What’s the difference between “pre-qualified” and “pre-approved”?
A pre-qualification is an informal determination of how much of a mortgage you qualify for based on un-substantiated information. Your credit will not be pulled, and hence your credit report not examined. Income and assets will also not be verified. A pre-qualification is a rough estimate, used when you just begin exploring your options, ie “kicking the tires”.
However, a pre-approval carries far more weight. With a pre-approval, your credit report is pulled by the lender (not by you) and evaluated for score, mortgage lates, bankruptcies, etc. Additionally, you will have completed a Uniform Residential Loan Application (what we in the business call a “1003”), which provides a complete financial picture to your mortgage professional. Depending on the application, your mortgage professional may ask to see supplemental documentation, such as W-2s and bank statements. A pre-approval is a commitment to you, by the lender, or provide a home loan based on certain conditions (ie property appraises for appropriate value, 24-mo chain of title is demonstrated, etc).
To begin the pre-approval process with our mortgage lender, Keystone Funding, go to our Get Pre-Approved page. There is no application fee, no credit report fee, and no obligation or commitment.
What Credit Score do I need to get pre-approved for a home loan?
This will depend on other factors, such as amount of down payment and how the property will be used (ie primary residence, investment property), but at a minimum you need a 550 “middle” score. Your credit score is computed separately by three bureaus: Equifax, Experian, and Transunion. The middle score of those 3 credit bureaus is used for loan approval.
Are there any special home loan programs?
Yes. There are loans available for all qualifying borrowers that allow as little as 3% down, with no monthly mortgage insurance. There are also federal programs that allow 0% down payments, such as through the USDA (for qualifying properties) and Veterans Administration (for military personnel).
Besides the down payment, what other costs are involved?
When a property changes ownership, a Transfer Tax must be paid. Typically the total Transfer Tax (in Pennsylvania) is 2.0%, and is customarily split between buyer and seller. There will also be a recording fee, in the $200 ballpark, paid to the County Clerk in the local jurisdiction for recording the new Deed.
If you are getting a mortgage loan to finance the purchase, there may be additional costs, such as an Appraisal Fee. However, when you finance the home purchase, our lender Keystone Funding can arrange a “Lender Rebate” to cover some or all of your closing costs (except down payment).
What are closing costs, and are they the same as settlement charges?
“Closing costs” are the true costs associated with obtaining the new mortgage, ie what the new loan is actually costing you to obtain. Some of these closing costs may be paid to the lender, other closing cost items are paid to various third-parties, such as the appraiser, title/settlement company, and state/county governments. Total closing costs vary, depending on purpose of loan (ie purchase or refinance), loan amount, and property value. You will receive a Loan Estimate of closing costs within 3 days of your application that is guaranteed to be within 10% of your actual closing costs.
“Settlement charges” are a broader category, and include closing costs, prepaids, and escrows. “Prepaids” are items like your first pro-rated mortgage payment (collected at settlement, then you skip the next month’s payment), or a new homeowner’s insurance premium you may have to pay to your new insurance company. “Escrows” refer to a reserve account you set up for paying future property taxes and homeowner’s insurance premiums.
When will I know the exact amount of funds needed for settlement?
Your “Funds to Close” are determined after the title/settlement company has prepared the HUD-1 settlement statement, based on the closing instructions sent to them by the lender. This is part of the closing document preparation. Your HUD-1 settlement statement is typically available at least 48 hrs prior to closing.
Can I choose my own appraiser?
If you are getting an appraisal for the purpose of a mortgage loan, then no. Per the federal guidelines set forth by the Appraiser Independence Requirements, the appraisal used for mortgage qualification must come from an independent third-party, and cannot be influenced by any parties to the transaction. This includes the mortgage lender, ie the appraiser cannot have any relationship to the mortgage lender, or to the borrower.
Can I use a personal check for funds due at settlement?
No. A certified check or wire transfer is required for funds due at settlement. The exception is if the amount due is small, ie less than $500. The reason for this requirement is that the funds must be guaranteed, so waiting for a check to clear cannot be an option.
What is an escrow account? Do I need to have one?
An escrow account is a small reserve held by the lender servicing your loan for the purpose of paying, on your behalf, your real estate taxes and homeowner’s insurance.An escrow account is like a no-fee checking account- you deposit money into this account, and your loan servicer uses that money to pay taxes and insurance on an annual or semi-annual basis. The funds in the escrow account are your money, and will be returned to you should you ever close the escrow account (such as when you refinance, or sell the home). Escrow funds will be collected at settlement, and also each month with your mortgage payment. The amount required for your escrow deposit is determined at the time closing documents are drawn (ie a few days before settlement), and is based on the date the next tax/insurance payment is due, and how many payments will have been collected by that time. Additionally, a 2-3 month cushion of is collected. So for instance, if your next annual property tax payment will be due after 8 payments on the new mortgage are collected (so loan servicer has only collected 8 of the needed 12 months), 4 mos + 2-3 mos cushion will be collected at settlement for tax escrows.
Escrow accounts are required on all FHA, VA and USDA loans. However, on a Conventional (ie non-government) or Jumbo loan, you may have the option to waive escrows, and thus pay property taxes and insurance on your own.