There is a lot that goes into purchasing a new home. We know it can be overwhelming. At The Micham Group we want to make sure you know everything that is happening each step of the way. In addition to providing you with a step-by-step guide of the home buying process, we have out-lined a hand full of common questions we receive on a regular basis.
We are here for you every step of the way. If there is a question you have not seen answered please feel free to reach out to us and we will be happy to answer any question you may have. 419-299-4700
Click on the questions below to get the answers to some commonly asked questions.
Minimum credit score requirements vary by loan type. Typically, borrowers will need at least a middle credit score of 600 although there are programs that allow for no credit score provided we can establish a pattern of paying bills such as rent and utilities in a timely manner.
A good rule of thumb is to have a minimum of 3-5% of the purchase price saved, however, there are programs that allow for no money down. There are also grants and other down payment assistance programs available, so it is possible to purchase a home without a down payment. Keep in mind, these down payment requirements are applicable to owner occupied single family residences. Down payment requirements may vary for non-owner occupied and multi unit properties.
Union Home Mortgage is a mortgage banking company. We hold most of our loans in house and make money on the long term servicing rights. This allows us to be extremely competitive in terms of rates and closing costs with any other lender out there. I only get paid if your loan closes at which time I receive a flat percentage of your loan amount. This is nothing separate from the costs we disclose to you and you will not have to worry about any surprise fees.
We may need to update supporting documentation through the process but, provided nothing else has materially changed in credit, income, or assets, pre-approvals are good for 120 days before we need to pull an updated credit report.
A pre-approval involves receipt of a credit report and all supporting income/asset documents. It is much more solid than a pre-qualification and is generally required to be able to view homes. A pre-qualification is simply a discussion of general lending guidelines to determine approximate qualifications.
An appraisal is normally required as part of the loan process to confirm the value of the home is supported by other similar homes in the area that have recently sold. An appraiser does not make assessments as to the condition of the home but may recommend or require inspection by a qualified individual for visible defects in the home. A home inspection is recommended but not typically required for the loan process. A home inspector will perform a deeper dive into the condition of the home to determine if there are any concerns related to the roof, foundation, electrical, plumbing, etc.
Required documentation will vary depending on loan program, employment type, source of assets, and other considerations but the most common requirement is for 2 recent consecutive pay stubs, the last 2 years W2s, the last 2 months consecutive bank statements with all pages, and a copy of driver’s license, passport, or similar identification.
Generally, no. It is a requirement of the loan process to document the source closing funds to ensure the money being used is not being borrowed from another source like a cash advance on a credit card and also to verify no one related to the transaction (i.e. realtor or home seller) is contributing as an inducement to purchase. However, there are some exceptions to this rule so please ask if you have a specific scenario.
FHA financing is not restricted to first time homebuyers nor is it strictly used for purchase transactions. You can take advantage of the favorable terms with FHA financing for both purchase and refinance regardless of past homeownership considerations.
According to state law, funds due on a real estate transaction are required to be paid in a combination of 1 – 3 ways. A personal check can be written for amounts up to $1000. A certified bank check is required for amounts between $1000-10000. Amounts more than $10000 are required to be wired to the title company. Cash is Not accepted at closing.
There are several factors that affect the amount of time it takes to close on a home. Typically we are prepared to close in 3-4 weeks but that might be delayed based on the type of loan you are applying for, whether you need any down payment assistance, and how quickly the appraiser is able to complete their report, among other considerations. We will be happy to provide you with an estimate of what to expect for your specific situation.
Long term fixed mortgage interest rates are tied to the mortgage backed securities market (MBS).The MBS is similar to the bond market in that it generally offers greater stability but lower yield potential. Typically, investors put their money into the stock market when there is confidence of greater returns but when there is greater volatility and signs of potential losses, investors often shift their strategy to more secure investments like the MBS market. As more investors purchase MBS, it drives down the interest rates. When investors begin to pull out of the MBS market, rates rise in an attempt to attract back those investors.
Periodically, a representative from the Fed will make an announcement regarding their intentions to raise or lower interest rates. A common misconception is the idea that this has to do with mortgage interest rates. While mortgage interest rates may be affected to a certain degree by these announcements, what the Fed is referring to has to do with short term debt like credit cards and variable lines of credit.
The interest rate is the rate at which you will pay interest over the term of the loan so if you use an amortization schedule to enter the starting principal balance, the interest rate, and the term of the loan, you will be able to calculate your payments.The APR (Annual Percentage Rate) is strictly a comparison tool that allows you to make educated decisions between different loan options.
For instance, you may have a loan option with a lower interest rate but higher loan costs compared against an option for a loan with a higher interest rate but lower loan costs. The APR will translate certain loan costs into a percentage based on the terms of the loan and combine that percentage with the interest rate so you can make an apples to apples comparison between the 2 product offerings. The option with the lower APR is the better deal over the entire term of the loan, however, it may not necessarily be the best deal based on the goals of the buyer. If a borrower knows they will only own a home for a short period of time, it may make more sense financially to select a loan option with a higher APR assuming that results in lower loan costs because they may not keep the loan long enough to recognize the benefits of the lower APR otherwise.
COMMONLY USED TERMS
Glossary
Here are some commonly used terms you may hear during your home buying and mortgage application process.
An adjustable rate mortgage is a type of home loan in which the interest rate is subject to change at periodic intervals with monthly payments being affected accordingly.
Area median income. A measure of income averages by location. This measurement is often used as a qualifying factor for certain advantageous loan products or down payment assistance. A borrowers qualification will depend on their income in comparison to the AMI.
The schedule by which principal and interest are applied to the loan over time based on the loan terms.
The loan APR is essentially a comparison tool. It is intended to provide consumers with an apples to apples comparison between different loan offerings. Some loans may have lower interest rates but higher costs and vice versa. The APR combines certain loan costs with the interest rate to determine the true cost of the loan over time. When comparing loans, the option with the lowest APR will have the lowest amount of total cost (fees + interest) for those consumers who intend to continue the loan to the maturity term but it will not necessarily be the best deal for those who intend to payoff or sell early.
A professional opinion of home value based on an analysis of the property attributes with comparison to other recent sales of similar homes in the area. The purpose of the appraisal is to confirm if the home is worth the agreed upon sales price.
Often a term used to reference certain limits set on the maximum adjustment allowable on an adjustable rate mortgage. Periodic caps have to do with limits placed at interval adjustments where a lifetime cap limits the maximum allowable rate over the entire term of the loan.
An initial or early closing disclosure is typically provided as an estimate of what to expect with regard to the itemization of costs and distribution of funds involved in a mortgage transaction. A final CD is provided once a closing date has been scheduled and the lender is able to work with the title company on all of the final figures based on the prorations applicable to the specific date of closing. Certain regulatory timing requirements with regard to the delivery of the CD in relation to the allowable date of closing may be applicable dependent upon the collateral property and the residential intentions of the borrower.
A legal document demonstrating ownership of real estate and used to transfer ownership between parties.
It relates to the amount of monthly payments you have compared to the amount of total gross (pre-tax) monthly income. For lending purposes, there is a front end ratio which strictly compares the housing payment to the monthly income and there is a back end ratio which is the total monthly debt including the house payment, credit cards, auto loans, etc as a percentage of the total income. As an example, if your monthly house payment is $1000, your total monthly debt is $2000, and your total gross monthly income is $5000, your debt ratio would be 20/40 or 20% front end & 40% back end. The ideal recommended debt ratio is 28/41 but that can be stretched depending on the loan type & specifics of the loan.
Money paid against the purchase price of the home to reduce the loan amount.
Down payment assistance. Programs that have been established to assist borrowers with required down payment funds.
Desktop Underwriter. An automated underwriting software used to determine loan eligibility through Fannie Mae.
Funds given by a buyer at the acceptance of an offer to purchase to show the sellers good faith of intentions to proceed with the purchase. Earnest money is typically provided to the title company to act as an escrow agent in the transaction. When the purchase is scheduled for closing, the title company applies the earnest money toward the total funds due from the buyer.
In mortgage financing, the term escrow is used in a few different contexts. The primary use refers to the practice of having the lender collect 1/12th of your annual home insurance and real estate taxes as part of your monthly house payment and, in turn, paying those bills when they come due. Many find this very convenient for budgeting. This term can also be used to refer to the title company acting as an escrow agent where they collect money from all parties and distribute as applicable once the loan closes or, when the title company needs to hold back a portion of the proceeds to pay for repairs required on the home, this is referred to as a repair escrow.
In home lending terms, equity refers to the difference between the value of the home and the amount owed against it.
A home loan with a fixed interest rate and consistent principal & interest payments throughout the life of the loan.
A professional opinion of the condition of the home. While an appraisal will confirm if the home is worth the sales price, a home inspection will take a closer look at the condition of things like the foundation, electrical, plumbing, and roof.
The variable component of an adjustable rate mortgage (ARM).
The cost of money borrowed expressed as a percentage.
An estimate of the itemized loan costs and distribution of loan proceeds provided to a borrower at the time of loan application.
Loan level price adjustment. Adjustments to rate pricing based on certain risk factors associated with the loan.
Loan prospector. An automated underwriting software used to determine loan eligibility through Freddie Mac.
It’s the percentage of the value of the home that is being financed. For instance, if you are purchasing a home with a 3% down payment the LTV would be 97% because that is the amount of the purchase price that is being financed.
The fixed component of an adjustable rate mortgage. It’s the difference between the index and the total rate or ‘fully indexed rate’.
Mortgage backed securities. Similar to the bond market, the mortgage backed securities market is a relatively stable pool of investments. Long term mortgage interest rates are affected by the mortgage backed securities market.
This refers to the total monthly house payment including principle, interest, taxes, and insurance as well as home owner/condo association fees and mortgage insurance as applicable.
Private mortgage insurance/mortgage insurance/mortgage insurance premium. The terms may vary by the loan type but they all refer to an insurance policy you pay for to protect the lender in the event of a loss from default on the loan. For Conventional lending, mortgage insurance is only required for loans with less than 20% equity (> 80% LTV) but FHA requires mortgage insurance regardless of the down payment. VA & USDA do not require mortgage insurance but do they may charge a funding fee.
This refers to additional costs that are paid at the time of closing in exchange for a lower interest rate. Essentially, it is like pre-paying interest. The benefit is to obtain a lower monthly payment and recognize the greatest long term savings. 1 point is equivalent to 1% of the loan size. The rate pricing will vary by market conditions but typically 1 point will achieve approximately .25% in interest rate deduction. For illustration purposes, if a borrower wanted to pay 1 point on a 100,000 loan to get .25% rate reduction, they would pay $1000 in additional costs at closing to save $250/year in interest.
A lenders accurate assessment of a borrowers capacity to purchase based on an analysis of credit as well as verification of such things as employment, income, & assets. Sellers & real estate agents typically require a pre-approval letter for a prospective buyer to be able to view homes of interest.
Much less formal than a pre-approval, a pre-qualification is more of a hypothetical discussion about loan qualifications without the benefit of a credit report and/or documentation of such things as employment, income, & assets.
When it comes to mortgage lending, this term is typically used in refinance transactions to refer to the amount of time a consumer has after closing to cancel the transaction before it becomes final. The right of rescission only applies to properties being used as a primary residence by the borrower and is not applicable to investment properties nor second homes. If the loan is not cancelled by midnight of the 3rd business day after closing, the loan will fund at which time all proceeds will be disbursed as applicable.
Typically seller concessions refer to costs the seller agrees to pay for on the buyers behalf as part of the agreement to purchase. Lending guidelines will limit the amount of the seller concessions based on the type and specifics of the loan.
A type of insurance that protects against such things as ownership disputes and liens against the property related to debt or work done on the home that may not have been paid for at the time of completion. Lenders title insurance protects the lender while owners title insurance protects the home owner.
- Conventional – conventional loans typically offer the best lending terms and are most attractive to sellers because there are fewer requirements with regard to property condition and borrower eligibility. Fannie Mae & Freddie Mac are 2 of the largest purchasers of conventional home loans. Conventional loans are available with as little as 3% down.
- FHA – loans guaranteed by the Federal Housing Administration. FHA loans are typically a good option for first time home buyers or borrowers with marginal credit and/or limited funds available for down payment but are available to most and some times offer better terms than other alternatives. FHA loans are offered with as little as 3.5% down.
- Jumbo – a mortgage loan designed for amounts that exceed the conforming loan limits (currently 647200 as of 2022 for most areas of the country).
- USDA – Loans guaranteed by the United States Department of Agriculture. USDA loans are offered to buyers who meet certain income and asset restrictions who are purchasing a home in a less densely populated location than the major metropolitan areas. USDA loans are offered with as little as $0 down.
- VA – Loans guaranteed by the Veterans Administration. A VA loan is a benefit offered to certain current and past members of the military. VA loans are offered with as little as $0 down.
