FAQs

 

Frequently Asked Questions

General

Products

The Process

What type of loan is right for me?

Each person’s situation is unique, and the right mortgage product depends on your individual preferences. We recommend that you use our Decision Tools and review our Mortgage Products Summary to determine what may be your best options. A LoanInsights representative will also be able to counsel you on what mortgage product may be your best option.

How much will I qualify or be approved for?

This is dependent on a number of factors including your loan amount, loan-to-value ratios, personal credit history, and personal income and asset levels. If you have excellent credit and are in a high income bracket, you will qualify for higher loan amounts and higher loan-to-value ratios. The reverse is also true. We recommend that you use our Full Search to get a more accurate idea of what you can qualify for and what you might expect your rate to be.

How much can I afford?

Your debt-to-income ratio (DTI) is perhaps the most important calculation you need to make to determine how much you can afford. DTI is calculated by taking your total monthly debt payments and dividing it by your gross monthly income. Your monthly debt payments include your monthly mortgage, property taxes, and insurance costs, and your credit-card minimum payments, child support and other loan payments. Generally, lenders have a maximum DTI ration of 45-50%, meaning your total monthly debt payments cannot exceed 50% of your income.

What does it mean to get Pre-Qualified or Pre-Approved?

When you are purchasing a home, many realtors and sellers will require you to get a Pre-Qualification or Pre-Approval letter. This is a letter from a mortgage provider which states that you will qualify for a certain loan amount based on your income, credit, etc. LoanInsights offers an automatic free Pre-Approval Letter when you complete our Full Search.

Will I be approved? How does the approval process work?

Most borrowers are likely to be approved, however, the terms and rates will be different for each borrower. A final approval is contingent on many factors, and the final approval on your loan application only occurs once the application has been submitted to the lenders’ underwriting departments. However, our Full Search is designed to account for the lenders’ underwriting guidelines and pricing, and by completing our Full Search you will get a preliminary indication of where you might be approved and what the pricing might be.

What if I have bad credit or a history of credit problems?

Usually this will not be a problem. There are many lenders who specialize in offering mortgage products to people with a less than perfect credit history. Our search technology accounts for most of the factors from your credit history that are used by lenders to determine if you will qualify and what your rates will be. We recommend using our Full Search to see what products may be available to you despite an imperfect credit history.

What is the difference between a Fully Amortizing and an Interest Only loan?

The interest rate on a Fully Amortizing loan includes both principal and interest in your monthly payments. In other words, the payments you make reduce the balance of the loan every month. An Interest-Only loan includes only interest payments each month, so the total balance of your loan stays the same.

What is the difference between a Fixed Rate Mortgage and an Adjustable Rate Mortgage (ARM)?

The interest rate on a Fixed Rate Mortgage stays the same over the life of the loan. The rate on an Adjustable Rate Mortgage changes or adjusts after a specific time period. For example, the interest rate on a 30 year fixed mortgage will stay the same for 30 years, while the interest rate on a 3 year ARM will stay the same for 3 years, and then will adjust afterwards. Both Fixed Rate and Adjustable Rate mortgages can have Full Amortizing or Interest Only payment structures.

How do Option ARMs work?

Option ARMs are a relatively recent product offering for many lenders, and can have different payment structures. However, the typical Option ARM has a payment structure where each month you are able to choose what your payment will be. The typical structure has the following payment options: 1) a minimum payment established when your loan closes, 2) an Interest-Only payment based on a preset index and margin, or 3) a Fully Amortized payment based on the same index and margin.

What is negative amortization?

Negative amortization is the process by which the balance on your loan actually increases. This typically only occurs with an Option ARM mortgage. In the Option ARM payment structure, Negative Amortization occurs when you only make the required minimum monthly payment, but the payment is not enough to cover the fully indexed rate, causing the difference to be added to the principal.

What are “combo loans”? When are they used? Why are they useful?

Combo loans refer to the use of two or more loans to finance your home purchase or finance. Combo loans are typically used whenever a consumer is borrowing more than 80% of the value of his/her home, or when the borrower needs to use more than one loan to qualify. Combo loans are especially useful for two reasons: a) by using combo loans, you can avoid paying PMI (Private Mortgage Insurance), and b) using combo loans can lower your overall monthly payment.

What documentation do I need for my mortgage application?

For purchase transactions you will need to provide a completed purchase contract and your homeowner’s insurance information. You will also need to provide documentation concerning your income and assets. Our documentation checklist and documentation overview have more information.

What does it mean to “lock” my rate?

During the mortgage application process your mortgage provider will want to lock your rate. Like the stock market, mortgage rates can change daily, and locking your rate means that your rate is set and will not change even if mortgage rates go up in the marketplace. Typically your mortgage provider will lock your rate once you have signed the initial disclosures and provided most of the required documentation for your loan. Rate locks are typically done on a 30-day basis to allow enough time to close the loan.

Should I pay “points” upfront to lower my interest rate?

Generally you should only pay points to lower your rate if you are sure you will stay in your for a longer period of time. You may visit our Points Calculator to see if paying points might make sense to you. Typically, paying one point, or 1% of the loan amount, will lower your interest rate by 0.25%.

What will my closing costs be?

Your closing costs will include the costs to originate and underwrite your loan, title insurance required by lender, 3rd party costs such as the property appraisal, pre-paid expenses, and other miscellaneous costs. Our Closing Cost summary has more detail, and you may complete our Full Search to get an estimate of the total dollar cost.

Can I avoid paying closing costs?

Yes. You can avoid paying closing costs by paying a higher interest rate on your mortgage. You should consider this option if you plan on keeping your mortgage for a shorter period of time. Our Points Calculator can also help you determine whether or not you want to avoid Closing Costs in exchange for a higher interest rate.

What is PMI (Private Mortgage Insurance)? When is it required? Can I avoid paying it?

Private Mortgage Insurance (PMI) is insurance required by lenders to protect them against the risk of borrowers defaulting on their mortgage payments. You pay for PMI either upfront when your loan closes, or you can pay PMI by having a higher interest rate.

PMI is required by lenders for loans that have a loan-to-value ratio of more than 80%. For example, if you have a single loan for $90,000 on a home that is worth $100,000, your loan to value is 90%, and the lender will require PMI.

You can avoid PMI by using combo loans (i.e. two loans). With combo loans, your 1st mortgage would be at or below 80% of the property’s value, and you would borrow the remaining amount with a 2nd mortgage. Combo loans allow you to avoid paying mortgage insurance when you are borrowing more than 80% of your home’s value, and using combo loans can also reduce your overall monthly mortgage payments.