Frequently Asked Questions

How is a Broker better than a direct lender?

Brokers have access to wholesale lending rates which are significantly lower than retail lending rates.

Brokers have much lower fixed costs (as compared to retail lenders) and hence can pass on the lower rates to their customers.

Brokers have access to multiple lenders and can get you the lowest rates or find the lender that will approve your loan (if this is a challenge) – saving you the trouble of shopping around for loan approval or the lowest rates.

Broker fees and commissions are 100% transparent and have a ceiling limit by law, hence you will never be overcharged for the transaction.

What is a Rate & Term Refinance – what are the other refinance types?

There are two types of Mortgage Refinance transactions:

1. Refinance to reduce your current rate – this may or may not include reducing the term on the loan.
2. Refinance to take cash-out against equity in your home. This cash can be used to pay-off accumulated credit card debt, personal loans or simply make home improvements.

What is a ‘zero cost’ loan? Is there truly no cost?

A ‘zero cost’ loan is a loan where the various transaction costs on the loan (Underwriting fees, Title Insurance, Escrow Fees, Appraisal fees, Credit Report fees, other Government fees) are rolled into a higher rate on the loan. This is also the same as receiving rebate points for a higher rate to offset transaction costs. Some lenders are transparent about this and tell you the costs and rebate to show how it’s a zero cost loan, others just charge you a higher rate and state that it’s a zero cost for you. In reality, there is no ‘zero cost’ loan.

When I refinance, can I skip one or two mortgage payments?

In a regular Refinance transaction, when you refinance and your closing date is after 15th of the transaction month, you are not required to make your 1st month’s (after the loan closes) mortgage payment as the same is collected in your Prepaid items (and probably rolled into your new loan amount). For example, if your loan closes on Jan 31st, you don’t need to make your March payment.

If you wanted to skip two payments, your closing date needs to be postponed to the 1st through 15th of the next month to allow you to skip two payments. In this example, instead of the Jan 31st, if you chose to close your loan on say Feb 5th, your next mortgage payment will be due in May.

In reality, you are just adding the payment to the loan amount and not really ‘skipping’ a payment. This ‘skipping’ of payments can provide a relief to short term cash-flows, however, it will increase interest costs over the life of the loan.

What do I need to get Pre-Approved for a Purchase loan?

Pre-Approval process starts with a a basic online application. This is followed by providing proofs which could be physical documents or electronic verification for some or all of the following items:

1. Identity verification – drivers license or passport
2. Place of Residence – last two years history
3. Income Verification – two most recent paystubs, YTD earnings
4. Employment Verification – last two years employer(s), Name, Address, Phone numbers
5. Bank Account – balances in checking, savings, money market to verify cash reserves
6. Tax Documents – last two years W-2 and tax returns
7. Liabilities Information – Any outstanding loans, auto loans, student loans, personal loans
8. Other Assets – CD’s, Stocks and Bonds, IRA accounts
9. Real Estate Contract – Purchase Agreement – this will be required at a later stage
10. Gift Letters – If down payment is to be made using gift funds – a gift letter that states its truly a gift 11. Self-Employment documents – last two years PnL, Federal Tax returns and or Balance Sheet
12. Divorce Decree – If Applicable
13. Monthly expenses – this would include monthly obligations such as rent and loan payments
14. Among other aspects

What is the Loan Application/Approval process?

The application process starts with collecting your basic information such as Name, Property Address, Estimated Property Value, Estimated Loan Amount, Gross Monthly Income and SSN among other details that are used to complete a Mortgage Application Form (also referred to as the ‘1003’). Thereafter, a Loan Estimate is prepared along with certain statutory Disclosures related to your loan. These are communicated to you within three business days of completing the Application. After these Disclosures have been acknowledged by you, the application moves into Processing for any additional documentation requirements (as above) and is finally submitted to a mortgage loan Underwriter for Approval. From Application to Conditional Approval can take anywhere from a week to 10 days depending upon your ability to promptly provide requisite documents. Final loan approval may take an additional week or so as the loan application will need to pass through internal/ external compliance checks. In reality, you are just adding the payment to the loan amount and not really ‘skipping’ a payment. This ‘skipping’ of payments can provide a relief to short term cash-flows, however, it will increase interest costs over the life of the loan.

What are some of the main documents required in the Approval Process?

1. Identity verification – drivers license or passport
2. Place of Residence – last two years history
3. Income Verification – two most recent paystubs, YTD earnings
4. Employment Verification – last two years employer(s), Name, Address, Phone numbers
5. Bank Account – balances in checking, savings, money market to verify cash reserves
6. Tax Documents – last two years W-2 and tax returns
7. Liabilities Information – Any outstanding loans, auto loans, student loans, personal loans
8. Other Assets – CD’s, Stocks and Bonds, IRA accounts
9. Real Estate Contract – Purchase Agreement – this will be required at a later stage
10. Gift Letters – If down payment is to be made using gift funds – a gift letter that states its truly a gift 11. Self-Employment documents – last two years PnL, Federal Tax returns and or Balance Sheet
12. Divorce Decree – If Applicable
13. Monthly expenses – this would include monthly obligations such as rent and loan payments
14. Among other aspects

How can I get the lowest rate possible?

Loan pricing is primarily a function of your credit score and Loan To Value (LTV). Higher credit scores and lower LTV’s tend to command the lowest rates. You can additionally buy down your interest rate by paying upfront discount points. Also, shorter term loans and mortgages with adjustable rates tend to have relatively lower interest rates for the fixed rate term of the loan. You need to lock your rate in advance to be protected from unexpected rate increases from capital market movements.

Are Adjustable Rate Mortgages risky? What is the eligibility for ARM’s?

Adjustable Rate Mortgages(ARM’s) can be risky in a long term rising rate environment. If you are expecting rates to sharply rise in the next 5-10 years, you will be better off with a 15 or 30 year fixed rate mortgage. However, if you expect rates to be relatively flat and or plan to refinance or relocate every 5 odd years, an ARM may not be a bad choice, especially if you are looking for a super low rate to lock into for the next 3-10 years. ARM’s typically have more stringent eligibility requirements with respect to Loan To Value (maximum of 75% for Conventional loans) and credit scores among other aspects.

What are closing costs? How much is this transaction going to cost me?

Closing costs include Discount Points and Origination charges, third party costs such as Appraisal fees, Title, Insurance, and Escrow fees. Additional items that are included in Closing costs that are technically not ‘costs’ include prepaid items such as Taxes, Insurance, HOA dues etc. When you refinance your loan, the pre-paid items from your previous loan are refunded to you and hence these pre-paid items can often be a wash.

Can some or all of the loan costs (e.g. appraisal cost) be rolled into the loan amount?

Closing costs can be rolled into the loan amount, as long as they meet the lender requirements. For Purchase home loans, there may be some restrictions on what can and cannot be included. It is advisable to offset closing costs with lender credits or rebate points so as to minimize financing/ interest costs over the life of the loan.

How does Cash-Out Refinance work? Do I have to specify reason for cash out?

Mortgage Refinance can be for a Rate & Term purpose or for taking Cash Out from Equity in your home. Maximum cash out is constrained by the maximum LTV permissible on the Loan Type. For conventional loans maximum LTV for cash out is 80%, for FHA loans you can take cash out for a maximum of 85% LTV and for VA loans this can go up to 100% of the value of the home. Cash Out Refinancing is mostly done for debt consolidation purpose and home improvement projects, although there is no specific required reason for the cash out.

What are Mortgage Insurance Premiums?

When you take a loan out for greater than 80% of the value of the home ( i.e. your down payment is less than 20%) you are required to purchase an insurance that protects the lender from losses if you were to default on the home. For conventional loans this is a requirement if the down payment is less than 20%, for FHA loans this is a mandatory requirement as the minimum down payment rate is as low as 3.5%. The Conventional loan monthly insurance premium is call PMI or Private Mortgage Insurance, while the FHA equivalent is called MIP or Mortgage Insurance Premium. There is an additional UFMIP or Upfront MIP of 1.75% on the base loan amount that needs to be paid for FHA loans.

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