Frequently Asked Questions

1.

 

Should I Get Pre-Qualified Before House Hunting?

Absolutely! Even if you haven't so much as picked out houses to visit yet, it's important to see your mortgage professional first. Why? What can we do for you if you haven't negotiated a price, and don't know how much you want to borrow?

When we pre-qualify you, we help you determine how much of a monthly mortgage payment you can afford, and how much we can loan you. We do this by considering your income and debts, your employment and residence situations, your available funds for down payment and required reserves, and some other things. It's short and to the point, and we keep the paperwork to a minimum!

Once you qualify, we give you what's called a Pre-Qualification Letter (your real estate agent might call it a "pre-qual"), which says that we are working with you to find the best loan to meet your needs and that we're confident you'll qualify for a loan for a certain amount.

When you find a house that catches your eye, and you decide to make an offer, being pre-qualified for a mortgage will do a couple of things. First, it lets you know how much you can offer. Your real estate agent will help you decide on an appropriate offer, but being pre-qualified gives you the confidence to know you can follow through.

More importantly, to a home seller, your being pre-qualified is like you walked into their house with a suitcase full of cash to make the deal! They won't have to wonder if they're wasting their time because you'll never qualify for a mortgage to finance the amount you're offering for the home. You have the clout of a buyer ready to make the deal right now!

You can always use the calculators available on our site to get an idea of how much mortgage you can afford -- but it's important to meet with us. For one thing, you'll need a Pre-Qualification Letter! For another thing, we may be able to find a different mortgage program that fits your needs better.

2.

What are closing costs?

Closing costs are miscellaneous fees charged by those involved with the mortgage transaction (such as your lender for processing the loan, the title company for handling the paperwork, a surveyor or appraiser, local government offices for recording the deed, taxes to the state and city, etc.). The exact amount varies and is dependent on a lot of things such as the loan amount, whether you are paying points to buy down the rate, etc. But in general, closing costs range from 1 to 8% of the total loan amount (or purchase price on a purchase), though more typically end up in the 2%-3% range. We can provide you with an accurate estimate of the closing costs that will be associated with your loan by providing you with a "Good Faith Estimate. This documents will break down all of the fees associated with obtaining the mortgage loan you are applying for.

3.

What is a FICO Score?

In today's increasingly automated society, it should come as no surprise that when you apply for a mortgage, your ability to pay can be reduced to a single number; your FICO score. All the years you've been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, the primary factors are:

  •   Credit History - How long have you had credit?
  •   Payment History - Do you pay your bills on time?
  •   Credit Card Balances - How much do you owe on how many accounts?
  •   Credit Inquiries - How many times have you had your credit checked?

Each of these, and other items, are assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 850, with higher being better. Typical home buyers likely find their scores falling between 600 and 850. FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

What can you do about your FICO score? Unfortunately, not a whole lot. At least not in a short period of time. Since the score is based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes. The most important thing is to know your FICO score and to ensure that your credit history is correct. Conveniently, Fair Isaac has created a web site (www.myFICO.com) that lets you do just that. For a reasonable fee, you can quickly get your FICO score from all three reporting agencies, along with your credit report. Also available is some helpful information and tools that help you analyze what actions might have the greatest impact on your FICO score. Each of the credit services offers similar services on their web sites: www.equifax.com, www.experian.com, and www.transunion.com.

Armed with this information, you will be a more informed consumer and better positioned to obtain the most favorable mortgage available to you.

4.

What is an ARM?

An ARM is an Adjustable Rate Mortgage. This means the interest rate is periodically adjusted to more closely coincide with current rates. A one year ARM is adjusted annually, a three year ARM is adjusted every three years, a 5 year ARM is adjusted every 5 years, and so on and so forth.

5.

What is an APR?

An APR (Annual Percentage Rate) is a federally required calculation of what your rate would be if you rolled all your cost into your loan. In other words, if you took all of the costs of getting a loan (with the exception of a down payment on a purchase transaction) and rolled it into the interest rate, that would give you your APR. Please keep in mind that the APR is NOT how your payment is calculated. The APR will be shown on your Truth-in-Lending (TIL) disclosure, and quite often the APR is higher than the actual note rate.

6.

What is an PMI?

Private Mortgage Insurance, also known as PMI, is a supplemental insurance policy you may be required to obtain in order to get a mortgage loan. PMI is provided by private (non-government) companies and is usually required when your loan-to-value ratio, the amount of your mortgage loan divided by the value of your home, is greater than 80 percent.

PMI isn't a bad thing; it allows you to make a lower down payment and still qualify for a mortgage loan. In fact without PMI, many of us would not be able to purchase our first home.

7.

How is PMI Calculated and How/When Can I get Rid of it?

Your PMI premium is fixed based on plan type (loan-to-value ratio, loan type, loan term, etc.) and is not related to your particular credit history or other individual characteristics. PMI typically amounts to about one-half of one percent of your mortgage amount annually, according to the Mortgage Bankers Association, and the premium payment is usually rolled into your monthly mortgage payment. On a $200,000 mortgage, you may be paying $1,000 per year for PMI.

For loans made after July 1999, lenders are required by federal law to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent of your purchase price — not when you achieve 22 percent equity, which will happen much more quickly with rising property values. (Certain "higher risk" loans are excluded.) But you have the right to cancel PMI (for loans made after July 1999) once your equity reaches 20 percent, regardless of the original purchase price.

Keep track of your principal payments. Also keep track of what other homes are selling for in your neighborhood. If your loan is under five years old, chances are you haven't paid down much principal — it's been mostly interest. But property values in many parts of the country have gone through the roof lately. And that can earn you 20 percent equity even if you haven't paid down much principal.

When you think you've reached 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments! You will need to notify your mortgage lender that you want to cancel PMI payments and you'll need to submit proof that you have at least 20 percent equity. A state certified appraisal on the appropriate form (URAR- 1004 uniform residential appraisal report for single family homes) is the best proof there is — and most lenders require one before they'll cancel PMI.

8.

What documentation will I need to get a mortgage loan?

For Purchases:
  -   Most recent two years tax returns and W-2's
  -   1 month worth of recent paystubs
  -   2 months of bank statements for all your assets - ALL PAGES (even if blank or not important)
  -   Copy of driver’s license and social security cards
  -   Full executed purchase contract
For Refinances:
  -   Most recent two years tax returns and W-2's
  -   1 month worth of recent paystubs
  -   2 months of bank statements for all your assets - ALL PAGES (even if blank or not important)
  -   Copy of driver's license and social security cards
  -   Most recent mortgage statement for your first mortgage and for HELOC (if applicable)
  -   Prior “owner's title policy” and boundary survey (these will be in with the documents you received when you purchased your home – the “owner’s title policy is not required but it will save you several hundred dollars on your new refinance by providing it)

*Additional documents may be needed as well depending on your specific loan scenario.

9.

How long does it take to close on a new mortgage loan?

A typical mortgage transaction takes anywhere from 2-4 weeks depending on current underwriting turn times.

10.

What are Points?

In real estate lingo, a point is one percentage point of the overall loan that is paid up front, typically at the time of closing. For example, if you are borrowing $150,000 on a mortgage loan and will be paying three points, you will pay $4,500 up front. Paying points generally lowers the interest rate on your loan.

When determining whether you want pay for points, think about how long you expect to live in the house. Over a short time frame — less than five years or so — paying points usually doesn't makes sense, as you will pay more in points than you will save in interest. However, if you plan to stay in the house for 10 or 20 years or longer, points will pay off over time. Although the prospect of paying a few thousand dollars more initially isn't very attractive, you may be able to save money over the duration of the mortgage.

Another advantage of paying for points on a residential mortgage is that you can deduct the money you pay on that year's income tax return. In some areas, it's customary for sellers to pay your points at closing. As the buyer, you can still deduct the points payment from your taxes, as long as they meet IRS guidelines.

This applies only to new mortgage loans, however. If you are buying points to refinance your home, the IRS considers this prepaid interest. That means you will have to deduct them over the life of the loan rather than all at once at closing. Check with your accountant or tax advisor for his or her professional opinion on deducting points.

11.

What are escrows?

Escrow or impound accounts are mandatory and are set up for you anytime you place less than a 20% down payment on a house purchase or have less than 20% equity in your home on a refinance, or if you just simply like to have your property taxes and homeowners insurance included into your monthly payment. They will collect a maximum of 14 months depending on the month you close. You will then add every month to these accounts with part of your total house payment. The lender will make sure they are paid in full each year.