Frequently Asked Mortgage Questions

Here are some common questions to help you make more informed decisions.

What is the difference between a prequalification and a pre-approval?

A pre-qualification is an estimate of your borrowing power after a review of your stated income, debt, assets, credit history and funds available for down payment and closing costs. A prequalification is not based on verified information and is not a commitment from the lender that they will give you a mortgage.

A pre-approval is a mortgage commitment from the bank based on verified income and credit history, and subject to a property appraisal, given to homebuyers who have not yet selected a specific property.

What are some of the benefits of pre-approval?

With a People’s United Bank mortgage pre-approval you gain a greater sense of security while shopping for a home, knowing that your loan is pre-approved. When it comes time to make an offer on a home, your Pre-Approval Certificate informs the buyer of the bank’s commitment to lend to you which is helpful in negotiating your new home purchase.

Will it hurt my credit if you run my credit report for pre-approval?

Every inquiry on your report that is based on a request for credit may result in your score being lowered. Inquiries on your report represent about 10% of your overall credit score, so if you have too many of them, it could hurt your chances of obtaining a loan or getting more favorable rates and program options. However, it is better to know ahead of time what your credit profile looks like and your score is not affected significantly, if you have several inquiries, within a short time frame of the same type of request.

What is an escrow account?

An escrow account is set up by the mortgage lender to pay for certain property related expenses on your behalf. Property taxes, insurance and if needed, private mortgage insurance are expenses commonly escrowed. Escrowing for these items assures the lender that the payments will be made on time and kept current. The monthly costs for each will be included in your monthly mortgage principal and interest payment and held in an interest bearing escrow account until funds need to be dispersed. Since most real estate taxes are due annually or semi-annually, an escrow account helps the homeowner to budget for these big expenses on a monthly basis. Your mortgage servicer will provide you with an annual escrow statement which will detail the yearly activity on your escrow account.

Do I need an attorney?

It is highly recommended that buyers that engage in any legal transactions secure the services of an attorney. Considering the complexity of the process and the importance of the decision of buying a home, it is prudent that you seek legal representation. However, the bank does not require that you hire an attorney to complete the mortgage process. You will, however be required to secure the services of the bank’s attorney during the closing process.

The cost of this service will be part of the initial estimate of your closing costs.

What is mortgage insurance?

Mortgage Insurance or MI is a type of insurance that protects the lender in the case that the borrower stops making payments on their mortgage. MI is required on most loans where the down payment is less than 20%. There are some loan programs that do not require MI. Please speak with your People’s United mortgage expert to review eligibility.

Do I need to put 20% down to buy a home?

There are a number of first time homebuyer programs that require less than 20% down. In some instances, you do not have to put any money down. Most first time homebuyer programs require 3% - 5% down, but there are some product specific guidelines that you should review with your mortgage expert.

What is title insurance?

Title Insurance is a form of indemnity insurance to protect lenders in case of a defect on their title to the property. People’s United Bank will require lender’s title insurance to protect their interest in real property securing a mortgage loan.

What is owner’s title insurance?

Owner’s title insurance is optional and additional insurance which is offered at time of closing. Lender’s title insurance only protects the lender in case of a claim for defect, not the borrower. You should review with your attorney about the specifics as to the differences between a lender’s and owner’s policy.

How do I lock a rate?

Your Mortgage Expert has the ability to lock your interest rate for you. Once you have verbally committed to an interest rate and closing point option, your mortgage expert will secure the rate for you, they will provide you with a written confirmation with details of your rate lock and the time period for you to execute on that confirmation.

Can I lock in my interest rate, while I am shopping for a home?

People’s United Bank does not lock rates unless a purchase offer has been accepted, or the borrower is refinancing a property which they already own. Banks are required to deliver a mortgage to an investor within a certain period of time or face penalties if they are late on the delivery of such loans. If a buyer exceeds the amount of time on a purchase, they may be requested to pay additional fees or extension costs as a result of those delays. Because buyers do not have a clear timeframe, when shopping for a home, it is not advisable or prudent to lock a rate in which the buyer could incur additional financial costs.

Can I lock my loan rate for more than 60 days?

Banks do offer extended rate lock periods longer than the traditional 60 days. Because the borrower is buying a contract into the future and interest rates fluctuate on a daily basis, there is a higher inherent risk in locking a loan for more than 60 days. As a result, a rate with a longer rate lock period may require additional fees or in some cases a higher interest rate.

What happens if rates changes during the process?

Once your mortgage expert has provided you with a written rate lock confirmation, your interest rate is protected for the rate lock period that was provided to you. If interest rates increase due to market volatility, your rate is protected, as long as you can close on your mortgage loan within the time frame identified in the confirmation. However, if interest rates drop in the market, you will not be able to negotiate better terms with the bank.

Can my parents give me money for a down payment?

Yes, family members can gift you money towards a down payment, but certain programs may require that you have a minimal investment from your own savings to qualify for a mortgage. Gift of funds are a great way to buy a home, but check with your mortgage expert for the specific requirements of each mortgage program.

Do student loans that are in deferment count against my prequalification amount?

Each product has different requirements as it pertains to student loan deferment, but the majority of mortgage products require that we include a debt payment calculation during your application process. It is best to review this with your mortgage expert to ensure that we can select the best mortgage option for your needs.

What can I afford?

Buying a home should be an individual decision, based on each person’s budget and ability to repay a loan. People’s United Bank includes debts like mortgages, student loans, auto loans, personal loans and credit card balances in our calculations to evaluate the size mortgage someone can afford. However, you may want to also include expenses such as day care, auto insurance and other items that are important to consider in evaluating how much of a monthly mortgage payment you can afford.

There are a variety of first time homebuyer programs with different payment plans so it is important for you to determine what you can afford per month and then working with a People’s United Bank mortgage expert identify the best program/loan for you.

Should I choose a fixed rate or an adjustable rate mortgage?

Choosing a rate is always a personal decision and it should be based on the amount of time you expect to live on the property, current market and economic conditions and your comfort level with payment stability, against future payment changes. A fixed rate provides stability and comfort in knowing what your payments will be throughout the life of your loan, but the rates are normally higher than adjustable rate mortgages. Arms or adjustable rate mortgages will fluctuate with market conditions. Banks also offer a blended option with a fixed portion upfront and a variable feature after the fixed period option is over.

For instance, People’s United Bank can offer fixed periods of 5, 7, 10 years which will adjust based on the market after that. This could be a good decision for someone that knows that they will live in their home for a short period of time, before moving or scaling up, while taking advantage of the lower rates that adjustable rate mortgages typically offer. To help you determine the best option for you speak with your mortgage expert.

What is equity?

Equity is the portion of your home that you own, after discounting the amount that you need to pay to the bank. The best way to calculate this is by taking the current value of your home and subtracting the balance on your existing mortgage. If you have a positive balance, you have positive equity. If your current value is less than your current balance, you will have negative equity.

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