Q: How to organize my document for a mortgage loan?
A: Typically proof of income and verification of assets is needed for a purchase transaction.  A mortgage refinance usually requires proof of income and homeowners insurance.  Other items that may be requested:

1. Consecutive pay stubs for the last month
2. W-2 forms for the past two years
3. Bank statement for the past 2 months (checking, savings)
4. 2 years of Federal tax returns
5. 2 years of Business license (for self-employed)
6. Proof of homeowners insurance (refinance)
7. Coupon for monthly mortgage payment (refinance)
8. Purchase agreement or Sale Contract (purchase only)
9. Verification of sufficient monies available to complete the transaction

In addition, the appropriate supporting information (title insurance, flood certification and appraisal, etc.) will be obtained.

Q: What is a credit score?
A: A credit score is an indication of your credit history and measures your ability to repay a debt in the future.  If you would like to see your credit report, you can request copies of it from any of the three national companies that lenders use:

1. Experian: (800) 392-1122 – http://www.experian.com
2. Equifax: (800) 685-1111 – http://www.equifax.com
3. Trans-Union Corporation: (800) 888-4213 – http://www.transunion.com

Q: What does a score mean to a creditor?
A: Credit score usually range between 400 on the low side to 800 on the high side.

1. 800 and over: Congratulations, you are the top!
2. 700 – 799: Excellent score.  You are a very desirable borrower.
3. 660 - 699: Strong credit.  You should have lots of options.
4. 600 – 620: Better.  You begin to have option here.  100% financing becomes possible.  Don’t expect the lowest rates.
5. 580 – 599: OK.  The rest or your file needs to be strong.
6. 550 - 579: Difficult.  Needs some work or a special program.
7. Below 550: Trouble.  Try to fix up your credit.

Based on three credit bureaus that report a score, you will get three scores for your credit.  And creditors usually take the median of the three scores.

Q: What type of loan will be best for me?
A: There are many different types of Mortgages to choose from, including Fixed Rate and Adjustable Rate Mortgages (ARM).  This choice depends on a number of factors, including your financial picture and how long to keep your house.

Q: What is the difference between a fixed-rate loan and adjustable-rate loan?
A: In general, when interest rates are high, adjustable-rate loans are mort favorable to borrowers.  When interest rates are low, fixed-rates loans are better.

1. Fixed-rate mortgage: the interest rate stays the same during the life of the loan.  The monthly payments are relatively stable.
2. Adjustable-rate mortgage (ARM): the interest changes periodically, typically in relation to an index.  If you plan to sell in the near future, an adjustable-rate mortgage is usually the best because you pay a lower rate at the beginning of an adjustable loan.  Therefore, you’ll spend less money in interest expense for the short time you own the house.

Q: What does a Balloon loan mean?
A: With a balloon loan, at some point you’ll be forced to pay off the loan, refinance the loan or exercise a conversion option to get a new loan or before the balloon due date.  Unlike standard fixed or adjustable loan, balloon are not amortized.  The entire loan balance is all due an payable in a relatively short time.
One of the most popular balloon programs is the 30/5, commonly referred to as a “thirty-year due in five.”  The interest rate is fixed and the monthly payment is sufficient to pay off the loan in thirty years, the outstanding principal balance is due at the end of five years.

Q: What is the difference  between a Conforming Loan & a Non-Conforming Loan?
A: A conforming loan adheres to the guidelines established by Fannie Mae. These guidelines establish maximum loan amounts, down payment, credit and income requirements and acceptable property type.  Lenders that make loans according to these guidelines may sell them Fannie Mae or Freddie Mac.  Conforming loans make up the majority of loans in the U.S.

Non-conforming Loans: Loans that do not conform to the guidelines established by Fannie Mae or Freddie Mac are called non-conforming loans.  A loan that is larger than the conforming loan limit is called Jumbo Loan. 

Q: What is PITI?
A: The monthly loan payments include three separate parts:

1. Principal: Repayment on the amount borrowed.
2. Interest: Payment to the lender for the amount borrowed.
3. Taxes: Property taxes vary depending on the location of your home.
4. Insurance: The insurance is your homeowner’s policy and, if necessary, flood insurance and Private Mortgage Insurance.

Q: What is PMI?
A: Nearly 50% of all borrowers today have less than a 20% down payment.  That means they will be required to pay an extra fee known as Private Mortgage Insurance or PMI.  It protects the lender because the lower amount of down payment puts the loan in a slightly higher risk

Q: How much cash will I need to purchase a home?
A: The amount of cash that is necessary depends on a number of items.  You will need to supply:

1. Earnest Money: The deposit that is supplied when you make an offer on the  house.
2. Down Payment: A percentage of the cost of the home that is due at settlement.  “For down payment of less than 20%, Private Mortgage Insurance  will be required and PMI charges will apply.”
3. Closing costs: Costs associated with processing paperwork to purchase or refinance a house.

Q: What are the various closing costs involved in getting a home loan?
A: The closing costs will include expenses such as points, taxes, appraisal, credit report, title insurance, mortgage insurance, recording fee survey, termite inspection, etc.