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Mortgage FAQ

What are my options if I have no down payment, or only a small down payment?

Some loans will do 100% financing. Another similar loan option is called a piggy-back loan, where you get approved for the first and second mortgage at the same time. FHA loans require only 3% down. No matter which of these types of loans you obtain, the payment will be larger, your interest rate will probably be higher, and you will be required to buy private mortgage insurance (PMI).

What is private mortgage insurance (PMI)? Do I have to pay it?

Private mortgage insurance is required if you owe more than 80% on your house. This insurance protects the lender if you cannot make your payments. When you default on the loan, the insurance company pays the debt. The cost is added onto your loan, and will be approximately an additional one half percent.
What kinds of government loans are available to buyers?

HUD (US Department of Housing and Urban Development) is committed to increasing home ownership for minorities and low-income Americans. It oversees the FHA (Federal Housing Commission, offering a variety of programs, including 203(K) loans to purchase a home that needs fixing up, financing for FHA-insured homes that have been acquired through foreclosure, and other FHA-insured loans. HUD has many programs to help in housing needs.

FHA loans (offered by the Federal Housing Commission) are the most popular. They don’t actually make the loan; they guarantee loans requiring only a 3% down payment, and they do not have as strict credit policies as many conventional loans.

VA (Veteran’s Administration) loans are really guarantees for loans obtained by certain qualified veterans or other qualifying home buyers or refinancers such as unmarried surviving spouses.
What is the difference between a fixed rate mortgage (FRM) and an adjustable rate mortgage (ARM)?

A fixed rate mortgage has a set interest rate for the life of the loan. An adjustable rate mortgage has a specified adjusting period where the rate can be adjusted along with the payment.
What is included in closing costs?

Closing costs will be about 3%-6% of your mortgage loan and commonly include:

Generally paid with application:

Generally paid at closing:

Is there any way to speed up the loan approval process?

What is the difference between a mortgage broker, a lender, and a loan officer?

A mortgage broker covers a broad basis, linking buyers with appropriate lenders, counseling borrowers, and even processing loans.

A lender is the institution or agency that will actually loan the money.

A loan officer is an employee of either a lender or a mortgage broker, generally finding borrowers, counseling, taking applications, and often, being involved in the loan processing.

What documents will be required to close a loan?

Documents required vary from loan to loan, but generally the following are required, often for up to two years back:

Is it more expensive to rent or to own?

Owning a home is often considered the better deal, but keep these considerations in mind:

Why do I need to check my credit prior to buying a house?

The lender will obtain a credit report. If you look at it prior to a loan application, you have a chance to clean up detrimental items before you have to explain them to the lender. Also, if your score is low, you can do specific things to increase your score such as paying down debt, increasing cash in the bank, and making payments consistently on time, over a period of time.

What is the difference between conforming and non-conforming loans?

Conforming loans are mortgage loans that meet specific, uniform national standards (most commonly referred to as Fannie Mae and Freddie Mac requirements) that deal with document specs, debt-to-income ratio limits, maximum loan amounts, and interest rates.

Non-conforming loans are loans that do not meet banking qualifications generally due to borrower’s financial status or property that does not meet required criteria. These types of loans are funded by private money and usually have a much higher interest rate than conforming loans. Loans that exceed Fannie Mae limits are called “Jumbo” loans.

Where do the names Fannie Mae and Freddie Mac (loan regulating entities) originate?

The Fannie Mae entity was created in 1938 under President Franklin D. Roosevelt to help the home buying economy which was floundering at that time. In 1968, Freddie Mac was chartered to provide competition. These are not government funded entities, only government sponsored, with the idea of creating national standards and guidelines to ensure a long-term healthy housing market.

They operate by borrowing foreign, low-interest money that, in turn, allows them to provide local banks with money to offer affordable housing loans. Together these two entities control about 90% of the secondary mortgage market.

They were dubbed these names from the acronyms of their respective government sponsored entities:

What are points?

Points are a fee that is expressed as a percentage of the loan amount: one point is 1% of the loan amount.

Origination points are charged as a fee for some of the costs of the loan processing.

Discount points are basically a prepaid interest, or a fee to reduce the interest rate, known as a rate “buy down.”