Frequently Asked Mortgage Questions
Why should I consider refinancing my current mortgage loan?
There are many reasons that you may benefit from a refinance. Refinancing can:
- Lower your monthly payment
- Lower your interest rate
- Switch from an adjustable rate to a fixed rate or vice-versa
- Refinance for a higher amount in order to pay off other debts or get cash
- Change the remaining term of your home loan
Should I pay points to get a lower interest rate?
Paying discount points will lower your interest rate, but you should know that there are more factors to consider. Each point will cost you 1% of your original home loan amount at settlement. To determine whether it makes sense to pay discount points, you’ll need to compare the cost of the discount points to the monthly savings created by lowering the interest rate. You’ll also want to consider how long you plan to stay in the home to make sure those savings add up. We at Liberty One Funding can help you decide if paying points makes sense for your individual home loan scenario.
What is a rate lock?
A rate lock is a guarantee that your home loan pricing will be held for a set period of time. A rate lock protects you from rate fluctuations for the duration of the lock period.
What is the Annual Percentage Rate (APR)?
The APR is the yearly interest rate on your home loan plus the various fees to service and maintain it. The APR is a more accurate reflection of the cost of the home loan than the interest rate itself.
What is the difference between pre-qualifying for a home loan and being pre-approved for a home loan?
While many applicants confuse these terms, each of these steps can give you a distinct advantage when shopping for a property. Becoming pre qualified is the initial step in the mortgage process, and it’s generally fairly simple. You’ll need to supply us with your overall financial picture, including your debt, income, and assets.
After evaluating the information, we can give you an idea of the mortgage amount for which you qualify. This will help you determine how much property you can afford before you begin shopping for a home. In addition, pre qualification can be attained over the phone, or via our website with little or no costs involved.
Mortgage prequalification doesn’t include an analysis of your credit report, or an in-depth look at your ability to purchase a home.
A pre-approval occurs after you complete a home loan application and supply us with the necessary documentation to perform a check on your financial background and current credit rating. Based on this information, we can tell you the specific mortgage amount for which you’re approved. You’ll also have a better idea of the interest rate you’ll be charged on the home loan and, in some cases, you might be able to lock in a specific rate.
With a pre-approval, you’ll receive a conditional commitment in writing for an exact home loan amount, allowing you to look for a home at—or below—the price level. This puts you in an advantageous position when dealing with a seller with multiple offers from buyers, as he or she will know that you’re one step closer to obtaining an actual mortgage.
Can I use a gift from someone else for my down payment?
Yes, gifts can be an acceptable source of down payment funds from a relative or other eligible source. We’ll ask for the name, address and phone number of the gift giver, as well as the donor’s relationship to you. Prior to closing, we’ll verify that the gift funds have been transferred to you by obtaining a copy of your bank receipt or deposit slip for the transaction.
Can I borrow funds to use towards my down payment?
Borrowed funds can be used toward your down payment in certain home loan scenarios. If you’re planning on borrowing money against another asset you own, or from another source, make sure you discuss this with your Liberty One Funding expert to determine what impact it may have on your home loan application.
How much down payment do I need to purchase my home?
The amount of money required for a down payment varies based on the type of home loan product for which you apply.
What is a jumbo mortgage?
Jumbo mortgages are designed for home loan amounts that exceed the conforming home loan limits established by Fannie Mae and Freddie Mac. Jumbo mortgages may have different guidelines and requirements than conforming home loans.
What type of documentation will you need from me to process my home loan?
In general, a home loan application will require information on your income, assets, credit and current debt. Liberty One Funding makes every effort to keep documentation needed from you at a minimum. Some situations require additional information, but we’ll let you know what’s required upfront so there are minimal delays when processing your home loan.
Should I begin the home loan process before I begin shopping for a home?
Yes, speaking with a Liberty One Funding expert before you find a home is a good idea. We’ll help you determine what type of mortgage you can qualify for and help you establish a payment budget so you know your target price range. To add strength to your offer once you find your dream home, consider obtaining a pre-approval.
What steps are involved in obtaining a mortgage loan?
The mortgage loan process can be broken up into four basic parts: application, processing, underwriting, and closing.
Where will the closing take place?
The closing will take place either at the escrow office or at a place convenient to you—as long as a notary is present.
What is an escrow account?
An escrow account is an account that holds funds from homeowners’ monthly payments toward insurance and/or real estate taxes, included as part of your regular monthly mortgage payment. The lender will then make the necessary payments when your taxes and insurance are due.
What documents will I be asked to sign at closing?
At the time of closing, you’ll be required to sign a package of documents from your lender and the escrow company handling your transaction. Some of the most important standard home loan documents include:
- Promissory Note: a written promise to pay a specific amount at a specific time. You’re agreeing to repay your home loan.
- Deed of Trust: a pledge of property as security for a debt. If you fail to pay the home loan, you’re agreeing that your lender can take the property.
- Uniform Settlement Statement (HUD-1): a settlement summary form required by RESPA that’s used by closing agents. This form shows all of your closing costs.
- Truth-in-lending disclosure: a statement required by the TILA Act that includes the annual percentage rate (APR), as well as other facets of the mortgage. This tells you how much you’ll pay for your mortgage over the entire home loan period.
- Right of Rescission Disclosure. On certain refinance transactions, this disclosure is a statement of the buyer’s right to nullify the transaction within three days after closing
What is a “Loan Estimate?”
The Loan Estimate, or LE, is a document that sets out the costs associated with a mortgage, including the interest rate, lender fees, title charges, prepaid interest and insurance.
What fees are included in the closing costs?
Closing costs cover each of the fees and expenses associated with a mortgage loan transaction. The homebuyer and/or seller will pay the costs at the closing. These costs typically include, but are not limited to, a home loan origination fee, discount points, attorney fees, title insurance, appraisal and survey, as well as any items that must be prepaid, including taxes and insurance escrow payments.
Can I finance the closing costs into my refinance loan?
In some situations, the closing costs can be financed into the home loan.
What are interest-only home loans?
An interest-only home loan is a product that gives you the option to pay only the interest accrued for a certain period of time. At the end of the interest-only term, your payment will adjust to include principal repayment, as well.
Should I choose a 15-year home loan or a 30-year home loan?
Simply put, it depends on how much you can desire to pay monthly on a mortgage and how quickly you want to pay down your home loan balance.
A 30-year mortgage has lower monthly payments but will have more interest paid over the life of the home loan. The 15-year mortgage typically has higher monthly payments (because you are paying your mortgage balance in less time) but builds equity more quickly. Ultimately you should choose the loan product that fits your budget and is in line with your future financial goals.
How long will it take to close my home loan?
The amount of time it takes to close on your home mortgage loan depends on a few different factors, particularly the type of loan, and documentation required to submit the file.
What types of home loans can I get through Liberty One Funding?
We offer a variety of conforming, jumbo and super jumbo home loans, including purchases, refinancing, interest-only mortgages and FHA loans. Our mortgage experts are happy to review each of these options with you to determine what’s best for your situation.
What is a Truthing-in-Lending statement?
This document discloses all costs associated with originating and closing your home loan. In addition, the TIL disclosure contains information regarding the annual percentage rate (APR), finance charge, amount financed and the total payments required. This estimate will give you a good idea of how much cash you’ll need at closing to cover pro-rated taxes, along with the first month’s interest and other settlement costs. It may also contain information on security interest, late charges, prepayment provisions and whether the mortgage is assumable. If you have an adjustable-rate home loan, the statement may outline the limits on the adjustments—annual and lifetime caps—as well as give an example of what your next year’s payment might be, depending on interest rates.
What is income and debt ratios?
The income ratio is your total monthly housing expense divided by your monthly qualifying income. The debt ratio is your total monthly housing expense plus any recurring debts (i.e. monthly credit card minimum payment, car payments or other loan payments) divided by your monthly qualifying income. The allowable qualifying ratios can vary based on the details of the home loan program for which you’re applying.
What is a cash-out refinance?
A type of refinance where the borrower receives a certain amount of the total mortgage in the form of cash. The difference between your home loan balance and your home’s value is called equity. Over time, the outstanding principal on your home loan decreases as the equity in your home increases. You may be able to refinance your home for more than you currently owe (but less than the total value of the home) and use the remaining proceeds for home improvements, debt consolidation or other major purchases.
What is title insurance, and how does it benefit me?
The function of title insurance is three-fold: to make sure that (1) your rights and interests to the property are clear; (2) the transfer of title takes place efficiently and correctly; and (3) your interests as a homebuyer are fully protected. Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property.
After a thorough examination of the records, any title problems can be cleared up prior to the purchase of your property. Once a title policy is issued, the title company will pay the legal fees involved in the defense of your rights if any claim covered under your policy is ever filed against your property. The company also remains responsible for covering losses arising from a valid claim. This protection remains in effect as long as you or your heirs own the property.
Most lenders require you to purchase title insurance before receiving a home loan. It’s generally a one-time payment included in your closing costs, rather than a recurring fee like other types of insurance.
Am I obligated to purchase flood insurance?
Federal law requires all lenders to investigate whether or not each home they finance is in a special flood hazard area as defined by the Federal Emergency Management Agency (FEMA). The Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 help to ensure that you’ll be protected from financial losses caused by flooding. If your property lies within Flood Zone “A” or “V,” federal law requires that you maintain and provide proof of flood insurance coverage as standard homeowners insurance doesn’t protect you against damage from flooding.
What is mortgage insurance, and it is required?
Mortgage insurance protects the lender in case you default on your home loan. You’ll need to purchase mortgage insurance if the equity in your home is below a certain level that’s required by the home loan program for which you’re applying. Once you pay off enough of your mortgage and have enough equity in your home, you may be able to refinance to get rid of your mortgage insurance.
Why is homeowners insurance required?
Homeowners insurance protects you financially in the event that your home and property is damaged. Lenders require that you maintain a policy with sufficient coverage on the property that is being financed.