Frequently Asked Questions
Typically, the first step in the mortgage process is getting pre-qualified. During a pre-qualification, the lender will ask the borrower for brief information related to income, expenses and debt. A pre-qualification is simply an estimate for the loan amount the borrower may qualify for. A pre-qualification can help a borrower appear more serious to a real estate agent during the home-buying process.
Getting pre-approved is typically the second step in the mortgage process. A pre-approval is a more in-depth analysis of a borrower’s income, expenses and credit, and helps the lender understand the borrower’s ability to pay back a loan. A pre-approval is a conditional commitment stating the exact loan amount. This gives a borrower a better understanding on how much house he/she can afford.
A mortgage pre-approval helps a borrower understand how much house he/she can afford. The lender analyzes a client’s income and expenses to better understand what percentage of their income can be applied towards a monthly mortgage payment.
Visit the calculator page to estimate your monthly mortgage payment.
LTV stands for loan-to-value. This is the ratio of the mortgage amount to the appraised property value. A low loan to value means the borrower is obtaining a small loan compared to the value of the property, and vice versa. LTV helps the lender asses risk and determine which loan program and the interest rate the borrower may qualify for. A loan-to-value percentage also determines the necessary down payment. For example, if a borrower’s LTV is 80%, then the necessary down payment is 20%
Mortgage points, also known as points or discount points, are a one-time fee that a borrower can choose to pay to get a lower interest rate and lower monthly mortgage payment. One mortgage point equals one percent of the loan amount and will usually result in a rate that is one-eighth to one-quarter of a percent lower.
The interest rate is the actual cost to borrow the principal loan amount. The APR includes the interest rate as well as other loan origination fees. An APR is a great way for a borrower to compare rates and upfront costs. Both the interest rate and APR are expressed as a percentage.
A fixed rate is set and does not change for the entire loan term. A borrower’s monthly payments remain the same over the life of the loan with a fixed interest rate. An ARM has an interest rate that is fixed for a set number of years and then adjusts thereafter. For example, if a borrower has a 5/1 ARM, the rate will be fixed for 5 years and adjusts on the 6th year and every year thereafter. The ARM interest rate adjusts based on a market index such as the LIBOR or 1 Year Treasury, the margin, interim caps and lifetime caps.
Your monthly mortgage payment typically consists of principal, interest, taxes and insurance. This is also referred to as PITI. Principal refers to the amount of borrowed money. Typically, at the beginning of the life of the loan, the majority of your monthly payment is applied toward interest. Towards the end of the loan term, the bulk of the monthly payment is applied to the principal amount. Interest is the rate the lender charges for one to borrow money. Taxes are related to real estate taxes, which depends on the value of the property. Lastly, insurance relates to homeowner’s insurance and sometimes Private Mortgage Insurance (PMI). Homeowner’s insurance helps protect the property against damages. The portion of the monthly payment designated for taxes and insurance is held in an escrow account and the lender pays the tax and insurance bills on behalf of the borrower when they are due.