There are THREE kinds of “Pre-Approvals”:

• The “Pre-Qualification” – This one may be the most common, fastest and least thorough. It’s done over the phone and based solely on a conversation. A Loan Originator asks about your income and assets, then usually obtains and reviews a credit report. All they can conclude is, “Based on what you’ve told me, it looks like you’ll qualify.”

• The “Pre-Approval” – With this one, the buyer provides a Loan Originator with income and asset documentation. The Originator obtains a credit report and reviews documents. Here, the conclusion is similar: “Based on my review of what you provided, it looks like you qualify.”

• The Family Mortgage Certified Pre-Approval with a $5,000 Guarantee – Not surprisingly, this is the only one that counts, and includes all the following:

• All income and documents are obtained and verified including:
• Direct income validation from IRS
• Direct employer verification of employment.
• Rental income
• Social Security
• Bank-Brokerage assets
• Credit Report is obtained and analyzed
• Automated nationwide fraud search performed
• An authorized Underwriter reviews the entire file
• The Underwriter issues a formal credit approval – a Certified Pre-Approval

The length of time to get approved and financed will vary from lender to lender. When shopping around for mortgages, it’s extremely important to have some idea of how long, on average, a given mortgage lender takes to close their loans. A competent mortgage lender should be able to get a mortgage financed within 20-30 days from the time of application.

That said, understand that there are many reasons why a mortgage approval might be delayed. While going through the mortgage-approval process, stay in constant contact with the lender and make sure you get any requested documentation to the lender as soon as possible.

If a buyer doesn’t get requested/required documentation to their lender in a timely manner, it can end up being the reason a closing is delayed—or even cancelled.

With Family Mortgage, your loan can be pre-qualified in just hours from the time we receive your loan application. Moreover, we can issue a Pre-Approval or Certified Home Buyer designation within 24-48 hours of receiving your supporting documentation.

This is one of the most frequently asked questions we get. Since there are many different types of mortgages available to prospective home buyers, it’s important to understand which type of mortgage is best prior to signing on the dotted line. Below are three of the most popular mortgages types:

• FHA Mortgages: FHA (Federal Housing Administration) mortgages are the most popular type of financing for buyers looking to purchase a home with little money down. FHA mortgages allow a buyer to purchase a home with a down payment as low as 3.5% of the purchase price. FHA mortgages also allow a buyer to receive up to 6% of a home’s purchase price—frequently known as sellers concessions—to be used towards a buyer’s pre-paid items and closing costs.

Another reason why FHA mortgages are so popular is because the requirements for a borrower are fairly lenient. It’s not uncommon for a potential borrower with a credit score of 600-620 to get approved for an FHA mortgage.

• Conventional Mortgages: A conventional mortgage is a popular mortgage choice for home buyers with strong credit scores and more money available for a down payment. One of the biggest perks of conventional mortgages? They offer the ability to remove PMI (private mortgage insurance)—which can’t be removed from FHA mortgages for the entire life of the loan.

Here’s another advantage of conventional mortgages vs. FHA mortgages: because the qualifying guidelines for conventional mortgages are stricter than for FHA or VA mortgages, a seller will generally consider a pre-approved conventional buyer as a better bet than a pre-approved FHA or VA buyer. This can be a plus if you’re in a multiple-offer scenario.

• VA Mortgages: VA (Veteran Administration) loans are a popular type of financing for Veteran buyers who meet specific qualifications. One of the primary reasons why a Veteran may choose a VA Loan is because that buyer can finance 100% of a home’s appraised value. Like FHA loans, VA loans also allow a buyer to receive seller concessions to help cover the costs associated with buying a home.

The short answer? You can get a conventional mortgage with as little as 3% down, an FHA loan with 3.5% down, and a VA or USDA loan with no money down at all. However, with a conventional or FHA loan, you’ll have to pay private mortgage insurance (PMI) if your down payment is less than 20%.

While PMI payments will be in force for FHA borrowers for the life of the loan, conventional borrowers can ask lenders to drop them once the loan-to-value (LTV) ratio on their mortgage falls to 80%. Even without the request, lenders are required to cancel PMI on conventional loans once the LTV ratio drops to 78%.

The term “closing costs” refer to all of the charges you’ll need to pay at closing. This can include origination fees, title insurance, prepaid escrows, and more. Closing costs can vary significantly, but generally, expect to pay around 2% to 3% of the home’s price in closing costs.

As you begin your house-hunting adventure, here’s a tip that can minimize your out-of-pocket expenses. The key is getting the seller to pay closing costs. Based on the price of the home you’re pre-approved to purchase, you’ll receive a Loan Estimate, which spells out what your closing costs will be.

As you negotiate the purchase price of the home, stipulate that the seller pays all your closing costs as part of the deal. Why would the seller agree to that? In a “buyer’s market.” they may have to agree to make it attractive enough for you (i.e., you have leverage in a down market).

But, what if it’s a “seller’s market”? In that case, the seller may not have to come off his price at all, much less pay all or even part of your closing costs. But, if you agree to increase the purchase price (you’ll barely notice the additional amount when it’s amortized over the life of the loan), the seller can pay your closing costs and still pocket the same amount. In either market, the contract you negotiate can be structured with the seller paying the cost and have it be a win-win scenario.

If the Seller agrees to contribute towards a buyer’s closing costs and/or tax and insurance escrow account, there are limits as to how much. The amount allowable by most lenders varies depending on your credit, program selected, etc. But the vast majority of normal borrowers fall into one of the following categories:

• Down payment of 0 – 9.99%: Seller can contribute up to 3% of the sales price
• Down payment of 10%+: Seller can contribute up to 6% of the sales price. On FHA loans, the seller can always contribute up to 6% of the purchase price. On VA loans, seller can contribute up to 4%.

Home sellers will generally require some type of Good Faith deposit when you submit your offer to purchase. In the industry, this is called an earnest money deposit. For existing homes (i.e., not new construction), the deposit will typically run between $500 and $5,000; larger homes may require a more sizable amount.

For new home construction, builders will generally require larger deposits, particularly when the buyer is adding upgrades, or has the flexibility of picking colors, etc. The earnest money deposit protects the seller/builder in the event the buyer backs out of the purchase contract after all contract contingencies have been waived.

Since the seller has lost valuable time in marketing the property, the deposit acts to reimburse them for some of this expense.

While interest rates are rising, they are still historically low, and a fixed-rate mortgage still makes good financial sense. Not surprisingly, the vast majority of mortgages originated today are fixed-rate. In fact, less than 10% of buyers choose adjustable-rate (ARM) loans.

That said, while a fixed-rate mortgage is the best choice for the majority of homebuyers, there are some circumstances where an ARM may be preferable. For example, if you expect to sell the house before the fixed-interest period ends and the rate starts to float, an ARM could end up saving you thousands of dollars. Or, during periods of falling interest rates, an ARM can allow you to get a low initial rate, and will save you money later if rates drop further.

Discount points are money you pay up front on your mortgage in exchange for a lower interest rate. One “point” is equal to 1% of the loan amount, so on a $200,000 mortgage, one discount point would be $2,000. Discount points are tax-deductible, and if you determine that the interest savings over the life of the loan would be greater than the points paid, it could be worth it. Good mortgage consultants, when asked, should be able to tell you whether or not it would be a good idea to purchase points.  

When you obtain a mortgage, you’ll probably be asked to put money into an escrow account to guarantee the lender that the ongoing expenses of owning the property will be handled—specifically taxes and insurance. You’ll pay a lump sum into the escrow account at closing (also known as “prepaids”), and continue to add to it with each of your monthly mortgage payments.

Not necessarily, but it’ll certainly help! It’s possible to get a conventional mortgage with a FICO credit score as low as 620, or a higher-cost FHA mortgage with a score in the 500s. However, the lower your score, the higher your interest rate. On a $250,000 mortgage, the difference between a 620-credit score and an “excellent” 760 adds up to more than $86,000 in interest savings over the life of a 30-year loan.

Yes. If your spouse submits their name as a co-applicant, the lender will consider their credit score and credit history. A credit approval is based on the lowest two middle scores of both borrowers. Lenders take the lowest middle score from all three reporting agencies, and use that as a baseline.

One of the biggest mistakes while in the process of purchasing a home is to open a new line of credit. In the midst of the home-buying excitement, some might go out and buy, say, new furniture. That new debt has to be factored into their debt ratio, and if it puts them over, they could lose out on the home.

Once you’ve submitted your paperwork for a home-loan pre-approval, stop spending money on any of your credit cards. Don’t make any large purchases until after you have the keys to the home. Even if the expense doesn’t push you over the debt range, it could delay the approval process, and in a competitive home-buying market, that could cost you your dream home.

Depending on your situation, there are typically three or four parts of your mortgage payment:

1. Principal: Repayment of your outstanding balance.
2. Interest: Payment of the interest charged on the outstanding balance.
3. Taxes: One-twelfth of your expected annual property taxes will be included in your mortgage payment, and deposited into your escrow account.
4. Insurance: This includes homeowner’s insurance, as well as any other hazard insurances you’re required to have—such as flood or windstorm. If you put less than 20% down on your loan, this can also include private mortgage insurance (PMI).

Based on these four items, your mortgage payments are sometimes referred to as PITI.

A common misconception is that the self-employed can’t get a home loan, or that it’s more difficult to do so. Not the case. If you’re self-employed, it just means that different documentation is required. One thing to keep in mind: when self-employed buyers write off expenses to reduce their taxes, those expenses don’t count as income, and that could affect your ability to qualify for a loan.

Tip: Plan ahead. Consider cutting back on your write-offs or saving more money for the down payment to offset the lower income number.

A conforming loan simply means that the loan meets standards set by Fannie Mae and Freddie Mac—including loan limits. A nonconforming loan is one that exceeds those limits, which is why it’s often referred to as a “jumbo” mortgage. Most lenders opt for a conforming loan as it’s easier to insure and/or sell. For 2021, the conforming-loan limit was recently raised to $548,250.

If you see an ad for a remarkably low interest rate, look for a disclaimer (typically linked from an asterisk) saying this is the best possible rate. To nab it, you’ll need a high credit score (750+) and a low loan-to-value ratio—meaning you’re making a sizable down payment (at least 40% of the home’s price).

But your credit scores and loan-to-value aren’t that strong, you’ll be considered more of a risk—and your interest rate will rise to reflect that. In addition to your credit score and loan-to-value ratio, it will also depend on your loan size and the type of property you’re buying (i.e., condo vs. single-family home). Bottom line, read the fine print when evaluating your loan options.

PMI is Private Mortgage Insurance, and it is required to protect lenders against loss if a borrower defaults on their loan. PMI is generally required for a loan with an initial loan-to-value (LTV) percentage in excess of 80%.

In most cases, this means you’ll have to pay PMI if your down payment is less than 20% of the value of the home you’re purchasing or refinancing. The cost of the mortgage insurance is typically added to the monthly mortgage payment.

Absolutely. And if interest rates have been trending upward, it’s generally a good idea to lock in your rate. A rate-lock means you’re guaranteed today’s mortgage interest rate for some predetermined period—typically 30-60 days. Locking in your rate means the lender is agreeing to provide you with a mortgage at that particular rate, and that it won’t go up or down between the time you lock it and the time you close on your home.

If your mortgage is a fixed-rate one, your interest rate will remain the same throughout the life of the loan. Keep in mind mortgage interest rates fluctuate daily, and you will need to have secured a contract to purchase a home before you can lock your interest rate in.

Yes, it’s possible to get approved for a mortgage loan after a bankruptcy filing. Depending on the type of filing—Chapter 7 vs. Chapter 13—and other factors, you may have to wait anywhere from two to four years before you can get another mortgage loan. Short sales and foreclosures are different, but have similar waiting periods.

An appraisal is an unbiased professional opinion of a home’s value. Any time a buyer is obtaining a mortgage to purchase a home, the lender will require a bank appraisal—which is also required when a homeowner decides to refinance.

There are several ways a bank appraiser will determine a home’s value. The most common method is using the Comparable-Property Approach. With this one, an appraiser will look for at least three sales of comparable properties that have sold in the past 12 months. As part of their process, an appraiser will make adjustments in their criteria in order to make the subject property as similar to the comparable properties as possible.

Another appraisal method used by appraisers is the Cost-per-Square-Foot Approach. With this approach, an appraiser will typically apply the 10% rule: the lot size and actual home square footage of comparable sales should be within 10% of those of the subject property. For example, if a subject property is 2,000 s.f., and sits on a 6,000 s.f. lot, comparable sales should be properties with 1,800-2,200 square feet and lot sizes of 5,400-6,600 s.f.

Understand there can be problems with a bank appraisal which can slow or stop a home purchase. Common appraisal issues are when a home value comes in lower than the sale price; or when the bank appraiser requires repairs to be completed prior to financing approval.

Always ask these questions of prospective lenders: “Will I have a single point of contact throughout the mortgage loan process?” “How will I be updated on that progress—by email, phone or an online portal?” Establishing your service expectations upfront and seeing just how eager the lender is to meet them, will give you a clear point of comparison among lenders. We pride ourselves in “Over the Top Communication”!