Frequently Asked Mortgage Questions

A mortgage is a loan used to finance the purchase of a property, usually a home. The property itself serves as collateral for the loan, and the borrower is required to make regular payments until the loan is paid off.

A fixed-rate mortgage has an interest rate that stays the same for the entire term of the loan, while an adjustable-rate mortgage (ARM) has an interest rate that can change periodically, based on market conditions.

The down payment is the amount of money you pay upfront when you buy a property. It is typically expressed as a percentage of the property’s purchase price. For example, if you are buying a home for $200,000 and the down payment is 10%, you would need to pay $20,000 upfront.

The amount of the down payment can vary depending on the type of mortgage, the lender, and other factors. Typically, down payments range from 3% to 20% of the purchase price. Some government programs, such as FHA loans, allow for lower down payments.

A pre-approval is a preliminary approval for a mortgage. It is based on a review of your credit score, income, and other financial factors. Pre-approval can help you determine how much you can afford to borrow, and it can also make your offer more attractive to sellers.

The mortgage rate is the interest rate you pay on your mortgage loan. It can be either fixed or adjustable, and it can vary depending on market conditions and other factors.

The mortgage term is the length of time over which you will make regular mortgage payments. It can range from 15 to 30 years, or more in some cases.

Closing costs are fees and expenses that you must pay when you close on a mortgage. They can include things like appraisal fees, title insurance, attorney fees, and more. Typically, closing costs can range from 2% to 5% of the purchase price of the home.

PMI is insurance that lenders require borrowers to pay when they make a down payment of less than 20% of the purchase price. PMI protects the lender in case the borrower defaults on the loan.

Yes, there are some ways to avoid paying PMI, such as making a larger down payment, taking out a second mortgage to cover part of the down payment, or choosing a lender that offers lender-paid mortgage insurance (LPMI).

Points on a mortgage, or discount points, is a way to lower the interest rate by paying an upfront fee at closing. One point typically costs 1% of the loan amount and can lower the interest rate by 0.25% to 0.5%.

Yes, you can refinance your mortgage to get a lower interest rate, change the loan term, or switch from an adjustable-rate to a fixed-rate mortgage. Refinancing can be a good option if interest rates have gone down or your credit score has improved since you took out the original loan.

A HELOC is a line of credit that allows you to borrow against the equity in your home, similar to a credit card. You can borrow up to a certain limit and repay the loan as you use the funds. HELOCs typically have variable interest rates that can change over time.

Foreclosure is a legal process that lenders use to take possession of a property when the borrower defaults on the mortgage. The property is sold at a foreclosure auction to recoup the unpaid balance of the loan.

A short sale is a process in which the homeowner sells the property for less than the outstanding balance of the mortgage. This requires the lender’s approval and can be a way for the homeowner to avoid foreclosure.

If you can’t make your mortgage payments, you should contact your lender as soon as possible to discuss your options. Depending on your circumstances, the lender may be able to offer you a loan modification, forbearance, or other assistance. If you continue to miss payments, the lender may begin the foreclosure process.

Your monthly payment will depend on several factors. Every mortgage payment is made up of four main costs: principal, interest, taxes, and insurance (also known as PITI). Let’s break it down:

• Principal is the loan amount you borrow, then the remaining balance throughout the life of the loan.
• Interest is the fee you pay to borrow the money expressed as a percentage rate.
• Taxes are the property taxes you pay on the home. These are set by your local government.
• Insurance on your home is required. The rate will be set by your insurance provider.

Many homeowners choose to have their taxes and insurance paid using an escrow account. This can be a convenient way to pay those bills by taking your estimated tax and insurance costs and rolling them into your monthly mortgage payment. These funds are then taken out of your escrow account and the bills are paid when they’re due by your loan servicing company. All you have to do is make your monthly mortgage payment and your servicer will take care of the rest.

An appraisal is an estimate of a property’s fair market value. Depending on the loan program, an appraisal is required by a mortgage lender before they approve the loan to ensure that the loan amount is not more than the value of the property. The appraisal is performed by an appraiser—typically a state-licensed professional and unbiased third party who is trained to give an expert opinion concerning property value, considering its location, amenities, physical conditions, and more. They walk through the home, surveying the property and looking for issues that may affect the value of the home. During this part of the property valuation, the appraiser also researches the recently sold comparable homes (or comps) in the area to help determine the value. The resulting appraisal report should help you make an educated decision as to whether you should purchase the home.

The market can be unpredictable. From the day you apply for a mortgage to the day you close, mortgage rates could change. And if they rise, it can increase your payment dramatically. That’s why mortgage lenders offer the ability to “lock in” your interest rate. This guarantees a specific rate for a period of time, usually 30 to 60 days and sometimes for a fee. Locking in your interest rate helps you get a great rate even if the market shifts.

Your annual percentage rate (APR) is the total yearly cost of your mortgage expressed as a percentage. Not to be confused with interest rate. APR gives you a bigger picture of what it costs to finance your loan by accounting for the interest rate and finance charges. This is also why your APR is likely to be higher than the rate stated on your mortgage. What’s great about APR is that, by comparing APRs from different lenders, home buyers can get an idea of the true cost to borrow. And, it prevents lenders from advertising a low rate while hiding fees.

As a renter, you don’t own the place you live in. When you pay rent, you’re paying the owner a fee so you can live there. Essentially, what you pay in rent each month contributes to the mortgage the homeowner or property owner pays.

However, when you pay a mortgage, you’re not paying rent to the homeowner. Since you are the homeowner, your monthly payment goes to your mortgage lender. This cuts out the middleman. Your mortgage lender loans you enough money to purchase the home and, over an agreed upon period of time, you pay back the loan (plus interest, taxes, and other fees). The biggest difference is ownership, and who owns the home you live in determines who pays whom.

A point (also called discount point) is a percentage of the loan amount. One point equals 1% of the loan. That means one point on a $100,000 loan is equal to $1,000. Points are fees a borrower can pay the lender at closing to buy down the mortgage interest rate.

Yes, if you can afford it and if you plan to stay in your home for a least a few years. Paying points to buy down your interest rate is a viable way to lower your monthly payment and possibly increase the loan amount that you can afford to borrow. However, if you only plan to stay in your home for two years or less, your monthly savings may not be enough to recoup the cost of the points you paid up front. This is a good subject to talk about with your loan officer and your financial advisor before making a decision.

As a general rule of thumb, it’s a good time to refinance when mortgage rates are 2% lower than your current rate. But any reduction can lower your monthly mortgage payments. For example, on a 30-year $200,000 loan with a 5% interest rate, your payment (excluding taxes and insurance) would be about $1,074 per month. But if you refinanced and lowered your rate to 3%, your new monthly payment would be about $843, saving you roughly $231 per month. You can always talk to a loan officer if you want help calculating savings and weighing your options.

Yes, it does. We will look at both of your scores and use the lowest. You can avoid this by only putting the person with the highest credit score on the mortgage, if the co-borrower’s income isn’t required to qualify. Having a co-borrower isn’t always financially beneficial.

It’s possible! We’ll look at your debt-to-income (DTI) ratio and if it’s not too high, we may be able to approve you for a mortgage, depending on the loan product. Different loan products have different DTI ratio requirements. There are also loan products that can help refinance your student debt and down payment into a mortgage.

Yes! We accept business tax returns for the two most recent tax years, regulatory information, your business license, and a letter of certification from a CPA.

It’s possible to get a mortgage without a credit score, but you’ll have to go through manual underwriting. Manual underwriting simply means you’ll be asked to provide additional paperwork for the underwriter to personally review. Your loan process may take a little longer, but buying a home without the strain of extra debt is worth it!

Getting pre-qualified is a quick and informal conversation with your lender about your income, assets, credit score, debt, and down payment. Then, they’ll give you an estimated amount you may be approved to borrow. It’s purely informative. Getting pre-approved, however, is a more formal process. Your lender will consider all of the same financial information, but they will submit your loan for preliminary underwriting, which can potentially result in loan approval. A pre-approval takes a little more time and effort, but it also carries a lot more weight.

High interest rates bring higher monthly payments and increase the overall interest you’ll pay over the life of your loan. A low interest rate saves you money in the short and long run. When it comes to interest rates, the lower the better!

It depends! On average, it takes about 30 days, but factors such as your loan type, financial situation, and the length of your contract can either lengthen or shorten that time frame. We’ve seen highly proactive borrowers get closed in seven days!

Locking your rate is an important part of the mortgage process. It guarantees a certain interest rate for a period of time, usually between 30 and 60 days. In most cases, you can lock your interest rate as soon as your initial loan is approved, but most buyers wait until they’ve found the home they want to buy.