May 23, 2017

Frequently Asked Questions

We put together these questions and answers to give you some of the basic knowledge on the mortgage process and some of the key terminology. If you have more specific questions, please don’t hesitate to give us a call – or click here to send us your questions. We promise to get back to you quickly.

What is the interest rate today?

Rates are subject to change at any time and may change multiple times a day making it difficult to keep rates updated. Please contact a Linda or Tim for current mortgage rates for your loan amount and loan situation. Go to our Contact Us page for all our information.

What is APR?

APR is a calculated rate that not only includes the interest rate but also takes into account other upfront charges required to finance the loan. That is why APR is generally higher than the interest rate because of the upfront charges (origination fee, discount points, processing, underwriting, closing, mortgage insurance).

To calculate the APR, the lender fees (fees required to finance the loan) are incorporated into the interest rate. This is done by amortizing the fees out over the life of the loan as if they were additional payments, and then calculating a new rate. This has nothing to do with calculating the monthly payments it is just a measurement of the total cost of the loan.

As useful as the APR can be, it has its limitations. APR spreads the fees paid upfront over the life of the loan. So the comparison of APR is only accurate if you plan to keep the mortgage for the entire length of the loan. Since most borrowers do not keep their loan for the full period (they typically refinance or move), the APR can make some loans look artificially better.

The other problem with APR calculations is that different lenders may include different fees in their APR calculations for various loan programs. Remember to always ask what is included and not included in your APR.

What is your mortgage lending area?

We lend primarily in Utah but are also licensed in Idaho, Oregon and Texas. Linda grew up in Texas and has lots of friends there so when she goes home she can mix business with pleasure.

What is a pre-qualification?

Pre-qualification is based on a verbal estimate by the borrower of their household income and monthly obligations. Based on these figures, we can give an estimate for which the borrower could expect to qualify. Pre-qualification is based on the borrower’s estimate and not on verified figures. Other factors, such as employment history and credit history, are also not verified for a pre-qualification.

What does the pre-approval process entail? What is the fee for this? How long does it take to become pre-approved?
The next step after pre-qualification would be to apply to be pre-approved. For pre-approval, we will pull a credit report to determine your credit score and you will have to give us certain documents.

  • Two most current paystubs for all borrowers
  • Two most current bank statements
  • For a refinance, we will also need your latest mortgage statement

If you are buying a new home, we can tell you how much home you can be approved for, your monthly payments, and which type of loan is best for you. The next step is to find a home and make an offer. Once we receive the purchase contract, we will order the appraisal to confirm the value of the property and stay the real loan process.

When can I lock into an interest rate and for how long is it good?

An interest rate can be locked for 30, 45 or 60 days depending on the type of loan and how long we think it will take. If you are buying a new home, you cannot lock a rate until you have a purchase contract. Once the interest rate is locked it can’t be lowered for any reason if rates drop.

What are points?

Points, also referred to as discount points, are an upfront interest paid to buy a lower rate for the full term of the mortgage. A point is expressed as a percentage of the total loan amount. For example on a loan amount of $100,000, one point would be equal to $1,000 or two points would be equal to $2,000. This amount would be paid at closing in addition to the down payment and other closing costs.

Usually, for each point on a 30-year loan, your interest rate is reduced by about 1/8th (or .125) of a percentage point. Tip: Usually, the longer you plan to stay in your home, the more sense it makes to pay discount points.

To determine if it is beneficial to you to pay points, you need to first calculate the principal and interest payment for the loan amount based on a rate with 0 points and then also, a payment based on a rate with points. The difference in the two payments is the amount you will save by paying points.

The next step is take the total cost of the points and divide by your monthly savings. This figure shows you how many months it will take to recoup the costs of the points. If you plan on being in your home longer than it takes to recoup the costs and can afford to pay the points, then it is an advantage to you. However if not, then you are better off to take a rate without points.

Is an appraisal required?

Yes, an appraisal is required for a purchase transaction or to refinance a mortgage.

What is the minimum down payment required?
The minimum down payment for conventional loans is 5%. The minimum for an FHA loan is 3.5%. Programs such as VA and USDA Rural Development may allow no down payment. Higher down payments may be required in situations involving, but not limited to:

  • When purchasing investment properties
  • Distressed markets

The underwriter will want to know how much money you plan to put down and the source of those funds. Sources you may use include savings, stocks and bonds, pension funds, etc. These funds should be there for at least 60 days. If less than 60 days, the underwriter will require you to document a money trail.

You may also use a gift of money from a family member. If you do this, you will need to present a letter that states the amount of the gift and the gift does not have to be repaid.

What is the difference between a fixed or adjustable interest rate mortgage?

You can choose a mortgage with an interest rate that is fixed for the entire term of the loan or one that changes throughout. A fixed-rate loan gives you the security of knowing that your interest rate will never change during the term of the loan.

An adjustable-rate mortgage (called an ARM) has an interest rate that will vary during the life of the loan, with the possibility of both increases and decreases to the interest rate and consequently to your mortgage payments. Adjustable Rate Mortgages are a good product for the borrower who is somewhat transient in their job or if the home is a starter home with plans for a family in the near future, or if downsizing is a certainty within the ARM adjustment timeframe.

What is Private Mortgage Insurance (PMI)? Is it required for my loan?

Private Mortgage Insurance (PMI) is to protect the lender in case of default. Its policies are designed to reimburse a mortgage lender up to a certain amount if you default on your loan and your house isn’t worth enough to entirely repay the lender through a foreclosure sale.

PMI is required for all FHA loans and has both an upfront fee and a monthly fee. The upfront fee can be financed into the loan. The monthly PMI is included in your monthly payments. You will need to be approved with the total payment of principal, interest, taxes, hazard insurance and PMI. PMI is required for five years on FHA loans.

PMI is required for all conventional mortgage loans with less than 20% down payment. This can be paid upfront or in your monthly payments. You can normally cancel the PMI on conventional loans once the equity in your home reaches 20%.

VA has a VA Funding Fee which is paid upfront and can be financed into the loan. The Funding Fee is reduced for Veterans who have a VA disability.

How long is required that I be employed with my employer?

Generally two years with the same employer or in the same line of work is considered stable work history. Also, schooling in a field related to your current employment is considered to be in the same line of work. Other situations will be reviewed on a case-by-case basis.

What is considered acceptable credit history?

Generally any payments that have been past due over thirty (30) days in the twelve (12) months may cause issues in getting a home loan. Most loans now require at least a 640 credit score. For conventional, they have what is called “risked based” fees. They will charge more for those with under a 720 credit score.

What are closing costs?

If you are buying a home, in addition to your down payment, you will need cash for the various fee and prepaid reserves. Closing costs range from 2 to 3 percent of the loan amount. This estimate depends on numerous factors, such as whether your property is a purchase or refinance transaction, the amount of the loan, the location of the property, etc.

In a purchase transaction, it is not unusual for your real estate agent to negotiate seller concessions to help cover some of the closing costs which include:

  • Title insurance fee
  • Recording
  • Loan Origination Fee
  • Processing and Underwriting
  • Discount Points (interest paid up front to lower the interest rate)
  • Appraisal
  • Credit
  • Prepaid escrow reserves for taxes and insurance

What is an origination fee?

An origination fee is a percentage of the loan amount that is charged to the borrower to originate the mortgage. We can structure your loan with or without an origination. Generally, a loan with no origination fee is at a slightly higher interest rate.

What is escrow?

Escrow is where 1/12 portion of the real estate taxes and homeowner’s insurance on your property is included in your monthly payment. They are held in an escrow account until they come due and the mortgage company pays them from this account.

To calculate how much this will add to your monthly payment, calculate the total amount due in a year for real estate taxes and homeowners insurance and divide that number by twelve.

Is it required for my loan?

You may waive the requirement to escrow for homeowners insurance for any loan. However there are additional upfront fees to waive escrow for real estate taxes on your primary residence. This fee is generally .25% of the loan amount. Investment properties are required to escrow real estate taxes.

How long does it generally take to complete the process and close?

The mortgage process generally takes between 15-45 days with 30 days being the average. Since we rely on the services of others and many different situations may arise beyond our control, it sometimes may take longer. You can help move the process along by being responsive when asked for documentation or verifications. Please be assured we process all loans as quickly as possible.