Home Purchase FAQs

What should I look for in a lender?

The interest rate isn’t always the most important factor in selecting a mortgage. You want to make sure you’re doing business with a reliable, reputable business. A trustworthy lender will be able to provide all of the details of your loan, including pre-approval, in writing. When shopping for a mortgage provider, don’t forget to ask friends and family members for recommendations. Although online reviews are available, they may not be as thorough as hearing feedback from the people you know. It’s also reasonable that if the people closest to you were happy with their experience, you will be, too.

Also, make sure that you understand the full cost of the loan and that you feel comfortable with all of the terms. For instance, pre-payment penalties, a large down payment requirement, or larger monthly payments may cause the loan to be less than ideal — regardless of the interest rate.

What will be considered in the loan process?

• Proof of Income – Find and make copies of your pay stubs.
• Tax Information – Gather your W-2s, 1099s, and tax returns for the last 2 years. If you’re self-employed or an independent contractor, you’ll be required to provide your 1099-MISC information.
• Credit Details – We’ll perform a credit check when you apply.
• Debt Documentation – You’ll be required to provide documentation on your outstanding financial commitments. Gather materials on your current mortgage, car loans, student loans and any other debts.

What’s a FICO score?

FICO stands for Fair Isaac Corporation. This company is a pioneer and leader in credit scoring. Your FICO score is a number that tells creditors how likely you are to pay off your debts.

FICO and the credit bureaus do not disclose their exact computation methods. However, most credit scores are calculated through models that assign points to different factors of your credit history to best predict future performance. There are many commonly analyzed factors in your credit history, including:

• Payment history
• Employment history
• How long you have had credit
• How much credit you have used compared to how much you have available
• How long you’ve lived at your current residence
• Negative credit/financial events such as collections, bankruptcies, charge-offs, etc.

What’s a rate lock?

A mortgage rate lock is a promise to you from the lender to hold a specific combination of an interest rate and points for an agreed upon time (typically 10, 15, 30, 45 or 60 days) until you can close on your home. Locking in a rate protects you from unforeseen interest rate increases that can occur in the days or weeks leading up to closing, but conversely, if the rates fall, you may not be able to take advantage of the lower rates.

Rate locks are dependent on the type of loan program, current interest rates, points, and the length of the lock. To hold a rate for longer periods of time, you usually have to agree to pay higher points or interest rates.

What’s a zero-point/zero-fee loan?

Just as the name suggests, this is a loan where you pay no points and no fees upfront. You pay a higher rate and the lender agrees to pay the upfront costs. This is a popular loan for first-time homebuyers with less cash who want to limit the upfront fees they pay. It’s also a popular loan for people looking to refinance. Since there are no fees, there’s no penalty for refinancing whenever interest rates drop, even if you refinance multiple times in a year.

Zero-point/zero-fee loans are particularly useful for people who will not be spending a long time in their home. If you’re looking to move within five years, there’s little downside to this type of loan. However, if you stay in the home for the long term, you’ll eventually end up losing money by paying at a higher rate over a longer period of time.

What’s private mortgage insurance (PMI)?

Private mortgage insurance (PMI) protects the lender from the costs of foreclosure. You may be obligated to purchase PMI if you can’t make a sufficient down payment of at least 20%. By purchasing PMI, you will have access to a mortgage without having to make a large down payment, and the lender is insured in the event that you default on the loan.

The price of PMI is inversely proportional to the size of your down payment. The larger your down payment, the lower the cost of PMI will be.

Why do I need a home inspection?

Inspections are important to understand the condition of the home. They can also be helpful when it comes time to negotiate with the sellers, in terms of lowering the price of the home, or adding service stipulations to the contract.