FAQs For Home Buyers

What documentation will the lender typically require to process my mortgage?

The answer depends upon the quality of your credit and the amount of equity you have in your property. On a typical fully documented mortgage application (where an applicant is seeking to qualify based on an employee's salary), the lender will require: one month's current pay stubs, W-2's for the prior two years and bank and investment account statements for the prior 2-3 months. If an applicant is self-employed (has a 25% or greater ownership in a business) then additional documentation could be required (i.e. 1040's, 1165's, 1120's, P & L statement).

What is the difference between a zero point and a no cost mortgage?

With a zero point mortgage, a borrower has opted not to pay points to buy their interest rate down but will still be paying for their base closing costs (i.e. appraisal, credit report, lender doc fees, title and escrow, etc.). With a no cost mortgage, a borrower has accepted a higher interest rate, (typically .25%-375% higher than on a zero point mortgage) with the trade off that the lender or broker will pay for all their non-recurring closing costs (all base closing fees except for interest, taxes and insurance due).

Is it possible to obtain a no cost mortgage when refinancing your mortgage?

Yes. In fact no cost mortgages are extremely popular. Because a borrower pays no non¬recurring closing costs, it is easy to analyze how soon money is saved on a monthly mortgage payment by refinancing. Many homeowners will consider refinancing for as little as .25% improvements to their mortgage rate with no-cost mortgage financing.

How are the mortgage rates advertised on the Internet and in the newspaper so low?

There are really 2 answers to this question. The rates that you see that are 112 to 3/4% lower than 'real rates' are generally assuming that the borrower is paying closing costs and/or points. The important thing to remember is that it's key to be comparing apples to apples when comparing programs and rates ... and to have all of the facts in writing if possible. The last thing you want is to be surprised at the closing table with costs, prepayment penalties, etc.

What are points?

Points, also referred to as discount points, are an upfront interest paid to buy a lower rate on the mortgage for the term of the loan. A point is expressed as a percentage of the total loan amount. For example on a loan amount of$100,000, one point would be equal to $1,000 or two points would be equal to $2,000. This amount would be paid at closing in addition to the down payment and other closing costs.

Points are not beneficial to every borrower and need to be evaluated on a case-by-case basis. To determine if it is beneficial to you to pay points, you need to first calculate the principal and interest payment for the loan amount based on a rate with 0 points and then also, a payment based on a rate with points. The difference in the two payments is the amount you will save by paying points.

The next step is take the total cost of the points and divide by your monthly savings. This figure shows you how many months it will take to recoup the costs of the points. If you plan on being in your home longer than it takes to recoup the costs and can afford to pay the points, then it is an advantage to you. However if not, then you are better off to take a rate without points.

What is escrow? Is it required for my loan?

Escrow is where a portion of the real estate taxes, private mortgage insurance (if applicable) and homeowner's insurance on your property is included in your monthly payment. They are held in an escrow account until they come due and the mortgage company pays them from this account.

To calculate how much this will add to your monthly payment, calculate the total amount due in a year for real estate taxes, private mortgage insurance (if applicable) and homeowners insurance and divide that number by twelve. You may waive the requirement to escrow for homeowners insurance for any loan. However there are requirements that must be met to waive escrow for real estate taxes on your primary residence. Investment properties are required to escrow real estate taxes.

What is Private Mortgage Insurance (PMI)?

Is it required for my loan? Private Mortgage Insurance (PMI) is required for all mortgage loans with less than 20% down payment. This insurance is included in your monthly payment and protects the lender in the case of default.

Will the lender require an appraisal of the property? If so, will I receive a copy of it?

Yes. The property is the collateral for the mortgage, therefore an appraisal is almost always required and if a borrower pays for the appraisal he or she is definitely entitled to receive a copy of it.

When can I lock into an interest rate and for how long is it good?

An interest rate can be locked for up to 60 days once the property has been selected. (A borrower can't lock during the pre-approval process until they have a property.) Once the interest rate is locked it can't be lowered for any reason if rates drop. Longer rate locks may be available.

Will I need to get flood insurance coverage to close the new mortgage?

The lender should not ask you to obtain a flood policy unless your property is located in a flood hazard zone.

What is the best way to shop for insurance?

A reliable method of shopping for both homeowners’ insurance is to get estimates from at least three high-rated companies. Be prepared to discuss the type of policy you want as well as the coverage limits you require.

Is an attorney required for this transaction?

An attorney is not a requirement at the closing of your home, but is highly recommended for purchase transactions.

What is the minimum down payment required?

95% financing is available for most situations. FHA loans are also available for as little as 3.5% down payment if you qualify. Higher down payments may be required in situations involving, but not limited to:

• Borrowers with some credit problems
• When purchasing investment properties
• Distressed markets

How long is required that I be employed with my employer?

Generally two years with the same employer or in the same line of work is considered stable work history. Also, schooling in a field related to your current employment is considered to be in the same line of work. Other situations will be reviewed on a case-by case basis.

What is considered acceptable credit history?

Generally any payments that have been past due over thirty (30) days in the past two (2) years may require a detailed letter of explanation. Each situation will be reviewed on a case-by-case basis with the following being of importance: the number of times delinquent, the type of account that is or was delinquent, and the reason for the delinquencies

How long does it generally take to complete the process and close?

The mortgage process generally takes between 30-60 days. Since we rely on the services of others and many different situations may arise beyond our control, it sometimes may take longer. Please be assured we process all loans as quickly as possible.

When is mortgage insurance required?

If the amount of the mortgage exceeds 80% of the lending value of the mortgaged property, the mortgage is considered "high ratio". Accordingly, and as required by law, mortgage insurance must be purchased for the full amount of the mortgage.

What is the difference between a Pre-Approval Letter and a Commitment Letter?

A Pre-Approval Letter states that you have spoken with a mortgage company and provided basic information about your financial situation. It states that we have checked your credit and that those things in combination qualify you for a mortgage of a certain amount. It does not guarantee that you will get a mortgage. Many realtors and sellers require a Pre-Approval Letter with your offer on a property to ensure that you are a serious buyer.

What is Annual Percentage Rate (APR), and how is it different from my mortgage rate?

In its simplest terms, the APR is the cost of your mortgage expressed as an interest rate, i.e. the true cost of the money you're borrowing. It was originally developed as a tool to borrowers for comparing interest rates from different lenders. The problem is that not everyone adheres to the standard formula for calculating APR, so it has become confusing! The important thing to recognize is that the mortgage rate you locked in at is the one that will be used to calculate your monthly payments and that the APR doesn't affect that. When you receive a Good Faith Estimate, you'll see the APR along with the total amount of money you'll pay on your loan over its life. Often, the APR is different from the rate you locked in at. With fixed rate mortgages, it's usually a little bit higher. The reason is that in the month you close on your loan, there is prepaid interest for that month. That interest cost along with any closing costs or points that you may be paying makes your net loan smaller, e.g. with a loan amount of$100,000 with $2,000 in closing costs and $1,000 in prepaid interest although you are receiving $100,000 in borrowed funds, your 'net' or 'true' loan amount is really $97,000. Now, take your monthly payment resulting from your locked in rate, apply it to the 'true' $97,000 loan amount, and solve for interest rate. It's obviously higher because the loan amount is now smaller, i.e. the rate is applied to a smaller number. Adjustable Rate Mortgages (ARMs) are trickier, because after the fixed rate period of time, a forecasting formula is used to calculate the APR over the life of the loan. Because that is partly based on history and patterns of key economic indicators, in today's market, the APR often comes out lower than the locked in rate. This is very confusing for borrowers. Truthfully, on an ARM nobody knows what the rate will be after the fixed period, so there is really no accurate way of determining the APR in this case. It is simply a Good Faith Estimate.