» Q & A

Questions and Anwsers

Q: Are low down payment options available for buyers who can't afford a 20%
down payment?

A: Although loans were widely available to people putting less than 20% down during
the real estate boom of the late 1990s and early 2000s, lenders have since become much
more cautious. Even if you can afford high monthly mortgage payments and have a high
credit score, you may have trouble finding loans requiring as little as 5% to 15% down -
- and the loan you find will likely require you to pay a much higher interest rate and more
points than if you'd made a larger down payment.

The exception are FHA-insured loans, which make provision for buyers with lower than
optimal credit scores and unable to make down payments. More and more homebuyers
are using these -- but you need to meet separate qualification criteria. See an experienced
mortgage broker for help.

Also, if you put down less than 20% or use an FHA-backed loan, you will likely have to
pay for mortgage insurance (MI).

Q: Can I borrow the funds for the down payment?
A: Yes. It is possible to borrow against an asset that you currently own for the down
payment. For example you can borrow against your 401(K), assuming that your company
plan permits it, and you could also borrow against your current residence to purchase a
new one (i.e. a bridge loan or an equity line). You may also borrow against your fully
invested stock portfolio, avoiding the tax consequences of selling prematurely.
Q: Does it make sense to pay more points for a lower interest rate?
A: Whether to pay an upfront fee known as "points" in order to lower your mortgage
interest rate can be a tough decision -- there you are, making one of the largest
purchases of your life, and you have to come up with a few more thousand dollars by
the closing. However, over time the savings in interest payments can be well worth that
initial financial stretch.

One point is 1% of the loan principal; for example, if you were borrowing $250,000 at
two points, you'd pay $5,000 up front. There is normally a direct relationship between
the number of points lenders charge and the interest rates they quote for the same type of
mortgage, such as a fixed rate. The more points you pay, the lower your rate of interest,
and vice versa.

Before deciding whether it's worth paying points, factor in how long you plan to own
your house. The longer you live there (or pay down the mortgage), the better off you'll be
paying more points up front in return for a lower interest rate. You'll reach a break-even
point, when you've worked off what you spent on the upfront payment via your monthly
savings. On the other hand, if you think you'll sell or refinance your house within two
or three years, it's a better idea to get a loan with as few points as possible, since you're
unlikely to reach that break-even point.

A good loan officer or loan broker can walk you through all your options and trade-offs
such as higher fees or points for a lower interest rate.

Q: How can I avoid having to get mortgage insurance on my loan?
A: Many borrowers who have less than a 20% down payment, choose a combination first
and second mortgage (referred to as a piggyback loan) to avoid mortgage insurance (MI).
The most common method of financing without MI is an 80-10-10 (an 80% 1st mortgage,
10% 2nd mortgage & a 10% borrower down payment). Also available is an 80-15-5
(requiring an 80% 1st mortgage, 15% 2nd mortgage & a 5% borrower down payment).

Due to market crisis, it is not easy to find a lender to carry a second loan with CLTV

(combine loan to value ratio) over 80%

Q: How can I find a qualified, reputable CPA to advise me?

A: There are always the "big five" accounting firms to rely on and referrals from family
and friends are also advisable. Another helpful on-line resource for finding qualified
professional service providers in your area is www.valuestar.com. Also check out

Q: How do I find out information about local neighborhood schools?
A: If you are working with a real estate agent, your agent should have information on the
school test scores in your selected area. You may also contact the neighborhood schools
directly for information. Comprehensive on-line resources for school information are at
www.theschoolreport.com and www.greatschools.net.

Q: How do I hold title?
A: Click here for the Answer (PDF)

Q: How do I know if it makes sense for me to refinance?
A: First determine your financial mortgage related goals: i.e. are you looking to improve
your monthly cash flow, reduce your mortgage term, do you need to take out cash
utilizing the equity from your home? Obtaining the right mortgage for your particular
needs could make sense even when rates are not at their lowest levels. First identify your
goal and contact a mortgage professional for suggestions on mortgage programs that
would best help you meet your objectives. Then shop for rates after you have selected the
appropriate mortgage program.

Q: How do I know if my rate will reset?

A: If you hold an adjustable-rate mortgage, or ARM, your rate will reset by definition on
one or more "change dates," with the largest hike coming at the end of an introductory
or "teaser" rate period of anywhere between one month and 10 years.

For instance, a 3/1 ARM will reset after the first three years, a 5/1 ARM after the first
five years and so on.

Q: How long does it take to get pre-qualified or pre-approved for a loan?
A: Loan pre-qualification can occur in a matter of minutes, in the time required to
communicate your financial circumstances to a lending professional so they can crunch
the numbers. Loan pre-approval could involve more time up to 1-3 days to gather the
applicant's income, asset and credit documentation and to have an underwriter review it.
Whether you are requesting a pre-qualification or pre-approval, ask for it in writing. Both
your real estate agent and a potential seller will want a letter from your lender.
Q: How much Homeowner's insurance coverage will I need to close the new

A: A safe bet is to buy a guaranteed-replacement-cost policy that will generally pay out
20-50% more than the face value of the policy to rebuild your home (this is also the
preferred policy of lenders). A replacement-cost policy typically adjusts the amount
of insurance each year to keep pace with rising construction costs in your area. It is
important to note that local building codes require structures to be built to specific
standards which could vary over time, if your home is severely damaged, you may be
required to rebuild it to current codes. Even guaranteed-replacement-cost polices do not
always cover this expense. However, many insurers offer an endorsement that will pay
for the upgrading cost, it is a good idea to consider adding such an endorsement to your
replacement-cost policy.

Q: How much will my rate reset?

A: The amount of your rate reset as defined by your mortgage contract is a factor of three
components -- the index, the margin and the limit, or "cap."

The index, as its name implies, is based on the interest rate or bond yields in other

markets. Typical indexes used in ARMs include a handful of acronyms: COFI (cost of
funds index, based on Western U.S. banks), MTA (monthly Treasury average of one-
year Treasury bills), LIBOR (London Interbank Offered Rate, the wholesale bank money
market rate in London) and CMT (constant maturity Treasury bill average).

The margin is an additional percentage that your mortgage company charges for its

The cap places limits on the maximum percentage your mortgage rate can be raised in
a given period. Typically, an ARM will limit the initial reset, subsequent annual resets
(periodic cap) and the maximum (lifetime cap) increase for the term of the loan.

When your mortgage "change date" arrives, your rate will adjust to the index interest rate
on that day, plus an additional margin percentage as specified in your mortgage.

For instance, let's say you have a 3/1 ARM at an introductory rate of 5 percent. The
index interest rate on your mortgage has risen to 7.5 percent after three years and the
margin rate in your contract is 1.5 percent. Starting in the fourth year, your 5 percent
ARM would reset to 7.5 percent with a 1.5 percent margin, for a new mortgage rate of 9

Q: I already own a home and I am looking to move up, do I need to sell or list my A:
current home prior to making an offer on a new property?

A: In the current seller's real estate market, many buyers searching for property do not
have the luxury of making an offer contingent upon the sale of their current residence.
The solution may be either equity or bridge financing for those buyers who need the
sale proceeds from their home in order to buy a new residence. These loans would be
secured against their existing residence and would provide interim financing for the new
residence until the property is actually sold. If a buyer does not need the equity from their
current residence in order to purchase a new residence and they can qualify for a new
loan carrying both the mortgages on the existing and the new residence, they could elect
not to sell their existing residence or could choose to rent it.
Q: I am a first time buyer, what is the best way to get started looking for a home?
A: The first step a potential buyer should take is to get pre-approved by a lender so
that you know how much you can afford to purchase before starting to actually look
at property. After pre-approval, the next step would be to locate a real estate agent or
reliable internet resource that can help you determine where and what you would like to
Q: I am purchasing a condo (or townhouse or PUD) and I am aware that the HOA
is currently in litigation with the developer, will I be able to obtain financing in the

A: A Homeowner's Association could leave itself open for legal action if it doesn't act
on legitimate building defects or disclose these defects to prospective buyers. However
the fact that an association is suing a developer can impact a potential buyer's ability to
obtain financing. It is vital to let your lender know up front if the development or project
you are making an offer on is in litigation. It is usually possible to obtain financing in
such situations, but it will limit the number of lenders who might be able to finance your
purchase. In some cases the lender may require a larger down payment and the interest
rate could exceed that of standard financing programs.

Q: If I get mortgage insurance, how can I eliminate it?
A: In July of 1999, legislation became effective which requires mortgage insurance (MI)
companies to terminate their borrower paid insurance policies once a borrower's loan
balance reaches 78% of the original property value for a conventional loan(there are

exceptions to this law, i.e.
lender paid (MI), so read your mortgage insurance disclosures carefully). Borrowers
are entitled to receive a refund of the unearned portion of the unused tax and insurance

premium they paid once
the mortgage insurance policy is canceled. Additionally, all loans with borrower paid
mortgage insurance policies which closed on or after 7/29/99, lenders are required to
notify borrowers annually of their rights surrounding the cancellation process.

Q: If my development (or project) has an HOA, what type of insurance am I
expected to obtain independently?

A: The master insurance policy, which is purchased on behalf of all unit owners by
the HOA, covers all units or structures located within the development but does not
typically cover an individual unit owner's personal belongings located within their
dwelling. Now the seconday market investors request additional insurance, HOB for 

all condos.

Q: Is it best to pay points up front to reduce the interest rate?
A: When points are paid on a loan, the result is to buy down the interest rate, typically
1 point (or 1%) will buy the rate down .25%. The key to analyzing whether paying
points makes financial sense is to determine: How long do you anticipate remaining
in the property? When would the breakeven point occur? For example if you pay two
every year you will save 0.5 points. So you will get year 2 points back in about 4 years.

The longer you stay on the property the more you will gain in the coming years.
savings of $103/month equaling 58.25 months or 4.85 years to break even. You would
want to hold the loan and remain in the property approximately 5 years for this to make
sense. Other factors to consider are the tax implications of paying points (see our link to
the IRS website) as well as the time value of money (could you put these funds to better

Q: Is it important to find an agent that works primarily in the neighborhood where
I would like to live?

A: If you seek the assistance of a selling agent, (an agent who works with buyers rather
than sellers) they frequently work with buyers who do not always know what area they
would like to concentrate their search in and therefore these agents become familiar with
a wider range of neighborhoods. It may be advisable to select an agent who is familiar
with the county you are searching within. Although when listing a property for sale, an
agent with a thorough knowledge of a particular neighborhood may produce the best
Q: Is it necessary to get pre-qualified before making an offer on a property?
A: It is always a good idea to have a lending professional or service evaluate your
finances and render a determination of your loan qualifications prior to actually looking
for property. To avoid frustration, before setting out to make an offer, know what loan
amount you could likely qualify for.
Q;Is it possible to get a gift from a relative for 100% of the down payment?
A: Yes. A relative may provide 100% of the down payment as a gift, but the lender will
likely ask that a letter be signed by the donor relative stating that the gift funds are not
expected to be repaid. Also many loan products require a 20% down payment if the
source of the down payment is exclusively from gift funds. Although it is worth noting
that many portfolio lenders (i.e. banks & savings banks) may have smaller down payment
requirements when the source is a gift from a relative.
Q: Is it possible to obtain a no cost loan on a purchase mortgage?
A: Yes. The rate may vary depending upon the costs the buyer is responsible for paying.
For instance, the party paying for title and escrow fees is determined by your purchase
contract and is based upon the custom of the county you are purchasing within. If the
seller or builder is responsible for paying these big expense items, it is easier for a buyer
to obtain a no cost loan. If the buyer is the party responsible for covering these expenses
it may still be possible to obtain a no cost loan although the rate may be higher than it
would typically be for no cost financing.

Q: Is it possible to obtain a no cost mortgage when refinancing your mortgage?

A: Yes. In fact no cost mortgages are extremely popular among refinancers. Because
a borrower pays no non-recurring closing costs, it is easy to analyze how soon money
is saved on a monthly mortgage payment by refinancing. Many homeowners will
consider refinancing for as little as .25% improvement to their mortgage rate with no-cost
mortgage financing.

Q: I've always heard about the 2% rule when refinancing, is it important?
A: This rule is somewhat obsolete due to the variety of closing cost options that exist
today. With the proliferation of no cost and zero point mortgages, a potential refinancer
can recoup the costs of refinancing very rapidly if not immediately. The 2% rule may be
a helpful tool when paying both points and closing costs in order to refinance.
Q: Must I also have earthquake insurance coverage?
A: The lender should not ask you to add quake coverage to your standard policy unless
your property is located in an earthquake hazard zone.
Q: Must I have flood insurance coverage?
A: The lender should not ask you to obtain a flood policy unless your property is located
in a flood hazard zone.
Q: Must I obtain financing from the lender my real estate agent (or the builder)

A: You are never required to use the referred (or preferred) lender of a real estate agent
or builder. Most real estate agents will provide their clients with 2-3 potential sources for
financing, typically agents have access to an in-house lender as well as several outside
lenders who they have had good experiences working with. The referred lenders may or
may not offer the best array of loan products or the lowest rates. It is always a good idea
to do some loan investigating on your own and if you find that the referred lenders do
offer competitive pricing then you can make both yourself and your agent happy. But if
you have a complicated transaction (i.e. an unusual property) or if you have problems
with your loan application (i.e. bad credit), you must be certain to disclose everything to
any potential lender you communicate with are certain you are making an "apples to
apples" comparison of lenders. Large builders often have their own mortgage companies
or affiliated financing partners who they prefer buyers within their developments use;
sometimes the builder will offer loan closing cost concessions to buyers who opt to work
with their preferred lender. But the same common sense would apply, do your homework
carefully before committing to any lender and always be careful when shopping that
you are making a valid loan comparison (i.e. same rate, points, closing costs, rate lock
duration, etc).
Q: Once the offer is accepted, how long will it typically take to close the transaction?
A: This can vary from one transaction to another, depending upon seller and buyer
contingencies. But in a tight seller's market, the typical closing will occur within 30-
45 days. In a buyer's market, where there are many properties available for sale, closing
could usually occurs within 30-90 days.
Q: Should I lock my interest rate at loan application or float the rate until closing?
A: The answer depends on one's outlook for interest rates, whether you are satisfied
with the current rate being offered (and would not be deterred from proceeding if rates
declined), how far out the closing date is and whether or not a rate increase could affect
your ability to qualify for the loan. With a purchase, there is a contractual obligation
to close on a specified date. Some lenders try to take the guess work out of the process
by allowing borrowers to lock and then float the rate down one time during the loan
process , typically a borrower is required to bring in a fee of ½-1% of the loan amount
which is then credited (or refunded) to them at closing. It is a lock fee the lender requires
to insure the transaction will in fact close.

Q: What are the benefits of a loan modification?
A: Payments reduced to that you can afford.
Lock in low fixed rate to achieve target modified payment.

Principal balance reduced to remove or restructure negative home equity.

Foreclosure may be prevented at the end of a successful loan modification.
Late payments & fees restructured to give you a fresh start.

Q: What are the pros and cons for each title investing?

A: Click here for the Answer (PDF)

Q: What documentation will the lender typically require from me to process my

A: The answer depends upon the quality of your credit and the size of the down payment

you will be making. On a typical fully documented loan application (where an applicant
is seeking to qualify based on an employee's salary), the lender will require: one month's
current paystub's, W-2's for the prior two years and bank and investment account
statements for the prior 2-3 months. If an applicant is self employed (has a 25% or greater
ownership in a business) then additional documentation could be required (i.e. 1040's,
1165's, 1120's, P & L statement).

Q: What expenses are typically covered in the HOA dues?
A: HOA dues cover the general maintenance and upkeep of all common areas within
the development. These dues also contribute to the premium payments for the master
policy of insurance, which protects all unit owners. Also included in HOA dues are major
repairs not covered by insurance, the HOA could handle these unexpected expenses by a
special assessment of all unit owners or by raising the association dues.

Q: What financial documentation will I need to provide to get a loan?
A: The neurotically organized people have the last laugh on this one. Simply to get
preapproved for a loan, the lender will ask for all kinds of paperwork, such as your pay
stubs for the last 30 days, two years' tax returns (plus W-2s or business tax returns if
you're self employed), proof of other income and assets, three months' bank records for
every account you have, proof of where your down payment will be coming from (such
as a bank statement and/or a gift letter with the gift giver's bank statement), the names,
addresses, and phone numbers of your employers and landlords for the last two years,
and information about your current debts, including account numbers, monthly payment
amounts, and so forth.
Then, before the loan closes, the lender may ask for follow-up data. Likely examples
include proof of where a particular deposit came from or a letter from your employer
explaining discrepancies between your year-to-date income shown on your paycheck
and the amount you actually earned over the most recent pay periods (a common issue

as workplaces have raised and lowered people's salaries with fluctuations in the economy).

Q: What if all I have is negative equity but I am current on my mortgage?
A: This is a top question in hard hit areas across the country. Home values have dropped
and you can not refinance. Even worse your #1 investment has lost it's value and you
are upside down. In many cases homeowners are able to reduce their principal balance
through loan modification. 

Q: What is a FICO Score?
A: FICO, Fair Isoac Corporation scores are numeric representations of your credit profile. The

higher the FICO
score the better credit risk you are.  Range is from 300 to 850 the medium score is about 723

Q: What is a Loan Modification?
A: A loan modification is when your mortgage note is modified without refinancing.
Homeowners struggling with payments, negative equity and loss of income are receiving
loan modifications at a record pace. Homeowners may be able to have their rate, payment

and even principal balance lowered. Lenders may accept a loan modification
offer if presented correctly with the right documentation. It is in their best interest to
accept a loan modification rather than deal with a foreclosure.

Q: What is a loan prepayment penalty and is it generally advisable to get a loan that
has one?

A: A prepayment penalty on a loan allows the lender to charge a borrower additional
interest, typically six months worth, when a loan is repaid during the penalty period,
which is usually somewhere in the first three to five years of the loan. If a loan does have
a prepayment penalty, this is clearly stated within the mortgage disclosures, mortgage
note or prepayment penalty rider to the note. The advantage of taking a loan with a
prepayment penalty is that it could carry a lower rate of interest or you may be permitted
to take a loan without paying for non-recurring closing costs.
Q: What Is A Loan To Value (LTV).. and how does It determine The Size Of The

A: LTV stands for loan-to-value, which is the ratio of loan mortgage-related debt to the
property's value. The LTV ratio reflects the amount of equity borrowers have in their
homes. The higher the LTV the less cash homebuyers are required to payout of their own
Q: What is APR and how is it calculated?
APR stands for annual percentage rate and its purpose is to give borrowers a truer
representation of the effective interest rate on their mortgage. APR factors in certain
closing costs and fees and spreads these costs over the life of the mortgage, along with
the note rate, to arrive at a more accurate annualized percentage rate than the note rate
alone represents.
Q: What is mortgage insurance and am I required to have it?
A: Mortgage insurance (MI) is paid by the borrower to protect the lender against payment
default on the mortgage and is required when only one lender is financing in excess of
80% of the value or purchase price of a property. It can also be required at other times
if the lender perceives a higher risk associated with a particular loan program. There
are financing options limited down payment borrowers can employ to avoid mortgage
insurance for example, obtaining both a 1st and a 2nd mortgage rather than applying with
one lender for a 1st mortgage over 80.00%.
Q: What is the best way to shop for a loan?
A: It is a good idea to contact at least three lenders for input on loan programs and
rates. You can do all of your shopping on-line or by phone. If there are any usual twists
to your loan scenario, it is best to disclose as much information up front as possible to be
certain you are making an "apples to apples" loan comparison amongst lenders. When
making loan comparisons, you must be sure you are comparing loans of similar terms,e.g.
30 years fixed with zero points, do the loans you are comparing have
prepayment penalties and do they have similar rate lock duration's?
Q: What is the difference between a zero point and a no cost loan?
A: With a zero point loan, a borrower has opted not to pay points to buy their interest
rate down but will still be paying for their base closing costs (i.e. appraisal, credit report,
lender doc fees, title and escrow, etc.). With a no cost loan, a borrower has accepted a
higher interest rate, (typically .25%-.375% higher than on a zero point loan) with the
trade off that the lender or broker will pay for all their non-recurring closing costs (all
base closing fees except for interest, taxes and insurance due).
Q: What is the difference between loan pre-qualification and pre-approval?
A: A pre-qualification occurs when a prospective buyer discloses, either verbally or by
providing documentation of, their income, assets and credit so that a loan agent may
determine the loan amount that a buyer could likely qualify for based on standard lending
guidelines. A pre-approval involves an underwriter (the lender's risk evaluator) actually
reviewing a prospective buyer's loan application with a formal credit determination
occurring that is subject to an appraisal, title report and purchase contract, along with
whatever supporting documentation the underwriter may request.

Q: What is the HAMP (Home Affordable Modification Program)
A: The Home Affordable Modification Program (HAMP) is designed to help as many as 3 to 4

million financially struggling homeowners avoid foreclosure by modifying loans to a level that

is affordable for borrowers now and sustainable over the long term. The program provides

clear and consistent loan modification guidelines that the entire mortgage industry can use.

Borrower eligibility is based on meeting specific criteria including:

1) Borrower is delinquent on their mortgage or faces imminent risk of default

2) Property is occupied as borrower's primary residence

3) Mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no

greater than $729,750 for one-unit properties.

 After determining a borrower's eligibility, a servicer will take a series of steps to adjust the

monthly mortgage payment to 31% of a borrower's total pretax monthly income:

 First, reduce the interest rate to as low as 2%, Next, if necessary, extend the loan term to 40 years,

Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive

interest on the deferred amount.

Note: Servicers may elect to forgive principal under HAMP on a stand-alone basis or before any

modification step in order to achieve the target monthly mortgage payment. The Home Affordable

Modification Program includes incentives for borrowers, servicers and investors.

Q: What is the minimum down payment typically required to purchase an
investment or rental property?

A: The down payment requirement can vary depending upon how tight money is in the
economy at the time you are purchasing and can also vary amongst lenders. For example,
lenders who underwrite their loans to meet Fannie Mae's and Freddie Mac's guidelines
may require a 20-30% down payment (although there have been times when they
required as little as 10% down). But portfolio lenders (i.e. banks & savings banks) may
have looser down payment restrictions. Check with your loan coordinator, but the typical
down payment required to receive the best non-owner occupied rate would be 20-30%.
Q: What is title insurance and why do I need it?
A: Before you purchase a property or close on a new loan, it's essential to know that
the title to the property will be free and clear, free of prior defects and indebtedness.
A homeowner and prospective lender need to be certain that what is available on the
property is what is referred to as a "marketable title". A title company researches the
legal history of the property which entails searching public records in the offices of the
county recorder. Problems with the title could threaten the mortgage, limit ones use and
enjoyment of the property and could result in financial loss. A policy of title insurance
protects a homeowner's title and the insurer covers the cost of any legal challenges.
Q: What kinds of government loans are available to homebuyers?
A: Several federal, state, and local government financing programs are available to
homebuyers. The two main federal programs are:

FHA loans. The Federal Housing Administration (FHA), an agency of the Department
of Housing and Urban Development (HUD), offers insurance backing to loans made to
U.S. citizens, permanent residents, and noncitizens with work permits who meet financial
qualification rules. Under its most popular program, if the buyer defaults and the lender
forecloses, the FHA pays 100% of the amount insured. This loan insurance lets qualified
people buy affordable houses. The major attraction of an FHA-insured loan is that people
with passable credit scores can put down as little as 3.5%. Another plus is that, unlike
with conventional loans, FHA-backed loans allow the entire down payment and costs to
come from a gift (perhaps from family). For more information on FHA loan programs,
contact a regional office of HUD or check the FHA website at www.hud.gov.

VA loans. U.S. Department of Veterans Affairs (VA) loans are available to men and
women who are now in the military and to veterans with honorable discharges who
meet specific eligibility rules relating to length of service, credit history, and recent
employment. The VA doesn't make mortgage loans, but guarantees part of the house loan
you get from a bank, savings and loan, or other private lender. If you default, the VA
pays the lender the amount guaranteed and you, in turn, will owe the VA. This guarantee
makes it easier for veterans to get favorable loan terms with low or no down payment and
no PMI. For more information, check www.va.gov or contact a regional VA office for

Other government loan programs. For information on other government loans, contact
your state and local housing offices. They often have programs available for first-
time homebuyers who are purchasing modestly priced properties. To find your state
housing office, check the State and Local Government on the Net Directory at http://
statelocalgov.net. Or go to your state's home page, where you may find the listing for
your state's housing office.

Q: What Types Of Loans Are Available?

A: Fixed Rate Mortgages: Payments remain the same for the life of the loan

Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular
schedule with changes in interest rates; increases subject to limits

Q: When getting an investment or rental property, what is the difference in rate
for non-owner occupied vs. owner occupied financing?

A: Conforming non-owner occupied rates are typically 3/8% higher than owner occupied
interest rates. The down payment or equity requirement is usually higher for non-owner
occupied loans as well, typically 20-30%+.
Q: Why do I need to pay for another policy of title insurance when we already own
the property and purchased title insurance when we bought the house?

A: Before closing your new mortgage, your new lender must be certain that the title to
the property will be free and clear, free of prior defects and indebtedness. A new policy
is needed to protect the new lender and subsequent investor of your new mortgage. Both
a homeowner and prospective lender need to be certain that what is available on the
property is what is referred to as a "marketable title". A title company researches the
legal history of the property that entails searching public records in the offices of the
county recorder. Problems with the title could threaten the mortgage, limit ones use and
enjoyment of the property and could result in financial loss. A policy of title insurance
protects a homeowner's title and the insurer covers the cost of any legal challenges.

Q: Why do lenders require gift letters from people giving me money to buy a house? And

what should my letter say?
A: Many homebuyers get help from family in making their down payment. That's fine,
but the lender wants to make sure the gifts aren't disguised loans -- in which case your
debt burden is greater than you're pretending it is, and you may have trouble repaying the
bank or institutional lender.
For this reason, lenders routinely require "gift letters" of anyone contributing money to
your house purchase.
The letter itself can be fairly simple -- in fact, the lender may give you a form to fill out.
It should say something like:

To Whom It May Concern:

We [donor's names] hereby certify that we have made [or will make, on a stated date]
a gift of $[amount] to [names of recipients], our [child, sibling, grandchild, or other
relationship between recipients and donors], to be applied toward the purchase of the
property located at [address].

No repayment of this gift is expected or implied either in the form of cash or future

[Sign and date]

You'll need to give the original signed version to the lender.

Of course, a signed letter is no guarantee that you haven't made a separate verbal
agreement with your donor that you'll repay the money. But doing so would constitute
mortgage fraud -- a crime punishable by fines and jail time.

Q: Will the lender require a fee to lock in my interest rate?
A: For a traditional 30-90 day rate lock, the lender will not require the borrower to
pay a lock fee, but for the privilege of locking for a period beyond 90 days they may.
Some lenders allow borrowers to lock and then float the rate down one time during
the mortgage process, typically a borrower is required to bring in a fee of ½-1% of the
mortgage amount which is then credited (or refunded) to them at closing. It is a lock fee
the lender requires to insure the transaction will in fact close.




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Our quote will have the following assumptions:
  • Single Family Residence
  • Owner occupied
  • Good credit history

CA BRE # 01183936 NMLS # 235684
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