A mortgage pre-qualification is determined after a verbal loan interview. No credit is verified, and we merely calculate a maximum sale price for qualification based upon the good faith answers of the borrower. This information is particularly helpful when looking for a property to ensure that when you make an offer to the seller that you are within the range of what you can reasonably afford.

A pre-approval goes one step further, where we pull credit from all 3 credit bureaus, and determine if the borrower truly meets the credit criteria of the lender. This approval is more concrete than the qualification, and will be subject to review of income and asset documentation, unless already provided.

Final loan approval is granted upon review of credit, income and asset documentation. At this point we have verified all information the borrower gave us on the loan application as being true and correct. The appraisal has also been received at this point. We have the approval in writing from the underwriter. There commonly are a few items pending such as proof of insurance coverage and/or review of the survey.

The first decision is do you want a FIXED or ADJUSTABLE rate mortgage. Most programs fall into one of these categories. The fixed 15, 20, or 30 year is fixed for the entire term, and is the most conservative option if you will be living in the home more than 5 or 7 years.

Adjustable rates are generally fixed for 1, 3, 5 or 7 years (these are the most common). . The shorter the fixed term, the lower the rate. However, also the higher the risk. The loans will adjust every 1-12 months (depending on the product) to an index + a margin. As rates rise, so does your rate, and therefore your payment. The 5 and 7 year ARMS tend to be the most popular as they offer several years fixed, and a lower rate than a traditional 30 year. If you think you will be in this home for only a few years, an adjustable may be right for you so that you can take advantage of the lower rate before it begins to rise.

Once you narrow down the FIXED versus ADJUSTABLE , you can concentrate on the various options that are best for you.

First of all, there are Origination Points, and Discount Points. This term is used by many lenders very 'loosely'. Origination points are very common, and it is a fee to the lender originating the loan. If you waive this fee you could have a higher interest rate. On the other hand, Discount Points are additional points used to buy down the interest rate further. This is usually not advised unless your company (in the case of a relocation) or the builder are paying these points. In other words, any fee over the 1% Origination Point, becomes cost prohibitive as the more you try and buy down the loan, the more the lender charges.

Generally, 1 point (1% of the loan amount), will generally buy you .25% in lower interest rate. Depending on the loan amount, this could equate to a 4-5 year recovery time (i.e. you recover the point paid over 4-5 years in savings monthly, and then you begin saving money at the lower rate). If you do not plan to be in the house this long, it is generally not worth the upfront expense.

The interest rate you are quoted is your note rate. This is the rate at which you accrue (annually) interest on the unpaid principal balance. The APR (Annual Percentage Rate) is the cost of your mortgage including the points, lender fees, prepaid interest and certain title fees on your loan. These PFC (Prepaid Finance Charges) are then deducted from your loan amount. The loan is the re-amortized to obtain the APR, which will always be higher than the note rate, unless there are no lender fees.

When obtaining a quote it can be misleading to compare only each lender's APR. There is much discrepancy industry wide over which fees should be used in the APR calculation. Each state has their own requirements, as well as federal agencies. Depending on the state where your lender is located, the calculations will most likely vary.

So in summary, compare the actual note rate, and the origination charges of the Good Faith Estimate. These are the Lender Fees. This will be your most 'apples to apples' comparison. Title fees, taxes and insurance that appear on the Good Faith Estimate are estimations and are generally included as a courtesy.

These options will vary greatly depending on your credit score. For clients with excellent credit, 97% loans are typically available. Depending on your annual income, community homebuyer programs are available that offer more flexible qualifying guidelines for those families earning below the median income in your county.

To help with cash for closing costs, you may wish to negotiate with the seller for them to contribute up to 3-6% of the sale price to your closing costs, and depending on the program, you may also obtain a gift from a family member. Each program has specific requirements, and is subject to qualification.

FHA (Federal Housin Administration) loans are sponsored by HUD and allow 3.5% down payment, lower PMI options than conventional loans, as well as flexible credit standards. Discuss with your loan officer if this option is right for you.

As a first time buyer, you have access to loan programs that require as little as 3% down payment and have flexible qualifying guidelines. Many of the programs require income to be below the median income. Depending on your income and geographic location, you may be eligible for local grants to help with closing costs or down payment. Ask one of our mortgage consultants for more information.

**After March 1, 2008, Zero percent down loans no longer are available. However, FHA loans provide for the 3.5% down to come from a gift, or a grant.

There will be 2 payments that you will need to make, and they may even have a different due date. Even if the same lender is used, each loan will have a separate loan number . You should always include the loan number on your check and the coupon from your monthly statement with the payment. You may set either of the loans up for auto debit as well.

There are lender fees, title company fees, and prepaid expenses.

Lender fees can include, but are not limited to: Origination Points, Discount Points, Appraisal, Credit Report, Underwriting, Processing, Funding, and Flood Certification. If you have a 2nd loan, an Origination Fee, and/or Processing Fee are common.

Title company fees you may see are Escrow (processing) Fees, Courier Expenses, Recording Fees, Survey, Attorney Fees, Taxes, Mortgagee Title Policy (also an Owner's Title Policy if the seller is not paying this). The lender generally does not have control over these fees, so your estimates may vary.

Prepaid expenses include Prepaid Interest (dependent on the date you close). This is the pro-rated interest payment for the next month. Then the following month, your first full payment will be due. Insurance for one year is required of all homeowners. If you are escrowing taxes and insurance monthly in the mortgage, then 2-3 months of each will be required to set up the escrow account. To calculate the exact escrow reserve, the lender runs an analysis on when the full amounts will be due, the number of payments you will make prior to the due date. The months required upfront incorporate a cushion in case these amounts increase in the future.

Yes, you can conservatively take your annual gross salary, and multiply by 3. So, $100,000 /year, would be a home of $300,000. However, this formula can be skewed if you are putting a large amount of money down, have high consumer debt, and/or low credit scores. It is important to conduct a brief interview with your mortgage consultant to disclose your income, liabilities, and assets in order to properly assess where you fit.

As another general rule, you can easily estimate your monthly payment (including principal, interest, taxes and insurance) by taking 1% of the price of the home you are considering. For example, if you are putting 3-5% down, you can assume that a home of $100,000 will have a monthly payment of $1,000. As you put more money down, this general rule will become less true. This formula is meant as a gauge only, and could vary depending on your area's taxes, your down payment, current interest rates, and your insurance premium.

First, we should consider what mortgage insurance is. In the late 1980s, lenders would not make loans unless there was 20% down. Mortgage Insurance companies were created to offer additional protection to lenders in the case of default (foreclosure). That then encouraged lenders to make higher loan-to-value loans. It is only because of this insurance process that we have such a high percentage of home ownership in our country today! PMI makes buying a home more attainable for many people.

PMI can be avoided by splitting the amount of money you need to borrow into two separate loans. As long as the first loan is 80% or below, the lender will not require private mortgage insurance. The second loan (2nd lien) is generally at a higher interest rate than the first, because since it is in subordinate position, the lender is taking more risk -- hence, the higher rate. In addition to avoiding mortgage insurance, the interest on the second loan is tax deductible whereas PMI is not deductible. Have your mortgage consultant compare the loan with PMI to the split loan (ex: 80/10 or 80/15) option, to calculate the savings and/or cost.

An additional way to avoid PMI is to choose the 'lender paid' PMI option. This adds the PMI into the interest rate, and therefore your interest is tax deductible. Depending on the market rates at the time, your credit scores, and the amount of down payment you are willing to pay, the rates on each program may vary.

PMI makes home ownership possible for those people who make less than a 20% down payment. Mortgage Insurance companies were created to offer additional protection to lenders in the case of default (foreclosure). That then encouraged lenders to make higher loan-to-value loans. Another benefit to having one loan with PMI (hence not splitting the loan to avoid PMI) is that many first time home owner programs offer expanded approval guidelines that are available only if the loan has PMI. So in summary, there are more possibilities for qualification.

PMI is tax decutrible as long as your annual income is less than $100,000. For this reason, some people decide to split their financing between two loans so that they may increase their deduction. For homes less than $100,000 the deduction may not outweigh the costs. Your mortgage consultant can help you calculate this.

If your loan (1st loan) is <80%, you are not required to escrow taxes and insurance with the lender. It is always an option to escrow, but not mandatory. Some lenders may charge you a fee to waive the escrows, generally .25% of the loan amount. Our company does not charge an escrow waiver fee.

If you put less than 20% down (and do not have a 1st loan <80%) you are required to escrow monthly for taxes and insurance. The logic behind this from the lender's perspective is that if you have not demonstrated the ability to save the 20% needed for a down payment, you may have trouble paying the taxes /insurance annually as it can be a strain to have such a lump sum due at once. The lender wants to make loan payments as easy as possible for consumers, and reduce any opportunity for a borrower to default on the loan.