Frequently Asked Questions
Traditional loans require documents that verify your employment, income and assets, and may include:
- Pay stubs for the last two months
- W-2 forms for the past two years
- Bank statements for the past two or three months
- One to two years of federal tax returns
- A signed contract of sale (if you've already chosen your new home)
- Authorization to obtain a credit report
The NOTE Rate and APR are meant to be a tool to compare loans with very differing figures or offerings which make it otherwise hard to compare. But, you still cannot go for the lowest APR all the time and be making the best decision. A High cost loan to buydown the NOTE Rate will result in a lower overall APR; however you may sell in 10yrs and lose money by taking the lower APR deal. Get a trusted advisor who you feel has your best interests in mind. The one who explains these things openly, honestly and in sufficient detail should be the lender of choice.
A pre-paid item is something that MUST be paid, in advance of, (or in actuality, concurrently with) a mortgage transaction being completed, regardless of the lender (or broker) you’re dealing with. This is a **non-negotiable, mandatory item and is tied more to the type and conditions of your loan, versus the lender arranging your financing. For instance, an FHA loan might “require you” to have an escrow account where you pay property taxes and hazard insurance to the lender along with your principal and interest payment, where a conventional loan may not. In this scenario, you’ll have certain pre-paids associated with that FHA loan that wouldn’t be associated with a conventional loan that doesn’t require an escrow account. Points, (or Loan Origination fees), on the other hand, are **negotiable, non-mandatory items, that you pay to the entity arranging financing for you. This “fee” is charged as the total or partial compensation for their work, or, in order to get you a particular interest rate. Pre-paid items are either a pro-rated portion of a given mandatory expense associated with owning the property or a pre-determined advance amount of a given mandatory expense. Points, in contrast, are “percentages of the loan amount” and are charged in factors/multiples of eighths of a percent, (or .125%) of the loan amount.
Typically when you lock a loan for the purchase of a home, the lender will usually do a lock period that coincides with your close date. Loan locks are available for time periods of 15, 30, 60, 90 and some extended periods up to 1 year. The longer you lock, the higher the rate. To keep your rate guarantee, the loan must fund before that lock expires.
Homeowners are required to pay property taxes along with homeowners insurance to protect their home. Depending on the state that you live and your loan-to value, you will have the option of establishing an impound(or escrow) account or paying them on your own. With an impound account, your monthly payment will include a pro-rata payment of your taxes and insurance bills. When your taxes or property insurance are due, the lender or servicer will pay them for you.
Your mortgage lender may require or suggest that you set up an escrow account. With an escrow account, you pay a fixed amount each month in addition to your mortgage payment to an account—the escrow account—that is maintained by the lender. The lender then draws on that account to pay property taxes and homeowners insurance as those bills become due. Escrow accounts ensure that money will be available for these types of payments, which are more than paying toward the principal and interest on your loan.
Private mortgage insurance applies to borrowers who make a down payment that is less than 20 percent of the selling price of the mortgage. Mortgage lenders often require a borrower to acquire another type of insurance, which is private mortgage insurance. This insurance covers the lender in the unfortunate event that the borrower is not able to repay the loan and the lender is not able to recover costs of the foreclosure and the sale of the property.
When you pay a discount point, you are essentially paying part of your interest to the lender up front. This will lower your interest rate — as well as your monthly payment — over the life of the loan. One discount point is typically equal to 1% of the loan amount. For example, one point on a $100,000 loan would require payment of $1,000 at closing. Generally speaking, the longer you plan to remain in a property or hold your mortgage, the more advantageous it is to pay points. There is no requirement to pay discount points; whether or not you decide to pay points is completely up to you.
Three types of mortgage and homeowners costs may be tax-deductible: discount points, interest paid on a home loan or home equity loan and property taxes. After the year of sale, your mortgage interest and annual property taxes are the only deductible costs. For a refinanced loan, points must be deducted over time. Consult your tax advisor for advice about your situation.