| EHM Co., LTD. |
| airnancy@direcway.com |
| T/F: (888) 438-1403 |
| Phone: (817) 523-0899 |
| Fax: (817) 523-0999 |
What are the benefits of doing a first and second lien conbination?
What is private mortgage insurance and how does it benefit the home buyer?
What is preapproval or prequalification?
What is private mortgage insurance?
How can I avoid private mortgage insurance?
What is my credit score and how is it calculated?
Is there a minimum credit score?
Must I use the mortgage company that my builder directs me to?
Q:
What are the benefits of doing a first and second lien conbination?
A:
By doing a first and scond lien you will avoid private mortgage insurance, get
a larger tax deduction, have a better equity position, and you will also be
able to waive escrows if desired.
Q:
What is private mortgage insurance and how does it benefit the home buyer?
A:
Private mortgage insurance is insurance that you as the borrower pay, but
unlike other insurance, you are not the beneficiary - the lender is! The
monthly premium is really money being thrown out the window!
Q:
What is preapproval or prequalification?
A:
These are similar terms thrown loosely around by many loan officers. They
essentially mean that a mortgage professional has reviewed your qualification
ability from a credit, income, debt obligations, and assets available for the
purpose of getting a home mortgage.
Q:
What is private mortgage insurance?
A:
Private mortgage insurance (PMI) and the FHA loan equivalent (MIP), is
insurance against default. It is required on all FHA loans and on conventional
loans with less than 20% down payment (in most cases). You as the buyer pay a
monthly premium included in your house payment. This premium insures the
lender that in the event of default on the loan, the lender would be guaranteed
a portion of the loan and thus lenders are more willing to make minimum down
payment loans when they are insured against default.
Q:
How can I avoid private mortgage insurance?
A:
The easiest way to avoid PMI is by putting 20% down payment; however, PMI can
also be avoided if you only have 5% or 10% for the down payment. The way to
accomplish this is via a first and second mortgage combination commonly
referred to as 80/10/10's or 80/15/5's. These two methods combine a first
mortgage lien for 80% of the home price with a second mortgage lien for either
10% or 15% of the home price leaving the remaining 5% or 10% as the down
payment. Because the first lien is at the magical 80% loan=to-value, there is
no PMI required, even though a second mortgage is being "piggybacked" onto the
financing thus allowing for the lessor down payment. While the second lien
terms are not as attractive as first lien rates, the second mortgage is still
home mortgage interest and thus deductible as such on your federal tax return
where PMI is insurance and offers no deduction. There are numerous other
advantages for this type of financing, call Greg for these other benefits!
Q:
What is my credit score and how is it calculated?
A:
Your credit score is a one look number at your overall credit rating. The
calculation formula for this score is somewhat of a mystery and a secret held
by the credit reporting bureaus. We do know that the major variables to derive
this score are: public records, late payments, how recent and the number of
late payments, amount of credit open, balances on credit open compared to
available credit, and inquiries into your credit history. Each of the three
major credit bureaus (Experian, TransUnion, and Equifax) offer a credit score
for each borrower. So for a married couple there are six credit scores.
Q:
Is there a minimum credit score?
A:
This answer depends largely upon the type of mortgage you are trying to obtain.
The most attractive and most common type of mortgage financing is FNMA & FHLMC
also known as agency paper. To get an agency approval, the rumored acceptable
credit score is 620. This can vary widely depending on other factors when
underwriting the buyer (down payment, income, liquid assets...). To offer a
range, consider the following: below 620 is poor, 620-650 marginal, 650-680
nothing special, 680-700 fairly good, 700-720 good, 720-750 very good, above
750 is excellent. Many loans are closed every day with credit scores less than
620. More than likely they are not on agency paper. Alternatives to agency
paper are government loans (FHA & VA) and sub-prime money. The terms and
conditions on these types of loans differ widely, so call Greg Ferguson to find
out what program best fits your needs and credit rating.
Q:
Must I use the mortgage company that my builder directs me to?
A:
No. It is your mortgage and you may decide upon the lender. However, most
volume builders are effectively "forcing" their buyers to use their in-house
mortgage company by refusing to pay certain fees or even altering upgrade
packages based upon them getting or loosing the mortgage. This "forced-use"
game most often spells higher interest rates for the buyer compared to what is
available in the open marketplace.