FAQ's General Mortgage
A mortgage is a loan that a buyer secures to pay the seller of a home or property in full at the time of purchase. The buyer then owes the mortgage lender the total amount borrowed, plus agreed-upon interest and fees. The lender holds the deed of ownership to the property until the buyer pays off the mortgage.
Before you start looking for a home, it's very helpful to get prequalified or preapproved by a lender to determine how much you can afford to purchase. With this information, you can help your real estate agent determine the type of home that meets your unique financial situation. Being preapproved generally helps facilitate the purchasing process when you're ready to make an offer.
Prequalification simply determines the maximum purchase price of a house that a buyer is qualified to purchase, based on the income and debt information provided verbally to a mortgage professional. This prequalifying step is not a commitment to borrow or lend money, as the information provided by the buyer must still be verified. Preapproval means the lender is willing to grant a loan based on an in-depth financial assessment, such as income and debt review, employment verification and review of tax returns.
Loan-to-value (LTV) represents the loan amount as a percentage of the current market value of a home. It can be calculated by dividing the dollar amount of the mortgage loan by the current dollar value of a home. The LTV ratio helps determine whether the lender will require the buyer to secure private mortgage insurance to complete the loan.
When a buyer makes an offer and signs a contract to buy real estate, earnest money (often called a good-faith deposit) is provided by the buyer to demonstrate that he or she is serious about wanting to complete the purchase. If the seller accepts the offer, the earnest money is held in escrow until closing and is then applied to the buyer's portion of costs. If the offer is rejected, the earnest money is usually returned. If the buyer retracts the offer or doesn't fulfill contractual obligations, the earnest money is usually forfeited.
The size of the down payment depends on the type of loan, buyer preferences and many other factors. Some loans require no down payment at all. For more information on loan options, see the Loan Types section of our website or contact one of our mortgage professionals.
A conforming loan is a mortgage that is equal to or less than the loan limit set annually by Fannie Mae or Freddie Mac, the government-sponsored agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders. The current conforming loan limit for a single-family home or condominium in most areas of the country is $417,000, with higher limits allowed for designated high-priced markets. The terms conforming and conventional are often used interchangeably to describe these loans. Mortgage loans that are higher than the conforming loan limit are called jumbo mortgages or nonconforming loans.
A reverse mortgage enables homeowners aged 62 and older to convert part of the equity in their primary residence into tax-free cash without having to sell their home or give up title. It is a low-interest loan that uses a home's equity as collateral. It is called a reverse mortgage because rather than the homeowner making monthly payments to a lender, the lender makes monthly payments to the homeowner.