Your Top Mortgage Questions Answered
Whether you're purchasing or refinancing your first home or your hundredth, Bank Five Nine is with you each step of the way to help navigate the process for you. Keep reading to hear the answers to some frequently asked questions.
What is APR?
APR stands for Annual Percentage Rate. To make it easier for consumers to compare mortgage loan interest rates, the federal government developed a standard format called an "Annual Percentage Rate" or APR to provide an effective interest rate for comparison shopping purposes. Some of the costs that you pay at closing are factored into the APR for ease of comparison. Your actual monthly payments are based on the periodic interest rate, not the APR.
Is comparing APRs the best way to decide which lender has the lowest rates and fees?
The Federal Truth in Lending Act requires all financial institutions to disclose the Annual Percentage Rate (APR) when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring some of the closing fees charged at closing be included, in addition to the interest rate, to determine the cost of financing over the full term of the loan. For adjustable rate mortgages, the APR can be complicated. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments. You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that's best for you. The APR doesn't include all the closing costs. Consider the total fees, possible rate adjustments in the future if you are comparing adjustable rate mortgages, and consider the length of time you plan on having the mortgage. Don't forget the APR is an effective interest rate - not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.
I am selling my current home to purchase a new home. What type of documentation will be required?
If you're selling your current home to purchase your new home, we'll ask you to provide a copy of the settlement or closing statement you'll receive at the closing to verify your current mortgage has been paid in full and you'll have sufficient funds for our closing. Often the closing of your current home is scheduled for the same day as the closing of your new home. If that's the case, we'll just ask you to bring your settlement statement with you to your new mortgage closing.
I was in school before obtaining my current job. How do I complete an application?
If you were in school before your current job, enter the name of the school you attended and the length of time you were in school in the "length of employment" fields. You can enter a position of "student" and income of "0."
I'm getting a gift from someone else. Is this an acceptable source of my down payment?
Gifts are an acceptable source of down payment, if the gift giver is related to you or your co-borrower. We'll ask you for the name, address, and phone number of the gift giver, as well as the donor's relationship to you. Prior to closing, we'll verify the gift funds have been transferred to you by obtaining a copy of your bank receipt or deposit slip.
I've had a few employers in the last few years. Will that affect my ability to get a new mortgage?
Having changed employers frequently is typically not a hindrance to obtaining a new mortgage loan. This is particularly true if you made employment changes without having periods of time in between without employment. We'll also look at your income advancements as you have changed employment. If you're paid on a commission basis, a recent job change may be an issue since we'll have a difficult time predicting your earnings without a history with your new employer.
I'm self-employed. How will you verify my income?
Generally, the income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two-year period to confirm the income is stable. We'll review and average the net income from self-employment that's reported on your tax returns to determine the income that can be used to qualify.
What is an escrow or impound account?
An escrow or impound account is set up by your Lender during the loan closing to pay property taxes, fire and hazard insurance premiums, mortgage insurance premiums, and other escrow items on a monthly basis. Escrow accounts also protect homeowners from having to come up with several large, lump sum payments at different times throughout the year.
How much money will I save by choosing a 15-year loan rather than a 30-year loan?
A 15-year fixed rate mortgage gives you the option to own your home free and clear in 15 years, unless you refinance before paying the loan in full. While the monthly payments are somewhat higher than a 30-year loan, the interest rate on the 15-year mortgage is usually a little lower; and more importantly - you'll pay less than half the total interest cost of the traditional 30-year mortgage. However, if you can't afford the higher monthly payment of a 15-year mortgage, don't feel alone. Many borrowers find the higher payment out of reach and choose a 30-year mortgage.
What is the difference between a fixed rate and an adjustable rate mortgage?
A fixed rate mortgage is a home loan with steady interest rates and monthly payments that do not change throughout the life of the loan. Fixed rate mortgages are available in varying terms from 10 to 30 years. An Adjustable Rate Mortgage, or ARM, means the interest rate adjusts on a regular schedule to correspond to current rates, usually once or twice a year. The interest rate and payments rise and fall with the index, such as the Treasury Bill rate, Prime rate, or LIBOR. ARMs come with an interest rate cap that limits the total amount your rate can change over the life of the loan.
Is a fixed rate or adjustable rate mortgage better?
No one loan product is objectively better than another. The best mortgage for you depends on a variety of factors, including your financial situation and housing goals. Generally speaking, adjustable rate mortgages (ARMs) offer lower initial interest rates than fixed rate loans, but also have the potential to fluctuate every month, every six months, or every year, depending on the type of adjustable mortgage you get. An ARM therefore may be more attractive to homeowners who plan to sell their home in the timeframe before the adjustable rate surpasses a fixed-rate loan. On the other hand, homeowners who plan to remain in their home, or who want more stability in their rate and monthly payments, may find a longer-term 15, 20, or 30 year fixed rate more attractive. A fixed interest rate provides homeowners with a stable mortgage payment that does not change. Ask one of our Home Loan Lenders about Bank Five Nine's adjustable, short term fixed, and long term fixed rate loan programs to see what can best help you with your individual goals.
How are closing fees determined?
A home loan often involves fees, such as the appraisal fee, title charges, closing fees, and state or local taxes. These fees vary from state to state and also from lender to lender. Any lender or broker should be able to give you an estimate of their fees.
Can I apply for a loan before I find a property to purchase?
Yes. Applying for a mortgage loan before you find a home may be the best thing you could do. If you apply and qualify for your mortgage, we’ll issue an approval subject to you finding the perfect home. You can use the pre-approval letter to assure real estate brokers and sellers that you are a qualified buyer. Having a pre-approval for a mortgage may give more weight to any offer to purchase you make. When you find the perfect home, you’ll simply call your Home Loan Lender to complete your application. You’ll have an opportunity to lock in our great rates and fees, and we’ll complete the processing of your request.
I've co-signed a loan for another person. Should I include that debt on my application?
Yes, the debt should be entered in the Liabilities section of the loan application. Generally, a co-signed debt is considered when determining your qualifications for a mortgage. In order to eliminate the debt as a consideration to qualify for the loan, you can provide verification that the primary borrower responsible for the debt has made the required payments, by obtaining copies of their cancelled checks for the last twelve months.
If my property's appraised value is more than the purchase price can I use the difference towards my down payment?
Unfortunately no. If you are purchasing a home, we'll have to use the lower of the appraised value or the sales price to determine your down payment requirement. It's still a great benefit for your financial situation if you are able to purchase a home for less than the appraised value, but our investors don't allow us to use this "instant equity" when making our loan decision.
What can you expect when you apply for a mortgage?
First, you'll complete our online application.
The application will ask you questions about the home and your finances and will take approximately 20 minutes to complete. As soon as you've finished the application we'll review your request for a loan and, if authorized by you, will obtain a credit report.
After completing your application, a Bank Five Nine Home Loan Lender will contact you to discuss your loan application. Your Home Loan Lender is a mortgage expert and will explain the process and provide guidance along the way. Your Lender will ask you for any information and documentation required to make a decision about your loan. If you are purchasing a new home, the Lender will also contact the Real Estate Broker or the seller so they'll know whom to contact with questions.
We'll send you your application package.
The application package will be sent via U.S. mail or delivered by your Lender and will contain information and documents for you to sign along with a list of items we'll need you to provide. An application deposit may be requested in the package. We may order an appraisal from a licensed appraiser who is familiar with home values in your area. Depending on your loan amount request and value of the property an appraiser may need to schedule an appointment to view the interior of the home.
Title insurance will be necessary. If you're purchasing a home, we'll work with the real estate broker or seller to ensure the title work is ordered as soon as possible. If you are refinancing we'll take care of ordering the title work for you. We'll use the title insurance to confirm the legal status of your property and to prepare the closing documents.
Your Lender will keep you informed every step of the way via telephone or email.
We'll contact you to coordinate your closing date.
After we have received the application package from you, including requested documentation and application deposit, appraisal, and title work, we'll review the application and your Home Loan Lender will be in contact to advise you if your loan is approved with or without changes.
If you are purchasing a home, we'll also schedule the closing with the real estate broker and the seller. For a refinance of your current mortgage, your Home Loan Lender will coordinate the time and place for closing with you.
The closing will take place at one of our offices, or the office of a title company in your area who will act as our agent. A few days before closing, your Lender will contact you to walk through the final information.
Will the inquiry about my credit during the loan process affect my credit score?
An abundance of credit inquiries can sometimes affect your credit scores since it may indicate your use of credit is increasing. However, the data used to calculate your credit score doesn't include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry.
What is an appraisal and who completes it?
An appraisal report is a written description and estimate of the value of the property. National standards govern not only the format for the appraisal; they also specify the appraiser's qualifications and credentials. In addition, most states now have licensing requirements for appraisers evaluating properties located within their states. The appraiser will create a written report for us and a copy will be delivered to you prior to your loan closing. Usually the appraiser will inspect both the interior and exterior of the home. In some cases only an exterior inspection will be necessary based on your financial strength and the location of the home. Exterior-only inspections usually save time and money, but if you're purchasing a new home, we will require a full inspection. After the appraiser inspects the property, they will compare the qualities of your home with other homes that have sold recently in the same neighborhood. These homes are called "comparables" and play a significant role in the appraisal process. Using industry guidelines, the appraiser will try to weigh the major components of these properties (i.e., design, square footage, number of rooms, lot size, age, etc.) to the components of your home to come up with an estimated value of your home. The appraiser adjusts the price of each comparable sale (up or down) depending on how it compares (better or worse) with your property.
What is title insurance and why do I need it?
Get ready to read a bit more than a few lines for this answer!
The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and your mortgage lender, want to make sure the property is indeed yours: That no individual or government entity has any right, lien, claim, or encumbrance on your property.
The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected.
Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders, and others who have an interest in real estate transfer. Title companies typically issue two types of title policies:
1.Owner's Policy. This policy covers you, the homebuyer.
2.Lender's Policy. This policy covers the lending institution over the life of the loan.
Both types of policies are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you probably already have an owner's policy that was issued when you purchased the property, so we'll only require a lender's policy be issued.
Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in the company's own title plant. After a thorough examination of the records, any title problems are usually found and can be cleared up prior to your purchase of the property. Once a title policy is issued, if any claim covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights. They are also responsible to cover losses arising from a valid claim. This protection remains in effect as long as you or your heirs own the property.
The fact that title companies try to eliminate risks before they develop makes title insurance significantly different from other types of insurance. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen future event; say a fire, accident, or theft. On the other hand, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past.
This risk elimination has benefits to both the homebuyer and the title company. It minimizes the chances that adverse claims might be raised, thereby reducing the number of claims that have to be defended or satisfied. This keeps costs down for the title company and the premiums low for the homebuyer. Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company, and the odds of a claim being filed are unlikely.
What happens at the loan closing?
If you get a loan from Bank Five Nine, your closing will take place at a Bank Five Nine branch or the office of a title company or attorney in your area who will act as our agent. If you are purchasing a new home, the seller may also be at the closing to transfer ownership to you, but in some states, these two events actually happen separately. During the closing you will be reviewing and signing your loan documents. The Home Loan Lender or closing agent conducting the closing should be able to answer any questions you have or you can feel free to contact Bank Five Nine if you prefer. Your Home Loan Lender will contact you a few days before closing to review your final fees, loan amount, first payment date, etc.
Ready to take the next step?