Frequently Asked Questions

Yes, if you apply for a mortgage now, we can determine if you are pre-qualified for a certain loan amount. We’ll provide you with a pre-qualification letter that you may provide to your Real Estate agent when you find your new home.

What documents do I need to apply for a mortgage?

Our handy application checklist shows you the standard documentation that is needed when you apply for a mortgage.

How does a lender determine how much I can borrow?

We take into account your credit worthiness, income, debts, down payment amount and loan term. We provide a calculator that may help you determine how much you may be able to borrow.

What is a credit score and how will my credit score affect my application?

A credit score is one of the pieces of information that we'll use to evaluate your application. Credit scores are based on information collected by credit bureaus and information reported each month by your creditors about the balances you owe and the timing of your payments. A credit score is a compilation of all this information converted into a number that helps a lender to determine the likelihood that you will repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender.

Some of the things that affect your credit score include your payment history, your outstanding obligations, the length of time you have had outstanding credit, the types of credit you use, and the number of inquiries that have been made about your credit history in the recent past.

Credit scores used for mortgage loan decisions range from approximately 300 to 900. Generally, the higher your credit score, the lower the risk that your payments won't be paid as agreed.

Will the inquiry about my credit affect my credit score?

An abundance of credit inquiries can sometimes affect your credit scores since it may indicate that your use of credit is increasing. However, the data used to calculate your credit score doesn't include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry.

Will I be charged any fees if I authorize my credit information to be accessed?

There is no charge to you for the credit information we'll access with your permission to evaluate your application online. You will only be charged for a credit report if you decide to complete the application process after your loan is approved.

What is mortgage insurance and when is it required?

Mortgage insurance makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with low down payment lending. The mortgage insurance premium is based on loan to value ratio, type of loan, and amount of coverage required by the lender. Usually, the premium is included in your monthly payment.

It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount. Recent Federal Legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance has been amortized down to 78% of the original property value.

Is flood insurance required for all properties?

Federal Law requires all lenders to investigate whether or not each home they finance is in a special flood hazard area as defined by FEMA, the Federal Emergency Management Agency.

We use a third party company who specializes in the reviewing of flood maps prepared by FEMA to determine if your home is located in a flood area. If it is, then flood insurance coverage will be required, since standard homeowner's insurance doesn't protect you against damages from flooding.

Interest Rate and APRs

How are interest rates determined?

Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy. A modest rate of inflation will almost always lead to low interest rates, while concerns about rising inflation normally cause interest rates to increase. Our nation's central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.

Is comparing APRs the best way to decide which lender has the lowest rates and fees?

The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees in addition to the interest rate determine the estimated cost of financing over the full term of the loan.

For adjustable rate mortgages (ARM), the APR takes into account what your interest rate will be over the life of the loan. By using an index and a margin, the projected interest rate is calculated. Currently, the APR for most ARMs is lower than the initial interest rate. This is due to the fact that current indexes are at all time lows.

You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that's best for you. Look at total fees, possible rate adjustments in the future if you're comparing adjustable rate mortgages, and consider the length of time that you plan on having the mortgage.

Don't forget that the APR is an effective interest rate – not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan. Our monthly payment calculator can provide an estimate of what your monthly payment might be.

Can I buy down the interest rate?

Yes, you can pay discount points in order to buy down or lower your rate. Each discount point is equal to 1% of your loan amount.

Product

What is the difference between a conforming and a jumbo mortgage?

A conforming mortgage is a loan where the loan amount is less than $417,000. A jumbo mortgage is a loan where the loan amount is greater than $417,000.

What is an adjustable rate mortgage?

An adjustable rate mortgage, or "ARM", is a mortgage loan that offers an initial rate that is fixed for a specified time period and then adjusts annually thereafter. In general, ARMs may offer an initial rate that is lower than other fixed rate loans. It’s important to remember that with an ARM the interest rate may increase or decrease throughout the life of the loan.

What is the cap on an ARM?

The cap is made up of three parts; the initial cap, the periodic cap, and the lifetime cap. Let’s say the cap for a 5/1 ARM is 5/2/5. Here’s what this means:

The initial cap limits how much the interest rate can be increased at the first adjustment. In the example above the initial cap is 5%. This means that in 5 years your rate is subject to change based on the index and margin, but the rate would not change by more than 5%.

The periodic cap limits how much the interest rate can be increased each subsequent time the rate adjusts after the initial adjustment. In the example above the periodic cap is 2%. This means the rate could go up or down by no more than 2% per year.

The lifetime cap sets a maximum by which the interest can be increased over the life of the loan. In the example above the lifetime cap is 5%.

What are the advantages and disadvantages of a 15-year mortgage?

The two biggest advantages for most home owners is that you will own your home in 15 years instead of 30, and you will pay significantly less interest over the life of the loan. Shorter loan terms often have a lower rate. However, the disadvantages are that with a 15-year mortgage, your monthly payments will be higher and you will pay less interest over the life of the loan so your tax deductibility may be reduced.

What is an FHA mortgage?

FHA mortgages are issued by government-approved lenders and they are insured and administered by the U.S. Department of Housing and Urban Development (HUD). FHA mortgages generally require less of a down payment and have less stringent qualification requirements than conventional mortgage loans. However, FHA does limit the maximum amount an individual can borrow based on the location of the property.

What is a VA mortgage?

VA mortgages are guaranteed and administered by the Department of Veterans Affairs. These loans are offered as a benefit to qualified individuals who have served in the armed forces. To determine if you are a qualified veteran, you should request a Certificate of Eligibility (COE) from the VA.

How do FHA and VA mortgage loans differ from conventional mortgage loans?

VA and FHA mortgage loans are insured and administered by the federal government. Because the government insures a portion of the total dollar amount of these mortgage loans, FHA and VA mortgage loans generally require lower down payments and have lower qualification requirements than Conventional mortgage loans.

What is a conventional mortgage?

A mortgage that is not insured or guaranteed by a government agency.

After Application Questions

What is an appraisal and who completes it?

To determine the value of the property you are purchasing or refinancing, an appraisal will be required. An appraisal report is a written description and estimate of the value of the property. National standards govern not only the format for the appraisal, they also specify the appraiser's qualifications and credentials. The appraiser will create a written report and you'll be given a copy at least 3 days prior to your loan closing.

The appraiser will inspect both the interior and exterior of the home. After the appraiser inspects the property, they will compare the qualities of your home with other homes that have sold recently in the same neighborhood. These homes are called "comparables" and play a significant role in the appraisal process. Using industry guidelines, the appraiser will try to weigh the major components of these properties (i.e., design, square footage, number of rooms, lot size, age, etc.) to the components of your home to come up with an estimated value of your home. The appraiser adjusts the price of each comparable sale (up or down) depending on how it compares (better or worse) with your property.

As an additional check on the value of the property, the appraiser also estimates the replacement cost for the property. Replacement cost is determined by valuing an empty lot and estimating the cost to build a house of similar size and construction. Finally, the appraiser reduces this cost by an age factor to compensate for depreciation and deterioration.

If the appraised value of my property is more than the purchase price, can I use the difference towards my down payment?

No, if you are purchasing a home, we use the lower of the appraised value or the sales price to determine your down payment requirement.

I'm purchasing a home. Do I need a home inspection and an appraisal?

Both a home inspection and an appraisal are designed to protect you against potential issues with your new home. Although they have totally different purposes, it makes the most sense to rely on each to help confirm that you've found the perfect home.

The appraiser will make note of obvious construction problems such as termite damage, dry rot or leaking roofs or basements. Other obvious interior or exterior damage that could affect the salability of the property will also be reported.

However, appraisers are not construction experts and won't find or report items that are not obvious. They won't turn on every light switch, run every faucet or inspect the attic or mechanicals. That's where the home inspector comes in. They generally perform a detailed inspection and can educate you about possible concerns or defects with the home.

It’s a good idea to accompany the inspector during the home inspection. This is your opportunity to gain knowledge of major systems, appliances and fixtures, learn maintenance schedules and tips, and to ask questions about the condition of the home.

Income

If I’m self-employed, how do you verify my income?

Generally, the income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two-year period. We'll review and average the net income from self-employment that's reported on your tax returns to determine the income that can be used to qualify. We won't be able to consider any income that hasn't been reported as such on your tax returns. Typically, we'll need a full two-year history of self-employment to verify that your self-employment income is stable.

Will my overtime, commission, or bonus income be considered when evaluating my application?

In order for bonus, overtime, or commission income to be considered, you must have a history of receiving it and it must be likely to continue. We'll need copies of W-2 statements for the previous two years and a recent pay stub to verify this type of income. If a major part of your income is commission earnings, we may need to obtain copies of recent tax returns to verify the amount of business-related expenses, if any. If you haven't been receiving bonus, overtime, or commission income for at least one year, it may not be given full value when your loan is reviewed for approval.

Closing

What happens at the mortgage loan closing?

The closing will take place at the office of a title company or attorney in your area who will act as our agent. If you are purchasing a new home, the seller may also be at the closing to transfer ownership to you, but in some states, these two events actually happen separately.

During the closing you will be reviewing and signing several loan papers. The closing agent or attorney conducting the closing should be able to answer any questions you have . Just to make sure there are no surprises at closing, a BBVA Compass mortgage professional will contact you a few days before closing to review your final fees, loan amount, first payment date, etc. The most important documents you will be signing at the closing include the HUD-1 Settlement Statement, Truth-in-Lending Statement (TIL), Note, and Mortgage/Deed of Trust.

Where will the closing take place?

We use a network of closing agents and attorneys to conduct our mortgage closings. We will schedule your closing to take place in a location that is located near your home.

What is the HUD-1 Settlement Statement?

This document provides an itemized listing of the final fees charged in connection with your loan. If your loan is a purchase, the settlement statement will also include a listing of any fees related to the transaction between you and the seller. If this loan will be a refinance, the settlement statement will show the pay off amounts of any mortgages that will be paid in full with your new loan. Most items on the statement are numbered according to a standardized system used by all lenders. These numbers will correspond to the numbers listed on the Good Faith Estimate. The HUD-1 document is commonly known as the closing statement. Both the buyer and seller must sign this document.

What is the Truth-in-Lending Statement (TIL)?

This document provides full written disclosure of the terms and conditions of a mortgage, including the annual percentage rate (APR) and other fees. Federal law requires that all lenders provide you with this document at closing.

What is the Note?

This is the document you sign to agree to repay your mortgage. The note will provide you with all of the details of your loan including the interest rate and length of time to repay the loan. It also explains the penalties that you may incur if you fall behind in making your payments.

What is the Mortgage/Deed of Trust?

This document pledges a property to the lender as security for repayment of a debt. Essentially this means that you will give your property up to the lender in the event that you cannot make the mortgage payments. The Mortgage restates the basic information contained in the note, as well as details the responsibilities of the borrower. In some states, the document is called a Deed of Trust instead of a Mortgage.

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