Frequently Asked Questions
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Below are answers to some common questions about mortgage loans. You can also contact us directly to discuss your specific needs.
General.
A conforming loan is a mortgage that is eligible for purchase by the two major federal agencies, Fannie Mae and Freddie Mac. In order to be conforming, the loan amount must be under the limits set by the Federal Housing Finance Agency (FHFA), which can vary by county. A conforming loan is easier to qualify for due to lower FICO score requirements, and typically has a lower interest rate than a non-conforming loan.
Jumbo mortgages have loan amounts that exceed the conforming limits set by the Federal Housing Finance Agency (FHFA). A jumbo loan is one way to buy a high-valued or luxury home. Borrowers are required to have a lower debt-to-income ratio and a higher credit score than for a conforming loan.
The interest rate can make or break the affordability of a mortgage. One way to get a lower rate and save money on your loan is by paying for mortgage points.
Points are fees paid upfront to the lender for the loan, expressed as a percent of the loan amount. Each mortgage point costs 1% of the loan amount and can reduce your interest rate anywhere from one-eighth (0.125%) to a quarter (0.25%) of a point, which results in a lower monthly mortgage payment and a less expensive loan overall.
A mortgage loan rate lock is a contractual agreement between the lender and buyer. It means that your interest rate won’t change during loan processing, as long as the loan closes within the specified period. It’s a way to protect yourself from rising interest rates between the offer and closing. However, this rate can change if the loan amount, your income, or credit score changes before closing.
A Loan Estimate (previously known as Good Faith Estimate) tells you important details about a mortgage loan you have requested. When you apply for a mortgage, your lender is required to give you this standardized form that provides details including your estimated interest rate, monthly payment, closing costs, and more.
Mortgage brokers deal with multiple lenders and can shop for the best terms available on any given day to match you with the best lender for your needs. They can find lenders who specialize in various market niches, such as loans to applicants with poor credit ratings, loans to borrowers who do not intend to occupy the property, loans with minimal or no down payment, and so on.
The broker takes your application and usually processes the loan, which involves putting together the complete packet of your information. The lender “underwrites” the loan to decide whether you are an acceptable risk, and they fund the loan.
Purchase.
The pre-approval process is much more complete than pre-qualification. For pre-qualification, the loan officer asks you a few questions and provides you with a pre-qual letter. Pre-approval includes all the steps of a full approval, except for the appraisal and title search. Pre-approval can put you in a better negotiating position, much like a cash buyer.
There are a variety of mortgage loan types available. The most common ones are Conventional, Government-backed (FHA and VA), and Jumbo. Each has different down payment requirements, interest rates, and monthly payments.
The two main types of interest rates are:
- Fixed: Most homebuyers take out fixed-rate mortgages for 30, 20, or 15-year terms. Often called “conventional,” these mortgages have fixed interest rates and regular monthly principal-and-interest payments that don’t vary over the life of the loan.
- Adjustable: There are several kinds of adjustable-rate mortgages (ARMs) available. With ARMs, the interest rate applied on the outstanding balance varies throughout the life of the loan.
While the term “first-time homebuyer” generally refers to an individual who purchases a principal residence for the very first time, you may also qualify if you have not owned your principal residence within the past three years. For couples, if one spouse has not owned a home, you are both considered first-time homebuyers. Benefits can include low mortgage rates, low down payment, low closing costs, and loans for lower credit scores.
Typically, there is no cost associated with obtaining a loan pre-approval or loan estimate. Once you decide to move forward with the loan, lenders may charge an appraisal or application fee.
An escrow account is set up by the mortgage lender to pay certain property-related expenses on your behalf. A portion of each mortgage payment will go into your escrow account to cover property taxes and homeowners’ insurance.
Refinance.
There is no limit to how many times you can refinance your home. However, mortgage lenders may have a few rules based on when you took out your prior home loan, such as requiring a six-month waiting period.
Typically, any second mortgages are paid off through the refinance. Both loans are consolidated into one new first mortgage and you will only have one payment each month. If you prefer to keep your second mortgage intact, we may be able to ask your second mortgage lender to remain in the second position and allow us to refinance the first loan.
In most cases, you must go through the appraisal process, but depending on the circumstances it may not be required. The appraisal is used to establish the market value of your home, which will determine the amount you can refinance, including any cash-out amount.
A cash-out refinance lets you access your home equity by replacing your existing mortgage with a new one that has a higher loan amount than what you currently owe. If you have enough equity in your home, cash-out refinancing can provide a low-cost way of meeting your objectives — home improvement projects, paying off high-interest credit cards, or other financial needs.
You can expect to provide the following — income-related documents (W-2, past tax returns), verification of homeowners insurance, credit information, your current debt load, and bank statements to verify your assets.
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