Mortgage Questions and Answers

What is the first step in the home buying process?

After hiring a knowledgeable Realtor® to represent you, choose a bank and loan originator that is knowledgeable about all programs, products, and underwriting standards. Make an appointment to discuss your financial situation and loan programs that will fit your needs. By obtaining credit approval first, any uncertainties you may have about your credit are addressed up-front. You will also find out how much you can afford before starting your home search.

What amount of cash is typically needed for a down payment?

Traditionally, a 10% to 20% down payment is considered normal, but borrowers today can buy a home with no down payment or as little as 3% down. In addition, there are programs that allow for the borrower to receive a full gift or grant for the down payment. There are numerous first-time buyer programs available as well.

What amount of closing costs can I expect to pay?

Typically, closing costs are about $1,650 plus a 1% origination fee. This fee is based on the mortgage amount. Many times these funds can be financed or paid by the seller.

How long will the home buying process take?

Most often 30-45 days is the standard time until closing. The actual approval process should not take more than 1-2 days. If your financial documentation is obtained by the lender immediately, an approval can be almost instant.

What is PMI and how long will I have to pay it?

Private mortgage insurance protects the lender against default. Most lenders require PMI until the loan reaches 80% of the value of the home. For mortgage loans made after July 29th, 1999, PMI can be paid monthly or in a lump-sum. Bankers Trust offers several programs with reduced or no private mortgage insurance.

A relative wants to buy me a home. How is this handled?

Most often this is looked at as a non-owner occupied loan that would require at least a 10% down payment. Often times you may find a lender who will require less than the10%, if it is a relative buying for you or co-signing on the note with you.

What information will my lender need to pre-approve my loan?

Your lender will need some detailed information from you to complete your application. Below is a list of the most commonly requested information:

W-2s for the past 2 years. If self-employed, 2 years of complete tax returns.
Most recent pay check stubs covering the last 30 days.
Residence addresses for the past 2 years.
Names and addresses of each employer for the past 2 years.
Last bank statements for all checking and savings accounts.
Last statement for all investment accounts- 401K, stocks, bonds, IPERS, etc.

What is the difference between a fixed rate and an adjustable rate mortgage (ARM)?

With a fixed rate loan, your interest rate, monthly principal, and interest payment are fixed at the beginning of the loan and will remain the same throughout the entire term. An ARM allows the interest rate to go up or down over the term of the loan. Payment amounts may fluctuate with an ARM, and the decrease in loan balance will not be as predictable as a fixed rate mortgage.

What's the difference between Conventional, FHA, and VA Financing?

Conventional Financing – refers to home loans that have not been insured by the FHA or guaranteed by the VA. Both fixed rate and adjustable loans are available with conventional financing.

FHA Financing – means the Federal Housing Administration (FHA) has insured the repayment of the loan to the lender. Because there is less risk involved for the lender, a smaller down payment is often possible. Both fixed rate and adjustable rate loans are available with FHA financing.

VA Financing – refers to home loans guaranteed by the Department of Veteran Affairs. On a primary residence, the guarantee by the VA reduces the risk to the lender, so that qualified veterans may obtain mortgages from an approved lender without a down payment.

There are many other loan options available that allow you to lower your down payment and closing costs. Central Iowa Lending can help you determine if you qualify for these loan options. Click here to email Brian and Mic.

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Jennifer Clark • 10200 Hickman Rd., Ste. 100 • Clive, Iowa 50325
(515) 208-2255 • FAX (515) 331-4301
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