FAQs and terms
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PMI stands for Private Mortgage Insurance. This is money you pay to protect the lender in the event of a loan default (typically only charged when the loan-to-value is greater than 80%)
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Prequalification is an estimate of what you might be able to borrow based on self-reported financial information. Pre-approval is a more thorough review of your finances by a lender and is a stronger indicator of your borrowing power.
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PITI stands for Principal, Interest, Taxes, and Insurance—the four components of a monthly mortgage payment.
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An adjustable rate mortgage (ARM) is a loan with an interest rate that can change periodically, based on an index. Payments may go up or down over time.
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A fixed-rate mortgage is a home loan with a set interest rate that remains the same throughout the loan term, resulting in consistent monthly payments.
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A down payment is an upfront payment made when purchasing a home, usually expressed as a percentage of the home’s purchase price.
Credit and Approval
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A credit report is a detailed analysis of your credit history prepared by a credit bureau.
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This is the nation’s most widely-used measure of credit risk, calculated from the information on your credit report. (FICO stands for Fair, Isaac and Company, the data analytics firm that created the system.
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DTI is the percentage that compares your monthly debt to your monthly income.
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A co-signer is someone with no ownership of the property who is responsible for paying back a loan.
Loan Costs and Fees
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An application fee is a one-time fee charged by lenders to cover the initial costs of processing your loan application.
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An appraisal is an estimate of a property’s value, conducted by a licensed appraiser, which helps determine the loan amount a lender can approve.
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Closing costs are fees and expenses associated with finalizing a real estate transaction, including loan origination fees, appraisal fees, and title insurance.
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An origination fee is a charge by the lender for processing the loan, usually a percentage of the loan amount.
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Points are fees paid directly to the lender at closing in exchange for a reduced interest rate. Each point is typically 1% of the loan amount.
Home Value and Equity
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Escrow is money or another item of value held by a third party that will be delivered upon completion of a condition.
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The appraised value is a professional evaluation of a property’s fair market value.
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Equity is the difference between a property’s fair market value and the amount still owed on the mortgage.
Rates and Terms
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The annual percentage rate (APR) includes both the interest rate and any fees or costs associated with the loan, giving you the total yearly cost of borrowing.
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A rate lock is an agreement between you and your lender that secures a specific interest rate for a set period, protecting you from potential rate increases during the mortgage process.
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Refinancing involves replacing your existing mortgage with a new one, typically to lower your interest rate, change the loan term, or tap into home equity.
Additional Terms
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Principal is the amount of money borrowed on a loan, excluding interest. It’s the base amount on which interest is calculated and gradually paid off over the term of the loan.
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The amount of your mortgage divided by the appraised value of the property.
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Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that help provide liquidity, stability, and affordability to the mortgage market by buying mortgages from lenders and selling them as securities.
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Underwriting means evaluating a loan application to determine the risk involved to the lender.
Process
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- 2 years’ tax returns (business and personal).
- 2 years W-2’s.
- 30 days paycheck stubs (must be 30 consecutive days).
- 2 months’ bank statements (for all asset accounts).
- Retirement statements.
- Divorce decree (if within last 7 years).
- Child support documentation (if obligated to pay).
- Proof of sale (current or previous home).
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- A 2 year continuous employment history required to qualify (please inquire for exceptions).
- If you’re self-employed or a commissioned employee, a 2 year history as evidenced by 2 years’ tax returns – average income.
- Bonus income requires a 2 year history – average bonus
- Interest, dividends, and retirement income require a 2 year history – average income as reported to IRS.
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- We will need 2 months’ bank statements for all asset accounts.
- All large deposits must be sourced
- If you are receiving gift funds (from a parent, for example) to help toward closing costs, we require a gift letter, documentation in the donor’s account, documented transfer confirmation and the documented amount in your account.
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Yes! Check out our blog about credit by clicking here. You’ll have to address recent inquiries (if applicable), judgements must be paid and cleared off the public record, and you must have three trade lines (accounts) for a 12 month period.
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No! There are several loan options with lower down payment requirements. State housing agency programs and other gifts and grants may also be available to help with your down payment and closing costs. Check out our blog about some of those programs.
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No! One of the best loan programs for someone with a lower credit score is an FHA home loan. You only need a 580 credit score or higher to qualify for a loan, the minimum down payment is just 3.5%!
Loan Types
Conventional loan details:
- Down payment as low as 3% with HomePossible®.
- Loan terms from 10-30 years.
- Fixed and adjustable rates available.
FHA loan details:
- Mortgage insured by the Federal Housing Administration (FHA).
- Only 3.5% down required.
- Loan terms from 10-30 years.
- Fixed and adjustable rates available.
- Credit scores down to 580 accepted, co-applicants allowed.
- Seller can pay up to 6% of the sale price towards closing costs.
- FHA 203(k) available to rehab homes.
VA loan details:
- A mortgage for military members and Veterans, guaranteed by the Department of Veteran Affairs (VA).
- No down payment or mortgage insurance for qualifying military veterans.
- Credit scores down to 580 accepted.
- Seller can pay up to 4% of the sale price toward closing costs (total concessions may exceed 4% depending on type).
- Limited closing costs, no early payoff penalty, funding fee waived for disabled veterans (>1%).
- Benefits can be reused for future VA loans.
USDA loan details:
- A mortgage for homes in rural areas, small towns, and some suburbs, insured by the Department of Agriculture (USDA).
- No down payment required, closing costs can be financed into the loan amount.
- 30-year fixed-rate mortgage with no max loan amount (based on ability to qualify).
- Up to 6% seller concessions allowed.
- Single-family homes, townhomes, and manufactured homes eligible.
- Lower credit scores accepted (must meet property eligibility and income requirements).
We know this is a lot of information. That’s why we’re here to help! If you have any questions or are seeking further clarification regarding any of these terms, please reach out.
