What is a mortgage?
A mortgage is a loan that a buyer secures to pay the seller of a home or property in full at the time of purchase. The buyer then owes the mortgage lender the total amount borrowed, plus agreed-upon interest and fees. The lender holds the deed of ownership to the property until the buyer pays off the mortgage.
What is the best way to start shopping for a home?
Before you start looking for a home, it’s very helpful to get prequalified or preapproved by a lender to determine how much you can afford to purchase. With this information, you can help your real estate agent determine the type of home that meets your unique financial situation. Being preapproved generally helps facilitate the purchasing process when you’re ready to make an offer.
What is the difference between prequalification and preapproval?
Prequalification simply determines the maximum purchase price of a house that a buyer is qualified to purchase, based on the income and debt information provided verbally to a mortgage professional. This prequalifying step is not a commitment to borrow or lend money, as the information provided by the buyer must still be verified. Preapproval means the lender is willing to grant a loan based on an in-depth financial assessment, such as income and debt review, employment verification and review of tax returns.
What does “loan-to-value” mean?
Loan-to-value (LTV) represents the loan amount as a percentage of the current market value of a home. It can be calculated by dividing the dollar amount of the mortgage loan by the current dollar value of a home. The LTV ratio helps determine whether the lender will require the buyer to secure private mortgage insurance to complete the loan.
What is an earnest money deposit?
When a buyer makes an offer and signs a contract to buy real estate, earnest money (often called a good-faith deposit) is provided by the buyer to demonstrate that he or she is serious about wanting to complete the purchase. If the seller accepts the offer, the earnest money is held in escrow until closing and is then applied to the buyer’s portion of costs. If the offer is rejected, the earnest money is usually returned. If the buyer retracts the offer or doesn’t fulfill contractual obligations, the earnest money is usually forfeited.
Is there a minimum down payment required to buy a home?
The size of the down payment depends on the type of loan, buyer preferences and many other factors. Some loans require no down payment at all. For more information on loan options, see the Loan Types section of our website or contact one of our mortgage professionals.
What is a conforming loan?
A conforming loan is a mortgage that is equal to or less than the loan limit set annually by Fannie Mae or Freddie Mac, the government-sponsored agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders. The current conforming loan limit for a single-family home or condominium in most areas of the country is $417,000, with higher limits allowed for designated high-priced markets. The terms conforming and conventional are often used interchangeably to describe these loans. Mortgage loans that are higher than the conforming loan limit are called jumbo mortgages or nonconforming loans.
What is a reverse mortgage?
A reverse mortgage enables homeowners aged 62 and older to convert part of the equity in their primary residence into tax-free cash without having to sell their home or give up title. It is a low-interest loan that uses a home’s equity as collateral. It is called a reverse mortgage because rather than the homeowner making monthly payments to a lender, the lender makes monthly payments to the homeowner.
How can I decide what the best type of financing is for my situation?
Many financing options are available, so the ideal way to determine which loan type best suits your unique needs is to talk with an experienced mortgage professional. Things to consider include details such as how long you plan to stay in the home, current and projected income and debts, credit history, and cash available to close, as well as property location and income characteristics that may make you eligible for specialty loan programs.
What is the difference between prequalification and preapproval?
Prequalification simply determines the maximum purchase price of a house that a buyer is qualified to purchase, based on the income and debt information provided verbally to a mortgage professional. This prequalifying step is not a commitment to borrow or lend money, as the information provided by the buyer must still be verified. Preapproval means the lender is willing to grant a loan based on an in-depth financial assessment, such as income and debt review, employment verification and review of tax returns.
Why should I get prequalified or preapproved?
Prequalification is a quick way to determine what types of homes are realistically in your price range. Preapproval can help facilitate the purchasing process by reducing the length of time it takes to close the transaction, as many sellers require buyers to be preapproved before accepting an offer.
Does it make sense to get prequalified if I’m refinancing?
Yes. Prequalifying helps you determine if your refinance amount is achievable, especially if you’re trying to get cash back from your home equity.
Are there loan options available that do not require a down payment?
Yes, some loan programs offer a no-down-payment option. For more information on loan options, see the Loan Types section of our website or contact one of our mortgage professionals.
Can closing costs be rolled into my loan if I refinance?
Yes, all closing costs can generally be included in the loan amount on a refinance. Exceptions include streamline refinances and cases in which the borrower’s equity is not large enough to accommodate these costs. Talking with an experienced mortgage professional is the best way to understand available refinancing options.
How can equity in an existing home be used toward the purchase of a new home?
Home equity can be used to buy a new home in several ways, such as second mortgages, home equity lines of credit, bridge loans or trade equity. Each option has a different impact on borrower qualifications, and costs for each option vary. Talking with an experienced mortgage professional is the best way to understand available refinancing options.
What is an appraisal?
A real estate appraisal is a professional written analysis of a property’s market value. It helps establish the likely sales price of the property in a competitive real estate market. Mortgage lenders require an appraisal when a property will be used as collateral for a loan, to make sure that the property could potentially be sold for at least the amount of the loan.
What is a home inspection?
A home inspection is a professional review of the condition of a home, and it helps the buyer uncover defects before a home is purchased. The results of an inspection can assist the buyer in negotiation of the final purchase price or terms. If the inspector finds problems with the home, the lender may require repairs to be made before the loan can close. It is important to note that an inspection is not the same thing as an appraisal.
What is APR?
Annual percentage rate (APR) is an estimate of the full costs of a loan, including the interest rate. APR is a more accurate tool than the interest rate alone in determining the total cost of a loan. APR estimates what you’ll pay over the course of an entire year based on additional fees and costs associated with the loan, such as points, mortgage insurance premiums and origination fees. To help consumers compare the full costs of a loan, the federal Truth in Lending law requires mortgage companies to list the APR of their loans when they advertise an interest rate.
What are points?
Mortgage points are charges that are paid in order to obtain a mortgage on a home. One mortgage point is a fee equal to 1% of the total amount of the loan. There are two different kinds of points. Discount points are an optional amount of money paid to a lender that enables the borrower to obtain a loan at a lower interest rate. Origination points are a fee used to pay for the costs of obtaining the loan. To determine whether paying points makes sense for your individual situation, it is important to talk with an experienced mortgage professional.
What is a rate lock?
A rate lock is an interest rate guarantee that a lender makes to a borrower for an agreed-upon period of time to protect the borrower against interest rate fluctuations. The borrower decides when it makes sense to lock the interest rate.
What is private mortgage insurance?
Private mortgage insurance (PMI) is insurance designed to protect the lender from losses in the event that the borrower defaults on a mortgage. Purchased by the buyer from a private insurance company, PMI is usually required when the down payment is less than 20% of the purchase price or appraised value, whichever is less.
What is an origination fee?
An origination fee is the fee a lender charges the borrower, at the time of closing, for services provided in processing the loan.
What are closing costs?
Closing costs are the fees paid by the borrower in connection with completion of the property sale and closing of the mortgage loan. Closing costs often include items such as loan origination fees, credit reports, appraisal fees, inspection fees, title insurance, prepaid tax and insurance payments, origination fees, discount points and recording fees. Federal law requires that all residential transactions financed by a mortgage have all closing costs itemized and documented in detail using the standard HUD-1 settlement statement.
What is a loan prepayment penalty?
A prepayment penalty is a provision in a loan contract that allows the lender to charge a borrower a predetermined fee if the loan is paid off in full during a designated penalty period, which is usually between three and five years.
What is private mortgage insurance?
Private mortgage insurance (PMI) is insurance designed to protect the lender from losses in the event the borrower defaults on the mortgage. Purchased by the buyer from a private insurance company, it is usually required when the down payment is less than 20% of the purchase price or appraised value, whichever is less.
What is title insurance?
Title insurance protects an owner’s or a lender’s financial interest in real property against loss due to defects in the property title, liens or other matters. Title insurance helps defend against lawsuits challenging the title as it is insured, and covers monetary losses incurred due to legal judgments.
What is homeowners insurance?
Homeowners insurance, also commonly called hazard insurance, is a type of property insurance that covers private homes. It combines various personal insurance protections, such as losses occurring to the home itself, as well as liability insurance protections, such as losses due to accidents that may happen at the home. Because homeowners insurance protects the owner and the lender against physical damage to the property, it helps protect the lender’s investment.
Will I be required to get earthquake insurance coverage when I finance a home?
If your property is located in an earthquake-prone area, your mortgage lender will likely ask you to secure earthquake coverage in addition to your standard homeowners insurance policy.
Will I be required to get flood insurance coverage when I finance a home?
If your home is located in what the government has determined to be a floodplain or a Special Flood Hazard Area (SFHA), your mortgage lender will likely ask you to secure flood insurance coverage in addition to your standard homeowners insurance policy.
General Mortgage Questions
What is a mortgage?
A mortgage is a loan that a buyer secures to pay the seller of a home or property in full at the time of purchase. The buyer then owes the mortgage lender the total amount borrowed, plus agreed-upon interest and fees. The lender holds the deed of ownership to the property until the buyer pays off the mortgage.
What is the best way to start shopping for a home?
Before you start looking for a home, it’s very helpful to get prequalified or preapproved by a lender to determine how much you can afford to purchase. With this information, you can help your real estate agent determine the type of home that meets your unique financial situation. Being preapproved generally helps facilitate the purchasing process when you’re ready to make an offer.
What is the difference between prequalification and preapproval?
Prequalification simply determines the maximum purchase price of a house that a buyer is qualified to purchase, based on the income and debt information provided verbally to a mortgage professional. This prequalifying step is not a commitment to borrow or lend money, as the information provided by the buyer must still be verified. Preapproval means the lender is willing to grant a loan based on an in-depth financial assessment, such as income and debt review, employment verification and review of tax returns.
What does “loan-to-value” mean?
Loan-to-value (LTV) represents the loan amount as a percentage of the current market value of a home. It can be calculated by dividing the dollar amount of the mortgage loan by the current dollar value of a home. The LTV ratio helps determine whether the lender will require the buyer to secure private mortgage insurance to complete the loan.
What is an earnest money deposit?
When a buyer makes an offer and signs a contract to buy real estate, earnest money (often called a good-faith deposit) is provided by the buyer to demonstrate that he or she is serious about wanting to complete the purchase. If the seller accepts the offer, the earnest money is held in escrow until closing and is then applied to the buyer’s portion of costs. If the offer is rejected, the earnest money is usually returned. If the buyer retracts the offer or doesn’t fulfill contractual obligations, the earnest money is usually forfeited.
Is there a minimum down payment required to buy a home?
The size of the down payment depends on the type of loan, buyer preferences and many other factors. Some loans require no down payment at all. For more information on loan options, see the Loan Types section of our website or contact one of our mortgage professionals.
What is a conforming loan?
A conforming loan is a mortgage that is equal to or less than the loan limit set annually by Fannie Mae or Freddie Mac, the government-sponsored agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders. The current conforming loan limit for a single-family home or condominium in most areas of the country is $417,000, with higher limits allowed for designated high-priced markets. The terms conforming and conventional are often used interchangeably to describe these loans. Mortgage loans that are higher than the conforming loan limit are called jumbo mortgages or nonconforming loans.
What is a reverse mortgage?
A reverse mortgage enables homeowners aged 62 and older to convert part of the equity in their primary residence into tax-free cash without having to sell their home or give up title. It is a low-interest loan that uses a home’s equity as collateral. It is called a reverse mortgage because rather than the homeowner making monthly payments to a lender, the lender makes monthly payments to the homeowner.
Getting A Loan
How can I decide what the best type of financing is for my situation?
Many financing options are available, so the ideal way to determine which loan type best suits your unique needs is to talk with an experienced mortgage professional. Things to consider include details such as how long you plan to stay in the home, current and projected income and debts, credit history, and cash available to close, as well as property location and income characteristics that may make you eligible for specialty loan programs.
What is the difference between prequalification and preapproval?
Prequalification simply determines the maximum purchase price of a house that a buyer is qualified to purchase, based on the income and debt information provided verbally to a mortgage professional. This prequalifying step is not a commitment to borrow or lend money, as the information provided by the buyer must still be verified. Preapproval means the lender is willing to grant a loan based on an in-depth financial assessment, such as income and debt review, employment verification and review of tax returns.
Why should I get prequalified or preapproved?
Prequalification is a quick way to determine what types of homes are realistically in your price range. Preapproval can help facilitate the purchasing process by reducing the length of time it takes to close the transaction, as many sellers require buyers to be preapproved before accepting an offer.
Does it make sense to get prequalified if I’m refinancing?
Yes. Prequalifying helps you determine if your refinance amount is achievable, especially if you’re trying to get cash back from your home equity.
Are there loan options available that do not require a down payment?
Yes, some loan programs offer a no-down-payment option. For more information on loan options, see the Loan Types section of our website or contact one of our mortgage professionals.
Can closing costs be rolled into my loan if I refinance?
Yes, all closing costs can generally be included in the loan amount on a refinance. Exceptions include streamline refinances and cases in which the borrower’s equity is not large enough to accommodate these costs. Talking with an experienced mortgage professional is the best way to understand available refinancing options.
How can equity in an existing home be used toward the purchase of a new home?
Home equity can be used to buy a new home in several ways, such as second mortgages, home equity lines of credit, bridge loans or trade equity. Each option has a different impact on borrower qualifications, and costs for each option vary. Talking with an experienced mortgage professional is the best way to understand available refinancing options.
What is an appraisal?
A real estate appraisal is a professional written analysis of a property’s market value. It helps establish the likely sales price of the property in a competitive real estate market. Mortgage lenders require an appraisal when a property will be used as collateral for a loan, to make sure that the property could potentially be sold for at least the amount of the loan.
What is a home inspection?
A home inspection is a professional review of the condition of a home, and it helps the buyer uncover defects before a home is purchased. The results of an inspection can assist the buyer in negotiation of the final purchase price or terms. If the inspector finds problems with the home, the lender may require repairs to be made before the loan can close. It is important to note that an inspection is not the same thing as an appraisal.
Rates and Costs
What is APR?
Annual percentage rate (APR) is an estimate of the full costs of a loan, including the interest rate. APR is a more accurate tool than the interest rate alone in determining the total cost of a loan. APR estimates what you’ll pay over the course of an entire year based on additional fees and costs associated with the loan, such as points, mortgage insurance premiums and origination fees. To help consumers compare the full costs of a loan, the federal Truth in Lending law requires mortgage companies to list the APR of their loans when they advertise an interest rate.
What are points?
Mortgage points are charges that are paid in order to obtain a mortgage on a home. One mortgage point is a fee equal to 1% of the total amount of the loan. There are two different kinds of points. Discount points are an optional amount of money paid to a lender that enables the borrower to obtain a loan at a lower interest rate. Origination points are a fee used to pay for the costs of obtaining the loan. To determine whether paying points makes sense for your individual situation, it is important to talk with an experienced mortgage professional.
What is a rate lock?
A rate lock is an interest rate guarantee that a lender makes to a borrower for an agreed-upon period of time to protect the borrower against interest rate fluctuations. The borrower decides when it makes sense to lock the interest rate.
What is private mortgage insurance?
Private mortgage insurance (PMI) is insurance designed to protect the lender from losses in the event that the borrower defaults on a mortgage. Purchased by the buyer from a private insurance company, PMI is usually required when the down payment is less than 20% of the purchase price or appraised value, whichever is less.
What is an origination fee?
An origination fee is the fee a lender charges the borrower, at the time of closing, for services provided in processing the loan.
What are closing costs?
Closing costs are the fees paid by the borrower in connection with completion of the property sale and closing of the mortgage loan. Closing costs often include items such as loan origination fees, credit reports, appraisal fees, inspection fees, title insurance, prepaid tax and insurance payments, origination fees, discount points and recording fees. Federal law requires that all residential transactions financed by a mortgage have all closing costs itemized and documented in detail using the standard HUD-1 settlement statement.
What is a loan prepayment penalty?
A prepayment penalty is a provision in a loan contract that allows the lender to charge a borrower a predetermined fee if the loan is paid off in full during a designated penalty period, which is usually between three and five years.
Insurance Questions
What is private mortgage insurance?
Private mortgage insurance (PMI) is insurance designed to protect the lender from losses in the event the borrower defaults on the mortgage. Purchased by the buyer from a private insurance company, it is usually required when the down payment is less than 20% of the purchase price or appraised value, whichever is less.
What is title insurance?
Title insurance protects an owner’s or a lender’s financial interest in real property against loss due to defects in the property title, liens or other matters. Title insurance helps defend against lawsuits challenging the title as it is insured, and covers monetary losses incurred due to legal judgments.
What is homeowners insurance?
Homeowners insurance, also commonly called hazard insurance, is a type of property insurance that covers private homes. It combines various personal insurance protections, such as losses occurring to the home itself, as well as liability insurance protections, such as losses due to accidents that may happen at the home. Because homeowners insurance protects the owner and the lender against physical damage to the property, it helps protect the lender’s investment.
Will I be required to get earthquake insurance coverage when I finance a home?
If your property is located in an earthquake-prone area, your mortgage lender will likely ask you to secure earthquake coverage in addition to your standard homeowners insurance policy.
Will I be required to get flood insurance coverage when I finance a home?
If your home is located in what the government has determined to be a floodplain or a Special Flood Hazard Area (SFHA), your mortgage lender will likely ask you to secure flood insurance coverage in addition to your standard homeowners insurance policy.