What is a Pre-qualification? The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.
What is a Pre-approval? This allows you the ability to get approved for a specific loan amount prior to finding the home you want to purchase. The loan is underwritten and the lender commits to a specific loan amount. This can give you a great advantage with a homeowner or realtor if someone else is interested in the same home at the same time. Also, if you are thinking about refinancing and want to pay off creditors or take cash out, but you are not sure you would qualify – you can apply for a pre-approval and could save you on the cost of getting an appraisal on your home until you know if you qualify.
What information do I need to provide when I apply? When you are ready to apply, you need the most current information on your monthly income and debt, a total of your assets, and your social security number and employment information.
Is there a cost to apply? If so, how much? There is NO pre-approval fee, only a Loan application fee. This varies from lender to lender. Some lenders charge an application fee to cover actual out-of-pocket expenses and money for their efforts. Other lenders charge a reasonable credit report and appraisal fee, which cover out-of-pocket expenses. This could range anywhere from $50.00 (credit report only) to $500.00.
Where do I close and sign for my loan? Typically your closing will take place at a title closing agent’s or attorney’s office. When all parties agree upon a closing date, we will provide you with the exact location and time of your loan closing.
What documents will I receive at closing? At closing, you will sign and receive copies of all legal documents that will be recorded and placed on record regarding the property that you are purchasing or refinancing. Also, you receive all pertinent information regarding your mortgage payment and servicing information for your new loan.
How long will the loan process take? Loan approval and funding time frames vary depending on the type of transaction and the complexity of your personal finances. The process can take, on average, anywhere from 14-60 days.
What is a lock-in? The lock-in represents the interest rate you choose and will be the interest rate used to factor your monthly payment. The lock-in secures the interest rate during the process of your loan approval as long as your loan is processed and closed prior to the rate expiration date. This date is given to you when you lock-in the rate.
When can I lock-in my rate? When you apply for an application you can lock-in your interest rate any time during the process of your loan.
How long is my rate lock valid? Depending on the type of transaction and the time you need, lock periods can be valid anywhere from 10 days to 180 days.
Can I pay my loan off early? Can I pay extra each month? Yes, you can make principal payments at anytime during your loan term or pay the loan in full. You can also pay a set amount each month above the normal payment due or make lump sum payments periodically.
What is an escrow account? An account maintained by the lender to collect funds from the borrower in order to pay the taxes and property insurance due on the loan.
What is PITI? This represents the accounts your money is applied to when you make your monthly mortgage payment:
P – Principal
I – Interest
T – Taxes
I – Insurance
How do I know what loan is best for me? Review your current situation and future goals. Then answer the following questions to help determine the direction you may wish to take. Also, discuss these questions with your loan officer to help determine the type of loan you need.
> How long do you expect to stay in the house?
> Which is more important, low monthly payments, or low closing costs?
> Will your income increase or decrease in the next three years?
> How comfortable are you with your monthly payment potentially increasing?
What is the difference between a fixed rate and adjustable rate mortgage? With a fixed rate mortgage, the interest rate and payment remains constant over the life of the loan. Whereas, with an adjustable rate mortgage, the interest rate can either increase or decrease, based upon the terms of the loan. This could cause the monthly payments to increase in order to have the loan paid in full by maturity.
What is a convertible mortgage? A convertible mortgage allows you to convert your adjustable rate mortgage to a fixed rate mortgage for a flat fee during a specific time frame. This fee can range from $250 – $500 per lender.
What is a balloon mortgage? A loan with a fixed rate payment for the first five to seven years of the loan, after which a lump sum payment is due on the balance of the loan at a specified date when the balloon loan matures.
What is a conventional loan? A mortgage not guaranteed by VA or insured by FHA, FMHA or State Bond Agencies.
What is a jumbo loan? A conventional loan that exceeds the maximum agency (Fannie Mae, Freddie Mac) mortgage amount guidelines for a conventional loan.
What is PMI? This stands for Private Mortgage Insurance. On a conventional loan PMI is required if you borrow over 79.99% of your appraised value. This protects the lender against financial loss if the loan is defaulted.
What is mortgage life insurance? This insurance would pay the balance owed on your mortgage home loan in the event of your death during the term of the mortgage.
What is hazard insurance? This represents the insurance that protects your investment in your home. It provides compensation to the insured in case of property loss or damage.
What are points? Points represent an origination fee charged by the lender and loan discount points sometimes charged on the note rate to lower the interest rate.
What is a buy-down? A fee paid to lower the interest rate on a mortgage. The buyer, seller, or any other interested party may pay it. A permanent buydown would lower the rate for the entire term of the mortgage.
What is an origination fee? The origination fee is charged by the lender, and is typically 1% of the loan amount you borrow. This fee is used to cover expenses during the process of the loan.
What are closing costs? Fees and costs that both buyer and seller must pay at closing. They generally include: origination fee, discount point, appraisal fee, credit report, title search, recording fees, and other costs described in the HUD I at settlement.
Closing Costs to expect:
Lender fees include charges for loan processing, underwriting, preparation and establishing an escrow account.
Third-party fees include charges for insurance, title search, and other inspections such as termites. Government fees include deed recording and state & local mortgage taxes.
Escrow and interest fees include homeowner’s insurance, loan interest, real estate taxes, and occasionally private mortgage insurance.