Frequently Asked Questions about Mortgage Loans

What do I need to take with me when I apply for a mortgage?

If you have everything with you when you visit with us, you’ll save a good deal of time. You should have:

  • Social security numbers for both you and your spouse if both of you are applying for the loan
  • Copies of your checking and savings account statements for the past 6 months
  • Evidence of any other assets like bonds or stocks
  • Two most recent consecutive paystubs and two most recent W2's detailing your earnings
  • A list of all credit card accounts and the approximate monthly amounts owed on each
  • A list of account numbers and balances due on outstanding loans, such as car loans
  • Copies of your last 2 years’ income tax statements
  • The name and address of someone who can verify your employment.

Your loan officer will inform you if any additional information is needed.

How do I know if I’m ready to buy a home?

  • Do you have a steady source of income (usually a job)?
  • Have you been employed on a regular basis for the last 2-3 years?
  • Is your current income reliable?
  • Do you have a good record of paying your bills?
  • Do you have few outstanding long-term debts, like car payments?
  • Do you have money saved for a down payment?
  • Do you have the ability to pay a mortgage every month, plus the additional costs associated with home ownership (taxes, insurance)?

Are there special mortgages for first time home buyers?

Yes. We offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don’t have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

If you can answer “yes” to these questions, you are probably ready to buy your own home.  Use our simple Mortgage Calculators to determine the size of mortgage you can afford.

How do you determine the maximum loan amount that you can afford?

According to general calculations your mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41% of income.

To assess maximum loan amount, one of the factors we consider is your debt-to-income ratio. This is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include long-term debts like car or student loan or credit card payments, alimony, or child support. We also consider the amount of cash you have available for down payment and closing costs and your credit history.

Use our simple Mortgage Calculators to determine the size of mortgage you can afford.

How large does my down payment need to be?

When considering the size of your down payment, consider that you’ll also need money for closing costs, moving expenses, and – possibly -repairs and decorating. There are mortgage options now available that only require a down payment of 5% or less of the purchase price.

The larger the down payment, the less you have to borrow, and the more equity you’ll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan.

How much money will I have to come up with to buy a home?

This expense depends on a number of factors, not just the cost of the house and the type of mortgage you would like. You should plan to come up with enough money to cover three costs: earnest money – the deposit you make on the home when you submit your offer (to prove to the seller that you are serious about wanting to buy the house), the down payment (a percentage of the cost of the home that you must pay when you go to settlement), and closing costs (the costs associated with processing the paperwork to buy a house.)

You will pay the closing costs at settlement. This amount averages 3-4% of the price of your home. These costs cover various fees and processing expenses. When you apply for your loan, we will give you an estimate of the closing costs, so you won’t be caught by surprise.

What is ”loan to value” (LTV) and how does it determine the size of my loan?

The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay,$2,500 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash home buyers are required to pay out of their own funds. To protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require a mortgage insurance policy.

When do ARMS make sense?

An ARM may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren’t concerned about potential increases in interest rates.

What are discount points?

Discount points allow you to lower your interest rate. They are essentially prepaid interest, With each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

What is an escrow account? Do I need one?

Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for home owner’s insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner’s insurance, make sure you are not penalized for late payments since it is the lender’s responsibility to make those payments.

What is a Good Faith Estimate, and how does it help me?

It’s an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan.  See Borrower’s Rights.

What is PMI?

PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI’s usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.

How does mortgage insurance work? Is it like home or auto insurance?

Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can’t repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.

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