The mortgage process can be complex and confusing so we’ve listed some of the most
frequently asked questions to help you find some clarity.
What do mortgage companies look at to qualify me for a home loan?
It's very simple and the same for all home buyers:
1.) Credit Score - (Usually 620, but can qualify with a lesser score depending on certain factors)
2.) Money available for down payment and closing costs – (As low as $0 down and 3.5% down available for those eligible)
3.) Debt to income ratio – which is your minimum monthly payments on your credit report (i.e. credit cards, car loans, school loans..etc) divided by your monthly income.
Let me help you get those items aligned and then you are able to start looking for a home.
What is the minimum credit score I need to qualify for a home?
A common misconception is that you must have perfect credit to qualify for a home loan. Normally 620 is the baseline, however, I have helped clients purchase a new home who had a score lower than 620 because of strong extenuating factors like cash on hand, a solid rental history, and a low debt to income ratio. As an extra level of service, we can use our credit simulator, which for most clients can tell them specific steps to take to increase their scores without having to pay a “credit repair” company.
What is the difference between down payment and cash to close?
Your down payment is how much you are required to “invest” in your home. We have programs that have minimum down payments of 0%, 3.5%, and 5% of the sales price. Your cash to close is the sum of your (down payment + closing costs). Getting pre-approved will eliminate any confusion on how much it costs to get you in a new home.
Are there any additional costs outside of my cash to close?
Even if you are eligible for down payment assistance, be prepared to have enough cash on hand to pay for your earnest/option money, home inspection and home appraisal. To be clear, these can vary, but you can expect your earnest and option money to be around .5% to 1% of your sales price. Home inspections are around $350-$400 and your appraisal is typically $500-$600. So for a $200,000 home, you could expect to need around $1,900 to $2,800.
What determines my interest rate?
This is perhaps my all-time favorite question simply because there are so many companies who post or quote rates haphazardly without knowing your particular status, not to mention rates change every day. Did you know there are over 30 different factors that can determine your rate? These can range from things that make sense like type of property, length of loan term, down payment, and type of loan. But, did you know if you put too much money down, it could possibly worsen your interest rate? Or did you know sometimes a higher rate is actually better than a lower rate depending on your particular home loan strategy. This is why working with a knowledgeable mortgage advisor is essential to a great home buying experience.
What happens when my credit is pulled?
The credit check is reported to the credit reporting agencies as an “inquiry.”
Inquiries tell other creditors that you are thinking of taking on new debt. An inquiry typically has a small impact on your credit score. Inquiries are a necessary part of applying for a mortgage, so you can’t avoid them altogether. But it pays to be smart about them. As a general rule, apply for credit only when you need it. Applying for a credit card, car loan, or other type of loan also results in an inquiry that can lower your score, so try to avoid applying for these other types of credit right before getting a mortgage or during the mortgage process.
You can shop around for a mortgage and it will not hurt your credit. Within a 45-day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry. This is because other creditors realize that you are only going to buy one home. The impact on your credit is the same no matter how many lenders you consult, as long as the last credit check is within 45 days of the first credit check. Note: the 45-day rule applies only to credit checks from mortgage lenders or brokers – credit card and other inquiries are processed separately.
You can check your own credit with no impact on your score, but most likely those scores will not be as accurate as when you are getting your credit pulled for a mortgage. When you check your own credit – whether you’re getting a credit report or a credit score – it’s handled differently by the credit reporting agencies and does not affect your credit score.
What is the difference between a Pre-Qualification & a Pre-Approval?
One mistake that home buyers commonly make is not getting a pre-approval. Many home buyers believe that a pre-qualification is the same as a pre-approval. This is actually the furthest from the truth.
A mortgage pre-qualification can easily be defined as an estimation of how much a buyer can borrow. In many cases a pre-qualification is only as good as the piece of paper that it’s written on. It’s fairly common practice that a mortgage lender who pre-qualifies a buyer asks them for information such as income, debts, and other assets without verifying the information. If a buyer is not truthful or makes a mistake when giving the information this can lead to problems down the road when the mortgage is verified by an underwriter.
Its very possible to get "pre-qualified", spend countless hours searching for the perfect home only to find out you're not actually "pre-approved" and watch your dream home get scooped up by someone else.
A mortgage pre-approval is what every home buyer should obtain prior to looking at homes. A mortgage pre-approval can be easily defined as a written commitment for a buyer from a mortgage lender. To obtain a mortgage pre-approval a buyer will be required to provide the same documents that are required when formally applying for a mortgage, such as w-2’s, pay stubs, and bank statements.
There are many reasons why a mortgage pre-approval is better than a mortgage pre-qualification. Reasons why a pre-approval is better than a pre-qualification are;
1.) Helps buyers beat out competition in a multiple offer scenario or strong sellers market
2.) Gives “peace of mind” to a seller when submitting offer that the mortgage will be approved
3.) Insures an efficient and stress free home buying experience
What documents will I need to get pre approved?
• Driver’s license
• Home Owner’s Insurance Agent contact information
• HR contact to verify employment over the past two years.
• 2 Months, all pages of your current bank statement. Note: You may print your statements from online, but they must include your name, account number, and the name and address of the bank.
• Most recent 2 years’ signed tax returns – include all schedules.
• Most recent 2 years’ W2’s & 1099’s. Note: K1’s if self-employed.
• 30 days of most recent pay stubs or Social Security Award Letter.
• If applicable: Divorce Decree, Property Settlement Statement, Separation Agreement.
• If applicable: Bankruptcy Papers, Discharge, Schedule of Creditors, and Letter of Explanation for Filling.
Can I receive money for my cash to close from a family member?
The short answer here is Yes! The family member would have to provide a completed gift letter and a 30 day bank statement to show funds are available.
The bank statement is needed to show a paper trail of the funds being used for the gift. If there are deposits into that account that are not traceable, we may not be able to use it or at the very least it could lead to some other hurdles we would need to clear. The cleaner the account statement, the better.
If there are deposits into that account that are not traceable, it could lead to some other hurdles we would need to clear. The cleaner the account statement, the better.
What kind of properties can I purchase?
There are 3 main types of properties a client can purchase.
1.) Primary residence: This type of property is your main place of residence and generally allows the lowest down payment available.
2.) A second home/vacation home: Typically, it must be at least 50 miles away from your primary residence and in a vacation type setting and require in most cases 5-10% down. There are a few more hurdles to overcome as it must make sense to the Underwriter that you are not purchasing the third type of property, an investment property.
3.) Investment property: Requires a down payment of 20%.
Would I recommend a credit repair company?
Short answer, NO, longer answer perhaps.
Nothing pains me more than seeing my clients shelling out hundreds or even thousands of dollars for a service that that doesn’t work most times. From my experience, clients who are working with a “credit repair” company are not getting the results they should. I have one company who I trust, but will never just send a client over without having at least a phone consult with all parties involved so the expectations are clear.
Does my spouse have to be on the loan?
While your spouse might be asked to be listed on the mortgage documents, you can take out a home loan without having your spouse be responsible for it. Doing this may be able to shield him or her from financial liability or prevent bad credit from hurting your ability to get a mortgage. However, it may have some drawbacks.