Mortgage Basics (FAQs)

Mortgage Basics

How can I increase my credit?

Here are seven of the fastest ways to increase your score:
1.  Remove any inaccuracies on your credit report.
2.  Pay down your credit card balances.
3.  Pay bills twice a month.
4.  Increase your credit limits.
5.  Open a new account.
6.  Negotiate outstanding balances on closed accounts.
7.  Become an authorized user on someone else’s credit card.

To increase your credit score in 30 days you must do the following:
-Pay down revolving balances to less than 30%.
-Remove recent late payments.
-Remove a collection account, not just pay it off.
-Raise your credit limits.
-Charge small amounts to inactive credit cards.

More than 90% of lenders prefer the FICO scoring model, but Credit Karma uses the Vantage 3.0 scoring model. … Overall, your Credit Karma score is an accurate metric that will help you monitor your credit — but it might not match the FICO scores a lender looks at before giving you a loan.

Can I Apply for a Loan Before I Find a Property?

Yes, you can apply for a loan before you find a property. The Pre-Approval process covers all aspects of the approval process except for property information. During your application, you’ll provide documentation about your income, employment, assets and liabilities, which will all be verified by your lender, including an examination of your credit history. If approved, you’ll receive a Pre-Approval letter subject to finding a property. You can use the letter to show home sellers that you qualify for a certain mortgage amount, which may help in your negotiations to buy a house.

How Much Down Payment Will I Need?

One of the first questions that home buyers ask is “how much down payment are we going to need?” Unfortunately, there is no standard answer. Down payments will vary from 0% (with a VA “Veteran’s Administration” loan) to upwards of 30% (with certain “non-conforming” loans). On average, most home buyers make down payments in the 3.0%-15% range, although your own personal situation may dictate more or less down payment. But be careful; when budgeting for a down payment, don’t forget about Closing Costs and Pre-Paid Items, which could total an additional 2-5%, due at closing.

What is a Seller Concession?

A seller’s concession is an agreement whereby the seller pays (from the proceeds of the sale) some or even all of the buyers Closing Costs and/or Pre-Paid Items to purchase the home. This allows a buyer to purchase with less out of pocket expense.

What is PMI?

Private Mortgage Insurance. If your down payment/equity is less than 20% of the purchase price or value of the house (whichever is lower), the lender will require mortgage insurance. The insurance policy covers the lender’s risk in the event that you do not make the loan payments. Typically, you will pay a monthly premium along with each month’s mortgage payment. There are ways to avoid monthly PMI, which we will discuss during one of our strategy sessions.

What is the Difference Between Pre-Qualification, Pre-Approval and Final Loan Approval?

Pre-Qualification is the process where the lender will review your credit report and use your verbal information to determine if you will qualify for a home loan. No financial documentation is verified.
Pre-Approval occurs when all credit and employment documents are verified and the mortgage is approved, subject to the appraisal of the property you have chosen to buy.
Final loan approval occurs when the property has been appraised, all documentation is in the hands of the lender and all contingencies have been met.

What Does a Mortgage Payment Consists of?

  1. Principal: The repayment of the original amount borrowed on a monthly basis.
  2. Interest: The cost of borrowing the principal amount, repaid on a monthly basis.
  3. Taxes: Real Estate taxes paid to a local government agency.
  4. Insurance: Includes homeowners, flood and mortgage insurance on the home.

The total of these items is known as the PITI (Principal/Interest/Taxes/Insurance) payment.

What is the Difference Between a Fixed and Adjustable Rate Mortgage (ARM)?

Fixed: A fixed term (for example, 15, 20 or 30 years) as well as a fixed interest rate. The interest rate and term are fixed at the start of the mortgage. The monthly amount for the payment of principal and interest will not change during the term of the mortgage.

Adjustable: Often referred to as an ARM. The interest rate on your mortgage will be adjusted up or down according to current interest rate levels. The monthly amount for your principal and interest payment will go up or down with these rate changes. Typically, the initial interest rate won’t change for the first 5, 7 or 10 years of the loan term.