Metro Brokers Financial

Mortgage FAQs

Below are some of the frequently asked questions that are posed by homebuyers who are new to the process of buying a home:

What is a mortgage?

What’s in a payment?

What is a fixed rate mortgage?

What is an adjustable rate mortgage (ARM)?

How is an index margin used in an ARM?

How does the interest rate affect my loan?

How much can I afford?

What’s the difference between pre-qualifying and pre-approval?

What is the best mortgage for me?

How much will my mortgage payment be?

How much cash will I need to purchase the house?

Are there any fees associated with the loan origination process?

What paperwork do I need to apply for the mortgage?

What happens once I apply?

What is the property appraisal?

What is an escrow account?

What do typical closing costs include?

What happens on closing day?

What is a mortgage?

A mortgage is a loan used to buy a home or other real estate property, with the home serving as the collateral for the loan, acting as the guarantee that the loan will be repaid.

What's in a payment?

Payments are comprised of principal, interest, property taxes, and possibly mortgage insurance. In the cases of condominiums, maintenance fees may apply as well. However, the real question is: how much can you repay over how many years? Consider how quickly you could repay your loan. Is it 15 years, 20 years, 25 years, or 30 years? Typically, the sooner you repay the loan, the more you'll save on interest payments. However, the longer you extend the term of your financing, the lower your monthly payments may be. When choosing a loan term, consider your budget, your long-term spending patterns, your income over the life of the loan, and how long you plan to stay in your home.

What is a fixed rate mortgage?

With a fixed rate mortgage, the interest rate is set for the full length of the loan and doesn't change. Therefore, since the monthly mortgage payment for principal and interest stays the same for the life of the loan, it's easier to plan a budget using this sort of loan.

What is an adjustable rate mortgage (or ARM)?

An adjustable rate mortgage (ARM) usually starts with a lower initial interest rate than traditional fixed rate loans. After a set initial payment period—anywhere from one to 10 years—the interest rate may change periodically based on market conditions. As the rate changes, so does your monthly payment. In addition, ARM loans feature an adjustment "cap" that limits how much the interest rate can go up, protecting you from large increases in your monthly payment. If you plan on being in your home for a shorter period of time, or expect your income to increase over the years, an ARM loan may be right for you.

How is an index and margin used in an ARM?

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).

How does the interest rate affect my loan?

A lower interest rate allows you to borrow more money than a high rate with the same monthly payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate "lock-in" which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of the loan by expressing it in terms of a yearly interest rate. It is generally higher than the daily interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.

How much can I afford?

There are many factors that determine how much you can afford, including your income, your current bills, your overall debt and your credit history. Mortgage lenders typically use two ratios to assess your loan amount.

  • Housing Expense Ratio
    In general, your monthly mortgage payment (principal, interest, taxes and insurance) should be less than 28-31% of your monthly gross income.
  • Debt-to-Income Ratio
    In general, your total debt should not be larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.

A good rule of thumb is to multiply your annual gross income by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home.

What’s the difference between pre-qualifying and pre-approval?

Pre-qualification is an informal way to see how much you might be able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.

Pre-approval is a lender's actual commitment to lend to you. You will need to provide documentation of your income and your debt, as well undergo a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.

What is the best mortgage for me?

The best mortgage is one that you can afford without cutting in on other necessities, and has interest rates and terms and conditions that give you peace of mind.

How much will my mortgage payment be?

The size of your mortgage and the monthly payments that you will incur are determined by the price of your home minus the down payment, spread over the term of the mortgage at the interest rate chosen.

How much cash will I need to purchase the home?

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
  • 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

Are there any fees associated with the loan origination process?

Yes. When you turn in your application, you'll be required to pay a loan application fee to cover the costs of underwriting the loan. This fee pays for the home appraisal, a copy of your credit report, and any additional charges that may be necessary. The application fee is generally non-refundable.

What paperwork do I need to apply for a mortgage?

Standard requirements include but are not limited to the following items.

  • Social security number
  • Copies of checking and saving account statements for the past 6 months
  • Stocks or bonds assets
  • Recent paycheck stub
  • Credit card statements
  • Installment loan accounts and balances
  • Employment verification information

What happens once I apply?

It usually takes a lender between 1-6 weeks to complete the evaluation of your application. Additional documentation is often required once the application has been submitted. The sooner you can provide the information, the faster your application will be processed. Once your loan is approved, a closing date is set up and the lender will review the closing with you. And after closing, you'll be able to move into your new home.

What is the property appraisal?

A professional appraisal is done to determine the value of the home or other type of real estate. An appraisal is based on the home's condition and selling prices of comparable properties in the area.

What is an escrow account?

An escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner's insurance, make sure you are not penalized for late payments since it is the lender's responsibility to make those payments.

What do typical closing costs include?

  • Attorney or escrow fees (Yours and your lender's if applicable)
  • Property taxes (to cover tax period to date)
  • Interest (paid from date of closing to 30 days before first monthly payment)
  • Loan Origination fee (covers lenders administrative cost)
  • 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 taxes and insurance
  • Paid receipt for homeowner's insurance policy (and fire and flood insurance if applicable)
  • Any documentation preparation fees

What happens on closing day?

On closing day you will finalize the details of your transaction. You will have a chance to go through all of the paperwork and sign where necessary. Once you agree to the loan terms, you will receive a settlement statement that itemizes all services provided and the fees charged. The deed and mortgage will be recorded, and you should receive the keys to your new home.

Metro Brokers Financial, Inc., 5775-D Glenridge Drive, Suite 200, Atlanta, Ga. 30328 A Georgia Residential Mortgage Licensee # 5892. NMLSR Unique Identifier # 163853. 404-847-2525