On salaried wage earners, we will ask for W2’s, recent paystubs, bank statements, driver license, and if applicable current mortgage statements. For self-employed borrowers, minimum 2 year tax returns, bank statements, driver license, if applicable current mortgage statements/business K-1’s.

When a homebuyer is pre-qualified, he or she has provided the lender with the basic information such as paystubs, bank statements, W2’s, etc. to determine which loan program the homebuyer may qualify for. When a homebuyer is pre-approved, the lender has collected, verified and submitted the information needed for underwriting and approval.

Closing costs include items like appraisal fees, title insurance fees, attorney fees, pre-paid interest and documentation fees. These items are usually different for each customer due to differences in the type of mortgage, the property location and other factors. You should receive a loan estimate of your closing costs in advance of your closing date for your review.

Mortgage insurance protects the lender against taking a financial loss in the event the borrower stops making payments. It is required on mortgage programs that require little or no down payment and the lenders exposure is greater than 80% of the purchase price or appraised value, whichever is less.

Adjusted Rate Mortgages have variable interest rates – interest rates that change on monthly basis depending on market conditions and when the date of expiration is. Rates are determined by adding a margin to an index on the expiration date.

This is essentially a lending risk assessment ratio that banks use before approving a mortgage. Typically, assessments with high LTV ratios are generally seen as higher risk and, therefore, if the mortgage is approved, the loan generally costs the borrower more to borrow. Additionally, a loan with a high LTV ratio may require the borrower to purchase mortgage insurance to offset the risk to the lender. The method used to calculate this: Mortgage/Appraisal value of property.

A discount point is generally a percentage of the loan amount and is paid to the lender to buy down or lower an interest rate.

An escrow account is a separate account that holds funds for the purpose of paying bills such as homeowner’s insurance and property taxes. When purchasing or refinancing the lender collects “x” amount of funds to be deposited into the account each month along with your monthly payment and then pays the bills for you when they come due.

A rate lock is an agreement between the lender and buyer. The four components to a rate lock: loan program, interest rate, points, and the length of the lock.