How do I know what type of mortgage is best for me?
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?
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 maintenance.
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
What is an escrow account – or – an impound account?
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.
Lock-in, what is that?
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.
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 hazard insurance?
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?
On some loans, check with your loan agent, but most allow you to pay off the entire loan or make additional payments any time without penalty.
What does LTV stand for?
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.
Why do interest rates go up and down?
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.
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?
Of course. Please remember that any changes that you make may extend the time that it takes to close your loan, or may increase the cost of closing.
After I apply, what should I expect?
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.
Who handles my closing and where do I sign?
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’rerefinancing 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.