Questions & Answers

Some Common Questions about Loans, Answers, and our Glossary of Real Estate Finance.

1. How do I know what kind loan is right for me? 

2. I'd like to own my own home - what do I do first? 

3. How much money can I borrow?

4. What is Mortgage Insurance? 

5. How can I eliminate the need for Mortgage Insurance?

6. Why don't mortgage interest rates change when the Federal Reserve Bank changes its rate?

7. What does the lender do with my application?

How do I know what kind loan is right for me?

Adjustable rates, fixed rates, balloon mortgages - no single loan is right for everyone.  All loan types have pros and cons that apply to your financial situation and your mortgage needs. Gold Country Lenders can help find one that suits you. We'll review your income, assets, existing debts, and personal needs to determine which kind of loan suits you best.

I'd like to own my own home - what do I do first?

Before you begin searching for a home - and a mortgage - it’s important to take a close look at the funds you have available to make your purchase. You’ll want to consider: Your present income, Your expected income over the next few years, Outstanding long-term debt, and How long you expect to stay in your home. This information will help us immensely in trying to identify what type of loan is most ideal for you.

How much money can I borrow?

Essentially, the amount of money you can borrow will be determined by the amount of monthly payment you can afford. As a general rule, lenders do not allow the monthly payment to exceed a specific % of your gross monthly income, but the amount can vary significantly by loan program. Each lender determines a debt-to-income ratio appropriate for each loan program. To think about how much you want borrow, in addition to how much you can borrow, take a careful look at your current assets. Assets include income, savings, investments, IRAs, life insurance, pensions and corporate thrift plans, and equity in other real estate. Then, consider your current liabilities, such as outstanding loans, credit card balances, other debts, etc. Also, think about how your income—or household income, if there are two wage earners in the family—might change over the next several years.  This helps you and your loan representative get an idea of an appropriate loan amount that's best for you..

What is mortgage insurance?

Private mortgage insurance (or PMI) protects the lender and investor, or owner of the loan, against loss if the borrower defaults in their repayment of the loan. This type of insurance is required on loans where the borrower makes a down payment of less than 20 percent. Without the added protection of PMI, most lenders would not be willing to make loans to borrowers with small down payments. Any premiums collected for the payment of mortgage insurance on your loan are remitted to the company or agency providing the insurance coverage. On FHA loans, mortgage insurance is provided by the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development. These types of mortgage insurance do not pay off the loan on your behalf if something should happen to you - the insurance protects the lender from loss due to default. Back to the top.

How can I eliminate the need for Mortgage Insurance?

The short answer is to have at least 20% for your down payment.  However, lenders accept that not everyone has that kind of cash to invest and offers several options other than mortgage insurance. By choosing the increase the interest rate on your loan by about ¾%, you can "convert" your insurance to interest and thereby make it tax deductible (insurance premiums are not tax deductible, while mortgage interest is). Another option is to have two loans: one loan for 80% of the property value, the second loan to add to your down payment to make it equal to 20% total. Both of these alternatives to a add up to approximately the same monthly payment, but they allow for a tax deduction of the amount equivalent to PMI. We can guide you through these options and a choice the option best for you.

Why don't mortgage interest rates change at the same time the Federal Reserve Bank changes its rate?

The Federal Reserve Bank, or "Fed", rate is the one we all hear so much about. It's the short-term rate the Fed charges member banks for loans. Banks then use that rate as the basis for establishing interest rates on short-term consumer and commercial loans made to their customers. The Fed will ease interest rates during recessionary times to promote borrowing and spending, and, conversely, will raise interest rates during inflationary times to discourage borrowing and spending. Mortgage interest rates are not tied to the Fed rate because banks generally do not make mortgage loans from their own funds. Rather, mortgages are funded through mortgage investors who obtain their funds from the long-term bond market. Hence, mortgage interest rates are tied more directly to market influence, investor confidence, and supply and demand. Given time, mortgage interest rates will follow the trend of other interest rates, but, because interest rates have different influences, there is not a direct correlation. For instance, mortgage interest rates tend to fall slowly as other rates go down and rise more rapidly as other rates go up.  Back to the top

What does the lender do with my application?

The lender initiates a credit check and arranges for an appraisal of the property you plan to buy (or the current property you want to refinance). The appraisal assures you and the lender of the property's fair market value. The lender is investing in you and, in the unlikely event of default on your loan, the property must be worth enough to settle the debt. Once your credit check, appraisals and verifications are complete, this “credit package” is submitted to a lender and reviewed by an underwriter who makes the loan decision. When your loan is approved, your lender will issue you a loan approval and intent to make you the loan. The approval spells out all the details of the loan including all charges and fees, closing requirements, and any important conditions including:  A list of documents you will need for closing; Information on when the commitment expires; and Important information you should know when closing on your home.  The loan approval may also may have certain conditions that you must meet before the loan is granted: bills you must pay off, or special requirements of the homeowners association, for example. In the case of new construction, the lender will want the appraiser to inspect the home just prior to closing. This is to ensure that it is in accordance with the plans and specifications furnished by the builder or contractor.  You should review the loan commitment carefully. Make sure the terms are acceptable to you. Assuming you and the lender come to terms, your agreement with the lender is now complete. Back to the top.