Frequently Asked Questions
Many homebuyers interested in getting a mortgage often encounter questions and concepts during the
mortgage process that they may not fully understand. This Q&A section is created to answer some of the
most common questions and concepts that you will likely see when learning about mortgages.
A mortgage refinance refers to obtaining a new loan for the purpose of lowering your mortgage payments, converting your existing loan into a more affordable or manageable loan, or getting cash out on available equity on your home. There may be a minimum waiting period from the date you closed your previous mortgage, based on the type of refinance you are applying for. Sun West Mortgage Company, Inc. also recommends that you check with your existing lender regarding any prepayment penalties. There will be fees involved when refinancing your home, although you may have the option of rolling these costs into your new loan. Please call one of our licensed loan officers at 855.418.3362 to discuss whether a refinance is right for you.
Most types of mortgages require a minimum amount of down payment, except for VA and USDA programs. You may also be eligible for down payment assistance programs that can help you towards minimum down payment requirement on some of the loan programs. On Conventional Mortgages, your lender will require you to pay a Private Mortgage Insurance (PMI) premium as part of your monthly payments if you put down less than 20% of the purchase price of the property. There are government loan programs available with less stringent down payment requirements as well, such as an FHA loan that will require only a 3.5% down payment, but again, these programs also require mortgage insurance premiums. Finally, keep in mind that the amount of down payment you put down for a house will also affect your Loan-to-Value (LTV) ratio, which could then affect the amount of loan you are able to qualify for, or whether or not you will qualify at all.
a. Lender fees
b. Origination fee
c. Discount points
d. Third party service fees for appraisal, credit report, flood certification, etc.
e. Title and escrow / attorney charges
f. Transfer / intangible / mortgage tax as required by the city, state, etc.
g. Per diem interest
The lender is required by law to provide to you a preliminary estimate after you submit your application.
The origination charge includes fees for loan application, document preparation, underwriting, and processing. The origination fee is the fee(s) earned by the lender and/or broker for providing you the service when making the loan. The origination fee does not include any discount points and is a part of the total closing costs.
This process is formally known as a rate lock. After you submit your application, you are eligible to lock your loan. If you do not wish to lock at the time of application, you may choose to check with your loan officer regularly to check the current interest rate and then lock at a later time. It is important to note that until you lock your loan, your interest is subject to market fluctuations and may go up until it is locked. The rate lock must be good (i.e. should not expire) until the date of funding of your mortgage loan.
Though the appraisal is primarily used for the lender to know that they are not approving a loan in excess of the property value, lenders will still give you a loan for the lower of appraised value and sales price.
1. Private Mortgage Insurance (PMI): PMI is applicable for conventional loans. It is an insurance coverage that your lender will require you to purchase if your down payment is less than 20% of the loan amount. The purpose of this insurance is to protect the lender’s investment on the loan. This is generally paid from your escrow account each month and is collected together with your monthly mortgage payment.
2. FHA Mortgage Insurance: This mortgage insurance serves the same purpose as a PMI, but has a different name because it is charged by your lender for taking out FHA insured loans. You will be required to pay a portion as an upfront premium during closing, plus a monthly amount.
3. Hazard Insurance: It is homeowner’s insurance required by the lender to protect their investment against damage to the property, before the loan is paid in full. Note that a separate Flood Insurance may be required in certain areas, in addition to Hazard Insurance.
4. Title Insurance: Just as the name suggests, Title Insurance is indemnity insurance purchased to protect the property title. The title insurance protects against title defects and any possible lawsuits against it due to documentation deficiencies or lien claims. It is important because it protects both the lender’s and borrower’s interests.
The term escrow can refer to two things: the escrow process or an escrow account. The escrow process is an important part of the mortgage origination where a third party company is assigned to keep control of all funds and documents for all parties (seller, buyer, lender) in the transaction. Funds are sent to the escrow company to be processed and verified, and the escrow company, upon disbursement, prepares a settlement statement summarizing the distribution of funds and the terms of your mortgage. An escrow account usually refers to an account for a mortgage by a lender to hold funds that will be used to pay property taxes and insurance, including mortgage insurance. The payments made from an escrow account will be shown in your monthly mortgage statements, so you don’t have to worry about managing these payments separately.