Mortgage Questions

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

Why do sellers require a pre-approval with their lender as well?
Cross-qualification is imminent in certain markets, especially with bank-owned or short sale properties. Some of the large banks that own homes require any potential home buyer to be qualified with their preferred lender – who is typically a representative of the bank that owns the home.

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.

I was pre-approved and signed a purchase contract, but my loan was just denied?
There are literally hundreds of moving parts with a real estate purchase transaction that can impact a final approval up until the last minute, and then after the fact in some unfortunate instances.

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.

What if I can’t find a home before my pre-approval letter expires?
Depending on your mortgage program and final underwriting conditions, you may have to re-submit the most recent 30 days of income and asset documents, as well as have a new credit report pulled.

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.

Do I have to sell my current home before I can qualify for a new loan?
Yes, No and Maybe…

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.

What documents do I need to receive a full loan approval?
An experienced mortgage professional will be able to uncover any potential underwriting challenges up-front by simply asking the right questions during the initial application and interview process.

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.

Will a lender include income from a second job for my approval?
They usually do consider it if it is at least a total history of 1 year and if it is verifiable.

This also depends on the loan program guidelines; make sure you disclose as much as possible during your loan application process.

Does child support or alimony matter for an approval?
Yes, lenders will take your monthly child support or other financial obligations into consideration with your DTI Ratio.

Mortgage Rate Questions

Who determines mortgage rates and what are they tied to?
The prices determined on mortgage rates are based largely on Mortgage Backed Securities or Mortgage Bonds.

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.

How often do mortgage rates change?
Mortgage Rates can change several times throughout the day, but they only change on the days when Bond Markets trade securities, because mortgage rates are based on the price of Mortgage Bonds.

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.

What causes mortgage rates to change?
Mortgage Bonds have a huge impact on various market forces that influence the change demand for bonds within the market.

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.

What do you use to monitor mortgage rates?
There are many different great subscription based services that are made available that will allow you to monitor Mortgage Bond pricing.

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.

When the fed changes rates, why do mortgage rates move in the opposite direction?
It is commonly misunderstood that when the Federal Reserve decides on a rate cut that there is a correlation to a reduction in mortgage rates.

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.

Do different programs have different interest rates?
A couple of the programs such as: Conventional, FHA, and VA loans can all carry different rates on a 30-Year fixed mortgage. In the event of possible defaults, the Federal Government helps to insure FHA and VA loans, making this a great reason to go with one of these programs.

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.

Why is an adjustable rate mortgage (ARM) rate lower than a fixed rate mortgage?
Adjustable Rate Mortgages (ARM) are usually fixed for a specific period of time.The specific period is typically set for 6 months, 1 year, 5 years or even 7 years. The interest rate is usually lower initially if it is fixed for a shorter time period.

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.

Why are rates higher for different property residence types?
Monthly Mortgage interest rates are generally determined by risk-based pricing.

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?

How do I lock my rate?
It’s good to know what the terms are and what the process is of locking in your interest rate.

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.

How long will my rate stay locked?
Mortgage rates are typically priced with a 30 day lock, but you may choose to hold off temporarily if you’re purchasing a foreclosure or short sale.

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

Why are credit scores different with each credit bureau?
Each credit bureau consists of different information reported in your credit, giving you different scores.

How is my credit score calculated?
There are 5 key components that are taken into account: payment history, total debt amount, the age of the credit, a mixture of credit, and any credit inquiries.

Why do I not have a credit score?
If you have not built any credit or have little credit history this can be the reason why. It may be possible to establish one by opening up credit card accounts with banks or department stores.

How often does my credit score change?
This may depend on how often your providers update your credit information on your credit report, and can change as often as daily.

Mortgage Payment Questions

What is an impound or escrow account?
You’ve heard of the acronym PITI (Principal, Interest, Taxes and Insurance). The escrow account covers the T&I, and is included in the monthly payment.

Are impound accounts required??
Government loans, FHA and VA require an escrow to be established when a new purchase or refinance transaction is finalized.

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.

What happens to my impound account when I refinance?
The remaining reserves are generally refunded back to the homeowner.

Can I set up an escrow account later?
Yes, you can request an escrow account at anytime. Keep in mind that you’ll have to deposit at least 12 months of hazard insurance, as well as around 6 months of tax payments in the escrow account to get it established.

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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8blocks has a business relationship with Skyline Financial Corp. (“Skyline”). 8blocks creates co-branded websites for Skyline and Lori Lee. Skyline and Lori Lee compensate 8blocks for this service. You are not required to use Skyline or Lori Lee’s services as a condition to the purchase or sale of a home or other property. There are other mortgage lenders that may be able to offer you a mortgage loan. You are free to shop around to determine that you are receiving the mortgage rates and terms that fit your needs. Your choice of a mortgage lender or realtor will not affect current or future services and products provided to you by these unaffiliated entities.

Skyline Financial Corp. is not affiliated with Lori Lee or their brokerage. Each is solely responsible for the products and services it offers.

Skyline Financial Corp. dba Skyline Home Loans, Nationwide Mortgage Licensing System (NMLS) Company ID# 12072. Arizona Mortgage Banker License #927740, Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act File No: 4130296, Georgia Residential Mortgage Licensee, Illinois Residential Mortgage Licensee, Licensed by the New Hampshire Banking Department License #19536-MB, Ohio Broker/Banker Registration #MBMB-850231-000, Oregon Mortgage Lender License ML-2797, Washington Consumer Loan Company License CL-12072. Refer to and input NMLS#12072 to see where Skyline Financial Corp. is a licensed lender.