Frequently asked Questions

Purchasing a Home

Are you a HUD approved agency?

Yes, Lydia's House is a leading HUD-approved homeownership development, foreclosure intervention and financial coaching organization.

Can I pay my mortgage off early?

Most mortgages can be paid off early, and that information is found in your mortgage Note.

Do people with good credit scores need guidance in the homebuying process?

Absolutely. A real estate transaction is complex, and education is helpful to getting the best deal. Many of the services earn their living off of commissions so it's critical to know as much as you can.

How do I compare loans between lenders?

First, devise a checklist for the information from each lending institution. You should include the company's name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed.

How do I select a lender?

Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable.

How large of a down payment do I need?

There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses, and - possibly -repairs and decorating.

How long do property title insurance policies last?

If you purchased the policy, it will last indefinitely as of the purchase date as long as you own the property. However, any liens placed on the property later will not be covered.

How long does it take to get a loan?

As a rule of thumb, most lenders ask for 30 to 45 days to receive approval from an underwriter for a loan.

How much money will I have to come up with to buy a home?

That depends on a number of factors, including the cost of the house and the type of mortgage you get.

Should I have a home inspection?

Paying $300 to $500 for a home inspection is considered a wise investment as the inspector could reveal costly required repairs or future maintenance problems with the home.

Should I use a real estate broker? How do I find one?

Using a real estate broker is a very good idea. All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier.

What are closing costs?

There may be closing cost customary or unique to a certain locality, but closing cost 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 lenders administrative cost)
  • Recording fees
  • Survey fee
  • First premium of mortgage Insurance (if applicable)
  • Title Insurance (yours and 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

What are discount points?

Discount points allow you to lower your interest rate. They are essentially prepaid interest with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point.

What does a mortgage payment cover?

Most loans have 4 parts which are abbreviated to PITI and sometimes PITIA if there is an Association such as a condo association fee or a homeowner association fee. The parts are defined as: Principal: the repayment of the amount you actually borrowed

Interest: payment to the lender for the money you've borrowed

Homeowners insurance:a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards required by most lenders

Property taxes:the annual city/county taxes assessed on your property, divided by the number of mortgage payments you make in a year.

What information do I need to apply for a mortgage?

Delivering thorough and detailed documents to your lender is critical to loan approval by the underwriter. A list documents include: 1. Social security numbers for both your and your spouse, if both of you are applying for the loan 2. Copies of your checking and savings account statements for the past 6 months 3. Evidence of any other assets like bonds or stocks 4. A recent paycheck stub detailing your earnings 5. A list of all credit card accounts and the approximate monthly amounts owed on each 6. A list of account numbers and balances due on outstanding loans, such as car loans 7. Copies of your last 2 years' income tax statements 8. The name and address of someone who can verify your employment. Depending on your lender, you may be asked for other information

What is a (203k) loan?

This is a loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller's existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic guidelines for 203(k) loans are as follows:

  • The home must be at least one year old.
  • The cost of rehabilitation must be at least $5,000, but the total property value - including the cost of repairs - must fall within the FHA maximum mortgage limit.
  • The 203(k) loan must follow many of the 203(b) eligibility requirements.
  • Talk to your lender about specific improvement, energy efficiency, and structural guidelines.

What is a Good Faith Estimate?

It's an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan.

What is earnest money?

Earnest money is money put down to demonstrate your seriousness about buying a home. It is also known as a good faith deposit. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.

What is mortgage insurance?

Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It's required primarily for borrowers making a down payment of less than 20%.

What is PMI?

PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI's usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.

What is title insurance?

Title insurance is for your and your lender's protection. The policy insures against any defect in the title, old liens, unpaid property taxes, easements or claims on the title.

What's the difference between being pre-qualified and pre-approved?

Prequalification is an unverified estimate of what the lender thinks you can qualify for, many times after they have run a quick credit report. Preapproval is a result of submitted documentation from the client such as, paystubs, bank statements and tax returns in addition to reviewing the credit report.

When does an ARM make sense?

An adjustable rate mortgage may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.

Why should I buy, instead of rent?

A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you'll enjoy having something that's all yours - a home where your own personal style will tell the world who you are.

Credit Essentials

Can I correct a mistake in my credit report?

Simple mistakes are easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are usually understanding about legitimate problems.

How can i build my credit?

There are 3 rules to building credit: 1. Keep your balances under 30% of your credit limit. 2. Always pay on time. 3. Try to put a little more money towards the principal every month.

How do I better my FICO score?

Some guidelines follow: 1. Don't close unused credit cards 2. Avoid multiple credit inquiries unless they are "soft hits" such as promotional inquiries. 3. Write letters to all 3 bureaus, TransUnion, Equifax and Experian if you see credit history derogatories that are not yours. 4. Pay all of your bills on time. 5. Pay down your balances as soon as possible starting with the lowest balances first.

How do I get a copy of my credit report?

As a consumer you are entitled to 1 free credit report annually. Requesting your credit report allows you to review your credit score and account payment history. Additionally, you are allowed to report and dispute any information you deem to be inaccurate. You may access your free annual report from the three major reporting companies at You may also request your report if you are denied credit within the same calendar year. Finally, be prepared to verify your identity. Contact a HUD approved housing counseling agency for help with understanding your credit report.

How do I get my credit history information?

There are three major credit reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it's important to verify its accuracy. Double check the "high credit limit,"'total loan," and 'past due" columns. It's a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to acquire a free one. Also, check out

What are the factors of a FICO score?

According to NeighborWorks America, the breakdown is as follows: 1. Payment history - 35% 2. Amounts owed - 30% 3. Length of credit history - 15% 4. Types of credit - 10% 5. New credit - 10%

What credit score do I need to buy a home?

Housing counselors will typically advise a score of 620 or higher.

What if I don't pay off old debt on my credit report?

The statute of limitations varies from state to state, and may be different for various types of consumer debts. In many states, they often range from four to six years, calculated from the last payment on the debt. If you are considering not paying, check your state's law. By checking your credit report, you will know if the debt has been sold to another collection company. At that point the statue of limitations date may begin again. Old unpaid debt can stay on your credit report for 7 years and 180 days and should fall off after.

What is a Vantage Score?

It was launched in 2006 and competes directly with the Fair Isaac Corporation's FICO score, the most widely used credit scoring system. The Vantage Score rates an individual's credit from 501 to 990, and at the same time gives each individual a letter grade ranging from A to F. It is used more in consumer lending and auto lending than in mortgage risk assessment.

Why do FICO scores decrease?

1. Old derogatory accounts with balances owing 2. Public record items 3. Opening of new accounts 4. Significatnt balance increases 5. Customers do not pay as agreed, and this is reported