Questions Frequently Asked About Mortgages!
Content Courtesy of West Penn Mortgage

Some information about the mortgage process.

How Much Home Can I Afford? Of course this depends upon a lot of variables that we do not have right at the beginning, but we can show you a basic example:  You borrow $100,000 for home and site construction.  You are approved for a 30 year loan at 7% interest.  Your monthly payment would be approximately $665.  Many lenders require property taxes and homeowner insurance be escrowed into payments, plus you may need mortgage insurance (see PMI), but this is the basic payment calculation.

How much down payment will I need? The minimum down payment required depends on the mortgage program you select. Usually at least 5% is required. If you put down less than 20% your monthly payment may be subject to Private Mortgage Insurance (PMI).  Equity in the property you plan to build on DOES count towards down payment requirements.

What is PMI (Private Mortgage Insurance)?  If you put less than 20% down on most loans, you'll be asked to protect the lender by carrying private mortgage insurance (PMI). Carrying PMI ensures that the debt is repaid if you default on the loan.

Do I need to sell my existing home before I apply for a new mortgage loan?  Absolutely not! You can apply for a new mortgage loan before you sell your current home. However, depending on your income and debt levels, you may need to sell your current home before you can close on your new home.

Can I be approved for a loan if I have credit problems? We offer mortgage loan options to customers who may not have perfect credit.  FHA, VA, FMHA and other Government programs are available to help with credit challenged customers.

Can I talk to a mortgage professional if I just want to get information?  Absolutely. Ask your Riverview sales person to put you in touch with our in house mortgage broker.

How can I afford a home of my own?  A Mortgage finance professional looks at several factors when assessing your financial needs. To summarize, these factors include: having a down payment, having good credit history, level of income, being able to prove your income, and having a low debt to income ratio.

What is a pre-qualification?  Pre-qualification is the first step in the mortgage process.  Pre-qualification is based on a verbal estimate by the borrower of their household income and monthly obligations. Based on these figures, a mortgage expert can give an estimate for which the borrower could expect to qualify. Pre-qualification is based on the borrower’s estimate and not on verified figures. Other factors, such as employment history and credit history, are also not verified for a pre-qualification.

What does the pre-approval process entail? What is the fee for this? How long does it take to become pre-approved?   The next step after pre-qualification would be to apply to be pre-approved. The borrower would need to complete a loan application and provide some basic documentation like proof of income and a copy of a deed.  No fee is charged at this step.  This typically takes a few days once all the documents are submitted. 

Is an attorney required for this transaction?   When using a Riverview “in house” program, an attorney is not a requirement at the closing of your home.  Other loans my require you to hire an attorney at your expense.

What is Loan to Value?  Just like a purchase mortgage loan, new home construction loans are made on the bases of Loan To Value, commonly abbreviated as LTV. This is the number obtained by dividing the Loan Amount by The Value of the Property.  For example, if you purchase a property for $100,000 by putting $20,000 down and obtaining a $80,000 loan, then your loan’s LTV is 80%.  In the case of construction loans however, Value refers to the appraised Future Value of the Property.

What Does An Appraiser Appraise?  At the inception of construction loans, there obviously is no building to go by. However there is a plot of land and a set of drawings.  There are also recent sales of similar properties in the area, that the appraiser uses to deduce a value for the completed project.

What if The Project Costs More Than Estimated?   Cost Overrun is a legitimate concern, whether caused by unforeseen circumstances or last minute changes.  When calculating the Total Cost, most new home construction loans will need the addition of a 10% of the contract amount as a contingency reserve. This contingency can be used in case of cost over runs.

What's the difference between a fixed and adjustable rate mortgage?  With a fixed rate mortgage, the interest rate and the amount you pay each month remain the same over the entire mortgage term, traditionally 15 or 30 years. A number of variations are available, including five- and seven-year fixed rate loans with balloon payments at the end.  With an adjustable rate mortgage (ARM), the interest rate fluctuates according to the interest rates in the economy. Initial interest rates of ARMs are typically offered at a discounted ("teaser") interest rate that is lower than the rate for fixed rate mortgages. Over time, when initial discounts are filtered out, ARM rates will fluctuate as general interest rates go up and down.

Additional Notes & Definitions:

1. A typical new home construction loan mortgage can take 6 weeks to process prior to a closing.

2. A Mortgage Broker is a person or business that arranges finance between the retail customer and a lender.

3. The word Title refers to the legal ownership of your new home and land.

4. Some mortgages require two separate closings, A Construction Loan, for the construction portion of the loan and a Permanent Loan for the final lender who you will make your house payments to.  Any change in your credit report caused by additional loans or loans not paid on time between these two closes could, and normally will, jeopardize you taking possession of your home.

5. Surveys are usually required by the lender, the Settlement Company or the General Contractor or by all 3.  They are done to not only show your property lines but to also guarantee that the home is located within your property lines and within any local building set back lines and not near any right-a-way.  If you have a survey already done, you will still need to have the surveyor return to position the home on the site and to draw the proposed location on the survey.  A second return will be necessary to finalize the drawing and to show the exact location of the home on the property survey.  Final funding, and your occupancy of the home, could be delayed if this work is not done in a timely manner.

6. A Settlement Company, to uncover any possible liens or judgments against the property you are placing your home on, does a Title Search.  Any problems will be disclosed to you and resolution options will be discussed.

7. The Settlement Company will do the title search, issue the title insurance that guarantees their work to the lender and normally do the actual loan closing.  You may select any Settlement company to do this work.  Regardless of who the Settlement Company is they will normally contact you as the need arises.

8. An Appraiser will be hired to appraise your land and home package.  Normally this person will receive data from the dealership on the home and will visit the property.  A report is done and forwarded to the lender.

9. A Good Faith Estimate will be provided by the lender that lists the estimated settlement costs you will be likely to pay.

10. Settlement Costs are the fees charged by various people, like appraisal fees and title search fees and survey fees.  Any settlement costs not included in your mortgage will be due at the time of the closing.   Certified funds would be required to pay these cost.

11. HUD-1 Settlement Statement will be provided to you at closing itemizing the final settlement costs you are paying that are included in your mortgage.

12. RESPA stands for the Real Estate Settlement Procedures Act and they are responsible for setting up and monitoring the procedures that lenders and mortgage brokers follow through out your mortgage process.

13. Debt-to-Income Ration:  A ratio measuring the amount of debt one has, as a proportion of one's income.

14. Bankruptcy – A proceeding in U.S. Bankruptcy Court that may legally release a person from repaying debts owed.  Credit reports normally include bankruptcies for up to 10 years.

15. Charge-off – The balance on a credit obligation that a lender no longer expects to be repaid and writes off as a bad debt.

16. Collection – Attempted recovery of a past-due credit obligation by a collection department or agency.

17. Credit bureau – A credit-reporting agency that is a clearinghouse for information on the credit rating of individuals or firms.  Is often called a “credit repository” or a “consumer-reporting agency”.  The three largest credit bureaus in the U.S. are Equifax, Experian and TransUnion.

18. Credit history – A record of how a consumer has repaid credit obligations in the past.

19. Credit score – This term is often used to refer to credit bureau risk scores.  It broadly refers to a number generated by a statistical model that is used to objectively evaluate information that pertains to making a credit decision.

20. FICO scores – Credit bureau risk scores produced from models developed by Fair Isaac Corporation are commonly known as FICO scores.  Fair Isaac credit bureau scores are used by lenders to assess the credit risk of prospective borrowers, in order to help make credit decisions.  These scores are derived solely from the information available on credit bureau reports.