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Common questions about mortgages

fbsuperadmin



04-05-2012

What is Pre-qualification?
 
The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.
 
What is a Pre-approval?
 
This allows you the ability to get approved for a specific loan amount prior to finding the home you want to purchase. The loan is underwritten and the lender commits to a specific loan amount. This can give you a great advantage with a homeowner or realtor if someone else is interested in the same home at the same time. Also, if you’re thinking about refinancing and want to payoff creditors or take cash out, but not sure you would qualify – you can apply for a pre-approval and could save on the cost of getting an appraisal on your home until you know if you qualify.
 
What information do I need to provide when I apply?
 
The standard documentation required is as follows:
 
Your last 30 days worth of paystubs
Last 2 yrs W2s and Federal Tax Returns
Last 2 months bank statements
Most recent quarterly investment statements
Copy of your drivers license and Social Security Cards
 
Every Loan Scenario is different so other documentation may apply in your case, but these items are the majority of what we will need.
 
Is there a cost to apply? If so, how much?
 
Yes, to get started we charge you up front for your Tri-Merge Credit Report. This can be paid through our online application via debit or credit card or you can pay in the office via check or cash. Single credit reports are generally $15.00 or less and joint reports are generally $23.00 or less. A credit report is required to pre-approve you for a loan, but you may request a consumer copy of this report if you would like to do so. If you have any questions about this policy, please do not hesitate to ask.
 
Where do I close and sign for my loan?
 
Typically your closing will take place at a title agent’s office. When all parties agree upon a closing date, we will provide you with the exact location and time of your loan closing. Please note that this is typically specified in the purchase agreement.
 
What documents will I receive at closing?
 
At closing you will sign and receive copies of all legal documents that will be recorded and placed on record regarding the property that you are purchasing or refinancing. Also, you receive all pertinent information regarding your mortgage payment and servicing information for your new loan.
 
How long will the loan process take?
 
Loan approval and funding time frames vary depending on the type of transaction and the complexity of your personal finances. The process can take, on average, anywhere from 10-45 days. Most real estate contracts are normally written to close 30-45 days after execution. However, if you have a more pressing need for a shorter time frame, please do not hesitate to ask. We are a Mortgage Banker and handle everything in house. We should be able to meet your request.
 
What is a lock-in?
 
The lock-in represents the interest rate you choose and will be the interest rate used to factor your monthly payment. The lock-in secures the interest rate during the process of your loan approval as long as your loan is processed and closed prior to the rate expiration date. This date is given to you when you lock-in the rate. Typical lock-in periods are from 7 to 30 days, however longer options are available that stretch to 180 days, some fees apply with the longer lock periods.
 
When can I lock-in my rate?
 
You can lock or float your interest rate at any time during the process of your loan. The Mortgage Broker will discuss these options with you upon taking your loan application. If you are submitting your loan application via the Internet, a broker will be contacting you to discuss your interest rate lock or float options. Please note that an address is sometimes necessary in order to process a rate lock.
 
How long is my rate lock valid?
 
Depending on the type of transaction and the time you need, lock periods can be valid anywhere from 7 days up to 180 days.
 
Can I pay my loan off early; can I pay extra each month
 
Yes, you can make principal payments at anytime during your loan term or pay the loan in full. You can also pay a set amount each month above the normal payment due or make lump sum payments periodically. Please note that some loans contain a pre-payment penalty. Terms of the penalty vary depending on the lender and product.
 
What is an escrow account?
 
An account maintained by the lender to collect funds from the borrower in order to pay the taxes and property insurance due on the loan.
 
What is PITI?
 
This represents the accounts your money is applied to when you make your monthly mortgage payment:
 
P – Principal
I – Interest
T – Taxes
I – Insurance
 
How do I know what loan is best for me?
 
Review your current situation and future goals, and then answer the following questions to help determine the direction you may wish to take. Also, discuss these questions with your mortgage professional to help determine the type of loan you need.
 
How long do you expect to stay in the house?
Which is more important, low monthly payments or low closing costs?
Will my income increase or decrease in the next three years?
How comfortable are you with your monthly payment potentially increasing?
 
What is the difference between a fixed rate and adjustable rate mortgage?
 
With a fixed rate mortgage, the interest rate and payment remains constant over the life of the loan. Whereas with an adjustable rate mortgage, the interest rate can either increase or decrease based upon the terms of the loan. This could cause the monthly payments to increase in order to have the loan paid in full by maturity.
 
What is a convertible mortgage?
 
A convertible mortgage allows you to convert your adjustable rate mortgage to a fixed rate mortgage for a flat fee during a specific time frame. This fee can range from $250 – $500 per lender.
 
What is a balloon mortgage?
 
A loan with a fixed rate payment for the first five to fifteen years of the loan, then a lump sum payment is due on the balance of the loan at a specified date when the balloon loan matures.
 
What is a conventional loan?
 
A mortgage not guaranteed by VA or insured by FHA, FMHA or State Bond Agencies.
 
What is a jumbo loan?
 
A conventional loan that exceeds the maximum agency (Fannie Mae, Freddie Mac) mortgage amount guidelines for a conventional loan. (Currently $417,000 for U.S. originated loans)
 
What is PMI?
 
This stands for Private Mortgage Insurance. On a conventional loan PMI is required if you borrow over 79.99% of your appraised value. This protects the lender against financial loss if the loan is defaulted. Many borrowers refinance in 2-4 years to use their equity to avoid paying PMI. Other loan programs are available to avoid paying PMI.
 
What is mortgage life insurance?
 
This insurance would pay the balance owed on your mortgage home loan in the event of your death during the term of the mortgage. This is currently not offered for the majority of lenders; however your insurance agent should have some similar options.
 
What is hazard insurance?
 
This represents the insurance that protects your investment in your home. It provides compensation to the insured in case of property loss or damage (i.e. fire, hail, or tornado etc.)
 
What are points?
 
Points represent an origination fee charged by the lender and loan discount points sometimes charged on the note rate to lower the interest rate.
 
What is a buy-down?
 
A fee paid to lower the interest rate on a mortgage. The buyer, seller, or any other interested party may pay it. A permanent buy-down would lower the rate for the entire term of the mortgage, while a temporary buy-down lowers the rate for a specified shorter term, generally 3 years or less.
 
What is an origination fee?
 
The origination fee is charged by the lender, and is typically .25% – 2% of the loan amount you borrow. This fee is used to cover expenses during the process of the loan.
 
What are closing costs?
 
Fees and costs that both the buyer and seller must pay at closing. They generally include: origination fee, discount point, appraisal fee, credit report, title search, recording fees, inspection fees and other costs described in the HUD I at settlement.
 
Can I include my closing costs in with my loan?
 
Yes, typically they are written into the purchase agreement between you and seller. Fannie Mae and Freddie Mac allow a max contribution of 3% and Non-conforming loans allow a maximum of 6% to be contributed to closing costs by the seller.
 
When will my first payment be due?
 
Your first mortgage payment is always due the first day of the second preceding month. For instance, if you were to close on March 15th, your first payment would not be due until May 1st. Another example would be if you closed on January 3rd, your first payment would not be due until March 1st.
 
How do I make my mortgage payment?
 
Your lender will mail you monthly statements with a payment coupon. Borrowers also have the option of electing EFT (Electronic Funds Transfer) on the 1st, 5th or 10th of the month. Most lenders also have the ability for client to pay by internet or over the phone.
 
Must I escrow?
 
That depends on the type of loan and product. All Fannie Mae or Freddie Mac loans with a loan-to-value above 80% require you to establish an escrow account. However, with Non-conforming loans you are given the choice of escrowing or not.
 
Must I have anything out-of-pocket?
 
This depends on the loan product we are using. Most loan programs do require a minimum cash contribution from the borrower. FHA requires the borrower to contribute 3.5% down and conventional requires 5% down. Gift funds can be allowed in some cases as long as they are documented properly. If any grant program is being used, it is typical for a minimum contribution of $500 to be required. However, there are some no down payment programs (USDA and VA) and all programs give you the option to negotiate with the seller to include some assistance with your closing costs and prepaids as part of the purchase contract. Just be sure to consult with your mortgage banker about any out-of-pocket expenses for your specific pre-approval before you make an offer.
 
What is Earnest Money?
 
These are funds that are deposited along with a written contract and held by a third party (i.e. title agency) to provide leverage/good faith that you have every intention of closing on the desired property.
 
Must my spouse be present at closing if he/she is not on the loan?
 
That depends on numerous factors. With Missouri being a community property state both married individuals must sign certain “legal” documents at closing. However, you should consult your title agent or attorney for other options or remedies.

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