FAQ
Q1: What does it mean by “Lock-In” the rate?
Locking a mortgage interest rate means the lender guarantees a specific rate for a set period, protecting the
borrower from rate increases while the loan is processed. This ensures that the borrower’s rate and monthly
payments remain consistent, even if market rates rise before the loan closes. However, if rates drop, the
borrower typically cannot benefit from the lower rate unless certain criteria are met based on the lender’s
lock policy. The rate lock provides financial predictability and peace of mind during the home-buying process.
Q2: Should I pay points to lower my interest rate?
When deciding whether to pay points to lower your interest rate, it's important to consider your financial
plan. For instance, if you have the option between a 6% interest rate with a monthly principal and interest
(P&I) payment of $2,000 or a 5.875% rate with a $1,000 points charge and a $1,950 monthly P&I payment, you'd
save $50 per month. The upfront cost of the points would be recaptured in 20 months. If you don't plan to
refinance, sell the property, or pay off the mortgage within that time, paying points could be a smart choice
for long-term savings.
Q3: What is the difference between a mortgage interest rate and an APR?
The mortgage interest rate is the percentage of the loan amount that the lender charges for borrowing money,
representing the cost of the loan itself. It directly affects your monthly mortgage payments but does not
include any fees or other costs associated with the loan.
The APR (Annual Percentage Rate), on the other hand, includes the mortgage interest rate as well as additional
costs such as origination fees, points, mortgage insurance, and other closing costs. The APR provides a more
comprehensive view of the true cost of borrowing
over the life of the loan.
Q4: What are the closing costs?
Closing costs are the fees and expenses that borrowers must pay when
finalizing a mortgage. These costs may include:
- Underwriting Fee: a nonrecurring fee that a lender charges to evaluate a
loan
application for approval.
- Discount Points: Optional fees paid to reduce the mortgage interest rate.
- Appraisal Fees: Costs for having the property professionally appraised,
usually paid during the loan processing when the appraisal is performed.
- Title Insurance and Search Fees: Fees for ensuring the property’s title is
clear of any liens or legal issues. You have the right to choose the title company on your own.
- Attorney Fees: Charges for legal services involved in the transaction, if
applicable.
- Survey Fees: Costs for verifying the property’s boundaries. In some states,
such as Florida and Texas, a survey is required, while in others it may be optional.
- Prepaid Expenses: Advance payments for items like property taxes,
homeowner's
insurance, and interest.
- Recording Fees: Costs for filing the mortgage with the local government.
- Transfer Tax: Government-imposed costs for purchasing or refinancing the
property.
These costs typically range from 2% to 5% of the loan amount and are usually paid
at
the closing of the mortgage.
Q5: What are the pre-paid items?
Pre-paid items are expenses that borrowers must pay in advance at the
mortgage closing. These cover costs that will accrue over time and are not directly part of the loan
itself.
Common pre-paid items include:
- Property Taxes: Any property taxes due within 60 days after the loan
closing.
- Homeowner’s Insurance: For a purchase transaction, a full year's insurance
premium for the new home; for a refinance transaction, any renewal premium due within 60 days after
closing.
- Interest: Prepaid interest charges covering the period from the closing
date
to the end of the month. Regular mortgage payments will start from the first full month, with payments
due
on the 1st of the following month.
- Mortgage Insurance: If applicable, private mortgage insurance (PMI) or the
upfront mortgage insurance premium (MIP) for your loan.
- Initial Escrow Deposit: If you choose to have an escrow account for future property tax and home
insurance payments, an initial deposit is required to ensure there are sufficient funds to cover these
expenses when they become due.
Q6: For Refinance, does “No Closing Cost” mean that I don’t need to bring any money
to loan closing?
In a no-closing-cost refinance, you receive a lender credit that covers transaction-related costs such as
broker compensation, credit report fees, appraisal fees, title company charges, government recording fees, and
transfer taxes. However, you may still need to pay prepaid items like interest, property taxes, and home
insurance premiums, which are not part of the loan transaction costs. Additionally, you'll need to cover any
difference between the new loan amount and the payoff amount owed to the previous lender. You have the option
to roll these additional funds into your new loan, which means you won't need to bring money to closing, but
your new loan amount will be higher.
Q7: What documents do I need to prepare for my loan application?
When preparing for a loan application, you'll typically need to provide a
variety of documents to verify your financial status and support your application. Here’s a list of
commonly
required documents:
Personal Identification:
-
Government-issued ID (e.g., driver’s license or passport)
-
Legal residence document, if applicable (e.g., Green Card, H1B I-797, EAD card)
Proof of Income:
-
For W-2 Income:
-
Recent pay stubs (usually for the last 30 days)
-
W-2 forms (for the last two years)
-
For Self-Employed:
-
Personal tax returns (for the last two years)
-
Business tax returns (for the last two years)
Bank Statements:
-
Recent bank statements (typically for the last two months) for accounts used for closing
(checking,
savings, etc.)
-
Source of earnest money deposit (for purchase transactions only)
Property Information (if applicable):
-
If You Own Other Properties:
-
Mortgage statements for each property with a mortgage
-
Property tax bills for each property
-
Valid homeowners insurance for each property
-
HOA bills for each property, if applicable
-
If Using Rental Income:
-
Most recent year’s tax return
For Purchasing a New Home:
-
Purchase contract and any contract addendum
These documents help the lender assess your financial situation and ability to
repay
the loan. Additional documentation might be required based on your specific situation.
Q8: How the lender determine my credit score?
Lenders pull credit reports from major credit bureaus—Equifax, Experian, and TransUnion. The credit scoring
model aggregates the data from these reports to calculate your credit score, reflecting your creditworthiness.
The scoring model used by the mortgage industry may differ from the one used for credit cards. For mortgage
applications, the middle score from the three bureaus is used, and if there is more than one borrower, the
lower score among them will be used.
Q9: Can I waive the appraisal?
The appraisal requirement is determined by the loan program you select. For example, with a conventional loan,
the Fannie Mae/Freddie Mac Automated Underwriting System (AUS) will determine if the appraisal can be waived.
If the property price or value you provide aligns with the database expectations and the AUS report indicates
a waiver option, the appraisal can be waived.
Q10: What is PMI (Private Mortgage Insurance)?
Private Mortgage Insurance (PMI) is required by lenders when a borrower makes a down payment of less than 20%
of the home's purchase price. It protects the lender in case of borrower default. PMI can be paid monthly or
as a one-time upfront premium, which increases the borrower’s monthly mortgage payment. PMI is automatically
removed when the borrower’s equity in the home reaches 22%. However, you can request its removal once your
equity reaches 20% of the original purchase price, or through refinancing if increased market value creates
more than 20% equity.
Q11: What should I expect at the closing?
The closing disclosure, which details all parties' charges, will be sent to you for review at least three days
before closing. You’ll need to wire the remaining down payment and closing costs to the settlement company on
or before the closing date. At the closing, you’ll review and sign various documents, such as the warranty
deed and loan closing package. We recommend bringing two forms of photo ID and personal checks in case of any
last-minute changes. Ownership of the property will be officially transferred to you, and you’ll receive the
keys. The transaction will be recorded with the local government to finalize the process. Your closing agent
or attorney will guide you through each step.
Q1: What does it mean by “Lock-In” the rate?
Locking a mortgage interest rate means the lender guarantees a specific rate for a set period, protecting the
borrower from rate increases while the loan is processed. This ensures that the borrower’s rate and monthly
payments remain consistent, even if market rates rise before the loan closes. However, if rates drop, the
borrower typically cannot benefit from the lower rate unless certain criteria are met based on the lender’s
lock policy. The rate lock provides financial predictability and peace of mind during the home-buying process.
Q2: Should I pay points to lower my interest rate?
When deciding whether to pay points to lower your interest rate, it's important
to consider your financial plan. For instance, if you have the option between a 6% interest rate with a
monthly principal and interest (P&I) payment of $2,000 or a 5.875% rate with a $1,000 points charge and a
$1,950 monthly P&I payment, you'd save $50 per month. The upfront cost of the points would be recaptured in 20
months. If you don't plan to refinance, sell the property, or pay off the mortgage within that time, paying
points could be a smart choice for long-term savings.
Q3: What is the difference between a mortgage interest rate and an APR?
The mortgage interest rate is the percentage of the loan amount that the
lender charges for borrowing money, representing the cost of the loan itself. It directly affects your
monthly mortgage payments but does not include any fees or other costs associated with the loan.
The APR (Annual Percentage Rate), on the other hand, includes the mortgage
interest rate as well as additional costs such as origination fees, points, mortgage insurance, and other
closing
costs. The APR provides a more comprehensive view of the true cost of borrowing over the life of the loan.
Q4: What are the closing costs?
Closing costs are the fees and expenses that borrowers must pay when
finalizing a mortgage. These costs may include:
- Underwriting Fee: a nonrecurring fee that a lender charges to evaluate a
loan
application for approval.
- Discount Points: Optional fees paid to reduce the mortgage interest rate.
- Appraisal Fees: Costs for having the property professionally appraised,
usually paid during the loan processing when the appraisal is performed.
- Title Insurance and Search Fees: Fees for ensuring the property’s title is
clear of any liens or legal issues. You have the right to choose the title company on your own.
- Attorney Fees: Charges for legal services involved in the transaction, if
applicable.
- Survey Fees: Costs for verifying the property’s boundaries. In some states,
such as Florida and Texas, a survey is required, while in others it may be optional.
- Prepaid Expenses: Advance payments for items like property taxes,
homeowner's
insurance, and interest.
- Recording Fees: Costs for filing the mortgage with the local government.
- Transfer Tax: Government-imposed costs for purchasing or refinancing the
property.
These costs typically range from 2% to 5% of the loan amount and are usually paid
at
the closing of the mortgage.
Q5: What are the pre-paid items?
Pre-paid items are expenses that borrowers must pay in advance at the
mortgage closing. These cover costs that will accrue over time and are not directly part of the loan
itself.
Common pre-paid items include:
- Property Taxes: Any property taxes due within 60 days after the loan
closing.
- Homeowner’s Insurance: For a purchase transaction, a full year's insurance
premium for the new home; for a refinance transaction, any renewal premium due within 60 days after
closing.
- Interest: Prepaid interest charges covering the period from the closing
date
to the end of the month. Regular mortgage payments will start from the first full month, with payments
due
on the 1st of the following month.
- Mortgage Insurance: If applicable, private mortgage insurance (PMI) or the
upfront mortgage insurance premium (MIP) for your loan.
- Initial Escrow Deposit: If you choose to have an escrow account for future property tax and home
insurance payments, an initial deposit is required to ensure there are sufficient funds to cover these
expenses when they become due.
Q6: For Refinance, does “No Closing Cost” mean that I don’t need to bring any money to
loan closing?
In a no-closing-cost refinance, you receive a lender credit that covers
transaction-related costs such as broker compensation, credit report fees, appraisal fees, title company
charges, government recording fees, and transfer taxes. However, you may still need to pay prepaid items
like
interest, property taxes, and home insurance premiums, which are not part of the loan transaction costs.
Additionally, you'll need to cover any difference between the new loan amount and the payoff amount owed to
the previous lender. You have the option to roll these additional funds into your new loan, which means you
won't need to bring money to closing, but your new loan amount will be higher.
Q7: What documents do I need to prepare for my loan application?
When preparing for a loan application, you'll typically need to provide a
variety of documents to verify your financial status and support your application. Here’s a list of
commonly
required documents:
Personal Identification:
-
Government-issued ID (e.g., driver’s license or passport)
-
Legal residence document, if applicable (e.g., Green Card, H1B I-797, EAD card)
Proof of Income:
-
For W-2 Income:
-
Recent pay stubs (usually for the last 30 days)
-
W-2 forms (for the last two years)
-
For Self-Employed:
-
Personal tax returns (for the last two years)
-
Business tax returns (for the last two years)
Bank Statements:
-
Recent bank statements (typically for the last two months) for accounts used for closing
(checking,
savings, etc.)
-
Source of earnest money deposit (for purchase transactions only)
Property Information (if applicable):
-
If You Own Other Properties:
-
Mortgage statements for each property with a mortgage
-
Property tax bills for each property
-
Valid homeowners insurance for each property
-
HOA bills for each property, if applicable
-
If Using Rental Income:
-
Most recent year’s tax return
For Purchasing a New Home:
-
Purchase contract and any contract addendum
These documents help the lender assess your financial situation and ability to
repay
the loan. Additional documentation might be required based on your specific situation.
Q8: How the lender determine my credit score?
Lenders pull credit reports from major credit bureaus—Equifax, Experian, and
TransUnion. The credit scoring model aggregates the data from these reports to calculate your credit score,
reflecting your creditworthiness. The scoring model used by the mortgage industry may differ from the one
used
for credit cards. For mortgage applications, the middle score from the three bureaus is used, and if there
is
more than one borrower, the lower score among them will be used.
Q9: Can I waive the appraisal?
The appraisal requirement is determined by the loan program you select. For
example, with a conventional loan, the Fannie Mae/Freddie Mac Automated Underwriting System (AUS) will
determine if the appraisal can be waived. If the property price or value you provide aligns with the
database
expectations and the AUS report indicates a waiver option, the appraisal can be waived.
Q10: What is PMI (Private Mortgage Insurance)?
Private Mortgage Insurance (PMI) is required by lenders when a borrower makes
a
down payment of less than 20% of the home's purchase price. It protects the lender in case of borrower
default. PMI can be paid monthly or as a one-time upfront premium, which increases the borrower’s monthly
mortgage payment. PMI is automatically removed when the borrower’s equity in the home reaches 22%. However,
you can request its removal once your equity reaches 20% of the original purchase price, or through
refinancing if increased market value creates more than 20% equity.
Q11: What should I expect at the closing?
The closing disclosure, which details all parties' charges, will be sent to
you
for review at least three days before closing. You’ll need to wire the remaining down payment and closing
costs to the settlement company on or before the closing date. At the closing, you’ll review and sign
various
documents, such as the warranty deed and loan closing package. We recommend bringing two forms of photo ID
and
personal checks in case of any last-minute changes. Ownership of the property will be officially transferred
to you, and you’ll receive the keys. The transaction will be recorded with the local government to finalize
the process. Your closing agent or attorney will guide you through each step.