Real Estate

Financing A House FAQ

Are you thinking about purchasing a house? Chances are you'll need a loan. There's important information you should know about obtaining a home loan. The US Department of Housing and Urban Development (HUD) has information on its website to help guide you through the process. Here are some frequently asked questions about financing a house.



Q:

I'm seeking a loan to buy a house. Where can I find one?



  • A:

    There are many options you can use to obtain a loan. Some examples include:

    • Your own personal savings
    • Your bank or another one in the area
    • Mortgage companies
    • Credit unions
    • Government programs
    • Family loans
    • Loan from the seller of the house



Q:

Should I get a fixed rate mortgage or an adjustable rate mortgage?



  • A:

    It depends on your particular situation. If you want to pay the same interest rate and prevent any unpleasant surprises, you may want to choose a fixed rate mortgage. An ARM, or adjustable rate mortgage, has the potential of having a higher interest rate and payment than you expected when you purchased the house.



Q:

Do I have to buy mortgage insurance?



  • A:

    You probably will have to purchase mortgage insurance if you put less than 20 percent down on your house. Lenders will usually require private mortgage insurance (PMI) to protect themselves if you default on the loan.



Q:

Does my mortgage payment contain both my insurance and tax obligations?



  • A:It depends on your mortgage terms. Some key terms to look for include PI (principle, interest) or PITI (principle, interest, taxes, insurance).



Q:

Am I required by lenders to escrow my taxes and insurance?



  • A:Lenders don't have to require an escrow account for taxes and insurance, but many do. However, the Real Estate Settlement Procedures Act (RESPA) limits the amounts that your lender can require you to put into an escrow account.



Q:

Am I entitled to interest if I have to have an escrow account?



  • A:

    Your lender may or may not have to pay interest on your account depending on your state law. The RESPA doesn't require your lender to pay interest.



Q:

What will the lender use to base its decision on how much money to loan me?



  • A:

    Your lender will compare your debt to your income. It'll also consider your available cash for the closing costs and down payment, and your credit history.



Q:

What should my maximum loan be, regardless of how much my lender is willing to give me?



  • A:

    You shouldn't have a monthly mortgage payment greater than 29 percent of your gross income. In addition, your payment and your non-housing expenses combined shouldn't be greater than 41 percent of your income.



Q:

Does the RESPA require my lender to disclose certain information?



  • A:

    Yes, your lender is required to provide you many different types of information, including info on escrow accounts, closing costs and lender servicing practices. When you apply for a loan, you're entitled to a Special Information Booklet, a Good Faith Estimate (GFE) of your settlement costs and a Mortgage Servicing Disclosure Statement.



Q:

Do I need a certain amount of money to purchase a house?



  • A:

    You should have enough money to cover the initial expenses, including any earnest money, the down payment and the closing costs.



Q:

Do I have to pay a penalty if my lender fails to pay my property taxes on time?



  • A:

    Your lender is required to pay your taxes on time pursuant to the RESPA and should cover any penalties for failing to pay.



Q:

Discrimination is preventing me from purchasing a house. Is there anything I can do?





Q:

Does my lender have to give me a loan if it pre-qualifies me?



  • A:

    No, since pre-qualification is very informal and can be done over the phone. Once the lender starts examining the financial records, it may decide that you're too great a risk to loan you money.



Q:

Do I have to pay a late penalty if I accidently send my loan payment to my old lender instead of my new lender after my loan is transferred?



  • A:

    You're excused for the first 60 days if you send your payment to your old lender, as long as it's made on time. You're entitled to notification of the transfer 15 days before the due date of your payment.



Q:

Will my Good Faith Estimate let me know exactly what I'll have to pay at settlement?



  • A:

    You'll only receive an estimate of the charges you'll have to pay at settlement since your lender won't know the exact figures of all the charges.



Q:

I received a HUD-1 Settlement Statement. What info is found on this form?



  • A:

    Your actual settlement costs can be found on this statement. You can request to see this form one day before you actually settle.



Q:

Do I face any penalties for failing to pay my mortgage?



  • A:Your lender can take your house and sell it to pay your loan. This is called foreclosure. If the sale of your house doesn't fully pay the loan, your lender can obtain a deficiency judgment against you.
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