Frequently Asked Questions

When should I refinance?

Most of the time, it's a good idea to refinance when the new mortgage rate is 2% lower than the old one. Even if the difference in interest rates is only 1% or less, it may still be a good idea. Your monthly mortgage payments can go down if you get a lower rate. Example: At 8.5%, your payment on a $100,000 loan, excluding taxes and insurance, would be about $770. If the rate dropped to 7.5%, your payment would drop to $700, and you'd save $70 per month. Your savings depend on how much money you make, how much you spend, how much you borrow, and how the interest rate changes. Your reliable lender can help you figure out what your choices are.

What are the points?

One point is equal to one percent of the loan amount, so one point on a $100,000 loan is $1,000. Points are fees that must be paid to a lender in order to get a mortgage loan with certain terms. Discount points are fees that are paid upfront to lower the interest rate on a mortgage loan. Lenders may talk about costs in terms of basis points, which are hundredths of a percent. One point, or 1% of the loan amount, is equal to 100 basis points.

Should I pay points to lower my interest rate?

Yes, if you plan to live in the property for at least a few years. Paying discount points to lower the interest rate on a loan is a good way to reduce the amount you have to pay each month and possibly increase the amount you can borrow. But if you only plan to live there for a year or two, the money you save each month might not be enough to cover the cost of the discount points you paid for upfront.

What is an APR?

The annual percentage rate (APR) is a type of interest rate that shows how much a mortgage costs over a year. This rate is likely to be higher than the note rate or advertised rate on the mortgage because it includes points and other credit costs. With the APR, homebuyers can compare different types of mortgages based on how much each loan will cost them over the course of a year. The APR is a way to figure out what a loan really costs. It gives lenders a fair chance to do business. It stops lenders from saying that they have a low rate while hiding fees.

The APR has no effect on how much you pay each month. The interest rate and length of the loan are the only things that affect how much you pay each month.

Because the fees that lenders charge affect how the APR is calculated, a loan with a lower APR does not always have a better rate. The best way to compare loans is to ask lenders for a good-faith estimate of their costs for the same type of program (30-year fixed, for example) at the same interest rate. Then you can delete the fees that have nothing to do with the loan, like homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the costs of the loan. A loan from a lender with lower fees is cheaper than a loan from a lender with higher fees.

Most of the time, the following fees are included in the APR:

  • ? Points, including discount points and starting points
    ? Interest already paid. From the time the loan is paid off until the end of the month, the interest is paid.
    ? Fee for processing a loan
    ? Cost of making a loan
    ? Document-preparation fee
    ? Insurance for private mortgages
    ? Escrow cost

Most of the time, the APR does not include the following fees:

  • ? Fee for a title or abstract
    ? Borrower's lawyer fees
    ? Fees for home inspections
    ? Cost of recording
    ? Transfer taxes
    ? Report on credit
    ? Appraisal fee

What does it mean to lock the interest rate?

The interest rate on a mortgage can change between the time you apply for a loan and the time you pay it off. If interest rates go up quickly during the application process, the borrower's mortgage payment could go up without warning. So, a lender can let the borrower "lock in" the loan's interest rate, which guarantees that rate for a certain amount of time, usually 30–60 days, sometimes for a fee.

What documents do I need to prepare for my loan application?

Here is a list of the paperwork you need to apply for a mortgage. But each situation is different, and you may be asked to provide more proof. So, if you are asked for more details, be helpful and give the information as soon as you can. It will speed up the process of applying.

Your Property

  • The entire sales agreement, with all riders, in signed copy form.
  • Your home deposit has been confirmed.
  • Agents, brokers, insurers, and lawyers' names, addresses, and phone numbers
  • If available, please include a copy of the listing sheet and a legal description (if the property is a condominium please provide condominium declaration, by-laws and most recent budget)

Your Income

  • Paycheck stubs covering the most recent 30 days and the entire year
  • Copies of your most recent two years' worth of W-2 forms
  • Provide the names and contact information for your last two employers.
  • In the event of a work gap during the past two years, please explain the circumstances in a cover letter.
  • Green card or work visa (copy front & back)

If you are self-employed or earn money from other sources (such as a bonus, interest, or rent):

  • Please submit your most recent two years' worth of complete tax returns, as well as a profit and loss statement for the current fiscal year. Please provide a copy of your extension paperwork if you've requested one.
  • Please double-check your tax return and attach any K-1 forms for the past two years for all partnerships and S-Corporations. K-1 forms are typically not included with 1040.
  • Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) for the prior two years, including any required schedules, statements, and addendums, duly completed and signed by the responsible officer. If you hold 25% or more of the company, you must fill out this form. 

If you plan to rely on child support or alimony to meet the requirements:

  • Please include a copy of your divorce or court order specifying the amount, as well as a statement detailing your financial activity over the past year.

If you receive SSDI or VA benefits in addition to your Social Security income:

  • Documentation of funding and initial payment should come in the form of a letter of award from the relevant agency or organization.

Source of Funds and Down Payment

  • Sale of your existing home - provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement)
  • Savings, checking or money market funds - provide copies of bank statements for the last 3 months
  • Stocks and bonds - provide copies of your statement from your broker or copies of certificates
  • Gifts - If part of your cash is to close, provide a Gift Affidavit and proof of receipt of funds
  • Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation

Debt or Obligations

  • Make sure you have copies of the most recent three months' worth of credit card, bank, and other bills as well as a complete list of all current debts with names, addresses, account numbers, balances, and monthly payments.
  • Mortgage and/or renter information for the past two years (including names, addresses, account numbers, balances, and monthly payments)
  • Include a copy of the divorce decree or court order that established the alimony or child support payments.

How is my credit judged by lenders?

Credit scoring is system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).

Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:

Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report.

You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian, and TransUnion. This free credit report may not contain your credit score and can be requested through the following website:

What can I do to improve my credit score?

Lenders often use credit scoring to help them decide whether or not to extend credit. Credit applications and credit reports are used to compile information about you and your credit history, including but not limited to: how you handle bills, the number and types of accounts you have, any late payments, collection proceedings, outstanding debt, and the age of your accounts. Lenders run this data via statistical software to see how it stacks up against the credit histories of customers who have similar characteristics. Each indicator of a borrower's propensity to make timely payments is given weight in a credit score. Creditworthiness is measured by a numerical assessment of an individual's propensity to meet financial obligations, such as loan repayment and on-time payment.

Credit scores developed by Fair Isaac Company, Inc. (FICO) are the most used type. A score of 350 indicates very high risk, while a score of 850 indicates very little risk (low risk).

  • Have you paid your bills on time? A person's track record of making payments is usually quite important. If your credit record shows a history of late payments, accounts being sent to collections, or bankruptcy, you should expect a decrease in your credit score.
  • What is your outstanding debt? The ratio of your outstanding debt to your available credit is a key factor considered by several scoring models. Your credit score may take a hit if your debt level is near your available credit.
  • How long is your credit history? In most cases, the length of your credit history will be taken into account by the models. While variables like on-time payments and low balances can help make up for a short credit history, they still may have an impact on your score.
  • Have you applied for new credit recently? There are a number of scoring models that take into account the number of "inquiries" (requests for your credit report) to determine if you have recently asked for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not every question is answered. Creditor inquiries made as part of routine account monitoring or in preparation for "prescreened" credit offers do not count.
  • How many and what types of credit accounts do you have? Although it's beneficial to have at least a few credit accounts in good standing, having too many cards will hurt your score. The types of credit accounts you own are also taken into account by most models. Some credit scoring formulas, for instance, may assign a negative weight to loans from financial companies.

You should know that your credit report might not be the only factor used in a scoring algorithm. Data from your credit application, such as your job, tenure, and house ownership status, may be included in as well.

Most credit scoring models agree that making on-time payments, reducing balances, and refraining from taking on any new debt are the best ways to raise your credit score. It may take some time before you see a big increase in your score.

What is an appraisal?

An appraisal provides a rough assessment of the value of a piece of property. It's a standard need (depending on the loan program) for a lender to see before approving a mortgage loan to make sure the loan amount isn't too high. An "Appraiser," often a licensed professional by the state, completes the Appraisal and provides their professional judgment on the property's value based on factors such as its location, amenities, and physical condition.

What is PMI (Private Mortgage Insurance)?

Conventional mortgage lenders typically require Private Mortgage Insurance (PMI) when a borrower's down payment is less than 20% of the home's purchase price. A year's worth of PMI premiums, which can cost several hundred dollars, maybe due at closing in some cases. Making a down payment of at least 20% or exploring alternative loan program choices is recommended to avoid this fee.

What is 80-10-10 financing?

In spite of their high wages, some people still struggle to save enough for a 20% cash down payment on their ideal residences. If they want to use conventional financing, they'll have to pay for Private Mortgage Insurance (PMI), which drives up the cost of homeownership and, paradoxically, makes it harder to get a mortgage in the first place. Don't lose hope if you're a member of the cash-strapped class who pays their membership dues. If your income is high enough, you won't have to worry about having to pay for PMI. Hence, the concept of 80-10-10 finance was developed. 80-10-10 refers to the fact that you put down 10% of the purchase price in cash, obtain a second mortgage for 10%, and take out a typical 80% mortgage from a savings and loan, bank, or another institutional lender. This strategy will allow you to avoid having to pay for private mortgage insurance (PMI) on your home.

If you're in a similar situation but can only put down a smaller amount, 80-15-5 financing is an option. However, you should expect to pay higher loan fees and a higher mortgage interest rate for 80-15-5 than you would for 80-10-10 because a smaller cash down payment increases the lender's risk of default.

What happens at closing?

At "Closing" or "Funding," the title to the property is formally transferred to you from the seller

Ownership of the property is transferred from the seller to you at the closing. This may include the seller, real estate agents, your attorney, the lender's attorney, the title or escrow company's representatives, clerks, secretaries, and other employees. If you live out of state and are unable to travel for the closing meeting, you may have an attorney defend your interests. The length of time it takes to close depends on the number of conditions that must be met before the sale can be finalized, as well as the number of escrow accounts that must be opened.

In a closing or settlement, attorneys and real estate agents handle the majority of the paperwork. Depending on the people you're working with, you may or may not have a hand in the final stages of the project.

A final inspection, or "walk-through," is performed just before closing to ensure all agreed-upon goods, such as curtains, light fixtures, and appliances, are still there and in working order, and that any repairs that were required have been completed.

If you're in one of these states, the settlement will be handled by a title or escrow company to which you'll send all of the relevant paperwork and cashier's checks. A representative of your company will provide the seller with a check and then hand you the keys to the property.