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Frequently Asked Questions

When should I refinance?

You should consider refinancing your mortgage when interest rates drop significantly below your current rate, or if you're looking to switch to a more favorable loan type, such as from an adjustable-rate mortgage to a fixed-rate mortgage. Refinancing can also be beneficial if you want to shorten your loan term or consolidate debt. For example, with a $100,000 loan at 8.5%, your payment (excluding taxes and insurance) would be about $770. If the rate drops to 7.5%, your payment would decrease to $700, saving you $70 per month. Your savings will depend on your income, budget, loan amount, and interest rate changes. Always consult a trusted lender to help you calculate your options and ensure refinancing aligns with your financial goals.  

What are points?

Discount points are considered pre-paid interest and are upfront fees paid to the lender at closing to lower your mortgage interest rate. One point equals 1% of the loan amount, and purchasing points can reduce your rate, potentially saving you money on monthly payments and overall interest over the life of the loan. For example, on a $200,000 loan, one point would cost $2,000. By paying for discount points, you can lower your rate and reduce your monthly payments, but you’ll need to weigh the cost against the savings. It’s best to consider how long you plan to stay in the home—if you intend to keep the mortgage for a long period, buying points could be a cost-effective choice. However, if you plan to sell or refinance soon, it may not be worth the upfront expense. 

Should I pay points to lower my interest rate?

Paying points to lower your interest rate can be a smart move if you plan to stay in your home long enough to recoup the upfront cost of the points through lower monthly payments. Each point typically costs 1% of your loan amount and reduces your interest rate by about 0.25%. For example, on a $200,000 loan, one point would cost $2,000 and lower your rate slightly. The next step would be to calculate the principal & interest payment of both the loan with discount points and the loan without discount points and calculate the difference between them. You want to then take the cost of the discount points and divide by the difference in the monthly payments. This will tell you how many months it will take to break even after paying points. If you plan to stay in the home for many years, the savings over time can outweigh the initial expense.  

What is an APR?

The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.

The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan.

Because APR calculations are effected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask lenders to provide you with a Fees Worksheet of their closing costs on the same type of program (e.g. 30-year fixed) at the same interest rate. You can then delete the fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.

Fees Typically Included in APR:
  • Loan Origination Fees: These are fees charged by the lender for processing and underwriting the loan.
  • Mortgage Insurance: If you're putting less than 20% down, you'll likely have private mortgage insurance (PMI) or FHA insurance, which is usually included in the APR.
  • Discount Points: These are optional points you pay to lower the interest rate.
  • Prepaid Interest: This is the interest you pay from the closing date to the end of the month.
  • Underwriting Fees: These are the costs associated with the lender reviewing your loan application.
  • Processing Fees: These are fees related to preparing and processing your loan.

Fees Typically Not Included in APR:

  • Appraisal Fees: The fee you pay for the property appraisal.
  • Credit Report: The fee to obtain the borrower(s) credit report.
  • Title Insurance: This insurance protects you from losses due to title issues.
  • Attorney Fees: Fees paid to your attorney if any.
  • Recording Fees: These are fees paid to record the mortgage and deed.
  • Property Taxes and Homeowner's Insurance: These are usually paid into an escrow account, but not factored into the APR.
  • Escrow and Settlement Fees: These are fees charged by the escrow agent to close the transaction. 

    What does it mean to lock the interest rate?

    Mortgage rates can change daily and sometimes even hourly from the day you apply for a loan to the day you close the transaction. If interest rates rise sharply during the application process it can increase the borrower's mortgage payment unexpectedly. Therefore, a lender can allow the borrower to "lock-in" the loan's interest rate guaranteeing that rate for a specified time period, often 15-60 days. By locking in, the lender is protecting you against any rate changes prior to closing which could possibly effect your approval for the mortgage. However, once you lock in the interest rate, if the interest rates drop prior to closing, typically you won't be able to benefit from the lower rate.

    What documents do I need to prepare for my loan application?

    Below is a list of documents that are required when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation. So, if you are asked for more information, be cooperative and provide the information requested as soon as possible. It will help speed up the application process.

    1. Proof of Identity

    • Government-issued photo ID: Lenders need to verify your identity, so you'll need to provide a valid ID, like a driver’s license or passport.
    • Social Security number or ITIN: The lender will use this to pull your credit report. If you don't have a Social Security number, you can provide an Individual Taxpayer Identification Number (ITIN).

    2. Proof of Income

    • Pay Stubs (Last 30 days): Lenders need to confirm that you have a steady source of income. Providing the most recent pay stubs (usually for the last 30 days) helps verify your employment and income.
    • W-2 Forms (Last 2 Years): W-2 forms show your taxable income, and lenders use these to verify your income history. If you're employed, the last two years' worth of W-2 forms are usually required.
    • Tax Returns (Last 2 Years): These are your personal tax returns. You'll usually also sign an IRS 4506 giving the IRS permission to release your tax transcripts to the lender.  Lenders want to ensure they match and this gives them an idea of your income history, and your tax returns are the best way to prove this.
    • Business Tax Returns (for self-employed borrowers): If you own a business, the lender may require business tax returns for the last 2 years, including profit and loss statements and balance sheets. This gives them a clearer picture of your business's financial health.
    • Proof of Additional Income: If you receive any additional income such as bonuses, overtime, or commission, the lender will also need to verify the additional income.  

    3. Employment Information

    • Employer Contact Information: Lenders need to verify your employment status, so they may ask for your employer's name, address, and phone number.
    • Length of Employment & Job Title: A steady job history is important. Lenders prefer borrowers with a stable employment record, typically requiring you to have been with your current employer for at least 2 years (this varies by lender). Your job title also plays a role in evaluating your income stability.

    4. Bank Statements

    • Statements for the Last 2-3 Months: Lenders require bank statements from all accounts (checking, savings, and retirement accounts). These statements help verify your financial stability and demonstrate your ability to make the required down payment and cover closing costs.
    • Large Deposits: If there are any significant deposits that aren’t from your regular income (such as gift money), you may need to provide documentation for those as well. Lenders want to ensure that the funds you're using for the mortgage are legitimate and not from an undisclosed loan.

    5. Credit Report

    • Lender-Pulled Credit Report: The lender will typically pull your credit report to assess your credit score and determine your creditworthiness. It's important to review your credit report beforehand to ensure that all the information is accurate and up-to-date. If you notice any discrepancies or errors, address them before applying.
    • Credit Score: Lenders use your credit score as a significant factor in determining whether you qualify for a loan and what interest rate you'll receive. A higher credit score typically results in better loan terms.

    6. Property Information

    • Purchase Agreement (if applicable): If you’re buying a home, you’ll need to provide the purchase agreement signed by both you and the seller. This document outlines the terms of the sale and the agreed-upon price.
    • Listing Details for the Property: Lenders need to verify the property’s value and condition, so they’ll typically ask for the listing details. This helps them ensure that the property you're buying meets the loan requirements.
    • Proof of Earnest Money Deposit: If you’ve put down an earnest money deposit, you’ll need to show proof of the amount. This deposit is often required as a sign of good faith when making an offer on a home.

    7. Debt Information

    • Documents Regarding Current Debts: Lenders need a clear picture of your debt-to-income ratio, which is calculated by comparing your monthly debt payments to your gross monthly income. Provide documents for any outstanding debts, including:
      • Credit Card Statements: Recent credit card statements showing your balance and payment history.
      • Student Loans: Documentation showing the amount owed, monthly payment, and current status of any student loans.
      • Car Loans or Personal Loans: Provide the loan agreements and payment history.
      • Other Debts: Any other debts such as medical bills, child support, alimony, or personal loans will also need to be disclosed.

    8. Gift Letter (if applicable)

    • If you’re receiving gift funds for the down payment or closing costs, the lender will need a gift letter. This letter should state that the funds are a gift and not a loan that needs to be repaid. The letter should also include the donor’s name, address, and the amount of the gift.

    9. Additional Documentation (if applicable)

    • Divorce Decree: If you're receiving alimony or child support, you may need to provide a copy of your divorce decree to show that you have the right to receive these payments.
    • Bankruptcy Discharge: If you've previously filed for bankruptcy, provide the discharge papers. Lenders typically want to see that you've managed your finances responsibly since the bankruptcy.
    • Court-Ordered Payments: If you're involved in any legal proceedings that involve financial obligations, such as a child support order, you'll need to provide documentation.

    10. Other Documents Based on Loan Type

    • FHA Loans: FHA loans may require additional documentation to show your eligibility, such as proof of income for borrowers with a history of non-traditional income.
    • VA Loans: For VA loans, you'll need to provide a Certificate of Eligibility (COE), which can be obtained through the VA website.
    • USDA Loans: If you're applying for a USDA loan, you’ll need to show that the property is located in an eligible rural area, and your income must meet the USDA's guidelines.

    In Summary

    Gathering all the necessary documents in advance will help streamline your mortgage application process. The more complete and organized your paperwork is, the smoother the process will be, and the faster your lender can assess your eligibility for a loan.

    If you're unsure about any specific documents or have unique financial circumstances, it's a good idea to check with your lender for more specific requirements.

    Your Property

    • Copy of signed sales contract including all riders
    • Verification of the deposit you placed on the home
    • Names, addresses and telephone numbers of all realtors, builders, insurance agents and attorneys involved
    • Copy of Listing Sheet and legal description if available (if the property is a condominium please provide condominium declaration, by-laws and most recent budget)

    Your Income

    • Copies of your pay-stubs for the most recent 30-day period and year-to-date
    • Copies of your W-2 forms for the past two years
    • Names and addresses of all employers for the last two years
    • Letter explaining any gaps in employment in the past 2 years
    • Work visa or green card (copy front & back)

    If self-employed or receive commission or bonus, interest/dividends, or rental income:

    • Provide full tax returns for the last two years PLUS year-to-date Profit and Loss statement (please provide complete tax return including attached schedules and statements. If you have filed an extension, please supply a copy of the extension.)
    • K-1's for all partnerships and S-Corporations for the last two years (please double-check your return. Most K-1's are not attached to the 1040.)
    • Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) including all schedules, statements and addenda for the last two years. (Required only if your ownership position is 25% or greater.)

    If you will use Alimony or Child Support to qualify:

    • Provide divorce decree/court order stating amount, as well as, proof of receipt of funds for last year

    If you receive Social Security income, Disability or VA benefits:

    • Provide award letter from agency or organization

    Source of Funds and Down Payment

    • Sale of your existing home - provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement)
    • Savings, checking or money market funds - provide copies of bank statements for the last 3 months
    • Stocks and bonds - provide copies of your statement from your broker or copies of certificates
    • Gifts - If part of your cash to close, provide Gift Affidavit and proof of receipt of funds
    • Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation

    Debt or Obligations

    • Prepare a list of all names, addresses, account numbers, balances, and monthly payments for all current debts with copies of the last three monthly statements
    • Include all names, addresses, account numbers, balances, and monthly payments for mortgage holders and/or landlords for the last two years
    • If you are paying alimony or child support, include marital settlement/court order stating the terms of the obligation
    • Check to cover Application Fee(s)

    How is my credit judged by lenders?

    Mortgage Loan Process: A Step-by-Step Guide

    The mortgage loan process involves several stages, from pre-approval to closing. Here's an explanation of how it works and how lenders evaluate a borrower's application:

    1. Pre-Approval: Getting Started

    The first step is for a borrower to apply for pre-approval. During this process, they’ll submit basic financial information to a lender, which helps assess their ability to repay a mortgage.

    Lenders will look at:

    • Credit Score: This is a major factor in determining loan eligibility. Most lenders require a score of at least 620 for conventional loans, although different loan types have varying requirements (e.g., FHA loans may accept scores as low as 580).
    • Income: Lenders assess the borrower’s ability to repay the loan by reviewing their income sources—whether regular salary, bonuses, commissions, or self-employed income.
    • Employment History: Stability in employment is key. Lenders generally look for at least two years of consistent employment.
    • Debt-to-Income (DTI) Ratio: This ratio compares the borrower’s monthly debt payments to their gross monthly income. A lower DTI increases the chance of loan approval. Most lenders require a DTI ratio under 43%, but some exceptions exist for specific loan programs.

    2. Loan Application

    Once pre-approved, the borrower will submit a formal loan application. This includes detailed personal information, income verification, and details about the property they wish to purchase.

    What lenders look at here:

    • Complete Financial Disclosure: The application includes all financials—bank statements, tax returns, pay stubs, etc.
    • Property Details: The type of property and its value, which will be verified through an appraisal.

    3. Underwriting: The Review Process

    After the loan application is submitted, the lender will send it to an underwriter. This is one of the most critical steps in the mortgage process, where the lender carefully reviews the borrower’s financials and the property’s value to determine if they qualify.

    Underwriters will review:

    • Credit Report: Ensuring that the borrower’s credit is in line with the lender’s requirements.
    • Income and Assets: Verifying that the borrower has the financial capacity to repay the mortgage, typically by reviewing pay stubs, tax returns, and bank statements.
    • Appraisal: The property’s value must meet or exceed the loan amount to ensure the lender is not over-leveraging on a property.

    4. Loan Approval: Final Steps

    If the underwriter approves the file, it will be sent to the lender for final approval. In some cases, the underwriter may request additional documentation or clarification from the borrower. Once approved, the lender issues a formal loan commitment.

    What happens at this stage:

    • Conditions: Lenders may place additional conditions on the loan before final approval. These could include securing a clear title, satisfying any outstanding obligations, or confirming that all documentation is in order.
    • Locking the Rate: Borrowers can lock in their interest rate during this stage, ensuring it won’t change before closing.

    5. Closing: Signing the Deal

    Once the loan is fully approved, the final step is closing. This is where the borrower signs the loan documents, and the lender disburses the loan funds to purchase the home.

    Key points during closing:

    • Closing Disclosure: The borrower receives a detailed closing disclosure document at least three business days before closing, outlining all loan terms, costs, and the final amount due at closing.
    • Funds Disbursed: The lender provides the funds, and the borrower officially takes ownership of the home.

    How Lenders Evaluate Files

    Lenders consider a variety of factors when reviewing a mortgage application:

    1. Creditworthiness: A borrower’s credit score is a primary indicator of how risky a borrower might be. A higher score generally results in better loan terms, such as a lower interest rate.
    2. Ability to Repay: Lenders assess the borrower’s income, employment stability, and DTI ratio to determine if they can comfortably afford monthly payments.
    3. Property Value: The appraised value of the property is essential. It ensures that the lender is not lending more than the home is worth. If the property appraises lower than expected, the borrower may need to renegotiate the purchase price or come up with a larger down payment.
    4. Down Payment: The larger the down payment, the less risk the lender takes on. It also lowers the borrower’s LTV ratio (Loan-to-Value), which can help secure better loan terms.

    Conclusion

    The mortgage loan process involves several detailed steps to ensure that both the borrower and the lender are protected. Each stage is designed to assess the borrower’s financial stability and ensure the lender is offering a loan that aligns with the borrower’s ability to repay it, ultimately leading to a successful mortgage approval and home purchase.


    What can I do to improve my credit score?

    Improving your credit score may take time, but with consistent effort, you can significantly boost your score. Here's a detailed look at the steps to take:

    1. Pay Bills on Time

    • Why It Matters: Payment history is one of the most important factors in determining your credit score, accounting for roughly 35% of your FICO score. A history of on-time payments will positively impact your score, while late or missed payments can bring it down.
    • How to Improve: To ensure you're paying your bills on time, set up payment reminders or opt for automatic payments from your bank account. It’s crucial to make at least the minimum payment on all bills, even if you can’t pay the full balance. Over time, this will help build a positive payment history.

    2. Reduce Credit Card Balances

    • Why It Matters: The credit utilization ratio, which is the amount of credit you use compared to your available credit limit, makes up about 30% of your credit score. If you use a large portion of your available credit, it signals that you might be overextended, which can hurt your score.
    • How to Improve: Keep your credit utilization ratio below 30% for optimal score improvement. For example, if you have a credit limit of $10,000, try to keep your balance below $3,000. To reduce your balances, consider paying more than the minimum payment each month. You can also request a higher credit limit from your card issuer, but only if you can maintain low balances.

    3. Avoid Opening Too Many New Accounts

    • Why It Matters: Every time you apply for a new credit account, it triggers a hard inquiry on your credit report. Hard inquiries can temporarily lower your credit score by a few points. While one or two inquiries may not have a significant impact, too many in a short time frame can raise concerns about your financial stability.
    • How to Improve: Avoid opening new credit accounts unless absolutely necessary. If you are planning a large purchase or need to apply for a loan in the near future, try to refrain from applying for new credit beforehand. Additionally, only apply for credit when you know it’s within your budget to handle responsibly.

    4. Check Your Credit Report for Errors

    • Why It Matters: Mistakes on your credit report—such as accounts you don’t recognize, incorrect payment history, or identity theft—can cause a significant drop in your credit score. It’s essential to stay on top of your credit report and ensure that everything is accurate.
    • How to Improve: Request your free credit reports from all three major credit bureaus (Equifax, Experian, and TransUnion) once a year via AnnualCreditReport.com. Carefully review your reports for any inaccuracies and dispute any errors you find directly with the credit bureaus. Promptly addressing discrepancies can quickly improve your credit score.

    5. Diversify Your Credit Types

    • Why It Matters: Having a mix of credit types, such as revolving credit (credit cards) and installment loans (auto loans, personal loans), can improve your score by demonstrating your ability to manage different types of credit responsibly. This makes up about 10% of your credit score.
    • How to Improve: If you only have credit cards, consider diversifying your credit by taking out a small installment loan, like an auto loan or personal loan, but make sure you can afford the payments. However, don't apply for new credit just to improve your credit mix—only take on new debt if it's necessary and fits your financial situation.

    6. Keep Old Accounts Open

    • Why It Matters: The length of your credit history accounts for approximately 15% of your credit score. Closing old credit accounts can shorten your credit history, which may lower your score. Additionally, the longer your credit history, the more confidence lenders have in your ability to manage credit over time.
    • How to Improve: Keep older accounts open, even if you no longer use them. If you're concerned about annual fees or fraud, consider switching the account to a no-fee card or a card with low annual fees to keep the account active. This will help maintain your credit history length without incurring unnecessary costs.

    7. Consider a Secured Credit Card

    • Why It Matters: If you have a poor credit score or no credit history, it can be difficult to get approved for a regular credit card. A secured credit card is a good option for building or rebuilding credit, as it requires a deposit that serves as your credit limit.
    • How to Improve: Use a secured credit card responsibly by making small purchases and paying off the balance in full each month. Over time, this will help you establish a positive payment history and may lead to an increase in your credit score. After about 6 months to a year of responsible use, you may be able to transition to an unsecured credit card.

    8. Be Patient

    • Why It Matters: Credit scores don’t improve overnight. Positive changes take time, and the more you focus on consistent good credit habits, the more your score will improve gradually. It may take months, or even years, to see significant improvements, especially if you are starting with poor credit.
    • How to Improve: Stay consistent with good credit practices—making payments on time, reducing debt, and monitoring your credit regularly. Patience is key to rebuilding and improving your credit score, but the effort will be worth it in the long run.

    By following these strategies, you can steadily improve your credit score. It’s essential to stay disciplined and patient. Over time, your credit score will reflect your positive financial habits, which will benefit you with better loan terms, lower interest rates, and more financial opportunities.

    What is an appraisal?

    Understanding the Home Appraisal Process

    A home appraisal is an unbiased professional opinion of the value of a property, commonly required by lenders to ensure that the home is worth the loan amount a buyer is seeking. It helps lenders assess the risk of lending money to a borrower.

    Steps in the Appraisal Process

    1. Order the Appraisal:
      • Once you’ve made an offer on a home and the seller has accepted, your lender will order the appraisal. It is often ordered after the contract is signed but before closing to confirm the home's market value.
    2. Appraiser Visits the Property:
      • A licensed appraiser will visit the home to assess its condition, location, and features. They examine both the interior and exterior of the property. The appraiser evaluates various factors, including square footage, number of bedrooms, bathrooms, overall condition, and upgrades. They will also check for any safety hazards or structural concerns.
    3. Comparative Market Analysis (CMA):
      • The appraiser uses a comparative market analysis (CMA), where they compare the subject property to similar homes in the area (also known as "comps") that have sold recently. The appraiser uses this data to determine the home’s market value.
      • Typically, the appraiser will compare homes that are within a 1-mile radius of the property and have sold in the last 6 months to ensure the comparison is current.
    4. Appraisal Report:
      • The appraiser compiles their findings into an official appraisal report, which includes:
        • The home’s condition and features
        • Adjustments made for differences between the subject property and the comps
        • Final value estimate based on the CMA
        • Photos of the property and comparable sales
    5. Appraisal Results:
      • Once the appraisal is complete, the lender will receive the report. The lender uses the appraised value to decide if the loan should be approved based on the home’s value.
        • If the appraisal is equal to or higher than the purchase price, the transaction can proceed as planned.
        • If the appraisal is lower than the agreed purchase price, the buyer may need to negotiate with the seller, make a larger down payment, or potentially reconsider the deal.
    6. Potential Negotiations:
      • If the appraised value comes in lower than expected, the buyer can:
        • Negotiate with the seller to reduce the price.
        • Pay the difference out of pocket, potentially raising the down payment to make up for the appraisal gap.
        • Walk away from the deal if the contract allows for it (such as in an appraisal contingency clause).
    7. Final Approval:
      • After the appraisal is satisfactory, the lender moves forward with final approval. The appraisal confirms that the home is worth the investment and helps the lender make a sound decision about the loan.

    Key Points to Remember

    • Health and Safety Concerns: Appraisers are required to flag health or safety issues such as the presence of mold, structural issues, or the need for major repairs like a faulty roof. These will be noted and could affect the approval process.
    • Appraisal Costs: The buyer typically pays for the appraisal, though this can vary by lender or loan program.
    • Accuracy: While the appraiser’s assessment is an essential part of the home buying process, keep in mind that the appraisal value may not always match your expectations. 

    What is PMI (Private Mortgage Insurance)?

    Private Mortgage Insurance (PMI) is a type of insurance that lenders require if you’re buying a home with a down payment of less than 20%. PMI protects the lender in case you default on the loan.

    Why You Need PMI:

    • Low Down Payment: PMI allows you to buy a home with as little as 3% to 5% down, even if you can’t afford the 20% down payment typically required.
    • Lender Protection: PMI helps protect lenders by covering the costs if you default on your loan.

    How PMI Works:
    PMI premiums can be paid in several ways, including monthly premiums, one-time upfront payments, or a combination of both. The cost varies based on the size of your down payment and loan amount, as well as your credit score.

    Key Benefits of PMI:

    • Enables Homeownership Sooner: You don’t have to wait until you’ve saved up 20% for a down payment.
    • Lender Protection: Protects the lender in case of default, allowing them to offer you a loan with a lower down payment.
    • Lower Monthly Payments: PMI can help lower your monthly mortgage payments, even if you have less money upfront.

    How to Cancel PMI:

    • Automatic Cancellation: PMI will typically be canceled when your loan balance drops to 78% of the home’s original appraised value.
    • Request Cancellation: You can request PMI cancellation once your loan balance is under 80% of the original home value.

      What is 80-10-10 financing?

      80-10-10 financing, often referred to as a "piggyback loan," is a strategy used by homebuyers to avoid paying private mortgage insurance (PMI) while purchasing a home. Here’s how it works:

      1. 80% First Mortgage: You take out a primary mortgage for 80% of the home’s purchase price. This is the traditional mortgage that most buyers use.
      2. 10% Second Mortgage: To cover the remaining 10%, you take out a second mortgage (the "piggyback" loan). This could be a home equity loan or a home equity line of credit (HELOC).
      3. 10% Down Payment: You contribute the final 10% as your down payment.

      Why Use 80-10-10 Financing?

      • Avoid PMI: By using the piggyback loan, you’re keeping your loan-to-value (LTV) ratio at or below 80% for the first mortgage, meaning you can avoid PMI, which would normally be required if your down payment is less than 20%.
      • Save Money: Without PMI, your monthly payments can be lower, even though you’re borrowing more overall.
      • Flexibility: The second mortgage (the "piggyback") often comes with a shorter term or higher interest rate, but it could be a cost-effective solution for those who don’t want to pay PMI.

      Considerations:

      • Higher Interest Rates: The second mortgage usually comes with a higher interest rate than your first mortgage, so it could increase your monthly payment slightly.
      • Additional Payments: You’ll need to manage two separate loans, which may require more coordination.

      This financing option is often used by buyers who don’t have a 20% down payment but want to avoid the extra cost of PMI. It’s important to compare the costs and make sure the piggyback loan works within your budget.

      What happens at closing ?

      At closing, the homebuyer completes the final steps of the homebuying process, officially transferring ownership of the property. Here's a breakdown of what happens:

      1. Review of Closing Disclosure: The homebuyer receives a Closing Disclosure (CD) at least three business days before closing. This document outlines the final loan terms, monthly payments, and all fees involved in the transaction.
      2. Final Walkthrough: Before closing, the homebuyer typically does a final walkthrough of the property to ensure it’s in the same condition as agreed upon, with any repairs completed.
      3. Signing Documents: The buyer will need to sign several important documents, including the mortgage note, deed of trust, and loan agreement. These documents legally bind the buyer to the terms of the loan and the purchase agreement.
      4. Paying Closing Costs: The buyer will pay closing costs, which may include:
        • Down payment
        • Appraisal fees
        • Home inspection fees
        • Title insurance
        • Attorney fees (if applicable)
        • Escrow fees for taxes and insurance
        • Recording fees for the title transfer
      5. Transfer of Funds: The buyer transfers the down payment, closing costs, and any remaining balance required by the lender.
      6. Title Transfer: After all documents are signed, the title to the property officially transfers from the seller to the buyer. This is recorded in public records.
      7. Receive Keys and Possession: The buyer receives the keys to their new home and officially takes possession.
      8. Mortgage Payments Begin: The first mortgage payment is typically due the month following closing, depending on the loan terms.