Frequently Asked Questions About Financing
What type of loan is the right one for me?
This is a good question, considering the number of loans available to people today. Much depends not on what type of loan you can get, but the type of loan you want. For example, loans such as the FHA/VA program and others allow you to buy a home for little or no money down. But how much money you put down on the loan is not the ultimate test of a loan. Many factors come into play.
Are you comfortable taking out a loan that varies in percentage, such as an adjustable rate mortgage (ARM)? Perhaps you're comfortable with a mortgage that can take down your monthly payment, with a large final payment such as a balloon mortgage. Or you might find a fixed rate mortgage more your style, or perhaps you're looking at commercial property and need a commercial loan.
That covers the loan types. You're probably also wondering what factors within your control affect your ability to get a mortgage. Essentially, four factors affect your loan application status:
· Credit: Do you have a good credit history?
· Income: Is your Income appropriate for the property you'd buy?
· Monthly Debt: With your level of bill payments every month, can you afford the mortgage too?
· Type of Income: Are you self-employed? Do you work on commission only? How much do you rely upon bonuses for your income? How much of your income right now is due to overtime?
These are the more common factors assessed when companies decide to write a mortgage for a home or other property
How much of a down payment do I need?
The old rule about 20 percent down on a house no longer applies, although it is a good barometer of a person's financial situation. Housing costs have increased faster than wages over the past 30 years, so we'll all pay more for our houses in real dollars than our parents did. Lenders are aware that housing is more expensive than ever, and have come up with unique programs to help serve buyers. Some of these we've discussed already, like FHA/VA programs. Your down payment requirement could be affected by your income and credit situation.
How do I know if I have good credit?
There are several ways to find out. If you've never been late--ever--with a payment, you have good credit. Many people who have been late with an occasional payment still have good credit.
You can find out your credit rating by letting Chicago Funding run a credit check for you, automatically and securely. Or, you can contact a credit bureau such as Equifax at (708) 449-0600, Trans Union at (312) 408-1400, or TRW at (800) 682-7654.
I just moved in the past six months. Will that affect my ability to get a loan?
No, not if it was a local move, or really anywhere within the U.S. Sometimes things can get complicated if you moved from another country to our area. In the latter case, you may experience delays due to the difficulty in moving important paperwork over national lines.
I just changed jobs. How will that affect me?
As long as you're in a similar industry, making similar money, it won't affect you. The only differences might be if you were salaried and now you are commission-based in your pay, if you're now self-employed, or went to an entirely different industry making less money.
I'm self-employed. Will the loan process be difficult?
The loan process for self-employed people varies on a number of factors. How much money you have available, the type of business you're in, and how you pay yourself might affect your loan status. Many complex issues are involved; your best bet is to make an appointment to visit Chicago Funding in person to determine your ability to get a mortgage that you want.
What do I need to consider if I or my spouse was divorced?
As long as your debts are separate and you do not jointly own property, divorce will not be a large hurdle in the application process. Your Chicago Funding loan officer will inform you of any documentation you might need.
How does bankruptcy affect my ability to get a loan?
In many cases, after the discharge of debtors in the bankruptcy process, two years of spotless credit is needed to have a clean slate. No late payments, nor judgments, nor collections can exist within a five-year period after bankruptcy is declared.
Are there ways to buy a house for little or no down payment?
Depending on your credit, income, and debt situations, you could qualify for a down payment of only 3 percent. You should also check your eligibility for FHA/VA loans--in some cases, these programs offer loans for no money down.
Do I really need an attorney for the closing process?
We always recommend that you find an attorney for the closing process. Why? You probably know your job well, and know the type of house you'd like, but very few people are expert in the areas of plat surveys, liens, title transfers, etc. That's why we think it's a good idea to hire an attorney. For the small amount of money during the closing, they could save you many dollars and lots of headaches.
Will I pay an application fee? What is this fee designed to cover?
You will not pay an application fee. What you will be charged for, however, are fees to cover the property appraisal and credit report. There is no "application" fee.
Will I need mortgage insurance?
As long as you have at least 20 percent equity in the property--or can make a 20 percent down payment on the house you want--you will not pay for mortgage insurance. However, if you are buying property as an investment and you don't intend to live at that residence, you generally need to have more than 20 percent equity or down payment in a property to avoid paying mortgage insurance.
I'm interested in buying a property as an investment, not to live in. What should I know?
As we discussed, you might need mortgage insurance unless you have a significant down payment. But as long as you qualify on income, credit, and debt for your own house, that's a good indicator that you'll be successful in getting a mortgage for your investment property.
What documentation do I need to start the loan process?
· Last two years' W-2 forms and tax returns
· Last two years' W-2 forms and tax returns
· Last 30 days' pay stubs
· Last 3 months' bank statements
· Name, address, and account numbers for all accounts (checking, savings, CD, money market, IRA, 401K)
· Name, address, and account numbers, and current balance for all credit cards
· Loan payment information (car, student loan, etc.)
· Complete mortgage or landlord information
· Divorce decree (if applicable)
· Realtor and attorney's telephone numbers and addresses
· If self-employed, business tax returns and certified P&L statement
· Appraisal/credit fee
This information was provided courtesy of:
Chicago Funding, Inc.
2349 West Lake Street, Suite 120
Addison, IL. 60101