An appraisal is a type of valuation developed by an independent, unbiased, qualified, and licensed or certified professional. Appraisals and valuations are opinions of the market value for the property used as collateral for the requested loan. Written reports of appraisals are sometimes referred to simply as “appraisals.”
In almost every situation, a home appraisal will be needed. The appraisal helps a lender determine the market value of the home you would like to purchase. Since the property will be used as collateral against the mortgage, lenders want to make sure the home is worth at least as much as the loan amount you’re seeking.
Market value is the likely selling price of a home with a willing buyer and a willing seller on the open market.
This is one of the most important mortgage questions. When you’re buying a home, the funds are available on the day you close your loan. On a refinance, funds are normally disbursed on the fourth business day after you sign your loan documents. This is because federal regulations require a three-day rescission period, during which you have the right to cancel your loan outright.
The amount you’ll need to close your loan includes your down payment, closing costs, and prepaid amounts for property taxes, and insurance escrow accounts. Prior to closing, you’ll be informed of the final amount.
As with stock and bond markets, prices and yields on the secondary market move up and down. When the economy is on an upswing, investors demand higher yields on mortgage bonds, forcing lenders to raise mortgage rates. In a market downturn, interest rates tend to drop for consumers
A rate lock gives you protection from financial market fluctuations that could affect your interest rate range.
You can choose to lock or not lock your interest rate range. On the date and time you lock, that interest rate range remains available to you for a set period of time.
If there are no subsequent changes to your loan and your interest rate range is locked, the interest rate range on your application generally remains the same.
If there are changes to your loan, your final interest rate at closing may be different.
Proof of homeowners insurance will be required before you can close your loan. Typically, you will need to present an insurance binder and pay for one year’s worth of insurance coverage.
Mortgage insurance is required if you have less than 20% equity (or down payment) in your home and protects the mortgage lender from losses if a customer is unable to make payments and defaults on the loan. There are two types of mortgage insurance, Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP).
A homeowners insurance (or hazard insurance) policy covers loss from damages to your home, your belongings and accidents as outlined in your policy.
MIP and PMI are 2 types of mortgage insurance. They add a premium to your monthly mortgage payment but allow you to borrow a larger percentage of your home’s value. The type of mortgage insurance you have depends on the type of loan you have.
You have MIP if you have an FHA loan, which is a type of government loan.
You have PMI if you have a loan that isn’t under a government program and your down payment was less than 20%.
Depending on when you either applied for or closed on your loan, your MIP may be automatically removed after a certain amount of time.
You may have options to cancel your PMI based on the original value (Either the price you paid for your home or the appraised value at closing, whichever is less.) of your home or by ordering a new appraisal.
An insurance policy protects a lender and/or homebuyer (only if homebuyer purchases a separate policy, called owner’s coverage) against any loss resulting from a title error or dispute.
All mortgage lenders require lender’s coverage for an amount equal to the loan. It lasts until the loan is repaid. As with mortgage insurance, it protects the lender but the borrower pays the premium at closing.