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Questions & Answers
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.
Q: What does getting a mortgage involve?
First, you will need to submit a mortgage application with us, either in person, by phone, or using our easy-to-use online form, whichever makes you feel more comfortable. One of our licensed loan officers will get in touch with you and discuss your mortgage needs and objectives with you. Next, we will check your credit scores and request you to submit the necessary supporting documents so that we can verify your identity, the source of your income, and your current debt for underwriting purposes. An appraisal will also be performed on your selected property. Once you have submitted all the documents and your loan is approved with no outstanding items, we will then prepare the closing documents so that you can get ready to sign your loan package. After your loan is funded, you are on your way to move into your new home.
Q: Does it cost anything to apply for a mortgage?
No, Sun West Mortgage Company does not charge an application fee for you to apply for a mortgage.
Q: How long does it take to close my loan?
Sun West Mortgage Company has one of the fastest turnaround times in the industry, and we offer 20 day closings, but every borrower’s situation is different, and due to documentation requirements and varying response times from the borrower, the average time to close a loan may be higher. To view our current turn times, click here.
Q: What is a refinance?
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 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 (787) SUN-WEST to discuss whether a refinance is right for you.
Q: What amount of down payment is required in order to obtain a mortgage?
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. Please click here to learn more.
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.
Q: Why is mortgage insurance required?
Mortgage insurance has been established by lenders and government agencies as a means to protect the investor before the mortgage is fully paid off. When a borrower defaults on his or her loan and the property is forced to be sold by foreclosure, the property may be sold for less than the original appraised value. Mortgage insurance, in such cases, allows the investor to file a claim with the insurance issuer to claim a partial or full portion of the amount of loss.
Q: What is LTV?
The Loan-to-Value (LTV) is a percentage of your loan in relation to your property’s appraised value or purchase price, whichever is lower. The LTV is one of the key risk measures used by mortgage banks to determine the size of the loan for which the borrower can qualify. The higher the LTV, the more risk for the lender and the less likely that a borrower will qualify for a loan.
Q: What is DTI?
The Debt-to-Income or DTI ratio is a percentage of your monthly debt in relation to your monthly income. Simply take your monthly debt obligations, also called reoccurring debt (mortgage payment, credit card payments, loan payments, and any child support or alimony), and divide that number by your gross monthly income. Lenders prefer as low a ratio as possible (43% or less) because it increases your ability to pay for your mortgage. The lower the DTI, the more likely you will be approved for a loan.
Q: What does PITI stand for?
PITI stands for Principal, Interest, Taxes, and Insurance and is a part of your monthly mortgage payments. In the financial industry, the PITI is also referred by some as the “Front-End” DTI, and may be analyzed separately or as a whole within your total DTI.
Q: What determines my mortgage interest rate?
Your mortgage interest rate is dependent upon a number of factors, including, but not limited to your credit score, size of down payment, loan purpose, occupancy, LTV ratio, and DTI ratio. Different mortgage products have different guidelines that may also indirectly affect what rates you can get. The base interest rate in the market is determined by the secondary market through competing U.S. Treasury bonds, the price of which is determined by the market demand. All these factors combined will determine what interest rate you will get for your mortgage at a particular time. When you are ready to secure your interest rate during your mortgage application, you should contact your licensed loan officer to go over the lock process in more detail.
Q: What is the difference between Fixed-Rate and Adjustable-Rate Mortgage?
Fixed-Rate mortgages allow you to lock in your mortgage payments (principal and interest) for the life of your mortgage and your monthly mortgage amounts will never change; whereas an Adjustable Rate Mortgage (ARM) will have lower fixed, initial interest rates, as compared with other fixed rate products, during the initial introductory period and the rate will reset to the prevailing market rate once the initial period is over. There are many factors to consider when deciding whether a Fixed Rate or an ARM is better for you. Please consult one of our licensed mortgage experts to determine which option is best for you.
Q: What are closing costs?
Closing costs are the fees associated with acquiring a mortgage loan. Such closing costs include but are not limited to:
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.
Q: What are origination charges?
The origination charge includes fees for services from loan application, 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.
Q: What is a “discount point”?
A discount point is a point that a borrower may choose to pay to lower the interest rate on a loan. A charge of one point is equal to 1% of the loan amount. Most lenders will typically allow the purchase of a maximum amount of 3-4 points to help lower the interest rate. You should consult your loan officer on how much interest rate you are able to buy down with each point. Depending on how much it will help lower your monthly mortgage payments and how long you plan to stay in your home, this option may or may not make sense for you in terms of overall savings.
Q: What is “locking” your loan?
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 expiration of your rate lock must be good until the date of funding of your mortgage loan.
Q: What is the difference between an appraisal and a home inspection?
An appraisal is required by your lender to professionally determine the value of the property you wish to buy. A licensed appraiser will be chosen to inspect the features of the house, the quality of the build, age, etc. The appraiser will then compare the asking price of the property to recent home sale data in the region to see if it is of fair market value. A lender will not approve a loan where the purchase price is greater than the appraised value unless you agree to bring in the difference of the two as part of your funds at closing. An inspection, on the other hand, should be done by the buyer to make sure that the home is in good condition and does not require any repairs before the actual purchase. An inspection is performed to make the buyer aware of any defects so that he or she can resolve the problem before the purchase or walk away from the deal. An appraisal protects the lender while an inspection protects the borrower.
Q: What if the appraised value of my selected property is higher than the sales price?
Since the appraisal is primarily used so the lender will know that they are not approving a loan in excess of the property value, lenders will still only give you a loan for the lower of the two.
Q: What are the different types of insurance required when getting a mortgage?
There are a few insurance types that are required when you get your mortgage, and each has a unique purpose.
- Private Mortgage Insurance (PMI): This 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.
- 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 government insured loans when you do not meet LTV requirements. You will be required to pay a portion as an upfront premium during closing, plus a monthly amount.
- 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.
- 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.
Q: What is the meaning of equity?
With respect to mortgages, equity refers to the difference between the market value of the property and the amount currently owed on the mortgage. It is basically the amount of money the owner will be able to keep for him or herself after selling the house and after paying off the remaining mortgage amount.
Q: What is Escrow?
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 towards 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.