Frequently Asked Questions

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Below, you will find a list of the most common questions that we have encountered in the loan application and the home buying experience. If you have any others, make sure to contact us today by phone or email.

Mortgage Insurance, also known as MI, is a fee that is paid monthly alongside a borrower’s mortgage payments. PMI protects lenders from taking a financial loss if a borrower stops making payments. It also allows borrowers to borrow money that may not be accessible to them otherwise.

Mortgage insurance is required on 100% of mortgage programs that require a small down payment or no down payment at all ($0 down). Where the lender’s exposure is greater than 80% of the purchase price or appraised value (whichever is less in the specific cases) also requires PM.

A common way to avoid mortgage insurance is by using loan programs such as 80/20, in which a 1st mortgage (80% LTV) and 2nd mortgage (20% LTV) are taken on the property with down payment required.

This type of account is set up by the lender in order to collect monthly payments for property taxes, homeowner’s insurance and other items in addition to a borrower’s mortgage payment. In cases like these, the lender pays the bills on the borrower’s behalf when a payment is due.

Escrow accounts can be avoided in times when the borrower has at a minimum of 20% equity in the property or his loan to value (LTV) ratio is under 80%.

Basically, pre-qualification is the judgement of a lender on your ability to make payments on your mortgage – which is based on your verbal statements of income, assets and employment history.

On the contrary, pre-approval is the underwriting decision that you are qualified to and is a subject to the lender’s review of your completed application, the verification of your income, assets, employment history, credit check, appraisal and other factors.

Also known as an Adjusted Rate Mortgage loan, an ARM loan is a loan with a variable interest rate – one that changes monthly depending on the market conditions. The rates are determined by adding a margin to an index on a specific date. Also, there are different options for ARM loans and years. The common ones are 5 – 7 years.

The best way to describe the process of pre-qualification is as a process of determining whether a customer has enough cash and sufficient income to meet the qualification requirements that are set by the lender on a requested loan. As such, this process is subject to verification of the information provided by the applicant.

Points mean ‘percentage points’. Points are used to describe the charge equal to the loan balance. For example, if an upfront cash payment required by the lender is 2 points, it means a charge equal to 2% of the loan balance.

A Jumbo is a type of mortgage that is larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac. The cap is currently $453,100.

A conforming loan is a loan that is eligible for purchase by the two major Federal agencies that buy mortgages, Freddie Mac and Fannie Mae. The loan limit  here is $453,100 for a single-family house.

A good faith estimate refers to the list of settlement charges that a lender is obliged to provide the borrower within the process of receiving the loan application (within three business days).

The Housing and Economic Recovery Act of 2008 (HERA) changed Fannie Mae’s charter to expand the definition of the “conforming” loan. Effective with the November, 2008 release of the conforming loan limits, two sets of limits are provided for first mortgages: 1) general conforming loan limits, and 2) high-cost area conforming loan limits. To implement the expansion to serve high-cost areas, Fannie Mae offers the high-balance loan feature, which is broadly applied across their standard conforming business. Pursuant to the American Recovery and Reinvestment Act, loans originated since 2009 may be delivered to Fannie Mae using the higher of 10 the permanent high-cost area loan limits, or 2) the temporary high-cost area loan limits in place for loans originated in 2008.

Sometimes good credit and steady income are not enough to qualify for a home loan at a commercial lending institution, such as a bank or savings and loan. More rural families and individuals may be eligible to become homeowners with the help of a USDA guaranteed home loan. When the federal government agrees to guarantee a loan, lending institutions can help buyers while incurring less risk. Through USDA’s Guaranteed Rural Housing Loan Program, low- and moderate-income people can qualify for mortgages even without a downpayment. This loan is administered by USDA Rural Development.

In a fully documented loan, both income and assets are disclosed and verified and the income is used in determining the applicant’s ability to repay the mortgage. In it, the formal verification requires the borrower’s employer to verify the employment and the borrower’s bank to verify deposits. The alternative documentation is designed to save time and accepts copies of the borrower’s original bank statements, W-2s and paycheck stubs.

The mortgage broker is in charge of counselling you about the loans available for your specific case as well as processing them and putting the entire list of information about your transactions, appraisal, verification of employment etc.

A lender, on the other hand, is the person “underwriting” the loan or in other words deciding whether or not you are an acceptable risk.

Rate lock is a contractual agreement that comes between a lender and a buyer. There are four components to it including the loan program, the interest rate, the points and the length of the lock.

People typically refinance in order to save money. They do this by obtaining a lower interest rate or by reducing the term of the loan. Refinancing is also a great way to convert an adjustable loan to a fixed on or to consolidate debts.

If you are looking to save money, refinancing is a tricky decision because of the several reasons to refinance. However, the best thing is to:

  • Calculate the total cost of the refinance.
  • Calculate the monthly savings.
  • Divide the total cost of the refinance by the monthly savings.

Doing this will get you the “break even” time – if you own the house longer than this, you will save money by refinancing.

At the end of the day, refinancing is a complex subject which is why it’s best to consult a professional like our team at Hill Mortgage. Contact us today and a Hill Mortgage loan officer will explain refinancing to you in detail.