38. Federal Housing Administration  "FHA," which is part of the U.S. Department of Housing and Urban Development (HUD). The FHA's main function is to provide mortgage insurance to FHA-approved lenders for loans on single-family homes, multifamily properties, manufactured homes, hospitals, and residential care facilities.

39. Is a FHA loan better than a Conventional loan? 

40. A good question but hard to answer. Here I am bias for local lenders. Sure, I like to support local but there are other important reasons as well. If you're buying a local property, and working with a local lender, and using a local inspection company; why not also use a local mortgage lender?

There should be several advantages to a local lender. Especially a local lender who processes your loan locally, underwrites your loan locally, and hopefully approves your loan locally. From my experience working with 100's and 100's of buyers: things come up during the application, processing, underwriting and approving your loan, or mortgage. If they are local, they're in your time zone. In Ohio we are Eastern Std Time. If the loan officer is on PST, then they're 3 hours behind. If you have a question can you sit down and have a discussion? If you have a problem which can happen throughout a loan application and approval, I like to be able to call and even go see the lender if possible. If you don't understand part of the process - it can be very helpful to see them face-to-face.

I also believe, if you've met you loan officer, or mortgage lender in person. It helps get them on your side. FYI: LOs or loan officers are typically working on 2 - 4 -10 + loans at the same time. If you are the only one they met in person - and all 10 need something done ASAP, I hope they move my local client to the top of that pile and take care of your issues immediately. I have closed a number of buyers who secured their fiinancing online, but the rate of problems closing online funded loans is higher from my experience. Title companies who handle all your documents for closing have commented to me numerous times about how difficult it is to close online lender funded purchases as well.

Another plus to a local lender is they are familiar with standard local practices and documents. These vary even in the state of Ohio. One last point re: online lenders is they seem to have a higher propensity to mislead the buyers with the initial rates and costs and fees they promote over the web. Again I'm giving my own opinion but it's like they show you the apple but it becomes more like a lemon as you proceed. I highly recommend using a local mortgage professional.

41.  (from Experian) Documents You'll Likely Need for all borrowers listed on application:

Recent pay stubs;  W-2 forms from the past two years;  1099 forms from past two years;
Bank statements for all your checking and savings accounts;  Statements for all investment accounts, including:401(k)s, IRAs, CDs, Brokerage accounts
Accumulated cash value from life insurance, if applicable
Down payment gift letters, if applicable
Alimony and child support, if applicable

If self-employed: Year-to-date profit and loss statement;
Documents to show unpaid accounts receivable;

42. Yes. If you have past collections or write offs of credit accounts be prepared to have a thorough explaination of what happened. Why it happened. And how things like this will not happen in the future. Lenders look at your past and consider that a forecast of what you might do in the future. 

43.  Maybe. Hopefully not. It generally is not a problem when the change is improving your income and career. Also a job change in the same line of work or industry is less impactful. So if a person goes from a line cook to an assistant manager at the company; it would typically be viewed as a career advancement and hopefully a good move. (why hopefully: it's all part of the bigger, whole picture). If borrower A has had 3-4 moves like this in a 1-3 year time frame and with different employers, it may not be a positive. If borrower B started at the same location five years ago, part time. Became full time four years ago. Has had raises the past three years and now is getting promoted to an assistant at the same company. I'd expect that would be viewed positively. So in a bigger picture, the move, or advancement could impact each person differently. In general a job change and higher income should help.

44. Yes. No. and Maybe. Another good question but hard to answer because each 401K can be set up differently.  Those differences sometimes mean you cannot borrow money from your 401K to make a down payment. In general you need to contact your employer and ask about what options you have to borrow against your own 401K. Your lender can also review the options as well.

45. A trickier question and probably is best answered by your loan officer. If it is allowed or permitted then using an example that you have $30,000 in your 401K, hopefully those funds can be counted as available reserves - essentially extra cash a borrower could use if necessary. 

46.  The first obvious answer is it should be someone you can meet face-to-face. Another advantage is they are in your time zone. Seems silly but it can be a problem when trying to get information and the lender isn't at work yet. Again, this is a subject I will admit bias to using someone local, but it's every buyer choice who to use. Personally, I've observed the local process (via client experiences) and the problems, issues and "wrinkles" that come up in the loan process seem to get worked out when the people working together are in the same city; the same building; and sometimes on the same floor.

47. Absolutely. I will provide names of 1 or 2 local lenders. My suggestion is call a few. You'd think the lenders would answer the phone but few do. If you get their voice mail , consider leaving a brief message. If they don't call back pretty quickly, how do you think your loan will go if you choose the same person for your mortgage? Real estate agents likewise are service providers.

If you call or text a lender, I'd expect a call back - quickly. Once you get in touch with 1 or more lenders, ask for rate information. Their availability; their cost or fee structure and whether they process loans locally. Do they underwrite loans locally, and approve them locally. It's also a good idea to check with your local bank or credit union as most offer mortgage services as well. It's often the easiest route, but may not be the most economical path. Remember: Know the Numbers!

48. Another great question and difficult to answer. One possible answer is it's an old rate, meaning no longer available. Another is the rate quoted might have a couple points on rate buy down applied. What does that mean? It rates are 7.25% par, and you see a lender advertising 6.875%; most likely their rate has about 1.5 points of rate discount factored in. Essentially, a borrower is paying an upfront fee to obtain the lower rate. If a loan amount is going to be $400,000 then this is a $6,000 added fee to the buyer's closing costs to get the lower rate. 

There are differences in lenders par rates. That is the rate where the borrower is NOT paying premiums, or discount points, to get the rate quoted.  

49. I recommend borrowers ask for the APR. APR is annual percentage rate, and this calculates the other costs when borrowing.

If lender A is offering a 6.99% fixed rate but their APR is 7.57% then the higher APR shows a borrower that there are other fees, costs and expenses to get the 6.99%. On the other hand if lender B is offering 7.125 and their APR is 7.22% this is a cheaper borrowing program - overall because lender B has lower fees and expenses. 

50. Almost always yes - good and bad credit will impact the rate a borrower pays.

51. Good question, but tricky to answer. There are many possibilities to make it work with one or both on the loan. As an example: if borrower A has immaculate credit (800+) but doesn't make a lot of money and has not been on the job long; they need their co-borrower to make enough money to qualify. So if borrower B does make a lot more money but their credit score is 565. It's a tough situation. Let say they had a bankruptcy 3 years ago - it's even tougher. This is another example where you need a highly experienced lender. Who can weigh the options. Is this an approvable loan with the one good credit borrower, probably not, with the described history.

Creative options might be needed to make this work. This is where it is doubly important to have an experienced lender working with you. Often there is a way, with some work and extra effort from both borrower B and the lender; perhaps a solution can be found! 

52. This is a math question. If you multiply .28 x your gross (before tax) income - this is the typical maximum you can pay on the house, or condo mortgage payment. If you make $72,000 per year; divide that by 12 months = $6,000 gross per month. $6,000 x .28% = $1,680.

Also remember, that is the PITI amount which means your mortgage (P&I) plus your real estate taxes, plus your home owners insurance, plus your MPI or MIP if applicable. It actually is not as straight forward as that because there is also a percentage calculated for your total payments including other debts you will continue to pay for more than one year. Examples are a car loan, or student loan, credit cards or any other debts that are outstanding against you.

They want your total debt to be under 40% so in this example: $6,000 x.40% is $2,400. So the total of your monthly bills cannot exceed $2,400. If you have an expensive car with a note payment of $700/month the lender subtracts the $700 from the $2,400 and assuming there are zero other payments - the borrowers new maximum PITI for the loan is $1,700. As long as there are no other debts to pay monthly they would qualify at $1,680 because that is less than the $1,700 max after deducting the big car/truck/vehicle payment.

If the installment payment ends in under 12 months, in some cases the lender will not count it against the borrower. An example of a creative lender might be advising a borrower described who has 14 months on the $700/month payment to pre-pay enough on the loan that it will pay off in under 12 months. This is a case-by-case basis but it can work in the right situations.

53. This is also a math question. P is principle. Principle is the amount borrowed, or still owed. I is interest, or the interest cost the borrower is being charged to use the money.

Then there are amortization tables used to calculate the payment. So as an illustration if a loan amount is $300,000 and the mortgage rate is 7.25% the P&I, or principle and interest payment is $2,046 on a 30 year mortgage. The P&I on a 15 year mortgage at 6.875% is $2,675  - both approximate.

54. I hear the term P.I.T.I. or piti often. Is PITI a real word and what exactly does it mean?

55. Points are a lender term to describe pre-paying interest. Since mortgages already have an interest rate associated to the loan - we'll say you're going to borrow $400,000 at 7.25%. But the lender mentions if you pay 2 points, you can get a rate of 6.75% (this is an example but realistic) - while this seems a no brainer because who doesn't want 6.75% vs 7.25%, right? But the two point are 2% x $400,000 borrowed or an added fee, cost, expense to the buyer of $8,000.  

The payment would drop from $2,728 to $2,594 and save the borrower $134/month. But to be ahead, divide $8,000/ $132 = 59.7 months. So while you pay less monthly, you won't even break even for almost 6 years. If you are still in the same house, with the same mortgage (not refinanced or sold) you start saving money.... after about 6 years.

So unless you know: A. you're never moving again, or B. That you'll not refinance at least for 6+ years; it's a bit of a gamble to pay points.

Tip: I like to get sellers to pay for some of my buyers closing costs - in that scenario it might make more sense to buy down the rate.

56. Another great question but tricky to answer. Paying points is giving the lender interest up front. Because you have forfeited the money upfront, they will charge you a lower rate.

Like I say frequently: Know the Numbers. By pre-paying the interest (points) how much will you save, and how long will you have to still have the same mortgage to break even and start saving? In some situations a very small amount of points can get you a better rate, and in those circumstances you still want to ask: "How much lower will my monthly mortgage payment be? And how long before I am ahead - or saving money?"  

If you get ahead in under 3 years that's pretty attractive if you think you'll be staying for over three years. 

57. There are a few purchase loans where you can get money to purchase the home but also money to also do a remodel, repair or make some pretty sizable improvements.

There is a Conventional loan for this and a FHA program. The FHA program is called the 203K. I have used this one myself once, and I've had a couple other clients use it as well. This is another situation where I recommend using a local lender. An additional to use a local lender is they may already be connected to contractors who are approved within their organization to act as the general contractor for the work. These contractors generally have to be licensed, bonded, insured locally and known and approved by the lender. If your contractor is not already approved by the lender they can get approved based on each lender's requirements.

A couple down sides to the purchase and rehab loan is lenders generally want credit scores solidly above the minimum.  So they are harder to get approved. These loans also typically take longer to go through the approval and underwriting process and take longer to get to the close date. The rate may may carry a slight premium associated to the loan and the overall costs are higher.

Part of the higher costs are due to inspections that are connected to the rehab work to insure to the lender, that appropriate amounts of work are getting completed. The work completion and inspections are often spread out so there could be 1-5 added inspections. Typically these loans do not permit home buyers to compete the work and be paid, nor family and friends - unless they happen to be a licensed, approved contractor in the lender's network.

An upside of these loans are allowances. In a remodel or rehab project, it is common to run into unforeseen issues so most of the loans have extra money built in so it is available if needed. Another plus is the appraisal is not based on the home in it's original; condition but in the remodel condition, once the work is completed.

Another downside: I have run across lenders who say they so not do rehab loans, but when I spoke to another loan officer for the same lender I was told, "sure we do them. Some loan officers don't like to do them because they take more time and are harder to complete." Who wants a lazy loan officer anyways?

58. An FHA loan to purchase a property, in need of repairs or updates and the lender will provide the money to a qualified contractor to make the needed repairs after the purchase has been completed. So a purchase and rehab, or remodel, is like two loans rolled up into one.

There are limits with a 203K because it is a FHA product on the maximum loan size. These loans take longer to go through the underwriting and approval process. If you plan to use a a purchase and remodel loan, you need to start scouting, or looking for a contractor who can do the work on a timely basis. Ideally before you have a home in contract. This can be one of the hardest aspects of such programs.

Additionally, just because they are a "contractor," are they a licensed, bonded and insured contractor because the lender wants all those qualifications. Even if the contractor is all of those, they typically have to be approved by the lender.  I used a 203K loan myself but had the contractor lined up in advance. Each lender, bank, or mortgage company can have differences in how they do a 203K, and some do NOT do them. I have also found that some loan originators say "they" don't do 203K loans but the company says they will.

Because there are more parts and pieces to these programs, and they take longer, I'll guess some lenders and loan officers don't want to do them. To qualify a borrower needs better credit than a minimum allowed credit score. The rate is often a little higher, and the costs to originate, or create the loan will typically be higher as well.

Another common question is can I do any work myself? That should be addressed to the lender but the answer is almost always no. Unless you are a contractor and employed by the General Contractor who is the primary contractor for your project, you won't be permitted to do work and be paid or reimbursed. Many loans such as FHA can be closed in 30 days, but a 203K will often need 45+ days to close.

This longer process can be a potentail issue to getting sellers to accept your offer - because that means the seller is waiting longer to get their loan paid off and receive any home equity from the sale. In a tough real estate market, this can be a great solution.

A home others pass on because of the work needed is a great opportunity to consider a 203K loan. Plus, the remodel is done based on your wants, likes, needs, and of course your budget.

59. A conventional purchase and rehab loan is also available. I believe it is quite similar to the FHA version (the 203K) which I've talked about here. A lender or mortgage professional can walk you through it and how it operates. The contractor used will have to approved by the lender. They typically need to be licensed, bonded and insured. The known advantage of a conventional loan versus the FHA loan is the ability to eliminate the PMI or Private Mortgage Insurance once your equity position exceeds 20% either by the paydown of the debt through monthly payments, or by that combined with appreciation of the home. 

60. Yes. They are more difficult in several ways and for extra reasons. The first issue is you have to find a lender, and a mortgage pro who can do them. Ask if they have prior experience doing them, and is willing to help work you as the buyer/borrower through the entire process. You have to find a licensed, bonded, and insured contractor and that company, or contractor, has to be approved by the lender. Additionally the contractor has to be able to start the remodel project in a timely manner.

Because these loans take longer to go though underwriting and approval; they take longer to close and sellers typically want to close sooner and do not like closing later. Lastly, the borrower has to have higher credit scores than the minimum which can be another hurdle. Lenders do have different thresh holds and criteria for these loans so make sure you get a full understanding from your lender ahead of time. I do have lenders who have done 203K's for clients.

61. This is best answered by your lender, but in general I do not believe the down payment portion changes but the closing costs are typically higher in these loan programs so that can effect the cash or capital needed. 

62. This is another question best answered by your selected lender for the 203K program or conventional program, but most will have a minimum dollar threshold, that you must meet. Otherwise the loan is not practical for the buyer as well since there are higher costs to get a rehab loan. I also believe there are limits in terms of how much you can borrow for the rehab portion. These are best answered by your lender.

63. No. The lenders can confirm, but to my knowledge, a buyer can not do work as part of the 203K or conventional rehab program. All work is completed by a licensed, bonded and insured contractor who is approved by the lender. 

64. If your Dad, family member or friend is part of the contractor company the lender has approved for use in the rehab, remodel portion, then that answer is probably yes.

Even if these people are contractors but NOT employed by your approved contractor the answer will generally be no. This doesn't mean you can't ask the lender and attempt to work something out. I know in most cases the contractor who is in charge will not like this idea, and probably will not permit this either. So that's another issue which is difficult to resolve. 

65. Who selects the contractor for a rehab loan program?

66. Always confirm with your lender, but most GC's or General Contractors for a 203K or conventional remodel will need to be licensed in the state; be insured and bonded. Lenders will want a GC who can provide a highly detailed list of all the materials needed. Time and labor estimates also. 

67. Yes. Most lenders have a process of reviewing and vetting the contractor you want to use. So even if they are licensed, bonded and insured - the lender will review them and have the authority to approve them or deny them as your contractor. 

68. Most purchase rehab, remodel, loans will have periodic inspections. This is to physically confirm the work is being completed and is acceptable. In most cases draws are established so the contractor can receive partial payment, called a draw, for work completed. This is a verification of completion to the lender by way of an inspection. The contractor will often receive a portion upfront so they can purchase material and pay for labor. Then depending on the size and scope of the work, get 1-3 additional draws as work is completed. Most contractors need the last draw to make the project profitable and that is not paid until all the work is complete and the buyer is happy. At least that is the plan and hope.

69. The contractors used on a bank financed rehab loan are typically paid out in a series of draws. Draws are payments to the contractor from the pool of money created as part of the purchase of the primary property. They often are taken at different points of completion. As a possible example they get an initial draw to purchase materials and supplies needed for the project. Once a portion of the work is completed, say 1/3. The lender will send an inspector to the home site to view the work and make sure enough work is completed to merit the draw or payment to the general contractor. This can occur once to several times over the completion of the work project. 

70. It is different with respect to the value. On a rehab loan the appraised value is estimated, or projected based on the value after the work is completed. Check this with the lender you are using. 

71. Always check with your lender, but it's always been one end loan. which combines both the purchase loan, plus the rehab loan value - added together. So the borrower will just have one mortgage payment. 

72. In general, the rehab loans have carried a slightly higher rate.

73. It can be a great option. Particularly in market conditions where multiple offers are being made on homes in good condition. So while it is true the rate is often a little higher on a rehab loan. It's also true that you need to have better credit, and the loans will take longer to process and close. But for buyers who have not been able to get a home, this can be a great path to become a home owner. Plus the rehab part of the loan allows a buyer to get some of what they want - brand new in the home.