Your eligibility for a mortgage loan is dependent on several things. Some of the factors include your credit history, your ability to repay the loan, the loan amount, and the value of the collateral you are financing. Going through a prequalification or preapproval will help you determine your qualifications as a borrower.
A mortgage lender or broker who pre-qualifies a borrower would request information such as debt, income, and assets. They may also request documentation to support the information provided. They can then estimate the loan amount the borrower might qualify for.
At the pre-approval stage, the lender or broker sends the information and documentation to an underwriter who in turn will approve or deny the application. The approval will be subject to identifying a property and collecting relevant documentation such as an appraisal and title report.
Pre-approvals are often preferred by sellers when considering an offer. Ask your seller or Realtor®. You can start the pre-approval process today by clicking here.
APR stands for Annual Percentage Rate. APR takes into account the points and other finance charges. It helps borrowers understand the true cost of a loan while preventing lenders and brokers from hiding fees and advertising misleading interest rates.
The costs included in the APR include points (both discount and origination points. 1 point equals 1% of the loan amount), loan processing fee, underwriting fee, administrative fee, settlement fee, document preparation fee, pre-paid interest, and private mortgage insurance.
The rate of interest depends on the type of mortgage a borrower chooses. There are fixed rate mortgages and those interest rates will not change over the term of the loan. However, for an ARM (adjustable rate mortgage), the rate is subject to change after a certain period of time and over future intervals.
An appraisal is typically required to be completed during the application process. The appraisal report is the determination of the home’s fair market value. The lender also uses it to confirm the condition of collateral being used in the transaction.
PMI is provided by a private mortgage insurance company when the loan amount is more than 80% of the value of the home. Value is determined by the lesser of the appraised value and sales price in purchase transactions (except in NY where appraised value is used exclusively when determining the need for PMI). BFR has lenders that offer lender-paid mortgage insurance, so please ask your loan officer about this option. We also have 80/10/10 “piggy back” mortgages to avoid mortgage insurance. Avoiding mortgage insurance is sometimes recommended, however FHA insured loans require mortgage insurance premiums.
The documents required for getting a mortgage vary from borrower to borrower. The most commonly requested documents are pay stubs, W-2s, tax returns, banks statements and photo ID.
In the case of a purchase transaction, at the time of closing, the transfer of ownership takes place. The borrower signs the promissory note (note) and the security instrument (mortgage). The closing involves attorneys, buyers, sellers, real estate agents, and the title company. This finalizes the transaction and you will be given a folder of the closing documents for your records.
The closing stage includes fees like attorney fees, title insurance fees, documentation fees, appraisal fees, and pre-paid interest fees. The overall cost varies depending upon the type of mortgage a consumer chooses.
These are the questions that are most asked by borrowers. If you have any other questions, please feel free to contact us.