Backyard Loans









Resources and Frequently Asked Questions

How do I begin the process of buying a home?

Start by thinking about your situation. Are you ready to buy a home? How much can you afford in a monthly mortgage payment? How much space do you need? What areas of town do you like? After you answer these questions, make a 'To Do" list and start doing serious research. Talk to friends and family, drive through neighborhoods, and look in the "Homes" section of the newspaper.

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Should I get pre-qualified for a mortgage before I shop for a home?

Getting pre-qualified for your mortgage is an important step before you shop for a home. It tells you how much home you can buy and makes applying for your mortgage easier. A mortgage pre-qualification can also give you additional leverage with a seller in negotiating the best possible terms of the sale.

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How does the lender decide the maximum loan amount that I can afford?

The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA, monthly mortgage payments should be no more than 28% of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 36% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.

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What types of mortgages are available?

Fixed-rate mortgage: You pay the same interest rate and same monthly payment of principal and interest for the duration of the mortgage. The most common are 30, 20 and 15 years. Fixed-rate mortgages are best if you plan on being in your home for a while.

Adjustable-rate mortgage (ARM): The interest rate stays fixed for an initial interest rate period, which ranges from 1 to 7 years. Then the rate will adjust up or down annually for the life of the loan based on a specified index. An ARM is a good option if you believe interest rates will go down over the next few years or if you plan on staying in your home 5 to 7 years or less.

Combination loan A loan where you receive a first mortgage combined at the same time with a second mortgage. This option may help you avoid the costs of private mortgage insurance (PMI) and/or the higher rate of a jumbo loan with as little as 10% down. The most popular combinations are 80-10-10 (80% first, 10% second, 10%down), 75-15-10 (75% first, 15% second, 10% down).

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What are the benefits of a 15-year mortgage?

A 15-year mortgage allows you to own your home in half the time of a conventional mortgage with a 30-year term. Although payments are higher with a 15-year mortgage, you'll save thousands of dollars in interest and build equity faster.

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Are there any special programs for first-time homebuyers?

Lenders offer special mortgage programs for individuals who meet certain income requirements, who are financing property in certain census tracts or who meet other special requirements.

  • Lower down payments than most other financing options.
  • Competitive interest rates.
  • Manageable payments for every budget.
  • Reduced closing costs and mortgage loan fees.

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Can I get a loan if I'm 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.

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What happens after I have applied for a loan?

Traditionally, it could take between 1-3 weeks to complete the evaluation of your application, but through new automated technology, you can receive your approval in a matter of minutes. It's not unusual for a lender to ask for more information once the application has been submitted. The sooner you can provide the information, the faster your loan will be processed. Once all the information has been verified, your lender will call to let you know the status of your loan. When the loan is approved, a closing date is set up and your lender will review the closing process with you. And after closing, you'll be able to move into your new home.

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What makes up closing costs?

Closing costs can be divided into three main categories:

  • Lender fees: Fees can include origination, discount points, application, credit report, appraisal, processing and underwriting fees.
  • Third-party fees: These fees vary by state and the company you select to close your loan. They can include fees for closing, title exam, title insurance and recording.
  • Pre-paid items: These are items collected at the time of closing but are not really considered costs (for example, interest, taxes, and hazard insurance).

There may be closing costs customary or unique to a certain locality, but closing costs are usually made up of the following:

  • Attorney's or escrow fees (yours and your lender's if applicable)
  • Property taxes (to cover tax period to date)
  • Interest (paid from date of closing to 30 days before first monthly payment)
  • Loan origination fee (covers lender's administrative costs)
  • Appraisal fee
  • Credit report fee
  • Recording fees
  • Survey fee (if applicable)
  • First premium of mortgage insurance (if applicable)
  • Title insurance (yours and your lender's)
  • Loan discount points
  • First payment to escrow account for future real estate taxes and insurance
  • Paid receipt for homeowner's insurance policy (and fire and flood insurance if applicable)
  • Any documentation preparation fees

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How much cash will I need for closing costs?

Closing costs generally range from 2% to 3% of your loan amount.

You'll be provided with an estimate of your closing costs soon after your application has been received. These estimates will change if you change the product type or loan amount. If this should occur, be sure to ask how the changes will affect your closing costs.

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What Is Private Mortgage Insurance (PMI)?

PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.

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How Do You Cancel or Terminate PMI?

The rules governing the termination of PMI are defined in The Homeowner's Protection Act (HPA) of 1998.

Cancellation

Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

Automatic Termination

Under HPA, mortgage lenders or servicers must automatically cancel PMI coverage on most loans, once you pay down your mortgage to 78 percent of the value if you are current on your loan. If the loan is delinquent on the date of automatic termination, the lender must terminate the coverage as soon thereafter as the loan becomes current. Lenders must terminate the coverage within 30 days of cancellation or the automatic termination date, and are not permitted to require PMI premiums after this date. Any unearned premiums must be returned to you within 45 days of the cancellation or termination date.

For high risk loans, mortgage lenders or servicers are required to automatically cancel PMI coverage once the mortgage is paid down to 77 percent of the original value of the property, provided you are current on your loan.

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What can I expect to happen on closing day?

You'll present your paid homeowner's insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proof of any inspection, warranties, etc. Once you're sure you understand all the documentation, you'll sign the mortgage, agreeing that if you don't make payments the lender may be entitled to sell your property and apply the sale price against the amount you owe plus expenses. You'll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.

You'll pay the lender's agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the state Registry of Deeds, and you will be a homeowner.

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What is an impound/escrow account?

In addition to the principal and interest payment on your mortgage loan, you may elect to impound/escrow additional funds each month in an account to pay for property taxes and insurance. With some mortgage programs, impounding/escrowing for taxes and insurance may be required.

Having an impound/escrow account allows you to put aside a small portion each month toward the costs of insurance and property taxes. You send the additional funds each month when you make your mortgage payment. Lenders hold the money in an impound/escrow account and make the payments from the account when they are due.

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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.

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Should I refinance my mortgage?

There are generally three reasons to refinance:

  • Lower your monthly payments.
  • Pay off your mortgage faster.
  • Take cash out of your property.

Interest rates and the term of your mortgage can affect your decision.

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How much equity do I need to refinance?

Most refinance loan programs require at least 10% equity in your home to refinance, although, some lenders will lend 100% or 125% of the value of your home.

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Can I combine my first and second mortgages (equity line or loan) when I refinance?

If it has been at least 12 months since you secured the second mortgage (or had a withdrawal on an equity line) and still have 10% equity in the home, you may be able to consolidate it with the first mortgage and still qualify as a rate & term refinance. Otherwise, the lender will consider the loan a cash-out refinance.

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Can I refinance if my home is currently for sale?

You can refinance as long as your home has not been for sale within the last six months.

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Will a prepayment penalty affect my refinance?

Prepayment penalties on your existing mortgage could make refinancing more costly. Check the details of your current loan agreement and be sure to factor in the cost of any prepayment penalty when you consider the benefits of refinancing.

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