Frequently Asked Questions

1. What are my options for financing when buying a home? What if the seller says they will carry paper? How many ways are there to finance a home purchase?
2. We are 1st-time homebuyers. What special programs and terms are available to us?
3. How do I know if I should refinance? Here are some Tips to help you decide, for either your own home or a rental property.
4. How do I go about QUALIFYING for a loan?  What criteria do lenders use in "PREQUALIFYING" borrowers?
5. I am SELF-EMPLOYED. It seems as though many people like me have a hard time getting a home loan. What can I do?

Q. What are my options for financing when buying a home? What if the seller says they will carry paper?  How many ways are there to finance a home purchase?

A. You could pay cash, although it may be a better financial investment to get a loan, save your cash, and invest it at a higher rate of return.

More typically, a buyer makes a down payment of some portion of the purchase price, then requests a loan for the difference. This loan is recorded at the county courthouse as a lien against the property and is paid off over time. The terms, interest rate, and length of the loan are negotiable. This loan can be obtained from a variety of sources, or even a combination of them.

One option is to ask the seller of the property to extend credit ("Carry Paper") for the amount you need. This is called seller financing. A large down payment, such as 20% is usually required. More often than not the sellers need their cash in order to move on and buy a replacement home. Often seller financing in conjunction with a conventional loan can get you into a home with nothing down.

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Q. We are 1st-time homebuyers. What special programs and terms are available to us?

A. There are many loan programs designed specifically for the first time homebuyer. These loans combine various features such as 3%-5% down payments, lower income requirements, and a higher allowance for debt. These combined features can help the qualified first time homebuyer afford a higher priced home than they would have been able to get otherwise. A first time buyer is usually defined as someone who has not owned a residence in the past three years. If you have owned bare land or a rental property that you have never occupied, you may still qualify. Many programs have income limits. This means that you have to make enough documented income to qualify for the loan, but if you make too much you may be ineligible for the special benefits. The annual income limit may be dependent upon family size and location.

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Q. How do I know if I should refinance? Here are some Tips to help you decide, for either your own home or a rental property.

A. Ask yourself the following question: How much longer do I expect to own this home? Did you know that the average first time buyer lives in their home only 5 to 7 years? This being the case, you might be smart to consider a loan amortized over 30 years, but with a balloon payment in 5 or 7 years; or it can roll over into an adjustable rate loan after that time. The interest rate & payments on these loans are usually ‡% to æ% lower than on a regular 30-year fixed loan. We have a variety of interest rates to choose from, but lower rates have higher costs. You could choose a rate that is lower than what you currently have, and saves you money every month, but you may not want to choose the lowest rate available as it is too expensive.

Certainly there are other motivations for refinancing. You may have a balloon coming due that needs to be paid off. You may want to increase your loan amount in order to pull out some equity for investment or home improvement purposes. You may want to consolidate your credit cards at a much lower interest rate that is potentially tax deductible. You may want to move from an Adjustable Rate Mortgage to the security of a fixed rate mortgage. You may want to switch from a 30yr loan to a 15yr loan to save money on interest and build equity quicker. With interest rates down on conforming loans, there may not be a better time to do it. Be aware that there are some good equity lines and 2^nd mortgages out there that could allow you to tap up to 125% of your equity.

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Q. How do I go about QUALIFYING for a loan?  What criteria do lenders use in "PREQUALIFYING" borrowers?

A. Qualification requirements vary depending on the type of loan program you are seeking, but there are four basic factors that we use in evaluating credit risk.

We are primarily interested in your strength in these four areas:

1. INCOME

2. CASH ASSETS

3. CREDIT

4. PROPERTY VALUE

INCOME – We look at the stability of income, such as the length of time on the job and in the profession. Ideally, for income to be used in qualifying, the borrower needs to document at least a 2-year history in the same field. There are a wide variety of income types that could be used in qualifying. Income is usually documented with W-2’s, paystubs, or tax returns. Income received "under the table" is of no use in qualifying. We have many loans targeted at self-employed borrowers where income documentation is not required, but we still need proof that the business has been in operation for over 2 years.

CASH ASSETS – We may require 2 or more months worth of house payments, property taxes, and homeowners insurance is on deposit with the borrowers bank. For some loans we may allow these assets to come from loan proceeds.

CREDIT – We look at borrowers credit report to determine a borrower’s past history of repaying debts, paying special attention to the last 24 months. We offer a variety of programs for borrowers with prior late payments, collections, judgements, bankruptcies, repossessions, and even foreclosures.

PROPERTY VALUE – The value of your property is determined by obtaining an appraisal from a licensed Real Estate Appraiser in your area. The value of your home as determined by the appraisal, along with the other three factors discussed, will determine the maximum loan amount we are able to qualify you for. For first mortgages we can lend up to 100% of the value of your home, and on 2^nd mortgages we can lend up to 125% of your home’s value.

Do not worry if you feel that you have a shortcoming in one or more of these areas, your strength in another area could help you qualify regardless. These are only guidelines, and exceptions can be made if we are able to determine that weaknesses in one area are compensated for by strengths in another. We offer programs to fit the needs of just about everyone. One of our experienced loan officers can work with you to find the program that best fits your needs.

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Q. I am SELF-EMPLOYED. It seems as though many people like me have a hard time getting a home loan. What can I do?

A. There often seems to be added problems for self-employed individuals in qualifying for a home loan. Let’s talk about loan programs that are specially designed for self-employed individuals.

If you own and operate your own business, you may find yourself caught in an awkward situation while trying to obtain a home loan. A borrower’s income tax returns are often used by lenders to determine what income can be used to qualify for a home loan. For a full documentation loan we want to see two years worth of completed tax returns and a year-to-date profit and loss statement. We will AVERAGE the net profit of the business over this period in order to determine qualifying income. Yet in order to keep your income tax bill to a minimum you are encouraged to deduct expense and reduce taxable income. The reality is that you probably earn enough income to easily make a housing payment higher than a lender can qualify you for, but it does not look that way on paper. In other words, you may have difficulty QUALIFYING for a loan in the price range you desire.

But there is hope! We offer a variety of "No Income Verification" loans that may help you qualify more easily. These programs allow us to qualify you based on the income stated on the loan application, without having to supply tax forms or other income documentation. Sometimes we can use business bank statements as a substitution for the usual income documentation. We generally scrutinize your credit and property appraisal a little more closely than on full documentation loans. Ask us what special programs might help you to buy or refinance your home.

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