It’s natural to have questions about the mortgage process. Lucky for you, at PrimeLending, mortgages are our specialty and we’ve been honing our expertise since 1986. Below are our answers to your most frequently asked mortgage questions.
Applying for a mortgage
How to get a mortgage
Getting a mortgage starts with an application. You will need to provide your lender with a full set of documentation that verifies your financial and personal life. All documents must be complete, legible, and unaltered.
To simplify the application process, PrimeLending offers an online mortgage application process which allows you to apply for and track your loan progress from anywhere on your computer, smartphone, or tablet.
When I apply for a mortgage, what documents will I need?
The typical documents that you’ll need are those that verify your income, employment and assets. Common mortgage application documentation requirements include, but aren’t limited to:
- Two years’ worth of W-2s, 1099s, child support, alimony, Social Security, or other sources that prove your income
- Two most recent pay stubs (within the past 30 days)
- Two month’s bank statements on all accounts
- Copy of your driver’s license
- Homeowner’s insurance information
You can also ask your PrimeLending loan expert for a document checklist that will help you get organized when you start the application process.
How do I know if my mortgage still works for me?
If you already have a mortgage, but aren’t sure if you should apply for a refinance yet, talk to your loan officer about running a free annual mortgage checkup. A mortgage checkup means a loan officer will assess your current mortgage terms and compare that to today’s market rates. It is also an opportunity to see if you could save money, improve your loan terms or remove mortgage insurance.
How much will I need for a down payment?
Many homebuyers believe they have to make a 20% down payment, but we know that may not be possible for everyone. Depending on your financial situation and eligibility, we offer several down payment options, including low to no down payment options. Your PrimeLending loan officer will be able to help you find a loan program that best fits your financial goals and needs.
How much house can I afford?
When it comes to setting a homebuying budget, knowing how much house you could afford can help make your process easier. A free home affordability calculator can help you get an idea of how much house you may be able to afford.
Keep in mind, what you can afford to spend on a mortgage is impacted by your down payment, gross annual income, monthly debt, mortgage rate, loan term, and debt-to-income ratio (DTI).
Should I go through the qualification1 process before I begin searching for a home?
Absolutely. If your credit score and finances are already in order prior to your house hunt, the process goes much smoother. The qualification process is simple:
- Gather your personal financial information such as bank statements, W-2 forms and paycheck stubs, and meet with your PrimeLending loan officer.
- Your PrimeLending loan officer will pull your credit report and evaluate your financial documents. With this information, you will receive an estimate of what you may be able to afford.
Do I have to pay for the qualification process?
No, there is no charge for mortgage qualification.
Is it still possible to qualify for a loan even if I have past credit problems?
Yes, if your credit is less than ideal, you may still qualify for a home loan. Everyone finds themselves in tough financial situations at one point or another. Don’t allow previous problems to discourage you from trying for a fresh start.
If your credit score is one of your main concerns, make a plan to improve it. Some ways to improve your credit include making payments on schedule, limit your credit usage, and pay down the existing debts that you can. Get a more in-depth look at how credit scores impact the mortgage process here.
Will I get a copy of my credit report and appraisal?
You may obtain a copy of your credit report through a credit bureau. You will receive a copy of your appraisal from PrimeLending a minimum of three days prior to your closing.
What appraisal does a lender require?
The lender requires a home appraisal on most transactions. If the appraiser recommends repairs or if repairs are mentioned in the contract, the lender may require that those repairs be completed before closing. The appraiser then will perform a final inspection to ensure that the repairs were completed.
What to know about mortgage rates
How do I know what my interest rate will be?
Your PrimeLending loan officer will advise you of the rates available for your loan product. When you are ready, you can lock in your interest rate. You can lock in your rate for up to 180 days (additional restrictions and fees may apply for lock terms in excess of 90 days).2 This guarantees your rate for the entire lock period.
How does the annual percentage rate (APR) differ from the interest rate?
According to the Consumer Financial Protection Bureau (CFPB): “The interest rate is the cost of borrowing money expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan. An Annual Percentage Rate (APR) is a broader measure of cost to you of borrowing money. The APR reflects not only the interest rate but also the points, broker fees, and certain other charges that you have to pay to get the loan, including certain of your closing costs. For that reason, your APR is usually higher than your interest rate.”
Should I get a loan with a fixed or adjustable interest rate?
When deciding on the type of rate you want, it’s all a matter of time. You’ll want to think about a fixed-rate mortgage if you plan to live in your home for more than a few years. Fixed rates provide you with stable payments and protection against increasing mortgage interest rates.
An adjustable-rate mortgage (ARM) would be more suitable for you if you foresee living in your home for only a few years. With an ARM, you open yourself up to the possibility of having your monthly payments increase or decrease each time your interest rate changes. See the difference with our fixed-rate mortgage vs. ARM calculator.
Can I use a temporary buydown to get a lower interest rate?
Yes, a temporary buydown is one way to get a lower interest rate. A temporary buydown is an option where a seller or builder puts upfront funds into an escrow account to reduce the interest rate on a mortgage for up to the first three years. Benefits of a rate buydown can include lower initial payments, reduced cost of purchase and gives you time to ease into payments. See how a temporary buydown could lower your rate with our free buydown calculator.
How do discount points and origination fees affect my mortgage rate?
Buying discount points, a.k.a. mortgage points, allows you to lock in a lower interest rate. By locking in a lower interest rate, you may be able to lower your overall monthly payment. Try our discount points calculator to see what you could save.
Typically, discount points are applied and disclosed at the time of locking in an interest rate. On the other hand, discount points can be added at the time of lock, or later in the process if you choose to pay to reduce your interest rate.
Origination fees are the fees required to originate the loan. They can include processing fees, underwriting fees, administrative fees, and several others. Your loan officer will give you a complete breakdown of these fees as they vary from state to state.
Types of mortgages
What types of mortgage options does PrimeLending offer?
PrimeLending offers more than 400 loan products, including these competitive loan programs and options:
- Fixed-rate and adjustable-rate mortgages
- FHA, VA and USDA loans
- Jumbo and conforming loans
- Conventional financing
- Construction loans
- Reverse mortgage
What is a reverse mortgage3?
For homeowners 62 years and older, a reverse mortgage is a loan that allows them to convert a portion of their home’s equity into cash while continuing to live in their home. It is called a reverse mortgage because, unlike a traditional mortgage where the borrower repays the loan amount to a lender, the lender pays the borrower. Reverse mortgage funds can be used to supplement retirement income or pay for various expenses. A reverse mortgage loan is repaid when the borrower no longer occupies the property.
What is the difference between a VA, USDA and FHA loan?
VA loans are guaranteed by Department of Veterans Affairs (VA). Individuals or their families who have served in the armed forces for a specified time may be eligible for this type of loan.
USDA loans are issued through the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, by the U.S. Department of Agriculture (USDA).
An FHA loan, on the other hand, is guaranteed by the Federal Housing Administration (FHA). FHA is a government agency that works with approved lenders such as PrimeLending.
How will I know which loan program is best for me?
Your lifestyle and financial situation are the best guides for deciding on the best loan program for you. Consider these questions:
- How long will you live in this home? Several years, or just a few?
- Do you anticipate your income or finances to significantly change over the next few years?
- Are you either comfortable or uncomfortable with an adjusting monthly mortgage payment?
- Do you plan to be out of mortgage debt by, for example, when your children start college or when you retire?
Based on your answers, your PrimeLending loan officer can discuss different home loan programs that will suit you financially and help you reach life’s milestones.
Can I use a mortgage calculator to learn about my loan options?
PrimeLending’s online mortgage calculators give several options for the various stages and goals in life. We’ve customized the calculators to help provide you with information you might be looking for such as payments on a new home, a lower interest rate, cash back on a refinance, or simply changing the way you currently pay your mortgage. If you don’t see an online calculator that gives you the information you need, please contact a PrimeLending home loan expert.
Questions about mortgage payments
How to calculate a mortgage payment
To calculate a mortgage payment, you need to know the home price, your down payment amount, the expected interest rate of the mortgage, the loan term, annual property taxes, and the cost of annual home insurance. All of these costs added up can give you an idea of what your monthly mortgage payment may look like.
You can also use a free mortgage payment calculator to crunch the numbers to help simplify your planning and budgeting.
When mortgage lenders say “PITI,” what are they referring to?
PITI stands for principal, interest, taxes, and insurance—the basic components of a monthly mortgage payment if escrows are being included. Often, PITI is estimated before a borrower receives a mortgage qualification. The components of PITI are:
- Principal—The amount of a mortgage owed before interest is added.
- Interest—The fee, shown as a percentage, borrowers pay for taking out a mortgage.
- Taxes—The cost of property taxes based on the home’s value and local property tax rate.
- Insurance—The cost of homeowners insurance that protects your property.
What is mortgage insurance?
Mortgage insurance is a payment made by the borrower as an additional fee that protects a lender in the event a borrower is unable to repay their mortgage. The term “mortgage insurance” may refer to private mortgage insurance (PMI) or mortgage insurance premium (MIP).
- Private Mortgage Insurance—PMI is required on conventional loans if a borrower makes a down payment less than 20% of the home’s purchase price. This appears as an added cost to a borrower’s monthly mortgage payment.
- Mortgage Insurance Premium—MIP is required on all Federal Housing Association (FHA) loans. MIP comes in two forms: upfront mortgage insurance premiums that can be financed into the loan amount and annual premiums that are included in the borrower’s monthly mortgage payment.
What is a pre-payment penalty?
- A lender may charge a pre-payment penalty if the borrower decides to pay off the home loan early. Some loans with lower rates will contain a pre-payment penalty, which discourages refinancing if interest rates fall. This ultimately benefits the lender with a higher rate of return on the loan.
- Although home loans are structured in various ways, a pre-payment penalty is typically a percentage of the unpaid balance or the amount of interest on a specified number of months. Statistically speaking, most homebuyers will either move or refinance before paying off the loan, so they rarely see the benefit of a slightly lower interest rate in exchange for a possible pre-payment penalty. None of PrimeLending’s loans carry pre-payment penalties.
Will I have two separate payments if I have a second lien?
The second lien is often from a different lender than the first lien (or loan). Borrowers with a second lien, therefore, will make two separate payments each month—one on the first lien and one on the second lien.
Common mortgage phrases and terminology
What is “Know Before You Owe”?
Know Before You Owe, also referred to as the TILA RESPA Integrated Disclosure (TRID) Rule, requires mortgage lenders and settlement agents to combine and simplify the disclosure forms used in the home loan process. The goal of the rule is to make the loan process more streamlined, transparent, and easier to understand. As a result, all mortgage lenders must adhere to the same disclosure forms.
What is a loan-to-value ratio (LTV)?
The loan-to-value ratio (LTV) compares the loan amount to the market price of the home you wish to purchase. To find your LTV, divide your current loan amount by the total value of your home. For example, if your loan balance is $400,000 and the property is valued at $500,000, your LTV is 80%.
What is a loan estimate?
The loan estimate is designed to provide disclosures that will be helpful in understanding the key features, costs, and risks of the mortgage loan, including the estimated cash to close. The key timeframes you need to know with the loan estimate are:
- You must receive an initial loan estimate 3 business days after applying for a loan
- A final loan estimate must be issued 7 business days before closing on the loan
- You have 10 business days after receiving the loan estimate to decide whether to proceed with the loan
What is a closing disclosure?
The closing disclosure provides clarity in understanding all of the costs of the transaction. A closing disclosure must be provided at least 3 business days before closing. Last minute changes may cause a delay in closing because some changes require an additional 3 business day waiting period before you can close (i.e. deciding to change the type of loan you would like to use for your home purchase). Your PrimeLending loan officer can provide additional information regarding the changes that will trigger an additional waiting period.
What is an escrow waiver?
When you waive escrows, you take the responsibility of paying your taxes and insurance rather than having them included in your monthly mortgage payment. Waiving escrows may add a fee to your closing costs. You can only waive escrows if your loan program allows for this.
What is the difference between a mortgage broker and a direct lender?
A mortgage broker serves his or her client by shopping around for various lenders who will approve the homebuyer’s loan. While this sounds convenient, many times the buyers end up paying higher costs for their mortgage because of the broker’s fees. A direct lender, on the other hand is just that – a direct connection between the homebuyer and one company, from start to finish. As a direct lender, PrimeLending delivers a fast and efficient process to our buyers from the initial application to approval of a competitive loan and to the final closing.
Still have mortgage questions? Contact your local PrimeLending mortgage expert to learn more.
1All loans subject to credit approval. A qualification is not an approval of credit, and does not signify that underwriting requirements have been met. Conditions and restrictions may apply.
2 Extended Lock Option requires additional fees. Review the Long Term Interest Rate Lock Agreement for full details. Conditions and restrictions apply and are subject to change. Info as of 12/13/24.
3These are brokered loan products. Not available in the following states: NY, NC, or HI. All credit decisions for brokered loan products will be made by the third-party lender. Restrictions and limitations apply. You must still live in the home as your primary residence, continue to pay required property taxes, homeowners’ insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure. As required by FHA, you will be charged an up-front mortgage insurance premium (MIP) at closing and, over the life of the loan, you will be charged an annual MIP based on the loan balance. Your current mortgage, if any, must be paid off using proceeds from your HECM loan. If your home needs repairs to be eligible for a HECM loan, you may be able to use the proceeds of the loan to accomplish this. Generally, the money received is not considered income and could be tax free, please consult your tax advisor and appropriate government agencies for any effect on taxes or government benefits.
