How can I compare two different loan offers? You should compare the simple interest rates, the APR, any fees and any discount points paid. In order to compare two loans you should obtain a GFE (Good Faith Estimate) from both lenders. Some lenders may advertise low mortgage interest rates, however they have higher origination and processing fees that raise their APR to the same or higher levels than a lender advertising a slightly higher simple interest rate.
What is a mortgage broker? A mortgage broker is a licensed independent contractor that offers a selection of loan programs from various lenders they have established relationships with. Mortgage brokers can offer you a large selection of products available from different lenders. Usually banks have a limited selection of their own programs, which mayor may not fit your needs. The mortgage broker takes your application and processes your loan for submission to a lender for underwriting and approval of funding for the loan.
What does pre-qualifying mean? Pre-qualifying means that the borrower has discussed a loan with a loan officer and supplied information about their employment and debt situation. Together they can finally calculate an estimate of the loan amount the borrower may qualify for.
What does mortgage pre-approval mean? Pre-approval involves completing a loan application and being approved by a lender for a maximum loan amount. Typically, real estate agents will request home shoppers to be pre-approved before showing them homes. This is way for real estate agents to be certain to show you homes in a price range you can afford.
What documents willi need to supply to apply for a mortgage? At a minimum you will need your last 2 years W2’s and your last three paystubs. Often your last three months bank statements are also required. A copy of the executed sales agreement for your home. In the event you are self employed you may be required to supply your last two years income tax returns.
What are discount points as applied to a mortgage? Discount points are a percentage of the loan used to buy down or reduce the interest rate of the loan. One point equals one percent of the loan amount.
What are closing costs? Each lender may have different costs which apply to their programs or local lending market. Closing costs or the fees applied to make the loan may consist of some or all of the following:
- Settlement and or attorney fees
- Underwriting fee
- Pre-paid: property taxes, mortgage interest, homeowners insurance and private mortgage insurance.
- Loan origination fee
- Appraisal fee
- Credit report fee
- Messenger fee
- Title recording fee
- Survey fee if needed
- Title insurance
- Payment to escrow account for real estate taxes and homeowners insurance if applicable
- Documentation preparation fee
What are escrows? Escrows are the pre-payments of real estate taxes and homeowners insurance held in an escrow account. Escrows account make the annual payments to the appropriate parties by the lender.
Can I avoid escrows? In most cases, if down payment is 20% or more lenders will not require you to pay escrows. Some programs only require 15%. Ask the lender what the requirements are for the loan product you’re interested in.
How long does it take to get approved for a loan? Depending on your personal credit situation and the lender in question approval sometimes can be achieved within 24 hours. Usually, it requires 7-10 business days in most mortgage application situations.
Can I roll my closing costs into the loan amount? Normally, most lenders will not allow you to roll in your closing costs when purchasing a new home. However, most will allow a roll in of closing costs when refinancing an existing mortgage.
How long will it take for a lender to close my loan? Some lenders can go to closing within 7 days. However, an average of 30 to 60 days is required. The length oftime is dependant on a number of factors.
When should refinancing be considered? Refinancing varies for every situation and mayor may not be practical depending on how long you intend to stay in the home. When you refinance, you will pay closing costs once more and these closing costs will have to be recouped before you will reap the benefit of obtaining a lower interest rate. Divide the closing costs of the loan by the monthly savings on your mortgage payment to determine how long it would be before you benefit. If you plan on staying longer than this- then it probably makes sense to refinances.
What is an origination fee? An origination fee is the fee charged to cover the application for, and processing of, a mortgage provided by the mortgage broker.
What is APR-Annual Percentage Rate? APR is an interest rate that reflects the total cost of financing a loan. It is a combination of the simple interest rate, any discount points, and the fees paid to a lender when getting a mortgage. The APR is an important parameter when comparing loan offers from different lenders who may have widely different fees they apply to their loan offers. A lender who offers a low, simple interest rate but has a much higher APR has fees which are adding costs to your financing. Simply put, the higher the APR over the interest rate offered, the higher the fees. Other factors that affect APR are the loan size and the term of the loan. A mortgage with a 15 year term will have a higher APR than a 30 year mortgage, even if the rate and fees are the same. Also, a $100,000 mortgage will have a higher APR than a $200,000 mortgage, with the same rate and fees. Make sure the loan term and the loan sizes on the two different offers are the same so you can more accurately assess which one is right for you.
What is LTV (loan-to-Value) mean? Loan to value is a ratio determined by the loan amount divided by the property value. LTV is used to define the maximum loan percentage available for each particular loan program. Lenders have different LTV parameters for different loan programs. Also the LTV available will depend on your personal credit situation. Higher LTV ratios are available for people with higher credit ratings.
What is PMI – Private Mortgage Insurance? PMI is insurance which protects the lender in the event you do not pay. PMI allows borrowers to obtain higher loan amounts with lower down payments. PMI is typically required when the LTV is 80% or more. Check with each lender to insure what their PMI requirements may be.
How can I avoid PMI? PMI is typically required if the loan to value is 80% or higher. Many lenders will allow you stop paying PMI once you have either paid down your loan below 80% LTV, or your property has increased in value to the point were the new LTV ratio is less than 80%. You will be required to have the home appraised to prove the new market value of your home if it has increased