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Frequently Asked Questions and Answers:

What is the difference between "pre-qualified" and "pre-approved"?
If you are "pre-qualified" you have determined, with a loan officer, what price you can afford based on the down payment, your debts and the amount the mortgage company will approve for your mortgage. Being "pre-qualified" is only a determination of your probable credit. If you are "pre-approved", your credit, employment and funds have been approved by the lender.

What are closing costs?
Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers, they are usually about 4-6% of the total sales price of a property. Some of the closing costs you might encounter are: application fees, appraisal fee, county taxes, credit report, discount points, documentation fee, escrow fees, homeowners' association fees, loan fees, mortgage insurance, origination fees, tax registration and title insurance premium.

What is a point?
One point is equal to 1% of the new loan amount. Whenever government regulation, state usury laws and/or competitive practices prohibit the lender from charging a rate of interest that would make the real estate loan competitive with other fields of investments, the lender must seek some method of increasing the yield for the investors. By charging "points", the lender can bring the real estate loan up to those other investments.

What is earnest money?
When you make an offer, you will need to put up an earnest money deposit as a sign of good faith that you are seriously interested in buying a home. That deposit becomes a part of the purchase price and is held in a trust account until there is full acceptance of the offer. Typically, an earnest money is 3-5% of the offer amount.

What is title insurance?
Title insurance protects the named insured against loss because of defects, liens, encumbrances, adverse claims or other matters not shown or disclosed to the new owner that attach before date of policy.

Is VA or FHA financing unfair to sellers?
FHA and VA loans provide purchasers the opportunity to buy homes with minimal cash investment and at lower interest rates. The result is a larger market for sellers, who also benefit by receiving all cash for their equity.

Top 10 Mistakes

1. Looking for a house without getting pre-approved.

Do not confuse a pre-approval with a pre-qualification. During the pre-qualification process a loan officer asks you a few questions and hands you a pre-qual letter. The pre-approval process is much more complete.

During a pre-approval the mortgage company does all the work of a full-approval, except for the appraisal and title search. When you are pre-approved -- you become like a CASH BUYER and have more negotiating clout with the seller. In some cases (especially in multiple offer situations), having a pre-approval can make the difference between buying a home and not buying a home. In other instances home buyers have been able to save thousands of dollars as a result of being in a better negotiating situation.

Most good Realtors will not show you homes before being pre-approved because they do not want to waste your time, their time, and the seller's time. Many mortgage companies will pre-approve you at little or no cost. They typically will need to check your credit and verify your income and assets.

2. Making verbal agreements

If an agent makes you sign a written document that is contrary to their verbal commitments -- don't do it! Example: the agent says that the washer will come with the house, but the contract says that it will not -- the written contract will override the verbal contract. Buying a house is a very complex process -- but it's a lot easier when everything is in writing.

3. Choosing a lender just because they have the lowest rate. Not getting a written good faith estimate and truth-in-lending statement.

While rate is important, you have to look at the overall cost of your loan. This includes looking at the APR, the loan fees, as well as the discount and origination points. Some lenders figure an origination fee into their quoted points while other lenders add an origination fee in addition to their quoted points. So when one lenders says 2 points they mean 2 points, whereas another lender means 2 points plus an origination fee.

The cost of the mortgage, however, cannot be your only criteria. There is no substitute to asking family and friends for referrals and interviewing prospective mortgage companies. You must also feel comfortable that the loan officer you are dealing with is committed to your best interests and will deliver what they promise. Often the company that has the absolute lowest quoted rate may not be the best company for your mortgage business.

4. Not providing documents to your mortgage company in a timely manner.

When your mortgage company asks you for additional paperwork - jump on it! Do not complain. They are trying to get you approved, not trying to hassle you unnecessarily! Jump through the hoops as quickly as possible. Many borrowers do not respond to documentation's need quickly and can wind up paying higher rates if the rate lock expires. .

We recommend shopping for a loan with at least 3 mortgage companies before you make a decision. There are countless stories of consumers who wound up paying higher rates or getting a loan program that was not right for them, because they blindly followed their Realtor's advice.

5. Not getting a rate lock in writing.

When a mortgage company tells you they have locked your rate, get a written statement which details the interest rate, the length of the rate lock, and details about the program.

6. Using a dual agent i.e. an agent who represents the buyer and the seller on the same transaction.

Buyers and sellers have opposing interests. A dual agent in most normal situations cannot be fair to both the buyer and seller. Most dual agents represent the sellers more strongly than they do the buyer. If you are a buyer, it is much better to have your own agent who will be on your side. The only time you should even consider a dual agent is when you get a price break from using a dual agent. If that is the case, then tread carefully and do your homework!

7. Buying a house without a professional inspection.

Taking the sellers word that they have made repairs. Unless you are buying a new house where you have warranties on most equipment, it is highly recommended that you get a property inspection, a roof inspection and a termite inspection. This way you will know what you are buying. Inspection reports are great negotiating tools when it comes to asking the seller to make repairs. If a professional home inspector states that certain repairs be done, the seller is more likely to agree to do them.

If the seller agrees to do the repairs, have your inspector verify that they are done prior to close of escrow. Do not assume that everything has been done the way it was promised.

8. Not shopping for home insurance until you are ready to close.

Start shopping for insurance as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and do not have time to shop around.

9. Signing documents without reading them.

Do not sign documents in a hurry. Whenever possible try to get documents that you will be signing ahead of time so you can review them. It is advisable to ask for a copy of all loan papers you are signing a few days ahead of the close of escrow. This way you can review them and get your questions answered. Do not expect to read all the documents during the closing. There is rarely enough time to do that.

10. Making your moving plans too tight.

Example: you expect to move out of your prior residence on a Friday and into your new residence over the weekend. So you give notice to your landlord to end your lease on a Friday and arrange for movers to come to your house on Friday. Then, your loan closing gets delayed until the next Tuesday. You now may be homeless! New tenants could be moving into your apartment, and the movers are going to charge you for wasting their time. You could be forced to live in a motel for a couple of days!

A Better Plan: allow for a 5-7 day overlap between closing and moving. In the long run it is not nearly as expensive, and it will sure give you peace of mind.