At First Choice Loan Services Inc., we take great strides to make your home financing process as efficient, easy and enjoyable as possible. Whether you’re a first-time home buyer or a homeowner several times over, you probably will find that you have a lot of questions about the home financing process. To help you get the most out of your home mortgage experience, we’ve compiled the following answers to some of the most frequently asked questions by home buyers everywhere. Of course, if your question isn’t answered below, you’re always welcome to contact me directly for more information and resources.
Pre-qualification is an estimate of what you might be able to borrow and shines light on the path forward in your home-buying journey. Based on your income, assets, and sometimes a credit check, First Choice Loan Services will outline a loan amount and loan program which will greatly help guide your search.
Yes. Pre-qualifying saves you time by providing a realistic price range, helps you determine a specific dollar figure to ask for, and gives you an advantage over competing homebuyers who are not pre-qualified. During pre-qualification, First Choice Loan Services will help you to determine the approximate amount you can borrow. Your current income, assets and debt over the last two years helps to determine if you pre-qualify for a mortgage. What does it mean to be pre-approved for a loan?
Loan pre-approval carries more weight than pre-qualification. First Choice Loan Services will determine the specific mortgage amount for which you are approved to give you a clear picture of the interest rate you will be charged on the loan. Once you're pre-approved, you will receive in writing the exact loan amount for which you are approved. This gives you the advantage of a specific price range when searching for your home.
Yes. In fact, many people face this same challenge in tough financial situations. A history of bad credit does not necessarily mean you are automatically disqualified for a loan.
“The interest rate is the cost of borrowing money expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan. An Annual Percentage Rate (APR) is a broader measure of cost to you of borrowing money. The APR reflects not only the interest rate but also the points, broker fees, and certain other charges that you have to pay to get the loan, including certain parts of your closing costs. For that reason, your APR is usually higher than your interest rate.”
- Consumer Financial Protection Bureau (CFPB)
Better interest rates are often extended to those with a higher credit score because they represent a lower risk to the lender. It’s also possible for a lower down payment amount to be required for those with a higher credit score. The flip side is also true for those who have lower scores. Qualifying for a mortgage with a lower credit score can be more challenging, and higher down payment amounts or interest rates may be necessary.
To prevent lenders from interpreting the credit score too subjectively, a standardized grading system has been established and is used by most lenders.
Credit Score Grade:
It is this score that lenders use to analyze the risk of extending the loan and that greatly affects the rate and other aspects of your mortgage.
After determining your budget, it's time to choose the right loan for you. There are many different types of mortgages available, and First Choice Loan Services is here to help you select the one well suited for your bottom line and lifestyle! There are several key considerations when choosing a loan:
First Choice Loan Services will work with you to determine the best loan options for your specific lifestyle and budget.
First Choice Loan Services Inc. offers the following loan options:
FHA loans are guaranteed by the Federal Housing Administration (FHA), a government agency that works with approved mortgage lenders such as First Choice Loan Services.
The Department of Veterans Affairs guarantees VA loans . Those who may be eligible for this type of loan include active duty personnel, Veterans and/or their surviving spouses.
Your credit score or “FICO®” Score, summarizes your credit risk and helps lenders determine your interest rate when applying for a loan. Typically, the higher your score, the more likely you’ll receive a lower interest rate on a loan. You can start by acquiring a complete copy of your credit report from agencies such as Experian, Equifax and TransUnion. First Choice Loan Services will walk you through available interest rates for your loan. You can lock in your interest rate for up to 180 days (additional restrictions and fees may apply for lock terms in excess of 90 days).
An adjustable-rate mortgage means that your monthly payment can change after a certain period of time. Typically you'll find that adjustable-rate mortgages have a period of fixed rates at the beginning of the loan term that tend to be lower than fixed-rate mortgages, meaning a lower starting monthly payment. An adjustable-rate mortgage would make sense if you predict living in your home for only a few years.
With fixed-rate mortgages, your interest rate and monthly principal and interest remain fixed for the entirety of the loan. This option is among the most popular for loan applicants because, unlike adjustable-rate mortgages, it protects homeowners from future monthly payment increases. A fixed-rate mortgage makes sense if you're planning to purchase a home for 7 years or more. You gain the stability of knowing exactly what you'll pay towards principal and interest every month.
Your down payment depends on your income and eligibility. First Choice Loan Services can present you right several down payment options that best fit your financial goals and needs.
PITI is your monthly home loan payment, which includes Principal, Interest, Taxes and Insurance, otherwise known as PITI.
Waiving escrows mean you will assume the responsibility of paying your taxes and insurance rather than having them included in your monthly mortgage payment. You can only waive escrows if your loan permits. This path may add an extra fee to your closing costs.
For most transactions, your lender will require a home appraisal to recommend any necessary repairs. If these repairs are included in your contract, then they must be completed before closing on your home. To verify that the repairs were completed, the appraiser will perform a final inspection.
When refinancing, your lender pays off your existing mortgage and then extends a new mortgage to you. Restarting your mortgage may sound like a step backwards, but the benefits of refinancing can outweigh the commitment to a new home loan. When you choose to refinance, you could be able to:
In general, if your mortgage rate is higher than current interest rates, then it’s typically a good idea to refinance. There are other circumstances in which it may be wise to opt for refinancing, such as:
The debt-to-income ratio, or DTI, is the percentage of your monthly income that is consumed by your monthly debt payments. To determine your debt-to-income ratio lenders use a three step process:
To put this in a true-to-life example, imagine your monthly recurring debts and forecasted mortgage payment total $1,000 and your monthly income is $4,000, your debt-to-income ratio would be 25%. Typically, your chances of qualifying for a home loan increase the lower your debt-to-income ratio is. If you need help determining your specific debt-to-income ratio, your First Choice Loan Services Loan Originator can help!
Most lenders will want your debt–to-income ratio to be no more than 36%. If your DTI is too high, there are several avenues you can take to lower it.
First Choice Loan Services can help you to understand the implications of your debt on your loan and determine practical paths to reducing monthly debts.