FAQs Buyers

What is the difference between "pre-qualified" and "pre-approved"?

When a buyer is pre-qualified, a mortgage professional has rendered an opinion regarding the home price the potential buyer can afford. Their opinion considered the potential buyer's down payment, debts, income, credit rating, and a lender's underwriting guidelines. Being pre-qualified is only an opinion from a person who will not actually lend the money to purchase your home. If one is pre-approved, however, a lender has verified all the above and more. The lender's opinion is more valuable since it is the lender who will lend the money. When a potential buyer is pre-approved, the seller can be more confident the buyer can close the deal. A seller should always ask potential buyers to provide a pre-approval letter or a pre-approval form.

I am already talking with a lender. Do I have to get a loan through you?

No, but we would love the opportunity to earn your business.

Do I have to be preapproved before I can see the house?

Yes. Great House Marketing’s commitment to our sellers is to make sure only preapproved buyers see their house. In addition it will save you time by making sure the house is something you can qualify for so you don’t waste time looking at houses you cannot buy.

What if I have already been prequalified by a mortgage company or am buying with cash?

No problem. Simply provide a copy of the prequalification or proof of funds.

What is the biggest benefit of becoming a home owner?

Home ownership has many advantages. First of all, the livability of a home is often far better than that of apartment life. Second of all, interest paid on home loans may be deducted from your taxes for additional savings. In addition, home owners build equity in their home with every monthly payment they make. When the home is eventually sold or passed on to another, this equity is yours - money in your hands, not the landlords.

What first-time buyer programs are available?

There are literally hundreds of different programs available, depending on your location (city, state, or province). They vary greatly from program to program.

How can I qualify for a first time home buyer program? 
Qualifying will depend on the program and the lender. Each lending institution you speak with will have different requirements and some may not offer special programs at all. Using one of our preferred lenders will connect you to experts who will take advantage of  any potential programs.

How much house should I buy or how much can I afford?

The answer to this has a lot to do with your income and the amount of your debt load. As a rough rule of thumb, most homebuyers purchase houses that cost between 1 1/2 and 2 1/2 times their annual income. Of course, this figure can vary due to market prices in your area. If houses aren't available within that range, you may need to spend a bit more. In general, however, your monthly mortgage payment cannot exceed approximately 28-29% of your gross monthly income. Your total debt payments (car payments, credit card payments, etc., plus the monthly mortgage amount) can't exceed approximately 36-40% of your gross monthly income. These ratios will depend on the type of mortgage you apply for.

How do I know if I am getting a good deal on a mortgage?

In a word: Compare lenders. There is some variation in the mortgage market but much less than in the past due to new regulations.  Interest rates will vary, not only from week to week, but sometimes day to day.  We work with mortgage professionals from several different lending institutions so you can quickly and easily compare fees.

How much should I offer for a house?

There is no simple answer to that question, since each property stands on its own. A particular house may be overpriced (offer below the listing price), "on-the-money" (offer at or just below the listing price), or underpriced (grab it before someone else does). For more information, see the section devoted to making an offer and negotiating.

Should I spend the money to have a home inspection?

Absolutely. The $400 to $500 that a professional home inspection costs could be the best money you ever spend. Not only does the home inspection seek out any defects, the home inspector will often give you tips on maintaining and repairing your home.

What are closing costs?

Closing costs are various charges paid to different entities associated with facilitating real estate transactions. Some of the closing costs a buyer might encounter include: application fee, appraisal fee, credit report, transfer tax, discount points, notary fee, documentation fee, title and escrow fees, loan fees, mortgage insurance, origination fee, title insurance premium and others. Closing costs are negotiable between the parties. Lenders generally estimate 3% for conventional loans. Costs can be higher on FHA or VA loans. Consult with your lender to determine the exact costs.

What's included in closing costs?

Closing costs can be divided into three categories:

  • Lender fees (points, appraisal, credit report, underwriting, settlement and tax service fee)
  • Prepaid (interim interest, real estate taxes and escrow, insurance premiums and escrow)
  • Settlement costs (title insurance, settlement/attorney fees, city/county/state taxes, recordation and messenger fees)

What is a point?

One point is equal to 1 percent of the loan amount. Depending on the context, it can have different interpretations. A discount point provides the borrower with a reduced, "discounted" note rate. An origination point is a fee for services rendered in connection for originating the loan. Buyers who are using FHA or VA financing may ask the seller to pay points.

What is Private Mortgage Insurance?

PMI is a type of insurance provided by a private mortgage insurance company that is used to protect the lender in the event that you default on the loan. Mortgage insurance is usually required on a conventional loan when your down payment is less than 20%. If you secure a FHA or VA loan you will have to pay FHA mortgage insurance premiums or VA guarantee fees.

Can I avoid mortgage insurance?

Only by putting at least 20% down.

How do I pay for PMI?

  • Premiums may be set up to be paid annually from an escrow account.
  • Premiums can be paid up front as a closing cost, financed in your loan amount, or paid monthly as part of your mortgage payment.

When can I have mortgage insurance canceled?

Typically PMI will no longer be required once your loan balance falls below 80 percent of the home value. You can reach this 80% level by:

  • Paying enough of your loan over time to reduce the principal balance
  • Your home appreciating (increasing in value) enough so your loan balance is less than 80%
  • A combination of the two

Be sure that your loan allows PMI to be canceled once you reach the 80% loan to value ratio. Sometimes your PMI will be canceled automatically once you have paid enough, but you should not rely on that to happen. The appreciation of your house is important since the lender will not know what the increased value is. Typically you will need to get a certified appraisal of your house to show the latest market value.

Why do Lenders pull credit?

When a lender is evaluating you for a loan, your credit history is one of the most important factors in determining your credit worthiness. Your credit history will show the debts you own and your ability to pay them. This helps the lender determine their risk, meaning how likely you are to repay your debts. The credit report will also show any items on public records including liens, bankruptcies, foreclosures, etc.

To get your credit report, a lender will order a credit report from a credit bureau. The credit bureau will then return your information or score back to the lender. There are three main credit bureaus in the United States. They are:

  • Equifax
  • Trans Union
  • Experian

These bureaus do not approve or deny you for a loan. They simply report your credit information. The bureau may include a credit score with your credit report. For more information on credit scoring go to the credit score topic under borrowing basics.

I have to close quickly. How can I speed up the loan approval process?

Give the lender your last two years complete tax returns with all attachments and accompanying W2s; your last three pay stubs; your last 3 bank statements; name, address and account numbers for all debts; copy of car title if car is less than 5 years old; complete copy of executed contract for a purchase transaction.

Can I buy a home if I do not have money for down payment?

Yes.  If you are a government insured loan like an FHA mortgage where you can have down payment funds gifted to you.  There are some government programs available if you buy a home in a certain area.  It is not a good idea to buy a house if you have no money at all to contribute unless you have enough income to afford the monthly mortgage payments. Consult with your mortgage professional for details on the programs available as they are constantly changing.

How much down payment do I have to have?

The down payment amount depends on the type of loan. FHA requires 3.5% down. VA is zero down. Conventional is typically 10-20% down. There are some other programs available from USDA that require less down payment. Down payments are typically required to be on hand at the time of the offer. Some portion of the down payment may be paid by a family member. Consult your mortgage professional for more information to see what you down payment will be.

What type of loans are available?

The most common loans are conventional, VA and FHA. VA financing is available only to the military. FHA financing comes from the Federal Housing Administration and is available only to first time home buyers. Conventional financing is available to anyone with sufficient credit and down payment to qualify. There are other types of loans available. Consult your mortgage professional for information on other programs available.

What is earnest money?

When a buyer makes an offer to purchase your property, they will need to provide an earnest money deposit as a sign of good faith. The earnest money deposit becomes a part of the purchase price and is held, or deposited into a trust or escrow account until there is full acceptance of the offer and the transaction closes. Typically, the earnest money deposit is 3 to 5 percent of the offer amount. The buyer should make their earnest money check payable to the escrow company.

What is title insurance?

Title insurance protects the buyer and seller. It is and insurance policy issued by a title insurance company and specifies, among other things, what liens are recorded against the subject property. Public records can be incomplete and contain errors regarding the history of ownership of a property (chain of title). It's critical that an owner receive undisputed, marketable title to the property. Title insurance was developed to attest to the reliability of the chain of title, and compensate people in the event problems arise and someone contests the sale transaction. There are different levels of protection offered by different types of title insurance.

Will the seller agree to VA or FHA financing?

FHA and VA loans provide purchasers the opportunity to buy homes with minimal cash investment and at lower interest rates. These loans require the lender or seller to pay for certain closing costs and loan fees that a buyer would normally pay with a conventional loan. VA and FHA also have stricter appraisal and home inspection requirements. All repair work must be done prior to closing the sale unless an FHA 203K or 203B loan is used. These loans allow money to be held in escrow so the house closes and then the contractor is reimbursed after the repairs are completed. Sellers understand offering the house to and allowing VA/FHA financing increases the number of buyers that may make an offer. The sellers always have the right to compare these offers to other offers with conventional financing and negotiate what closings costs will be paid above the required costs.

What interest rate will I pay?

Interest rates change on a daily basis and vary depending on credit score, type of loan and other factors.Your mortgage professional will be able to give you the current interest rate you qualify for based on your finances.  There has hardly been a better time to become a home owner. Rates are still very low and owning your own home gives you an immediate means of creating equity and tax deductions every year. If you are saving for a larger home, invest now in a home you can live with and continue to save in the comfort of a more modest home.

Will I qualify for a home mortgage loan?

The only way to determine the answer is to do some research. You need to have some important figures handy. You need to know your annual income, your annual or monthly debt payments, and an idea about what your credit score is. Typically the minimum FICO required to purchase a home is 580.  The higher the credit score the easier it is to qualify for a home. (You can obtain a free copy of your credit report once a year from any of the three credit reporting agencies.) Lenders are able to work with a variety of financial situations, but they will definitely want to see that you have income sufficient to afford a monthly mortgage payment and that your current debt will not be so big of a burden that it keeps you from making those payments. They will also expect that you have a credit score between a certain range. There are lenders who will loan you money no matter what your score is, but basically, the better your score, the better the loan and interest rate you will receive.

Your approval for a loan may also largely depend on the price of the home you are buying. You may be able to qualify for funding, but just not for the amount you are seeking. You may have to start with a smaller or cheaper home to get a loan.

There are many, many more questions involved in making your first home purchase, but answering these basics will help point you in the right direction. Be sure to counsel with your financial advisor or a mortgage professional to determine all the specifics for your situation.  

How do I to get started if I don't have a lender?

Call or email us today and we will send you the contact information for a lender who can help you.