Top 10 Mortgage Financing Questions

1) Do I need 20% down to buy a home?

No. You are able purchase with as little as a 3.5% down payment. In certain instances, you can buy with no money down.  If you choose to finance more than 80% of the purchase price, you will most likely be required to have mortgage insurance.

2) Can the seller pay my closing costs?

Yes. The seller can pay for your closing costs and pre paid items (taxes and insurance).  Lenders will have guidelines as to how much a seller can contribute to your closing costs.  Most lenders allow between 3%-6%.  Please check with your lender prior to making an offer. The seller is not permitted to give you your down payment.

3) How is my interest rate determined?

Your interest rate is determined by a variety of factors. The most critical are your credit score, down payment %, property type and upfront closing costs paid. Typically, the more closing costs that you pay upfront, the lower your rate will be.  Your seller concessions will be valuable in this area.  Always ask for options from your lender/broker about rates and fees.  Your lender/broker will give you the necessary information to make an intelligent informed decision.

4) Do I need perfect credit scores to be able to buy a home?

No. With certain types of loans you can have a credit score as low as a 530. Credit scores range from 300-850.

5) What is Pre-Approval and does it cost money to get Pre-Approved?

A pre-approval is free and highly recommended. A pre-approval helps you establish an amount that you are able to qualify for when purchasing a home. Once you are       pre-approved you can make an offer on a home. The pre-approval letter shows the seller that you are able to purchase their home and have already pursued financing.  Most sellers will not entertain offers without a pre-approval from a bank/broker.

6) Do interest rates change daily?

Yes. Interest rates changed daily and sometimes hourly based on the positive or negative activity in the mortgage bond market. Mortgage bonds trade a lot like stocks on Wall Street, this is why rates change so frequently.

7) When can I lock my interest rate?

You can lock your interest rate once you have the property you wish to purchase under contract. Once your interest rate is locked the rate cannot change.  This either works for you or against you.  You will either avoid a market crash or miss out on the market improving.  Rule of thumb is to lock your rate if you like it.  The market is too volitale currently to take a risk looking for a lower rate.  Every .125% on the interest rate on a $100,000 loan amount equates to approximately $8 per month.  In most cases, it is not worth the risk to wait.  “If you like it, lock it!”

What is an FHA loan?

An FHA loan is a government insured loan.  This type of loan requires a minimum of 3.5% as a down payment.  Gifted funds for a down payment are allowed.  You may also have a co-signer that does not intend on occupying the property if this helps you to qualify.  FHA loans tend to be a little more flexible on their underwriting guidelines.

9) Does the $8,000 dollar first time home buyer credit expire?

Yes. The tax credit is set to expire on December 1st, 2009.  Please anticipate lenders getting inundated with loans in the months of October and November.  This will slow down underwriting and loan closings.  Do not miss out due to procrastination.  Weigh your options, is making an offer on this short sale or bank owned property to save $5,000 of the purchase price worth not being able to take advantage of the first time home buyer tax credit?

10) What am I looking for when I chose a lender?

Cost isn’t everything! Look for experience.  With the market changing constantly, you will need an experienced mortgage professional to assist you in making the biggest purchase of your life.  Loan products change daily and lenders are going out of business, so you need to make sure that the lender/broker you chose will be there and be able to deliver the financing on your new home purchase or refinance.  What good is a slightly lower rate or slightly lower fees if you never get the loan?  Too many potential homeowners end up paying unnecessary fees or losing purchase opportunities due to choosing a lender/broker that wasn’t experienced and able to deliver.  Don’t bargain hunt for financing on the biggest purchase that you will ever make.  Be prepared to spend a little more if need be to insure that you get you a quality loan, it will be worth it!