VIP Home Loan F.A.Q.

Question: What is the difference between and Pre-Qualification and a Pre-Approval?

Answer: Pre-Qualification indicates your credit, income, cash assets matches the criteria for a particular type of home loan product. A pre-qualification letter has not had documentation reviewed or an automated underwriting. A pre-approval is given only when you have turned in documentation to a lender proving that your credit, income, cash assets are actually in place and meets the underwriter’s requirements for the particular type of loan you are requesting. A pre-approval with documentation and automated underwriting is the strongest document you can provide to a Realtor or Builder indicating money will be available to fund the home loan you will need in order to purchase the property you are requesting to have an offer considered on. No seller ever wants to tie up their property with anything less than an actual “Pre-Approval”.

Question: What is the Owner’s Title Policy?

Answer: If a title issue arises at any time during your ownership of the property, from previous owners, you would be covered against liens or judgements filed against the property. An example would be landscaping of the home a year before you purchased the property. The landscaper was never paid the $4,500.00 owed to the company. The landscaper has filed a lien against your property. The Owner’s title insurance would defend you, as this lien was not of your making, but of the prior owner. The title policy will protect you from prior activity that did not get paid by the prior home owners or contractors.

Question: What is the Lender’s Title Policy?

Answer: The lender’s title policy is based on the amount of the loan in most cases. The mortgagee is the lender and this protects the lender from loss caused by invalidity or unenforceability of the mortgage lien. The invalidity might occur due to defective title or against loss of first lien position. An example would be an IRS lien which steps in front of the lender’s first lien position.

Question: Why is a survey necessary?

Answer: All Lenders need to know where the property lines are. You as a home owner need to know for purposes of building a fence, patio, extending a drive way. You need to know how far do my property lines extend. When a survey is completed, especially for the purposes of securing a home loan you will know that current property meets the current building and zoning requirements/codes for the City or County the property sets in. Further you will know if a neighbor’s property is encroaching on your property. Your survey will come with the registered surveyor’s seal, which is proof the survey was completed by a registered professional surveyor.

Question: Why does a lender collect real estate taxes and insurance in the mortgage payment?

Answer: Good question. While you may have purchased a fixed rate loan, therefore your principal and Interest will remain the same until you sell or pay off the home, every year you have two items which generally increase. Real estate taxes and home owner’s insurance are two moving targets, which generally increase approximately 2.5% per year. Lenders must have proof the real estate taxes and insurance are being paid when the bills come due annually. If you are placing less than twenty percent down, you will be escrowing on a monthly basis inside your payment, real estate taxes, home owner’s insurance and any applicable lenders default risk insurance.

Question: What allows a lender to waive the escrow payment?

Answer: When purchasing if you place a twenty percent down payment, along with additional savings left in the bank after closing and healthy credit score, generally you can request to hold your own escrow and pay your real estate taxes and home owner’s insurance on your own. Just be honest with yourself. The question is are you a good book keeper? If you are, then go down the path of non-escrow.

Question: What are valid reasons to refinance?

Answer: One should consider not only saving on the note rate, i.e. the interest rate, but also on reducing or eliminating the lender’s default risk insurance and reducing the loan term. These three elements are the reasons one would carefully consider the pros and cons of refinancing.

Question: What are the most common loan types for first time home buyers?

Answer: FHA with as little as 3.50% down payment. USDA with no down. Conventional
97.00% HomeReady program. All three of these programs do have required
monthly escrow of real estate taxes, home owner’s insurance and lenders
default insurance.

Question: Why are prospective home buyers told not to make any large purchases or take out new revolving debt during the home search, processing and closing stage?

Answer: Any debt taken out will increase your debt to income ratio (DTI) and may cause one not to be able to purchase as much home as requested. Further, you want to show your best light as a good credit risk to underwriters. So be safe and sensible with debt, please. Also you do not want to jeopardize the good score you have been building.