Mortgage Lending FAQs

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What information is required when applying for a loan?

The information typically required for a mortgage application may include:

  • Valid identification and Social Security card
  • Last two paycheck stubs
  • Last two years W-2's
  • Most recent two months bank and other asset account statements
  • Loan account information for all open loans
  • Employer Name and Addresses (last two years)
  • If Self Employed, last two years federal income tax returns with all schedules and a year-to-date Profit & Loss Statement
  • Signed Purchase Contract

And if applicable:

  • Address of residences for last two years with Landlord Address
  • Check for Fees (Application, Appraisal and Credit Report)
  • A copy of divorce decree or separation agreement

How is the lending decision made?

Your application and information will be reviewed, including your credit history, property value, and debt-to-income ratio. These are the primary factors that qualify you as a mortgage applicant. The perceived level of risk determines your loan decision, as well as your interest rate in some cases.

How is my mortgage rate determined?

A number of factors impact mortgage rates including considerations such as loan purpose, credit history, ability to repay, the value of the collateral, and the loan amount.

For what loan amount do I qualify?

The two main considerations in determining loan amount are your debt-to-income ratio, and the amount of equity you have in your home.

To calculate your debt-to-income ratio, look at all of your monthly debts, excluding monthly utilities. Divide that amount by your monthly gross income. The percentage that results is used to determine how much you can afford to pay per month. You will be presented with the amount of equity you have available to you, and within that range it can be determined how much you could borrow and at a level you can afford.

Do I need to have perfect credit?

A higher credit score could mean receiving better rates and more options; however, you do not need to have perfect credit to obtain a mortgage. Credit is only one consideration in the process, so don't think that this alone will stop you from getting a loan. The important thing is that your overall credit history shows both willingness and ability to repay on time.

How do I get pre-approved?

You can obtain pre-approval once your information is reviewed, and a decision as to whether you qualify is made. Upon pre-approval, you will look for a new home and find that sellers will feel more confident in dealing with you.

How soon is the loan money available?

Funds for purchase are available on the day you close your loan. In refinance situations, funds are usually disbursed on the fourth business day after you sign your loan documents. This includes a federally mandated 3-day rescission period during which time you have the right to cancel your loan.

What are points?

Points refer to a one-time fee that a borrower pays to lower the interest rate. One point is equivalent to one percent of your loan amount.

What is the difference between interest rate and APR?

The term APR stands for Annual Percentage Rate. APR is the total cost of the loan over its life, including costs, points and fees. The interest rate is the cost to borrow the money disbursed in the loan.

What is the difference between a rate lock and letting the rate float?

Locking an interest rate secures that rate throughout the entire mortgage process. This means you will be locked into that day’s market, and your rate will be protected from market changes.

Conversely, floating your interest rate gives you the opportunity to play the market, so to speak. If rates go down you may be able to take advantage or leverage a lower rate than what you were quoted at the beginning of the process. If, however, rates increase, you may be stuck with a higher rate.

What is pre-paid interest?

At the time of your loan closing, interest accrues in between the closing date and the last day of that calendar month. This interest amount is applied to the closing costs for your loan to avoid making your first monthly payment larger.

Is it better to pay fees out of pocket?

In the case of refinancing only, you have the option to pay the fees in advance or roll them into the closing costs. If you have extra funds you may consider paying them out of pocket so you will have a lower monthly payment. If you don't have the money available, it makes sense to roll the fees into the closing costs. The difference in out of pocket payment and total cost of the loan is usually nominal. Again, this option is for refinance loans only.

What are the closing costs?

Appraisal fees, title insurance fees, attorney fees, pre-paid interest and documentation fees are some of the kinds of fees that are included in your closing costs. These fees vary from customer to customer, due to differences in the type of mortgage, the property location and other considerations. Ahead of your closing date you will receive a good faith estimate of your closing costs for your review.

What is included in my monthly payments?

In the case of a fully amortizing first lien mortgage, portions of your monthly mortgage payment are applied toward loan principal and interest. Interest that is due on the outstanding principal balance is all that is included with interest-only first lien mortgage payments. If your first lien mortgage includes mortgage insurance, a portion of your monthly mortgage payment will be applied to this, unless the lender has paid your mortgage insurance or your mortgage insurance has been paid up-front. If you have an escrow account set up for your first lien mortgage, then payments also go toward your property taxes and homeowners insurance.

What is PMI?

PMI or Private Mortgage Insurance safeguards lenders against losses that may occur when a borrower defaults on a mortgage. PMI is required on first-time mortgage purchase transactions in which the borrower has less than a 20% down payment. It is also required on first mortgage refinance transactions when the borrower has less than 20% equity in the property being refinanced. Mortgage insurance payment is typically added to the monthly mortgage payment.