Below you will find the most frequently asked questions about real estate financing.
Click on the big + button to view the answer.
What is an Assumable Mortgage?
A home loan that allows the buyer to take over, or assume, the seller’s mortgage at the original terms, including interest rate.
Mortgage rates have remained stubbornly high.
But did you know that homebuyers can take over certain types of mortgages from the seller—at their original interest rates? These loans are called assumable mortgages.
Many fixed-rate mortgages can be assumed; most variable-rate loans cannot.
If you have an assumable mortgage with a low interest rate, it could be a selling point for your home. However, there are some important factors to consider. Reach out for a free consultation to learn more!
What is a bridge loan?
This short-term financing option can help you bridge the gap between buying a new home and selling your old one. It enables you to tap into your existing home equity before you’ve sold.
However, there are some issues to consider before you apply for a bridge loan:
👉 The interest rates and fees are usually higher than typical home loans.
👉 The equity from your current home will be used to secure the loan.
👉 The credit requirements are often greater for bridge loans than for standard financing.
If you think you may need to “bridge the gap” between buying a new home and selling your current one, give us a call. We can discuss your options and refer you to a lender who can help.
📲 865-364-0200
📩 Libby@guthriegrouphomes.com
Conventional sale: When the property is owned outright and has no mortgage.
Conventional sales are often smoother transactions than those that require financing as there is no dependence on the buyer receiving a loan to purchase the property.
A number ranging from 300-850 that’s based on an analysis of your credit history.
Your credit score helps lenders determine the likelihood you’ll repay future debts.
You’ll need a score of 620 or better, but you’ll get better financing rates with a score of 720 or higher.
Debt-to-Income (DTI) Ratio is a financial term that compares a person’s recurring monthly debt payments (credit cars, car loans, etc.) to their gross monthly income.
Lenders use the DTI ratio to assess a person’s ability to manage the payments and repay the money they have borrowed.
It is generally calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.
A lower DTI ratio is preferable as it shows you have a good balance between debt and income.
A Deed of Trust is like a mortgage. It is an agreement between a borrower (you) and a lender (a bank or other financial institution).
What is The Deposit 🤔
The Deposit is an amount of money from the home buyer to the home seller, paid in good faith to show dedication to purchasing the property. 🏡
IMPORTANT FACTS 👇🏼
💰The amount varies by market
💰Goes towards the purchase of your home
💰Protects the seller if a buyer backs out
💰A buyer may get this money back – due to failed inspections or contingencies
Our best advice? When it comes to buying in a low inventory, competitive market, it’s essential to partner with a Buyer’s Agent who understands how to make your offer stand out to sellers 🥊
Contact our team for a ✨ free consultation ✨ to learn more about how to write a winning offer!
The equity in a home or property is the difference between how much your home is worth and how much you owe on your mortgage.
So if your home is worth $500,000 and you owe $450,000 on your mortgage, your equity in the home is $50,000.
Escrow as it relates to real estate is a process of holding money and documents in a secure account while two parties complete a purchase.
Escrows are usually held by a Title and Escrow company.
This gives the buyer and seller peace of mind that the transaction is safe and that the buyer will not be able to take the money and run.
The escrow account ensures that the buyer has the necessary funds and that the seller will receive them when the transaction is complete.
What is the FHA?
The FHA (Federal Housing Administration) is an agency of the US government that provides insurance for mortgages. The FHA also sets rules and standards for lenders.
What is an FHA Loan?
An FHA loan is a loan that is backed by the Federal Housing Administration. It is designed to help people buy a home who may not have the money to make a big down payment.
What is a fixed-rate mortgage?
This mortgage’s interest rate will never change, even if the term of the loan is 30 years.
Fixed-rate mortgages typically have a term of 15 or 30 years.
Homeowners prefer this type of loan as it has a lower amount of risk compared to variable-rate loans, and the monthly payment remains the same for the life of the loan.
What is a HELOC?
A HELOC (Home Equity Line of Credit) is a type of loan that allows a homeowner to borrow against the equity in their home.
What is a Lender?
A (mortgage) lender is a bank or other financial institution that provides loans to people who want to buy a home.
Lenders include traditional banks, mortgage brokers, credit unions, and dedicated mortgage lenders like Rocket Mortgage®. We usually recommend using a mortgage broker as they can “shop around” for the best loan for your circumstances.
Banks like Wells Fargo or Bank of America can only lend money to you with their in-house loans and those loan program guidelines.
When Realtors talk about lenders, they are referring to mortgage lenders.
Sometimes the homeowner can be the lender where you make the morgage payements to the homeowner instead of a bank or mortgage lender.
Occasionally, the buyer can assume the mortgage from the current homeowner.
Lenders in general offer other loans like personal loans, business loans, etc.
They can be an individual, group, or financial institution that provides money to a borrower with the expectation that you will pay them back, plus interest and fees, in the future.
Lenders include banks, private lenders, insurance companies, government agencies, credit unions, or non-bank lenders.
What is a Mortgage?
A mortgage is a loan that a person or persons take out to buy a house. The borrower pays the lender back over time with interest.
The interest rate on a mortgage loan you pay to borrow that money when buying a home.
The lower the rate, the better.
BTW, the “t” is silent, so pronounce it “morgage”.
What is a Pre-Approval Letter? 🤔
📄 It is a letter from a lender indicating you qualify for a mortgage of a specific amount.
Getting Pre-Approved
📃 You’ll fill out a mortgage application, provide documents, and bank statements, get a copy of your credit report, etc.
Getting pre-approved is what you need to do before starting a home search. The person selling your dream home will want to make sure you really are qualified to buy. Most sellers aren’t willing to accept your offer with only a pre-qualification.
The term “Principal” in real estate usually refers to the original amount of money invested or borrowed, excluding any interest or dividends.
In real estate, the term “Principal” refers to the original amount of money borrowed in a mortgage before interest is applied. It is the base amount upon which the lender calculates the interest for the loan. The principal is typically repaid over the term of the loan through a series of scheduled payments, gradually reducing the outstanding debt. When a borrower makes a mortgage payment, it typically includes an allocation for both principal and interest.
Alternatively, the term “Principal” refers to the main party involved in a transaction, which could be the buyer, seller, landlord, or tenant. In a brokerage agreement, the principal is the individual who has authorized the real estate agent or broker to act on their behalf in a transaction. This can include the selling, buying, or leasing of a property. The principal entrusts the agent or broker with certain responsibilities and makes the ultimate decision in the transaction. The term can also refer to the amount of money that is originally borrowed in a mortgage loan, excluding interest or additional fees.
What is Private Mortgage Insurance (PMI)? 🤔
This is insurance that helps protect lenders if the borrower doesn’t pay back their loan. 💰
You usually need PMI when you put a down payment that is less than 20% for a regular home loan. 🏡
PMI lets lenders give loans with smaller down payments. However, it costs the borrower more money each month for their mortgage.
How Much Does Private Mortgage Insurance (PMI) Cost?
The cost of this insurance can vary depending on factors like the amount of your down payment and your credit score.
Generally, PMI costs between 0.3% to 1.5% of the original loan amount per year. So, for a $500,000 loan, the cost would be between $1,500 and $7,500.
This cost is usually divided into monthly payments and added to your mortgage payment.
Do I have to Pay PMI forever?
No! Your mortgage lender will stop charging you for PMI automatically.
This happens either after you’ve paid off half of your loan term, or when you’ve built up enough equity in your home — meaning you own at least 22 percent of it, or when your LTV (loan-to-value) ratio drops to 78 percent.
If your lender doesn’t automatically cancel the PMI, you can simply request them to do so.
What is a Settlement Statement (aka HUD-1)? 🤔
A settlement statement, also known as a HUD-1, is a document that lists all the costs associated with buying or selling a home.
The phrases “underwater” and “upside down” refer to a situation when the amount owed on a mortgage loan is greater than the value of the property.
What is a VA Loan? 🤔
A VA Loan is a specific type of mortgage designed for American veterans, active duty service members, and select military spouses. 🎖️
Private lenders provide this loan, which the U.S. Department of Veterans Affairs partially backs. 🪙
The main advantage is that it enables eligible individuals to purchase a home without a down payment and without needing private mortgage insurance (PMI), typically mandated in conventional loans for down payments under 20%.
🏡 Furthermore, VA Loans frequently feature competitive interest rates and more flexible qualification criteria than traditional .
Veterans can also use these loans to refinance an existing mortgage or undertake home improvements. 🏚️
A Vantagescore is a credit scoring model used by some banks and lenders to assess the creditworthiness of individuals.
It one of the most commonly used credit scoring systems alongside FICO scores.
What is a variable-rate mortgage? 🤔
A type of short term loan (3-10 years) where the interest rate changes periodically.
See Adjustable Rate Mortgage (ARM).
