Mortgage Faq 2018-03-04T17:25:17+00:00

Candy Buzan Round Rock Mortgage Resources

Mortgage Process Frequently Asked Questions

Below are Frequently Asked Questions that often are encountered through the course of the home buying process. You also can use our Mortgage Dictionary to address additional terms or questions that arise.

What conditions need to be met for a home loan approval?

Once you’ve obtained a preapproval or mortgage commitment letter, typically the lender approves your loan application based on conditions, which means you have to satisfy certain requirements before your loan is fully approved. Usually, those conditions fall into two categories: “prior to documents” conditions and “prior to funding” conditions. These conditions may be standard or specific to your loan type. Either way, in order to continue on the path to final loan approval, you’ll have to comply with all of the loan conditions.

Prior to Documents
The “prior to documents” condition refers to the standards you have to meet before the lender will issue your loan documents. Since the Underwriter reviews your application to verify its accuracy and to make sure you qualify for the loan, the underwriting department will typically require you to provide supporting documents. For instance, the Underwriter may request that you supply a certified copy of your child support agreement to prove you’re entitled to a specific monthly income, proof you paid off an auto loan or credit card to decrease your debt-to-income ratio, or explanation of a sizeable banking transaction. While these are specific to a borrower’s financial situation, there are other conditions that are more standard across the board such as employment verification, an appraisal that exceeds the value of the home, or proof of mortgage insurance. Meeting these conditions is the first of two important steps you have to complete in order to turn your conditionally approved loan into a fully funded loan because an Underwriter will not order loan documents until all of the required loan conditions are satisfied.

Prior to Funding
Typically before the lender releases funds to the escrow company, there are another set of documents the borrower has to provide the lender. Most of the “prior to funding” conditions are usually easy for the borrower to meet and at times will deal with procedural matters that the escrow or Loan Officer will handle such as the Closing Disclosure form. However, bear in mind that most lenders typically still check your credit score and other financial documents prior to closing. Therefore, it’s important to make sure you save all of your new pay stubs and banking statements as you may be required to produce those documents. Also, for borrowers who are already homeowners, the lender usually requires proof that your current home has sold before they will fund a new loan.

Signing Documents
The sooner all conditions are met, the sooner you can obtain funding approval. Since every borrower is different, every lending scenario and timeframe is different too. Therefore, you may encounter some or none of these conditions on your path to homeownership. However, once the lender issues a final approval, the funding department will transfer the payment to the escrow company and the loan process is finally complete.

What should I know about buying a home with an FHA loan?

Millions of homebuyers in the U.S. are eligible to purchase a single-family or multifamily home with the help of a Federal Housing Administration (FHA) loan. These loans are especially popular with younger, first-time homebuyers since they allow for a lower down payment and have more generous approval criteria.

FHA loans aren’t issued by the agency itself. Instead, the FHA provides mortgage insurance on loans made by FHA-approved lenders. This insurance protects the lender in the event the borrower runs into payment difficulties and makes it easier for the lender to approve a loan.

How do you decide if an FHA loan is right for you? Here are some key points to help you decide:

Low Minimum Down Payment

While some people wait until they’ve saved enough to make a large down payment, you can apply for an FHA loan with just 3.5 percent of the home’s purchase price. Buying now with a smaller down payment enables you to start building equity in a home sooner, which can give you a stronger financial base.

Mortgage Insurance Premiums

As you evaluate your budget for a home purchase using an FHA loan, keep in mind that part of your closing costs and your monthly payments will be made up of the FHA insurance premiums.

At closing, the FHA charges an upfront, one-time premium of 1.75 percent of the mortgage amount. This fee can amount to thousands of dollars ($1,750 for every $100,000 borrowed) added on top of typical closing costs.

Once you begin making mortgage payments, you will also have to account for an annual premium that is paid over the course of 12 monthly payments each year. This annual premium (0.85 percent of the mortgage amount on a 30-year loan with the minimum down payment) would amount to $850 per year for every $100,000 of the loan balance, adding just under $71 to each monthly payment.

Credit Score Leeway

Your overall pattern of dealing with credit responsibilities is the biggest factor in securing any mortgage. While it’s always good to know your credit score and to do everything you can to keep it strong, the more generous terms of an FHA loan allow you to apply even if your score is less than perfect.

Taking on a mortgage is a big step. We encourage you to speak with your Loan Officer to see if you’re financially ready and able to step into homeownership with the help of an FHA mortgage.

Can I switch from an FHA to a Conventional loan?

Do you currently have an FHA-insured loan? If you’ve thought about refinancing, it may be in your best interest to see if switching to a conventional loan could save you money by eliminating your monthly mortgage insurance payments. Read more to learn about the potential benefits of making the switch.

FHA Mortgage Insurance Premium

FHA loans require that borrowers pay MIP, or Mortgage Insurance Premiums. Like all insurers, the Federal Housing Administration collects a premium which is the amount you pay for your mortgage insurance. These monies go into a fund called the Mutual Mortgage Insurance Fund and are used to pay the mortgage lender should a borrower go into default. MIP is broken down into a one-time payment called the Up Front Mortgage Insurance Premium (UFMIP), and the monthly mortgage insurance payments (MI).

Earlier this year, MIP increased. These MIP increases are consistent with the Federal Housing Administration’s efforts to strengthen the Mutual Mortgage Insurance Fund.
Who Has to Pay MIP and for How Long?

Along with the increase in MIP, the FHA also changed the duration that borrowers must pay MIP. FHA will now collect annual MIP for the maximum duration permitted and change its long-standing Annual MIP Cancellation Policy. Certain homeowners can no longer cancel the annual MIP. The changes also reflect that regardless of the loan amount or LTV, every FHA borrower will have to pay MIP.

To learn more about these changes, check out our MIP Changes blog.

Eliminate MIP with a Conventional Loan

Conventional loans often do not come with the amount of provisions that FHA loans do. Conventional loans do not require mortgage insurance if the loan to value is less than 80%-in other words, if the borrower can make a down payment of 20%. So in theory, by switching to a conventional loan, you may be able to eliminate your monthly mortgage insurance payments.

Should You Make the Switch?

Before you consider a conventional mortgage refinance, you should find how much equity you have in your home. Make sure you have 20 percent equity or more so you are eligible for a conventional loan. With that being said, when refinancing from an FHA loan to a conventional loan, you may be getting the same interest rate as your current FHA loan, but you will in fact being paying less. The MI payments on your FHA loan add anywhere from $100-$500 a month. By switching to a Conventional loan, you will be completely eliminating these MI payments and saving yourself a couple hundred dollars a month.

When deciding what refinance is right for you, make sure to factor in the future of home prices and mortgage rates. You should also evaluate all costs and benefits. It might be easier for you to obtain an FHA loan, but no matter what you will have to pay monthly mortgage insurance. A Conventional loan requires a higher credit score and more equity in the home. After evaluating, you may find that your current FHA loan is already your best option or find that you would benefit from making the switch to a conventional refinance.

Of course guidelines will vary vendor to vendor but give us a call to have a licensed loan officer weigh out the differences and take you through all your options to see what is best for you.

How do I prepare my home for an appraisal?

If you’re looking to begin the process of finding and applying for a home loan, chances are you’ll already be feeling overwhelmed before even signing any paperwork. By choosing a knowledgeable, high-quality lender who takes service seriously, it’s easy to approach the process one step at a time. One key component of the process that often is overlooked, though, is the home appraisal. Whether you’re moving into your first home or looking to secure a better rate on an existing home loan, an appraisal is likely in your future.

If you’re looking to begin the process of finding and applying for a home loan, chances are you’ll already be feeling overwhelmed before even signing any paperwork. By choosing a knowledgeable, high-quality lender who takes service seriously, it’s easy to approach the process one step at a time. One key component of the process that often is overlooked, though, is the home appraisal. Whether you’re moving into your first home or looking to secure a better rate on an existing home loan, an appraisal is likely in your future.

Appraisal Basics

A home appraisal is a routine, standardized event that is intended to determine how much a home is worth, and therefore the cost of the mortgage to finance it1. Real estate appraisals are conducted by professionals who are licensed and certified to perform this service in your area. Appraisers use their knowledge of the local market, combined with information on the home in question, to come to a determination of value. Although appraisers are typically hired by the lender, the applicant or homeowner is usually responsible for their fee, which can cost around $500.
Appraisers Generate an Objective Assessment of a Home’s Value

To conduct an appraisal, the appraiser will often need to visit the home in person to take a close look at the interior and exterior.2 He or she will also tap into public records or multiple listing services to find recent sales of similar homes nearby. These past sales, known as comparable properties or “comps,” will serve as a benchmark for final value determination. With all the requisite information gathered, the appraiser will create a report on the home’s value for the applicant or owner and lender to view.

Preparing for the Appraisal

An appraisal on the horizon isn’t cause for panic, but borrowers should still take steps to prepare and ensure it goes as smoothly as possible. While appraisers are required by law to be fair and objective in their analysis of a home’s value, there are several things homebuyers or owners can do to make things easier for everyone involved.

In the days leading up to an appraisal viewing, homeowners should be sure they keep the place in good condition. Lawns should be mowed and gardens tended, and interior rooms should be kept tidy. Appraisers won’t judge a home on cleanliness alone, but there’s still no harm in taking the time to clean.

If homeowners or potential buyers want to go the extra mile, they can help the appraiser out by finding comparable sales3. Take a look through online listings of recent home sales in the area and select properties similar to yours. Location and square footage are the most common factors used to determine similarity between two homes, but take note of building style, age and other features. Presenting the appraiser with three good comparable sales could help you make the case for a favorable appraisal.

When the time comes for the actual inspection, homeowners or buyers can be present but shouldn’t intrude too much4. Meeting with the appraiser and explaining the comparable sales you’ve found is perfectly acceptable. However, most appraisers appreciate space as they do their own inspection, so excessive questions or comments at this time are generally frowned upon.

With the inspection complete, homebuyers or owners may have to wait up to a week before they can view the report. Once the appraisal decision has been finalized, borrowers are well on their way to securing a good loan with an excellent lender. Keep in touch with the lender for any lingering questions about the appraisal process.
Remember, you should never hesitate to ask questions. Ask Candy for any information you need to ensure you understand the entire mortgage loan process.