1. What is a mortgage?
2. What is mortgage insurance?
3. When do I start the mortgage application process?
4. What information does the lender need to support my application?
5. What fees must I pay to obtain a mortgage?
6. What are points?
7. What are the advantages of using an FHA or VA mortgage?
8. What are closing costs?
9. What prepaid items will I pay?
10. How long will loan approval take?
11. Will my mortgage have a prepayment penalty?
12. What loans are offered?
13. Is there an interest rate lock-in policy?
Your mortgage is a loan Buyers use to finance their purchase. Buyers that make a down payment of 20% or more of the purchase price are eligible for a conventional mortgage. An insured conventional mortgage is offered buyers who make a down payment less than 20% of the sale price and require the payment of a mortgage insurance premium. Several other types of mortgages are available in most markets, e.g. FHA, VA.
Q. What is mortgage insurance?
Borrowers whose down payment is less than 20% of the purchase price usually must pay a mortgage insurance premium to protect the lender against the increased risk they accept by loaning more than 80% of the sale price to the borrower.
Q. When do I start the mortgage application process?
Get the process started as soon as you choose a REALTOR. Your lender is an important member of your real estate team and can tell you how much you qualify for and, more importantly, relate the mortgage amount to the monthly payment you are comfortable making. Knowing your mortgage approval and monthly payment comfort level you help your REALTOR establish what price range of homes to explore.
Q. What information does the lender need to support my application?
The following list will be required for most borrowers:
Social security card and drivers license.
Address(es) for past 2 years.
Name & address of employer(s), 2 yrs.
Most recent pay stubs to cover 1 month.
Most recent 3 mo bank & asset account statements.
Most recent 2 years W-2s.
Tax returns if self-employed.
Account information regarding any existing open loans.
Address(es) of other real estate owned and loan information.
Credit report and appraisal fees.
Certificate of Eligibility and DD214 (VA only).
Copy of deed (refinance only).
Q. What fees must I pay to obtain a mortgage?
The following services are customary for processing and/or servicing your loan. Fees for these services are usually paid to the lender during the application process or at closing.
Application fee:
Loan Origination: usually 1% of the loan amount.
Discount Points: used to buy down (or lower) the interest rate; prepaid interest.
Appraisal: paid by the lender to a licensed appraiser to verify the market value of the property.
Underwriting: evaluates the risk the lender accepts if your application is approved.
Credit Report: record of your financial standing; reported to a credit reporting agency by creditors with whom you have financial dealings.
Credit Score: a number assigned to your financial standing that helps loan originators and underwriters to evaluate your credit worthiness.
Flood Certification: a search that determines if your property is located in a flood plain; if so, flood insurance is required to protect your lender in the vent of flood loss.
Tax Service: fee charged by lender to establish a property tax (and homeowners insurance) escrow account and then to make timely tax payments to the appropriate municipal agency.
Points are “upfront” fees paid to lenders. Each point is equal to 1% of the loan amount. On a $100,000 loan, 1 point is $1000. Points may be further classified into origination points or discount points. Origination points are fees paid to a lender for processing a loan application. The origination fee is stated in the form of points. Discount points are fees paid to lenders to reduce the mortgage interest rate.
Q. What are the advantages of using an FHA or VA mortgage?
FHA and VA mortgages have pros and cons. The advantages include low (or no) down payment.
These are expenses that must be paid when a loan is closed, title transferred, and loan money given out. They include things such as an origination fee, appraisal fee, credit report, attorney fee, title insurance, recording fee, survey, termite inspection, etc. Every lender must give you an estimate of the closing costs within a few days after receiving your application.
Q. What prepaid items will I pay?
When you close on your loan, you will have to prepay some expenses for your home that will occur in the next year. Taxes and insurance are examples.Interest is another. You may have to prepay interest on your loan from the day the loan closes until the end of the month. That's called accrued per diem interest.
Q. How long will loan approval take?
This can be very important, especially if you need to close on a house quickly. Processing and approval times are different for different lenders. Be sure to ask how much time to allow.
Q. Will my mortgage have a prepayment penalty?
Ask your lender! There may be times when you want to pay more than your scheduled mortgage payments, allowing you to pay your loan off early. If your mortgage is a full amortized loan, if you pay more than your scheduled payment or pay your loan off early, you can save on interest. Be sure to ask about their prepayment policies.
Know your choices. Conventional, insured conventional, FHA, VA, 7/23, ARM, Nehemiah. If a lender offers you a loan that you've never heard of before, make sure you learn how and why it's different.
Q. Is there an interest rate lock-in policy?
Ask if the quoted rate is guaranteed, and for how long. Is there a written lock in agreement?