Frequently Asked Questions
Application Questions
Please reach us at jr@circadianmb.com if you cannot find an answer to your question.
How Do I Qualify for a Loan?
To get started, you will need to provide:
- Income and asset documentation along with a copy of your photo I.D.
- Authorize a credit pull through all 3 credit bureaus
- Contact JR McDonald for a personal overview
What Will My Interest Rate Be?
By far, the easiest way to determine what your interest rate would be is to contact a broker like JR McDonald to get a quote! In addition, here are a few factors to consider:
- Risk (What's your credit score like?)
- Value (What is the loan amount you want relative to how much your property is worth?)
- Lender (Who are you borrowing from?)
- Market (What is the bond market like?)
All of these factors will determine your interest rate.
Your credit score reflects how much (or how little) of a financial risk you are to a lender. Stronger scores = better rates. See the below FAQ on credit scores for more information.
The loan amount compared to the total value of the property, also known as the loan-to-value ratio (LTV), is also a factor. This is because lenders like to see that you have a nice cushion of equity in ownership of your property. The more equity you have, the less of a risk it is for them, which in turn gets you a better interest rate! In summary:
Smaller LTV = Better pricing
The two major factors, however, are the lender & the market. This is because each lender is different, and the market is always fluctuating. This is where the importance of having a good, experienced broker comes into play.
Not only can they get you pre-approved, but they can shop around to see which lender has the best pricing & they can monitor the market so you don't have to!
You want a broker that knows the market well and does their research. JR McDonald has been in the industry for over 30 years & receives real-time updates throughout the day on how the market is doing.
What is a Loan Approval?
There are generally two types of mortgage loan approvals: “conditional approval” & “final approval.”
After your application is received, either your loan officer or the loan processor will contact you with any additional “conditions” that are required to get your loan fully approved. Once those conditions have been met, you’ll receive final approval.
What Should My Credit Score Be? Can I Still Get a Mortgage With a Low Credit Score?
Obviously, the better your credit score, the better the pricing & the smoother the loan process. Here are some ranges to help you think about where you want your credit to be:
With credit scores of 680 and above, the pricing adjustments are minimal. No pricing adjustments for a credit score of 720 and above.
Some will look at this and be satisfied with where their credit score falls. Others might be discouraged. We get it & we have seen it all. Just because you have a low credit score doesn't mean it's impossible to get a loan.
If that's you, know that you have the power to make immediate changes that will slowly improve your credit:
- Payoff past due balances
- Make payments on time
- Lower your credit utilization (keep those credit card balances low!)
- Don't open new accounts (or close current ones—credit bureaus like to see longevity in your credit history.)
Contact us, and we would love to hear you out & walk with you through this journey. Who knows—you might be able to qualify faster than you may think!
How Long Does the Loan Process Take?
For most lenders, the mortgage loan process takes approximately 30 days, but it can vary quite a bit from one lender to the next. Banks and credit unions tend to take a bit longer than mortgage companies. Other factors that can affect turn times can be:
- High volume of loans
- Complexity of the loan program
- Complexity of the borrowers’ circumstances
- Response times of lenders & borrowers
Any one, or a combination of these factors, can increase the loan process to about 45 to 60 days to close a mortgage.
What Do Loan Officers Look for When I Apply for a Loan?
Your loan officer will carefully examine your credit report. They will look at credit scores, but more importantly, they will also look at payment history, credit inquiries, credit utilization, and disputed accounts. They want to see a strong borrowing history where you’ve consistently paid back loans on time.
The loan officer will also look very closely at your income and asset documentation to make sure you have enough cash flow/income to make monthly mortgage payments and total obligations.
Purchase Questions
What Should My Down Payment Be?
A larger down payment opens up more mortgage opportunities for borrowers, but not all new home loans require a large down payment. For example:
- VA loan programs offer zero-down mortgages.
- Conventional loans typically require at least 2% to 3% down.
- FHA loans require 3.5% down.
The main drawback of a low-down-payment loan is that they typically require private mortgage insurance (PMI), which increases your monthly payment.
A conventional loan with 20% down will prevent the borrower from paying PMI because the new homeowner already has enough home equity to absorb the lender’s losses in the event of a foreclosure.
What is PMI (Private Mortgage Insurance)?
Mortgage insurance premiums help protect your lender in case you default on the loan. A foreclosure typically costs the lender as well as the borrower.
Conventional loans do not require mortgage insurance if you put down at least 20 percent, because this creates enough immediate equity in the home that the lender is already financially protected if the loan defaults.
Why is Pre-Approval So Important? How is It Different From Pre-Qualification?
The reason everyone talks about getting pre-approved is that it shows not only your seriousness as a buyer, but it also serves as hard evidence that a lender is willing to loan money to you. This is not the case for pre-qualification.
Pre-qualification is more of an educated guess, like saying, “It’s likely a lender will loan you money.”
Pre-approval, however, is a definitive, official decision from a lender. Because of this, the pre-approval process has many more steps than a pre-qualification, such as:
- A completed loan application
- Hard credit check
- Verification of funds/assets
Refinance Questions
Should I Refinance?
If any of the following sound like you, refinancing should absolutely be on the table. Here are a few questions to ask yourself:
- Have you been wanting to make home improvements but didn’t know how to finance them?
- Have you been wanting to pay off lingering, higher-interest debts, such as credit card debt or student loans?
- Is your current rate on the higher side, and you want to lower it? Who wouldn’t want to save an extra couple hundred dollars a month?!
- Have you been wanting to go on that dream vacation or build up your emergency fund? You work hard for your money—it’s okay to enjoy it!
These questions are good to think about. However, everyone’s situation is different. The best way to know is to talk to us about it! We can look at actual numbers that will help you get a better idea of whether refinancing is right for you.
I Want to Do a Home Improvement, and I Want to Refinance—Which One Should I Do First?
This question is very dependent on your circumstances. We highly encourage you to connect with us to see what would be the best choice for you. In the meantime, here are some factors to consider:
- How extensive is the home improvement?
- How much equity do you have in the house?
Are you just touching up some paint or changing the carpet in a bedroom? Or are you gutting rooms, tearing down walls, making additions, or landscaping?
This will dictate how much cash you plan on investing in these improvements. From there, budget appropriately. You may find you’re able to pull it off without refinancing—or you may need to pull extra cash-out in order to finance the home improvements.
However, if you don’t have much equity, doing a cash-out refinance may be more difficult since there isn’t as much cash available to pull.
Again, while this is a frequent question, it is one very much based on individual circumstances. Give us a call or email us—we would love to hear from you and support you!
General Questions
What is Included in My Mortgage Payment?
Principal, interest, taxes, and insurance—also known as P.I.T.I.—are the primary expenses in your mortgage payment.
Principal is the actual repayment of the borrowed amount (the loan amount).
Interest is the cost of borrowing money. At the beginning of your loan term, a majority of your payment goes toward interest. This is based on your interest rate, the loan amount, and the loan term (how long it takes for you to pay the money back, such as a 15-year or 30-year term).
For taxes and insurance, you have the option to impound these accounts or pay them separately. Regardless of which option you choose, you will always have these payments—even after you pay off your mortgage.
Other additional costs can include Private Mortgage Insurance (PMI) and/or Homeowners Association (HOA) dues (if applicable).
For more information on PMI or impound/escrow accounts, see the FAQ section below.
What Are My Closing Costs?
Closing costs include a variety of charges, such as loan origination fees, appraisal fees, title fees, and other legal fees.
You can expect closing costs to be around 2% to 3% of your loan amount.
While you may not know your closing costs yet, there are no “hidden” fees. Every fee, down to the dollar, is fully disclosed to you! With the right broker team behind you, you should never feel left in the dark.
Is a Fixed- or Adjustable-rate Mortgage Better for Me?
A fixed-rate mortgage locks in an interest rate and payment for the life of the loan. Mortgage Back Securities move daily and pricing changes from day to day.
An adjustable-rate mortgage (ARM) features a fixed rate for a while, but then the interest rate fluctuates with the market each year. Some borrowers choose an ARM if they plan to sell or refinance within the first few years. Otherwise, ARMs can have advantages short term but may be risky long term.
Is a 15- or 30-Year Loan Term Better for Me?
The loan term, or “repayment period,” determines your interest rate, how large your monthly payments will be, and how much total interest will be paid by the end of your loan.
Therefore, the best loan term is one that fits your monthly budget and aligns with your long-term goals.
Longer-term loans, like a 30-year, will present a higher interest rate over a longer period of time, which results in lower monthly payments—but more interest paid overall.
Shorter-term loans, like a 15-year, offer a lower interest rate but higher monthly payments. However, you will pay significantly less total interest over time because both the rate and the term are lower.
Ultimately, the “right” term for you depends on your goals.
- If your goal is to reduce your monthly payment, a 30-year may be best.
- If your goal is to save money long term and you can afford higher payments, a 15-year loan might be right for you.
What Are Impound/Escrow Accounts? Should I Have One?
An impound or escrow account is used to pay your property taxes and homeowners insurance through your lender. The lender collects those payments through your mortgage statement and then redistributes the funds to the appropriate institution—such as the state (for taxes) or your insurance provider.
Benefits:
Because these payments are included in your mortgage payment, you don’t have to worry about paying providers or taxes separately. The lender handles it for you.
Drawbacks:
Sometimes the amounts are rounded, meaning you might pay slightly more each month than necessary. Unless you request a refund from the bank for any overage, you may not see that money again.
Our advice:
If you trust yourself to stay on top of paying your insurance premium and taxes every year, you can opt out.
If you know you might forget or want to avoid the extra responsibility, using an escrow account may be better.
You can’t go too wrong with either option, as long as payments are made on time.
What is the Difference Between an Appraisal and an Inspection?
Appraisal: The process of determining the value of your home.
Inspection: The process of determining the condition of your home.
Both are critical in the loan process.
- The inspection protects you by ensuring the home is in good condition.
- The appraisal protects the lender by confirming the value supports the loan amount.
Both the inspection and appraisal are conducted by a neutral third party to keep the process fair and accurate.
What Does “Loan Processing” Mean?
“Mortgage processing” is when your personal financial information is collected and verified.
It is the loan processor’s job to organize your loan documents for the underwriter. They ensure all required documentation is in place before the loan file is sent to underwriting.