Answers to Common Questions about our Mortgage Loans
How will I know how much I can qualify for?
A loan originator can work with you before you look for a home to determine how much you can qualify for. Based on the information you provide at the time of application, the loan originator will determine the loan program best suited to your needs and the amount of money you can borrow. This is called a pre-qualification. By allowing the loan originator to order a credit report and verify your income and assets, you can obtain a pre-approval. You then have a pre-approved loan before you make an offer on a home.
How is my loan amount determined?
Commonwealth Bank's decision is typically based on your income, assets, credit history and loan-to-value ratio. In other words, we have limits on how much you can borrow based on these things.
What does loan-to-value ratio mean?
Loan to value (LTV) is the loan amount divided by the lesser of the sales price or appraised value. For example, if you are looking to purchase a home with a sales price and appraised value of $100,000 and you want to borrow $75,000, the LTV would be 75%.
What are income and debt ratios?The income ratio is your total monthly housing expense divided by your gross monthly income (before taxes). The debt ratio is your total monthly housing expense plus any recurring debts divided by your total gross monthly income. Recurring debts are auto payments, monthly credit card payments and any other loan payments. The standard acceptable income ratio for qualifying is 28% and the standard acceptable debt ratio is 36-40%. These ratios can vary based on the loan program, your financial situation and your credit history.
How much money do I need for a down payment and closing costs?
This varies with loan programs. There are programs available that require a minimal down payment or no down payment at all. Some loan programs require a minimum down payment of 5%. In addition to the required down payment, you are required to have funds available for closing costs and prepaids. Some programs allow the down payment and/or closing costs and prepaids to be a gift from a family member. A loan originator can advise you of the best program to fit your individual needs.
What if I have had credit problems in the past?
Your credit history is very important to the approval process. It helps us determine your willingness to repay the obligation. Rarely is anyone's credit perfect so don't think that one 30-day late payment will prevent you from obtaining a mortgage loan. Isolated incidents do not carry as much weight in the review process as a history of paying bills after the due date.
Can I repair my credit?
You can work with the various credit reporting agencies and creditors to correct mistakes, etc. on your credit history. You can pay off outstanding judgments, liens and collections.
Can high levels of debt affect my ability to purchase a home?
Yes. Remember all outstanding recurring debts count in your debt ratio for qualifying. If you have substantial monthly debt, it will reduce the amount of funds you can borrow or it could prevent you from obtaining a mortgage loan. Your loan originator can calculate this for you.
What if I don't have any established credit?
Your loan originator can work with you to determine if alternative credit can be documented. Alternative credit would be things such as rent, utility payments and car insurance. Not all loan programs will accept alternative credit documentation.
What if I am new on my job?
A new job can work in your favor in some instances. Mortgage loan guidelines look for a 2-year work history in the same field, but a job change for a better position could be looked on favorably. If you are a recent college graduate, without a 2-year work history, you may be able to obtain a loan based on your current stable employment.
What items does my monthly mortgage payment include?
Your monthly payment typically includes a principal balance payment, the interest amount and the escrow items. Escrow items include property taxes, hazard insurance, mortgage insurance and flood insurance, if applicable. Your total monthly mortgage payment is commonly referred to as PITI (principal, interest, taxes and insurance). Some loan programs will not include all the items listed above.
How does my loan get approved?
The loan approval process is relatively simple but can be intimidating for persons who have not been through it before. There are several steps that every mortgage application has to go through. The most important step is the application interview. The loan originator will complete an application and make every effort to obtain all pertinent information/documentation at this time. A credit report and appraisal are then requested. Verification of your income and assets may be confirmed at this time. As the lender receives the documentation, any additional information needed will be requested from you. We keep you aware of the status of your application throughout the process. Once all documentation is received, the loan package is presented for final review. All parties are notified of the loan approval and any loan conditions that must be satisfied before the loan can close. After loan approval, the closing is scheduled and the documents prepared. At the closing all parties meet to sign the necessary papers and transfer title to the property, etc. (when a purchase is involved).
Will I incur a pre-payment penalty if I pay my loan off early?
Most of the loan programs we presently offer do not carry a penalty if you pay your loan off early. Ask your loan officer for details on each loan program.
