GENERAL MORTGAGE LOAN QUESTIONS
What's the difference between all those loan types?
There are several different loan types and pros and cons to all of them. The most common loan types are FHA, conventional (Fannie/Freddie), and VA. There are several other types, such as jumbo (over the Fannie/Freddie limits), USDA, and non-conforming loans. Which loan is best for you depends on your situation and the property itself. Call us with specifics, and we can find the right match for you.
How much are closing costs?
Closing costs will include:
- The escrow fee.
- Processing and underwriting.
- Title fees (these costs are set by the state, not the title company).
- Origination fees.
- An escrow setup (taxes and insurance advance payments).
- Discount points.
Other costs could include appraisals, condo questionnaires, surveys, HOA transfers, etc., but these would be specific to the property and transaction itself. Typically, the total closing costs are about 1-3% of the loan amount, but that can vary.
What is the minimum credit score required?
For FHA loans, the minimum FICO score is 600. For conventional, VA, and USDA, the minimum score requirement is 620. Jumbo loans have different minimums based on the amount of the loan and the loan-to-value, but the lowest minimum would be 640 in most cases. Non-traditional loans can have requirements as low as 575 but usually require at least a 25% down payment.
Do you have to pull credit?
Yes. A credit pull not only determines your creditworthiness, but it provides us with a list of current creditors, payment terms, and minimum payment requirements for each tradeline so that we can calculate your true debt-to-income ratio. The DTI is a crucial factor in underwriting being able to determine your ability to repay.
How long does the whole process take?
Most refinances are completed in less than 30 days. Purchases are dependent on the appraisal scheduling, typically about 7-10 days after the appraisal report is submitted to us by the appraisal management company.
Does my spouse have to be on the loan?
Your spouse does not have to be on the loan, nor do they have to be on title. However, if they are not included on the mortgage, we cannot use their income as part of the qualifying income. The non-borrowing spouse must also sign the closing disclosure and must appear at the closing to sign the title paperwork, either as a co-title holder or as a title waiver. Additionally, in Texas, if a spouse is not included on the loan, their debt liabilities must still be accounted for, either by their own income or by the borrowing spouse's income.
Why do I need an appraisal?
The appraisal is a requirement so that all parties are aware of the home's true value, regardless of the contracted purchase price. Homes cost a lot of money, and everyone should be well aware of the actual value of a home before committing to such large amounts. An appraisal by a party completely independent of all parties (the buyer, seller, and lender) is the fairest way to determine that value.
Why can't you talk to the appraiser?
The appraiser needs to be uninfluenced by any party to ensure that the appraisal report is completely unbiased. Although the lender orders the appraisal, it's done through a third-party appraisal management company to maintain independence. The AMC does all contact other than scheduling admittance to the property to firewall any influence.
Do I have to pay PMI?
It depends on the loan type. FHA loans require MIP for at least 11 years on a 30-year mortgage regardless of the loan-to-value. Conventional loans only require PMI if the loan is over 80% of the value of the home. VA loans do not have any MIP/PMI. USDA loans require a 0.35% guarantee fee of the principal balance with each payment.
What are "points"?
Points are the percentage of the loan amount paid by the borrower in exchange for a lower interest rate. It does not translate point to point as in "I'll pay 1% now and get a 1% lower rate". For example, you might be able to pay half a point (0.5% of the loan amount) in exchange for a quarter-percent lower rate or a full point for a half percent lower rate. Sometimes paying points makes a lot of sense; sometimes, it doesn't. Some lenders require paying points or origination fees to get their advertised rates and may call the points by other names such as "discount fee" or "rate reduction." They may also be included as part of an origination or admin fee. Review your Loan Estimate very carefully to look for those costs. Our team is very transparent with fees, and we do not require points; they are optional but can often save our customers a lot of interest over time.
How long does my work history need to be?
If you are a W2 employee, you have to prove up to two years of work history. It does not have to be with the same employer but should be in similar industries. A great example is nurses. They often work for different hospitals or doctors and therefore may have multiple employers in a 2-year span. That is perfectly acceptable as long as there are no gaps in income. If you are self-employed, you'll need a 3-year history unless your new self-employment is in the same industry as your prior W2 employment.
Do you use gross or net income to qualify?
For W2 employees, we use your gross income (before taxes and deductions). If you are self-employed, we use net income (after taxes, deductions, and expenses). If you are a business owner, we use net income multiplied by your ownership percentage. You must also show similar or increased net profit over a 2-year period as a business owner. Any self-employment borrowers must also include a YTD fully audited profit and loss statement.
Can I count bonus, overtime, or "side hustle" income?
Yes! You must average your income over 2 years for bonus and overtime consideration, plus your YTD monthly average. You may count additional income as long as it's either:
- a) W2 income (part-time jobs, for example) or
- b) filed on your tax returns over 2 years.