Frequently Asked Questions
What types of loans can I borrow?
- A conventional mortgage is a home loan that’s not insured by the federal government. There are two types of conventional loans: conforming and non-conforming loans.
- A conforming loan simply means the loan amount falls within maximum limits set by the Federal Housing Finance Agency. The types of mortgage loans that don’t meet these guidelines are considered non-conforming loans. Jumbo loans, which represent large mortgages above the FHFA limits for different counties, are the most common type of non-conforming loan.
- Generally, lenders require you to pay private mortgage insurance on many conventional loans when you put down less than 20 percent of the home’s purchase price.
- Jumbo mortgages are conventional types of mortgages that have non-conforming loan limits. This means the home price exceeds federal loan limits. For 2021, the maximum conforming loan limit for single-family homes in most of the U.S. is $548,250. In certain high-cost areas, the ceiling is $822,375. Jumbo loans are more common in higher-cost areas. This means that you can borrow more money to buy a home in an expensive area, yet interest rates tend to be competitive with other conventional loans.
- VA loans – VA loans provide flexible, low-interest mortgages for members of the U.S. military (active duty and veterans) and their families. VA loans do not require a down payment or PMI, and closing costs are generally capped and may be paid by the seller. A funding fee is charged on VA loans as a percentage of the loan amount to help offset the program’s cost to taxpayers. This fee, as well as other closing costs, can be rolled into most VA loans or paid upfront at closing.
- FHA loans – Backed by the FHA, these types of home loans help make homeownership possible for borrowers who don’t have a large down payment saved up or don’t have perfect credit. Borrowers need a minimum FICO score of 580 to get the FHA maximum of 96.5 percent financing with a 3.5 percent down payment; however, a score of 500 is accepted if you put at least 10 percent down. FHA loans require two mortgage insurance premiums: one is paid upfront, and the other is paid annually for the life of the loan if you put less than 10 percent down, which can increase the overall cost of your mortgage.
- USDA loans – USDA loans help moderate- to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify.
- Fixed-rate mortgages keep the same interest rate over the life of your loan, which means your monthly mortgage payment always stays the same. Fixed loans typically come in terms of 15 years, 20 years or 30 years.
Adjustable-rate mortgages (ARM):
Adjustable-rate mortgages have fluctuating interest rates that can go up or down with market conditions. Many ARM products have a fixed interest rate for a few years before the loan changes to a variable interest rate for the remainder of the term.
What is the difference between a mortgage interest rate and an APR?
The interest rate is the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan.
An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.
If you have applied for a mortgage and received a Loan Estimate from one or more lenders, you can find the interest rate on page 1 under “Loan Terms,” and the APR on page 3 under “Comparisons.”
What documents do I need to provide for a Mortgage Pre-approval Letter?
- W-2 wage earners: Copies of W-2 forms and your two most recent payroll stubs.
- Self-employed, freelancers and independent contractors: a year-to-date profit and loss statement and two years of records, including the Form 1099s you used to report income and file taxes.
- Real estate income: rental income, address, lease and current market value of a rental property if you will use this income to qualify for a mortgage.
- Tax returns: Copies of your two most-recent federal and state returns may be required.
- Bank statements: Copy 60 days' worth of statements for every account whose assets you’re using to qualify for the mortgage. Include even blank pages of the statements.
- Retirement and brokerage accounts: Two months of statements from IRAs, investment accounts and CDs. The last quarterly statement from 401(k)s showing the vested balance. As with bank statements, include every page, even blank pages.
- Monthly debt payments: Lenders examine your payment obligations to calculate your debt-to-income ratio. List all monthly debt payments, including student loans, auto loans, mortgage and credit cards. Include each creditor’s name and address, and your account number, loan balance and minimum payment amount. If you have no credit history, utility bills or records of other regular payments may be used to help you qualify for a mortgage.
- Real estate debt: If your current property is mortgaged, have your most recent statement — showing the loan number, monthly payment, loan balance and the lender’s name and address — and the declaration page of the insurance policy.
- Rent: Renters need to show payments for the past 12 months and provide contact information for landlords for the past two years.
- Divorce: Court divorce decree, if applicable, and any court orders for child support and alimony payments.
- Bankruptcy and foreclosure: Ask your lender what documents they’ll need and how long you should wait after bankruptcy or foreclosure to re-enter the housing market.
- Down payment gift letters: Lenders will want to talk about your down payment. You’ll need to show the sources of the money you plan to use. If your funds include gifts, you’ll need to get letters from your donors showing they don't expect to be paid back. Gift letters aren’t required for preapproval but be prepared for it if your lender asks for it.
** Please note, your lender may ask for other documents, if needed.
What are property taxes?
Property taxes vary a lot based on where the house is located. Property taxes are the main source of revenue for schools, libraries and fire districts in Colorado. GENERALLY, property taxes are roughly 0.75% of the market value of the home. This is higher in certain areas where Special Improvement districts exist (such as Flying Horse Ranch, where the planning figure is closer to 1.25%) and lower in some of the older sections of the city (particularly in school district 11), where the figure is usually closer to 0.5%. Because valuation is not precise and tax rates vary significantly, the only way to know for sure what taxes are is to check the assessors office information for a specific property: https://property.spatialest.com/co/elpaso
Who pays for property taxes and when are they due?
Generally for most borrowers, property taxes are paid by the mortgage lender. From the time you pruchased the home, there was an escrow account set up to pay taxes and hazard insurance. You continue to fund this escrow account every time you make a house payment. The lender uses these funds to pay your property taxes. Unless you have more than 20% equity in your home, in most cases, the lender will require that the lender pay the taxes.
In Colorado, property taxes are paid in the arrears. Property tax statements are mailed once a year in January. Taxes can be paid in a lump-sum payment or in two installments:
- If paid as a lump-sum, payment in full is due by April 30.
- If paid in installments, the first half is due by the last day of February and the second half is due by June 15.
Before you pay your property taxes, check with your lender whether they have already paid it for you.
Why do I need Homeowners Insurance?
Homeowners insurance covers both damage to property and liability or legal responsibility for any injuries and property damage policyholders or their families cause to other people. This includes damage caused by household pets. Standard homeowners policies, however, do not cover flooding, earthquakes or poor maintenance.
A standard homeowners insurance policy includes four essential types of coverage:
- Coverage for the structure of the home - This part of a policy pays to repair or rebuild a home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disaster listed in the policy.
- Coverage for personal belongings - Furniture, clothes, sports equipment and other personal items are covered if they are stolen or destroyed by fire, hurricane or other insured disaster. Expensive items like jewelry, furs and silverware are covered, but there are usually dollar limits if they are stolen.
- Liability protection - Liability covers against lawsuits for bodily injury or property damage that policyholders or family members cause to other people. It also pays for damage caused by pets.
- Additional living expenses - This pays the additional costs of living away from home if a house is inhabitable due to damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals and other living expenses incurred while the home is being rebuilt. Coverage for additional living expenses differs from company to company.
Please note that lenders will require borrowers to have Homeowners Insurance in place throughout the entire time of the loan.