Frequently asked questions home loan


Q. What is the lowest credit score accepted for a home loan?

A. One of the best options for the borrower with a low credit score is the FHA loan. This type of mortgage will accept applications will a credit score of 580, which is enough to also qualify for the minimum 3.5 percent down payment. However, the Federal Housing Administration (FHA) will accept a credit score as low as 500 to refinance or buy a home. But, with a low credit score, the borrower should expect to pay a high rate of interest and a 10 percent down payment. Ideally, a borrower wants to have a credit score of 620 or more to apply and get accepted for a home loan with more favorable terms.

Q. Where do I go to search the available HUD homes?

A. HUD homes are a very inexpensive and practical way to get a first home for many buyers. Many of these homes will be in need of a little care and attention, which can range from foundation issues to minor issues related to carpets or paint work. If you are keen to see the available HUD homes you want to visit the official HUDHomestore site which is very easy to search using different criteria.

Q. Is it worth applying for a pre-qualification letter?

A. Many home buyers will find that it benefits to apply for a pre-qualification letter before moving into the process of finding a property. If you make a home loan application in advance, your chosen lender is able to provide a pre-qualification letter which essentially lets you know the amount the lender is willing to lend you. Also, with this letter in hand, you will be in a better position to work with real estate agents because you can easily prove you are a serious and qualified buyer. If you don’t make prior contact with a bank, the ability to search for a home and make an offer will be that much more difficult.

Q. Do I need to organize mortgage insurance?

A. Mortgage insurance is certain to be beneficial to every homeowner. For many types of home loans, it is a basic requirement to hold proper mortgage insurance for the entire duration of the loan period. The FHA loans are one type that states mortgage insurance is required.

Also, it is worth looking at other types of insurance that may benefit the home purchase. For instance, there is a need for many homeowners to take out appropriate flood insurance. This will be essential for any properties that are located in potential flood areas. A standard mortgage insurance policy does not extend to flood protection, so for this reason, homeowners should take out the extra coverage to ensure the family home is protected.

Q. Is it acceptable to borrow money to pay the down payment?

A. Yes, there is no reason why it would not be acceptable to borrow the required sum of money to use for the down payment. However, the loan will likely need to be secured with an assent you own as your collateral. For instance, if you have a finance-free car or other property, there may be the option to use that as a means to borrow extra funds. Also, in the process of applying for a home loan, it is generally necessary to declare the intention to borrow money for the down payment.

Q. Will a pension or second job be considered in the application?

A. Any extra income, such as a second job can be a great benefit in the process of being approved for a loan application. If you are able to provide proof of income for the primary and second job this can easily help to achieve the most favorable rates and terms. Also, there is the option to supply details of other sources of income, such as a pension or retirement plan. However, it is necessary to verify the length of time these payments will be made. Not all plans will provide income for the rest of the borrower’s life.

Q. Is there a difference between pre-qualified and pre-approved?

A. Any borrower that has obtained a pre-qualified letter has submitted only basic information that is enough for the lender to establish the likely loan package they would qualify for. But, the borrower that is pre-approved, they have taken it a step further and provided sufficient information for the lender to approve and underwrite a loan.

Q. What is meant by closing costs?

A. The closing costs are paid at the time of completing a home purchase, and likely to include documentation fees, pre-paid interest, attorney fees, title insurance fees and appraisal fees. The actual fees due will vary. A few of the factors that can influence the cost include the property location and type of mortgage. It is possible to ask for an estimate of the closing costs in advance to help prepare for this financial outlay.

Q. How do you define Annual Percentage Rate (APR) and interest rate?

A. The (APR) relates to the combined interest rate plus any prepaid finance charges or associated costs, such as processing fees, underwriting, private mortgage insurance and originals fees. On the other hand, the interest rate is the amount paid to the lender on a monthly basis for the balance on the mortgage. Also, it is useful to know the APR because this can be used to gauge the cost of your mortgage with other lenders in the market.

Q. What costs are included in the monthly mortgage payment?

A. Any fully amortizing home loan will consist of a monthly payment that is based on the interest and principal amount due. However, for the interest-only home loan, there is only a need to pay a sum that covers the interest due on the loan balance. Also, the monthly fee may be inclusive of a mortgage payment fee, homeowners insurances and property taxes.