Home Mortgage Resources - Don't be a victom of SCAM! Information on Home Buying, Financing, Refinancing.
NEED TO KNOW - MORTGAGE INFORMATION
HOW CAN I IMPROVE MY SCORE?
There are no easy ways to improve your credit score, but you can work
to keep it acceptable by maintaining a good credit history. This means
paying your bills on time and not overextending yourself by buying more
than you can afford.
Your personal situation will determine the best kind of loan for you. By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best.
Do you expect your finances to changeover the next few years?
WHAT IS THE BEST WAY TO COMPARE LOAN TERMS BETWEEN LENDERS?
First, devise a checklist for the information from each lending institution. You should include the company's name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed.
Speak with companies by phone or in person. Be sure to call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.
For more information on RESPA, visit the web page at http://www.hud.gov/offices/hsg/sfh/res/respa_hm.cfm or call 1-800-217-6970 for a local counseling referral.
WHAT IS A GOOD FAITH ESTIMATE, AND HOW DOES IT HELP ME?
It's an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan.
BESIDES RESPA, DOES THE LENDER HAVE ANY ADDITIONAL RESPONSIBILITIES?
Lenders are not allowed to discriminate in any way against potential
borrowers. If you believe a lender is refusing to provide his or her services
to you on the basis of race, color, nationality, religion, sex, familial
status, or disability, contact HUD's Office of Fair Housing at 1-800-669-9777
(or 1-800-927-9275 for the hearing impaired).
To ensure you won't fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:
Be sure to read and understand everything before you sign.
It usually takes a lender between 1-6 weeks to complete the evaluation of your application. It's not unusual for the lender to ask for more information once the application has been submitted. The sooner you can provide the information, the faster your application will be processed. Once all the information has been verified, the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up and the lender will review the closing process with you. And after closing, you'll be able to move into your new home.
WHAT SHOULD I LOOK OUT FOR DURING THE FINAL WALK-THROUGH?
This will likely be the first opportunity to examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as any work the seller agreed to do in response to the inspection. Any problems discovered previously that you find uncorrected should be brought up prior to closing. It is the seller's responsibility to fix them.
WHAT MAKE UP CLOSING COSTS?
There may be closing costs customary or unique to a certain locality, but closing costs are usually made up of the following:
Attorney's or escrow fees (yours and your lender's if applicable)
You'll present your paid homeowner's insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc.
Once you're sure you understand all the documentation, you'll sign the mortgage, agreeing that if you don't make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You'll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.
You'll pay the lender's agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the state Registry of Deeds, and you will be a homeowner.
WHAT DO I GET AT CLOSING?
Settlement Statement, HUD-1 Form (itemizes services provided and the
fees charged; it is filled out by the closing agent and must be given
to you at or before closing)
Also known as HUD, the U.S. Department of Housing and Urban Development was established in 1965 to develop national policies and programs to address housing needs in the U.S. One of HUD's primary missions is to create a suitable living environment for all Americans by developing and improving the country's communities and enforcing fair housing laws.
HOW DOES HUD HELP HOMEBUYERS AND HOMEOWNERS ?
HUD helps people by administering a variety of programs that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available for lower- and moderate-income families through its FHA mortgage insurance program and its HUD Homes program. HUD owns homes in many communities throughout the U.S. and offers them for sale at attractive prices and economical terms. HUD also seeks to protect consumers through education, Fair Housing Laws, and rehabilitation initiatives.
WHAT IS THE FHA?
Now an agency within HUD, the Federal Housing Administration was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans. The FHA has helped more than 26 million Americans buy a home.
HOW CAN THE FHA ASSIST ME IN BUYING A HOME?
The FHA works to make homeownership a possibility for more Americans.
With the FHA, you don't need perfect credit or a high-paying job to qualify
for a loan. The FHA also makes loans more accessible by requiring smaller
down payments than conventional loans. In fact, an FHA down payment could
be as little as a few months' rent. And your monthly payments may not
be much more than rent.
Lender claims paid by the FHA mortgage insurance program are drawn from the Mutual Mortgage Insurance fund. This fund is made up of premiums paid by FHA-insured loan borrowers. No tax dollars are used to fund the program.
WHO CAN QUALIFY FOR FHA LOANS?
Anyone who meets the credit requirements, can afford the mortgage payments and cash investment, and who plans to use the mortgaged property as a primary residence may apply for an FHA-insured loan.
WHAT IS THE FHA LOAN LIMIT?
FHA loan limits vary throughout the country, from $115,200 in low-cost areas to $208,800 in highcost areas. The loan maximums for multi-unit homes are higher than those for single units and also vary by area.
Because these maximums are linked to the conforming loan limit and average area home prices, FHA loan limits are periodically subject to change. Ask your lender for details and confirmation of current limits.
WHAT ARE THE STEPS INVOLVED IN THE FHA LOAN PROCESS?
With the exception of a few additional forms, the FHA loan application
process is similar to that of a conventional loan (see Question 47). With
new automation measures, FHA loans may be originated more quickly than
before. And, if you don't prefer a face-to-face meeting, you can apply
for an FHA loan via mail, telephone, the Internet, or video conference.
There is no minimum income requirement. But you must prove steady income for at least three years, and demonstrate that you've consistently paid your bills on time.
WHAT QUALIFIES AS AN INCOME SOURCE FOR THE FHA?
Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as long as they are steady. Special savings plans-such as those set up by a church or community association - qualify, too. Income type is not as important as income steadiness with the FHA.
CAN I CARRY DEBT AND STILL QUALIFY FOR FHA LOANS?
Yes. Short-term debt doesn't count as long as it can be paid off within
10 months. And some regular expenses, like child care costs, are not considered
debt. Talk to your lender or real estate agent about meeting the FHA debt-to-Income
The FHA allows you to use 29% of you income towards housing costs and 41% towards housing expenses and other long-tem debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt.
CAN I EXCEED THE RATIO?
You may qualify to exceed if you have:
A large down payment
You must have a down payment of at least 3% of the purchase price of
the home. Most affordable loan programs offered by private lenders require
between a 3% - 5% down payment, with a minimum of 3% coming directly from
the borrower's own funds.
Besides your own funds, you may use cash gifts or money from a private savings club. If you can do certain repairs and improvements yourself, your labor may be used as part of a down payment (called "sweat equity"). If you are doing a lease purchase, paying extra rent to the seller may also be considered the same as accumulating cash.
HOW DOES MY CREDIT HISTORY IMPACT MY ABILITY TO QUALIFY?
The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:
two years have passed since a bankruptcy has been discharged
Yes. If you prefer to pay debts in cash or are too young to have established
credit, there are other ways to prove your eligibility. Talk to your lender
Except for the addition of an FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan outlined in Question 63. The FHA requires a single, up-front mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing (or 1.75% if you complete the HELP program- see Question 91). This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.
CAN I ROLL CLOSING COSTS INTO MY FHA LOAN?
No. Though you can't roll closing costs into your FHA loan, you may be able to use the amount you pay for them to help satisfy the down payment requirement. Ask your lender for details.
ARE FHA LOANS ASSUMABLE?
Yes. You can assume an existing FHA-Insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is stream lined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.
WHAT SHOULD I DO IF I CAN'T MAKE A PAYMENT ON MY LOAN?
Call or write to your lender as soon as possible. Clearly explain the
situation and be prepared to provide him or her with financial information.
Yes. Talk to your lender or a HUD-approved counseling agency for details. Listed below are a few options that may help you get back on track.
For FHA loans:
Keep living in your home to qualify for assistance.
Talk to your lender about specific loss mitigation options. Work directly with him or her to request a "workout packet." A secondary lender, like Fannie Mae or Freddie Mac, may have purchased your loan. Your lender can follow the appropriate guidelines set by Fannie or Freddie to determine the best option for your situation.
Fannie Mae does not deal directly with the borrower. They work with the lender to determine the loss mitigation program that best fits your needs.
Freddie Mac, like Fannie Mae, will usually only work with the loan servicer. However, if you encounter problems with your lender during the loss mitigation process, you can call customer service for help at 1-800-FREDDIE (1-800-373-3343).
In any loss mitigation situation, it is important to remember a few helpful hints:
Explore every reasonable alternative to avoid losing your home, but beware
Don't sign anything you don't understand.
Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It's required primarily for borrowers making a down payment of less than 20%.
HOW DOES MORTGAGE INSURANCE WORK? IS IT LIKE HOME OR AUTO INSURANCE?
Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can't repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.
DO I NEED MORTGAGE INSURANCE? HOW DO I GET IT?
You need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs. Ask your lender for details.
HOW CAN I RECEIVE A DISCOUNT ON THE FHA INITIAL MORTGAGE INSURANCE PREMIUM?
Ask your real estate agent or lender for information on the HELP program from the FHA.
HELP - Homebuyer Education Learning Program - is structured to help people
like you begin the homebuying process. It covers such topics as budgeting,
finding a home, getting a loan, and home maintenance. In most cases, completion
of this program may entitle you to a reduction in the initial FHA mortgage
insurance premium from 2.25% to 1.75% of the purchase price of your new
PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned
companies that provide mortgage insurance. They offer both standard and
special affordable programs for borrowers. These companies provide guidelines
to lenders that detail the types of loans they will insure. Lenders use
these guidelines to determine borrower eligibility. PMI's usually have
stricter qualifying ratios and larger down payment requirements than the
FHA, but their premiums are often lower and they insure loans that exceed
the FHA limit.
This is the most commonly used FHA program. It offers a low down payment, flexible qualifying guidelines, limited lender's fees, and a maximum loan amount.
WHAT IS A 203(k) LOAN?
This is a loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller's existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic guidelines for 203(k) loans are as follows:
The home must be at least one year old.
The Energy Efficient Mortgage allows a homebuyer to save future money on utility bills. This is done by financing the cost of adding energy-efficiency features to a new or existing home as part of an FHA-insured home purchase. The EEM can be used with both 203(b) and 203(k) loans. Basic guidelines for EEMs are as follows:
The cost of improvements must be determined by a Home Energy Rating System
or by an energy consultant. This cost must be less than the anticipated
savings from the improvements.
WHAT IS A TITLE I LOAN?
Given by a lender and insured by the FHA, a Title I loan is used to make
non-luxury renovations and repairs to a home. It offers a manageable interest
rate and repayment schedule. Loans are limited to between $5,000 and $20,000.
If the loan amount is under $7,500, no lien is required against your home.
Ask your lender for details.
The FHA also insures loans for the purchase or rehabilitation of manufactured housing, condominiums, and cooperatives. It also has special programs for urban areas, disaster victims, and members of the armed forces. Insurance for ARMs is also available from the FHA.
HOW CAN I OBTAIN AN FHA-INSURED LOAN?
Contact any lender such as a participating mortgage company, bank, savings and loan association, or thrift. For more information on the FHA and how you can obtain an FHA loan, visit the HUD web site at http://www.hud.gov or call a HUD-approved counseling agency at 1-800-569-4287 or TDD: 1-800-877-8339.
HOW CAN I CONTACT HUD?
Visit the web site at http://www.hud.gov or look in the phone book "blue pages" for a listing of the HUD office near you.
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