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Mortgage
Frequently Asked Questions


What is Pre-Qualification?

A process by which a potential homebuyer qualifies for a home mortgage before making an offer on a house. A lending institution reviews documentation to determine if they can make a loan in the specified amount to the person it is prequalifying.

My real estate agent recommended that I get a pre-qualification letter. Why should I get one?
The lender gives a commitment letter that states the lender agrees to provide a mortgage to a homebuyer based upon certain criteria being met. Commitment letters help you set realistic goals while you’re house-hunting, provide the same negotiating ability as a cash buyer and enable you to move quickly once the perfect home is found.

When mortgage lenders refer to “PITI” what are they referring to?
PITI is principle, interest, taxes, and insurance: the components of a monthly mortgage.

When my loan officer asks me if I want to waive escrows, what exactly does this mean?
When you waive escrows, you take the responsibility of paying your taxes and insurance rather than having them included in your monthly mortgage payment. Waiving escrows may add a small fee to your closing costs. You can only waive escrows if your loan program allows for this such as conventional loans that have a loan value of 80% or less on your first lien.

What does my mortgage lender mean by points or origination fee?
One point is equal to one percent of the loan amount. Points and origination fees can be used to buy down the interest rate.

How does the annual percentage rate differ from the interest rate?
The APR (Annual Percentage Rate) differs from the interest rate as it is the financing rate calculated with the finance charges over the life of the loan.  The interest rate calculates the principle and interest payment for the loan.

How do I know what my interest rate will be?
You discuss this with your loan officer who advises you of the rates available for your loan product.  You can then “lock” the rate with your loan officer.

Do I need to have a certain amount of money left after I buy my home?
Reserve requirements are program specific and will be gone over with you by the Loan Officer.

What is the Debt-to-Income Ratio?
This is a ratio used by lending institutions to assist in determining whether a person is qualified for a mortgage. Debt-to-Income is the total amount of debt, including credit cards and other loans, divided by total gross monthly income.

What is the difference between a FHA and a VA loan?A FHA loan is a loan guaranteed by the Federal Housing Administration.  FHA issues specific guidelines for mortgages. A VA loan is a loan guaranteed by the Veterans Administration.  To obtain a VA loan, the borrower must have served in the Armed Forces for a specific time period.

What is Private Mortgage Insurance (PMI)?
PMI is insurance required to help cover the lender expenses should the borrower default on the loan. It is required on certain loan products and LTVs.

Do I always have to have PMI on my loan?
PMI can be eliminated by having a down payment of at least 20%.

Will I have two separate payments if I have a second lien?
The second lien is often from a different lender than the first lien. Therefore, borrowers with a second lien will make two separate payments each month - one on the first lien and one on the second lien.

What does my lender mean by “paper trail?”
A “paper trail” is composed of the copies of all paperwork necessary to prove a financial transaction: copies of all checks, deposit slips, loan paperwork, forms to liquidate assets, etc.

Why did I receive a Truth-In-Lending?
Truth-In-Lendings are sent to all borrowers after a loan application has been made. The Truth-In-Lending Act is a federal law requiring lenders to reveal all of the terms of a mortgage. The APR that appears on your Truth-In-Lending will be higher than the interest rate on your Real Estate Lien Note, as it is calculated based on term and finance charges.

Will I get a copy of my credit report and appraisal?
Yes.

What inspections are required by the lender?
The lender requires an appraisal on most transactions. A clear termite report is required on many government transactions. If the appraiser recommends repairs or if repairs are mentioned in the contract, the lender will require that those repairs be done before closing. The appraiser then will perform a final inspection to assure that the repairs were completed. If the termite report recommends treatment, treatment is required. We will need a receipt showing the name and amount of chemicals used and a clear termite inspection.

When will I find out what my final figure is for the total costs to close?
The Settlement Statement (HUD-1) is prepared by the title company/closing attorney according to closing instructions prepared by the lender.  This is available 24 hours prior to closing by contacting your Loan Officer or Title Company.

Where do I go for closing?
Your closing will take place at the title company. The title company name and address appears in your sales contract. Call the title company to schedule a time for your closing.

Where do I send my first mortgage payment?
Refer to your “First Payment Letter” in your closing documents to determine where to send your first mortgage payment.  If you receive a statement from your new lender prior to the due date of your first payment, send your payment to the new lender. Remember to include your loan number on your check.