FAQS

A Pre-Qualification is when you provide your lender with basic information, regarding your income, employment, monthly liabilities and assets, to get a general idea of how much you can qualify for.

A Pre-Approval takes it one step further. With a Pre-Approval, you’ll complete a loan application and give consent to your lender to run your credit report. You’ll provide certain documents (such as tax returns, pay-stubs and bank statements) to your lender, so they can verify the information and determine the exact amount you can qualify for. Your lender will provide you with a Pre-Approval Letter, indicating the loan amount, terms and interest rate you’ve been Pre-Approved for.

When you’re ready to submit an offer on a property, most Sellers prefer (and sometimes require) that you have a Pre-Approval Letter to indicate that you’re a serious buyer, who has already started the loan process.

No. It’s a common misconception that you need a 20% down-payment, to purchase a home. Lenders are making it easier for more people to enjoy the benefits of home-ownership by offering low and 0% down-payment options.

For example, VA and USDA loans require 0% down payment. FHA loans require a minimum 3.5% down payment.  Conventional loan programs require only 3% or 5% down-payments.

If you’re planning to purchase a home with less than 20% down, keep in mind that you’ll likely be paying monthly mortgage insurance premiums (PMI or MIP), which protect the lender in case of loan default. (VA loans do not require monthly mortgage insurance). For more information about mortgage insurance, check out the Mortgage Insurance FAQS, below.

While low down-payment options are available and quite common, if you have the ability to make a 20% down payment, that may be your best option. You’ll avoid paying monthly mortgage insurance and you may benefit from a lower interest rate and lower monthly payment. The larger the down payment, the less risk for the lender, which typically results in a lower interest rate.

If you need assistance with the down-payment, many lenders allows gift funds from family members, making it even easier to purchase a home.

The interest rate, expressed as a percentage rate, is the annual cost to borrow money (a mortgage loan) from your lender.

An Annual Percentage Rate (APR) is the interest rate adjusted to include any prepaid finance charges and other costs, associated with obtaining a mortgage, such as escrow fees, origination fees/discount points, private mortgage insurance, underwriting and processing fees. Your actual loan costs may not include all these items. 

The APR is a ‘measurement’ that can assist you in comparing the cost of mortgage loans offered by different mortgage lenders. (For example, if you compare several APRs to the same interest rate of 4%, the loan with the higher APR will generally indicate a higher cost to obtain the 4% mortgage.

Keep in mind that your monthly mortgage payment will be based on the actual interest rate and not the APR. 

Closing costs are fees you’ll pay, in connection with obtaining a mortgage. Closing costs may include appraisal fees, escrow fees, title insurance, lender underwriting and processing fees, recording fees, credit report fees, flood certification fees and notary fees. You may also choose to pay points to lower your interest rate.

Closing costs will vary and are based on the loan amount and other specific details of your mortgage transaction.

In some instances, closing costs may be added to the loan amount, to reduce your out-of-pocket expenses. 

In other instances, a lender may be able to cover (pay for) your closing costs, in exchange for a slightly higher interest rate.

You’ll receive a Loan Estimate, which contains a detailed breakdown of your estimated closing costs, within 3 business days of submitting your Loan Application. 

Points, also known as discount points, are fees paid directly to the lender, in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower your monthly mortgage payment. One point is equal 1 percent of your loan amount (or $1,000 for every $100,000). You may choose to pay a point or a fraction of a point, to obtain a lower interest rate.

Mortgage insurance is an insurance policy that protects the lender (not the homeowner) against monetary loss, in the event a borrower defaults on their mortgage.

Private Mortgage Insurance (PMI) required on conventional loans, when the down payment, or equity in the property, is less than 20%.  PMI is paid monthly, to your lender, in addition to your mortgage payment. Lenders are required to automatically cancel PMI when the loan-to-value (LTV) reaches 78% of the original appraised value, either by principal reduction (paying your mortgage down) or by home price appreciation. In some cases, it’s possible to avoid paying PMI altogether, by restructuring the loan into a combination 1st and 2nd mortgage. A lender may also cover the cost of the PMI, in exchange for a slightly higher interest rate.

Mortgage Insurance Premium (MIP) is required on all FHA loans, regardless of the down payment amount. In addition to the monthly MIP premium, FHA loans require a one-time up-front mortgage premium (UFMIP), currently equal to 1.75% of the base loan amount. The UPMIP fee is typically financed into the loan amount.

Unlike the monthly PMI on a conventional loan (which can be canceled when the LTV reaches 78%) the monthly MIP on an FHA loan may be required for the life of the loan. For example, if your FHA loan was originated on or after June 3, 2013, and the LTV was higher than 90%, MIP must be paid for the life of the loan. If the LTV was less than 90%, MIP will be required for 11 years. For FHA loans, originated prior to June 3, 2013, contact me, to determine when your MIP is eligible for cancellation.

An impound account (also known as an escrow account) is an account set up by your lender, which allows them to pay your annual property taxes and/or homeowners insurance premium, on your behalf, when they’re due.

When setting up an impound account, your lender will determine the amount of your annual property taxes and/or homeowners insurance premium, and  collect 1/12th of these amounts, every month, in addition to your monthly mortgage payment. When your property taxes and homeowners insurance bills are due, the lender will pay them on your behalf, using the funds in your impound account.

Impound accounts are required on FHA and VA loans, or if the LTV is over 90% on a conventional loan. Even when not required, some people still prefer having an impound account, because they can pay their property taxes and insurance gradually throughout the year, instead of having to pay a large tax bill or insurance premium, once or twice a year. 

Your credit score plays an important part in determining the type of loan you’ll qualify for and the interest rate you’ll receive. With an FHA loan, you may qualify for loan with a 3.5% down payment if your credit score is 580 or above. FHA allows for credit scores as low as 500, with a 10% down payment.

In addition to the minimum credit score requirement, lenders will review your payment history, the number of open accounts you have, the age of your accounts and any previous credit “events”, such as bankruptcy, foreclosure, loan modification or short-sale, to determine if you can qualify for a mortgage.

It’s always best to review your credit report and know your credit scores, before you start shopping for a new home. This will give you time to correct any errors that may appear on your credit report. Your lender may also be able to suggest ways to improve your credit scores, so you can qualify for the best rate possible.

There are many benefits to working with a mortgage broker, versus a retail bank.

Mortgage brokers have access to wholesale rates from multiple lenders, allowing them to “shop” for the best possible interest rates for their clients. A bank is limited to their own published rates, which may not be as competitively priced.

When you work with a mortgage broker, you’ll complete just one loan application, which can be submitted to any number of lenders. When you apply for a loan at a bank, if for any reason, your application does not fit within the bank’s guidelines or is declined, you’ll have to start the loan application process all over again.

Lastly, and perhaps most importantly, mortgage brokers have access to a much wider variety of loan programs, compared to a limited number of loan programs a bank can offer. This flexibility can be extremely advantageous for clients looking specific types of loans, such as jumbo financing, loans for self-employed borrowers, interest-only loans, asset-qualifier loans, as well as for those with credit or income issues. A mortgage broker often has more experience and expertise than a bank employee, and can advise their clients on the best way to structure their loan. 

When you work with a mortgage broker, they bring experience, knowledge, choice and competition to the table.

On average, most loans can be closed within 21 to 30 days from the initial loan application to the final closing date. The best advice to ensure a quick closing date is to be prepared. Provide all necessary documents and respond to lender and escrow requests in a timely manner.  If you’re in need of a very quick closing date, we are proud to offer our 15 Day Close program. Contact me for additional details.