Frequently Asked Questions

Q:How do I know how much house I can afford?

A:We can work with you to get you qualified BEFORE you look for a home. Generally speaking, you can purchase a home with a value of two or three times your annual household income. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. 

Q:How do I know which type of mortgage is best for me?

A:There is no simple formula to determine the type of mortgage that is best for you. This choice depends on a number of factors, including your current financial picture and how long you intend to keep your house. Prolending Mortgage can help you evaluate your choices and help you make the most appropriate decision. 

Q:What does my mortgage payment include?

A:For most homeowners, the monthly mortgage payments include three separate parts:

  • Principal: Repayment on the amount borrowed
  • Interest: Payment to the lender for the amount borrowed
  • Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company. The mortgage payment may also include Private Mortgage Insurance (PMI) if the loan to value is in excess of 80%.

Q:How much cash will I need to purchase a home?

A:The amount of cash that is necessary depends on a number of items. Generally speaking, though, you will need to supply:

  • Earnest Money: The deposit that is supplied when you make an offer on the house.  This deposit will be applied towards the money needed at closing.
  • Down Payment: A percentage of the cost of the home that is due at settlement
  • Closing Costs: Costs associated with processing paperwork to purchase or refinance a house

Q:What are points and is there a specific reason I should pay points?

A:A point is 1% of the loan amount and sometimes it saves you money to pay for points. On a 30 year fixed Mortgage, one point can save you as much as 1/4% on your interest rate. Your 1% investment will be recouped about 5 years over a 30 year term. As a result you can gain approximately 6 times your investment back over the life of your loan. 

Q:What are debt and income ratios?

A: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 income. The Income Ratio is your total monthly housing expense divided by your gross monthly income (before taxes).  Some conventional programs allow debt ratios to be as high as 50% of your total gross monthly income and FHA can go as high as 56%.  These figures will also depending on the program, down payment, credit rating and your financial strength.

Q:What is Private Mortgage Insurance?

A:Private Mortgage Insurance (PMI) is insurance for the Lender in case the borrower defaults on the mortgage and the property goes into foreclosure. PMI is placed on any conventional loan where the loan amount is greater than 80% of the sales price. PMI benefits the borrower by allowing him/her to put a smaller down payment on the home. Therefore the home can be purchased today rather than waiting until more money is saved up for a down payment of 20%. But, there are ways around this on some conventional loans.  Ask me how?

Q:How much money do I need for a down payment and closing costs?

A:There are loan programs available that require no down payment. These loan programs may have slightly higher interest rates and they may have a prepayment penalty. Other loan programs offer 3% to 5% down. For most conventional loans a minimum down payment of 5% is required plus money for closing costs, which typically average between 3% and 4%. Some programs allow the down payment and/or closing costs to be a gift from a family member. A Loan Officer can advise you about these different types a loans 

Q:What is the APR and how does it affect my payment?

A:Obtaining mortgage loan can be a very complicated process. It is important for you to understand all of the costs and information being presented to you when you are shopping for a mortgage loan. A short explanation of your Truth-in-Lending form is as follows:(You should receive a copy of your Truth-In-Lending statement when you receive your Good Faith Est.)The Annual Percentage Rate (APR) The concept of the annual percentage rate can be difficult to understand because it is based on a complex mathematical formula, which is prescribed in Regulation Z. What is important to understand though, is that the APR is a measure of the cost of credit expressed as yearly rate.The APR reflects the amount being financed, the interest rate, the timing of the payments, and any other costs (prepaid charges) required as a condition of the mortgage loan that make up the finance disclosure under the Truth in Lending Act, expresses as a dollar amount the costs associated with the loan, including interest and charges payable by the borrower such as points, loan fees, origination fees, application fees, and insurance, to name a few.When the various components mentioned above are factored together using the APR formula, the APR can be calculated. Because the APR takes into consideration the various fees that are required as part of the loan, the APR is often higher than the actual rate of interest for the loan.EXAMPLE:Type of Loan FixedInitial Interest Rate 8.000%Loan Term 30 yearsAmount of Loan $90,000Total Prepaid Charges $2,637.27APR 8.5273%Keep in mind that the APR is an artificial measurement of the relative cost of the loan transaction. It doesn’t have a bearing on the actual rate of interest on a particular loan, but it does take the rate of interest into account. Your loan officer can calculate the APR of various loan programs for you and can explain why these differences between interest rate and APRs occur. If your loan is on a FHA ARM, the APR is calculated at the life cap, not the note rate. If your loan is on the COFI, the APR is calculated at the current note rate.Please note that your monthly principal and interest payments are figured at the note rate and not the APR.Because the APR expresses the overall cost of the loan as a percentage, comparing the APR of a particulate mortgage loan with a similar loan is one way to measure the relative cost of the loans. This isn’t the only factor to consider when getting a mortgage loan, but it can be very useful in helping you decide.Be sure to take into account all of the other information that is provided to you by your loan officer including the interest rate and any fees or charges that you may have to pay. Just because an APR is lower on one loan than on another, it doesn’t necessarily mean that particular mortgage loan is the best loan for you. 

Q:What is the difference between a fixed-rate loan and an adjustable-rate loan?

A:With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change. There are advantages and disadvantages to each type of mortgage, and the best way to select a loan product is by talking to your broker. 

Q:How is an index and margin used in an ARM?

A:An index is an economic indicator that lenders use to set the interest rate for an ARM. Generally the interest rate that you pay is a combination of the index rate and a pre-specified margin. Three commonly used indices are the One-Year Treasury Bill, the Cost of Funds of the 11th District Federal Home Loan Bank (COFI), and the London InterBank Offering Rate (LIBOR).