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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 may assist you with your questions.

Pre-qualified vs. Pre-approved

What is the difference?

When you are pre-qualified for a loan the lender has basically looked over your numbers and suggested the amount you can afford. Although this may appear to be a guess as your numbers have not been verified, the lender does this every day so it is better than a guess. A lender may provide you with a letter of pre-qualification to be used when searching for a home. Generally there is no charge for getting pre qualified.

When you are pre-approved, the lender has basically verified all of the information you provided for the application. This includes how much you earn, how much you owe and your credit rating or FICO score. You will most likely be charged for this service. A letter of pre approval is furnished to you by the lender and this puts you in a much stronger position when purchasing a new home as the seller knows you are pre approved and are thus qualified to buy a new house.

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 new home.

Are you 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 then replacing it with a new one with a lower interest rate. This move can lower your monthly payment and the overall interest bill. You may also change the term of the loan to a shorter one thus paying off the loan earlier and saving on interest. By changing the term of the loan from, say 30-years to 15-years, you can build up equity more quickly on your home and cut the interest paid on the loan substantially.

You may also refinance to get additional cash you need. You can do this by going through what is known as "cash out refinancing". Consumers get the difference between the loan balance and the new one at closing to spend as they see fit. Rather than to get a separate equity loan, some borrowers choose to just refinance their first mortgage and take the cash out at closing to spend. Yet refinancing 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 may be 1% of the loan amount. Also, any points paid in refinancing cannot be deducted from taxes in the year of refinancing as the amount is amortized over the life of the loan.

All in all, when you have built up some equity in your home, you do have options and can cash in on this money whether you refinance or obtain a home equity loan.

Different types of loans

Do you know them?

There are many different types of mortgages out there and you will need to decide which one best suits your needs. 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 such as how may 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. Your lender will be able to help you make this decision.

Down payment

How much do you need to put down? 

The answer to this question is: "It depends". These days however, you can start at zero and go to whatever money you can afford to put down.

There are still Zero-down loans available today. These can prove to be an excellent way to get into a home with very little out of pocket expense but you should carefully examine the details of these offers. In most cases, however, you will need to put some money down. The lender feels that the more money you put down for the home the more likely you are not to default on the loan because you have equity in the home.

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 than this you will be required to pay Private Mortgage Insurance (PMI) which protects the lender in the event you default on the loan. PMI is tax deductible and 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 amount of insurance. Monthly PMI is paid with the mortgage. 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 amortized 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. 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 for even the first time buyer are every 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 friend, relative or Nonprofit organization. However, you will need to pay PMI (FHA refers to it as Mortgage Insurance Premium) on this loan.

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