Pre-approval allows you to get approved for a specific loan amount prior to finding the home you want to purchase. The loan is underwritten and the lender commits to a specific loan amount. Pre-approval can provide a great advantage with a homeowner or realtor if someone else is interested in the same home simultaneously. Also, if you’re thinking about refinancing and want to payoff creditors or take cash out — but not sure you’d qualify – you can apply for a pre-approval and potentially save on the cost of getting an appraisal on your home until you know if you qualify.
Pre-qualification is the method of determining how much money a prospective homebuyer will be eligible to borrow before the loan application process occurs.
When you’re ready to apply, you need the most current information on your:
- Monthly income
- Monthly debt payments
- Total debt
- A total of your assets
- Social Security
- Employment information and verification (e.g., W-2, pay stub, etc.)
Initially, the only fee collected will be for the cost of a credit report. All other up-front fees such as an appraisal or application fee that may apply to your request will be disclosed to you as part of the application process and collected following your receipt of the early Truth-in-Lending disclosure and your approval to continue with the application.
At closing, you’ll sign and receive copies of all legal documents that are recorded and placed on record for the property you’re purchasing or refinancing. You’ll also receive all pertinent information regarding your mortgage payment and servicing information for your new loan.
The loan approval and funding time frames vary depending on the type of transaction and the complexity of your personal finances. On average, the process can take from 14 to 60 days.
The lock-in rate represents the interest rate you choose and will be the interest rate used to factor your monthly payment. The lock-in secures the interest rate during the process of your loan approval as long as your loan is processed and closed prior to the rate expiration date. This date is given to you when you lock-in the rate.
You can lock or float your interest rate at any time during the process of your loan. Your loan officer will discuss these options with you upon taking your loan application.
Depending on the type of transaction and the time you need, lock periods can be valid anywhere from 10 to 180 days.
Yes, you can make principal payments at any time during your loan term or pay the loan in full. You can also pay a set amount each month above the normal payment due or make lump-sum payments periodically.
An escrow account is maintained by the lender to collect funds from the borrower in order to pay the taxes and property insurance due on the loan.
PITI represents the accounts your money is applied to when you make your monthly mortgage payment and include:
- P – Principal
- I – Interest
- T – Taxes
- I – Insurancey the lender to collect funds from the borrower in order to pay the taxes and property insurance due on the loan.
Review your current situation and future goals, and then answer these questions by yourself or with your loan officer to help determine the route you may want to take:
- How long do you expect to stay in the house?
- Which is more important: low monthly payments or low closing costs?
- Will my income increase or decrease in the next three years?
- How comfortable are you with your monthly payment potentially increasing?
With a fixed rate mortgage, the interest rate and payment remain constant over the life of the loan. With an adjustable rate mortgage, the interest rate can either increase or decrease, based upon the terms of the loan. This could cause the monthly payments to increase in order to have the loan paid in full by maturity.
A conventional loan is a fixed rate loan over a specific time frame. It’s secured by a mortgage or deed of trust with an acceptable loan-to-value (LTV) ratio range and is not guaranteed by VA or insured by FHA, FMHA or State Bond agencies.
Hazard insurance protects your investment in your home, providing compensation to the insured in case of property loss or damage.
PMI stands for Private Mortgage Insurance. On a conventional loan, PMI is required if you borrow over 79.99% of your appraised value. This protects the lender against financial loss if the loan has defaulted.
Points represent an origination fee charged by the lender and loan discount points sometimes charged on the note rate to lower the interest rate.
A buy-down is a fee paid to lower the interest rate on a mortgage. The buyer, seller or any other interested party may pay it. A permanent buy-down would lower the rate for the entire term of the mortgage, while a temporary buy-down lowers the rate for a specified shorter term, generally three years or less.
The origination fee is charged by the lender, typically 1% of the loan amount you borrow. It’s used to cover expenses during the process of the loan.
Closing costs are fees and expenses that both buyer and seller must pay at closing. They generally include:
- Origination fee
- Discount point(s)
- Appraisal fee
- Credit report
- Title search
- Recording fees
You may want to consider refinancing if you are interested in paying off high-interest-rate debt, shortening the length of your repayment term for your mortgage or lowering your monthly mortgage payment.
Generally speaking, one or more of the following conditions need to be present before you should consider refinancing your mortgage:
- Mortgage interest rates are falling
- Your home has significantly appreciated in market value
- You’ve been making payments on your original 30-year mortgage for less than ten years