Is the Interest Rate the same as the APR?

The Annual Percentage Rate (APR) , as calculated under the Truth-and-Lending Act, combines the interest rate (stated rate or nominal rate) with other costs of the loan into a single figure. This number is supposed to reflect the true cost of borrowing and provide a standardized yardstick by which to compare financing from different sources. Keep in mind that APR may be calculated slightly different at each lender.

What is Pre-qualification? Does this mean I am Pre-approved?

Pre-qualification is based on your verbal application and no verification of income, employment, credit or value of home if performed. TheMIGroup Mortgage Resources will provide an opinion of your ability to purchase a home based on the information provided.

Pre-approval can be given once a full application has been obtained and credit has been pulled. This allows an underwriting decision to be made that you are conditionally qualified, subject to review of your completed application, credit check, appraisal and home inspection.

What is a “Rate Lock Commitment” and when should this be done obtained?

To ensure the interest rate you are quoted does not change prior to closing the borrower has the option to “Lock In” the rate. This is a commitment between the Borrower and the Lender that ensures a specified interest rate for your mortgage. A rate-lock commitment can be requested at any time prior to closing.

What is an Appraisal?

Once you decide to buy a house, you have to pay for an appraisal. The lender requires an appraisal as assurance that, if you default on the loan, the resultant foreclosure sale of your home will net enough cash to pay off your mortgage. An appraisal, should be provided by a licensed professional, and is an estimate of the value of the home you are purchasing. This should be one of the first things ordered in the loan process.

On conventional and FHA mortgages, the appraiser has 10 business days to return the appraisal. On VA loans, appraisals can sometimes take up to three weeks.

Appraisers use three approaches to evaluate the market value of real estate:

1. Comparative (market data) analysis, for single-family homes
2. Cost (summation) analysis, for public buildings and new construction
3. Income (capitalization) analysis for business and commercial property.

Comparative

The comparative approach, the most common, compares the recent sales prices of neighboring homes that are similar to the house being appraised. The appraiser first makes adjustments for variables such as size, number of rooms, condition, age and location. Then the appraiser evaluates environmental influences such as noise and air pollution as well as more abstract factors such as encroachments, zoning violations and easements. Although software is available to aid this process, appraisal is inexact and remains more of an art than a science.

The appraiser must reconcile the accumulated data and justify the assignment of a particular dollar value to the property. Appraisers typically round off figures because appraisals are only estimates of market value.

In any event, request a copy of the appraisal from the lender. If the loan falls through because of the appraisal, you are entitled to know why. If you do buy the house, keep the appraisal on file as a reference. If you decide to sell or refinance, you can compare it to the new appraisal.

Why get an Inspection?

Home Inspections

You have found a home and are ready to make an offer, you tell yourself: “I don't need a professional home inspection”.

Did you check for Lead paint, Radon gas, Carbon Monoxide? Are the Electrical, Plumbing and Sewer in order? Are there any structural problems, leaking roofs or rotting wood?

You can not always rely on word of mouth or the formal appraisal for reassurance about the house's condition. The appraisers often overlook mechanical and structural defects that are not readily apparent. An inspector that is working for you will find any of these concerns. Be sure to hire an experienced inspector that can provide references. The home inspection may cost a few hundred dollars but will ensure your dream home is worth the investment.

Finding the Right Inspector?

Inspectors can be found in the Yellow Pages under "Building Inspection," or check with your friends. Be sure to use a firm that's licensed and belongs to a nationally recognized association such as the American Society of Home Inspectors (ASHI). Make sure all fees are detailed upfront and exactly what the inspection will include.

We recommend you are present during the inspection and ask questions if something doesn’t make sense. You need to know all you can about the maintenance and repair of your investment.

What if Problems Are Found?

Problems are commonly found during the home inspection. While these are not always major they must be addressed with the seller. The seller should agree to fix the problem before closing, or to pay the cost of any necessary repairs. It is a good idea to get repairs made prior to closing but if this is not an option, the escrow company can hold back sufficient proceeds to guarantee payment. The buyer and seller usually negotiate through these developments, aided by lawyers and real estate agents, and the sale goes through.

Most sale contracts are contingent upon attorney approval and inspection. If seller and buyer can't agree on a resolution to problems revealed by an inspection, the deal may fall through.

Doing Your Own Inspection?

If you choose to do your own inspection you may later wish you hadn't. If this is your choice you must become a skeptic about every aspect of the home. Come up with a checklist (available from real estate agents, libraries and real estate publications). Know matter how good the home looks to your eye you may try to secure some protection; ask the seller to disclose known defects and to certify the condition of the home. You can always find a professional even after you have done it yourself. The best professional home inspectors carry with them years of experience and an assortment of specialized tools.

What Insurance is Required?

There are many types of insurance that will be discussed throughout the lending process but you will want to be sure you understand the types that protect you.

Homeowner's insurance is required by most lenders and covers your house, its surrounding property, its belongings and any liabilities resulting from fire, wind or other destructive force. You will need to discuss the specifics with your insurance provider.

Flood insurance is offered through the federal government under the National Flood Insurance Program (NFIP). The government manages the program because flood losses tend to be catastrophic, and private insurance companies cannot adequately measure the risk involved, according to the National Association of Independent Insurers. The policies are administered by the Federal Emergency Management Agency (FEMA), and are available only in communities that have met certain requirements. Even though it is a federal program, insurance agents are qualified to sell flood policies.

Title insurance protects both you the lender and is required by most Lenders. You will pay a one-time fee that will be part of your closing cost. Owner's title insurance protects you as the owner against any disputes over ownership of the property. Lender's title insurance covers the lender if there are any questions about ownership or liens against the property.

Private mortgage insurance (PMI) is paid by you to protect the lender from default that may occur. Most lenders require PMI if you have less than 20 percent equity in the home. If your down payment is more than 20 percent then will not have to purchase PMI. You can get PMI canceled form your loan when your equity (the difference between the market value of the house and the amount owed on the mortgage) reaches 20 percent.

What is Closing?

The closing is usually the final step in the home buying process. The buyer and seller meet with brokers and lawyers to sign the necessary mortgage documents and transfer ownership of the home to you. The closing can be held a title company, trust or attorneys office. When all goes well, you will leave with house keys to your new home.

Know What the Purchase Price Includes

The sales contract should clearly spell out "conditions and content" of the property. But make sure you know exactly what is included with the house's purchase price. Bookshelves, drapes, custom lighting fixtures, fireplace screens, garden ornaments, outdoor barbecues and backyard play equipment are among the items that the seller will likely remove unless otherwise specified. This should be discussed in the initial purchase agreement but make sure that all details are discussed during the final walk through and document prior to closing.

Make Sure your Lender is Ready to Close

Verify with your Lender that all conditions to close have been satisfied. Banks sometimes issue a preliminary approval pending the various credit, debt and resource checks. An unresolved late payment on a credit report could forestall the loan approval and delay the closing.

Get a Copy of your HUD1

A final HUD1 is required by the Lender prior to closing. Be sure to review all fees and know what you are expected to bring to closing. Most Agents require certified or cashier's checks, rather than personal checks, for any additional costs that may be due at the closing.

Agents and Attorneys

These agents can be your friends through the process so pick your real estate agent and attorney carefully. They are responsible for the details of the deal, and will determine how smooth your closing will be.