FAQ
Let Us Help You with Your Home Loan Questions
We know that there are many questions regarding home mortgages, construction loans and home loan refinancing. Below are some commonly asked questions regarding home financing. If you have additional questions, please call Valley Mortgage, Inc. at 701-461-8450 today so we can help you understand your options.
Pre-qualified vs. Pre-Approved
What is the difference?
When you are pre-qualified for a loan, the lender basically looks at some general information about you and suggests the amount you can afford. Although this may appear to be a guess as your numbers have not been verified, most lenders do this type of service – providing a letter of pre-qualification. Generally, there is no charge for getting pre-qualified.
When you are Pre-Approved, the lender generally works harder by verifying the detailed information you provide. This includes how much you earn, how much you owe, your credit rating or FICO score and possibly other things. Some will charge you for this. Valley Mortgage provides this for you as a service at no charge. A letter of Pre-Approval puts you in a much stronger position when purchasing a home because the seller will know you are Pre-Approved and are qualified to buy their home.
The reason the term "pre" is used is because it happens prior to actually finding a home. Many years ago, lenders would only allow buyers to apply for a loan once they had actually found a property and made an offer.
Are You Curious About Refinancing?
Things you should know.
Whenever rates are low, many borrowers will find that refinancing to lower interest rates makes financial sense. When you refinance, you are getting a new mortgage by first paying off the old one and replacing it with a new one with a lower interest rate. This can lower your monthly payment and the overall interest cost. This alone will save you money over the life of the loan. You may also change the term of the loan to a shorter one. By changing the term of the loan from say, 30 years to 15 years, you can build up equity more quickly in your home and cut the interest amount paid substantially.
You may also refinance to get additional cash. Use the money you receive to make improvements on your home, take a vacation, pay off other higher interest debts, whatever you wish. You can do this by going through what is known as "cash out refinancing”. You will get the difference between the current loan balance and the new one.
Rather than taking on a separate home equity loan, some borrowers choose to refinance their first mortgage and take the cash out at closing. In most cases, the interest rate amount on a home equity loan is higher than on a mortgage, which is why many folks opt for mortgage refinancing. Yet refinancing a mortgage may not be suitable for everyone. If you are 20 years into a 30-year mortgage, it may not make sense to refinance to a new 30-year mortgage. This would mean you would be paying off the home for a total of 50 years. A consumer with poor credit history may not qualify for good rates, so refinancing could actually increase your monthly payments.
It is important to remember that when you refinance, the lender may charge a loan origination fee, which is a percentage of the loan amount. Contact one of our professional loan officers to discuss whether loan fees may be deductible from your income taxes. Also, any points paid in refinancing may not be deductible from taxes in the year of refinancing as the amount is amortized over the life of the loan. Contact Valley Mortgage so we can discuss your options and what makes the most sense for you.
Different Types of loans
Do you know them?
There are many different types of mortgages and you will need to decide which one best suits your needs. At Valley Mortgage, we can help you understand what might be the best option for you, with no charge or obligation. When selecting the right mortgage for yourself, you must take into account your current financial situation and what you expect your financial situation will be in the future. There are other factors that will need to be included in making this decision too, such as how many points you wish to pay and whether you wish to be tied into a set interest rate for the term of the loan or are willing to take a gamble and get an adjustable mortgage. It can be confusing, so please call us today at 701-461-8450.
If you’d like to read overviews of the different types of loans available from Valley Mortgage, click here.
Down Payment
How much do you need to put down?
The answer to this question is: "It depends". These days there are some programs that allow for no down payment or as little as 3% down for some Conventional loans, 0% down for VA and USDA loans or 3.5% for an FHA loan.The more you put down, the less the monthly payments will be and the lower the overall interest cost will be over time.
It is recommended to put down about 20% or more of the cost if you have that amount of money available. This is known as 80% Loan To Value ratio (LTV). If you put down less you will likely be required to pay Private Mortgage Insurance (PMI), which protects the lender in the event you default on the loan. Currently PMI is tax-deductible, but make sure you check with a tax professional to see if it applies in the year you obtain your loan. For your planning purposes, PMI can cost anywhere from $25 to $65 per month for a $100,000 loan. It's determined by the size of the down payment, the type of mortgage and the amount of insurance. PMI is paid as part of your monthly mortgage payment. Remember that under the federal law the lender is required to cancel the PMI once the LTV ratio reaches 78% or, in other words, when your mortgage amortizes to 78% of the original value of the house. The borrower must be current on all mortgage payments and the lender must tell the borrower at closing when the mortgage will hit that 78% mark.
Some lenders may require this 20 % to be put down in order to get a loan. In many cases, you can be turned down for a loan if you are not able to come up with the 20 % the lender requires. In some areas of the country, such as the New York Tri-State area and the San Francisco Bay area, where homes even for first-time buyers are very expensive, 20% can be a large amount of money. Starter homes in these areas can cost $700,000 or more.
For Federal Housing Administration (FHA) loans, you may only need to put down as little as 3.5%, which can be a gift from a relative or Nonprofit organization. However, you will need to pay PMI (FHA refers to it as Mortgage Insurance Premium) on this loan.
Understanding the many details of a mortgage can is complicated. We understand. Feel free to contact Valley Mortgage for answers to your questions at any time. There is no cost or obligation.