Mortgage Questions

Some commonly asked questions about mortgages

What are the differences between mortgage prequalification, preapproval and final loan approval?

• Prequalification: A lender will look at your credit report and use your information to determine the maximum mortgage you can afford.
• Preapproval: Your information is verified and your mortgage is approved, contingent upon an appraisal of the property you wish to buy.
• Final Loan Approval: After the property has been appraised and all conditions have been met, the loan is finally approved.

What first-time buyer programs are available? Most first-time buyer programs are local, meaning they vary from community to community. The best person to ask about such programs is your Agent.

How can I compare mortgage programs and offers? You can either use a Mortgage Broker through your local bank, or you can compare mortgages with an online resource like LendingTree. It depends on whether you'd rather have someone else do the comparison, or be involved in the process yourself.

Can I use my IRA retirement funds for a downpayment on a house? For most first time buyers, yes. Both husband and wife can each withdraw up to $10,000 for qualified aquisition costs for a first home. These costs include both buying, building or rebuilding a home, as well as settlement, financing or other closing costs.

What mortgage options are there for those with poor credit? It is possible to obtain a mortgage even with bad credit. Many banks, as well as online mortgage services will work with you even if your credit is bad. However, the most important part is making sure your credit score is accurate and that you know what it is. You can obtain a free credit report online, and it will be a valuable tool to help you understand your credit situation, and fix any problems that may exist there.

What are front and back ratios?

• Front Ratio: The total mortgage payment including principal, interest, taxes and insurance (PITI) as well as any condominium or homeowner association fees divided by your total GROSS income. Traditionally this ratio must be below 28% Example: With a gross income of $3700 per month, a total mortgage payment (PITI) of $973, the front ratio would be 26%.
• Back Ratio: The total mortgage payment PLUS any car payments, credit card and any other loan payments divided by your total GROSS income. Traditionally must be below 36%. Example: With a gross income of $3700 per month, a total mortgage payment of $973, a car payment of $212, 1 credit card payment of $59 and 1 credit card payment of $43 for a total of $1287 with a back ratio of 35%.

Can I get a mortgage with no money down and no cash for closing costs? It's possible, but rare and difficult. Most lenders will require at least some investment from you from the very beginning. If you have good credit, there are options for low downpayments, and sometimes the seller can absorb some of the closing costs.