Lending & Lenders FAQ

Why is a truth in lending statement interest rate higher than what I was quoted by the loan officer? I’m supposed to sign this form and send it back, but I don’t want to if I’m going to be charged a higher rate.

Ah, the good old Truth in Lending statement. One of the most misunderstood forms in real estate. It’s purpose is good. The results are often horrendous. The form is designed to show you the true interest rate if all of the lender charges you are added to the amount you borrowed and amortized over 30 years. Don’t worry about it. It’s not used to calculate your monthly house payment. Call your lender. And verify the interest rate of your loan. If it’s what you agreed to at the time of loan application, then send it in.

I’m arguing with my lender about pre paying on my mortgage. I feel that my house payment should be lower to reflect the pre payments. My lender says no. Who’s right?

Your lender is correct. When you sign up for your loan, you agreed to pay x amount of dollars every month. Even if you pre pay, you’re still obligated to meet the monthly payment. Pre-payment works by reducing the amount of principal you owe, reducing the amount of interest you owe over the life of the loan. So you will own more of your home sooner. If you refinance after a bunch of pre paying, then and only then will your payment be reduced, because the outstanding balance you owe is less.

I read on the other sites that a prequalified mortgage means about the same to me as being pre-qualified as a lottery winner or the most handsome man on Earth. It’s meaningless. Pre-approved means I have numbers I can literally take to the bank. Are these terms the same thing?

I treat the terms equally, because in my opinion, they are the same. Let me explain. Pre-qualification means you provide a lender information about your income, monthly bills and allow them to run a credit report to see the pay history on your open accounts. Based on this information, the lender then calculates and qualifies you for a mortgage. The only difference between this and prequalification is that a lender actually runs a mortgage credit report (which costs you approximately $50) and verifies that your income is in fact what you say it is. Then they issue you a letter of pre-approval based upon that information. In my opinion, the only difference is whether you tell the truth or not. Does one carry more weight than the other? Not really. You see, if you change any of the criteria the lender looked at (job change, increase in charge accounts, missing car payments) etc., then the lender who preapproved you is no longer obligated to honor the preapproval. In other words, there is all kind of ways for the lender to get out of it. When a potential buyers credit report and it’s marginal in terms of whether they will be approved for a loan, I tell them to pay $50 to see if there is any dirty laundry on the full mortgage report that didn’t show up in the file. The full mortgage report is the combined credit report from all 3 major credit agencies.

What are the final figures? When do you get them?

The final figures are the charges associated with a real estate transaction. They should be close to what was quoted to you on your good faith estimate. They are normally drawn up within 48 hours of the closing taking place. Take time and go over them with your REALTOR® prior to or at the closing table. Any questions, ask!

Is my car considered a long term debt when I’m trying to get myself qualified for a loan?

Your car is considered a debt if you have more than ten payments left on it at the time of closing. If a car is leased, then it is considered a debt even if it has less than 10 payments on it.

If I pay off my credit cards every month are they considered a long term debt?

No

Can I use my stock options as qualifying income?

Only if they are declared on your tax return as income. Otherwise they would not be considered additional assets.

My husband and I want to purchase a home. We’ve been married for two years and have been able to meet our bills, but his credit is still poor due to some bills left from his previous marriage. All of our credit cards are in my name due to the same problem. How long do we have to be penalized for his past problems?

There’s a number of ways to deal with this problem. A lender is going to look at your most recent 12-18 month credit history. For older problems involving credit such as charge off, judgment, and collection accounts, they want to see them either paid off or in a repayment plan that shows at least 6 months worth of payments that have been made toward the debt. If they were joint accounts and the divorce decree says they are the responsibility of his ex-wife, a copy of the divorce decree will suffice. Another idea, if all else fails, is to have him sign a waiver of marital rights, then buy the property based on your good credit and salary. Bottom line, when there’s a will, there’s a way. Have your REALTOR® start contacting lenders for you today.

I’m receiving child support and trying to get a home loan. My income from my job is not enough to qualify for the house payment I want. I receive $600/month in child support, but since one of my children is 16, the lender says he can’t count it. I have 3 children, aged 16, 14, and 10.

When it comes to child support, pensions, disability or supplemental income, as long as you’ll be receiving these things for at least 2 or more years they can’t be considered as income. Different lenders have different levels of flexibility in their guidelines and it sounds as though your current lender is much too conservative. Shop for a new lender today.

I have just finished college, I have successfully been hired in my field, and I’m interested in buying a home. My problem is that I have never owned a credit card, so I don’t think I have any established credit. I’ve been told by many people that this will be held against me. Any truth to these rumors? If so, what do I do and when would I be eligible for a home loan?

Not having a credit card at this point in your life is not necessary for purchasing a home. When a lender checks your credit report and recognizes this set of circumstances, they will look at your secondary tier of credit: rent, utilities, etc. As long as you can show you’ve paid your bills on a regular basis, you will be fine. If you never paid the rent, utilities, car payment, student loans, or a credit card debt, then you will need to establish some form of credit, make at least 6 payments to the debt on time, and you will be eligible for a home loan.

How does my VA entitlement work? I was in the service in the 70′s and have never used it. Is it still good? If I die, can my wife use it? Can I buy a home for nothing?

Your VA entitlement is good for life, but is non-transferable and your buying power is limited to $180,000. There is no down payment and no limit on where you can use it to buy a piece of property. A VA loan allows the seller to pay almost all of your closing cost and prepaid items. You can basically buy a $100,000 home for as little as $1,000 out-of-pocket money. Regardless, use a REALTOR® who is familiar with VA contracts.

I would like to take advantage of the first time home buyers program, but I inherited a house from my parents. Does this exclude me from these programs?

In this case, the big issue is whether or not you live in the home you inherited. If the answer to that is yes, you do live in the home you inherited, you are not considered a first time buyer. If the answer is no and you can verify that, you are one.

When is the best time to close on a home?

The best time to close on a home is any day, but not within the last four days of the month. At least 75% of all real estate transactions close during those four days, leading to delays, a lot of frenzied activity, and last minute problems. The rest of the month, you’ll be the only people in the building.

I don’t have a lot of savings, but I do have a large income. What type of loan should I pursue?

The most inexpensive way to purchase a home is through owner financing or the FHA loan. With an owner, you can create any type of financing you wish. With FHA loans, there are no salary limits and the total cost of cash necessary is less than 6.5% of the sale price. There are sale price limits to these programs. Check with a REALTOR® to find out what they are in the area you wish to buy.

Are charitable contributions considered a debt?

No

Should I shop around for the right lender?

Shopping for a lender should be a combined effort between you and your REALTOR®. To handles it effectively, call 3 or 4 lenders asking them to quote their current 15 or 30 year or adjustable rate (1-3-5-7 year) mortgage with no points attached to the loan. Then ask them to fax you a good faith estimate. This will allow you to compare apples to apples. By getting the good faith estimate, you’ll be able to identify if a lender is charging you anything extra. These extra charges are called “junk fees” and are the way a lender recovers costs when they quote you a distinctly lower rate than other lenders.

What are the prepaid items that you get quoted when asking about fees associated with buying a home?

The prepaid items are equal to approximately 1% of the sale price and interest, including: prepaid interest (interest paid form the date of closing till the end of that month, escrows of your real estate taxes, homeowner’s insurance and mortgage insurance, and the upfront one year homeowner’s policy that you purchase prior to closing)

How much money do I need upfront when I’m in the process of trying to buy a home?

You need earnest money, ranging from $500 to $2500, (depending on the sale price of the property) loan application fees (usually $350]) and inspection fees (between $350 to $550). The rest of your funds necessary for closing need to be in the bank for 10 days.

If I am a veteran, how much does it cost to purchase a home?

The cost will change for a veteran based on the sale price, but no down payment is required. The closing costs can be paid for by the seller if that is negotiated into the sales contract. If done correctly, a veteran can get into a home for less than 1% of the sales price.