General Mortgage
What is a mortgage?
A mortgage is a loan that a buyer secures to pay the seller of a home or property in full at the time of purchase. The buyer then owes the mortgage lender the total amount borrowed, plus agreed-upon interest and fees. The lender holds the deed of ownership to the property until the buyer pays off the mortgage.
What is the best way to start shopping for a home?
Before you start looking for a home, it’s very helpful to get prequalified or preapproved by a lender to determine how much you can afford to purchase. With this information, you can help your real estate agent determine the type of home that meets your unique financial situation. Being preapproved generally helps facilitate the purchasing process when you’re ready to make an offer.
What is the difference between prequalification and preapproval?
Prequalification simply determines the maximum purchase price of a house that a buyer is qualified to purchase, based on the income and debt information provided verbally to a mortgage professional. This prequalifying step is not a commitment to borrow or lend money, as the information provided by the buyer must still be verified. Preapproval means the lender is willing to grant a loan based on an in-depth financial assessment, such as income and debt review, employment verification and review of tax returns.
What does “loan-to-value” mean?
Loan-to-value (LTV) represents the loan amount as a percentage of the current market value of a home. It can be calculated by dividing the dollar amount of the mortgage loan by the current dollar value of a home. The LTV ratio helps determine whether the lender will require the buyer to secure private mortgage insurance to complete the loan.
What is an earnest money deposit?
When a buyer makes an offer and signs a contract to buy real estate, earnest money (often called a good-faith deposit) is provided by the buyer to demonstrate that he or she is serious about wanting to complete the purchase. If the seller accepts the offer, the earnest money is held in escrow until closing and is then applied to the buyer’s portion of costs. If the offer is rejected, the earnest money is usually returned. If the buyer retracts the offer or doesn’t fulfill contractual obligations, the earnest money is usually forfeited.
Is there a minimum down payment required to buy a home?
The size of the down payment depends on the type of loan, buyer preferences and many other factors. Some loans require no down payment at all. For more information on loan options, see the Loan Types section of our website or contact one of our mortgage professionals.
What is a conforming loan?
A conforming loan is a mortgage that is equal to or less than the loan limit set annually by Fannie Mae or Freddie Mac, the government-sponsored agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders. The current conforming loan limit for a single-family home or condominium in most areas of the country is $417,000, with higher limits allowed for designated high-priced markets. The terms conforming and conventional are often used interchangeably to describe these loans. Mortgage loans that are higher than the conforming loan limit are called jumbo mortgages or nonconforming loans.
What is a reverse mortgage?
A reverse mortgage enables homeowners aged 62 and older to convert part of the equity in their primary residence into tax-free cash without having to sell their home or give up title. It is a low-interest loan that uses a home’s equity as collateral. It is called a reverse mortgage because rather than the homeowner making monthly payments to a lender, the lender makes monthly payments to the homeowner.
Getting a Loan
How can I decide what the best type of financing is for my situation?
Many financing options are available, so the ideal way to determine which loan type best suits your unique needs is to talk with an experienced mortgage professional. Things to consider include details such as how long you plan to stay in the home, current and projected income and debts, credit history, and cash available to close, as well as property location and income characteristics that may make you eligible for specialty loan programs.
What is the difference between prequalification and preapproval?
Prequalification simply determines the maximum purchase price of a house that a buyer is qualified to purchase, based on the income and debt information provided verbally to a mortgage professional. This prequalifying step is not a commitment to borrow or lend money, as the information provided by the buyer must still be verified. Preapproval means the lender is willing to grant a loan based on an in-depth financial assessment, such as income and debt review, employment verification and review of tax returns.
Why should I get prequalified or preapproved?
Prequalification is a quick way to determine what types of homes are realistically in your price range. Preapproval can help facilitate the purchasing process by reducing the length of time it takes to close the transaction, as many sellers require buyers to be preapproved before accepting an offer.
Does it make sense to get prequalified if I’m refinancing?
Yes. Prequalifying helps you determine if your refinance amount is achievable, especially if you’re trying to get cash back from your home equity.
Are there loan options available that do not require a down payment?
Yes, some loan programs offer a no-down-payment option. For more information on loan options, see the Loan Types section of our website or contact one of our mortgage professionals.
Can closing costs be rolled into my loan if I refinance?
Yes, all closing costs can generally be included in the loan amount on a refinance. Exceptions include streamline refinances and cases in which the borrower’s equity is not large enough to accommodate these costs. Talking with an experienced mortgage professional is the best way to understand available refinancing options.
How can equity in an existing home be used toward the purchase of a new home?
Home equity can be used to buy a new home in several ways, such as second mortgages, home equity lines of credit, bridge loans or trade equity. Each option has a different impact on borrower qualifications, and costs for each option vary. Talking with an experienced mortgage professional is the best way to understand available refinancing options.
What is an appraisal?
A real estate appraisal is a professional written analysis of a property’s market value. It helps establish the likely sales price of the property in a competitive real estate market. Mortgage lenders require an appraisal when a property will be used as collateral for a loan, to make sure that the property could potentially be sold for at least the amount of the loan.
What is a home inspection?
A home inspection is a professional review of the condition of a home, and it helps the buyer uncover defects before a home is purchased. The results of an inspection can assist the buyer in negotiation of the final purchase price or terms. If the inspector finds problems with the home, the lender may require repairs to be made before the loan can close. It is important to note that an inspection is not the same thing as an appraisal.
Rates & Costs
What is APR?
Annual percentage rate (APR) is an estimate of the full costs of a loan, including the interest rate. APR is a more accurate tool than the interest rate alone in determining the total cost of a loan. APR estimates what you’ll pay over the course of an entire year based on additional fees and costs associated with the loan, such as points, mortgage insurance premiums and origination fees. To help consumers compare the full costs of a loan, the federal Truth in Lending law requires mortgage companies to list the APR of their loans when they advertise an interest rate.
What are points?
Mortgage points are charges that are paid in order to obtain a mortgage on a home. One mortgage point is a fee equal to 1% of the total amount of the loan. There are two different kinds of points. Discount points are an optional amount of money paid to a lender that enables the borrower to obtain a loan at a lower interest rate. Origination points are a fee used to pay for the costs of obtaining the loan. To determine whether paying points makes sense for your individual situation, it is important to talk with an experienced mortgage professional.
What is a rate lock?
A rate lock is an interest rate guarantee that a lender makes to a borrower for an agreed-upon period of time to protect the borrower against interest rate fluctuations. The borrower decides when it makes sense to lock the interest rate.
What is private mortgage insurance?
Private mortgage insurance (PMI) is insurance designed to protect the lender from losses in the event that the borrower defaults on a mortgage. Purchased by the buyer from a private insurance company, PMI is usually required when the down payment is less than 20% of the purchase price or appraised value, whichever is less.
What is an origination fee?
An origination fee is the fee a lender charges the borrower, at the time of closing, for services provided in processing the loan.
What are closing costs?
Closing costs are the fees paid by the borrower in connection with completion of the property sale and closing of the mortgage loan. Closing costs often include items such as loan origination fees, credit reports, appraisal fees, inspection fees, title insurance, prepaid tax and insurance payments, origination fees, discount points and recording fees. Federal law requires that all residential transactions financed by a mortgage have all closing costs itemized and documented in detail using the standard HUD-1 settlement statement.
What is a loan prepayment penalty?
A prepayment penalty is a provision in a loan contract that allows the lender to charge a borrower a predetermined fee if the loan is paid off in full during a designated penalty period, which is usually between three and five years.
Insurance
What is private mortgage insurance?
Private mortgage insurance (PMI) is insurance designed to protect the lender from losses in the event the borrower defaults on the mortgage. Purchased by the buyer from a private insurance company, it is usually required when the down payment is less than 20% of the purchase price or appraised value, whichever is less.
What is title insurance?
Title insurance protects an owner’s or a lender’s financial interest in real property against loss due to defects in the property title, liens or other matters. Title insurance helps defend against lawsuits challenging the title as it is insured, and covers monetary losses incurred due to legal judgments.
What is homeowners insurance?
Homeowners insurance, also commonly called hazard insurance, is a type of property insurance that covers private homes. It combines various personal insurance protections, such as losses occurring to the home itself, as well as liability insurance protections, such as losses due to accidents that may happen at the home. Because homeowners insurance protects the owner and the lender against physical damage to the property, it helps protect the lender’s investment.
Will I be required to get earthquake insurance coverage when I finance a home?
If your property is located in an earthquake-prone area, your mortgage lender will likely ask you to secure earthquake coverage in addition to your standard homeowners insurance policy.
Will I be required to get flood insurance coverage when I finance a home?
If your home is located in what the government has determined to be a floodplain or a Special Flood Hazard Area (SFHA), your mortgage lender will likely ask you to secure flood insurance coverage in addition to your standard homeowners insurance policy.
Loan Process
What documentation will a lender require from me to process my loan?
While the document requirements may vary depending on the type of loan and your credit score, for a typical loan application the lender may require personal documentation such as the most recent month’s pay stubs or other proof of income, two years of W-2 forms, two years of tax returns and/or P&L statements for self-employed applicants, recent records of dividends and interest received, the past two or three months’ bank and investment account statements, an itemized list of all current debts, a copy of divorce decrees, and a written explanation of any past credit problems and/or bankruptcy details. An experienced mortgage professional will help you determine the documentation requirements for your specific loan application.
How long does the loan process take?
The length of time between the submission of a loan application and the funding of the loan can vary depending on a variety of factors, such as your credit score, income and debt levels, the loan-to-value ratio, the completeness of your supporting personal documents, the findings of the home appraisal and inspection, and so on. Sales contracts are generally written with a closing date approximately 30 days out, and most purchase loans can be completed within 30 days. Refinance transactions can typically close more quickly than a purchase transaction because fewer parties are involved in the transaction.
What is underwriting?
Mortgage underwriting is the process a lender uses to determine if the risk of lending to a particular borrower is acceptable. Most of the risks and terms that underwriters evaluate are related to a borrower’s credit, the borrower’s ability to pay, and the value of the home or property that will be held as collateral for the loan.
How much money will I need at closing?
The amount of money needed to close the loan is composed of your down payment and closing costs as well as prepaid items such as property tax and insurance. At the time of your loan application, your lender will provide you with a good-faith estimate of all settlement closing costs. Later, usually within 24 hours prior to your closing, your closing agent will provide you with the precise sum of money required for closing.
What is an escrow payment?
An escrow payment is the portion of a mortgage payment designed to pay for expenses such as real estate taxes, homeowners insurance and mortgage insurance. It is a monthly payment in addition to the principal and interest payment. It is generally calculated by taking the total of all anticipated real estate tax and insurance payments for the year and dividing that number by 12. Escrow accounts are designed to help make sure there is always enough money to cover certain recurring expenses as they become due.
Loan Types
The Federal Housing Administration (FHA) offers FHA-backed loans that are designed to help increase home ownership by low- and moderate-income families and first-time homebuyers. Because the FHA insures the loan, lenders can offer greater flexibility in lending guidelines.
Available for single- and multi-family homes, FHA loan financing options include traditional fixed-rate products, adjustable rate mortgages and temporary interest rate buy-downs.
Important benefits of FHA-insured loans include:
- Low down payment
- Minimal closing costs
- More flexible credit-qualifying guidelines
- No income limits
- Higher debt ratios allowed
- Less stringent job requirement guidelines
For more information about any of these loan types, please contact us
The U.S. Department of Veterans Affairs (VA) offers VA-backed loans to veterans, active-duty personnel, reservists/National Guard members and some surviving spouses. When the loan is approved, the VA will guarantee part of it. The amount of the VA’s guarantee usually depends on the size of the loan.
A VA-guaranteed loan can be used to buy a home, manufactured home or condominium; buy a lot for a manufactured home; build, repair or improve a home (including energy-efficient improvements); or refinance an existing loan. These loans can also be used for rate and term refinancing or cash-out refinancing of a primary residence.
Important benefits of VA loans include:
- Little or no down payment required
- Competitive interest rates
- Easier qualification requirements
- Borrower does not have to pay for private mortgage insurance
For more information about any of these loan types, please contact us
A reverse mortgage enables homeowners age 62 and older to convert part of the equity in their primary residence into tax-free cash without having to sell their home or give up title. It is a low-interest loan that uses a home’s equity as collateral. It is called a reverse mortgage because rather than the homeowner making monthly payments to a lender, the lender makes monthly payments to the homeowner.
The reverse mortgage process includes important consumer protections, such as a requirement that the borrower talk with an independent third-party loan counselor before securing the mortgage. This helps ensure that borrowers understand the program and have reviewed alternative options.
Important benefits of reverse mortgages include:
- They enable homeowners to access home equity without making monthly payments
- No income or medical requirements
- Borrower’s name stays on the title of the house
- Money can be received all at once, in fixed monthly payments or as a line of credit
- Loan income has no impact on regular Social Security or Medicare benefits
For more information about any of these loan types, please contact us
Jumbo mortgage loans are designed for homebuyers who need to finance especially large purchases. A loan is considered jumbo if it exceeds the “conforming” loan limit set annually by Fannie Mae and Freddie Mac, the government-sponsored agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders.
The current conforming loan limit for a single-family home or condominium in most areas of the country is $417,000, with higher limits allowed for designated high-priced real estate markets. Jumbo loans are available for primary homes, secondary or vacation homes, investment properties and condominiums.
A variety of jumbo loan options are available, such as 30-year fixed mortgages, adjustable rate mortgages, and VA loans.
Important benefits of jumbo mortgages include:
- The ability to purchase a home in a high-priced area
- Relatively low down payment requirements if salary is high
- Ability to rapidly build credit through regular loan payments
For more information about any of these loan types, please contact us
U.S. Department of Agriculture (USDA) mortgage loans are offered in rural areas to help lower-income households gain access to home loans at reasonable mortgage rates.
Property types eligible for USDA loans include single-family homes, condominiums and manufactured housing on a permanent foundation. Eligibility requirements vary depending on property location, and these loans are offered only to individuals whose income is below rural-development county limits based on the number of members in the household.
Important benefits of USDA mortgages include:
- No money down, and up to 103.5% financing
- Available for purchase and no-cash-out refinances of primary residences
- Gifts and/or grants are allowed for closing costs
- Borrower’s closing costs may be paid by the seller or financed into the loan amount
- A funding fee eliminates the need for private mortgage insurance
For more information about any of these loan types, please contact us
A conforming loan is a mortgage that is equal to or less than the loan limit set annually by Fannie Mae or Freddie Mac, the government-sponsored agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders. The current conforming loan limit for a single-family home or condominium in most areas of the country is $417,000, with higher limits allowed for designated high-priced markets.
The terms conforming and conventional are often used interchangeably. Mortgage loans that are higher than the conforming loan limit are called jumbo mortgages or nonconforming loans.
Fixed-rate mortgages feature a fixed percentage rate and loan amount, so the monthly payment is the same every month for the entire length of the loan. Because of the loan’s stability, this is the most common type of mortgage for first-time homebuyers.
Important benefits of fixed-rate mortgages include:
- The monthly principal and interest payment will not change over the life of the loan
- The interest rate will not change, even if market rates go up
- Knowing monthly mortgage expense in advance makes household budgeting easier
Common fixed-rate mortgages include:
- 30-Year Fixed: These loans allow homebuyers to borrow more money for the same monthly payment than do shorter-term loans. They may also make possible a lower down payment, because the down payment has less impact over the full life of the loan.
- 15-Year Fixed: These loans generally require a higher monthly payment and down payment than their 30-year counterparts, and may be better suited for lower-priced homes. Since the term of the loan is half as long, the borrower gains significant savings on the total amount of interest paid on the loan.
For more information about any of these loan types, please contact us
Adjustable-rate mortgages (ARMs) have a variable interest rate and monthly payments that are recalculated on a regular basis to reflect changes in the market interest rate.
The initial rate on an ARM is fixed for a specified period. The shorter the initial fixed period, the lower the initial rate can be. The lower rate reflects the fact that the lender assumes less risk of potential increases in the market interest rate, and the borrower isn’t paying for interest rate protection that he or she doesn’t need. This translates into a lower monthly payment than for a similar-term fixed-rate mortgage.
Important benefits of adjustable-rate mortgages include:
- Interest rates that are typically lower than those of fixed-rate mortgages
- More money can be borrowed than with a fixed-rate mortgage
- If interest rates fall, the borrower benefits
- Useful in situations where unpredictable interest rates make fixed-rate mortgages difficult to obtain
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