Frequently Asked Questions
Q. What is needed at application to expedite my mortgage application?
- Two forms of identification (drivers license, social security card).
- Two most recent bank statements of all deposit accounts and current 401-k or investment account statements.
- Two most recent pay stubs and last year's W-2.
- If self-employed, last two years complete personal and business tax returns.
- If a purchase, a copy of the signed sales contract.
- If a refinance, a copy of your warranty deed.
- A check for the $45.00 credit report or credit card information to be credited.
Q. What is Prequalification?
A. Prequalification is the process of determining what price a home can be purchased by a prospective buyer.
Q. My real estate agent recommended that I get a commitment letter. What is a commitment letter, and why should I get one?
A. A commitment letter is given by the lender stating the terms which it agrees to provide a mortgage to a homebuyer. Commitment letters help you set realistic goals while you're house-hunting, provide the same negotiating ability as a cash buyer, and enable you to move quickly once the perfect home is found.
Q. When mortgage lenders refer to "PITI" what exactly are they referring to?
A. PITI is Principal, Interest, Taxes, and Insurance- the components of a monthly mortgage payment.
Q. When my loan officer asks me if I want to waive my escrows, what exactly does that mean?
A. When you waive escrows, you take the responsibility of paying taxes and insurance, as opposed to having them included in your monthly payment. Waiving escrows may add a small fee to your closing costs. You can only waive escrows if your loan to value is 80% or less on your first lien.
Q. What does my mortgage lender mean by points?
A. One point is equal to one percent of the loan amount. Points are used to buy down the interest rate.
Q. How does the annual percentage rate differ from the interest rate?
A. The annual percentage rate (APR) is the effective rate of interest for a loan if the calculation is based on the original loan amount less the closing costs. This is the rate that will appear on your Loan Estimate. Please note that the APR is higher than the interest rate on your Mortgage Note and the note rate is your true interest rate.
Q. How do I know what my interest rate will be?
A. Upon your request, a loan officer will search for the lowest rate and "lock" your rate. The "lock-in" guarantees the homebuyer a specified interest rate provided the loan closes with the buyer within a set period of time. The lock-in also specifies the number of points to be paid at closing. You and the Mortgage Lender should agree to this lock-in in writing.
Q. Do I need to have a certain amount of money left after I buy my home?
A. Most loan programs require a cash reserve sufficient enough to make the first mortgage payments (PITI).
Q. What is the Loan to Value (LTV)?
The loan to value is the loan amount divided by the lessor of the sales price or the appraised value. Example: Loan amount is $80,000. The sales price is $100,000. The appraised value is $105,000. The lessor of sales price or appraised value is $100,000. $80,000/$100,000=80% LTV.
Q. What is the Debt-to-Income Ratio?
A. A ratio used by lenders to determine whether a person is qualified for a mortgage. Debt-to-Income is the total amount of monthly debt, including house payment, credit cards and other loans, divided by the total gross monthly income.
Q. What is the difference between an FHA and a VA loan?
A. An FHA loan is a loan insured by the Federal Housing Administration. FHA issues specified guidelines for mortgages. A VA loan is a loan guaranteed by the Veterans Administration. To obtain a VA loan, the borrower must have served in the armed forces for a certain period of time.
Q. What is Private Mortgage Insurance?
A. PMI is insurance required to cover the lender should the borrower default on the loan.
Q. Do I always have to have PMI on my loan?
A. PMI can be eliminated by having a down payment of at least 20% or by obtaining a second lien that lowers the loan to value to 80%.
Q. Will I have two separate payments if I have a second lien?
A. The second lien is often from a different bank than the first lien. Therefore, borrowers with a second lien will make two separate payments each month- one on the first lien and one on the second lien.
Q. What does my lender mean by "paper trail"?
A. A "paper trail" is copies of all paperwork necessary to prove a financial transaction: copies of all checks, deposit slips, loan paperwork, forms to liquidate assets, etc.
Q. Why did I receive a Loan Estimate?
A. Loan Estimates are sent to all borrowers after loan application has been made. The Truth In Lending Act is a federal law requiring lenders to reveal all of the terms of a mortgage. The APR that appears on your Loan Estimate will be higher than the interest rate on your Real Estate Lien Note.
Q. What inspections does the lender require?
A. The lender requires only a clear termite report and an appraisal. If the appraisal recommends repairs, the lender may require that those repairs be done before closing. The appraiser will then perform a final inspection to assure that the repairs were done correctly. If the termite report recommends treatment, treatment is required. We will need a receipt showing the name and amount of chemical used. If there is structural damage to the home from termites, these repairs may be required and an inspection done to assure the proper completion.
Q. When will I find out what my final figure is for total cost to close?
A. The title company will prepare a Closing Disclosure detailing the closing figures. We will provide you with the Closing Disclosure no later than 3 business days before consummation. Remember to bring a cashier's check made payable to the company. Your Loan Estimate and down payment should be close to the final settlement costs.
Q. Where do I go for closing?
A. Your closing will take place at the Title Company. The title company name and address appears in your sales contract. If you are refinancing a property, call your processor for the name and address of your title company.
Q. Where do I send my first mortgage payment?
A. Refer to your "First Payment Letter" in your closing documents to find where to send your first mortgage payment. If you receive a statement from your new lender prior to the due date of your first payment, send your payment to the new lender. Otherwise, send your payment as detailed in your "First Payment Letter." If you have any questions regarding your first payment, call your loan officer.
Q. I want to purchase another home, and my credit score is 750. But we had a foreclosure 18 months ago. Is there anything we can do?
A. Lenders are understandably cautious about giving mortgages to borrowers with recent foreclosures.
Most banks and mortgage companies won't approve a new loan until four years have passed and your credit reports show a consistent effort to keep up with all of your other bills during that time.
You can shorten the wait by qualifying for a federal program in which the government insures the lender will be repaid if you default again.
If you're a veteran or are currently serving in the military, your best option is a VA loan. The department of Veterans Affairs allows you to obtain a new mortgage only two years after a foreclosure.
The next best option is an FHA loan. The Federal Housing Administration will consider helping you only three years after a foreclosure.
Q. What determines a loan a jumbo loan? Who determines this amount – the bank or is it an industry standard?
A. Jumbo loans are mortgages too big to be bought by the two government sponsored companies that provide the great majority of the money for home loans in this country.
Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp.) do that by purchasing more than 80% of the loans made by commercial banks and mortgage companies.
Some of those mortgages they keep. Some they bundle together and sell to investors.
These loans are sometimes called conventional or conforming loans because they "conform" to Fannie's and Freddie's rules.
But Congress limits the size of loans Fannie Mae and Freddie Mac can buy. Presently, they're prohibited from buying loans larger than $417,000 in most places and no more than $729,750 in high-cost areas like New York and San Francisco.
If you want to borrow more than that, you must apply for a jumbo loan that banks must fund out of their own money or sell to private investors without any government help. Those loans always cost more (charge a higher interest rate) and usually require a larger down payment.
Q. What are annual percentage rates (APRs) on mortgages? I've read that APRs should be compared when searching for a loan but do not affect your monthly payment.
A. In theory, the APR is a way to reflect the total cost of a loan once all of the points, fees and other costs are taken into account.
That cost is expressed as an annual percentage rate that will be higher than the interest rate on the loan and should allow borrowers to compare loans that have different interest rates and fees. The lower the APR, the better for the customer.