Q & A with Dottie Herman

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Q1 - My husband and I just inherited some money from a relative who passed away. We wanted to take the money and pay off our mortgage. Is there a penalty for that? Do we have to first pay taxes on that money? 
       
A - There are rarely prepayment penalties on your mortgage but it is best to call your lender and inquire as to how the payment will be applied.  In the case of a fixed-rate mortgage your loan balance will be reduced and your remaining loan term shortened but your payment remains the same.  As far as the taxes due are concerned I have always found the government is first in line so please consult your tax adviser for guidance in this matter.

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Q2 - My husband and I recently bought a home and did not need private mortgage insurance, but friends of ours who bought a few months after us did have to take PMI. Why does it vary from transaction to transaction?
 
A - Private mortgage insurance (PMI) is required only on mortgage loans which are of an amount greater than 80% of the home's value.  The only reason your friends would be required to have PMI is if they are making a down payment of less than 20%, and therefore financing greater than 80% of the home's value.

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Q3 - My brother and his wife had an accepted offer and were going to sign the contract but the deal fell through because he wasn't pre-approved but rather pre-qualified? 
 
A - Many do not understand the difference between a "pre-qualification" and a "pPre-approval" and the terms are often used interchangeably. There is a big difference between the two and in your case someone involved misunderstood this.  A pre-qualification is when you are interviewed by a mortgage lending professional professional, and based on the information you provided about the transaction and your financial profile, they respond with an "opinion" of your qualifications based on solely on this information.  A pre-approval is more like an actual mortgage application where you provided your income, asset, and credit documentation whichthat is then reviewed, validated and submitted to an underwriter. The pPre-approval process provides a much more in-depth review of documents that support the approval decision.  Most times a borrower will begin with a pre-qualification as they enter the home shopping process and then submit the paperwork for a full pPre-approval once they feel they are close to making offers.  We cannot say if the pre-approval was the only factor in this, but it is common for the seller to accept the offer from the buyer that presents themselves as well qualified.  A strong pre-approval in writing can make the difference so have your brother pursue this and go find their new home!

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Q4 - My wife and I are currently trying to sell our home and upgrade. We are having trouble getting good offers on our current residence; however, we have recently found our dream home. We are not in financial trouble, but we would be stretching to pay for our current house and the new one. Will a bank give us a mortgage because we have the intention and are trying to sell our current home or will they not take that into account?

A - The lender will allow you to proceed with the purchase of the new home before selling your current one only if you qualify for the monthly expenses of carrying it.  Should you proceed you will need to have enough monthly income to support both the existing mortgage and taxes and the new home's mortgage and taxes. In addition, if you will be borrowing monies for the down payment on the new home you need to include that as well. Many banks are more lenient on the requirements when your existing home is already in contract as well. Your situation does happen andis common and can be done.  Since there are many variables and mortgage underwriting requirements, it is best that you speak to a mortgage loan officer who can evaluate and advise you on the specifics.  I also recommend that you speak to a few lenders as the requirements may vary from lender to lender. Good Luck!!

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If you have a real estate question for Dottie, please send it to; Dottie@RealEstateChannel.com

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