Questions people ask

When the new loan saves you enough, soon enough, to be worth the cost of getting it. Two things decide that: how much lower the new rate is than your current one, and how long you plan to keep the loan. A small rate drop can still be worth it on a large balance; a big one can be a bad deal if you’re selling next year. We run the break-even point for you in writing: the month where the savings have paid back the closing costs. If you’ll still be in the home past that month, it’s usually a yes.

If your current rate is low and you mainly want cash, read about a home equity line first. A refinance re-prices your whole balance; a second lien doesn’t.

A point is 1% of the loan amount. On a $500,000 loan, one point is $5,000. Discount points are paid up front to lower the interest rate on the loan. Origination points are a lender fee for making the loan. Lenders sometimes quote in basis points: 100 basis points is one point.

Only if you’ll keep the loan long enough for the monthly savings to pay back what the points cost. That break-even is often several years. If you expect to sell or refinance before then, you’d be paying for a discount you never collect. We’ll show you the break-even month for your actual numbers.

The annual percentage rate expresses the cost of a mortgage as a yearly rate including points and most lender fees, not just the interest. It exists so you can compare loans from different lenders on the same footing. It’s usually a bit higher than the note rate.

Your monthly payment is set by the note rate and the term, not the APR. And because lenders include different fees in APR, a lower APR isn’t automatically the cheaper loan. The reliable way to compare is to get a Loan Estimate from each lender for the same program at the same rate, strip out the costs that don’t depend on the lender (title, escrow, insurance, inspection), and compare what’s left.

Usually included in APR: discount and origination points, prepaid interest, processing, underwriting, document preparation, mortgage insurance, escrow fee. Usually not included: title, attorney, inspection, recording, transfer taxes, credit report, appraisal.

Rates move every day between when you apply and when you close. A rate lock is the lender’s commitment to hold your rate for a set period, commonly 30 to 60 days, so a move in the market during underwriting doesn’t change your payment. Some locks carry a fee; longer locks cost more. We lock once you’re in contract and the closing date is known.

Every file is different and you may be asked for more, but this covers most applications. Sending what’s asked for quickly is the single biggest thing you can do to speed up your loan.

The property

• Signed purchase contract with all addenda
• Proof of your deposit on the home
• Contact details for the agents, escrow and insurance agent involved
• For a condo: the HOA’s declaration, bylaws and current budget

Your income

• Pay stubs covering the most recent 30 days
• W-2s for the last two years
• Employer names and addresses for the last two years, and a letter explaining any gaps
• Work visa or green card, front and back, if applicable

If self-employed, or paid by commission, bonus, dividends or rent

• Complete personal tax returns for the last two years with all schedules, plus a year-to-date profit and loss
• K-1s for any partnership or S-corp, both years
• Business returns (1065 or 1120) for the last two years if you own 25% or more

Other income

• Alimony or child support: the divorce decree or court order and proof of receipt for the last year
• Social Security, disability or VA benefits: the award letter

Down payment and funds to close

• Bank, savings or money-market statements for the last three months
• Brokerage statements for stocks and bonds
• If selling your current home: the sales contract or listing agreement, and the closing statement at closing
• Gifts: a gift letter and proof the funds arrived

Debts

• Account names, numbers, balances and payments for all current debts, with the last three statements
• Mortgage or landlord details for the last two years
• Any court-ordered support you pay

With a credit score, most often a FICO score between 300 and 850. The score is built from your credit report: payment history, how much you owe relative to your limits, how long you’ve had credit, how recently you’ve applied for new credit, and the mix of accounts you hold. Lenders use it to predict how likely you are to repay.

Because the report drives the score, check it before you apply. You’re entitled to a free report from each of Equifax, Experian and TransUnion every twelve months at annualcreditreport.com. Disputing an error before you apply is far easier than explaining it during underwriting.

Pay every bill on time, pay revolving balances down well below their limits, and don’t open new accounts in the months before you apply. Those three move the score more than anything else. Payment history and utilization carry the most weight in most models; a long history helps; a burst of recent applications hurts. Scores take time to move, so start before you start shopping, not after.

Inquiries from lenders reviewing your existing accounts or making pre-screened offers don’t count against you. Applying for several new accounts in a short period does.

A licensed appraiser’s estimate of what the property is worth. The lender orders it to confirm the loan amount isn’t more than the home’s value. The appraiser looks at the property’s condition, location and features, and at recent sales of comparable homes nearby. Most loan programs require one; some home equity products don’t at smaller amounts.

Private mortgage insurance. On a conventional loan with less than 20% down, the lender usually requires it to cover their risk if you default. You pay it monthly, and sometimes part of it up front at closing. It comes off a conventional loan once you reach 20% equity. The ways around it: put 20% down, use a VA loan if you qualify, or structure the loan as an 80-10-10.

A way to avoid PMI with less than 20% down. The lender makes an 80% first mortgage, you take a 10% second mortgage, and you put 10% down. Because the first mortgage is at 80%, no PMI is required. An 80-15-5 version exists for a 5% down payment, but the smaller down payment means a higher rate and fees on the second lien. Whether it beats simply paying PMI depends on the numbers, and we’ll run both.

Closing, also called funding or settlement, is when ownership officially transfers from the seller to you and the loan funds. In California it runs through an escrow company. You sign the loan documents, usually a few days before, the lender wires the funds, the deed records with the county, and you get the keys. Do a final walk-through beforehand to confirm agreed repairs were done and that anything included in the sale is still there.