Frequently Asked Questions
If you have questions, you’re not alone. Not many of us were taught in school or at home about mortgage loans, interest rates, how to maintain good credit, and everything it takes to obtain financing for a new home.
You Have Questions. We Have Answers.
Here are some of the most frequently asked questions about mortgages and home buying.
A mortgage broker helps match borrowers with lenders. They have access to different lenders and typically has relationships with these lenders and their teams. In this way, they are a middleman between the borrower and the lender and help to move the process along. They advocate for their clients by shopping around to find the most competitive rates for mortgage loans. They can even get better rates than if the borrower went directly to the lender. They originate loans and manage the approval process. You work with them or their loan processor to get all the documents needed for the lender’s underwriter.
A loan processor assembles, administers, and processes your loan application paperwork before it goes to the lender’s underwriter for approval. They move the process along and help get you to closing.
PMI is private mortgage insurance. It’s a monthly insurance payment tacked onto your conventional mortgage when you’re unable to make a down payment of at least 20%. Financing a borrower who can’t put 20% down is riskier for the lender. If the borrower defaults on the loan, the lender loses out. PMI is paid until you reach 20% equity in the home, and then you no longer need to pay it. Note: PMI is not homeowners’ insurance. They are two different types of insurance. Homeowners’ insurance insures the home. PMI protects the lender if you default.
Yes. Once you’ve reached 20% equity, you no longer need the insurance. If you keep paying the PMI, until it automatically cancels at 22% equity, you are losing money. Remember, that money goes to the lender, not toward your loan. If you’re paying $125 PMI each mortgage payment, you’re losing that amount every payment you make after you’ve reached 20% equity. Make sure you know when you will hit the 20% equity mark and make that call or request to cancel PMI.
If you’re able to make extra payments on your home (pay down your mortgage faster) and reach 20% equity sooner, then yes, it’s too your advantage to do so. As soon as you reach 20% equity in your home, you can request to have PMI removed. This decreases your monthly payment and saves you money.
When you apply for a mortgage, a broker or lender will look at the financial information you supplied on the application. They will provide an estimate of what you might be able to borrow to purchase a home. It’s based entirely on the statement you made about your income, employment, assets, and credit. The loan provider hasn’t verified the information yet. They are simply looking at the information you provided and based on this information you should be able to get a loan for a certain amount. This is known as a “pre-qualification.”
Once the loan provider has received the supporting documents needed, they will actually verify the information you gave and determine if you have the credit and finances to borrow money. This is known as a “pre-approval.” When you receive a preapproval letter, it’s a strong indicator that you will be able to get a loan.
Not all credit scores are the same. It depends upon from where your credit information is pulled (Equifax, TransUnion, and Experian), and the formula used to create the score. When a lender or mortgage broker pulls your credit score, they mainly rely on your FICO score which is a particular brand of credit score. Even within FICO, there are different versions of scores. Mortgage lenders usually check FICO Scores 2, 4, and 5.
Credit Karma is another brand of credit score. FICO and Credit Karma are based on different formulas and potentially different information depending on the source they use for your credit history. Often the Credit Karma score is higher than FICO.
Keep debt balances low.
Increase credit limits.
Pay off your credit cards.
Make payments on time.
Avoid taking on any new debts or applying for credit during the loan process.
Most lenders want to see that the funds are “seasoned” which means you’ve had them for at least two months (60 days). Large deposits (more than 50% of your qualifying income) will need a paper trail that shows from where the money came.
Loans can usually close in 30 days or less. If you provide all the documents needed from the start, the process will go more smoothly, and you can avoid delays. Having “seasoned” funds in your account can also help the process move along and require less documentation.
Yes. However, you will have to do a couple of things to document the gift.
The donor needs to sign a letter stating that the money does not have to be repaid. You must supply evidence of the transaction and that the money came from their account. Examples: A copy of the canceled check with their name on it; a wire receipt with the name of the sender; a copy of the cashier’s check (they should be named as the remitter). Some underwriters will ask for statements from the donor to verify they had the money available to gift.
MPI is insurance you buy to cover your mortgage payments even after you die. It protects family members facing foreclosure on the property. It’s also called mortgage life insurance. PMI protects the lender in case you default on your loan.
The preapproval process is part of the loan application process. When you first complete the application for a loan and submit the required documents, the broker will verify your information and give you a letter that states if you’re approved and for how much. This is the second step of the home buying process.
A preapproval letter is the closest thing you can get to a guarantee, but nothing is finalized until the entire mortgage loan process is complete and the lender’s underwriter sign’s off on your file and you are clear to close.
Hopefully the documents you’ve supplied will be enough to clear the loan, however, many times the documents you supply will create an additional condition that needs verification It’s important to understand that the list may change or grow. Your loan process is specific to you and your finances because no two loans are ever the same. Another reason may be timing. If it’s been more than 60 days since you first applied, the income and bank documents may need to be updated with more recent statements or paystubs.
Lenders like to see 20% equity built up before a refinance. However, if your credit is good, you may be able to refinance with less.
All loans will allow for these with enough “seasoning” of the circumstance. Conventional loans require the longest seasoning: Four years from bankruptcy and seven years from foreclosure.
No. Each loan program has its own requirements. In recent years, the median down payment for first-time home buyers was 7%. Less than 20% will result in mortgage insurance payments with some loan programs.