FREQUENTLY ASKED QUESTIONS

WHAT ARE THE COSTS OF BUYING A HOME?

There is more to buying a home than the asking price and down payment needed. If you are financing the purchase, you'll pay interest and fees to borrow the money to buy the home along with other real estate costs associated with the sale that may add up to be more than expected.

Watch this short video to learn more about the costs of buying a home:

WHAT ARE THE FINANCIAL CONSIDERATIONS WHEN BUYING A HOME?

Buying a home and taking out a mortgage might make sense if/when you have a steady source of income and a good record of paying your bills on time. If you are looking to use financing for the purchase, lenders will look at your ability to repay the mortgage and how positive your credit history is when deciding if you qualify for a loan. It's important to research that home prices in areas you are looking in are stable as values could go down during your ownership.

Homeownership has other expenses such as property taxes, insurance, utilities & upkeep, as well as municipality costs that are due quarterly or annually. Most importantly, only buy a home if are willing to stay put for at least 5+ years. Buying and selling a home are expensive processes that involve fees, economic factors and time horizons so make long enough to make these costs worth it. Once you are a homeowner, you’re responsible for maintenance and repairs – from small ones like a leaky faucet to major ones like replacing a roof. Be sure to build an emergency fund to cover unexpected expenses within your budget or establish one after the purchase.

Finally, consult your financial or tax advisor as there are potential tax advantages to homeownership so make sure you understand them given your financial situation to determine whether there is an advantage to you buying instead of renting.

WHAT IS THE DIFFERENCE BETWEEN A MORTGAGE BROKER & A MORTGAGE LENDER?

A lender is a financial institution that makes loans directly to you. A broker does not lend money but finds a lender and may work with many lenders. Some financial institutions operate as both lenders and brokers, so you should ask whether a broker is involved in your loan transaction. Most brokers are paid a fee for their services on a specific loan. The fee may be in the form of a commission or other payment from you or the lender. Whether you use a broker or a lender, you should always shop around for the best loan terms and the lowest interest rates and fees.

??  Learn More About The Mortgage Process 

DOES A PRE-APPROVAL AFFECT MY CREDIT SCORE?

Usually, your lender will pull your credit reports during the preapproval process. This is known as a hard inquiry and will usually lower your credit scores by a few points. If you're shopping for a mortgage, you have a window of time where multiple inquiries are counted as a single inquiry for your credit scores.

As part of the mortgage pre-approval process, you must authorize the lender to review your credit report from one or more of the three national credit bureaus (Experian, TransUnion or Equifax), and allow them to obtain credit scores based on those reports. When the lender requests those credit checks, a notation known as a hard inquiry appears on your credit report. Because hard inquiries are associated with the acquisition of new debt, they can cause your credit scores as calculated by the FICO® Score and VantageScore® scoring models to dip. This score reduction is usually short-lived, and the inquiry will drop off your credit report completely after two years.

WHAT IS A FICO SCORE & HOW DOES IT AFFECT ME?

A FICO® score is a particular brand of credit score used by lending institutions. There are three major agencies that collect credit data -- Experian, Equifax, and TransUnion, however, FICO® or the Fair Isaac Corporation is a pioneer in developing a method for calculating credit scores based on information collected by credit reporting agencies. Today, other companies also have credit scoring formulas (“models”), but lenders use a FICO® score when deciding whether to offer you a loan and in setting the rate and terms. FICO also has different variations of its basic scoring model tailored to different types of lenders (for example, home loans or car loans) so you could have several different FICO scores, even when they are all calculated from the same credit agency’s data. FICO scores range from 300 to 850. Usually, a higher score makes it easier to qualify for a loan and may result in a better interest rate. Like all credit scores, FICO scores can change over time according to your credit behavior.

WHAT IS A DEBT-TO-INCOME RATIO & WHY DOES IT MATTER?

Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow. To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out. For example, if you pay $1500 a month for your mortgage and another $100 a month for an auto loan, and $400 a month for the rest of your debts, your monthly debt payments are $2,000. ($1500 + $100 + $400 = $2,000.) If your gross monthly income is $6,000, then your debt-to-income ratio is 33 percent. ($2,000 is 33% of $6,000.) Evidence from studies of mortgage loans suggests that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments.

A 43% debt-to-income ratio is important because, in most cases, that is the highest ratio a borrower can have and still get a Qualified Mortgage. There are some exceptions. For instance, a small creditor must consider your debt-to-income ratio but is allowed to offer a Qualified Mortgage with a debt-to-income ratio higher than 43 percent. In most cases, your lender is a small creditor if it had under $2 billion in assets in the last year and it made no more than 500 mortgages in the previous year. Larger lenders may still make a mortgage loan if your debt-to-income ratio is more than 43 percent, even if this prevents it from being a Qualified Mortgage. But they will have to make a reasonable, good-faith effort, following the CFPB’s rules, to determine that you have the ability to repay the loan.

WHAT IS A LOAN ESTIMATE?

The Loan Estimate took effect on Oct. 3, 2015 and is a three-page form that you receive after applying for a mortgage that tells you important details about the loan you have requested.

It provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan as well as estimated costs of taxes and insurance, along with how the interest rate and payments may change in the future. In addition, the form indicates if the loan has special features that you will want to be aware of, like penalties for paying off the loan early, know as a prepayment penalty or increases to the mortgage loan balance even if payments are made on time known as negative amortization. 

 When you receive a Loan Estimate, the lender has not yet approved or denied your loan application. The Loan Estimate shows you what loan terms the lender expects to offer if you decide to move forward. If you decide to move forward, the lender will ask you for additional financial information.

??  See a sample Loan Estimate form with interactive tips and definitions. 

WHAT ARE MY DOWN PAYMENT OPTIONS?

There are many options when it comes to the amount of your down payment and how it affects how much money you have to pay at closing and the overall cost of your mortgage in the long-term as well as your options to restructure in the future. 

Watch this short video to learn more about your down payment options.