Frequently Asked Questions about Mortgage Loans


December 13, 2018

Buying a home is not only one of the biggest purchases you’ll ever make. It’s also one of the biggest commitments. Unlike financing for smaller purchases, such as cars or appliances, your mortgage could be with you for 15-30 years. That’s why it pays to learn all you can about mortgage loans before comparing lenders and beginning the application process.  At Muncy Bank, we’ve been helping generations of individuals and families buy their first home, their family home and their retirement home since 1893. Our friendly mortgage experts live and work where you do, so they are familiar with the local real estate market. Visit one of our community offices in Lycoming, Northumberland, or Clinton County, or give us a call to learn more.  Contact your local Mortgage Loan Originator for additional information based on your specific circumstance.  Below are questions asked by many people in the market for a mortgage:

 

Muncy Bank walks you through the home loan process.

 

What documents do I need to apply for a mortgage?

 

The answer to this question will vary somewhat according to your individual situation, especially for people who are self-employed.  However, there is a core set of paperwork that just about every mortgage applicant will have to submit. For example, federal regulations require applicants to sign and return disclosures related to residential mortgage lending and permission to check credit, employment, and tax return transcripts.

Personal documentation such as a driver’s license and social security number are needed so that the lender can confirm your identity and perform a credit check. Your mortgage lender will also want to see proof of your income, such as pay stubs, investment account statements, W-2s, and/or tax returns. Here’s where things branch off for the self-employed, who will need alternative documentation of income.

 

Use your debt-to-income ratio to find a mortgage that works for you.

Additional information is required when you are self- employed, beyond proof of income, we will need to assess your entire financial picture including current debts, assets, and bank statements.  In particular, we will analyze your debt-to-income (DTI)  ratio. The DTI is the percentage of a person’s monthly gross income that is used for debt payments.  For example, a person with a $45,000 annual salary will have a monthly gross income of about $3,750 (depending on the pay schedule). Generally, the maximum DTI most lenders are comfortable with is about 43 percent. This translates to $1,500 a month for our previous example.  If you already have a certain amount of monthly debt payments for student loans, credit cards, auto loans, etc., subtract that figure from your maximum DTI amount to find out what a comfortable mortgage payment would be. You may need to pay down some of your debt, save for a larger down payment, or seek out a raise at work before applying for a mortgage.  This is where we can help you determine what size mortgage loan will work for you.  

Once your offer on a home is accepted we will need copies of the full purchase contract and your escrow deposit check.  Keep in mind that applying for a mortgage is a process. Once you’ve turned in the initial documentation, you may need to supply information such as updated pay stubs and bank statements, explanations for any recent credit card activity or unusual bank account transactions, and documentation for the sources of your down payment (if a family member gives you money, for example, they may need to supply a gift letter).  While submitting documents for your mortgage application can be arduous, it will be worth it in the end when you move into a home you can afford.  

 

How do I qualify for a home loan?

Once we have all of the initial supporting documents, it’s time to review your paperwork along with your credit report and credit score.  Your credit report may have already been checked if you were pre-approved, but a second review ensures you haven’t opened new credit lines or increased your debt load in the meantime. Overall, your qualification for a mortgage loan comes down to your credit score, down payment amount and DTI.  Many loan programs have inflexible standards for these figures.

 

What role does credit score play in the mortgage process?

 

It’s important to note that debt-to-loan ratio can be as important a factor as credit score in the decision-making process. However, your credit score definitely matters. Minimum score requirements vary by loan type.   As with DTI, this is something you may want to check before you apply. You can use a free app like Credit Karma or Credit Sesame to review and track your credit score. Visit AnnualCreditReport.com, the official federal site, to order a free credit report every 12 months.

If you have a co-applicant, such as a spouse, their credit score and history will also factor into the decision. 

 

 

Your credit score is important in determining your interest rate.


Prequalified vs. Preapproved: What’s the Difference?

 

Many real estate agents will ask you to obtain a mortgage prequalification or preapproval before you begin the home search process. Once you find a house you want to make an offer on, a preapproval letter may be required; it also increases the chance that your offer will be accepted.

The primary difference between prequalification and preapproval is the amount of information submitted. To become prequalified, you only need to provide basic information to help your lender determine the best loan type for you. A preapproval requires more financial documentation and the lender will verify your information before issuing a preapproval letter.  Preapproval letters supply the maximum loan amount you qualify for, so they are also helpful, along with personal finance calculations, for determining your ideal price range.

 

 

What are the different types of home loans?

  • Conventional mortgages are home loans issued by banks and other private mortgage lenders without insurance from the federal government. They usually conform to guidelines set by Fannie Mae and Freddie Mac, the largest buyers of mortgage loans.
  • Government-backed mortgages come with federal guarantees for a certain amount of the loan. This extra layer of security for lenders allows them to issue home loans to buyers with down payments.
  • Both conventional and federally insured mortgages can come with fixed or adjustable rates.

Assessing all of these options, as well as the loan term, will help you determine the best loan type for your budget and goals. Read more about the different mortgage types on our website

 

Consult with a local mortgage lender.

How much should I save for a down payment?

The 20 percent down payment is an iconic feature of the home buying process. However, while it may be a good goal to aim for, it’s not a firm rule. Government-insured loans generally require lower down payments.  Down payments for conventional loans may be flexible as well. The main consideration with down payments is private mortgage insurance (PMI).  If you have the required down payment for your loan type you do not have to pay a monthly PMI fee until you reach the equity threshold of 80%.

 

How long does the mortgage application process take?

The application process encompasses the length of time between the day your offer is accepted and the day of your closing when you will sign all the mortgage paperwork. Generally, a window of one-two months is realistic. Locally owned banks may be able to complete the process sooner because we don’t have to coordinate with employees at different locations across the country. You can also help ensure a timely application process by responding promptly to all of your lender’s requests for documentation.

 

What’s included in my mortgage payment each month?

The exact makeup of your monthly payment will depend on the type and terms of your loan. Here’s what might be included:

  • Loan Principal: The balance of the original amount you borrowed
  • Interest: The amount of interest accumulated on the loan principal
  • Mortgage Insurance: Depends on the type of loan, current percent of equity or amount of down payment

 

What’s the difference between your loan interest rate and APR?

 

Mortgage interest rates can vary on a day-to-day basis depending on national benchmarks and other factors. Generally, the better your credit score, the lower your interest rate will be. Fixed rate mortgages have the same interest rate throughout the life of the loan. ARM loans can adjust up or down after a certain period of time. The current interest rate on your mortgage is applied each month to your unpaid mortgage balance and incorporated into your monthly payment.

On the other hand, APR (Annual Percentage Rate) is made up of your interest rate plus any additional upfront costs such as loan origination fees, PMI, underwriting and processing fees. The APR helps you compare the overall cost of a loan, whereas your interest rate impacts your monthly payment.

 

 

What do closing costs consist of?

You may already know that closing costs are an additional expense on top of your down payment. Your realtor will provide an estimate of your total closing costs and you may be able to ask for a seller’s assist to cover some or all of them. 

 

Defining Community Banking Since 1893

Looking for a local mortgage lender in Lycoming, Northumberland, or Clinton County? We have been serving our local community since 1893.  Our customers appreciate our long history, friendly service and our willingness to help homeowners through the home buying process.  Learn more about the types of mortgage loans we offer and use our home financing calculators to review your options.

 

Contact a mortgage lender at Muncy Bank!

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