Q: Can I borrow more money to cover closing costs and/or down payment?
A: Typically no. Most mortgage programs for purchasing a home require you to save your funds for your down payment and/or closing costs.
Q: Why might my actual costs be higher (or lower) than the estimated costs?
A: Final closing costs can differ from an estimate for a variety of reasons including:
A special inspection of the property may be required (termite, electrical, plumbing, etc.)
A more in-depth property value analysis may be required if the property has unique structure/design aspects or presents other factors that make it difficult to determine the market value.
Some small fees (recording, notary, title, etc.) are based on the number of pages in your title/closing documents and can’t be included in an estimate. Every loan has its own nuances that could affect the actual closing cost.
Q: How do I pay for my appraisal?
A: Most banks include an appraisal with closing costs (as part of the overall closing) but some require you to pay earlier in the process.
Q: What are points?
A: A “point” is equal to one percent of the loan amount. Points can be either positive (discount points) or negative (rebate points). The more discount points you choose to pay up-front, the lower your interest rate will be. Or, you can opt for a loan with a higher interest rate in exchange for a rebate, which will give you a credit towards paying some of your non-recurring closing costs, such as title insurance, appraisal and origination fee. You cannot get cash back from rebate points.
Q: What is a seller-assist?
A: When negotiating the price of your new home, sellers may agree to help pay some of your closing costs. There are limitations based on your loan type. Be sure to talk to your lender about the limitations.
Q: What are my options if I have no down payment, or only a small down payment?
A: Very few lenders will do 100% financing. (Exceptions include government guaranteed special programs.) Typically, a 5-20% down payment is requested. One option is called a bridge loan, which allows you to pledge your current home as collateral to utilize equity in your home as a down payment.
Q: What is private mortgage insurance (PMI)? Do I have to pay it?
A: Private mortgage insurance is required on some programs if you borrow more than 80% of the value of your home. This insurance protects the lender if you cannot make your payments. When you default on the loan, the insurance company pays the debt. The cost is added to your loan, and amounts to approximately an additional one half percent.
Q: What kinds of government loans are available to buyers?
A: FHA (Federal Housing Commission), VA (Veteran’s Administration) and USDA Rural Development are some of the programs available for those who qualify.
Q: Is there any way to speed up the loan approval process?
A: Becoming either pre-qualified (a preliminary analysis of your debt-to-income ratio), pre-approved (NOT a loan guarantee-but analysis of credit report, income and assets), or obtaining a loan commitment (guaranteed under pre-set conditions) will help speed up the loan process.
Another way to help speed up the loan approval process is to get your paperwork ready in advance. Gather any needed documentation such as personal identification, income verification, employment history, and insurance commitments. Click here for a sample checklist. Most importantly, when the loan officer asks for any documentation or information, your prompt response keeps the process moving.
Q: What is the difference between a lender, mortgage broker, and a loan officer?
A: A lender is the institution or agency that will loan the money. A mortgage broker links buyers with lenders. A loan officer is an employee of either a lender or a mortgage brokerage, generally finding borrowers, counseling, taking applications, and often, being involved in the loan process.
Q: What is the difference between conforming and non-conforming loans?
A: Conforming loans are mortgage loans that meet specific, uniform, national standards (most commonly referred to as Fannie Mae and Freddie Mac requirements) that deal with document specs, debt-to-income ratio limits, maximum loan amounts, and interest rates.
Non-conforming loans are loans that do not meet banking qualifications generally due to borrower's financial status or property that does not meet required criteria.
Q: Where do the names Fannie Mae and Freddie Mac (loan regulating entities) originate?
The Fannie Mae entity was created in 1938 under President Franklin D. Roosevelt to help the home buying economy, which was floundering at that time. In 1968, Freddie Mac was chartered to provide competition.
They were dubbed these names from the acronyms of their respective government sponsored entities:
Federal National Mortgage Association (FNMA): Fannie Mae
Federal Home Loan Mortgage Corporation (FHLMC): Freddie Mac
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