MPR Financial
header art Here are some answers
to common questions that come up in the real estate finance process. If your specific question is not addressed here don't hesitate to contact one of our mortgage professionals directly.
apply online now
Apply By Phone:
Fax: 510-527-6809

NMLS# 326126
DRE# 00973186
Conventional Financing FAQ

What information will be required when I apply?
  • Valid identification
  • Last two paycheck stubs
  • Last two years W-2's
  • If Self Employed, last two years federal income tax returns with all schedules
  • Most recent two months bank and other asset account statements (including 401K, IRA and other retirement accounts)
  • Current mortgage statement, if any
  • Current insurance policy for all properties owned, if any
What is pre-qualification?
Tentative establishment of a borrower's qualification for a mortgage loan amount of a specific range, based on the borrower's assets, debts, and income. Pre-qualification may not guarantee final loan approval.

What is LTV?
Loan-to-Value (LTV) is a ratio between the amount of a loan and the lower of the sale price or appraised value. A loan with an 80% LTV would be for $80,000 on a property valued at $100,000.

What is amortization?
Amortization is the payment of a debt in regular, periodic installments of both principal and interest. Currently loans are amortized for up to a 30 year period.

Where can I get more information on applying & qualifying for a mortgage?
You can obtain a free U.S. Department of Housing and Urban Development (HUD) Home Buying Guide by calling 1(800) 767-7468 or visit Fannie Mae's Guide to Homeownership is also free and will help you prepare your application, to order just call 1-800-7FANNIE.

What is a Fixed Rate mortgage?
A mortgage with an interest rate that does not change during the life of the loan.

What is a Adjustable Rate (ARM) mortgage?
A mortgage with an interest rate that is adjusted periodically according to a preselected index. The rate is currently based on one year US Treasury Securities. Although the interest rates will change throughout the term of the loan, there is a CAP that limits the amount a rate can increase.

What is a Balloon Mortgage?
A mortgage which does not fully amortize over the term of the mortgage. The principal remaining at the end of the term is called a balloon payment.

What is a Conventional Mortgage?
A mortgage not obtained under a government insured program.

What is a Conforming Mortgage?
A conventional mortgage that meets federal guidelines and are eligible for sale to either the Federal National Mortgage Association - FNMA (Fannie Mae) or the Federal Home Loan Mortgage Corporation - FHLMC (Freddie Mac).

What is a Jumbo Loan?
A conventional mortgage for an amount that exceeds the limits set by the federal guidelines. Contact a loan officer for more information.

What is a Construction Loan?
A temporary loan that is used to finance the construction of a new home. This type of loan may bridge equity from an existing home throughout the construction period.

What is APR?
Annual Percentage Rate (APR) is the rate on your loan which represents the actual cost of your mortgage because it includes any points or other prepaid finance charges in the computation. The Truth-In-Lending Act requires disclosure of the APR which allows a borrower to compare the mortgage loans with different closing costs.

What is Truth in Lending?
The Truth in Lending Act is a federal law that requires lenders to provide certain disclosures to consumers at various points in the transaction. In particular, the APR, finance charge and payment terms presented in the note are required by the Truth in Lending Act.

What are points?
Points are paid to buy down your interest rate. One point costs one percent of the loan amount (i.e., on a $100,000 loan 1 point is $1,000). By paying point, buyers may save in long term financing costs.

What is a rate lock-in vs. float?
After you apply for a loan, you may decide between locking-in the interest rate until you close, or allowing the rate to float (fluctuate with the market conditions). You may typically lock-in an interest rate for up to 45 days. You may also decide to let the rate float for a while and later lock-in, closer to your closing date.

What will my closing costs be?
Closing costs, also called settlement costs, are funds paid in connection with the closing of a mortgage. They may involve the costs for some or all of the following: loan origination or administration, discount points purchased, appraisal, credit report, title insurance, flood certification, attorney services, property survey, and prepaid items such as taxes and insurance escrow payments. You will receive an estimate of the closing costs within three days of your application for a mortgage.

What is an escrow account?
Escrow payments are made by a borrower for the purpose of paying the taxes, insurance and other payments associated with home ownership. The lender collects the additional funds with the periodic payments of principal and interest and places them into an escrow account. When the bills are due, the funds are disbursed.

What is a rescission period?
The rescission period is the time during which you have an opportunity to review the documents and legal disclosures we provide to you at closing. All consumer loans secured by primary residences allow for this review time. During this time, you have the right to cancel this transaction at no cost to you. You may exercise this right until midnight of the third business day after loan closing or delivery of the required disclosures (whichever is later); therefore. You will receive a detailed notice of your rights regarding rescission with your closing documents.

Can I pay my loan in advance, either monthly or in full?
Yes, most of our loans have no prepayment penalty. You may pay off your remaining balance at any time without paying additional fees. Partial prepayments, while they do not change your monthly payment, can help you save interest and reduce the term of your loan.

What does my mortgage payment include?
Most payments have three parts:
  • Principal: a payment to the amount borrowed
  • Interest: a payment on the interest
  • Escrow: a payment for a portion of the property taxes due at year end and/or for hazard, private mortgage or other insurance
What is private mortgage insurance?
This insurance is paid by the borrower to protect the lender against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment or equity at closing of greater than 80% loan-to-value.

What is hazard insurance?
This insurance protects your property against physical damage such as fire and tornadoes. Lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal at least to the amount of the mortgage loan.

What is the Adjustment Period?
The length of time which dictates interest rate adjustments on an adjustable rate mortgage. A one-year ARM would have a rate adjustment every year on the anniversary of the loan date.

What is an Appraisal?
An estimate of value. For mortgage loans, the value of real property is estimated.

What is a Buydown?
Where the buyer pays additional discount points or makes a substantial down payment to lower the initial or permanent interest rate of the mortgage.

What is a Construction-to-Permanent Mortgage?
A loan secured by real estate where payment terms and conditions alter at a designated time or after construction is complete.

What is a Credit Report?
A report run by an independent credit agency which verifies certain information concerning an applicant's credit history.

How do I Default?
The non-payment of a mortgage or other loan in accordance with the terms as specified in the note.

What is a Discount Point?
A charge by a lender used to lower the interest rate.

What is a Down Payment?
Money given by the purchaser of a property to the seller to acquire the mortgage and hence the property. The difference between the purchase price and the mortgage amount. Typically it should be cash, but it can also be a gift that is not to be repaid.

What is the Federal Home Loan Mortgage Corporation (Freddie Mac)?
A quasi-governmental, federally sponsored organization that helps facilitate the access of mortgage money by creating a secondary market for conventional mortgages. FHLMC sets many of the guidelines for mortgages.

What is a First Mortgage?
The earliest recorded mortgage on real estate that has not been satisfied.

What is the "Floor"?
The lowest interest rate of an adjustable rate mortgage.

What does Free and Clear mean?
A property without a mortgage liability.

What does Fully Amortized mean?
A mortgage with a zero balance at the end of the mortgage term.

What does Index mean?
An interest rate compiled from other indicators over a certain period of time. An index is used on adjustable rate mortgages (ARMs).

What is a Interest Rate Cap?
A limit on the amount an interest rate can increase at the adjustment period.

What is a Life Cap?
The amount an interest rate can increase over the entire term of the loan.

What is a Lock-In?
The guarantee of a specific interest rate for a specified period of time.

What is the Margin?
The amount added to the index on an adjustable rate mortgage to establish an adjusted interest rate. A margin of 1.00 added to an 8.00% index establishes an adjusted interest rate of 9.00%.

What is a Mortgage?
A legal instrument naming real estate used to serve as security for repayment of a loan.

Who is the Mortgagee?
The lender

Who is the Mortgagor?
The borrower

What is a Note?
A legal instrument that specifies the terms of an obligation and shows the borrower is obligated to pay it.

What does PITI mean?
An abbreviation for Principal, Interest, Taxes and Insurance.

What is Prepaids?
Costs paid at closing for charges occurring in the future. For example, prepaid interest for interest which will accrue after the loan closes, before the first payment is due.

What determines Qualification?
According to the lender's standards, the borrower's ability to repay a mortgage based on credit, employment, assets, debts and income.

What is a Refinance Mortgage?
Money borrowed by the owner of real estate to pay off an existing mortgage with a different lender.

What is Residential Real Estate?
Property built and owned for the purpose of living and/or renting to tenants. Residential real estate is limited to units for one to four families.

What is a Second Mortgage?
A loan secured by real estate with an existing mortgage lien.

What is the Secondary Market?
A market made up of investors which purchase mortgages from lenders to sell them to other investors.

What is Loan Servicing?
The process of collecting monthly mortgage payments and properly crediting them to principal, interest and taxes. This procedure also includes keeping the borrower informed of any changes to his or her mortgage.

What is a Settlement Agent?
A person who conducts a mortgage closing or settlement.

What is a Survey?
A measurement of the real estate boundaries, including any buildings, easements, rights of way, roads, etc.

What does Term mean?
The life of a mortgage.

What is Title?
Ownership record of property.

What is a Uniform Residential Loan Application?
A preapproved form for applying for residential mortgages.

What is a Uniform Residential Appraisal Report?
Approved appraisal format used by appraisers to estimate the value of real estate.

What is a Uniform Settlement Statement (HUD-1)?
Standard document summarizing closing information as requiried by the Real Estate Settlement Procedures Act.

What is Underwriting?
The process used by lenders to analyze risk. Factors such as credit, employment, assets, and debts are used to complete the procedure.

What is a Verification of Deposit?
Standard form which verifies an applicant's assets held at a financial institution.

What is Verification of Employment?
Standard form which verifies an applicant's employment history, including income information.

What is Verification of Mortgage?
Standard form which verifies an applicant's mortgage with a financial institution, including payment history and present balance
FHA Financing FAQ

What is an FHA loan?
An FHA loan is a real estate mortgage. The mortgage is insured by FHA. Since the FHA insures these mortgages, lenders can work with borrowers even when they've had credit problems, accounts forwarded to collections, past bankruptcy filings, or debt-to-income ratios that are higher than normally allowed.

What is an FHA mortgage loan?
Nearly all homes purchased in the United States are done so with a home loan. Last year, the median home price in the United States was approximately $215,000, and since the vast majority of Americans don't have that kind of cash lying around, they borrow money, usually in the form of a mortgage loan.

An FHA loan is a mortgage loan that is insured by the U.S. government. Since the government insures the mortgage loan, lenders are more willing to issue loans with fewer requirements and stipulations. With an FHA loan, the government doesn't actually lend you the money, a bank or mortgage lender provides the loan. Any money used to pay for the home will come from the lender, not the U.S. government. The government simply insures the loan. With government insurance, lenders will be able to provide more loans.

FHA is an acronym for the Federal Housing Administration, a government agency which is itself a part of the Department of Housing and Urban Development (HUD). FHA was created in 1934 as a direct result of the Great Depression, one of America's worst economic downturns. During the Great Depression, millions of Americans were unable to make payments on their debts, the banking system failed, and millions of homes were lost to foreclosure (a process in which a lender takes back a house to sell on the open market).

To fight the growing problem of indebtedness and a lack of homeownership during this period, the United States government set up the FHA, which was designed to provide struggling families with loans so that they could purchase a home. The Great Depression ended in the late 1930s, and since then FHA loans have been used basically for the same purpose: to provide low- and moderate-income families with affordable housing. FHA loans are also great for first-time home buyers.

So why should I get an FHA loan?
If you don't qualify for, or can't afford a conventional loan, it is possible that you would qualify for an FHA loan, since FHA loans generally have:
  1. Lower credit score requirements
  2. Lower down payment requirements
  3. Low closing costs
  4. Property condition standards
  5. Lower monthly mortgage insurance
  6. Special discounts for those who qualify for FHA's Good Neighbor Next Door Program

Who should get an FHA mortgage loan?
FHA mortgage loans were originally developed for people affected by the Great Depression. These days, most individuals who get FHA loans have a low- to moderate-income or are first-time home buyers. Additionally, there has been a recent increase in people switching to FHA loans from subprime loans for the safety and reliability associated with the FHA.

FHA loans are great for low- to moderate-income families because of the loan requirements, including lower down payments, low closing costs, and easier credit qualifications. First-time home buyers are attracted to FHA loans because when somebody is buying their first home they are usually too young to have built up a lot of credit. Because FHA loans have less strict credit requirements, even people with little credit (due to inexperience) can get financing.

FHA loans are best for people that:
  • Have some credit problems that prevent him or her from getting prime-market mortgage loans.
  • Can handle the FHA 3.5% down payment
  • Income: Your income can be relatively low, but more importantly it should be steady for at least the past two years. If it is not, the FHA might still insure your loan, but proving a steady source of income (which can be from a number of sources) is always beneficial.
  • Credit: Most people who get an FHA loan have credit that doesn't meet conventional pricing requirements.

What is Required for FHA Mortgage?
Before beginning the process of actually obtaining an FHA mortgage loan, it is important to look over what the FHA expects of its borrowers. Financial, credit, and employment requirements may seem daunting at first, but keep in mind that the FHA is usually much more flexible and accommodating than many private lending institutions.

If you don't meet one or two of the requirements, or if you meet them just barely, feel free to contact MPR Financial and see what we can do for you. Since every situation is different, you may be able to work out a solution so you can obtain an FHA mortgage.

  • Basics: To get an FHA mortgage loan, you need a valid social security number, must be a legal resident of the United States, and be of legal age to sign on a mortgage (this age varies from state to state).
  • Employment: There are no fixed employment requirements for an FHA mortgage loan.
  • Income: As with the above category, there are no minimum income requirements for an FHA loan. Rather, you must simply show that you have had continual income for the past two years. What constitutes income? Full-time wages from your employer, part-time pay, overtime pay, bonuses, seasonal pay, pension, child support paid to you, alimony paid to you, even rent paid by family members to you. Government-based sources of income can also be included, such as social security payments, unemployment compensation, military pay, and VA benefits. The FHA doesn't have maximum income limits either, people with well-paying jobs or lots of other income can get FHA loans too.
  • Credit: One of the main advantages FHA loans have over conventional loans are the credit requirements. While conventional loans often demand that the borrower have a high credit score and no past bankruptcies or foreclosures, FHA is less strict.
    • You do not need perfect credit to qualify for an FHA loan as long as there is a good reason for any past credit problems.
    • If you lost your job, had a job transfer, suffered a serious illness or had to support someone suffering a serious illness, this may be reason enough to excuse your credit history.
    • There are two real credit requirements for an FHA mortgage loan: no bankruptcies in the past two years, and no foreclosures in the past three years.
    • Additionally, potential borrowers should make sure that any tax debts (also known as "tax liens") and other judgments have been paid or that a repayment plan has been set up to begin paying them.
    • It is recommended that you have no more than two "30 day late payments" in the last two years.
    • The best way to see if your credit is good enough to obtain an FHA loan is to get "pre-qualified." Most lenders offer some sort of pre-qualification service in which they will ask you about your credit history and determine whether or not you'll be able to get the loan.
    • Some people who'd like to get an FHA loan do not have any credit history at all. This may be because they are too young to have any credit built up, prefer to pay their debts in cash or simply have never borrowed money. These people can get an FHA loan, but must prove their ability to make regular mortgage payments in other ways.
  • Down payment: One of the main items people worry about when buying a home is the down payment (a percentage of the home's total value to be paid in cash upon obtaining the mortgage loan). For many low- and moderate-income families, a large sum of cash is hard to come by. Fortunately, the FHA loan has one of the smallest down payment requirements. The minimum down payment for an FHA loan is just 3.5% and will never exceed 5%. Borrowers usually use their own cash reserves to pay the down payment, but can also use cash gifts and private savings to pay it as well.

Are you part of the FHA?
No, we are not the Federal Housing Administration nor are we affiliated with the FHA. The FHA is not a lender; they merely insure the mortgage which is why we are able to give a great loan to borrowers. At M.P.R. Financial, we provide you the information and options regarding FHA loans.

Why should I ask for more information through this website?
MPR Financial is an approved FHA lender and set up to help people with home loans. Our loan officers are FHA specialists and have the knowledge to answer your FHA mortgage questions.

Why should I get a FHA loan versus a conventional loan?
The FHA loan is a program set up to help people with little or no down payment purchase homes. FHA loans can provide up to 96.5% financing on a home.

How do interest rates change?
Interest rates can be very volatile and can be difficult to predict in the long term. Generally, as the price for US Treasury Bonds increase, rates will decrease, and vice versa. Interest rates are updated every morning, and sometimes throughout the day if the financial markets are changing.

Does the FHA control their interest rates?
No, the FHA does not directly influence interest rates. The rates are set by banks buying and selling mortgage bonds. FHA interest rates change just like conventional loans.

I heard the Federal Reserve lowered the prime rate. How does this affect FHA loans?
The lowering of the prime rate does not affect FHA loan rates as much as many people think. While it's related, the Federal Reserve doesn't directly affect long term rates such as the FHA home loan.

What are the benefits of an FHA loan?
The FHA loan offers up to 96.5% financing. You are eligible for a streamline refinance if rates go down. A streamline refinance does not require a new appraisal. Be sure to request a quote for a streamline refinance if you want more information.

Is there a pre-payment penalty on an FHA loan?
No, there is no pre-payment penalty on a FHA loan. You are allowed to pay off the loan partially or in its entirety at any time without a penalty.

Can I use a co-borrower to help get approved?
Yes, FHA will allow a co-signer that is not living in the house unlike conventional loans in which the borrower still needs to meet certain qualifying ratios even if they have a co-signer.

How soon should I apply for an FHA loan if I do not have a house in mind yet?
You can get pre-qualified at any time for your FHA mortgage, even without a property or house in mind. Many times this is the best way to go so you can solve potential problems before you have a sales contract. This will make the process easier for all parties involved.

Can I use my spouse as a co-borrower?
Your spouse is a possible co-borrower for an FHA loan. You can use your spouse's income to help approval.

Is there any obligation or cost to get pre-qualified?
No, it does not cost anything. We will be happy to assist in seeing if pre-qualification is possible for you. There is never any fee or obligation to get pre-qualification.

Are the FHA rates better or worse than conventional rates?
It depends on your specific situation. It would be smart to compare both before making a final decision. However, if you only have funds for a small down payment, the FHA loan will most likely be better suited for you.

My realtor has suggested that FHA loans are not worth it. Is this true?
Years ago, FHA loans were harder to get approved in a timely fashion. But now the approval process is similar to a conventional loan. Your realtor isn't doing you any favors if they say to avoid a FHA loan.

How do I find out how much I can afford?
The first step is to get pre-qualified. It's generally a good idea to do this before putting an offer down on a particular house.

Do I need to put money down in order to purchase a house with my FHA Loan?
Yes. An FHA loan requires at least 3.5% down. But you can roll in your closing costs into the loan.

Should I consider an adjustable rate FHA loan?
If you believe you will move before the temporary fixed rate term ends, then it would make sense to consider an adjustable rate FHA loan. However, if there is a chance you will stay long term in this house, the safe bet would be to stick with a fixed rate.

How can I get more information about a FHA loan?
You can contact the M.P.R Financial directly or ask a professional loan consultant who specializes in FHA loans. When you fill out the online application you will be contacted by one of our FHA loan specialists.