Welcome back to Home Buying 101 – Throughout this series I will be detailing the various parts of the transaction process for purchasing a single family home. My goal is to answer the many questions looming around purchasing, especially for first-time home buyers. If you are just beginning, I recommend starting with Part One: Understanding Equity.
I have asked Jordan Monroe, of Legacy Mutual Mortgage, to help answer some common questions associated with lending. If you have other questions, or are interested in beginning the lending process, give him a call and tell him I sent ya!
First off, why don’t you tell our readers a little about you and what you do?
I’m a Loan Officer at Legacy Mutual Mortgage. My experience in both residential and commercial lending has given me the ability to assist my customers with not only their home loans but other real estate financing. I love that my background enables me to take a truly consultative approach with my clients. I transitioned to Legacy after serving as Vice President of Commercial Lending with Crockett National Bank, Legacy’s sister company. I’m a Veteran and served as a Signals Intelligence Analyst for the Army, where I was deployed in Iraq with the 1st Cav. I received my MBA from Texas A&M and have stayed connected to the Aggie Nation through annual sales trainings with MBAs at the Mays Business School. I love living in and being a part of the Bryan-College Station community with my beautiful wife and daughter.
What are some DO NOTs for a loan applicant?
Don’t LIE!!! Be truthful on your application. Getting a mortgage today requires a lot of documentation. We are going to verify everything that you tell us so it’s important to be accurate from the beginning.
If a buyer has credit issues, how can you help them?
Helping those with credit challenges is one of many areas where I feel Legacy offers exceptional service to our clients. We put together action plans for customers with credit related issues. We give them resources they can use to find out more about their situation and how to improve. The whole credit score system can be very mysterious and so we try to break it down and help them understand why their scores are what they are. Using our credit simulator, we not only give them step by step instructions but a timeline in which they should be able to purchase a home.
What are the qualifications needed to get a home loan?
The three main components we talk about are: Income, Assets, and Credit. Income involves a person’s employment status and history, monthly income, and its likelihood to continue. Assets involve what a person has available for their down payment and closing costs. Credit relates to a person’s history of paying debt and what their monthly debt obligations are. There are several loan programs with differing requirements for qualification so we work hard to give our customers all their options so they can choose what is best for them.
What information or documents are needed to start the loan process?
It all starts with a conversation. We talk about income, assets, and pull credit in an effort to get the buyer pre-qualified. In a market as hot as ours, many buyers are finding that their offers are strengthened when their pre-qualification becomes a pre-approval letter. Pre-approval indicates Legacy has been given all of the needed documentation to support what the customer has told us. Typically, the documentation includes 30 days paystubs, 60 days bank statements, 2 years’ W-2s and 2 years’ tax returns. Self-employed or 1099 customers will have a different documents to provide. Each loan is unique and specific documents may be required at any time during the process to complete the approval process.
What could delay loan approval?
The most important thing for any buyer to do is to ensure they provide their documents in a timely manner. Other things that can cause delays include a buyer opening a new line of credit or changing jobs during the loan process. It’s also important to try not to move money around from account to account without your lender knowing upfront the reason. Funds have to be sourced and constant movement can cause unnecessary delays.
Do buyers always have to pay for mortgage insurance?
No. Monthly mortgage insurance is not always required and this is another area where Legacy adds value to our qualifying clients. As a rule, there is no mortgage insurance for buyers putting a minimum of 20% down. However, for those who qualify, we have a Lender Paid Mortgage Insurance program that eliminates monthly mortgage insurance with as little as 5% down.
What are discount or origin points? And how do they affect a loan?
Discount points are different than an origination fee. Discount points are additional upfront closing costs that a buyer may choose to pay if they like to lower their interest rate. An origination fee refers to the lenders fee.
What’s the difference between down payment and closing costs?
The down payment is a percentage of the purchase price that you pay in cash. This is also called equity. As an example, if you purchase a home for $100,000 and you bring a 10% down payment, you pay $10,000 and your loan would be $90,000.
Closing costs are all the fees associated with purchasing the home and getting the loan. These include appraiser fees, title, processing, etc.
How much money does a buyer need to save for closing costs and down payment?
This is a great question and one that has many answers. The answer depends on the buyers goals and the sales price of the home they are purchasing. There is a range of options for a buyer when determining how much to put down. Also, different loan programs have different requirements. The following are typical down payment minimums based on some of the more popular loan programs: Conventional = 5-20% down though it can be as low as 3% down, FHA = 3.5%, VA = 0%, USDA = 0%. As a reminder, the minimum down payments do not factor in closing costs.
I’ve heard of “locking-in” the interest rate. What does this mean and when should it be done?
Once your offer is accepted and you are under contract, you can at that point decide if you want to lock in your interest rate. What that means is you will no longer be subject to interest rate risk as the rate will stay the same, even if pricing changes, provided that you close within the lock dates. Pricing can change daily and is a lot like the stock market in that we do not know when it will move, we just see when it does. Interest rates can go up or down. You are not required to lock in an interest rate when you get under contract. You can choose to “float” the rate, which means you can wait until closer to you closing date before locking in the rate.
What are the associated costs or fees for getting a home loan?
Closing costs are the expenses - over and above the price of the property - that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include processing or origination fees, property taxes, charges for title insurance and escrow costs, appraisal fees, survey, etc. Basically – they are the cost to get the loan closed.
Do loans have prepayment penalties?
While there are some lenders that have pre-payment penalties, Legacy does not penalize our customers for paying their loan in full early. This means there is no fee associated with paying more on their home loan than the minimum monthly payment if our customers wish to do so.
Thank you so much to Jordan for taking the time to answer some of the most common questions associated with a home loan! Coming up next is Part Six: The Fun Part. Also, please leave any comments or questions below!
Posted by Katie Langthorn