Frequently Asked Questions

• When Should I Apply for a Purchase Loan?

  You should apply for a purchase loan as soon as you’re serious about buying a home and have taken steps to prepare financially. Here’s a breakdown of the ideal timing:

  1. Before You Start House Hunting

  • Get Pre-Approved: Apply for pre-approval early to determine how much you can afford. Pre-approval shows sellers you’re a serious buyer and strengthens your offer.
  • Assess Your Financial Readiness: Ensure your credit score, savings for the down payment, and income are in good shape before applying.

  2. After Choosing a Property

  • Once your offer is accepted, formally apply for the loan to secure financing for the specific property. Your lender will start the underwriting process and schedule an appraisal.

  3. In a Competitive Market

  • Apply for pre-approval even earlier in competitive markets where sellers prioritize buyers who are ready to close quickly.

  Factors to Consider:

  • Loan Processing Time: Mortgage applications typically take 30-45 days to close, so applying early ensures a smooth process.
  • Rate Locks: Applying sooner allows you to lock in a favorable interest rate if rates are fluctuating.

  Key Steps Before Applying:

  • Check your credit report and correct any errors.
  • Save for the down payment and closing costs.
  • Gather necessary documents (e.g., pay stubs, tax returns, bank statements).

  Applying early in the homebuying process gives you a clearer financial picture and positions you as a prepared buyer. Consult a mortgage professional to ensure the timing aligns with your homebuying goals.

• When should I refinance?

  There are many reasons to refinance your mortgage. Common reasons include:

  • Lowering your monthly payment
  • Accessing cash through a cash-out refinance or a home equity line of credit (HELOC)
  • Buying out a partner in a divorce or joint business venture

  Consulting a mortgage professional is key to understanding your options and finding the best solution for your goals.

• What is the "par" rate?

  The par rate is the interest rate offered by a lender without any adjustments for additional costs or credits. At this rate:

  • You don’t pay discount points to lower the interest rate.
  • You don’t receive lender credits to offset closing costs.

  The par rate serves as the base or “break-even” rate on a lender’s rate sheet, which outlines available interest rates for various loan scenarios.

  How Is the Par Rate Determined?

  The par rate is influenced by key borrower and loan-specific factors, including:

  • Credit Score: Higher credit scores often qualify for better par rates.
  • Debt-to-Income (DTI) Ratio: A lower DTI ratio typically results in more favorable rates.
  • Loan Amount: Smaller or exceptionally large loan amounts may affect the par rate.
  • Loan Program: Different programs (e.g., conventional, FHA, VA, or jumbo loans) have unique rate structures.
  • Loan-to-Value (LTV) Ratio: A lower LTV (more equity) generally leads to better rates.
  • Rate Lock Period: Longer rate locks may increase the par rate.

  Lenders use these parameters to price loans, meaning the par rate is tailored to your specific financial profile and loan details.

  A mortgage professional can review your situation and the lender’s rate sheet to identify the par rate and help you decide whether adjusting it with points or credits aligns with your goals.

• What are points?

  Simply put, points are upfront fees charged for a mortgage. They typically come in two forms:

  • Origination Points: Fees for loan origination, which may include processing and underwriting costs.
  • Discount Points: Fees paid to lower your interest rate below the standard “par” rate.

  Points are usually quoted in increments of 0.125% (1/8th of a percent).

• Whar are discount points and should I purchase them?

  Discount points are upfront fees you pay to lower your mortgage interest rate below the par rate—the standard rate offered without additional costs. Typically, discount points allow you to reduce your par rate in increments of 0.125% (1/8th).

  Whether you should purchase discount points depends on your financial goals and how long you plan to stay in the property. The key is calculating your breakeven point—the time it takes for the monthly savings from a lower rate to offset the upfront cost of the points.

  For example, if you pay $2,000 in discount points to lower your interest rate and your monthly payment decreases by $50, your breakeven point is 40 months ($2,000 ÷ $50).  Staying in the home longer than 40 months results in savings beyond the breakeven point, making the upfront cost worthwhile over time.

  However, factors like loan size, current interest rates, and your financial strategy play an important role in this decision. Consulting a mortgage professional can help you calculate your breakeven point and determine if purchasing discount points aligns with your goals.

• What is an APR?

  The Annual Percentage Rate (APR) reflects the total cost of a mortgage expressed as a yearly percentage. It’s typically higher than the advertised or note rate because it includes additional loan-related costs, such as points, fees, and certain prepaid expenses.

  The APR is designed to help homebuyers compare different loan offers by showing the “true cost of a loan” beyond the stated interest rate. It prevents lenders from advertising artificially low rates while hiding fees. However, APR does not affect your monthly payments—those are determined by the interest rate and loan term.

  Key Details About APR:

  1. What’s Included in APR?

     • Discount and origination points
     • Prepaid interest
     • Loan processing, underwriting, and document-preparation fees
     • Private mortgage insurance (PMI)
     • Escrow fees

  2. What’s Not Included?

     • Title or abstract fees
     • Borrower attorney fees
     • Home inspection and appraisal fees
     • Recording fees and transfer taxes

  Comparing Loans with APR

  Because APR calculations vary based on lender fees, a lower APR doesn’t always mean a better deal. The most accurate way to compare loans is by requesting a Fee Worksheet for the same loan type and interest rate. Exclude fees unrelated to the loan (e.g., insurance, title fees) and focus on lender-specific costs. The lender with lower fees offers the better deal.

  Consult a mortgage professional for personalized guidance when evaluating APR and loan options.

• What is an Interest Rate Lock?

  An interest rate lock is an agreement between you and your lender that secures a specific mortgage interest rate for a set period, typically ranging from 30 to 90 days. This protects you from market fluctuations, ensuring your rate won’t increase before your loan closes, even if interest rates rise during the lock period.

  Rate locks are particularly valuable in a volatile rate environment. Some lenders also offer a “float-down” option, allowing you to secure a lower rate if market rates drop during the lock period, though this may come at an additional cost.

  Lock periods can vary, and longer locks may involve higher fees. It’s important to discuss your timeline and lock strategy with your mortgage professional to ensure you close your loan within the lock period and avoid any unexpected costs.

• What documents do I need to prepare for my loan application?

  Below is a list of documents that are required when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation. So, if you are asked for more information, be cooperative and provide the information requested as soon as possible. It will help speed up the application process.

  Identification

  • If a USA citizen – Unexpired Driver’s License
  • If a Non Permanent Resident Alien – Unexpired EAD card (work permit card)
  • If a Permanent Resident Alien – Unexpired Green card (Permanent Resident Card)
  • If a Undocumented ITIN – Unexpired passport from country of origin and ITIN letter issued from the IRS

  Income

  • Copies of your pay-stubs for the most recent 30-day period
  • Copies of your W-2 forms for the most recent 2 years
  • If you receive bonus, commision, or overtime then the end of year paystub from the most recent 2 years to match the W-2 provided
  • Letter explaining any gaps in employment greater than 6 months in the past 2 years

  If self-employed

  • Provide full tax returns for the last two years PLUS year-to-date Profit and Loss statement (please provide complete tax return including attached schedules and statements. If you have filed an extension, please supply a copy of the extension.)
  • K-1’s for all partnerships and S-Corporations for the last two years (please double-check your return. Most K-1’s are not attached to the 1040.)
  • Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) and/or Sub Chapter S Corporations (1120S) including all schedules, statements and addenda for the last two years. (Required only if your ownership position is 25% or greater.)

  If you will use Alimony or Child Support income to qualify:

  • Provide divorce decree/court order stating amount, as well as, proof of receipt of funds for last year

  If you receive Social Security income, Disability or VA benefits:

  • Provide award letter from agency or organization

  Source of Funds for Down payment and closing costs and source of reserves post closing

  • Sale of your existing home – provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement)
  • Savings, checking or money market funds – provide copies of bank statements for the last 2 months
  • Stocks and bonds – provide copies of your statement from your broker or copies of certificates
  • Gifts – If part of your cash to close, provide Gift Affidavit and proof of receipt of funds
  • Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation

  Debt or Obligations

  • Most of your debt obligations will appear on your credit report.  However there may be debts or obligations that will not appear in your credit report.  If this is the case please notify us. 
  • If you are paying alimony or child support, please provide court ordered documents.  For example the divorce decree or child support letter. 

  Real Estate Owned

  If you own real estate we need the following for each property:

  • Property address
  • Mortgage Statement (if applicable)
  • Home Owner’s Insurance Declarations
  • Property Taxes (County, City, and School District)
  • Lease agreement (if investment rental)
• How is my credit view by lenders?

  Lenders use credit scoring systems to evaluate your creditworthiness and make determinations to approve or deny a loan. Your credit score is also a key factor in determining your par rate—the standard interest rate you may qualify for. These systems analyze information from your credit report, such as:

  • Bill-paying history
  • Types and number of accounts
  • Late payments or collection actions
  • Outstanding debt
  • Age of your accounts

  Using statistical models, the credit bureaus compare your credit profile to others with similar histories. Points are assigned for each factor to calculate your credit score, which predicts how likely you are to repay a loan and make payments on time.

  The most widely used scoring model is the FICO score, which ranges from 350 (high risk) to 850 (low risk). A higher score generally improves your chances of securing better loan terms, such as lower interest rates.

  Why Your Credit Report Matters

  Because your credit report heavily influences your credit score, it’s essential to ensure it’s accurate before applying for credit. You can request free copies of your report once every 12 months from the three major credit reporting agencies:

  • Equifax: (888) 378-4329 – www.equifax.com
  • Experian: (888) 397-3742 – www.experian.com
  • TransUnion: (800) 916-8800 – www.transunion.com

  To obtain your free credit report, visit annualcreditreport.com. Note that free reports may not include your credit score, which can typically be purchased separately.

  Regularly reviewing your credit report helps identify errors and ensures your credit profile accurately reflects your financial behavior. This can significantly impact your ability to qualify for a mortgage or other loans.

• What can I do to improve my credit score?

  Improving your credit score takes time, but consistent efforts can lead to meaningful results. Here are key steps to help boost your score:

  1. Monitor Your Credit Report
     • Rgularly check your credit report for erros or inaccuracies that could be dragging down your score.  Dispute any errors with the credit bureaus to have them corrected.  NOTE: At the time of application and credit pull disputes must be ressolved
  2. Pay Your Bills on Time
  3. • Your payment history is the largest factor in your credit score. Consistently paying all bills—credit cards, loans, utilities—on time can significantly improve your score over time.

  4. Reduce Outstanding Debt

     • Lower your credit card balances and keep your credit utilization ratio (the amount of credit used versus your total credit limit) below 30%. Ideally, aim for 10% or lower

  5. Keep Old Accounts Open

     • The age of your credit accounts contributes to your score. Keeping older accounts open, even if unused, can improve your credit history length.

  6. Diversify Your Credit Mix

     • Having a mix of credit types, such as credit cards, auto loans, and mortgages, can slightly improve your score if managed responsibly.

  7. Pay More Than the Minimum

     • Paying down balances faster than required shows lenders you can handle credit responsibly and reduces the total interest you owe.

  8. Avoid Closing Accounts Too Soon

     • Closing accounts can lower your total available credit, increasing your utilization ratio, which may negatively affect your score.

  Improving your credit score is a gradual process that requires patience and consistent financial habits. If you’re planning to apply for a mortgage or other loan, start working on your credit as early as possible to achieve the best terms.

• What is an appraisal?

  An Appraisal is an estimate of a property’s fair market value. It’s a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an “Appraiser” typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.

• What is Mortgage Insurance?

  What Is Mortgage Insurance?

  Mortgage insurance is a policy that protects the lender if a borrower defaults on their mortgage loan. It is typically required when the borrower makes a down payment of less than 20% of the home’s purchase price.

  Types of Mortgage Insurance:

  1. Private Mortgage Insurance (PMI):

  • • Applies to conventional loans.

  1. • Borrowers pay PMI premiums, usually as part of their monthly mortgage payment.
     • PMI can often be canceled once the borrower’s equity in the home reaches 20%.

  2. Mortgage Insurance Premium (MIP):

     • Required for FHA loans.
     • Borrowers pay an upfront premium at closing and an annual premium, divided into monthly payments.
     • MIP typically remains for the life of the loan unless refinanced to a conventional loan.

  3. USDA and VA Loan Insurance:

     • USDA loans require an upfront guarantee fee and an annual fee (similar to mortgage insurance).
     • VA loans do not require traditional mortgage insurance but include a funding fee that helps offset the cost of the program.

  Why Mortgage Insurance Is Required:

  Mortgage insurance reduces the risk to lenders when borrowers have less equity in the home. It enables borrowers to purchase a home with a lower down payment, making homeownership more accessible.

  How to Avoid or Remove Mortgage Insurance:

  • Conventional Loans: Avoid PMI by making a 20% down payment or request cancellation when you reach 20% equity.
  • FHA Loans: Refinance into a conventional loan once you’ve built sufficient equity.
  • USDA and VA Loans: These require specific fees that may be unavoidable, but VA borrowers may be exempt from the funding fee in certain cases.

  Mortgage insurance can increase your monthly costs, so it’s important to factor it into your overall affordability when buying a home. A mortgage professional can guide you through your options and help you find the best solution for your situation.

• What happens at closing?

  What Happens at Closing, and When Is the Loan Funded?

  Closing, also known as settlement, is the final step in the mortgage process where ownership of the property is legally transferred to the buyer, and all necessary documents are signed. Here’s what happens and when your loan is funded:

  What Happens at Closing:

  1. Review and Sign Documents:

     • You’ll review and sign key documents, including the promissory note (agreeing to repay the loan), the mortgage or deed of trust, and other disclosures.

  2. Pay Closing Costs:

     • Closing costs typically include fees for appraisal, title insurance, escrow services, and prepaid items like property taxes and homeowners insurance.  Some of these costs you may have prepaid prior to closing (for example; credit report and appraisal)

  3. Transfer of Funds:

     • Your down payment and closing costs are paid to the escrow or title company, often via a cashier’s check or wire transfer.

  4. Title Transfer:

     • The title or deed is signed over to you, officially making you the property owner.

  5. Review Closing Disclosure:

     • You’ll confirm the terms of your loan match what was agreed upon, ensuring all figures are accurate.

  When Is the Loan Funded?

  1. For Purchase Loans:

     • The loan is typically funded on the same day as closing or shortly afterward. Once funded, the escrow or title company distributes the funds to the seller, and you officially take ownership of the property.

  2. For Refinances:

     • Federal law requires a three-business-day rescission period (for owner-occupied homes), during which you can cancel the loan. The loan is funded after this period ends.

  Important Notes:

  • Keys to Your Home: In most cases, you receive the keys once the loan is funded, completing the transaction.
  • Preparation: Ensure you’ve reviewed all documents and asked any questions prior to closing to avoid surprises.

  A smooth closing process and timely funding depend on your lender, escrow company, and title company working efficiently together. Be sure to communicate with your mortgage professional to stay informed throughout the process.