Frequently Asked Questions

Mortgage Questions
Some of the most commonly asked questions about mortgages. To learn more about the mortgage process, go to our Loan Info page to hear an audio on explaining the mortgage process.

What are the differences between mortgage prequalification, preapproval and final loan approval?

Prequalification is the process where the lender will look at a basic copy of your credit report and use the information you supply to determine how much mortgage you can afford based on your income. No accounts or employment information is verified. Preapproval occurs when all credit and employment is verified and the mortgage is approved, subject to the appraisal of the property you have chosen to buy. Final loan approval occurs when the property has been appraised, all documentation is in the hands of the lender and all contingencies have been met.

It is important to remember that the amount of mortgage you will qualify for is the maximum. It is the amount that the lender feels you can afford, but it is not necessarily the amount that you want to pay. It sometimes is advantageous to be conservative here. For example, if you qualify for a $200,000 mortgage and you have $50,000 available in cash for down payment and closing costs, you are qualified to buy homes with a maximum selling price of $250,000. So as to not push yourself to the limit, you may want to look at homes that sell in the $200,000 to $235,000 range. Too many buyers simply rush off to the maximum level and some find themselves strapped when it comes time to purchase necessary items (such as furniture and appliances, for example) or when they forget to factor in increases in monthly expenses (for example insurance, real estate taxes, utilities and maintenance and repair costs).

 
What first-time buyer programs are available?

Many first-time buyer programs are locally developed and administered. Your state, province or local community is much more likely to have a program available than on a national level. Your WRC loan officer can generally review with you the availability of programs in your area.

 
Can I use my IRA retirement funds for a downpayment on a house?

For most first time buyers, you can use the funds in these retirement accounts without penalty.

According to the IRS, If both husband and wife are first-time homebuyers, they each can withdraw up to $10,000 for qualified acquisition costs penalty-free for a first home.

Qualified acquisition costs include the following items:

·         Costs of buying, building, or rebuilding a home.

·         Any usual or reasonable settlement, financing, or other closing costs.

First-time homebuyer. A first-time homebuyer is, generally, any individual (and his or her spouse, if married) who had no present ownership interest in a main home during the 2-year period ending on the date the individual acquires the main home to which these rules apply.

Should I pay points?

Along with the interest rate, the number of points (up-front interest) is an important consideration when comparing mortgages. This is a question asked by every borrower these days. Because no one wants to pay anything unnecessary, the prospect of paying a couple of thousand dollars never appeals to anyone. Consequently, a lender's offer of a zero point loan sounds enticing. Indeed, they are very popular with borrowers these days. You should discuss this option with your WRC loan officer to see if it makes sense for you.

What mortgage options are there for those with poor credit?

WRC has hundreds of loan programs available for many of those with tarnished credit records. One of the mistakes commonly made by homebuyers involves their credit report. Some buyers assume that their credit is worse than it really is, and may well have been able to secure a more advantageous mortgage. Other buyers are unaware of problems in their credit report and need to scramble to get the problems handled. You can avoid many of these hassles by getting a copy of your credit report up-front and examining it both for errors that need to be corrected and accounts that need to be handled. Contact a WRC loan officer for a copy of your credit report.

Overcoming Credit Problems

• Determine precisely what the problems are. You will need to have a clear picture of your current credit status so that you know what to concentrate on. The quickest and easiest way to accomplish this is to run a credit check and begin to analyze it.
• If your credit needs repair, begin the process at once. There are "credit repair counselors" who will, for a fee that is usually in the range of several hundred dollars, help you with the process. Or, with the right information at your disposal, you can handle the process yourself.
• Start by getting the problems under control now. Do not incur any new debt. Do your best to begin to live within your means. This will be an advantage now, when you are applying for a loan, as well as later, when you will need to meet your monthly mortgage obligation.
• Make a a commitment to a program of saving. Even if you have had credit problems, there are options available for mortgages if you have down payment money available.

What are front and back ratios?

Part of the mortgage application process will be the determination of how much house you can afford based on your income. The two ratios that will be computed are the front ratio and the back ratio.

• Front Ratio: The total mortgage payment including principal, interest, taxes and insurance (PITI) as well as any condominium or homeowner association fees divided by your total GROSS income. Traditionally this ratio must be below 28% Example: With a gross income of $5000 per month, a total mortgage payment (PITI) of $1400, the front ratio would be 28%.
• Back Ratio: The total mortgage payment PLUS any car payments, credit card and any other loan payments divided by your total GROSS income. Traditionally must be below 42%. Example: With a gross income of $5000 per month, a total mortgage payment of $1400, a car payment of $400, 3 credit card payments of $250 for a total of $2050 with a back ratio of 41%.

What options are there for buyers with no money down and no cash for closing costs?

In recent years, though, there has been new availability of zero-down loans in the conventional mortgage arena. For those who qualify, though, a 100% LTV (loan to value) mortgage can be an easier step to homeownership. You will need a very good credit rating to take advantage of these mortgages. In addition, if your debt-to-income ratio is higher than the standards (around 45% including all debts) then you may want to concentrate on decreasing your debt load. Finally, if you have thoughts of moving to another home in a short period (say less than 3-5 years) then these 100% LTV mortgages are almost certainly not for you. Since you are financing the full current price of the home, should you need or want to sell in a year or two it is very possible that you could not accomplish the sale without digging into your pocket to pay selling expenses, since your mortgage balance will be near (or more than) the value of the home.

What is PMI (Private Mortgage Insurance)? Do I have to pay it?

One of the most frequently misunderstood aspects of mortgaging a home, especially for first-time buyers, is Private Mortgage Insurance (PMI). The most common misconception is that PMI is a mortgage life insurance policy whereby the mortgage would be paid off should the borrower die. It is not. Instead, PMI is an insurance that most lenders require of all borrowers who put less than 20% down. Its purpose is to protect the lender against losses should the borrower default. Virtually all conventional mortgages with less than a 20% down payment will dictate the inclusion of PMI. The cost of PMI will depend on a number of factors, including the insurance carrier and the size of the loan, but monthly payments for the insurance will generally fall into the $50 - $125 range for median priced homes.

There are loans which allow you to avoid PMI by getting an immediate 2nd mortgage (piggyback) when you purchase the home. For example, you would get a first mortgage for 80% of the purchase price (no PMI), a 2nd mortgage for 10% of the purchase price and put 10% down in cash (commonly known as an 80-10-10 mortgage). The benefit here is obvious (you avoid PMI) but there are several potential downsides:

1) The 2nd mortgage will be at a rate higher than the 1st mortgage, eating up some of your payment savings.
2) The 2nd mortgage may have a variable rate, meaning that your payment can increase.
3) The 2nd mortgage may have a balloon payment, meaning that the new balance will become due and payable long before the 1st mortgage is paid off.

Consult a WRC loan officer to find a program that best suits your need.

How much house should I buy? How much can I afford?

The rule of thumb is to take your monthly income and multiply by 38%. You need to subtract out your installment and revolving debt which will leave you with the amount that must include your principal, interest, taxes and insurance (PITI). Let's say your household income is $10,000 a month and you have car payments of $800, student loans of $750 and credit cards of $400 a month. Your PITI should not exceed $1850 month. You can adjust your PITI by considering the many ARM products available through WRC Mortgage.


How do I know if I am getting a good deal on a mortgage?

By comparing! It is a good idea to get a Good Faith Estimate from the different lenders. We are confident that you will find the lowest rates and closing costs with WRC Mortgage.

What First Time Buyer Programs are available?

There are literally hundreds of different programs available, depending on your location (city, state, or province) and the mortgage source that you use. The requirements and benefits vary greatly from program to program. Consult a WRC loan officer for more information.

How much will my closing costs be?

The amount of closing costs will depend on what items are customary for buyers and sellers to pay for in your area. Traditions vary greatly from one area of the country to another. In some areas, for example, the buyer pays for title insurance. In other areas, it is the responsibility of the seller. In still other areas, the cost is split between buyer and seller. Your Agent can give you specific information on the items that are customarily paid for by buyers in your area. In addition, the amount of closing costs will depend on the amount of points you will be paying with your mortgage loan, since these are generally paid for up-front. (A point is 1% of your mortgage loan amount). In Florida, assuming a zero point loan, 2.5% to 3% of the purchase price is what you would expect to pay for closing costs and insurance.

Should I spend the money to have a home inspection?

Absolutely! The $200 to $500 that a professional home inspection costs could be the best money you ever spend on your house. Not only does the home inspection seek out any defects (and gives you some peace of mind), the home inspector will often give you tips on maintaining and repairing your house. Keep in mind that the inspection is for your peace of mind and generally not required by the lender unless the appraisal notes problems with the home.

What is an appraisal?

An appraisal is an opinion of value of the home you want to purchase. Every lender will require some sort of appraisal before the loan is approved. The price of the appraisal depends on the value of the home, availability of comparable sales and size of the home.

Is is possible to buy a house with no money down?

Yes! No down payment is one of the top two reasons most people continue renting. Well, with a "No Money Down" program, the days of saving up for a large down payment could be over. If you have decent credit and fall into a certain income range, you could be on the road to owning a home with absolutely no down payment! Many people unfortunately get stuck in the "Rent Trap". That being, you may be able to afford a home but coming up with a substantial down payment is difficult because of monthly rent. Several no money down programs are available these days, just consult one of our experienced loan officers.

How does an interest-only mortgage work?

Payments are for a fixed term. After the end of that term, usually five to seven years, you either refinance, pay the balance in a lump sum, or start paying off the principal, in which case the payments jump skyward. With an interest-only mortgage loan, you pay only the interest on the mortgage monthly.

An interest-only mortgage might be a good fit for:

-someone whose income is mostly in the form of infrequent commissions or bonuses;
-someone who expects to earn a lot more in a few years;
-someone who truly will invest the savings on the difference between an interest-only mortgage and an amortizing mortgage, and who is confident that the investments will make money.

Financial advisers don't recommend interest-only mortgages to regular wage earners who take out moderate-size home loans and don't have a strategy for investing the savings.

Is there such a thing as a no-cost or no-fee loan?

No! While some lenders occasionally promote "no-cost" loans, banking regulators have cracked down on these misrepresentations. Advertised "no-fee" loans may actually cost the borrower more over the long term because these costs are often rolled into the new note through higher interest or more principal.

A typical no-fee loan is one where the points charged and all fees are included in the loan principal, meaning that the borrower does not pay these expenses at the close of escrow, but instead ends up paying on them over the life of the loan. The loan is called a no-fee loan because the borrower is not charged any fees up front.

There are no-cost loans, but those "no-costs" are limited usually to the closing cost fees of the bank. Some banks will basically pay the closing costs for you and not charge it to the loan. However, you are generally left paying the mortgage tax and recording fees for these loans. So while you don't pay bank fees, it isn't quite a no-cost or no-fee loan.

What is escrow?

Escrow is a service where a unsolicited party hold the money while a transaction is in process. Escrow reduces the potential risk of fraud by acting as a trusted third party that collects, holds and disburses funds according to Buyer and Seller instructions. Escrow services are provided by a licensed and regulated escrow or title agent.

What is the difference between escrow and a mortgage?

Escrow is essentially an account where money is held until a transaction is completed. Most real estate transactions involving mortgages also involve an escrow company to properly distribute the money to the interested parties.

A mortgage is a secured loan where the lender holds ownership of the property until all the principal of the loan is paid off.

What is amortization?

An amortized loan is for one specific amount that is to be paid off by a certain date, usually in equal monthly installments. Your car loan and home loan fit that definition. Your credit card account doesn't because it's a revolving loan with no fixed payoff date.

Do I have to disclose a parent's gift?

Having generous parents is nothing to hide. An estimated one-third of first-time buyers purchase their home with a loan or a money gift from their parents.

Lenders will ask for a gift letter stating that no repayment of the "gift" is expected. In addition to the letter, a lender can ask for two or three months' worth of statements for the account where the down payment funds are located. If the money was recently placed into that account, the lender may ask where it came from and request verification of that source as well.

I am within the 30-day locking period in the middle of buying a house. How can I choose whether to lock the mortgage rate now or wait a couple of weeks?

You just tell your WRC loan officer that you want to float the rate instead of locking it in. You don't have to lock your rate until just before closing. Just be careful because rates may rise in that period of time.

 

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