CalculatorsThere are many financial decisions involved in purchasing or refinancing a home. The calculators we provide here can help you decide some of those decisions.
Your PropertyWhen you buy or refinance a home, the property is used as collateral for the loan. Here's what the lender is looking for and why.
What is an appraisal and who completes it?
To determine the value of the property you are purchasing or refinancing, an appraisal will be required. An appraisal report is a written description and estimate of the value of the property. National standards govern not only the format for the appraisal; they also specify the appraiser's qualifications and credentials. In addition, most states now have licensing requirements for appraisers evaluating properties located within their states.
The appraiser will create a written report for us and you will be given a copy at your loan closing. If you would like to review the appraisal earlier than at closing, your Mortgage Banker will be happy to provide it to you.
Usually the appraiser will inspect both the interior and exterior of the home. However, in some cases, only an exterior inspection will be necessary based on your financial strength and the location of the home. Exterior-only inspections usually save time and money, but if you are purchasing a new home, your Mortgage Banker will contact you to determine if you would be more comfortable with a full inspection.
After the appraiser inspects the property, they will compare the qualities of your home with other homes that have sold recently in the same neighborhood. These homes are called "comparables" and play a significant role in the appraisal process. Using industry guidelines, the appraiser will try to weigh the major components of these properties (i.e., design, square footage, number of rooms, lot size, age, etc.) to the components of your home to come up with an estimated value of your home. The appraiser adjusts the price of each comparable sale (up or down) depending on how it compares (better or worse) with your property.
As an additional check on the value of the property, the appraiser also estimates the replacement cost for the property. Replacement cost is determined by valuing an empty lot and estimating the cost to build a house of similar size and construction. Finally, the appraiser reduces this cost by an age factor to compensate for depreciation and deterioration.
If your home is for investment purposes, or is a multi-unit home, the appraiser will also consider the rental income that will be generated by the property to help determine the value.
Using these three different methods, an appraiser will frequently come up with slightly different values for the property. The appraiser uses judgment and experience to reconcile these differences and then assigns a final appraised value. The comparable sales approach is the most important valuation method in the appraisal because a property is worth only what a buyer is willing to pay and a seller is willing to accept.
It is not uncommon for the appraised value of a property to be exactly the same as the amount stated on your sales contract. This is not a coincidence, nor does it question the competence of the appraiser. Your purchase contract is the most valid sales transaction there is. It represents what a buyer is willing to offer for the property and what the seller is willing to accept. Only when the comparable sales differ greatly from your sales contract will the appraised value be very different.
What types of things will an underwriter look for when they review the appraisal?
In addition to verifying that your home's value supports your loan request, we will also verify that your home is as marketable as others in the area. We want to be confident that if you decide to sell your home, it will be as easy to market as other homes in the area.
We certainly do not expect that you will default under the terms of your loan and that a forced sale will be necessary, but as the lender, we will need to make sure that if a sale is necessary, it will not be difficult to find another buyer.
We will review the features of your home and compare them to the features of other homes in the neighborhood. For example, if your home is on a 20-acre lot, or has a large accessory building, we will want to make sure that there are other homes in the area on similar size lots or with similar outbuildings. It is hard to place a value on such unique features if we are unable to see what other buyers are willing to pay for them.
We will also make sure that the value of your home is in the same range as other homes in the area. If the value of your home is substantially more than other homes in the neighborhood, it could affect the market acceptance of the home if you decide to sell.
Also, we will review the market statistics about your neighborhood. We look at the time on the market for homes that have sold recently and verify that values are steady or increasing.
Will I get a copy of the appraisal?
As soon as we receive your appraisal, we will update your loan with the estimated value of the home. As a standard practice we will provide a copy of your appraisal at closing.
Are there any special requirements for condominiums?
Since the value and marketability of condominium properties is dependent on items that do not apply to single-family homes, there are some additional steps that must be taken to determine if condominiums meet our guidelines.
One of the most important factors is determining if the project that the condominium is located in is complete. In many cases, it will be necessary for the project, or at least the phase that your unit is located in, to be complete before we can provide financing. The main reason for this is, until the project is complete, we cannot be certain that the remaining units will be of the same quality as the existing units. This could affect the marketability of your home.
In addition, we will consider the ratio of non-owner occupied units to owner-occupied units. This could also affect future marketability since many people would prefer to live in a project that is occupied by owners rather than renters.
Also, we carefully review the appraisal to insure that it includes comparable sales of properties within the project, as well as some from outside the project. Our experience has found that using comparable sales from both the same project as well as other projects gives us a better idea of the condominium project's marketability.
Depending on the percentage of the property's value you would like to finance, other items may also need to be reviewed.
I'm purchasing a home, do I need a home inspection AND an appraisal?
Both a home inspection and an appraisal are designed to protect you against potential issues with your new home. Although they have different purposes, it makes the most sense to rely on each to help confirm that you have found the perfect home.
The appraiser will make note of obvious construction problems such as termite damage, dry rot or leaking roofs or basements. Other obvious interior or exterior damage that could affect the salability of the property will also be reported.
However, appraisers are not construction experts and will not find or report items that are not obvious. That is where the home inspector comes in. They generally perform a detailed inspection and can educate you about possible concerns or defects with the home.
It is a good idea to accompany the inspector during the home inspection. This is your opportunity to gain knowledge of major systems, appliances and fixtures, learn maintenance schedules and tips, and to ask questions about the condition of the home.
I've heard that some lenders require flood insurance on properties. Will you?
Federal Law requires all lenders to investigate whether or not each home they finance is in a special flood hazard area as defined by FEMA, the Federal Emergency Management Agency. The Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 help to ensure that you will be protected from financial losses caused by flooding.
We use a third party company who specializes in the reviewing of flood maps prepared by FEMA to determine if your home is located in a flood area. If it is, then flood insurance coverage will be required, since standard homeowner's insurance will not protect you against damages from flooding.
How long does it take for the property appraisal to be completed?
Licensed appraisers who are familiar with home values in your area perform appraisals. We order the appraisal as soon as the application deposit is paid. Generally, it takes 10-14 days before the written report is sent to us. We follow up with the appraiser to insure that it is completed as soon as possible. If you are refinancing, and an interior inspection of the home is necessary and the appraiser should contact you to schedule a viewing appointment. If you do not hear from the appraiser within seven days of the order date, please inform your Mortgage Banker. If you are purchasing a new home, the appraiser will contact the real estate agent, if you are using one, or the seller to schedule an appointment to view the home.
Does BMO Harris Bank N.A. provide financing for manufactured homes?
We define manufactured housing as housing units that are factory built with a steel undercarriage that remains as a structural component and limits the structure to a single story. These types of manufactured homes are sometimes known as mobile homes. We do not consider other factory-built housing (not built on a permanent chassis), such as modular, prefabricated, panelized, or sectional housing, to be manufactured housing. If your home is one of these types, please complete the application indicating that your home is a single family home.
In order to qualify for our loan programs a manufactured home must meet the following requirements:
- A manufactured home is any dwelling built on a permanent chassis and attached to a permanent foundation system.
- Be a one-family dwelling that is legally classified as real property.
- The towing hitch, wheels, and axles must have been removed and the home must be permanently attached to a foundation system that meets state and local codes as well as the manufacturer’s requirements.
- Foundation system must be appropriate for the soil conditions for the site and meet local and state codes.
- The land on which the manufactured home is situated must be owned by you. We do not provide financing for manufactured homes located on rented or leased land.
- Must have been built in compliance with the Federal Manufactured Home Construction and Safety Standards that were established June 15, 1976. Generally, compliance with these standards will be evidenced by the presence of a HUD Data Plate that is affixed near the main electrical panel of the home or in another readily accessible and visible location.
- Must be at least double-width, 24 feet wide, and have a minimum 600 square feet of gross living area. Must be acceptable to typical purchasers in the market area.
- A manufactured home is any dwelling built on a permanent chassis and attached to a permanent foundation system.
Loans, Rates & FeesWhen it comes to home financing, there are many different options to choose from. How do you find the loan that's best for you? Here is some information to help you.
How are interest rates determined?
Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy. Over time, inflation has the largest influence on the level of interest rates. A modest rate of inflation will almost always lead to low interest rates, while concerns about rising inflation normally cause interest rates to increase. Our nation's central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.
What is an adjustable rate mortgage?
An adjustable rate mortgage, or an "ARM" as they are commonly called, is a loan type that offers a lower initial interest rate than most fixed rate loans. The trade off is that the interest rate can change periodically, usually in relation to an index, and the monthly payment will go up or down accordingly.
Against the advantage of the lower payment at the beginning of the loan, you should weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. By selecting an ARM, you pay a lower interest rate in exchange for assuming more risk.
For many people in a variety of situations, an ARM is the right mortgage choice, particularly if your income is likely to increase in the future or if you only plan on being in the home for three to five years.
Here's some detailed information explaining how ARM's work.
With most ARMs, the interest rate and monthly payment are fixed for an initial time period such as one year, three years, five years, or seven years. After the initial fixed period, the interest rate can change every year. For example, one of our most popular adjustable rate mortgages is a five-year ARM. The interest rate will not change for the first five years (the initial adjustment period) but can change every year after the first five years.
Our ARM interest rate changes are tied to changes in an index rate. Using an index to determine future rate adjustments provides you with assurance that rate adjustments will be based on actual market conditions at the time of the adjustment. The current value of most indices is published weekly in the Wall Street Journal. If the index rate moves up so does your mortgage interest rate, and you will probably have to make a higher monthly payment. On the other hand, if the index rate goes down your monthly payment may decrease.
To determine the interest rate on an ARM, we will add a pre-disclosed amount to the index called the "margin." If you are still shopping, comparing one lender's margin to another's can be more important than comparing the initial interest rate, since it will be used to calculate the interest rate you will pay in the future.
An interest-rate cap places a limit on the amount your interest rate can increase or decrease. There are two types of caps:
1. Periodic or adjustment caps, which limit the interest rate increase or decrease from one adjustment period to the next.
2. Overall or lifetime caps, which limit the interest rate increase over the life of the loan.
As you can imagine, interest rate caps are very important since no one knows what can happen in the future. All of the ARMs we offer have both adjustment and lifetime caps. Please see each product description for full details.
"Negative Amortization" occurs when your monthly payment changes to an amount less than the amount required to pay interest due. If a loan has negative amortization, you may end up owing more than you originally borrowed. None of the ARMs we offer allow for negative amortization.
Some lenders may require you to pay special fees or penalties if you pay off the ARM early. We do not charge a penalty for prepayment.
Contact a Mortgage Banker Selecting a mortgage may be the most important financial decision you will make and you are entitled to all the information you need to make the right decision. Please do not hesitate to contact a Mortgage Banker if you have questions about the features of our adjustable rate mortgages.
Should I pay discount points in exchange for a lower interest rate?
Point(s) are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them, up front, at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing, however, you will have lower monthly payments over the term of your loan.
To determine whether it makes sense for you to pay point(s), you should compare the cost of the point(s) to the monthly payments savings created by the lower interest rate. Divide the total cost of the point(s) by the savings in each monthly payment. This calculation provides the number of payments you'll make before you actually begin to save money by paying point(s). If the number of months it will take to recoup the point(s) is longer than you plan on having this mortgage, you should consider the loan program option that does not require point(s) to be paid.
If you would prefer not to make this calculation the "old-fashioned way," we have a point(s) calculator to do the calculation for you!
How do I know if it's best to lock in my interest rate or to let it float?
Mortgage interest rate movements are as hard to predict as the stock market and no one can really know for certain whether they will go up or down.
If you believe that rates are on an upward trend then you may want to consider locking the rate as soon as you are able to do so. Before you decide to lock, make sure that your loan can close within the lock in period. It will not do any good to lock in your rate if you are unable to close during the rate lock period. If you are purchasing a home, review your contract for the estimated closing date to help you choose the right rate lock period. If you are refinancing, in most cases, your loan could close within 30 days. However, if you have any secondary financing on the home that will not be paid off, allow some extra time since we will need to contact that lender to get their permission.
If you think rates might drop while your loan is being processed, you may want to let your rate "float" instead of locking.
How much money will I save by choosing a 15-year loan rather than a 30-year loan?
A 15-year fixed rate mortgage gives you the ability to own your home free and clear in 15 years. While the monthly payments are higher than a 30-year loan, the interest rate on the 15-year mortgage is usually a little lower, and more important – you will pay less than half the total interest cost of the traditional 30-year mortgage.
However, if you are unable to afford the higher monthly payment of a 15-year mortgage you are not alone. Many borrowers find the higher payment out of reach and choose a 30-year mortgage.
Who Should Consider a 15-Year Mortgage?
The 15-year fixed rate mortgage is most popular among younger homebuyers with sufficient income to meet the higher monthly payments to pay off the house before their children start college. They own more of their home faster with this kind of mortgage, and can then begin to consider the cost of higher education for their children without having a mortgage payment to make as well. Other homebuyers, who are more established in their careers, have higher incomes and whose desire is to own their homes before they retire, may also prefer this mortgage.
Advantages and Disadvantages of a 15-Year Mortgage
The 15-year fixed rate mortgage offers two big advantages for most borrowers:
*You own your home in half the time it would take with a traditional 30-year mortgage.
*You save more than half the amount of interest of a 30-year mortgage. Lenders usually offer this mortgage at a slightly lower interest rate than with 30-year loans - typically up to .5% lower. It is this lower interest rate added to the shorter loan life that creates real savings for 15-year fixed rate borrowers.
The possible disadvantages associated with a 15-year fixed rate mortgage are:
*The monthly payments for this type of loan are roughly 10 percent to 15 percent higher per month than the payment for a 30-year.
*Because you will pay less total interest on the 15-year fixed rate mortgage, you will not have the maximum mortgage interest tax deduction possible.
Compare Them Yourself
You may use the "How much can I save with a 15 year mortgage?" calculator in our Resource Center to help decide which loan term is best for you.
Is there a fee charged or any other obligation if I complete the online application?
There is no cost to complete the online application. If your loan is approved, you can decide whether you wish to pay the application deposit to cover the cost of the appraisal and final credit report so that we can begin to process your loan request.
When can I lock in my interest rate and discount points?
Once you complete and submit your application, we will review your information and provide a decision. If we can approve your loan, a Mortgage Banker will contact you to collect your credit card information for the application deposit and we will give you the opportunity to lock in your interest rate and point(s) at that time.
The application deposit is not a fee, it is the appraisal cost estimate and will be credited to the actual appraisal cost at your closing.
Are there any prepayment penalties charged for these loan programs?
Our loan programs do not have penalties for prepayment. You can pay off your mortgage any time with no additional charges.
What is your Rate Lock Policy?
The interest rate market is variable and may change without advance notice. By locking in a rate, you are protected from the time that your lock is confirmed to the day that your lock period expires.
An interest rate lock is an agreement by the borrower and the lender and specifies the number of days for which a loan’s interest rate is guaranteed. Should interest rates rise during that period, the lender is obligated to honor the committed rate. Should interest rates fall during that period, the borrower must honor the lock.
When Can I Lock?
You will have the option to lock after we have reviewed your documentation and credit package. A Mortgage Banker will contact you when you are able to request the lock.
Tell me more about closing fees and how they are determined.
A home loan often involves many fees, such as the appraisal fee, title charges, closing fees, and state or local taxes. These fees vary from state to state and also from lender to lender. Any lender or broker should be able to give you an estimate of their fees. We take our quotes very seriously and complete the research necessary to make sure that our fee quotes are as accurate as possible.
To assist you in evaluating our fees, we have grouped them as follows:
Third Party Fees
Fees that we consider third party fees include the appraisal fee, the credit report fee, the settlement or closing fee, the survey fee, tax service fees, title insurance fees, flood certification fees and courier/mailing fees.
Third party fees are fees that we will collect and pass on to the person who actually performed the service. For example, an appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee, and a title company or an attorney is paid the title insurance fees.
Typically, you may see some minor variances in third party fees from lender to lender since a lender may have negotiated a special charge from a provider they use often or chooses a provider that offers nationwide coverage at a flat rate. You may also see that some lenders absorb minor third party fees such as the flood certification fee, the tax service fee, or courier/mailing fees.
Taxes and other unavoidables
Fees that we consider to be taxes and other unavoidables include: State/Local Taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose. If some lenders do not quote you fees that include taxes and other unavoidable fees, please do not assume that you will not have to pay them. It may mean that the lender has not provided accurate closing costs.
Fees such as point(s), document preparation fees and loan processing fees are retained by the lender and are used to provide you with the lowest rates possible.
This is the category of fees that you should compare very closely from lender to lender before making a decision.
You may be asked to prepay some items at closing that will actually be due in the future. These fees are sometimes referred to as prepaid items.
One of the more common required advances is called "per diem interest" or "interest due at closing." All of our mortgages have payment due dates of the 1st of the month. If your loan is closed on any day other than the first of the month, you will pay interest, from the date of closing through the end of the month, at closing. For example, if the loan is closed on June 15, we will collect interest from June 15 through June 30 at closing. This also means that you will not make your first mortgage payment until August 1. This type of charge should not vary from lender to lender and does not need to be considered when comparing lenders. All lenders will charge you interest beginning on the day the loan funds are disbursed. It is simply a matter of when it will be collected.
If an escrow or impound account will be established, you will make an initial deposit into the escrow account at closing so that sufficient funds are available to pay the bills when they become due.
If your loan requires mortgage insurance, up to two months of the mortgage insurance will be collected at closing. Whether or not you must purchase mortgage insurance depends on the size of the down payment you make.
If your loan is a purchase, you will also need to pay for your first year's homeowner's insurance premium prior to closing. We consider this to be a required advance.
What is title insurance and why do I need it?
If you have purchased a home before, you may already be familiar with the benefits and terms of title insurance. However, if this is your first home loan or you are refinancing, you may be wondering why you need another insurance policy.
The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and especially your mortgage lender, want to make sure the property is indeed yours: that no individual or government entity has any right, lien, claim, or encumbrance on your property.
The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected.
Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in real estate transfer. Title companies typically issue two types of title policies:
1) Owner's Policy. This policy covers you, the homebuyer.
2) Lender's Policy. This policy covers the lending institution over the life of the loan.
Both types of policies are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you probably already have an owner's policy that was issued when you purchased the property, so we will only require that a lender's policy be issued.
Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in the company's own title plant.
After a thorough examination of the records, any title problems are usually found and can be cleared up prior to your purchase of the property. Once a title policy is issued, if any claim covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights. They are also responsible to cover losses arising from a valid claim. This protection remains in effect as long as you or your heirs own the property.
The fact that title companies try to eliminate risks before they develop makes title insurance significantly different from other types of insurance. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen future event, say a fire, accident or theft. On the other hand, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past.
This risk elimination has benefits to both the homebuyer and the title company. It minimizes the chances that adverse claims might be raised, thereby reducing the number of claims that have to be defended or satisfied. This keeps costs down for the title company and the premiums low for the homebuyer.
Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company and that the odds of a claim being filed are slim.
What is mortgage insurance and when is it required?
Mortgage insurance should not be confused with mortgage life insurance, which is designed to pay off a mortgage in the event of a borrower's death. Mortgage insurance makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with low down payment lending. By purchasing mortgage insurance, lenders are comfortable with down payments as low as 3 - 5% of the home's value. It also provides you with the ability to buy a more expensive home than might be possible if a 20% down payment were required.
The mortgage insurance premium is based on loan to value ratio, type of loan and amount of coverage required by the lender. Usually, the premium is included in your monthly payment and one to two months of the premium is collected as a required advance at closing.
It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount - below 75% to 80% of the property value. Recent Federal Legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance has been amortized down to 78% of the original property value. If you have any questions about when your mortgage insurance could be cancelled, please contact your Mortgage Banker.
Is comparing Annual Percentage Rate (APR) the best way to decide which lender has the lowest rates and fees?
The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees in addition to the interest rate determine the estimated cost of financing over the full term of the loan. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up front costs over the entire loan term.
The APR does not include all of the closing fees and lenders are allowed to interpret which fees they include. Fees for things like appraisals, title work, and document preparation are not included even though you may have to pay them.
For adjustable rate mortgages, the APR can be even more confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.
You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that's best for you. It is a good idea to look at total fees, possible rate adjustments in the future if you're comparing adjustable rate mortgages, and consider the length of time that you plan on having the mortgage.
Also, please don't forget that the APR is an effective interest rate--not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.
What is the maximum percentage of my home's value that I can borrow?
The maximum percentage of your home's value depends on the purpose of your loan, how you use the property, and the loan type you choose, so the best way to determine what loan amount we can offer is to complete our online application!
Your ApplicationApplying for a mortgage can be very intimidating. You're asked specific details about your income, assets, and debts. Here we will give you information that will let you know how that information is used when applying for a mortgage.
What is a credit score and how will my credit score affect my application?
A credit score is one of the pieces of information that we will use to evaluate your application.
Credit scores are based on information collected by credit bureaus and reported each month by your creditors about the balances you owe and the timing of your payments. A credit score is a compilation of all this information converted into a number that helps a lender to determine the likelihood that you will repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender. They have proven to be a very effective way of determining credit worthiness.
Some of the things that affect your credit score include your payment history, your outstanding obligations, the length of time you have had outstanding credit, the types of credit you use, and the number of inquiries that have been made about your credit history in the recent past.
Using credit scores allows us to quickly and objectively evaluate your credit history when reviewing your loan application. However, there are many other factors when making a loan decision and we never evaluate an application without looking at the total financial picture of a customer.
Will the inquiry about my credit affect my credit score?
An abundance of credit inquiries can sometimes affect your credit scores since it may indicate that your use of credit is increasing.
The data used to calculate your credit score does not include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry. Do not limit your mortgage shopping for fear of the effect on your credit score.
Will I be charged any fees if I authorize my credit information to be accessed?
There is no charge to you for the credit information that we access with your permission to evaluate your application. You will only be charged for a credit report if you decide to complete the application process if your loan is approved.
Can I really borrow funds to use towards my down payment?
Yes, you can borrow funds to use as your down payment! However, any loans that you take out must be secured by an asset that you own. If you own something of value that you could borrow funds against such as a car or another home, it is an acceptable source of funds. If you are planning on obtaining a loan, please make sure to include the details of this loan in the Expenses section of the application.
How do you decide what you need from me to process my loan?
We take full advantage of an automated underwriting system that allows us to request as little information as possible to verify the data you provided during your loan application. The automated underwriting system compares your financial situation with statistical data from millions of other homeowners and uses that comparison to determine the level of verification needed. In many cases, a single W-2 or pay stub can be used to verify your income or a single bank statement can be used to verify the assets needed to close your loan.
I'm self-employed. How will you verify my income?
Generally, the income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two-year period. However, based on your entire financial situation, we may not need full copies of your tax returns.
We will review and average the net income from self-employment that is reported on your tax returns to determine the income that can be used to qualify. We will not be able to consider any income that has not been reported as such on your tax returns. Typically, we will need at least one, and sometimes a full two-year history of self-employment to verify that your self-employment income is stable.
Will my overtime, commission, or bonus income be considered when evaluating my application?
In order for bonus, overtime, or commission income to be considered, you must have a history of receiving it and it must be likely to continue. We usually need to obtain copies of W-2 statements for the previous two years and a recent pay stub to verify this type of income. If a major part of your income is commission earnings, we may need to obtain copies of recent tax returns to verify the amount of business-related expenses, if any. We then average the amounts you have received over the past two years to calculate the amount that can be considered as a regular part of your income.
If you have not been receiving bonus, overtime, or commission income for at least one year, it probably cannot be given full value when your loan is reviewed for approval.
I am retired and my income is from pension or social security. What will I need to provide?
We will ask for copies of your recent pension check stubs, or bank statement if your pension or retirement income is deposited directly in your bank account. Sometimes it will also be necessary to verify that this income will continue for at least three years since some pension or retirement plans do not provide income for life. This can usually be verified with a copy of your award letter. If you do not have an award letter, we can contact the source of this income directly for verification.
If you are receiving tax-free income, such as social security earnings in some cases, we consider the fact that taxes will not be deducted from this income when reviewing your request.
If I have income that's not reported on my tax return, can it be considered?
Generally, only income that is reported on your tax return can be considered when applying for a mortgage. Unless, of course, the income is legally tax-free and is not required to be reported.
Some lenders may offer a stated income program, which means that you can be qualified for a loan based on the income you state rather than that which can be verified. Usually these programs require larger down payments and offer interest rates that are substantially higher than regular mortgage rates. We do not offer stated income programs at this time.
How will rental income be verified?
If you own rental properties, we will generally ask for the most recent year's federal tax return to verify your rental income. We will review the Schedule E of the tax return to verify your rental income, after all expenses except depreciation. Since depreciation is only a paper loss, it will not be counted against your rental income.
If you have not owned the rental property for a complete tax year, we will ask for a copy of any leases you have executed and estimate the expenses of ownership.
I have income from dividends and/or interest. What documents will I need to provide?
Generally, two years personal tax returns are required to verify the amount of your dividend and/or interest income so that an average of the amounts you receive can be calculated. In addition, we will need to verify your ownership of the assets that generate the income using copies of statements from your financial institution, brokerage statements, stock certificates or Promissory Notes.
Typically, income from dividends and/or interest must be expected to continue for at least three years to be considered for repayment.
Do I have to provide information about my child support, alimony or separate maintenance income?
Information about child support, alimony, or separate maintenance income does not need to be provided unless you wish to have it considered for repaying this mortgage loan.
Will my second job income be considered?
Typically, income from a second job will be considered if a one-year history of secondary employment can be verified.
I've had a few employers in the last few years. Will that affect my ability to get a new mortgage?
Having changed employers frequently is typically not an obstacle to obtaining a new mortgage loan. This is particularly true if you made employment changes without having periods of time in between without employment. We will also look at your income advancements as you have changed employment.
If you are paid on a commission basis, a recent job change may be an issue since it will be difficult to predict your earnings without a history with your new employer.
I was in school before obtaining my current job. How do I complete the application?
If you were in school before your current job, enter the name of the school you attended and the length of time you were in school in the "length of employment" fields. You can enter a position of "student" and income of "0."
If my property's appraised value is more than the purchase price can I use the difference towards my down payment?
Unfortunately, if you are purchasing a home, we will have to use the lower of the appraised value or the sales price to determine your down payment requirement.
It is still a great benefit for your financial situation if you are able to purchase a home for less than the appraised value, but our investors do not allow us to use this "instant equity" when making our loan decision.
I'm getting a gift from someone else. Is this an acceptable source of my down payment?
Gifts are an acceptable source of down payment, if the gift giver is related to you or your co-borrower. We will ask you for the name, address, and phone number of the gift giver, as well as the donor's relationship to you.
If your loan request is for more than 80% of the purchase price, we need to verify that you have at least 5% of the property's value in your own assets.
Prior to closing, we will verify that the gift funds have been transferred to you by obtaining a copy of your bank receipt or deposit slip to verify that you have deposited the gift funds into your account.
I am selling my current home to purchase this home. What type of documentation will be required?
If you are selling your current home to purchase your new home, we will ask you to provide a copy of the settlement or closing statement you will receive at the closing to verify that your current mortgage has been paid in full and that you have sufficient funds for our closing. Often the closing of your current home is scheduled for the same day as the closing of your new home. If that is the case, please bring your settlement statement with you to your new mortgage closing.
I am relocating because I have accepted a new job that I haven't started yet. How should I complete the application?
Congratulations on your new job! If you will be working for the same employer, complete the application as such but enter the income you anticipate you will be receiving at your new location.
If your employment is with a new employer, complete the application as if this were your current employer and indicate that you have been there for one month. The information about the employment you will be leaving should be entered as a previous employer. We can sort out the details after you submit your loan for approval.
I've co-signed a loan for another person. Should I include that debt here?
Generally, a co-signed debt is considered when determining your qualifications for a mortgage. If the co-signed debt does make a difference in approving your mortgage loan, we can ignore the monthly payment of the co-signed debt if you can provide verification that the other person responsible for the debt has made the required payments, by obtaining copies of their cancelled checks for the last six months.
I have student loans that aren't in repayment yet. Should I show them as installment debts?
Any student loan that will go into repayment within the next six months should be included in the application. If you are not sure exactly what the monthly payment will be at this time, enter an estimated amount.
If other student loans are reflected on your final credit report, which will not go into repayment in the next six months, we may need to ask you for verification that repayment will not be required during this time period.
How will a past bankruptcy or foreclosure affect my ability to obtain a new mortgage?
If you have had a bankruptcy or foreclosure in the past, it may affect your ability to get a new mortgage. Unless the bankruptcy or foreclosure was caused by situations beyond your control, we will generally require that two to four years have passed since the bankruptcy or foreclosure. It is also important that you have re-established an acceptable credit history with new loans or credit cards.
What, exactly, is an installment debt?
An installment debt is a loan that you make payments on, such as an auto loan, a student loan or a debt consolidation loan. Do not include payments on other living expenses, such as insurance costs or medical bill payments. We will include any installment debts that have more than 10 months remaining when determining your qualifications for this mortgage.
Closing & BeyondHurray! Your loan has been approved and your loan closing date has been set! This section will give you some idea of what to expect at closing and what happens after closing.
What happens at the loan closing?
The closing will take place at the office of a title company or attorney in your area who will act as our agent. If you are purchasing a new home, the seller may also be at the closing to transfer ownership to you, but in some states, these two events actually happen separately.
During the closing you will be reviewing and signing several loan papers. The closing agent or attorney conducting the closing should be able to answer any questions you may have or feel free to contact your Mortgage Banker if you prefer.
Just to make sure there are no surprises at closing, your Mortgage Banker will contact you a few days before closing to review your final fees, loan amount, first payment date, etc.
The most important documents you will be signing at the closing include:
HUD-1 Settlement Statement
This document provides an itemized listing of the final fees charged in connection with your loan. If your loan is a purchase, the settlement statement will also include a listing of any fees related to the transaction between you and the seller. If this loan will be a refinance, the settlement statement will show the pay off amounts of any mortgages that will be paid in full with your new loan. Most items on the statement are numbered according to a standardized system used by all lenders. These numbers will correspond to the numbers listed on the Good Faith Estimate that will be provided in your application package. This document is also commonly known as the closing statement and both the buyer and seller must sign this document.
Truth-in-Lending Statement (TIL)
This document provides full written disclosure of the terms and conditions of your mortgage, including the annual percentage rate (APR) and other fees. It is exactly the same as the TIL that you received immediately after your initial application, except it has been updated to reflect the final rate and fee information. Federal law requires that all lenders provide you with this document at closing.
This is the document you sign to agree to repay your mortgage. The note will provide you with all of the details of your loan including the interest rate and length of time to repay the loan. It also explains the penalties that you may incur if you fall behind in making your payments.
Mortgage / Deed of Trust
This document pledges a property to the lender as security for repayment of a debt. Essentially this means that you will give your property up to the lender in the event that you cannot make the mortgage payments. The Mortgage restates the basic information contained in the note, as well as details the responsibilities of the borrower. In some states, the document is called a Deed of Trust instead of a Mortgage.
If your loan is a refinance, Federal Law requires that you have three days to decide positively that you want a new mortgage after you sign the documents. This means that the loan funds will not be disbursed until three business days have passed. The closing agent will provide more details at the closing.
Will I need to have an attorney represent me at closing?
In some areas of the country it is very customary, and sometimes required by law, to have an attorney represent you at the closing. In other areas, attorneys are not as common at a real estate closing. Please contact the closing agent if you have questions about attorney representation. By all means, we recommend that you have an attorney at the closing if it would make you more comfortable. If your attorney has any questions about your new mortgage, please refer them to your Mortgage Banker. We are happy to provide any information necessary.
Can I get advanced copies of the documents I will be signing at closing?
The most important documents you will sign at closing are the note and mortgage, sometimes called the deed of trust. Unless there are special circumstances, these documents are usually prepared one to two days before your closing. Other documents are prepared by the closing agent the day before or the day of your closing. If you would like copies of the completed documents to be sent to you after they are prepared, please contact your Mortgage Banker.
Who will be at the closing?
The closing agent acts as our agent and will represent us at the closing. However, your personal Mortgage Banker will contact you prior to closing to talk about your final documents and to provide a final breakdown of your closing fees. If you have any questions that the closing agent is unable to answer during the closing, please ask them to contact your Mortgage Banker by phone and we will get you the answers you need - before the closing is over!
I won't be able to attend the closing. What other options are there?
If you are unable to attend the loan closing, please contact your Mortgage Banker to discuss other options. If someone you trust is able to attend on your behalf, you can execute a Power of Attorney so that this person can sign documents on your behalf. In other cases, we may be able to mail you the documents in advance so that you can sign them and forward them to the closing agent.
Can I make my monthly payments with an automated debit from my checking account?
Automated monthly payments are available. At the loan closing an automated payment application will be provided. Simply return it at your earliest convenience to enroll in the automated payment program.
If I apply, where will the closing take place?
We use a nationwide network of closing agents and attorneys to conduct our loan closings. For your convenience, we will schedule your closing to take place in a location that is located near your home.
We will deliver the loan documents and wire transfer your loan funds to the closing agent or attorney prior to closing so that they will have plenty of time to prepare for your closing.
GlossaryThere are a lot of unfamiliar terms that get tossed around during the mortgage process. But don't worry, we've put together this glossary to help you get a better grasp of any terms that may be less than clear.
Mortgage Application - Let's Get Started!
Thank you for your interest in a mortgage with BMO Harris Bank. It's quick and easy to complete our form in as little as 20 minutes! Here's what you'll need to know:
- Your Social Security Number
- Information about the property
- Your income, assets and expenses
- In WI, AZ and other community property states, you may be required to provide information about your spouse and your joint assets and liabilities.
After you submit your application online, you will be promptly contacted by one of our registered BMO Harris Mortgage Bankers. Our Mortgage Banker will be happy to answer any questions you may have and will also request additional documentation necessary to process your application.