Homebuyer FAQ
How
large a downpayment will I need?
In most loan programs, at least a portion of the down payment
must come from your own funds. This demonstrates to the lender that
your home is an investment that is important to you. For example, if
the loan program you select requires a 5% down payment, and the
purchase price on your home is $100,000, your down payment will be
$5,000. However, you may only have to provide a 3% down payment from
your own funds, totaling $3,000. The remaining 2%, or $2,000, can be
a gift or grant. Some people contribute to their down payment by
borrowing against the equity in their profit-sharing or 401(k)
plans.
Federal Housing Administration
(FHA) loans are an exception since the entire down payment may be a
gift, and the Department of Veterans Affairs (VA) loans require no
down payment for qualified members and veterans of the armed forces
or their widows. Some local down
payment loans may be available as well as 0% down programs to
qualified borrowers.
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Does
my credit have to be perfect?
Your ability to purchase a home will depend, in part, on your credit
history as profiled in a "credit report". The information on the
credit report is used to determine how responsible you are in
meeting your obligations. You do not have to have perfect credit to
be approved for a mortgage, but if you have a number of late
payments, you will need to provide a letter explaining why those
payments were late. It is useful to check your credit standing
several months before you apply for a home loan. When you think you
are ready to purchase, your mortgage loan officer will help you
complete the form authorizing them to obtain your credit report for
you. Getting Your Application Approved is an article that will help
you understand what lenders look for when approving a mortgage
application. Prior bankruptcies may not prevent a customer from
obtaining a home loan but at least 2 years should have lapsed since
the filing with no past due items after the filing.
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How do
I make an offer?
Once you have found the house you want and can afford, be sure
to determine the home's true value by comparing it's price to that
of other houses in the same neighborhood. Your Realtor can help you
with this, or you might want to hire an independent appraiser to
help guide you. Once you and the seller have reached an agreement on
the price of the home, you may be asked for a deposit or binder to
hold the house while the purchase contract is being prepared.
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What
kind of mortgage should I apply for?
Once you're ready to buy a home, you need a mortgage that fits
your budget and your financial objectives. Some people prefer the
predictability of a fixed interest rate. Others need low initial
monthly payments that adjustable-rate mortgages offer so they can
afford more house for the money. Still others like the idea of
paying off the mortgage sooner and saving thousands of dollars in
interest and thus, opt for a shorter term.
Selecting the best mortgage loan
for your needs can be confusing. It is best to consult with a
mortgage loan officer prior to selecting a loan program. A loan
officer can discuss your financial goals, income and expenses and
help you determine the appropriate home financing option based on
your needs.
How do I lock in a rate, what is the cost,
and how soon can I do it?
Locking in a rate on our secondary market loans is made easy at
ProGrowth Bank. Your lender will advise you as to what the current
rate provided by our investors is. (It is important to know that
this may change daily or even many times within the same day.) You
may lock in at anytime from the time we receive your loan to just
prior to closing your loan. Simply sign a lock in agreement and we
take care of the rest of the process for you. At this time we do not
charge to lock in a rate but there may be a cost to cancel it
depending on the circumstances.
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What
is a qualifying ratio?
A "qualifying ratio" is a formula used to determine your maximum
principal+interest payment, (+
property tax + hazard insurance, and mortgage insurance, if
applicable) mortgage amount and the purchase price of the
home you can be approved to buy. It is important to remember that
ratios may be stretched to a slightly higher amount depending upon
your loan product and your other financial circumstances, referred
to by some lenders as "compensating factors". Each loan product has
a different qualifying ratio. There are two parts to each ratio: the
front and the back.
Front
Ratio: This is also known
as total housing debt or PITI (Principal, Interest, Taxes,
Insurance). For example, the front qualifying ratio on a
Federal Housing Administration (FHA) loan is 29%. (If only one
number is listed, as with Department of Veteran Affairs (VA) loans
only the back ratio is used to qualify.) This means that to qualify
for an FHA loan, your total monthly housing payment (PITI) should
not exceed 29% of your total gross (before taxes are taken out)
monthly household income.
Back Ratio:
The back-qualifying ratio on the FHA loan is 41%.
(some programs allow higher front and
back ratios) This means that to qualify for an FHA loan, your
total monthly housing payment (PITI) and all other debts should not
exceed 41% of your total gross (before taxes are taken out) monthly
household income.
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What
exactly are points?
Discount or Buy down points are
prepaid interest on your mortgage, charged by the lender at the time
of closing. Each point is one percent of the loan amount. For
example, two points on a $100,000 mortgage is $2,000. The more
points you pay, the lower your interest rate will be, thus lowering
your monthly payment. The points you pay are tax deductible.
How long does the entire
process take – pre-approval to closing?
Processing your loan involves many parties performing a variety of
services. Therefore, depending on how quickly those that are outside
the control of the lender perform their role, getting to the closing
table on your loan may take anywhere from a few days to 5 – 6
weeks. A realistic rule of thumb is about 30 days on a purchase of
an existing dwelling or a fully completed new construction.
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What
are closing costs?
Closing costs cover all the charges associated with the transaction,
including points, origination fee, appraisal fee, title search fee,
title insurance, survey, taxes, deed recording fee, charges for
credit reports, escrowing for taxes
and insurance, etc. etc. Closing costs range between two and
six percent of the mortgage amount, depending upon the loan product
and fees that are customary in your region.
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What
happens at the closing?
Before closing, you may need to arrange for a home inspection,
choose a settlement service or attorney, make arrangements with the
utility company, and obtain hazard and (if necessary) mortgage
insurance. Your loan officer can be a big help in assisting you with
these details.
At closing (ah, the final step)
your mortgage is signed and sealed, and your check is delivered.
Your first mortgage payment will usually be due approximately 30
days after closing. Now you can settle into your new home.
Do I need my own representative at the
closing?
Due to increasing banking compliance laws and state and federal
regulations, residential real estate loans may at times appear
complicated and lengthy. While there is no requirement that you have
an agent at the closing you may, at your own discretion and cost,
have someone with you to help you better understand the documents
the closing agent is asking you to sign.
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