Home Mortgage FAQ’s

Pink Ribbon Home Mortgage, (PRHM), is committed to helping you understand your home mortgage options. We’ve compiled a list of some common questions we frequently hear from our customers. If you don’t find the answer you are looking for, please contact us personally and we will be happy to have one of our experienced loan officers talk with you.

1. What is the typical home loan process?

2. What is the difference between pre-qualification and pre-approval?

3. Once I sign my application, am I committed to borrow money?

4. Internet Statements – Can I use them?

5. Who orders the appraisal and survey? When is it ordered?

6. What does “locking my rate” mean?

7. What are origination and discount points?

8. What is APR? (Annual Percentage Rate)

9. Why do mortgage rates change?

10. Can my loan be sold? What happens if my lender goes out of business?

11. What is PMI? Can I get rid of the PMI on my loan?

12. What is 80-15-5 financing?

1. What is the typical home loan process?

A typical home loan process consists of 10 easy steps:

1. Complete the FREE on-line approval application.
2. Pre-Purchase consultation with a PRHM loan officer.
3. Gather and prepare necessary loan documents.
4. Receive credit approval.
5. Obtain a property inspection from a trusted title company partner.
6. Loan officer summits mortgage loan documents to lender.
7. Buyer obtains homeowners insurance.
8. PRHM loan officer fulfills any necessary loan conditions.
9. Pre-closing confirmation set up time to sign closing paperwork.
10. Easy, smooth, on time closing!

2. What is the difference between pre-qualification and pre-approval?

A mortgage pre-qualification is basically the lenders opinion of your ability to buy or refinance a home. This requires only basic information and no documentation or credit score. A mortgage pre-approval is the underwriter’s decision that you are qualified. Credit check and income documentation are required.

3. Once I sign my application, am I committed to borrow money?

NO. Your pre-closing signatures are noncommittal, they simply allow your mortgage broker to negotiate and potentially approve you for a loan.

4. Internet Statements – Can I use them?

Internet Statements are not allowed because they’re not yet seen as completely unalterable by Fannie Mae or Freddie Mac. ALL PAGES of a required hard copy statement (1 of 4 – all 4) are needed, even if the last few pages are blank or advertisements.

5. Who orders the appraisal and survey? When is it ordered?

Your lender will order the appraisal and survey for you. Most contracts have option periods that allow you to dictate when the appraisal and survey are ordered. Typically they are ordered as soon as your loan documents are submitted to the lender.

6. What does “locking my rate” mean?

Locking your interest rate refers to guaranteeing a specific interest rate for a specific period of time. Shorter lock periods usually have lower interest rates. For more information, contact PRHM to speak to an experienced loan officer.

7. What are origination and discount points?

Origination and discount points are both a percentage of your loan amount, usually around 1%, (often tax deductible). They can often be used to obtain a lower interest rate.

8. What is APR? (Annual Percentage Rate)

Your loan’s APR will usually be higher than your quoted interest rate because it includes, in addition to interest, some of the additional costs of obtaining your financing.

9. Why do mortgage rates change?

To understand why mortgage rates change we must first ask the more general question, “Why do interest rates change?” It is important to understand to realize that there is not one interest rate, but many interest rates!

1. Prime Rate
2. Treasury Bill Rates
3. Treasury Notes
4. Treasury Bonds
5. Federal Funds Rate
6. Libor
7. 6 Month CD Rate
8. Fannie Mae Backed Security Rates
9. Ginnie Mae Backed Security Rates

Interest rate movements are based on the simple concept of supply and demand. If the demand for credit (loans) increases, so do the interest rates, and visa versa. This leads to a fundamental concept:

• Bad News (i.e. a slower economy) is good news for interest rates (i.e. lower rates).
• Good News (i.e. a growing economy) is bad news for interest rates (i.e. higher rates).

Another major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy is growing too strongly, the Federal Reserve increases interest rates to slow the economy down and reduce inflation and visa versa. Mortgage rates tend to move in the same direction as interest rates.

10. Can my loan be sold? What happens if my lender goes out of business?

Your loan can be sold at any time. There is a secondary mortgage market in which lenders frequently buy and sell pools of mortgages. This secondary market results in lower rates for consumers. If your loan is sold, your existing lender will notify you that your loan has been sold, who your new lender is, and where you should send your payments for now on. If your lender goes out of business, you are still obligated to make payments. Typically, loans owned by a lender going out of business are sold to another lender. The new lender has to honor the term and conditions of your original loan. Therefore, if your lender does go out of business, it makes little difference with regards to your loan payment.

11. What is PMI? Can I get rid of the PMI on my loan?

PMI or Private Mortgage Insurance is normally required when you buy a house with less than 20% down. Mortgage Insurance is a type of guarantee that helps protect lenders against the costs of foreclosure. In most cases you can get rid of your PMI when you obtain 20% equity in your home. To cancel your PMI, contact your lender. Usually an appraisal will be required to determine the value of your property.

12. What is 80-15-5 financing?

Surprising as it may seem, most folks with decent incomes still find it difficult to save enough money to make a 20% cash down payment on their dream home. Using conventional financing, these buyers would have to purchase Private Mortgage Insurance (PMI) which increases the cost of home ownership and ironically, makes it even more difficult to qualify for the mortgage. However, if you’re a dues-paying member of the cash-challenged class, don’t despair. Given that your income is sufficiently high, it’s possible to avoid getting stuck with PMI. That’s why 80-15-5 or 80-10-10 financing was invented. It’s called 80-15-5 because a bank or other institutional lender provides a traditional 80% first mortgage, then you get a 15% or 10% second mortgage and make the rest your cash down payment. By using this method, you are no longer obligated to take out PMI on your property.