FAQs (Frequently Asked Questions)
What is the Direct Advantage pre-approval?
Directors Mortgage offers peace of mind with a $5,000 earnest money guarantee when you take the time to meet with one of our professionals and we issue a Direct Advantage Preapproval Letter.
Am I better off renting or buying a home?
The decision to rent or buy a home differs for everyone, as there are benefits to both. Buying a home could be a better deal for you depending on how long you plan to live in your home and the loan you choose. Try our Rent vs. Buy Calculator to help you decide which option is best for you.
What are the advantages of a home purchase?
A home purchase gives you personal benefits such as a sense of investing in your community and pride for achieving the dream of homeownership. There are some strong financial benefits as well, especially the tax savings you may enjoy. Interest payments on a mortgage are typically tax deductible (consult your tax advisor for more information). As you continue to make mortgage payments, you'll build home equity, as opposed to paying rent to someone else.
How much can I afford to borrow?
Everyone's financial situation differs; it is important to recognize what you can comfortably afford to borrow. In general, the loan amount you can afford depends on four factors:
- Your debt-to-income ratio, which is your total monthly payments as a percentage of your gross monthly income
- The amount of cash you have available for a down payment and closing costs
- Your credit history
- The value of the property you are purchasing
How much do I need for a down payment?
Your down payment requirements will depend on your lender, the type of home loan you choose and the type of property you are buying. Your required down payment can range anywhere from 3%-20% of the home's purchase price. Lenders offer a variety of different loan programs, including low down payment options. Each loan programs has different rules regarding the down payment required. Down payments can also vary by the amount you want to borrow, as well as factors like credit history.
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.
What is the difference between APR and interest rate?
It is important to understand the difference between your interest rate and APR.
Your interest rate is the direct charge for borrowing money.
The APR, however, reflects the cost of your mortgage as a yearly rate and includes the interest rate, origination charge, discount points, and other costs such as lender fees, processing costs, documentation fees, prepaid mortgage interest and upfront and monthly mortgage insurance premium. When comparing loans across different lenders, it is best to use the quoted APRs for the same type and term of loan.
What is the difference between prequalification and preapproval?
To get prequalified, you will need to provide the lender with some financial information such as your income and the amount of savings and investments you have. The lender will use this information to estimate how much money we may be able to lend you and therefore the price range of homes you can start looking at. To get prequalified the lender will request a formal credit check. The estimate of the loan amount provided to you does not guarantee you will ultimately be approved for that amount.
To get preapproved, however, you will need to provide the lender with financial documents including W-2 statements, paycheck stubs and bank account statements. The lender will use these documents to verify your financial status and request a formal credit check. A preapproval will help you when shopping for homes because sellers will have more confidence that you will be able to obtain a loan to purchase their house.
For both prequalification and preapproval, final approval will also depend on the property purchased.
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.
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.
What is PMI?
If you’re refinancing a first mortgage, and have less than 20% equity in your home, 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's the difference between an online and local lender?
What can i expect during the loan process?
Mortgage Glossary of Terms
Adjustable Rate Mortgage
A mortgage loan were the interest rate adjusts periodically based on the changes of a specified index such as the one-year Treasury Bill or the LIBOR.
The calculation of the amount of the installment payment it takes to pay off the obligation at the end of a fixed period of time.
Annual Percentage Rate (APR)
The total cost of a mortgage stated as a yearly rate. It is typically higher than the note rate because it includes the base interest rate plus specific closing costs.
A professional report that estimates the market value of a property.
The value a tax authority places on real property for the purpose of assessing yearly property taxes.
A mortgage that is amortized over a stated period but provides for a lump-sum payment due at an earlier period, e.g. 30-year due in 15, where the payments are based on 30-year repayment but the loan is due paid in full in 15 years.
Limits how much the interest rate on an adjustable rate mortgage (ARM) can increase or decrease.
Cash to Close
Liquid assets available to be used to pay the closing costs involved with a mortgage transaction.
Property pledged as security for a loan, such as property pledged as security for a mortgage.
A mortgage not obtained under a government-insured program.
A legal document that is recorded in the county conveying title to a property.
Deed of Trust
The legal document that pledges the property for the security of a mortgage loan.
Failure to make mortgage payments in a timely manner or to comply with other requirements outlined in the note.
Earnest Money Agreement (Sales Contract)
The written agreement between the buyer and seller of a property, which stipulates the amount of the purchase, closing date and any repairs or other conditions that must be met before the transaction (purchase) is completed.
A right of way given to persons other than the owner for access to or over their property.
The portion of a property’s value over and above the amount owed against it.
A disinterested third party that handles legal documents and funds on behalf of the seller and buyer.
A real estate loan that has priority over any other subsequently recorded mortgages.
Fixed Interest Rates
An interest rate which does not change during the term of the loan.
A legal procedure in which the mortgage loan is in default and the property taken from the borrower and sold by the lender to pay off the loan against the property.
A written letter signed by the individual giving funds for the purpose of buying a home which states there is no obligation to repay the sum of money being given.
Income Total monthly income earned before taxes or other deductions.
Also referred to as homeowners or fire insurance; coverage for physical damage to a property from fire, wind, vandalism or other hazards.
Home Equity Line of Credit (HELOC)
Also referred to as a revolving line of credit; usually a second mortgage, which allows the borrower to obtain multiple advances up to a specific credit limit.
Generally a published number or percentage, such as the yield on the One-Year Treasury Bill, which is used to compute the interest rate for an adjustable rate mortgage.
A loan that exceeds the Fannie Mae legislated mortgage amount, which is currently $333,700. Jumbos are also called non-conforming loans.
Describes the location of the property which has been recorded at the county.
A legal claim or attachment against property as security for a loan.
The ratio between the amount of any mortgages against a property divided by the sales price or appraised value.
Usually the amount of principal, interest, taxes and insurance paid each month on a mortgage loan.
The conveyance of an interest in real property given as security for the repayment of a loan.
A fee paid to the lender for processing a loan application. The origination fee is stated in the form of points. One point equals one percent of the mortgage amount.
A cash amount a borrower must have left over after making a down payment and paying the closing costs for the purchase of a home.
Private Mortgage Insurance (PMI)
Insurance written by a private company to protect the lender against loss resulting from nonpayment or default.
Purchase Contract (Earnest Money Agreement/Offer)
A written agreement between a buyer and seller of real property, setting forth the price and terms of the sale, also known as a sales contract.
Calculations that are used in determining whether a borrower can qualify for a mortgage. The two calculations are housing expense divided by gross income, and the total debt including other monthly debt payments divided by gross income.
A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specific period of time.
Provides insurance that public records have been examined to insure that there are no liens or other claims against the property.
Truth in Lending Act
A federal law that requires lenders to fully disclose the terms and conditions of a mortgage including the Annual Percentage Rate (APR) and other charges.
The process of evaluating a loan application to determine credit worthiness and risk involved for the lender.
A loan that is guaranteed by the U.S. Department of Veterans Affairs, also known as a government loan.