Browse our frequently asked questions to get answers to common mortgage questions regarding loan applications, rates, appraisals, insurance, and the closing process. Can’t find what you’re looking for? Please contact us, we're always ready to assist you with any questions you may have.
What documents do I need to apply for a home loan?
After receiving your Loan Estimate, you will need to provide two of your most recent pay stubs, tax returns from the past two years, and bank, stock, and retirement account statements from the past two months. Additional personal information or documentation may be required. For more information see the Mortgage Documentation
Can I apply for a loan before I find a property to purchase?
Yes. It is recommended that you apply in advance as then you will be pre-qualified when you are searching for your home. Being prequalified will help you set a budget so you are searching for homes in the price range you can afford. Additionally, you could also consider the Lock & Shop program
What is pre-qualification?
This is the process of determining what loan amount a client qualifies for based on the information they provide. A pre-qualification is short of an approval because it does not take into account the credit history of the borrower.
What is the difference between pre-qualification and pre-approval?
A pre-qualification is issued by your loan officer who will determine the amount you may qualify for but it is not a guarantee. A pre-approval involves obtaining a credit report which is presented to an underwriter for a final decision on whether you will be pre-approved for your mortgage loan.
How much do I need for a down payment?
There are a variety of loan programs available that allow a borrower to put as little as 3% down. Mortgage Insurance will be required, though, on any down payment less than 20%.
How does the occupancy of my property affect my application?
Second homes and investment properties carry additional loan underwriting guidelines and interest rate adjustments.
How does my credit score affect my loan application?
With a client's authorization we can pull a credit report to assist in obtaining their credit score. The higher the credit score the more favorable the interest rate can be. Additionally, many loan programs will have a minimum credit score to qualify.
Does it matter if I am self-employed?
There will be different documentation requirements for a self-employed person versus someone employed by others. Talk to your loan officer about documentation requirements.
How does my monthly income and debt affect my application?
These numbers are used to calculate your debt-to-income ratio (DTI). All loan programs have maximum DTI ratios you need to be under to qualify. This ratio is used to determine how much money you can safely pay back each month, the higher the ratio, the higher the risk you are seen to have. A higher DTI can also affect the interest rate you are offered.
What are cash reserves for?
Some loan programs require you have to a certain number of months’ worth of your monthly income set aside in savings. This is mainly used for second homes and investment properties.
Why do you need to know how many properties I own?
Certain loan programs restrict the number of properties you may own to 6 or 10, depending on the program, in order to qualify for another mortgage.
What is a Loan Estimate (LE)?
This document reflects the settlement charges, payment information, loan program information, lock status, APR, and other various disclosures that the lender is obliged to provide the borrower within three business days of receiving the loan application.
How are rates determined?
Interest rates are influenced by the financial markets and can change multiple times a day. The changes are based on many different economic indicators such as inflation, economic reports, Federal Reserve policies, etc.
What are points or discount points?
Points are an upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount. For example, 2 points, means a charge of 2% of the loan amount. Many borrowers elect to pay points to purchase a rate that is lower than the current market average.
Why is the APR different than the rate?
The Annual Percentage Rate (APR) is not what your monthly payment is calculated with. The APR shows you what the cost of the loan is, expressed in a percentage format, over the entire life of the loan. Pre-paid finance charges and closings costs, title company charges and pre-paid interest on your loan are included in calculating the APR.
What is a Rate Lock?
A rate lock is a contractual agreement between the lender and buyer and is the interest rate you will receive on your loan program. There are four components to a rate lock: loan program, interest rate, points, and the length of the lock.
What is Rate Lock Insurance?
Rate Lock Insurance allows you to transfer your rate to another property if you lose the house you initially locked your rate for. Read more about Rate Lock Insurance
What is Lock & Shop?
Lock & Shop allows you to lock in a rate before you have even decided on a property. You have 60 days to find your home with your rate already locked in, with an option to extend to 90 days for a 1/8th point rate increase. Read more about Lock & Shop
What is a floating rate?
A floating rate is a rate that has not been locked yet. A floating rate is a risk because rates can go up or fall without notice. However, if you want to take a risk because you know rates have been dropping, then you may want to take a chance to get a lower rate.
What is an appraisal?
An appraisal is a formal evaluation that determines the value of the property you are purchasing. Appraisers inspect the physical structure of your home as well as any improvements you have done to the home, and then compares your property to others in the area to come up with an estimated value of your home.
Do I need a home inspection and an appraisal if I am purchasing a home?
Yes. An appraisal is a report to estimate the value of a home and will only list obvious defects on the report. The home inspector will have a detailed report on all defects or concerns that come with the home including the major systems, appliances, and fixtures. The home inspection is designed to protect you against potential problems with your new home.
What is title insurance and do I need it?
Title insurance protects your rights to the property you are purchasing and protects you against any loss resulting from a title error or dispute. There are both an owner’s policy which covers you, the homebuyer, and a lenders policy, which covers the lending institution.
What is mortgage insurance and is it required?
Mortgage insurance is only required if you are buying or refinancing a home with less than 20% equity invested. This insurance is to protect the lender against the risk that can come with low down payment mortgages.
Is homeowners insurance required?
Yes. Proof of homeowners insurance will be required before you can close your loan.
What happens at closing?
You will be signing important legal documents including the Closing Disclosure (CD). You will also pay all closing costs and show proof of homeowners insurance.
What is included in the closing costs?
Closing costs consist of various third party fees such as the appraisal fee, credit report fee, closing fee, title insurance fees, etc. There will also be state and local taxes. Other fees come from the lender which includes loan processing fees, origination fees, discount points, etc.
What is the Closing Disclosure (CD)?
This legal document discloses the terms and cost of your mortgage loan including APR.
How are my monthly payments calculated?
The monthly payment listed is the amount of principal and interest you'll pay each month over the life of the loan. You may also need to pay taxes, mortgage insurance, homeowners insurance, and flood insurance if applicable on top of this amount depending on your situation.
Where do I make my monthly payments?
To whom you make your monthly payment to will depend on who the end investor of your mortgage loan is. You may have to make your initial monthly payments to Draper and Kramer Mortgage Corp. and then to another after the servicing of your loan is taken on. Your loan officer can assist you with this.