Frequently Asked Questions (FAQ's)
Listed in this frame are some frequently asked questions, you may scroll down through the questions, select any that you may desire and the answer will appear in the frame below.
General Questions:
Can I get pre-approved (not just pre-qualified) for a mortgage before finding a home to buy?
Other than the application, what do I need to provide for the loan approval?
What is a "No Income Verification" (NIV) or "Stated Income" loan?
Questions Regarding Credit:
I have some credit problems, can I still get a mortgage to purchase or refinance a home?
Should I pay off all of my credit cards or other debts before I apply for a mortgage?
Questions Regarding Income:
Answers to FAQ's
General Questions:
Yes! Mortgages Direct offers you a complete credit approval prior to finding a home to buy! We recommend you getting pre-approved for many reasons.
You know exactly what you can afford and have an approved loan waiting for you to find the right property.
You can usually negotiate a lower price since you are approved and are similar to a cash buyer. The seller knows that the house is sold, not just under contract, contingent upon credit approval.
Your closing time will be shortened. Since you are credit approved, all that is necessary is to get the contract of sale, an appraisal, and the title commitment. Closing can usually be done in a few days, rather than weeks.
NO! We are of the opinion that the acceptance of mortgage applications is our business and that the overhead associated with the application process is general overhead.
Additionally, our personnel are experienced professionals and can determine the merits of any given application. Couple that with our having over 200 different products, covering all credit, income, and down payment scenarios, and it is easy to see that if a mortgage loan is possible, we have the product.
NO! Similar to our opinion of the loan application fee, we feel that the credit report is part of our primary business, and that the expense is a general overhead item. Many times we will obtain a credit report from only one repository (cost less than the three repository merged report), and after reviewing that report, we will determine if the three repository merged report is necessary.
There are many different mortgage loan products, however, they can usually be grouped into three major categories. These categories are:
- Fixed Rates - in fixed rate mortgages, the interest rate is fixed for the life of the loan. The amortization periods can be for:
- Ten Years;
- Fifteen Years;
- Twenty Years;
- Twenty Five Years;
- Thirty Years; or
- Forty Years.
- Adjustable Rate Mortgages (ARM's) - in adjustable rate mortgages, the interest rate adjusts periodically (adjustment interval), depending on the type of ARM. Some of the adjustment intervals are monthly, quarterly, semi-annually, annually, every three years, or every five years. An ARM that has an adjustment period of once per year is called a "one year ARM".
To determine your interest rate with an ARM, you must know two things. First the Financial Index that the ARM is tied to, such as:
- Treasury Notes (6 month or 1 year)
- Libor rate.
- 11th Federal Reserve District Cost of Funds Index (COFI)
The other item needed is the margin (amount added to the index to determine the interest rate).
The more popular adjustable rate mortgages are:
- 1 month ARM; the rate adjusts monthly after a 3-month introduction period.
- 6 month ARM; the rate adjusts every six months.
- 1 year ARM; the rate adjusts annually.
- Hybrids - in a hybrid, the rate is fixed for a certain period of time then it converts to an adjustable rate mortgage. They are usually expressed as an X/Y ARM, with "X" indicating the fixed rate term (in years) and the "Y" indicating the adjustment interval of the ARM. For example, a 3/1 ARM would be a mortgage in which the rate is fixed for the first three years and then the mortgage would become an ARM with an annual adjustment interval. The more popular hybrids are:
- 3/1 ARM;
- 5/1 ARM;
- 7/1 ARM; and
- 10/1 ARM
NO! A discount point is equivalent to one percent of the loan amount. While it is commonly used to lower the interest rate, it is usually optional. Unless you are in a corporate relocation, and an employer is paying the discount point to lower the interest rate, or the discount points are required by the lender, we suggest that you not pay more than 0.5 discount points.
This is a difficult question to answer. The question is very similar to when should you buy any given stock. Many items should be taken into consideration, including the performance of the economy.
Depending upon the loan-to-value (LTV) ratio, some of the non-recurring closing costs can be financed, by classifying these expenses as a "seller-contribution." Generally, if the LTV is greater than or equal to 95%, the seller-contribution is limited to 3% or less. Other wise the seller contribution is usually limited to 6% or less. Keep in mind that a seller contribution could affect the seller's net proceeds.
Yes! You the borrower have no control over who services or owns your loan, nor should you be concerned. It is very common for loans to be sold. An entire market similar to the stock market exist for mortgages, and investors buy and sell accordingly.
NO! Although many lenders require an escrow account for real estate taxes and insurance, there are many that allow you the option.
Usually, an escrow account can be waived if the loan-to-value ratio does not exceed 80%. There is customarily a one time fee of approximately 0.125% to 0.375% of the loan amount charged by the lender if the escrow is waived.
In processing an application, the processor is required to verify the income, assets, and liabilities of the prospective borrower. Therefore, while it is not required that the applicant provide the below listed items it is usually in their best interest to do so. If the items are not provided by the applicant, the processor is required to send verifications to third parties, which slows the processing time. The typical documents needed at the time of application include:
- Last three months statements on all deposit accounts (bank, savings, retirement, etc.)
- Prior two (2) years W-2 statements and 1099's.
- Last thirty (30) days pay-stubs.
- If purchasing a home, a copy of the sales contract.
These items usually cover most applications. If you are self employed, then you would not have W-2's or pay-stubs. In the alternative, a copy of your prior two years tax returns and a current profit and loss statement on you business would be necessary.
However, please also keep in mind, that we have "No Income Verification" (NIV) loans, "No Ratio" loans and "No Income No Asset" loans available. In the NIV and the No Ratio loan your income is not verified so the W-2's and pay-stubs and/or tax returns and profit and loss statement are not needed. In the No Ratio Loan the only item needed is the copy of the sales contract.
A "No Income Verification" (NIV) or "Stated Income" loan is one that the applicants income is not verified. The applicant simply "states" his or her income on the application, and while the employment status is verified, the income information is not.
Please do not misunderstand, the income is the only thing not verified, credit is still reviewed. In fact the No Income Verification or Stated Income loans are usually (but not always) reserved for those people with good credit, and usually require 20% down payments. Also, since the lender is assuming more risk (no income information at all), the loan carries a slightly higher interest rate than a loan that has full documentation of the borrowers income.
This type of loan is excellent for those applicants that have income sources that are difficult to verify ( i.e., the self employed, investment income) or those applicants that do not want to go to the trouble of providing all of the documentation to verify their income.
A "No Ratio Loan" is a loan where the applicant does not indicate any income on the application. All of the qualifying ratios use income as the denominator of the equation, without income information, the ratio is impossible to calculate.
As with the No Income Verification or Stated Income Loan, the No Ratio Loan is usually (but not always) reserved for those people with good credit, and usually requires 20% down payment. Also, since the lender is assuming more risk (no income information at all), the loan carries a slightly higher interest rate than a loan that has full documentation of the borrowers income.
This type of loan is excellent for those applicants that have income sources that are difficult to verify ( i.e., the self employed, investment income) or those applicants that do not want to go to the trouble of providing all of the documentation to verify their income.
Questions Regarding Credit:
Perfect Credit would be similar to a person with the following:
A record of paying all financial obligations on time, for many years.
There should be only a few credit inquiries within the last 24 months.
There should be no bankruptcies, liens, lawsuits, or divorce proceedings.
There should be several loan-established credit accounts in the USA.
Good Credit would be similar to a person with the following:
- A record of paying all financial obligations on time for the past few years.
- Bankruptcies and liens should have been discharged at least 24 months ago, and credit re-established.
- No active lawsuits, and not currently in divorce proceedings.
Yes!, even if you do not have excellent or good credit, you can still obtain a mortgage. These mortgages are referred to as "sub-prime" mortgages, and a large percentage of the population have them.
Sub-Prime mortgages usually require more down payment or equity, and carry a slightly higher interest rate than prime mortgages. The amount of the required down payment or equity as well as the interest rate will depend on your own particular circumstances.
This is one reason why we offer free pre-approval, we can assess your situation and get you the best mortgage for your personal circumstance, before you find your home. After you find your home, you may not have time to "adjust" your financial circumstances.
In most cases no! However, there are times that it may benefit you in obtaining a mortgage.
This is one reason why we offer free pre-approval, we can assess your situation and get you the best mortgage for your personal circumstance, before you find your home. After you find your home, you may not have time to "adjust" your financial circumstances.
No! What type of mortgage (prime or sub-prime) that you qualify for is dependent on how long ago the bankruptcy happened. If the bankruptcy was less than 24 months ago, you probably will be in the sub-prime category, otherwise, you may qualify for the prime mortgages.
A FICO score is a credit scoring system determined by certain credit reporting repositories, and used by many mortgage companies to determine creditworthiness of an individual.
The FICO score is determined by a formula that considers a persons past payment history, amount of available credit on revolving accounts vs. amount of debt, public record filings (bankruptcy, law suits, liens, judgements, divorce, etc.), number of recent inquiries, and other factors. Many mortgage companies have different FICO score requirements for certain programs.
Questions Regarding Income:
Not necessarily. Tax returns and 1099's are the documentation of income needed for a self-employed person. The income is reviewed for the prior two years. If you have been self-employed for less than two years, there could be a problem, but solutions are available.
Many times a problem arises due to the different missions of a tax return vs. a mortgage application. Most taxpayers attempt to minimize taxable income for tax purposes. However, the mortgage loan is qualified based on income, so indicating a minimal taxable income can prevent you from qualifying for as much home as you would like. This is the reasoning for having a "No Income Verification", "Stated Income", or "No Ratio" mortgage.
This is yet another reason that we stress getting pre-approved.
Not necessarily. Commission and bonus income is averaged for the prior two years and that average is used for qualification purpose. Also it may be necessary to provide some evidence that continued bonus income is probable. This is another reason for the "No Income Verification", "Stated Income", or "No Ratio" mortgage.
No! There are mortgages available that do not require any documentation and/or verification of income. These mortgages are known as "No Income Verification", "Stated Income", or "No Ratio" mortgages.
In many instances, Yes. This is called "trailing spouse income". We have many different programs allowing different percentages of trailing spouse income and under different circumstances.