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Frequently Asked Questions
We, as mortgage professionals, want to help you with your purchase of a new home. Buying a new home is one of the largest financial transactions that most of us ever make and should be done with a complete knowledge of the process.
What do you do after finding your new home?
Contact the seller or the Realtor selling the home for the seller. Negotiations can then begin for the sale of the property. Once you and the seller have reached an agreed purchase price and the sales agreement is signed, it is time to apply for a loan. Do not forget that if the buyer wants the seller to pay for part of the closings costs that it must be written in the contract.
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How do you apply for a loan?
Applying for a loan is very simple and straightforward. Call us and we can pre-qualify you in 5 minutes or less. You can also email us with your name, phone number, and a time to call or
you can complete an on-line application that will reach us in minutes. This transmission is encrypted and secure. With a completed application you may be able to receive a conditional loan approval in less than 1 hour. After you are approved or pre-qualified you will need the items listed in the next paragraph.
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1. Last two months Bank statements for any checking and/or savings accounts.
2. Year to date check stubs to cover past 30 days.
3. Last 2 years W-2 forms for all borrowers
4. Information on other property owned: Address, mortgages, leases, tax, insurance, etc.
5. Residence addresses for the past two years (name and of address of landlord
if any).
6. Social Security numbers for all borrowers.
7. Names and addresses of each employer for the past two years.
8. If any of the down payment is a gift, a gift letter must be completed.
If Salaried or Hourly
1. W2s for the past two (2) years.
2. Most recent two month's pay stubs to cover 30 days.
3. To use overtime or bonus, must show a history of earnings of two years.
4. If commission earnings, we need two months pay stubs.
If Self Employed, Sole Proprietor, Corporation, or Partnership
1. Two years individual tax returns with all schedules.
2. Two years corporate/partnership tax returns or K - 1 (if applicable).
3. Current profit and loss and balance statement for current year.
If You Receive or Pay Alimony/Child Support (only if you wish to use this income)
1. A Copy of the recorded divorce decree and property settlement agreement
2. If you receive, then we need proof by twelve months receipts by bank statements or court records
If You Receive Pension or Social Security income
Copy of the award letter or direct deposit by twelve months bank statements or 1099 social security forms for the most current two-year period.
If You Receive Dividend or Interest income
1. Must have a history of two years and two most recent personal tax returns with all schedules.
2. Copies of recent statements reflecting stock/bond balances and dividend/interest income
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Which loan program is best for me?
There are many types of loan programs which can suit your needs. In
deciding the program to choose, it is important for you to consider
your loan amount, the LTV (loan to value), the rate, and the monthly
payment you need. Our loan officer will go over each program in
detail to help you decide which is best for you.
Loans can be fixed or variable. Fixed rate loans are amortized over
a period of 10, 15, 20, or 30 years. Due to shorter commitments for
rates, ARM (Adjustable rate mortgage) rates are typically lower than
longer term rates. Adjustable rate mortgage loans may have rates
fixed for a period of time usually two to three years and then can
be adjusted depending on the current interest rate. Currently we do
not recommend adjustable rate mortgages and never have unless there
is no other option.
A shorter amortized loan will build up your equity faster and
therefore provide you with a debt free home. However, mortgage
payments are higher for short term amortized loans.
The loan amount you receive will depend on the purchase price of the
property, the appraised value, how much you can afford to pay
monthly, and the down payment. Other factors are also considered. If
you are purchasing a $200,000 home with $40,000 down payment
available, it would be necessary to borrow an amount of $160,000 to
purchase the property. This will be 80% of the home value, therefore
the loan-to-value of your mortgage is 80%. LTV's can, in some cases,
be as high as 100%.
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How does the credit scoring work?
In the mortgage banking world, credit scores drive most
loans, although we do have programs that are not credit score
driven. Your credit score determines the loan to value (LTV) and the rate of the loan. This is a mortgage scoring system developed by the credit reporting agencies that predict your ability to repay the mortgage you are applying for,
based on your past payment patterns. Other factors that make up your
"score" are the amount of credit inquiries in the past 6 months, the
amount of outstanding debt as a percentage of the total credit line
and the total amount of available credit. Other factors are also
considered by these agencies. If your credit report contains errors,
you should call the vendor placing the item on your report and the
credit companies listed below, or click on the links below for their website(s). You can do this for free if you have been denied credit in the last 60 days.
You are entitled to one free credit report a year, and we recommend that you check your credit at least once a each year.
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What does it mean to pay points?
A point is one percent of the loan amount. The lenders offer rates which may be lower but require paying points (also know as a discount. A rate of 6.25% with 1 point for a loan of $100,000 would require the borrower to pay a total of $1000 to the lender upon approval of the loan to get the lower rate. A rate of 6.75% with 0 points will require no payment to the lender but the interest rate is slightly higher. Points will lower rates and are of benefit if you have some cash to lower the rate and intend to keep the loan for its full term.
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What do all the mortgage terms mean?
Adjustment Interval
The period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are one year, three and five years.
Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically, according to an index that is selected when the mortgage is issued. The initial interest rate is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted.
Amortization
Repayment of a mortgage debt with periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time.
Amortization Schedule
A table showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment is made. questions
Annual Percentage Rate (APR)
A method for calculating an interest rate to the interest collected, discount points charged to either purchaser or seller or both, and certain costs related to closing, and mortgage insurance premiums. It is not the note rate for which your mortgage payment is calculated. A term defined in section 106 of the federal Truth in Lending Act (15 USC 1606), which expresses on an annualized basis the charges imposed on the borrower to obtain a loan (defined in the Act as "finance charges"), including interest, discount and other costs. Examples of fees that can be included in the APR are
Discount Points, Buy down Fee, Pre-Paid Interest, Private Mortgage Insurance (PMI), FHA Mortgage Insurance Premium (MIP), VA Funding Fee, Flood Certification, Fee Tax Service Fee, Processing Fee, and a Warehouse Fee.
Appraisal
An opinion or estimate of value. Also refers to the process by which a value estimate is obtained.
Appraiser
One qualified by education, training, experience and licensed to estimate the value of real and personal property.
Appreciation
An increase in value for any reason, except inflation.
Bankruptcy
An individual, firm, or corporation who, through a court proceeding, is relieved from the payment of all debts. Bankruptcy may be declared under one of several chapters of the federal bankruptcy code: Chapter 7, which covers liquidation of individual or business assets; Chapter 11, which covers reorganization of bankrupt businesses; Chapter 12, which covers certain farm bankruptcies; and Chapter 13, which covers workouts of debts by individuals. Chapter 13 - "Wage earner plan" where an individual debtor files a budget with the court and agrees to make partial payment to creditors over a three-to-five year period. Chapter 7 - Bankruptcy filing which gives a trustee the power to distribute a debtor's assets to creditors.
Borrower
One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest.
Broker
An individual employed on a fee or commission basis as agent to bring buyers and sellers together and assist in negotiating contracts between them.
Closing Costs
Fees paid to effect the closing of a mortgage, such as an origination fee, discount points, title insurance fees, survey fees, and attorney's fees.
Co-borrower
Second or additional person equally responsible for payments on a mortgage. A co-borrower does not have to take title to the property, but usually has to sign the mortgage note.
Co-signer
One who agrees to assume a debt obligation if the principal borrower defaults on mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property; his or her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower.
Credit Report
A report to a prospective lender on the credit standing of a prospective borrower, used to aid in the determination of creditworthiness.
Credit Score
A number that is used to rate your credit. Many Lenders use this as a method of determining the rate that is charged.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs. Also called "Reg B."
Flood Insurance
Insurance coverage which provides compensation to the insured in case of flood water damage.
Foreclosure
A legal procedure in which a mortgaged property is sold to pay the outstanding debt in case of default.
Good Faith Estimate (GFE)
A document which tells borrowers the approximate costs they will pay at or before closing, based on common practice in the locality. Under requirements of the Real Estate Settlement Procedures Act (RESPA), the mortgage banker or mortgage broker, if any, must deliver or mail the GFE to the applicant within three business days after the application is received.
Hazard Insurance
Insurance coverage which provides compensation to the insured in case of property loss or damage.
Home or Condominium Owners Association (HOA)
A nonprofit corporation or association that manages the common areas and services of a planned unit development or condominium project. In a condominium project, it has no ownership interest in the common areas; in a planned unit development, it holds title to common areas.
Land Sales Contract
An agreement to transfer title to a property once conditions of the contract has been fulfilled.
Lender
Person or entity that invests in or originates mortgage loans, such as a life insurance company, mortgage banker, credit union, commercial bank, or savings and loan. In single-family property usage, the lender is generally whoever's name the loan is closed in. (In a table funding transaction, the wholesaler mortgage company is usually considered to be the "lender.") In commercial property usage, the lender is the life insurance company, bank or pension fund that provides the funds and in whose name the loan is closed. questions
Mortgage
Pledge of property, especially real property, as security for a debt. By extension, the document evidencing the pledge. In many states, this document is a deed of trust. The document may contain the terms of repayment of the debt. By further extension, "mortgage" is used to describe both the mortgage proper and the separate promissory note evidencing the debt and providing the terms of the debt's repayment.
Mortgage Insurance (MI)
Insurance which protects mortgage lenders against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments. The federal government offers MI through HUD/FHA; private entities offer MI for conventional loans.
Mortgage Note
A written promise to pay a sum of money at a stated interest rate during a specified term. A mortgage note is secured by a mortgage.
Note
A general term for any kind of paper or document signed by a borrower that is an acknowledgment of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagor is named as the payee.
Loan Origination Fee
The fee charged by a lender to submit the documents to underwriting and other activity associated with your mortgage.
Planned Unit Development (PUD)
A comprehensive development plan for a large land area. A PUD usually includes residences, roads, schools, recreational facilities, commercial, office and industrial areas. Also, a subdivision having lots or areas owned in common and reserved for the use of some or all of the owners of the separately owned lots.
Pre-Paids
These are often thought to be closing costs but they are not. They are the cost of interim interest, the first year insurance premiums for hazard and mortgage insurance, and real estate taxes.
Real Estate Settlement Procedures Act (RESPA)
A federal statute and regulation promulgated by HUD governing real estate lending practices and disclosures. Its main features pertain to the provision of a good faith estimate of loan settlement costs and the provision of the HUD settlement booklet within three days of making a loan application.
Refinancing
The repayment of a debt from the proceeds of a new loan using the same property as security.
Second Mortgage
A mortgage that has rights subordinate to a first mortgage.
Settlement Costs (also known as Closing Costs)
Money paid by borrowers and sellers to effect the closing of a mortgage loan, including payments for title insurance, origination fees, discount points, processing, underwriting, appraisal, survey, title search, title insurance, recording, transfer charges, and attorney fees.
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What to do and not to do after applying for the loan!
Do not change anything of a financial nature until after the closing.
Do not apply for a credit card
Do not apply for a loan of any type.
Do not buy a car, boat, motorcycle, etc.
Do not spend any of the down payment on anything.
Do not change jobs
Do not have anybody run credit on you. Your credit score may be lowered when your report is acquired.
Do not pack to move until final loan approval.
DO keep all loan payments current even if it one you will be paying off at closing.
DO pay all taxes (state & federal) due on time.
DO keep all bank statements.
DO keep all pay stubs.
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What you need to know about your closing!
Our loan processors will open escrow (if not already handled by your Realtor) order a preliminary title search to make sure that the title is clear of liens and in the name of the seller (a clear title). The processor will gather the insurance binders, the termite letter, if required, order an appraisal, and arrange for title insurance with the title company.
There are two kinds of title insurance and the only one you have to buy is the one that protects the lender. Please talk to your advisor to determine if you need or desire the buyers title insurance. Remember that all closings cost money and be sure that your loan officer and escrow officer has given you paperwork and explained the amount of money you must have in order to close. If there are any questions please email us or call.
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