Most Common Questions Asked About Mortgages
While there are literally hundreds of mortgage related questions that can come up about loan approvals, rates, down payments or program specific guidelines, here are some of the top questions that get asked during the process.
I was pre-approved and signed a purchase contract, but my loan was just denied? There are literally hundreds of moving parts with a real estate purchase transaction that can impact a final approval up until the last minute.
With the borrower - credit scores, income, employment and residence status can change.
With the property - appraised value, poor inspection report, title transfer / property lien issues, seller cooperation, HOA disclosures.
With the mortgage program - Interest rates can change affecting the DTI ratio, mortgage insurance companies change guidelines or go out of business, new FICO score requirements…. the list can go on.
It's important to make sure your initial paperwork is reviewed and approved by an underwriter as soon as possible. Stay in close contact with your mortgage approval team throughout the entire process so that they're aware of any delays or changes in your status that could impact the final approval.
What if I can't find a home before my pre-approval letter expires?
Depending on your mortgage program and final underwriting conditions, you may have to re-submit the most recent 30 days of income and asset documents, as well as have a new credit report pulled.
It's important to know critical approval / condition expiration dates if your real estate agent is showing you available short sales, foreclosures or other distressed property purchase types that have a potential of dragging a transaction out several months.
Do I have to sell my current home before I can qualify for a new loan?
Yes, No and Maybe…
If you are in a financial position where you are qualified to afford both your current residence and the proposed payment on your new house, then the simple answer is Yes! Qualifying based on your Debt-to-Income ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgages payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.
Always consult your tax or financial advisor for more information.
What documents do I need to receive a full loan approval?
An experienced mortgage professional will be able to uncover any potential underwriting challenges up-front by simply asking the right questions during the initial application and interview process.
Residence history, , credit obligations, down payment seasoning, income and employment verifications are a few examples of topics that can lead to stacks of documentation required by an underwriter for a full approval.
There is nothing worse than getting close to funding on a new home just to find out that your lender needs to verify something you weren't prepared for.
Will a lender include income from a second job for my approval?
They usually do consider it if it is at least a total history of 1 year and if it is verifiable.
This also depends on the loan program guidelines; make sure you disclose as much as possible during your loan application process.
Does child support or alimony matter for an approval?
Yes, lenders will take your monthly child support or other financial obligations into consideration with your DTI Ratio. Exceptions may apply, contact me for details.A creditor shall not inquire whether income stated in an application is derived from alimony, child support, or separate maintenance payments unless the creditor discloses to the applicant that such income need not be revealed if the applicant does not want the creditor to consider it in determining the applicant's creditworthiness.
Mortgage Rate Questions
Who determines mortgage rates and what are they tied to?
The prices determined on mortgage rates are based largely on Mortgage Backed Securities or Mortgage Bonds.
How often do mortgage rates change?
Mortgage Rates can change several times throughout the day, but they only change on the days when Bond Markets trade securities, because mortgage rates are based on the price of Mortgage Bonds.
The best way to think of a Mortgage Bond is that it's similar to a Stock which trades up and down throughout the entire day.
What causes mortgage rates to change?
Mortgage Bonds have a huge impact on various market forces that influence the change demand for bonds within the market.
Unemployment percentages, inflationary fears, economic strength and just the overall movement of money in and out of the markets are some of the many key economic factors that have a large effect in mortgage rate changes.
When the fed changes rates, why do mortgage rates move in the opposite direction?
It is commonly misunderstood that when the Federal Reserve decides on a rate cut that there is a correlation to a reduction in mortgage rates.
By lowering the FFR, it helps to stimulate the economy and when increasing the FFR it helps to slow down the economy. When cutting interest rates (FFR specifically) effectively, it will cause a rally in the stock market, driving money out of bonds and also creating a potential for inflation.
There will be a high demand for a higher rate of return for Mortgage Bond holders if inflation increases, in the meanwhile cranking up mortgage rates in the process.
With the Federal Reserve Board that is held every six weeks, this may be a good question to ask. If your lender does not have a good firm understanding of this concept between the two, your rate may be left unprotected and can end up costing you thousands of dollars over the existence of your mortgage.
Do different programs have different interest rates?
A couple of the programs such as: Conventional, FHA, and VA loans can all carry different rates on a 30-Year fixed mortgage. In the event of possible defaults, the Federal Government helps to insure FHA and VA loans, making this a great reason to go with one of these programs.
Conventional mortgages on the other hand are insured by private mortgage insurance companies in case insurance is required.
The programs that usually carry the lower rates are FHA and VA loans, due to the investor's perception of the government backings making this a less of a risk for them. Since the rates are usually different for each program, it would be good to examine both the monthly rate and the overall cost during the life of the loan in order to decide on which program may be beneficial to your needs.
Why is an adjustable rate mortgage (ARM) rate lower than a fixed rate mortgage?
Adjustable Rate Mortgages (ARM) are usually fixed for a specific period of time. The specific period is typically set for 6 months, 1 year, 5 years or even 7 years. The interest rate is usually lower initially if it is fixed for a shorter time period.
This is because the borrower is taking on the risk of interest rates increasing in the future. However, when there is an inverted yield curve, the short-term rates would then be higher than long-term rates.
After the fixed period shown, the rate on this adjustable rate mortgage may vary and the monthly payment may increase.
Why are rates higher for different property residence types?
Monthly Mortgage interest rates are generally determined by risk-based pricing. Risk-based pricing allows adjustments to par pricing for risk factors such as: percentages in Loan-to-Value, property types (SFR, Condo, 2-4 Units), a person's FICO scores, occupancy (Primary, Vacation, or Investment Property) and mortgage type (Interest Only, Adjustable Rate, etc).
This enables the investors who lend their money for mortgages to get back extra funds for taking an additional risk.
How do I lock my rate?
It's good to know what the terms are and what the process is of locking in your interest rate.
Establishing whether or not you have the final word on locking in a specific interest rate at any given moment of time will alleviate the chance of someone else making the wrong decision on your behalf.
Most loan officers pay close attention to market conditions for their clients, but this should be clearly understood and agreed upon at the beginning of the relationship, especially since rates tend to move several times a day.
How long will my rate stay locked?
Mortgage rates are typically priced with a 30 day lock, but you may choose to hold off temporarily if you're purchasing a foreclosure or short sale.
Credit Score Related Questions
Why are credit scores different with each credit bureau?
Each credit bureau consists of different information reported in your credit, giving you different scores.
How is my credit score calculated?
There are 5 key components that are taken into account: payment history, total debt amount, the age of the credit, a mixture of credit, and any credit inquiries.
Why do I not have a credit score?
If you have not built any credit or have little credit history this can be the reason why. It may be possible to establish one by opening up credit card accounts with banks or department stores.
How often does my credit score change?
This may depend on how often your providers update your credit information on your credit report, and can change as often as daily.
Skyline Home Loans is not a credit specialist and this is not to be taken as credit advice. Always consult a credit counselor or financial advisor for details.
Mortgage Payment Questions
What is an impound or escrow account?
You've heard of the acronym PITI (Principal, Interest, Taxes and Insurance). The escrow or impound account covers the T&I, and is included in the monthly payment.
Are impound accounts required??
Government loans, FHA and VA require an escrow to be established when a new purchase or refinance transaction is finalized.
If the LTV is low enough on certain other loan programs, an escrow waiver is allowed. However, there is typically a higher interest rate associated with a mortgage payment that doesn't have an escrow account due to the lender taking on more risk.
What happens to my impound account when I refinance?
The remaining reserves are generally refunded back to the homeowner.
Can I set up an escrow account later?
Yes, you can request an escrow account at anytime. Keep in mind that you'll have to deposit at least 12 months of hazard insurance, as well as around 6 months of tax payments in the escrow account to get it established.Contact Fred Bachofner