Home Financing FAQs
Most Common Questions Asked About Mortgages
While there are literally hundreds of mortgage related questions that can come up about loan approvals, rates, down payments or program specific guidelines, keep in mind that Jody Bruns at Skyline Financial has the experience to work through any challenge that may come our way.
We have compiled a list of the most popular questions we have received from our home buyers in Denver over the years. Please feel free to Contact us at (720) 692-7245 if you need a straightforward answer or want to discuss any of these topics further.
Mortgage Approval Related Questions
This is one way for the bank to recoup a small portion of their loss on the home from the previous foreclosure or short sale.
In other scenarios, the listing agent/seller prefers to feel safe in knowing the home buyer they’ve selected has a back up plan should their current one fall apart.
With the borrower – credit scores, income, employment and residence status can change.
With the property – appraised value, poor inspection report, title transfer / property lien issues, seller cooperation, HOA disclosures.
With the mortgage program – Interest rates can change affecting the DTI ratio, mortgage insurance companies change guidelines or go out of business, new FICO score requirements…. the list can go on.
It’s important to make sure your initial paperwork is reviewed and approved by an underwriter as soon as possible. Stay in close contact with your mortgage approval team throughout the entire process so that they’re aware of any delays or changes in your status that could impact the final approval.
Worst case scenario, the lender may even require a new appraisal that reflects similar sales within a 90 day period.
It’s important to know critical approval / condition expiration dates if your real estate agent is showing you available short sales, foreclosures or other distressed property purchase types that have a potential of dragging a transaction out several months.
If you are in a financial position where you are qualified to afford both your current residence and the proposed payment on your new house, then the simple answer is Yes!
Qualifying based on your Debt-to-Income ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgages payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.
Residence history, marital status, credit obligations, down payment seasoning, income and employment verifications are a few examples of topics that can lead to stacks of documentation required by an underwriter for a full approval.
There is nothing worse than getting close to funding on a new home just to find out that your lender needs to verify something you weren’t prepared for.
This also depends on the loan program guidelines; make sure you disclose as much as possible during your loan application process.
Mortgage Rate Questions
The media often implies that mortgage rates are based off the 10-year Treasury Note, which is incorrect.
While the 10-year Treasury Note has been known to trend in the same direction as Mortgage Bonds, it is not out of the norm to see them move in completely opposite directions.
The best way to think of a Mortgage Bond is that it’s similar to a Stock which trades up and down throughout the entire day.
For example – Let’s pretend that the FNMA 30-Year 4.50% coupon is selling for $100.50. The price is lower by 50 basis points compared to the previous day’s closing price of $101.00.
In a more simple term, the borrower would have to pay an extra .50% of their loan amount to have the same rate today that they could have locked the day before.
Unemployment percentages, inflationary fears, economic strength and just the overall movement of money that are in and out of the markets are some of the many key economic factors that have a large effect in mortgage rate changes.
Most causes for fluctuation of rates are caused by consumer and investor emotions, just like stocks.
The whole point is to make sure the lender is aware that they should be monitoring Mortgage Bond pricing, such as the Fannie Mae 30-Year 4.50% coupon… and not the 10-Year Treasury Note or the news media.
The policy of the Federal Reserve influences short term rates that are known as the Fed Funds Rate (“FFR”). By lowering the FFR, it helps to stimulate the economy and when increasing the FFR it helps to slow down the economy. When cutting interest rates (FFR specifically) effectively, it will cause a rally in the stock market, driving money out of bonds and also creating a potential for inflation.
There will be a high demand for a higher rate of return for Mortgage Bond holders if inflation increases, in the meanwhile cranking up mortgage rates in the process.
With the Federal Reserve Board that is held every six weeks, this may be a good question to ask. If your lender does not have a good firm understanding of this concept between the two, your rate may be left unprotected and can end up costing you thousands of dollars over the existence of your mortgage.
Conventional mortgages on the other hand are insured by private mortgage insurance companies in case insurance is required.
The programs that usually carry the lower rates are FHA and VA loans, due to the investor’s perception of the government backings making this a less of a risk for them. Even though the rates are usually different for each program, it may be more considerable to examine both the monthly rate and the overall cost during the life of the loan in order to decide on which program may be beneficial to your needs.
This is because the borrower is taking on the risk of interest rates increasing in the future. However, when there is an inverted yield curve, the short-term rates would then be higher than long-term rates.
Risk-based pricing allows adjustments to par pricing for risk factors such as: percentages in Loan-to-Value, property types (SFR, Condo, 2-4 Units), a person’s FICO scores, occupancy (Primary, Vacation, or Investment Property) and mortgage type (Interest Only, Adjustable Rate, etc).
This enables the investors who lend their money for mortgages to get back extra funds for taking an additional risk.
If the borrower should come across a financial hardship, are they going to be able to make the payment on their home that they currently live in, or the one that they rent out?
Establishing whether or not you have the final word on locking in a specific interest rate at any given moment of time will alleviate the chance of someone else making the wrong decision on your behalf.
Most loan officers pay close attention to market conditions for their clients, but this should be clearly understood and agreed upon at the beginning of the relationship, especially since rates tend to move several times a day.
The way the lock term affects your pricing is as follows: The shorter the lock period, the lower the interest rate, and the longer the lock period the higher the interest rate.
Credit Score Related Questions
Mortgage Payment Questions
If the LTV is low enough on certain other loan programs, an escrow waiver is allowed. However, there is typically a higher interest rate associated with a mortgage payment that doesn’t have an escrow account due to the lender taking on more risk.
Jody Bruns / NMLS# 831033
Jody is a mortgage lender in Denver and is available at (720) 692-7245 if you have questions about home loans or mortgage programs in CO.
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