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Common Frequently Asked Questions
Here are some common questions we get:
What documents do I need to prepare for my loan application?
What is a Good Faith Estimate?
What's the difference between pre-qualifying and preliminary-approval?
How is my credit judged by lenders?
What is the difference between a conforming and a non-conforming loan?
What is an appraisal?
What is an Adjustable Rate Mortgage?
What are points? Are they tax deductible?
Should I pay discount points to lower my interest rate?
What is a Rate Lock?
What is an APR?
When is a good time to Refinance?
Can I buy a home even if I don't have any money for a down payment?
Will my interest payments be tax deductible?
What is PMI (Private Mortgage Insurance)?
What documents can I start preparing for my loan application?
Answer:
- 30 Days paystubs & most recent 2 years W-2?s
- 2 Years tax returns if self-employed or commissioned
- 2 Months bank statements and copies of all asset statements (401K, IRA, TSP, etc.)
- Names and addresses of each employer in the past 2 years
- Copy of divorce decree, separation or child support papers (if applicable)
- Addresses of other real estate owned and loan information
- Valid I.D. such as a driver’s license or passport
What is a Good Faith Estimate?
Answer:
- It's an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home.
What's the difference between pre-qualifying and preliminary-approval?
Answer:
- A preliminary-approval is issued by a loan officer and is based upon the information contained in your loan application. The loan officer examines your employment, income, credit history, and indebtedness and determines the dollar value of a loan for which you could be approved. However, the loan officer does not make final loan approval so the preliminary-approval is not a final commitment to lend.
- The pre-qualification letter issued by the loan officer is used when making an offer to purchase property. It is generally based on information provided by the borrower but not verified by the loan officer or mortgage analyst. It gives the seller some level of assurance that you can obtain the loan you have requested and thus be able to purchase their property.
How is my credit judged by lenders?
Answer:
- A credit bureau score is a number, based upon your credit history that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details.
What is the difference between a conforming and a non-conforming loan?
Answer:
- The maximum amount of money for a conforming loan is $417,000. Any mortgage loan that exceeds that amount is considered to be high-balance or non-conforming. In some cases the property itself may not be considered conforming due to the type of property, even if the price of the property is considering conforming.
Answer:
- An appraisal is a document that gives an estimate of a property's fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
What is an Adjustable Rate Mortgage?
Answer:
- An Adjustable Rate Mortgage (ARM) has a rate that can change, and your payments will adjust accordingly whereas a Fixed Rate Mortgage has the same payment for the entire term of the loan. The LIBOR is the most widely used benchmark for reference rate for short term interest rates. LIBOR stands for London InterBank Offered Rate, and according to the British Bankers? Association (which compiles the LIBOR), it is the rate of interest at which banks borrow funds from other banks, in marketable size, in the London InterBank market. LIBOR products are flexible, non-volatile way to help borrowers qualify for loans, lowering the start rate for a fixed period.
- Fully Amortizing ARM: This is the most common type of ARM. The monthly payment is calculated to pay off the entire mortgage balance at the end of the term. Typically 30 years. After any fixed interest rate period has passed, the interest rate and payment adjusts annually, not exceeding a maximum call the Interest Rate Cap.
- Interest-Only ARM: An Interest-Only ARM only requires monthly interest payments during the initial fixed rate period or for the first five years for certain loan products. At the end of the fixed rate period, the loan begins to adjust and the borrower makes fully amortizing payments until the end of the term, with the rate not exceeding the Interest Rate Cap. During the Interest-Only phase, the borrower has the option of applying the savings to pay off the principal, which will greatly reduce the term of the loan overall.
- An ARM may make sense if you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.
What are points? Are they tax deductible?
Answer:
- Points are fees for services rendered. One point is equal to one percent of the loan amount. Points are generally paid to lower your interest rate, or in some cases to guarantee a rate for a longer period of time (see What is a Rate Lock?).
- Yes, some points are tax deductible. There are two types of points: loan origination points and discount points. Generally, discount points are tax deductible, but loan origination points may not be. When refinancing any points paid are generally taken over a specific period of time. Please consult your tax advisor for details.
Should I pay discount points to lower my interest rate?
Answer:
- Discount points allow you to lower your interest rate. They are essentially prepaid interest, with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.
Answer:
- Since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.
Answer:
- APR stands for Annual Percentage Rate and is calculated by using a standard formula, the APR shows the cost of a loan; expressed as a yearly interest rate, it includes the interest, points, mortgage insurance, and other fees associated with the loan.
When is a good time to Refinance?
Answer:
- If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may involve paying many of the same fees paid at the original closing, plus origination and application fees. You can try our refinancing break-even calculator to see if it makes sense to refinance your loan.
Can I buy a home even if I don't have any money for a down payment?
Answer:
- There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses, and possibly repairs and decorating.
Will my interest payments be tax deductible?
Answer:
- Generally, yes. Keep in mind that your mortgage interest and real estate taxes will be deductible. A qualified real estate professional can give you more details on other tax benefits and liabilities.
What is PMI (Private Mortgage Insurance)?
Answer:
- PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI's usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.
