Washington Homeownership Center: Frequently Asked Questions

Click below on each of the Eight Steps to Homeownership that you have questions about.

Click here for a short description of each Step to Homeownership

Are there classes available to learn more about the home buying process?
How long does it take to buy a house?
Are online mortgage calculators helpful?
Why should I own my home vs. rent?

Are there classes available to learn more about the home buying process?

Yes. Homebuyer education seminars should include:
• How to qualify for a mortgage
• How to choose a lender and a real estate professional
• Warning signs of predatory lenders
• Fair housing
• A glossary of frequently used loan terms
• First-time homebuyer assistance programs

We strongly encourage you to attend a homebuyer education class or seminar sponsored by the Washington State Housing Finance Commission. There are different types of homebuyer education classes advertised by a variety of sources. Many banks, brokers and real estate offices offer classes; however some may be biased towards their own products and services. Seminars offered by nonprofits and sponsored by the Washington State Housing Finance Commission are designed to provide neutral, unbiased education on the home buying process. Washington Homeownership Center offers classes and a schedule of these and other homebuyer education seminars can be found by clicking here.

How long does it take to buy a house?

There is no set timeline; every person has a different situation. There are several service providers involved in the homebuying process including realtors, loan officers, underwriters, processors, home inspectors, real estate appraisers and escrow agents / closers. The minimum can be 30 days for the loan to close, but the process can easily take more time depending on how busy the housing market is. If you receive down payment assistance it often takes more time for the loan to close because the loan application may need to be reviewed and approved by several partners before the loan can close.

Are online mortgage calculators helpful?

Although online mortgage calculators can be helpful to show you how increased interest rates and/or down payments can affect your monthly payment, there are many closing costs and points that are not included in those calculations. In addition, online calculators that we have seen do not calculate APR which is the only way for you to truly compare the cost of one loan with another, nor do they show taxes and insurance costs or mortgage insurance (if applicable.)

Why should I own my home vs. rent?

Renting an apartment or home has some advantages such as low or no maintenance, more freedom to leave the area with short notice, and less consequences if you cannot pay your rent. Owning your own home does have many advantages, but it also includes the responsibilities of home ownership including maintenance. The advantages of course, are many.

How can I find out what is on my credit report?

Can I get a free credit report?

Why is my credit score & history so important?

How can I find out what is on my credit report?

To receive a copy of your report, contact each of the credit bureaus below. There is a fee between ($8-$15) for each report or approximately $20-40 for all three. However, if you have been denied credit, insurance, or employment within the past 60 days, you may request a report for free. There are several non-profit agencies that can assist you with analyzing your report and helping you re-build your credit if necessary.

The Washington Homeownership Center can provide a discounted cost credit report from each of the three credit bureaus for only $12. Contact us today at (866) 600-6466 to get your low-cost credit report.

Experian
PO Box 2104
Allen, TX 75013-2104
30374-0421
(888) 397-3742
www.experian.com

Trans Union
Consumer Disclosure Center
PO Box 390
Springfield, PA 19064-0390
(800) 888-4213
www.transunion.com

Equifax
PO Box 740241
Atlanta,GA
(800) 997-2493

Can I get a free credit report?

Yes. You can access your free credit report at www.annualcreditreport.com but this report does not include your credit score. If you want your credit score you will have to pay a fee to obtain it.

You can order your free annual credit report online a
www.annualcreditreport.com, by calling (877) 322-8228, or by completing the Annual Report Request Form and mailing it to: Annual Credit Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

When you order, you need to provide your name, address, Social Security number, and date of birth. To verify your identity, you may need to provide some information that only you would know.

Why is my credit score & history so important?

It is important to have an understanding of your credit report and credit score before applying for a mortgage. Your credit score, referred to as FICO by lenders, is one of the most important factors on your ability to qualify for the best loan products available. Your score is determined by the information on your credit report. Your credit report tracks: what types of credit you use, length of time your accounts have been open and whether you have paid your bills on time. Knowing the information on your credit report will help you know what type of loan you can qualify for and reduce your chances of being taken advantage of by predatory lenders.

Establishing a positive credit history makes it possible for you to obtain loans for items such as a car or a home in the future. Your credit record also may impact the interest rate you pay and the amount of money a lender is willing to offer you. It may also be reviewed when you rent an apartment. So it is important to pay your bills on time and keep the amount of debt you incur at a manageable amount.

Are there programs that can help me save for a down payment?

What are the tax advantages of owning a home?

Are there programs that can help me save for a down payment?

Yes, there are programs that can help you save money for a down payment. These programs are typically known as savings match programs. An account is set up and you contribute a set amount to the account. Each dollar that you put into the account is then matched by $2-$3 (depending on the program). After a set amount of time you may withdraw the money and use it towards the purchase of your home. These programs may also require that you attend credit and budgeting classes. There are also agencies that can help you set up a household budget and help you create your own savings plan. Look under “Resources Near You” to see which agencies and programs may be able to serve you

What are the tax advantages of owning a home?

Income tax reduction.

In the early years of a mortgage, most of your monthly payment covers interest on the mortgage. In most cases, the mortgage interest (and property tax) is deductible from your taxable income, lowering your overall tax bill. Therefore, your after-tax cost of home ownership may be lower than renting. There may be tax implications if you later sell the home at a profit. Consult your tax advisor for more information.

Tax deductible borrowing power.

As your home equity increases, you can borrow against it for almost any need with a home equity loan or line of credit. Because your home equity loan or line of credit is backed by the equity in your home, you may be able to deduct that interest from your taxable income. This could lower your final tax bill. See a tax professional for complete details.

Are there any special program for first-time homebuyers?

What is down payment assistance?

Are there other programs that can help me buy a home?

Who funds down payment assistance programs?

Do I have to re-pay down payment assistance?
Can I use more than one down-payment assistance program?

What is the minimum down payment for conventional, FHA, and VA loans?

Are there any special program for first-time homebuyers?

There are many programs available including:
• Down Payment Assistance Programs
• Statewide Second Mortgages that offer below market interest rates
• Statewide Deferred Loans
• Statewide Grants
• Seller Assisted Down Payment
• Conventional Loans with lower down payments and reduced closing cost options so you won't need as much cash to buy a home
• Government Loans
• Special Loan Programs

You can find out more information about these and other programs by contacting the Washington Homeownership Hotline at (866) 600-6466.

What is down payment assistance?

Down payment assistance is a portion of the purchase price of a house that is required at the closing of the loan. The amount required varies depending on the type of mortgage you get. There are different programs that can assist first-time buyers in coming up with a down payment.

Are there other programs that can help me buy a home?

There are many models of affordable housing for purchase that may be available in your area.

Who funds down payment assistance programs?

Down payment funds generally come from the Federal, State, County or City to help first-time, low-income buyers become homeowners. Lending institutions may also have grants or down payment assistance.

How can I find out if I qualify for down payment assistance programs?
• Read through the list of programs listed in the “Resources Near You” pages on this website to find the ones that serve the area in which you wish to purchase or call 866-600-6466 for a free packet of information that will be sent to you.
• Next read all program qualifications. Most down payment assistance programs are for lower to moderate- income borrowers and require that you meet income limits and attend a homebuyer education seminar. Refer to the median income table to find out if you fit the income requirements for available programs.
• Contact the program facilitator or your lender directly to request detailed information

Do I have to re-pay down payment assistance?

That depends on the program you choose. There are three different types of down payment assistance:

Can I use more than one down-payment assistance program?

The answer is YES. Combining down payment assistance programs is also referred to as “layered financing.” Keep in mind that not all programs can be combined and your lender or non-profit agency can help you decide the program that will be most advantageous and which programs can be combined. Washington Homeownership Center can help you sort through the many available programs when you are ready to do your research.

What is the minimum down payment for conventional, FHA, and VA loans?

Currently there are conventional loans available with 100% financing (no down payment) and only require $500 out of pocket. FHA loans are available with as little as 3% down. With VA loans, veterans are not required to put any money down when purchasing a home. Veterans are still required to pay for their closing costs, which includes a VA funding fee, and prepaid items. These costs may be negotiated into the price of the home. Please consult your individual lender for specific down payment requirements and programs.

How do I choose a lender?
What is the difference between a broker and a lender?

How do I choose a loan that is right for me?

How much can I afford?

How do I apply for a mortgage?
What documents will typically be requested when I make application for a first mortgage loan?

How long does it take to obtain loan approval?

How do I determine which mortgage product will meet my needs?

What types of mortgages are available?

How long will it take to close if I applied for my mortgage through a "pre-approval" program?

How quickly can a lender close on my home loan?

How can I determine what mortgage amount I will qualify for?

What is the difference between a pre-qualification analysis and a pre-approval application?

How are rates determined?

How can I compare rates and fees when shopping for a mortgage?

What is the difference between APR and interest rate?

What is an origination fee?

What is a discount point?

May I pay additional discount points to reduce my interest rate?

What are lender fees?
Does the lender require title insurance for purchase transactions?

If I refinance my loan with my existing lender, will I have to pay all the closing costs again?

Will the lender agree to include my closing costs in the loan amount?

What is prepaid interest?

What is Predatory Lending?

Can I get a loan if I’m not a U.S. citizen or if I live outside the country?

How do I choose a lender?

Interview several lenders to find the one you want to work with and can offer you the best deal. Remember, the lender is working for you so you should feel like an informed partner throughout the entire loan process. Is this someone you can see yourself working with for several months, and trust to help you with one of the biggest decisions of your life? If you are of low or moderate-income, look for a lending professional who is familiar with the many assistance programs for first-time homebuyers that have been developed by government and non-profit agencies.

What is the difference between a broker and a lender?

It may not always be clear if you are working with a lender or a mortgage broker. The difference between the two: Brokers match you with the right lender and loan from many different banks and options. Lenders make the loan themselves but often have fewer products available than a broker. Be prepared to negotiate with brokers as well as lenders to ensure you get the best deal.

Benefit of working with a broker:
• Brokers have access to a wide selection of loan products and flexible programs
Benefits of working with a lender:
• Lenders often have access to affordable loan or down payment programs that are listed in WHC's references that are not available to brokers

How do I choose a loan that is right for me?

There are many options offered by mortgage lenders so keep the following in mind while you search for the program that will best serve your needs:
• Interest Rate – What is the interest rate for the loan? Is it close to the market rate? If it’s much higher than the market rate, why?
• Annual Percentage Rate (APR) – The APR can be confusing to most consumers. The APR factors the interest rate combined with the total cost to do the loan: discounts and origination points, any fees and costs you will be paying for such as mortgage insurance and closing costs. The APR is an easy way to compare loans of different lenders, but make sure you compare like mortgages with like mortgages (15 yr loans w/ other 15 yr loans, etc) and on the same day as interest rates change frequently.
• Fixed vs. Adjustable Rate Mortgages (ARM) – A fixed rate mortgage has an interest rate that will not change for the length of the loan. An ARM has an interest rate that can change after the fixed period is reached and adjusts in response to the market at that time. There are positives and negatives to both types of programs depending on your circumstances.
• Down Payment – How much money does the program require you to put down? Will they allow gifts, grants, or other forms of funding to be used in addition to your own?
• Mortgage Insurance – This is usually required if your down payment was less than 20%, and the cost determined by how much you put down, the type of loan, and your credit scores. How much will mortgage insurance increase your monthly payment?
• Closing Costs – These are a variety of additional fees when it comes time to close your loan (escrow, underwriting, appraisal, title etc.) that can add up to a few thousand dollars. Your lender should show you exactly what fees make up the closing costs early on in the process. Will the mortgage program allow the seller, gift, and/or grant to contribute to the closing costs?

How much can I afford?

The amount of home you can afford is based on the amount of mortgage loan you can comfortably support. Generally, the amount of mortgage you qualify for is based on three factors: Your monthly debt payments as a percentage of income, how much down payment, and your credit history. Although your lending institution will pre-qualify you for a set amount, you may choose to borrow less depending on your personal budget and the lower price of the home you end up purchasing.

How do I apply for a mortgage?

Most lenders will take your application by phone or in person. The application interview typically takes 30-60 minutes. The Washington Homeownership Center recommends that you complete your application in person so you are able to establish a good relationship with your loan officer.

What documents will typically be requested when I make application for a first mortgage loan?

Frequently lenders will request: W2's, pay stubs, bank statements, tax returns, divorce decrees with child support order, and the purchase contract on the home you are buying.

How long does it take to obtain loan approval?

Depending on your credit history and down payment and the loan program selected, some lenders may be able to approve your mortgage in as little as 24 hours. The average number of days from application to approval will vary from lender to lender. However, 3-5 business days is typical.

How do I determine which mortgage product will meet my needs?

Everyone's situation is different. Most people will benefit from either consulting by phone or in person with a mortgage professional who is committed to discovering your needs, and helping you match those needs with a suitable mortgage product. Especially if you are of low- or moderate-income, look for a lending officer that has experience with first-time homebuyers and is familiar with programs that have been developed by government and non-profits to assist you.

What types of mortgages are available?

How long will it take to close if I applied for my mortgage through a "pre-approval" program?

If you applied through a "pre-approval" program and were approved, some lenders can close within 3 weeks after a purchase contract has been signed. In most cases, 30-45 days from application to closing is typical. Each lender's timeframe will vary and the transaction itself may cause the timeframes to vary.

How quickly can a lender close on my home loan?

Many lenders can facilitate closing 2 to 3 weeks after you have agreed on a purchase contract for a home. If you need more time, you can take as long as you need, while still closing prior to any rate lock expiration dates. Many lenders require 30-45 days from purchase contract and application to closing.

How can I determine what mortgage amount I will qualify for?

Based on your income, your current debts and estimated down-payment, your lender can usually help you determine the maximum mortgage amount for which you could qualify within minutes.

What is the difference between a pre-qualification analysis and a pre-approval application?

A pre-qualification analysis is typically an estimate as to what you may qualify for based upon your credit report and income. A pre-qualification has not been underwritten by the bank! Typically there is no cost or commitment on behalf of either party for a pre-qualification analysis.

A mortgage loan pre-approval application typically results in a written loan committment following a complete mortgage application. Some lenders will require an application fee. Its best to apply and obtain a pre-approved mortgage prior to signing a purchase agreement for a home. A pre-approval can also add to your negotiating strength when you are ready to make an offer on a home.

How are rates determined?

Interest rates change daily or even more than once within the same day! The changes are based on the economy and other economic indicators in the financial markets. To obtain current interest rates, contact your mortgage lender.

How can I compare rates and fees when shopping for a mortgage?

When comparison shopping, look at points, fees and the Annual Percentage Rate (APR). The APR includes the fees that are charged on your loan. Although one lender may have a slightly lower rate, they may charge more fees, and hence have the same APR as a lender with the slightly higher rate. It is important to get a Good Faith Estimate from competing lenders on the same day, this allows you to compare rates and fees based on the same market information.

What is the difference between APR and interest rate?

The APR (annual percentage rate) reflects the cost of your mortgage loan as a yearly rate. It also incorporates the cost to obtain the loan, such as discount points and other closing costs. The interest rate is the actual note rate and is more reflective in the monthly payment.

What is an origination fee?

The amount charged for services performed by the company handling the initial application and processing of the loan. The industry standard is 1% although, interest rates and points / fees may be used towards this as a way to advertise no origination fee.

What is a discount point?

A discount point is paid to the lender at closing to permanently buy down or lower an interest rate.

May I pay additional discount points to reduce my interest rate?

Yes, most lenders will allow you to pay additional discount points to lower your interest rate. It is important to look at the cost of reducing the interest rate verses the benefit over the life of the loan.

What are lender fees?

Lender's fees are fees that offset the cost of producing the loan. Mortgage companies may refer to them by different names, such as, processing fees, underwriting fees, and document preparation fees.

Does the lender require title insurance for purchase transactions?

Yes, a Mortgagee's Title Insurance Policy will be required on purchase transactions.

If I refinance my loan with my existing lender, will I have to pay all the closing costs again?

Typically, yes, as there is a cost to process any new loan application. This cost may include fees paid to third parties, such as the appraisal provider and the title and escrow closing providers.

Will the lender agree to include my closing costs in the loan amount?

On a purchase transaction, you typically cannot finance your closing costs into the loan amount. Some lenders do, however, have special programs under which you may be able to finance some, or all, of the costs by agreeing to a slightly higher interest rate. Also, if you are refinancing, you may be able to refinance some, or all, of your closing costs provided you have sufficient equity in your home.

What is prepaid interest?

This is the interim interest that accrues on the mortgage loan from the date of the loan closing to the beginning of the period covered by the first monthly payment. For example, if your closing date is scheduled for June 15, the first mortgage payment is due August 1. The lender will calculate a per-day interest amount that is collected at the time of closing. This amount covers the interest accrued from June 15 to July 1.

What is Predatory Lending?

Predatory lending is an abusive lending practice that takes advantage of borrowers. Predatory lending can be one or more abusive lending practices such as:
• Excessive interest rates and / or high fees
• Failing to disclose the true terms of the loan
• Approving a loan with payments higher than the borrower can afford to pay
• Pressuring a borrower to sign documents with out understanding the terms of the loan
• Flipping or frequent refinancing of a loan

Can I get a loan if I am not a U.S. citizen or if I live outside the country?

Yes. As long as the property you are buying or refinancing is in the United States.

How do I start shopping for a home?
What happens when I find the house I want to buy?
How much money will be required at closing?
Do most lenders require a homeowner's inspection?
What homeowner's insurance requirements will I need to meet at closing?
Do mobile homes need to be permanently affixed to receive financing?

How do I start shopping for a home?

First, choose a real estate professional. Ask friends, family, co-workers about their experience working with a real estate professional and ask for referrals. Compile a list of several and talk to each before choosing one. Choose one who listens well and understands your needs, and whose judgment you trust. The ideal real estate professional will know the local area you wish to purchase and has resources and contacts to help you in your search. If you are of low- or moderate-income, look for a real estate professional who is familiar with assistance programs for first-time homebuyers that have been developed by government and non-profit agencies.

What happens when I find the house I want to buy?

Once you have found a home that you want to buy, your real estate professional will help you make "offer" or "bid". This is your Purchase and Sales agreement, a legally binding contract.
Your offer will include:
• Description of the property
• Your proposed purchase price – the offer
• Concessions you would like seller to make, like helping with the closing costs
• Down payment and financing
• Financing contingencies, like approval of a satisfactory mortgage with specific interest rate and terms, etc.
• Home inspection contingencies – what will happen if the house doesn't pass inspection
• Items that will be included in the sale, like a refrigerator, washer / dryer, lawnmower
• The amount of earnest money you are offering. Earnest money is a deposit to show the seller that you are committed to buying the home
• Closing date, occupancy date, length of time the offer is valid
The seller can accept, reject or counteroffer. Each response will require a different action on your part. Your real estate professional will work with you to determine your next step. There may be several negotiations between you and the seller before you reach an agreement or you may move on to find another home.

How much money will be required at closing?

You should consult with your individual lender and closing agent; however, the amount of money needed for cash to close is comprised of your down payment, closing costs, as well as the prepaid items for your initial taxes and insurance escrow accounts. A lender is required to provide you with a good faith estimate of all settlement costs within 3-days of application. Also, typically within 24 hours prior to your closing, the closing agent will provide you with the final sum of money required for the closing referred to as the HUD settlement statement. Closing costs generally range from 2% to 3% of your loan amount.

Do most lenders require a homeowner's inspection?

No, a home inspection is generally requested by the buyer as a condition to the purchase of the home. Many homebuyers will make the purchase of their home contingent upon a homeowner's inspection. The inspection is a way to protect your investment. A homeowner's inspection should not be confused with an appraisal, which is required by most mortgage lenders in order to support the valuation of the mortgage security. The appraisal does not go into the same amount of detail as a home inspection.

What homeowner's insurance requirements will I need to meet at closing?

Most lenders require a one-year paid receipt for homeowner's insurance policy for at least the amount of the mortgage at the loan closing.

Do mobile homes need to be permanently affixed to receive financing?

Some lenders specialize in financing mobile homes which are not permanently affixed to a foundation. Most lenders will finance double-wide homes that have been permanently affixed to a foundation.