What is a pre-qualification?
A pre-qualification is an estimate from a bank of how much money a person or persons are qualified to borrow. It is based on a credit check and a review of income, assets and debt. Getting a pre-qualification at the beginning of the home buying process is vital because (1) It gives you, the prospective buyer, a good indication of which homes are in your price range and (2) It gives the sellers a level of comfort knowing that you have initiated the mortgage process and that you are likely to obtain a mortgage, thereby making your offer a stronger one. It is important to note that a pre-qualification is not a guarantee or commitment to lend because it is not based on a comprehensive and verified review of income, assets, credit and debt or the property.
What is LTV?
LTV stands for Loan to Value Ratio. It represents the amount of money borrowed divided by the purchase price of the home. For example, if you borrow $400,000 on a house with a purchase price of $500,000, the loan to value ratio or LTV is 80%. Different loan programs have different maximum LTV standards. Ask your mortgage professional for more information.
What is DTI?
DTI stands for Debt to Income Ratio. It represents a borrower's monthly debts divided by their monthly gross income. It is a calculation used by banks to determine how much money a borrower is qualified to borrow. Different loan programs have different maximum DTI ratios.
What is PMI or MIP?
Private Mortgage Insurance or PMI protects the lender in case the borrower defaults on a loan. PMI is required on Conventional Mortgage Loans in which the buyer has a down payment of less than 20%. It is either paid up front at closing in a lump sum or on a monthly basis with your mortgage payment.
MIP or Mortgage Insurance Premium is required with all FHA loans also to protect the lender against default by the borrower. MIP is required regardless of the loan to value ratio on FHA loans because the FHA underwriting guidelines are less strict than those on Conventional Loans. There is a one-time up front MIP payment and a monthly MI payment with FHA loans.
How will my interest rate be determined?
Mortgage rates are constantly changing due to different movements in the financial markets. Your specific interest rate will be determined by many factors including the daily rate when you are ready to lock, your credit history, your loan size, your loan term and your loan program. You should consult your mortgage professional to devise the proper strategy for locking your interest rate.
What is the minimum down payment on a mortgage loan?
On Conventional Loans, the minimum down payment is 5%. On FHA loans, the minimum down payment is 3.5%. There are advantages to higher down payments on both FHA and Conventional loans. For more detailed information, please discuss with your mortgage professional.
What are closing costs, settlement costs and how much will they be?
Closing costs and settlement costs are fees paid to the lender and third parties in conjunction with buying a home. They include but are not limited to – loan origination and processing fees, underwriting fees, attorneys fees, appraisal fees, discount points paid in exchange for a lower interest rate, title insurance, survey fees, title search fees, escrow deposits, recording fees, mortgage tax, etc. The amount of closing costs will depend on your loan size, the loan product, location and a variety of other factors. Lenders are required by law to provide you, the borrower, with a Good Faith Estimate (GFE) of what the closing costs will be within three days of a formal loan application. Within a day of closing the borrower will receive a HUD-1 settlement statement which will state the exact closing costs on the loan.
What will be included in my monthly mortgage payment?
Your monthly mortgage payment will include a portion of principal (the amount of money borrowed), interest (the cost of borrowing the money), PMI or MIP if applicable, and in most cases a payment toward your escrow account. The escrow account contains monthly payments collected by your mortgage lender for property taxes and homeowners insurance and held in escrow until payments are due.
For more information about your mortgage, contact your Franklin First Financial Mortgage professional today.