Frequently Asked Questions

Frequently Asked Questions

FAQ

Mortgage Basics

What’s a Mortgage? A mortgage is a loan that assists you with the purchase of real estate. It is an agreement between you (the borrower) and a lender (bank, mortgage company, or credit union) to grant you money to purchase real estate. There is a contractual agreement on how the money is to be repaid. If for some reason the borrower does not pay off the loan or does not make payments, the lender has the right to take the property. Each loan is different based on factors and agreements.

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Check your credit report


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What should I do first to get a mortgage?

  • Schedule a consultation
  • Check your credit report. Your credit has a huge influence on the type of loan the lender can provide.
  • Get pre-approved. Getting preapproved means that a lender has made an offer on the loan agreement. This pre-approval makes it easier for you and your realtor to see what price range you are looking for when searching for your new piece of real estate.

How do mortgage brokers work?

A mortgage broker is here to assist in searching for the best lender for you based on certain criteria and works out the details of the loan. A broker has access to several lenders, so they will be able to present you with an array of loan products and terms. Brokers also help you save time by managing the loan approval process.

What documents do I need to prepare for my loan application?

Your Current Property

  • Copy of signed sales contract including all riders
  • Verification of the deposit you placed on the home
  • Names, addresses, and telephone numbers of all realtors, builders, insurance agents, and attorneys involved.
  • Copy of listing sheet and legal description if available. If the property is a condominium, please provide condominium declaration, by-laws, and most recent budget.

Your Proof of Income

  • Copies of your paystubs from the most recent 30-day period and year-to-date
  • Copies of your W-2 forms for the past two years
  • Names and addresses of all employers for the last two years
  • Letter explaining any gaps in employment for the last two years
  • Work visa or green card if applicable

If self-employed or receive commission or bonus, interest/dividends, or rental income:

  • Provide full tax returns for the last two years in addition to year-to-date Profit and Loss statement. A full tax return statement including attached schedules and extension, if applicable.
  • K-1’s for all partnerships and S-Corporations for the last two years.
  • Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) including all schedules, statements, and addenda for the last two years.

 

If using Alimony or Child Support to qualify

  • Provide divorce decree/court order stating amount
  • Proof of receipts of funds for the past year

If you receive Social Security income, Disability, or VA Benefits

  • Provide award letter from agency or organization

Proof of source of funds or down payments

  • Sale of your existing home – Provide a copy of signed sales contract on your current residence and statement or listing agreement if unsold. At closing, a settlement/ closing statement must be provided
  • Savings, checking, or money market funds – provide bank statements for the past 3 months
  • Stocks and bonds – Provide copies of your statement from your broker or copies of your certificates
  • Gifts – If gifted with funds towards your cash to close, provide Gift Affidavit and proof of receipt of funds

Debt or Obligations

  • Provide a list of all names, addresses, account numbers, balances, and monthly payments for all current debts and copies of the last three-monthly statements
  • Provide a list of names, addresses, account numbers, balances, and monthly payments for mortgage holders and/or landlords for the previous two years
  • If paying alimony or child support, include marital settlement/court order stating the terms of the obligation
  • Check to cover application fee(s)

How is my credit is judged by lenders?

Using a credit scoring system, a statistical analysis is performed to determine the creditworthiness of a person. The credit score is based on information such as bill-paying history, the number and types of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts. you will repay a loan and make a payment when due.

Please email the above documents to meyer@EpicMortgage.net or upload documents now.


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General Questions

When should I refinance?

The ideal time to refinance is when the mortgage rates are typically 1- 2% lower than the current rate on your loan, resulting in lower monthly mortgage payments. Example: Your payment, excluding taxes and insurance, would be about $770 on a $100,000 loan at 8.5%; if the rates were lowered to 7.5%, your payment would then be $700, saving $70 per month. Your saving depends on your income, budget, loan amount, and interest rate change.

What are points?

  • A point is a percentage of the loan. For example: 1 point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basic points = 1 point or 1% of the loan amount.

Should I pay points to lower my interest rate?

Yes, if you plan to stay in the property for at least a few years. Paying discount points to lower the loan’s interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount point that you paid up- front.

What is an APR?

The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage because it considers points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the “true cost of the loan”. This prevents lenders from advertising a low rate and hiding fees.

The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan.  The following fees are generally included in the APR:

  • Points – both discount points and origination points
  • Pre-paid interest or interest paid from the date the loan closes to the end of the month
  • Loan processing fee
  • Underwriting fee
  • Document preparation fee
  • Private mortgage insurance
  • Escrow Fee

What does it mean to lock the interest rate?

Mortgage rates are determined by several factors such as the circumstances of the lender’s mark, for example overall economic health, and personal aspects. In conclusion, the rate is constantly changing. If interest rates rise sharply during the application process it can increase the borrower’s mortgage payment unexpectedly. Therefore, a lender can allow the borrower to “lock-in” the loan’s interest rate guaranteeing that rate for a specified period, often 30-60 days. This may include an additional fee.

What can I do to improve my credit score?

Credit scoring models are complex and often vary among creditors based on the type of credit. Based on your credit application, the creditor can see the factors that are affecting your score and will be able to evaluate the score to understand what needs to be done to improve your score. Nevertheless, scoring models generally evaluate the following types of information in your credit report:

  • Paying bills on time
  • Not having outstanding debt
  • Only running credit score when needed. Running the score too many times will lower it
  • Not having too many credited accounts

To improve your credit score under most models:

  • Pay your bills on time
  • Pay off outstanding balances
  • Do not take on new debt

What is an appraisal?

An appraisal is an estimate of a property’s fair market value. It’s a document generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The appraisal is performed by an “Appraiser” typically a state licensed professional who is trained to render expert opinions concerning property values, location, amenities, and physical condition.

What is Private Mortgage Insurance (PMI)?

On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. Sometimes you may need to pay up to 1 years’ worth of PMI premiums at closing, which may cost several hundred dollars. The best way to avoid this extra expense is to make a 20% down payment or ask about other loan program options.

What is 80-10-10 financing?

A savings and loan association, bank, or other institutional lender provides a traditional 80% first mortgage, you get a 10% second mortgage, and make a cash down payment equal to 10% of the home’s purchase price. By using this method, you are no longer obligated to take out PMI on your property. The same principle applies if you can only afford to make a 5% down, 80-15-5 financing is also available. However, a small cash down payment increases the lender’s risk of default, do not be surprised when you are asked to pay higher loan fees and higher mortgage interest rates for 80-15-5 than 80-10-10.

What happens at closing?

The property is officially transferred from the seller to you at “closing” or “funding”. At closing, the ownership of the property is officially transferred from seller to buyer. They may involve the seller, buyer, real estate agents, attorneys, title or escrow firm representatives, clerks, secretaries, and other staff. You can have an attorney represent you if you cannot attend the closing meeting. Closing can take anywhere from 1 hour to several depending on contingency clauses in the purchase offer, or any escrow accounts needing to be set up.

Most of the paperwork at the closing or settlement is handled by attorneys or real estate professionals. Prior to closing a final inspection or “walk through” is needed to ensure requested repairs were performed, and items agreed to remain with the house are there.