Mortgage FAQ

Purchasing or refinancing a home doesn’t have to be a daunting task. Explore some of the most frequently asked questions below to get answers to your most pressing questions. Then, contact GuardHill Financial to get started!

Should I pay my closing costs out of pocket when I refinance?

When you refinance, you can pay the fees out of pocket or sometimes roll them into the loan amount.

If you have the cash on hand, then consider paying the costs out of pocket. This will keep your monthly payment lower. If you roll the fees into the loan amount, this will increase your monthly payment, but the increase is usually nominal.

What is pre-paid interest?

When you make your mortgage payment on the first of the month, you are actually paying for interest charges that accumulated during the previous month (also called “paying in arrears”). For example, a mortgage payment due on August 1 would cover the interest charged from July 1 to July 31.

As the name indicates, “pre-paid” interest is paid in advance. It is the per diem interest charges that begin accumulating on the day your loan is closed until the end of the month in which the closing occurred. In a refinance transaction, pre-paid interest is calculated from the time the new loan is funded because of the three-day rescission period.

So, for example, if your loan closed and funded on June 15, the pre-paid interest would be calculated based on the number of days left in the month of June, or 15 days (June 16 through June 30).

Using this same scenario, your first monthly mortgage payment would be due on August 1. The August 1 payment would cover interest charges that occurred between July 1 and July 31 (covering the days after the pre-paid interest period ended).

What is the difference between interest rate and APR?

The interest rate is the cost to actually borrow the money disbursed in the loan. In addition to the interest, the APR (annual percentage rate) adds in some of the upfront refinance costs of getting the loan, including points and lender fees.

What are points?

Points, also known as discount points or mortgage points, are a one-time fee that you can choose to pay to get a lower interest rate. One point equals one percent of your loan amount and will usually result in a rate that is one-eighth to one-quarter of a percent lower.

 

How fast will my money be available?

On a refinance, funds are normally disbursed on the fourth business day after you sign your loan documents. This is because federal regulations require a three-day rescission period. That means you have three business days to change your mind and cancel your loan outright.

What is a comparable sale?

A comparable sale is a property that has recently sold and is similar to the subject property in most respects, including size, location and amenities. The selection of comparable sales is an important determining factor in providing an opinion of market value. It is the appraiser’s responsibility to adequately research the local real-estate market and to determine which comparable sales best represent the value characteristics of the subject property.

Will I be provided a copy of the appraisal?

Lenders are required to provide applicants with all completed appraisals and written valuations related to their first-lien mortgage and home-equity loan and line applications.

What does “market value” mean?

Market value is the likely selling price of a home with a willing buyer and a willing seller on the open market.

Will I need a home appraisal?

In almost all situations, a home appraisal will be needed. The appraisal helps a lender determine the fair market value of the home you will mortgage with your refinancing. Since the property will be used as collateral against the mortgage, lenders want to make sure the house is worth at least as much as the loan being requested.

What is an appraisal?

An appraisal is a type of valuation developed by an independent, unbiased, qualified, and licensed or certified professional. Appraisals and valuations are opinions of the market value for the property used as collateral for the requested loan. Written reports of appraisals are sometimes referred to simply as “appraisals.”

Do I want an interest-only loan?

Interest-only loans are not for everyone, and because of the risks, the pros and cons of an interest-only loan should be considered thoroughly. If you prefer lower payments, borrowers on an interest-only loan make only monthly payments of interest for a set number of years before they begin to make principal payments. During this period, you won’t build any additional equity in your home unless the home appreciates in value. When the interest-only period ends, your mortgage payment will increase to include principal to ensure the outstanding balance gets repaid. This increase is often substantial. If you are comfortable with managing the risks, an interest-only loan does provide some flexibility in managing month-to-month cash flow.

The interest-only feature is not offered on all loan products and is only available to those who are well qualified, so contact one of our Home Loan Originators to see if this option is right for you.

Should I get a fixed rate or an adjustable rate?

On a fixed-rate loan, your interest rate will not change. An adjustable-rate mortgage (ARM) has an interest rate that is fixed for a set number of years and then afterwards will go up or down based on a market index such as the LIBOR . When deciding which loan option will be best for you, consider factors such as the length of time you plan to stay in your home. However, if you will be in your home for a long period of time, a fixed-rate may be better for you. Otherwise, an adjustable-rate may be better if you plan to sell your home before the rate becomes variable, since initial ARM rates are typically lower than fixed-rate mortgages.

Why should I refinance?

There are numerous reasons customers refinance the loans they already have. Some of these are:

  • To lower the monthly payment
  • To lower the interest rate
  • To switch from an adjustable-rate to a fixed-rate, or vice versa
  • To refinance for a higher amount in order to pay off other debts or get cash
  • To change the remaining term of the loan

Whatever your needs, we can help you determine whether to refinance and which loan is best for you.

Will the monthly amount you collect for my escrow account change?

The amount we collect each month may change based on increases and decreases to your real estate taxes and/or insurance premiums. We’ll review your escrow account at least once a year, then we’ll notify you of any changes to your required escrow payment in an Escrow Account Disclosure Statement.

How will you determine how much my property tax and insurance payments will be?

We typically estimate the real estate tax portion of your escrow based on the most recent tax assessment on the property and your homeowner’s insurance based on information provided by your insurance company.

What types of bills are paid out of an escrow account?

Typically, bills paid out of an escrow account will be for real estate taxes and required insurance premiums, which may include homeowners insurance and, if applicable, flood insurance and/or private mortgage insurance. Escrow accounts usually do not cover funds for interim bills, homeowner association fees, non-required insurance, special or added tax assessments, supplemental tax bills or any type of non-real-estate-based taxes unless they are included on real estate tax bills.

Am I required to have an escrow account on my loan?

That depends on factors such as the loan program you choose and the amount of down payment you make. When you apply for your loan, we will let you know whether or not an escrow account will be required. If it is, we’ll give you an estimate of the monthly escrow payments you will need to make.

What is an escrow account and how does it work?

An escrow account ensures your real estate tax and insurance bills are paid in full and on time, without you having to save large amounts of money and keep track of due dates. An escrow account is a separate account that your lender sets up to hold the money it collects each month for your real estate taxes, homeowner’s insurance premiums, and if applicable, flood insurance and/or mortgage insurance. The lender takes your estimated annual real estate taxes and insurance premium expenses and divides that amount by 12. This amount is added to your monthly mortgage payment.

Your real estate and insurance bills are sent directly to the lender and they are paid on your behalf with the escrowed funds.

Do I need to have perfect credit?

If your credit score is high you may receive better rates and have more options available to you. But simply having some credit issues in the past won’t necessarily disqualify you from getting a mortgage. However, your credit history needs to demonstrate both willingness and ability to repay on time.

What will my rate be?

There are many factors that impact what interest rate you will be offered – from daily changes in the market to individual qualifications. There’s no way to say what your exact interest rate will be until your application is completed, but we will give you our best estimate based on preliminary factors. Your final interest rate will be influenced by where the market is when you apply as well as factors such as the loan purpose (purchase or refinance), your credit history (FICO score), the value of your home and the loan amount, to name a few.

How does the lender determine if I qualify for the loan?

When reviewing your application information, an underwriter examines three main factors to assess whether you qualify for the loan and also in some cases to determine your interest rate:

  • Your credit history (including FICO score)
  • Your property value
  • Your debt-to-income ratio (the amount of income and assets you have compared to your outstanding debts)
Is my interest tax deductible?

Interest you pay on a loan that is secured by your primary residence may very well be tax deductible. Consult with a tax advisor to find out whether the mortgage interest will be tax deductible in your situation.

How do I find out my home’s value?

There are many sources online that can tell you what other homes in the neighborhood are selling for and you can usually check with the local tax authority to find out what the last tax assessment was for the property. However, we will verify the value of the home during loan processing by ordering an appraisal during the application phase of the mortgage process.

What is LTV and why does it matter?

LTV stands for loan-to-value. It’s used to determine how much you are eligible to borrow and whether mortgage insurance, such as PMI, will be required. It’s also one of the factors used in determining your interest rate.

 

It equals:

The total dollar amount of mortgages on your property

Divided by

The property’s fair market value

 

When you’re buying a house, the fair market value will be the lower of purchase price or the estimated market value as established by the appraisal.

Can I lock my interest rate when shopping for a home?

For first mortgages, Citizens does not always require a property address to lock a rate. However, once we lock the rate we’ll need a property address within 30 days. Speak with a Home Loan Originator for specific details on locking your interest rate. Restrictions may apply.

Do I need a down payment?

Citizens Bank offers low down payment options for several mortgage programs. What products are available to you will ultimately depend on your ability to qualify as well as which loan program best meets your needs. Contact a Home Loan Originator to answer your mortgage questions and discuss your options.

What is PMI?

If you’re buying a home, and have less than a 20% down payment, mortgage insurance, such as private mortgage insurance or PMI is usually required. The mortgage insurance premium is typically included in your monthly mortgage payment.

What amounts are included in my monthly payments?

With most mortgages, your monthly mortgage payment will include amounts that go toward loan principal and interest. For an interest-only mortgage, monthly payments will include only the interest that is due on the outstanding principal balance, until the interest-only period ends.

Mortgage Insurance (MI)

If your home loan requires mortgage insurance, such as private mortgage insurance or PMI, your monthly payment will usually include a mortgage insurance premium.

Real Estate Taxes and Insurance

Your monthly payment may include a portion to cover real estate taxes, homeowners insurance and, if applicable, flood insurance. This money will be held in an escrow account , and we’ll pay your real estate tax and insurance bills on your behalf when they are due.

Remember, no matter the type of mortgage you have, you can always make additional payments toward principal without a penalty. That will help you pay off your loan more quickly.

Should I pay my closing costs out of pocket?

In most cases when you are getting a mortgage to buy a home, you will need to pay some closing costs out of pocket. However, sometimes you can choose to accept an interest rate higher than what you would normally qualify for in exchange for a lender credit to offset a portion of those closing costs. This will result in a higher monthly mortgage payment, so you have to weigh the pros and cons to determine what works best for your situation. Speak to your Home Loan Originator about your personal circumstances to find the right solution.

What is pre-paid interest?

When you make your mortgage payment on the first of the month, you are actually paying for interest charges that accumulated during the previous month (also called “paying in arrears”). For example, a mortgage payment due on August 1 would cover the interest charged from July 1 to July 31.

As the name indicates, “pre-paid” interest is paid in advance. It is the per diem interest charges that begin accumulating on the day your loan is closed until the end of the month in which the closing occurred.

So, for example, if your loan closed on June 15, the pre-paid interest would be calculated based on the number of days left in the month of June, or 15 days (June 16 through June 30).

Using this same scenario, your first monthly mortgage payment would be due on August 1. The August 1 payment would cover interest charges that occurred between July 1 and July 31 (covering the days after the pre-paid interest period ended).

What is the difference between interest rate and APR?

The interest rate is the cost to actually borrow the money disbursed in the loan. In addition to the interest, the APR (annual percentage rate) adds in some of the upfront costs of getting the loan, including points and lender fees.

What are mortgage points?

Points, also known as discount points or mortgage points, are a one-time fee that you can choose to pay to get a lower interest rate. One point equals one percent of your loan amount and will usually result in a rate that is one-eighth to one-quarter of a percent lower.

To determine if you should buy points, use our Mortgage Points Calculator.

How fast will I get my money?

This is one of the most important mortgage questions. When you’re buying a home, the funds are available on the day you close your loan. On a refinance, funds are normally disbursed on the fourth business day after you sign your loan documents. This is because federal regulations require a three-day rescission period, during which you have the right to cancel your loan outright.

What is a comparable sale?

A comparable sale is a property that has recently sold and is similar to the subject property in most respects, including size, location and amenities. The selection of comparable sales is an important determining factor in providing an opinion of market value. It is the appraiser’s responsibility to adequately research the local real-estate market and to determine which comparable sales best represent the value characteristics of the subject property.

Will I be provided a copy of the appraisal?

Lenders are required to provide applicants with all completed appraisals and written valuations related to their first-lien mortgage and home-equity loan and line applications.

What does “market value” mean?

Market value is the likely selling price of a home with a willing buyer and a willing seller on the open market.

Do I need a home appraisal?

In almost all situations, a home appraisal will be needed. The appraisal helps a lender determine the market value of the home you are considering purchasing. Since the property will be used as collateral against the mortgage, lenders want to make sure the house is worth at least as much as the loan amount you’re seeking.

What is an appraisal?

An appraisal is a type of valuation developed by an independent, unbiased, qualified, and licensed or certified professional. Appraisals and valuations are opinions of the market value for the property used as collateral for the requested loan. Written reports of appraisals are sometimes referred to simply as “appraisals.”

How can I get pre-approved?

Contact us to get started with your mortgage pre-approval. We’ll get some preliminary information from you, review it and determine whether you might qualify for a loan. Once you get your mortgage pre-approval, you’ll know how much you could borrow and can look for a new home with confidence. Sellers will also feel more comfortable knowing that they have a serious buyer.

Do I want an interest-only loan?

Interest-only loans are not for everyone, and because of the risks, the pros and cons of an interest-only loan should be considered thoroughly. With an interest-only loan, borrowers make only monthly payments of interest for a set number of years before they begin to make principal payments. During this period, you won’t build any additional equity in your home unless the home appreciates in value. When the interest-only period ends, your mortgage payment will increase, often substantially, to ensure the outstanding principal balance is repaid before the loan term ends. If you are comfortable with managing the risks, an interest-only loan does provide some flexibility in managing month-to-month cash flow.

The interest-only feature is not offered on all loan products and is only available to those who are well qualified. Contact one of our Home Loan Originators to ask any mortgage questions and see if this option is right for you.

Should I get a fixed rate or an adjustable rate?

On a fixed-rate loan, the interest rate doesn’t change over the life of the loan. An adjustable-rate mortgage (ARM) has an interest rate that is fixed for a set number of years and then afterwards will go up or down based on a market index such as the LIBOR. Consider factors such as the length of time you plan to stay in your home. If you plan to stay in your home for a long period of time, a fixed-rate may be better for you. Otherwise, an adjustable-rate might be better if you plan to sell your home before the rate becomes variable, since initial ARM rates are typically lower than fixed-rate mortgages.

I want to stop paying mortgage insurance. Can refinancing help with this?

It’s possible. If you have 20% equity in your home, either because your home has appreciated in value or because you’ve been paying down your principal, we may be able to help you eliminate this additional cost. Call us today to learn more!

Is it worth refinancing if I only see a small change in my current rate?

A lower interest rate will save you money if you plan to stay in your home for more than a few years. My Refinance Calculator can help you get an idea of how much you may save. Every person’s situation is unique, so your short- and long-term financial goals should also be factors in this decision. We can sit down together and review the numbers to see if refinancing makes sense for you.

Is it a good idea to refinance my home?

Maybe you need to pay off some high-interest debt. Perhaps you have a second mortgage at a high rate and you want to roll your two mortgages together. With today’s interest rates, you may be interested in trying to lower your monthly payment. Or maybe your ARM loan is about to mature and your payments will begin to fluctuate with the market. These are all good reasons to refinance. We can discuss the pros and cons, and the costs involved, to see if refinancing your home loan is the best choice for you. You can also start the process by applying online with my easy application.

What actually happens at closing?

We hold a meeting with all parties involved: you, the seller, the seller’s agent, your real estate agent, a closing agent and me. The closing agent will have a stack of papers for you and the seller to sign. Take your time, look at each page and ask any questions you may have. Your agent will be able to answer most of your questions. This is a big step involving a lot of money, so you need to be sure you understand what you’re signing! You’ll need to provide proof of your homeowners insurance, while the seller will show proof of warranties and any inspections they paid for. The closing agent will go over the money you owe to the seller and the money the seller owes you, such as unpaid taxes.

After all the paperwork is signed, you’ll get the deed to your new home, stating you are the rightful owner, and your house keys. Congratulations, you are a home owner!

What you’ll receive at closing:

  • Settlement statement, HUD-1 form
  • Truth-in-Lending statement
  • Mortgage note
  • Mortgage or deed of trust
  • Binding sales contract
  • Keys to your new home
  • Visit my Glossary for more information on the terms listed above.
What are closing costs?

On the day you actually buy your new home, in addition to your down payment, the prepaid property tax and homeowners insurance premiums, you’ll need cash for various fees associated with the purchase. These expenses are known as closing costs and are paid by both buyers and sellers.

Some closing costs you pay up-front when you apply for a mortgage loan. Those include the fees for a credit check on all applicants and an appraisal on the property.

Other closing costs may be necessary and should be considered when evaluating your financial situation. We will discuss them in advance so there are no surprises at closing. These may include, but are not limited to:

  • Attorney’s or escrow fees
  • Property taxes
  • Interest
  • Loan origination fee
  • Recording fees
  • Survey fee
  • First premium of mortgage Insurance (if applicable)
  • Title Insurance (yours and lender’s)
  • Loan discount points
  • First payment to escrow account for future real estate taxes and insurance
  • Paid receipt for homeowners insurance policy (and fire and flood insurance if applicable)
  • Any documentation preparation fees
What happens after I’ve applied for my loan?

Once your application has been completed and submitted to the processors and underwriters, it is carefully reviewed and all your documentation is verified. We may need to ask you for more information, but that is not unusual. The sooner you can get that information back to us, the faster your application will be processed. Once your loan is approved, a closing date is set up and I will review what happens and what you’ll need to do to finalize the transaction. Then you’ll be ready to move into your new home!

I’m a first-time homebuyer. What are the special incentives for me?

We participate in several affordable mortgage programs which are designed to encourage homeownership across the country and to make buying a first home a low-stress process. Let’s talk about the programs available in our area and any federal programs you may qualify for.

Do I need homeowner’s insurance?

You have to show proof of homeowners (or hazard) insurance at closing, so you must have insurance in place. Start shopping around early in the process to get the best deal. An experienced agent can give you some idea of how much insurance will be for different types of homes, which may influence where you choose to look for your new home or what type of home you want to buy.

There are so many different types of mortgages out there — how do I know which one I should choose?

You’re right, there are a lot of choices. Each type of loan has different benefits and advantages, so it’s important to discuss your financial goals with me when we sit down to review your needs.

It is my goal and my duty to fully educate you on the options available to you and to ensure you fully understand the type of home financing that you choose. We’ll consider your current financial situation, your short- and long-term financial goals and what’s going on in your life when we discuss loan scenarios. This may be the biggest purchase you make in your lifetime and I want to be sure you are fully satisfied with the decision you make and the guidance I provide.

How much house can I afford?

When you come in to meet with me and bring the documentation we need to go over together, we’ll be on the road to determining how much money you are qualified to borrow. We look at your income and bills, and then we plug those numbers into calculations called front-end and back-end ratios to determine the percentage of your income that can be devoted to your housing payment.

We’ll take a look at current interest rates, local property taxes and homeowner’s insurance costs as well as the mortgage payment itself, as these are all factors in your housing costs.

Visit our Calculators page to try some different scenarios out. Then when you’re ready, we’ll get you pre-approved for a loan amount and you can begin looking at houses with your agent!

What is the difference between conforming and nonconforming loans?

A conforming loan follows the guidelines set forth by Fannie Mae and Freddie Mac and currently has a loan limit of $417,000 in the 48 contiguous states (these limits can change yearly).

A non-conforming mortgage may be for a higher amount than the limit set on conforming loans. In some instances the term may also refer to a loan where the borrower has credit issues or unusual documentation. Non-conforming loans generally have higher interest rates and you may need to put down more cash to secure your loan. Jumbo loans are non-conforming loans.

What is my first step in obtaining a home loan?

Getting pre-qualified is your very first step. You’ll give me information on your income, credit and bills, and I’ll tell you whether you may qualify for a loan and a general idea of how much it might be for. We’ll discuss any questions you have about mortgages and financing too. Once I determine that, you should be able to secure financing from us. You can start interviewing a few real estate agents to find one you really connect with and who is familiar with the areas where you are interested in home shopping. Next, you’ll gather some more information for me (view our Worksheets & Checklists) and I can get you pre-approved for a mortgage!

When you are pre-approved, you’ll know exactly how much home you can afford, which will make your home shopping easier (and less painful since you won’t waste time looking at — and falling in love with — houses that are out of your budget). Where pre-qualification is a sort of educated guess of the buyer’s purchasing power, pre-approval says you would definitely be approved for the loan.

It’s important that we look at your total financial situation and decide what payments you will be comfortable with. Buying a home is the biggest purchase most people make in their lifetime. Let’s do it the right way.

Why should I buy vs. rent?

Paying rent is like lining your landlord’s pockets — you pay while they build equity, write off the interest on their mortgage and deduct their property taxes. When you own your home, it is an investment. Over the long term, the worth of a home generally increases, which means your home may make you some money when you decide to sell, or act as collateral for a loan that can pay for debt consolidation, medical bills, college tuition or a fabulous vacation. Plus, your home is yours, to paint, decorate and renovate any way you like!