Q: What information will be required when I apply?


A smooth and timely loan approval begins with complete and accurate information up front. So, when you meet with a Loan Consultant, you can help speed up the process by providing the following information (use this as a checklist to get the necessary documents together):
  • Property address of the home you're buying or refinancing
  • Names and social security numbers of all borrowers
  • Copies of your two most recent pay stubs
  • Copies of your two most recent bank statements
  • Your most recent investment account statements
  • Copies of most recent 2 years W-2 or 1099 forms and full tax returns
  • Copies of full divorce decrees and full bankruptcy papers, if applicable
  • Documentation of any additional income
Your Loan Consultant will inform you if additional information is needed.

Q: What if I don't have any established credit?


A: Your Loan Consultant will work with you to document alternate credit information if you don't have enough established credit. Washington Financial Group has many different options that we can go with to verify payment history and establish some credit for you. We can obtain a rental rating from your landlord, if you have been renting. We can contact any services you use and pay on a regular basis to obtain a rating on your payment history, including the phone service, utilities company, cable company, insurance carriers, etc. Not all loan programs will accept alternative documentation on your credit, but both government and conventional programs will accept this type of payment history to establish credit qualifications.

Q: Does my credit have to be perfect?


A: Your ability to purchase a home will depend, in part, on your credit history as detailed in a "credit report". The information on the credit report is an indicator of how responsible you are in meeting your obligations. You do not have to have perfect credit to be approved for a mortgage, but if you have a number of late payments, you will need to provide a letter explaining why those payments were late. It is useful to check your credit standing several months before you apply for a home loan.

Q: How do I know what my interest rate will be?


A: A Loan Consultant will search for the lowest rate and "lock" that rate upon your request. The "lock" guarantees that rate to you, provided that the loan closes within a set period of time. It is important to note that the Loan Consultant can lock in your rate only after the appropriate paperwork has been filled out.

Q: What does "loan to value" mean?


A: Loan to value (LTV) is the loan amount divided by the lesser of the appraised value or sales price of the house. Cumulative Loan to Value (CLTV) is the sum of the two loan amounts (2nd mortgage) divided by the lesser of the appraised value or sales price of the home.

Q: What are "cash reserves"?


A: The money the borrower has left in their account after their loan funds are "cash reserves". Usually, the requirement is monies equal to 2 months of the mortgage payment. The amount of cash reserves varies from each loan program, but larger reserves are a strong compensating factor an underwriter will take into consideration.

Q: What is "PITI"?


A: PITI is Principal, Interest, Taxes, and Insurance. Together these will comprise the monthly mortgage payment, if you escrow. If you do not escrow then your monthly payment is just comprised of principal and interest and you have the responsibility of paying your own taxes and insurance.

Q: What is an escrow account?


A: Most lenders will offer you the option to include your monthly payment for property taxes and hazard insurance along with your principal & interest payment. The collecting, holding and distribution of these payments is called an escrow account. Not all lenders offer an escrow account and some lenders will require that you escrow for taxes and insurance.

Q: What does it mean if my loan officer asks me if I want to "waive my escrows"?


A: You can only waive escrows if your loan value is 80% or less on your first lien. If this is the case, you have the option of "waiving your escrows". If you decide to waive your escrows, you will be responsible for paying the taxes and insurance on your property. Otherwise, the taxes and insurance would be included in your monthly payment. There are programs available with low down payments such as an 80 / 10 / 10 or an 80 / 15 / 5 where you have two separate liens and are still able to waive escrows and avoid PMI. It is important to note that generally if you waive escrow you will have a higher interest rate.

Q: What are closing costs?


A: Closing cost cover all the charges associated with the transaction, including origination and discount points, appraisal fee, title search fee, title insurance, taxes, deed recording fee, charges for credit reports, etc. Closing costs vary greatly depending upon the loan program and fees for that program.

Q: Where do I go for closing?


A: The closing will take place at an Escrow Company. If you are purchasing a home the name and address of the Escrow company appears in your Purchase and sales contract. If you are re-financing, your Loan Consultant will tell you this information.

Q: What are discount points?


A: Discount points are a percentage of the loan amount you can pay to reduce your interest rate. One "point" equals 1% of the loan amount. If you're going to be in your home for a relatively short period of time, it might not be worth it to you to pay discount points to reduce your rate. If you'd like to lower your monthly payment by lowering your interest rate, then paying points up front may be the best way to do this. It is encouraged that you discuss this with your Loan Consultant.

Q: What is "APR"? Why is it usually higher than the rate the lender quotes me?


A: The APR is not the same as your note rate. The note rate is the interest you are being charged over the term of your loan to pay back the money you borrowed. The note rate is what your payments are based on. The Federal Truth in Lending law requires that the APR be disclosed on every mortgage loan. Several factors go in to calculating the APR and the rules to compute APR are not clearly defined so it can seem confusing. Primarily it is based on the cost of getting the loan. There a certain fees associated with your loan that are considered APR related, these fees may include but are not limited to:
  • Discount & origination points
  • Pre-paid interest
  • Underwriting
  • Processing
  • Document preparation
  • Tax service
  • Administrative
  • Title Closing Agent
  • Attorney's Opinion
  • Courier
The easiest way to make sense of all this is to take the total of the APR related fees, convert it into a percent, based on your loan amount, and add it to your interest rate. Although the calculation method is much more complex than that, this is the easiest way to understand what the APR really is. It basically means that if you sold or refinanced your home in less than one year, the APR is what your money costs you to borrow. The Truth in Lending disclosure is telling you that there are certain costs involved in getting a loan and that you should be prepared to keep your financing in place for at least one year to see the benefits of your note rate. (hence the word annual). The APR will generally be higher than the note rate because the payments are being measured against a lower net loan amount

Q: Can my loan be sold?


A: Yes, your loan can be sold at any time. There is a secondary market for mortgages in which lenders sell and buy mortgages in bulk. Your loan could be included in that bulk for several reasons. Mostly the reason is for profit. This profit in the secondary market results in lower rates for consumers. When a lender buys your mortgage they assume all the terms and conditions of your original loan. By law they cannot change anything other than where you mail the payment. If you loan is sold your existing mortgage company will notify you of this change. Even if you receive notice and you have already mailed your payment for that month the previous mortgage company will forward your payment.

Q: What is the difference between a conforming loan and a sub-prime loan?


A: A conforming loan is just what it sounds like; in order to qualify you must conform to a rather strict set of guidelines. Conforming loans require your credit to be established and in good standing, that you have the ability to verify your income with pay stubs, W-2's. There are conforming loans available to the self-employed borrowers; however the tax returns over the previous two years must reflect a profitable bottom line enough to budget for the loan. Most conforming loans require that you have liquid assets and that the debts are in line with the gross monthly income. While conforming loans may be a little more difficult to document and qualify for they tend to offer the better interest rates. Conforming lenders want to make loans to very stable borrowers and the strict guidelines are put in place to eliminate any possible risk. The lower the risk the more attractive the rate can be.

A sub-prime is loan is for all the borrowers who for one reason or another do not qualify for a conforming loan. Most Sub-prime lenders understand that the strict guidelines of a conforming loan may not be met by a large percentage of borrowers. Sub-prime lenders tend to have a better understanding of credit issues, verification of income and outstanding debts. Sub-prime lenders offer a wide variety of loan programs that are designed to take a common sense approach to assessing the risk factors of a borrower. Our Loan Consultants will be assist you in exploring options.

Q: Can I expect things to go as planned?

A: A good percentage of the time they will. However, real life seems to play a factor in a good percentage of the time too. Sometimes things that are out of your control can affect the transaction's ability to run smooth. You may find the results of an inspection causes you to reconsider the quality of the home, the seller may have to clear up title issues that take time, there may be another transaction that is contingent upon yours, the lender may be experiencing unusually high volume and all of these factors can cause delays. Make sure that you have allowed for any of the real life situations by planning on closing on your contract date but understand that it doesn't always happen. Your mortgage specialist will do everything they can to meet your contract deadline

Home Purchases:


Q: How much money do I need for closing costs and a down payment?


A: Your Loan Consultant will advise you about the different types of loans available for your individual circumstance. There are programs available that do not require any down payment, but these programs will have a higher interest rate and sometimes require a prepayment penalty. Most loans require a minimum down payment of 5%, plus money for closing costs, which averages about 3%. Some programs allow the down payment and/or closing costs to be a gift from a family member if documented properly.

When working with Washington Financial Group, your Loan Consultant will educate you about your options and ensure you choosing the appropriate loan for your individual situation. Once your loan gets processed, the title company will prepare a Settlement Statement detailing your closing costs. Remember to bring a cashier's check made payable to the title company.

Q: Which kind of mortgage should I apply for?


A: Once you're ready to buy a home, you need a mortgage that fits your budget and your current financial situation as well as your objectives down the road. Some people prefer the predictability of a fixed rate mortgage. Adjustable rate mortgages (ARM) offer the possibility that your payment will go down if rates go down. Still others like the idea of paying off the mortgage sooner and saving thousands of dollars in interest and thus, opt for a shorter term.

Selecting the best mortgage loan for your needs can be confusing. It is best to consult with a Loan Consultant prior to selecting a loan program. A loan officer can discuss your financial goals, income and expenses and help you determine the appropriate home financing option based on your needs.

Q: What is the difference between "Pre-qualification" and "Pre-approval"?


A: Before you look for a home, it makes sense to work with a Loan Consultant. A Loan Consultant can get you qualified to buy a home. Washington Financial Group can determine the approximate amount of money that you will be able to borrow to purchase a home. You will then be "pre-qualified" for that loan amount. By allowing your Loan Consultant to run your credit report and verify your assets and income, your loan application can be taken to the underwriter for a full credit approval, at which time you will be "pre-approved" for that amount.

Q: How do I secure a contract on the home I want to buy?


A: It is always recommended that you make an offer to buy in writing with a licensed real estate agent. There are agents that represent you as a buyer and can also help you in your search for a home in the area you desire and to your specifications. If you have not formed a working relationship with a realtor, Washington Financial Group can make a recommendation based off the location you would like to buy and a personality match.

Make sure to tell your realtor that you are already pre-approved for a loan and let them know the specifics of your parameters. Once you have decided on the home you would like to purchase the realtor will make an offer in writing to the seller. The offer will outline the terms including the price, the closing date, the closing costs to be paid by each party and all other aspects affecting the purchase of the home. It is customary for the buyer to give a deposit of good faith, called earnest money, when an offer is presented. This is usually between $1000-$10,000 dollars and is to be held in an escrow account until the day of closing and it is then credited towards the buyer's final costs.

Once the contract is accepted your realtor will arrange for any professional inspections that were made as a part of your contract. Ask your realtor about the type of inspections that are available to determine the overall quality of the home. Now, contact your Loan Consultant to get the process started.

Q: Who pays prepays and closing costs?


A: This depends on your purchase contract. When you were pre-approved for your loan you were probably advised to get the seller to pay for as much as possible. Lenders typically allow up to 3% of the loan amount to be paid by the seller towards the buyer's closing costs. Some allow more than 3% so be sure to ask your Loan Consultant how much can be paid by the seller. You can always ask that the seller pays towards your closing costs in your initial offer but understand that it may become a part of what is negotiated.

Refinance:


Q: Should I convert my adjustable rate mortgage to a fixed rate mortgage?


A: This is a good idea if you are looking for long-term stability. Fixed rate loans are very attractive when interest rates are low, but remember that an adjustable interest rate may be even lower. If you plan be in the home for five years or longer than a fixed rate loan might be right for you. If you think you might sell the home or that you could refinance in the near future, an adjustable rate mortgage could save you money on your monthly payments for the short term. Ask your Loan Consultant for a free mortgage analysis so you can compare the savings

Q: Should I finance my home for 15 or 30 years?


A: Mortgages are generally paid over either a 15- or 30-year period, although terms for fewer years are available as well. And while monthly payments for a 30-year mortgage are naturally lower than those for a 15-year mortgage, a 15-year mortgage could save you a considerable amount of money in the end.

Plus you'll end up owning you home in half the time. You should also note that 15-year mortgages can usually be obtained at an interest rate lower than comparable 30-year mortgages.

Q: Should I refinance my existing mortgage to pay off debt or get cash?


A: The most common reason for refinancing is to save money. If you use the equity in your home to pay off high interest rate credit cards, installment loans or a second mortgage you will save money. There are also possible tax advantages since the interest you pay on a mortgage can be tax deductible (consult your tax preparer). You may also want to use the equity in your home to get cash for home improvements, a vacation, college tuition, a boat, a car, an RV or any other investment. Ask your Loan Consultant for a free consolidation analysis.

Q: What is a Home Equity Line of Credit?


A: This is generally a second, but can also function as a first, mortgage loan that is secured by the equity in your home. Typically, these are not fixed rate or fixed term loans they are more like a revolving credit account. For example: If you had $40,000 in available equity the lender would issue a checkbook with a $40,000 opening balance in the account and you could then write checks for any purpose. As you pay back what you have borrowed that money becomes available to you again. You only pay interest on the outstanding balance. The interest rates on these loans are usually much less than a fixed rate loan and often have a very low introductory rate that will increase and adjust monthly after the first 6 months. Ask your mortgage specialist about this and other second mortgage options.


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