Mortgage FAQ’s

home purchase faqs

There are THREE kinds of “Pre-Approvals”:

  • The “Pre-Qualification” – This one may be the most common, fastest and least It’s done over the phone and based solely on a conversation. A Loan Originator asks about your income and assets, then usually obtains and reviews a credit report. All they can conclude is, “Based on what you’ve told me, it looks like you’ll qualify.”
  • The “Pre-Approval” – With this one, the buyer provides a Loan Originator with income and asset documentation. The Originator obtains a credit report and reviews documents. Here, the conclusion is similar: “Based on my review of what you provided, it looks like you qualify.”
  • The Family Mortgage Certified Pre-Approval with a $5,000 Guarantee – Not surprisingly, this is the only one that counts, and includes all the following:


  • All income and documents are obtained and verified including:
  • Direct income validation from IRS
  • Direct employer verification of employment.
  • Rental income, if applicable
  • Social Security
  • Bank-Brokerage account verifications
  • Credit Report is obtained and analyzed
  • Automated nationwide fraud search performed
  • An authorized Underwriter reviews the entire file
  • The Underwriter issues a formal credit approval – a Certified Pre-Approval

The length of time to get approved and financed will vary from lender to lender. When shopping around for mortgages, it’s extremely important to have some idea of how long, on average, a given mortgage lender takes to close their loans. A competent mortgage lender should be able to get a mortgage financed within 15-30 days from the time of application.

That said, understand that there are many reasons why a mortgage approval might be delayed. While going through the mortgage-approval process, stay in constant contact with the lender and make sure you get any requested documentation to the lender as soon as possible.

If a buyer doesn’t get requested/required documentation to their lender in a timely manner, it can end up being the reason a closing is delayed—or even cancelled.

With Family Mortgage, your loan can be pre-qualified in just hours from the time we receive your loan application. Moreover, we can issue a Pre-Approval or Certified Home Buyer designation within 24-48 hours of receiving your supporting documentation.

For normal conventional loans (loan sizes from $50,000 – $1,000,000) for borrowers with average to above average credit that can document their income, the pre-qualification is generally an automated process. We take a standard loan application over the phone or via the internet, pull your credit and the file is then uploaded to one of two agencies: Fannie Mae or Freddie Mac (Fannie and Freddie as they are known in the industry).

Fannie and Freddie set the guidelines for what constitutes a “saleable loan”. In other words, if it meets their guidelines, the lenders who originate the loans can sell the loan to virtually anyone on the secondary mortgage market. They have automated approval systems that give us the ability to give the customer instant approvals. These systems are looking at your overall profile (debt to income ratio, job history, assets, credit, how much of a down payment you’re making etc…) to predict the statistical probability that you will default on the mortgage. If you pass the test, it renders an instant approval. Just remember that it is a “garbage in, garbage out” proposition.

For example, let’s assume that you have worked for your employer for 5 years and were always paid on a base salary. Six months ago, they gave you a “promotion” that restructures your pay to a much smaller base plus commission with “promises” of a lot better pay ultimately. Fannie and Freddie guidelines want to see a 2-year track record of commission income. So, if you tell us you make $50,000 and that you are paid on commission and we mistakenly “assume” that you were always paid on commission then we might have a problem. That is why we recommend going through the process of becoming a Certified Homebuyer upfront. If you have less than perfect credit or you are not able to get an approval through Fannie or Freddie, then there are plenty of other options.

This is one of the most frequently asked questions we get. Since there are many different types of mortgages available to prospective home buyers, it’s important to understand which type of mortgage is best prior to signing on the dotted line. Below are three of the most popular mortgages types:

  • FHA Mortgages: FHA (Federal Housing Administration) mortgages are the most popular type of financing for buyers looking to purchase a home with little money down. FHA mortgages allow a buyer to purchase a home with a down payment as low as 3.5% of the purchase price. FHA mortgages also allow a buyer to receive up to 6% of a home’s purchase price—frequently known as sellers concessions—to be used towards a buyer’s pre-paid items and closing costs.

Another reason why FHA mortgages are so popular is because the requirements for a borrower are fairly lenient. It’s not uncommon for a potential borrower with a credit score of 600-620 to get approved for an FHA mortgage.

  • Conventional Mortgages: A conventional mortgage is a popular mortgage choice for home buyers with strong credit scores and more money available for a down payment. One of the biggest perks of conventional mortgages? They offer the ability to remove PMI (private mortgage insurance)—which can’t be removed from FHA mortgages for the entire life of the loan.

Here’s another advantage of conventional mortgages vs. FHA mortgages: because the qualifying guidelines for conventional mortgages are stricter than for FHA or VA mortgages, a seller will generally consider a pre-approved conventional buyer as a better bet than a pre-approved FHA or VA buyer. This can be a plus if you’re in a multiple-offer scenario.

  • VA Mortgages: VA (Veteran Administration) loans are a popular type of financing for Veteran buyers who meet specific qualifications. One of the primary reasons why a Veteran may choose a VA Loan is because that buyer can finance 100% of a home’s appraised value. Like FHA loans, VA loans also allow a buyer to receive seller concessions to help cover the costs associated with buying a home.

The short answer? You can get a conventional mortgage with as little as 3% down, an FHA loan with 3.5% down, and a VA or USDA loan with no money down at all. However, with a conventional or FHA loan, you’ll have to pay private mortgage insurance (PMI) if your down payment is less than 20%.

While PMI payments will be in force for FHA borrowers for the life of the loan, conventional borrowers can ask lenders to drop them once the loan-to-value (LTV) ratio on their mortgage falls to 80%. Even without the request, lenders are required to cancel PMI on conventional loans once the LTV ratio drops to 78%.

The term “closing costs” refer to all of the charges you’ll need to pay at closing. This can include origination fees, title insurance, prepaid escrows, and more. Closing costs can vary significantly, but generally, expect to pay around 1.5% to 3% of the home’s price in closing costs.

This will depend on whether you are a buyer’s market or a seller’s market. A buyer’s market, you are much more likely to be able to get the seller to agree to pay some or all of the closing costs on your behalf. Why would the seller agree to that? To make it attractive enough for you (i.e., you have leverage in a down market).

But, what if it’s a “seller’s market”? In that case, the seller may not have to come off his price at all, much less pay all or even part of your closing costs.

If the Seller agrees to contribute towards a buyer’s closing costs and/or tax and insurance escrow account, there are limits as to how much. The amount allowable by most lenders varies depending on your credit, program selected, etc. But the vast majority of normal borrowers fall into one of the following categories:

  • Down payment of 0 – 9.99%: Seller can contribute up to 3% of the sales price

Down payment of 10%+: Seller can contribute up to 6% of the sales price. On FHA loans, the seller can always contribute up to 6% of the purchase price. On VA loans, seller can contribute up to 4%.

In Georgia, the closing attorney is negotiated as part of the Purchase and Sales Agreement. On paragraph 3 of page 1 of the standard agreement used by the Georgia Association of Realtors, is a blank where one can designate a specific closing attorney. Most people aren’t aware they can choose the attorney, nor do they understand the vast difference there can be in the fees various attorneys charge.

In South Carolina, closing attorneys handle all of the residential closings in the state. Who chooses the attorney is negotiated between the buyer and the seller.

In Florida, Title companies handle all of the closings. Who is chosen is also negotiated between the buyer and the seller.

Home sellers will generally require some type of Good Faith deposit when you submit your offer to purchase. In the industry, this is called an earnest money deposit. For existing homes (i.e., not new construction), the deposit will typically around 1% of the purchase price but this is totally negotiable. A seller’s market, making a larger deposit will make your offer more attractive to the seller. In a buyer’s market, you will have a better chance of making a smaller deposit.

For new home construction, builders will generally require larger deposits, particularly when the buyer is adding upgrades, or has the flexibility of picking colors, etc. The earnest money deposit protects the seller/builder in the event the buyer backs out of the purchase contract after all contract contingencies have been waived. Since the seller (builder) has lost valuable time in marketing the property, the deposit acts to reimburse them for some of this expense.

The state of Florida, oftentimes the standard contract is negotiated with an additional deposit after the initial inspection period is over.

When you obtain a mortgage, you’ll probably be asked to put money into an escrow account to guarantee the lender that the ongoing expenses of owning the property will be handled—specifically taxes and insurance. You’ll pay a lump sum into the escrow account at closing (also known as “prepaids”) and continue to add to it with each of your monthly mortgage payments. How much should you expect this to be? You will have to pay for a one-year homeowner’s insurance policy plus an extra two months of premium as a cushion. In addition, taxes are prorated between the buyer and seller, but this will generally require the buyer to front around 5-6 months of real estate taxes as part of the initial escrow account setup.

Discount points are money you pay up front on your mortgage in exchange for a lower interest rate and payment. One “point” is equal to 1% of the loan amount, so on a $200,000 mortgage, one discount point would be $2,000. Discount points are tax-deductible if you itemize your tax return. Good mortgage consultants will run a breakeven analysis to tell you how many months it will take the initial upfront cost to be recaptured with the interest savings you will realize. The longer it takes, the less appealing paying points would be.

Not necessarily, but it’ll certainly help! It’s possible to get a conventional mortgage with a FICO credit score as low as 620, or a higher-cost FHA mortgage with a score in the 500s. However, the lower your score, the higher your interest rate. On a $250,000 mortgage, the difference between a 620-credit score and an “excellent” 760 adds up to more than $86,000 in interest savings over the life of a 30-year loan.

Yes. If your spouse submits their name as a co-applicant, the lender will consider their credit score and credit history. A credit approval is based on the lowest two middle scores of both borrowers. Lenders take the lowest middle score from all three reporting agencies, and use that as a baseline.

One of the biggest mistakes while in the process of purchasing a home is to open a new line of credit. In the midst of the home-buying excitement, some might go out and buy, say, new furniture. That new debt has to factored into their debt ratio, and if it puts them over, they could lose out on the home.

Once you’ve submitted your paperwork for a home-loan pre-approval, stop spending money on any of your credit cards. Do not, change jobs, deposit large amounts of money into any of your accounts from unknow sources or move money from one bank account to another without checking with your lender first. Don’t make any large purchases until after you have the keys to the home. Even if the expense doesn’t push you over the debt range, it could delay the approval process, and in a competitive home-buying market, that could cost you your dream home.

Depending on your situation, there are typically three or four parts of your mortgage payment:

  1. a) Principal: Repayment of your outstanding balance.
  2. b) Interest: Payment of the interest charged on the outstanding balance.
  3. c) Taxes: One-twelfth of your expected annual property taxes will be included in your mortgage payment, and deposited into your escrow account.
  4. d) Insurance: This includes homeowner’s insurance, as well as any other hazard insurances you’re required to have—such as flood or windstorm. If you put less than 20% down on your loan, this can also include private mortgage insurance (PMI).

Based on these four items, your mortgage payments are sometimes referred to as PITI.

A common misconception is that the self-employed can’t get a home loan, or that it’s more difficult to do so. Not the case. If you’re self-employed, it just means that different documentation is required. One thing to keep in mind: when self-employed buyers write off expenses to reduce their taxes, those expenses don’t count as income, and that could affect your ability to qualify for a loan.

Tip: Plan ahead. Consider cutting back on your write-offs or saving more money for the down payment to offset the lower income number. We can assist you by helping estimate what you would need to show for income to qualify or even review a draft of your tax return prior to filing to be sure.

PMI is Private Mortgage Insurance and is required to protect lenders against loss if a borrower defaults on their loan. PMI is generally required for a loan with an initial loan-to-value (LTV) percentage in excess of 80% (Purchase Price / Loan amount).

In most cases, this means you’ll have to pay PMI if your down payment is less than 20% of the value of the home you’re purchasing or refinancing. The cost of the mortgage insurance is typically added to the monthly mortgage payment. Once your loan amount is less than 80% of the original purchase price, there are options to have it removed.

Absolutely. And if interest rates have been trending upward, it’s generally a good idea to lock in your rate. A rate-lock means you’re guaranteed today’s mortgage interest rate for some predetermined period—typically in 15-day increments from as little as 20 days to as long as 90. The longer the rate lock period, the higher the rate will be. Locking in your rate means the lender is agreeing to provide you with a mortgage at that particular rate and that it won’t go up or down between the time you lock it and the time you close on your home. If unforeseen circumstances prevent you from closing prior to your rate lock expiration date, you can generally extend the lock period for a fee.

Keep in mind mortgage interest rates fluctuate daily and can increase rapidly depending on market circumstances. You will need to have secured a contract to purchase a home before you can lock your interest rate in. Be wary of companies that charge for a rate lock or will not lock until the loan is approved or the appraisal is completed.

Yes, it’s possible to get approved for a mortgage loan after a bankruptcy filing. Depending on the type of filing—Chapter 7 vs. Chapter 13—and other factors, you may have to wait anywhere from two to four years before you can get another mortgage loan.

An appraisal is an unbiased professional opinion of a home’s value. Anytime a buyer is obtaining a mortgage to purchase a home, the lender will require a bank appraisal—which is also required when a homeowner decides to refinance.

The most common method is using the Comparable-Property Approach. With this one, an appraiser will look for at least three sales of comparable properties that have sold in the past 12 months. As part of their process, an appraiser will make adjustments in their criteria in order to make the subject property as similar to the comparable properties as possible.

Understand there can be problems with a bank appraisal which can slow or stop a home purchase. Common appraisal issues are when a home value comes in lower than the sale price; or when the bank appraiser requires repairs to be completed prior to financing approval.

Often times, the buyer opts to perform a property inspection and then will negotiate with the seller on how to handle any repair issues that arise out of this inspection report. Handling this in accordance with lender guidelines saves everyone time by not having to re-execute documents! We find there are typically two scenarios that generally arise:

The seller agrees to a certain dollar amount to be credited to you in lieu of repairs. This is allowable as long as it is treated as a contribution towards your closing costs and/or tax and insurance escrows. The total seller contribution towards these items cannot exceed a certain percentage of the purchase price (between 3 – 6%) so it is best to ask your mortgage lender prior to finalizing your amendment.

The seller agrees to certain repairs, and you request checks be written directly to the Vendor of your choosing at closing. This practice is no longer acceptable. There are a few exceptions, so if escrow for improvements is the only option, please let us know and we will work to accommodate the need. So, generally speaking, either the seller gives you a contribution toward closing cost to handle it or you must demand the seller make the repairs prior to closing.

Sometimes, either by choice or for reasons out of your control, you find yourself trying to buy a new house before you sell the one you are living in. This poses two potential challenges, 1) Can you qualify for both home loans? and 2) What is the source of the down payment for the new home loan?

Let’s take them one at a time.

Qualifying for two mortgage payments can be a challenge but in recent years has become more commonplace. If you have decent credit, your debt-to-income ratio can be pushed much higher than was previously possible. If you’re really in a pinch and can’t qualify on your own, you may be able to add a family member to the application as what we call a non-occupying co-borrower until such time as you can sell your home and then look to refinance to get them off of the mortgage in the future. This obviously isn’t an ideal situation, but it can be used in a pinch.

The second challenge is the down payment. This typically can be an easier problem to solve. Let’s assume that you have equity in your existing home that would have been used for the down payment if you had the luxury of selling it first. Since presumably you would be selling this home in the near future, the question is, how can we put our hands on some money in the meantime? Here are a couple of different ideas:

  1. Take a loan out of the 401(k) temporarily. You can borrow up to 50% of the vested balance in your account not to exceed $50,000. Assuming you do this as a loan, there is no tax hit.
  2. Get a gift from a family member.
  3. Get a loan from a family member, assuming that you could qualify for the payment in addition to your new house payment.
  4. Maybe you have an existing home equity line of credit on your existing home you could tap.


If you have a small amount of money to put down, let’s say 3 to 5%, you could structure the new loan paying private mortgage insurance and them when you sell your home, you could use the proceeds to do a “Recast” of your new mortgage to lower the payment and get rid of the PMI. Keep in mind that you will always be required to keep the private mortgage insurance for at least 24 months.

If you see an ad for a remarkably low interest rate, look for a disclaimer (typically linked from an asterisk) saying this is the best possible rate. To nab it, you’ll need a high credit score (750+) and a low loan-to-value ratio—meaning you’re making a sizable down payment (at least 40% of the home’s price).

But your credit scores and loan-to-value aren’t that strong, you’ll be considered more of a risk—and your interest rate will rise to reflect that. In addition to your credit score and loan-to-value ratio, it will also depend on your loan size, type of property you’re buying (i.e., condo vs. single-family home). Bottom line, read the fine print when evaluating your loan options.

refinance faqs

There may be some out of pocket funds required at closing depending upon a couple of factors. If you have an escrow account for taxes and insurance, it does not roll over to your new mortgage. This means we must collect for the new escrow account whatever amount should be in that account at this time of year. You will receive a refund from your current lender, any funds they are holding in escrow for you — usually about 30 days after we close. There is also one month of interest collected at closing but you don’t make a mortgage payment the first of the next month. Therefore, the funds collected should be offset by the escrow refund and saved mortgage payment. The funds required at closing can usually be added to your loan balance if you choose.

Often times it may seem like a good idea to refinance to combine a first and second mortgages. If you have enough equity to keep your combined loans under 80% of the appraised value of your home this may work. There are some considerations however. If you’re existing 2nd mortgage was not used to originally to purchase the home, it will be considered a “cash out” refinance and the lenders will charge a slightly higher rate. Also, if you did use the loan to purchase the house and it was a home equity line that was refinanced or utilized after the purchase of the home, it may still be considered a “cash out” refinance. The lenders will not charge a higher fee if your first mortgage remains under 75% of the new appraised value of the home.

You will only be required to pay PMI if your loan amount exceeds 80% of the appraised value of the home. If this is the case because your house has not appreciated enough to avoid it or your taking cash out that would put you over this threshold, then you can structure the loan as an 80% first mortgage and a second mortgage for the balance that you need to avoid the PMI monthly expense. If you want to combine a first and existing 2nd mortgage that will take your new loan amount over 80% threshold, then you may want to increase your first mortgage to the new 80% figure and refinance the existing 2nd mortgage into one that is smaller but hopefully at a better rate.

Your existing escrow account will be refunded to you by your current lender within 30 days by Federal Law. They are not obligated to credit this money back when you close on your new refinance loan and very few will do it. This is because they still can collect interest on the money for that additional 30-day period. If you decide to escrow for taxes and insurance in your new loan, you will be required to fund this account and wait for the money in your existing account to be refunded 30 days later. Depending on the timing, this can be a sizable amount of money. If you wish, this money can also be “rolled into” the new loan amount provided that you have enough equity.