and salary, to help the lender check your finances.
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If you are self-employed, balance sheets, tax returns for 2-3 previous years, and other information about your business.
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Information about debts, including loan and credit card account numbers and the names and addresses of your creditors.
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Evidence of your mortgage or rental payments, such as cancelled checks.
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Certificate of Eligibility from the Veterans Administration if you want a VA-guaranteed loan. Your lender may be able to help you obtain this.
Be sure to respond promptly to your lender`s requests for information while your loan is being processed. It is also a good idea to call the lender and real estate agent from time to time. By calling occasionally, you can check on the status of your application, and offer to help contact others such as employers who may need to provide documents and other information for your loan. It is also helpful to keep notes on your contacts with the lender so that you will have a record of your conversations.
Ask About Lock-Ins
When you`re ready to settle on your loan, you`ll want to get the loan terms that you`ve locked in. To increase that likelihood, it is important to learn as much as you can about what the lender is promising you before you apply for a loan. Ask for the following information when you shop for a loan:
Lock-Ins and Fees
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Does the lender offer a lock-in of the interest rate and points?
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When will the lender let you lock in the interest rate and points? When you apply? When the loan is approved?
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Will the lock-in be in writing? If the lock-in is not in writing, you will have no record of the lender`s agreement with you in case of a dispute.
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Does the lender charge a fee to lock in your interest rate? Does the fee increase for longer lock-in periods? If so, how much?
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If you have locked in a rate, and the lender`s rate drops, can you lock in at the lower rate? Does the lender charge you an additional fee to lock in the lower rate?
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Can you float your interest rate and points for now, and lock them in later?
Loan Processing Time
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How long does the lender expect to take to process your loan?
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What has been the lender`s average time for processing loans recently?
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Has the lender`s loan volume increased? Heavy volume might increase the lender`s average processing time
Expiration of Lock-Ins
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What rate will be charged if the lock-in expires before settlement-the rate in effect when the lock-in expires?
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If you don`t settle within the lock-in period, will the lender refund some or all of your application or lock-in fees if you decide to cancel the loan application?
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If your lock-in expires and you want to get another lock-in at the rate in effect at the time of the expiration, will the lender charge an additional fee for the second lock-in?
Complaints About Lock-Ins
Knowing what to look for puts you in a better position to decide whether, when, and how long to lock in mortgage terms. Also, by helping to keep the loan process moving, you can lessen the chance that your lock-in will run out before settlement.
But what if your lock-in does lapse? If you believe that the lapse was due to delays caused by the lender or someone else involved in the loan process, you should try first to reach a mutually satisfactory agreement with the lender. If that effort fails, consider writing to the appropriate state or federal regulatory agency.
Some lender actions, such as offering lock-in terms which are impossible to fulfill, failing to process your loan diligently, or causing your lock-in to expire are improper–and may even be illegal. In addition, because you may have contractual rights under your lock-in or loan commitment, you may want to consult with an attorney. Be aware, though, that complaints may not be resolved as quickly as may be necessary for a home purchase.
Depending upon their authority under applicable state or federal law, regulatory agencies may either attempt to help you resolve your complaint directly or record your complaint and recommend other action.
State Agencies
State consumer protection offices, banking authorities, and offices of the attorney general can be contacted regarding complaints against many lenders doing business in the state. (Some states have enacted legislation to specifically address complaints about mortgage lock-ins.)
Federal Agencies
In addition, some lenders are directly supervised by federal regulatory agencies, as shown in the list that follows:
Mortgage Companies
Division of Credit Practices
Bureau of Consumer Protection
Federal Trade Commission
601 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
(202) 326-3224
Federally Insured Savings and Loan Institutions and Federally
Chartered Savings Banks
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
(202) 906-6000
State Member Banks of the Federal Reserve System
Division of Consumer and Community Affairs
Board of Governors of the Federal Reserve System
20th and Constitution Avenue, N.W.
Washington, D.C. 20551
(202) 452-3946
National Banks
Compliance Management Division
Office of the Comptroller of the Currency
250 E Street, S.W. Washington, D.C. 20219
(202) 874-4810
Federally Insured Non-Member State-Chartered Banks
and Savings Banks
Office of Consumer Programs
Federal Deposit Insurance Corporation
550 Seventeenth Street, N.W.
Washington, D.C. 20429
(800) 424-5488
(202) 898-3536
Federal Credit Unions
National Credit Union Administration
1776 G Street, N.W.
Washington, D.C. 20456
(202) 357-1065
The information contained in this web page is intended to help you ask the right questions when shopping for a loan. It is not a replacement for professional advice. Talk with mortgage lenders, real estate agents, attorneys, and other advisors, about lending practices, mortgage instruments, and your own interests before you commit to any specific loan.
Ask your lender or real estate agent for the following related pamphlets:
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A Consumer`s Guide to Mortgage Refinancings
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A Consumer`s Guide to Mortgage Settlement Costs
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Consumer Handbook on Adjustable Rate Mortgages
48. Do I need an escrow account?
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Your lender establishes an escrow account. An escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner`s insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner`s insurance, make sure you are not penalized for late payments since it is the lender`s responsibility to make those payments.
49. What is a mortgage?
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Generally, a mortgage is a loan obtained to purchase real estate. The mortgage itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.
50. What is included in a monthly mortgage payment?
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The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner`s insurance, and mortgage insurance (if applicable).
51. What is earnest money and how much should I set aside?
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Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.
52. Are there any incidental costs associated with a loan?
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Yes. When you turn in your application, you`ll be required to pay a loan application fee to cover the costs of underwriting the loan. This fee pays for the home appraisal, a copy of your credit report, and any additional charges that may be necessary. The application fee is generally non-refundable.
53. Are there special mortgages for first time homebuyers?
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Yes. Lenders now offer several affordable mortgage options that can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who do not have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have a large amount of long-term debt, or have experienced income irregularities.
54. How do I choose a lender?
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Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. Plus, it`s beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends, and your real estate agent for recommendations.
55. How do I compare loan terms between lenders?
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First, devise a checklist for the information from each lending institution. You should include the company`s name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed. Speak with companies by phone or in person. Be sure to call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.