Frequently Asked Questions
The ultimate answer to this question will be obtained through one of our mortgage
specialists. That person will help you arrive at the “best” answers; here are
some items to consider in helping you address this question:
- Your current financial picture;
- How long you intend to keep your house; one of the most important aspects of your decision making process! – our experts will help you understand why.
- Do you expect your finances to change?
Initial establishment of a borrower’s qualification for a mortgage loan amount
(or range), based on the borrower’s assets, debts, income and selected loan program(s).
Here is a simple, straightforward evaluation:
- What is your capacity to pay the debt?
Two debt ratios are used to determine your capacity to repay a loan.
The “Housing Ratio”:
- Monthly Housing Expenses*/Gross Monthly Income = Housing Ratio
* This includes: loan payment (principal and interest),
real estate taxes, hazard insurance, flood insurance, mortgage insurance, homeowners’
association dues, ground rent (leasehold), special assessments, subordinate financing.
The “Debt Ratio”:
- Monthly Fixed Expenses**/Gross Monthly Income = Debt Ratio
**This includes: monthly housing expenses, installment
credit balances with more that 10 months remaining, revolving credit with more
than 10 months remaining, real estate loan payments on non-income-producing property
or negative cash flow on non-owner-occupied property, alimony, child support or
What is a buy-down?
Where the buyer, seller or lender pays additional discount points in return for
a below market interest rate. During times of high interest rates, buy-downs may
induce buyers to purchase property they may not otherwise have purchased.
What is the origination fee?
The amount charged to originate and close a mortgage loan. Origination fees are
usually expressed in points, however, some companies may state a portion of the
fees as origination fees plus points.
What are closing costs?
Costs payable by both seller and buyer at the time of loan settlement (close of
escrow), when the purchase or refinance of a property is finalized. These costs
usually include but are not limited to the following:
- Title search and insurance, escrow fees
- Sales commissions (Realtor)
- Origination fee
- Discount points
- Recording fees
- Courier charges
- Processing and document preparation fees
When borrowers make their monthly mortgage payments, they usually also make a
payment towards the anticipated annual amount needed to pay taxes and insurance
premiums. These funds are placed in an escrow account (also known as Impound account),
until the lender pays the taxes and insurance as they become due.
What is the APR?
APR is an acronym for Annual Percentage Rate. It is the actual interest rate,
taking into account points and other finance charges, for the projected life of
a mortgage. Disclosure of the APR is required by the Truth-In-Lending Law and
allows borrowers to compare the actual costs of different mortgage loans.
What is amortization?
The guarantee of a specific interest rate for a specific period of time. An interest
rate can be “locked in” for a set amount of time – the shorter length of time
for the lock in, the lower the cost in points – our loan specialists can help
you determine the optimal amount of time based on your needs and goals.
When can I Lock-in the interest rate?
Generally, as soon as you complete your loan application. You should notify your
loan agent that you would like to lock or float. Remember, the shorter the time
of the lock in – the lower the points.
How long are lock-ins valid?
The lock-in should be long enough to allow for the loan to close escrow. Some
examples of lock-in terms are for 10, 15, 30, or 45 days; locks are available
for longer terms as well, but again, at a higher cost for the amount of time forward.
What are points?
Charges levied by the lender based on the loan amount. Each point is one percent
of the mortgage loan amount; for example, one point of a $100,000 mortgage is $1,000.
How long will the loan process take?
Once you apply, we will begin to verify all the information you provided. The
total can take anywhere from a week plus. Other factors include whether the applicant
is self-employed, title clearance, etc. Time delays can also occur if outside
sources or you do not provide documents to the lender in a timely manner. Be sure
to respond promptly to requests for information while processing is taking place.
Where do I go to sign up for my loan – close my escrow?
This service is usually provided by a third party; such as a title/escrow company,
or an attorney. Funds taken to escrow by the borrower usually need to be in the
form of a cashier’s check. This can be discussed once the closing date has been
established. Most lenders will handle all of the details for you.
What is a conventional or conforming loan
A loan that conforms to Fannie Mae or Freddie Mac lending guidelines. A loan that
is not insured, guaranteed or funded by the Veterans Administration (VA), the
Federal Housing Administration (FHA), or the Rural Economic Community Development
(RECD) (formerly Farmers Home Administration). Loans guaranteed by the agencies
listed above are referred to as “government loans.”
What is a jumbo loan?
A loan that is larger than the conventional / conforming limits set by the Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC) guidelines. This is also referred to as a nonconforming loan.
What is PITI?
A form of insurance that protects the insured property against physical damage
such as fire. Mortgage lenders often require a borrower to maintain an amount
of hazard insurance on the property that is equal to at least the amount of the mortgage loan.
Will my loan be sold?
The “servicing” on your loan (e.g., the right to collect payments for a fee) is
a marketable asset, which your lender can sell to other sources. As part of the
loan documentation, you will sign a form that recognizes the fact that the servicing
of your loan may be sold. Most fixed rate loans are in fact sold.
By selling loans into the “secondary market” the lender
removes interest rate risk to themselves, investment companies “pool” or package
millions or billions of dollars of these loans. Shares are issued to individual
investors – based on the value and anticipated risk associated with the “pool”.
This “Secondary Market” has contributed to lower interest rates for all of us.
Is there a prepayment penalty if I pay the loan in advance, either monthly or in full?
LTV is an acronym for Loan-to-Value. This is the relationship, expressed as a
percentage, between the amount of a loan and a property’s value or sales price.
For example, a $75,000 loan on a property appraised at $100,000 is a 75% LTV.
What is the difference between a fixed-rate and an adjustable-rate mortgage?
A fixed rate mortgage is a mortgage that has an interest rate that stays fixed
for the life of the loan. On an adjustable rate mortgage the interest rate changes
based upon a specific financial index (such as Government Treasury bill rates)
and payments may go up or down based on the movement of that index.
What is private mortgage insurance?
This insurance protects lenders 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 less than 80% loan-to-value.
Private mortgage insurance, who pays for it?
It is typically paid monthly by the borrower as part of their monthly mortgage
payment. Some lenders have programs in which they pay for the private mortgage
insurance, however, your interest rate will generally be higher for these programs.
Should I do a no point, no fee loan?
These loans are an excellent idea if you are planning on moving in 4 to 6 years.
If you plan on staying for a longer term, you will probably benefit by paying
points, to ‘buy’ yourself a lower interest rate.
What is a Credit Score?
Credit scores are numeric representations of your credit profile. The higher the
score the better credit risk you are. Presumably, you can be denied a mortgage loan if your score is too low.
These scores have been around for several years but started
to be used in the mortgage lending business in 1995.
- They are based on years of computer “modeling” aimed at predicting who might be a good or bad credit risk.
- Their purpose is to reduce the cost of examining a credit report and speed mortgage approvals.
- Important negative factors are: bankruptcies, delinquencies, credit lates, collections, “too much” credit, or too little credit history.
- The score is only as good as the data. The amount of credit data history is so large that there are problems with it.
Because lenders pool loans into securities and then sell them in “the secondary
market” they are competing with the entire pool of worldwide investment opportunities
like treasury bonds, stocks, etc.
Any inflationary news can trigger investor moves that
trigger smaller values for fixed-rate securities. This would cause a rise in mortgage
interest rates. Many additional factors, too numerous to mention here, can also
affect interest rates. Markets move on emotions, thus no one can really tell what
will happen on a day to day basis.
What are IRS Forms 4506, 8821, and 9501?
IRS 4506, 8821, and 9501 are forms which allow the lender to receive an electronic
abstract of your tax returns.
In this day of scanners, laser printers, and tax preparation
software it is easy to prepare a set of “phony” tax returns to submit to the lender.
This form allows us a lender to check the returns you supply us with those at the IRS.
Can I change the loan amount or program after I’ve applied for a loan?
Within 2 business days you will receive a package from us. The package will include
a copy of your application and a list of documents that we need to close your
loan. If you do not receive your package within two days, please don’t apply online
again. Call us, and we’ll try to help you.
How do you save me money?
Our website and software were developed to guide borrowers through the loan decision
and application process with ease. The efficiencies of receiving a complete application
file and supporting documentation dramatically reduces our costs. Those savings
are passed on to you.
After I send my paperwork back, what happens?
Your loan will be reviewed or pre-underwritten. Once it’s submitted to the final lender, there may be additional needs.
We will, of course, try to anticipate those and make the process easy for you.
When should I lock my rate?
If you’re buying a home, your closing agent(Title/Escrow Co.) will be selected
by your Realtor or you can pick one yourself. If you’re refinancing a property, you can choose
the company or we’ll select a closing agent for you.
Is my interest rate locked in as soon as I apply for a loan?
We have found that clients prefer watching the market before they commit to a
specific rate. You can request a rate lock after you have returned your application
and we have reviewed your documentation and credit information.