Table of Contents
- Rates and Fees
- Prequalifying and Applying
- Approval & Closing
- Title Insurance
- Private Mortgage Insurance
- Escrow
- Mortgage Repayment
- Cash-Out Refinance vs Home Equity Financing
Rates and Fees
What is an origination fee?
The amount
charged for services performed by the company handling the
initial application and processing of the loan.
What is a discount point?
A discount
point is paid to the lender to permanently buy down or lower
an interest rate. It is usually a percentage of the loan
amount.
May I pay additional discount points to reduce my
interest rate?
Yes, most lenders will allow you to
pay additional discount points to lower your interest
rate.
What are lender fees?
Lender's fees are
fees that offset the cost of producing the loan. Different
companies may refer to them by different names, such as,
processing fees or underwriting fees.
How are rates determined?
Rates are
determined by the stock market and other financial indicators.
These rates can change daily or even more than once within the
same day. The changes are based on many different economic
indicators in the financial markets. To obtain current
interest rates, contact your mortgage lender.
How can I compare rates and fees when shopping for
a mortgage?
When comparison shopping, look at
points, fees and the Annual Percentage Rate (APR). The APR
includes the fees that are charged on your loan. Although one
lender may have a slightly lower rate, they may charge more
fees, and hence have the same APR as a lender with the
slightly higher rate.
What is the difference between APR and interest
rate?
The APR (annual percentage rate) reflects
the cost of your mortgage loan as a yearly rate. It also
incorporates the cost to obtain the loan, such as discount
fees and loan origination fee. The interest rate is the actual
note rate.
Why is the Annual Percentage Rate (APR) on the
Truth-in-Lending disclosure higher than the rate shown on my
mortgage note?
The rate reflected on the APR shows
the cost of the credit as a yearly rate. This rate is
generally higher than the rate stated on your mortgage note
because, in addition to the interest rate, APR includes other
costs such as origination fee, loan discount points, pre-paid
interest, and mortgage insurance. The APR allows you to
compare, in addition to the interest rate, the total cost of
financing your loan, among various lenders.
What is prepaid interest?
This is the
interim interest that accrues on the mortgage loan from the
date of the loan closing to the beginning of the period
covered by the first monthly payment. For example, if your
closing date is scheduled for June 15, the first mortgage
payment is due August 1. The lender will calculate a per-day
interest amount that is collected at the time of closing. This
amount covers the interest accrued from June 15 to July 1.
Some lenders prohibit the collection of pre-paid interest.
What is the difference between 'locking in' an
interest rate and 'floating'?
If you are concerned
that interest rates may rise during the time your loan is
being processed, you can "lock in" the current rate for a
short time, usually 15, 30 or 60 days. When you "lock in" to
an interest rate, you are guaranteed that rate for that agreed
upon length of time. The benefit is the security of knowing
the interest rate is fixed if interest rates should increase.
If you are locked in and rates decrease, you will not usually
get the benefit of the decrease in interest rates. If you
choose to "float" or defer "locking in" an interest rate, your
rate will fluctuate with the market and will be subject to
both upward and downward trends in the market. The benefit to
floating a rate is if interest rates were to decrease, you
would have the option of locking into a lower rate.
When can I lock in my interest rate and how much
does it cost?
Most lenders will allow you to lock
in your rate once you have found a property and as late as up
to five business days before closing. Some lenders may allow
you to lock prior to finding a property. Rate locks and fees
vary by lender.
Prequalifying and Applying
How can I determine what mortgage amount I will
qualify for?
Based on your income, your current
debts and estimated down-payment, your lender can usually help
you determine the maximum mortgage amount for which you could
qualify within minutes. Many lenders have a toll-free 800
number where you may speak with a mortgage professional or you
may also reference the lender's mortgage calculator located on
its mortgage Internet site. This process is frequently
referred to as a "prequalification analysis".
What is the difference between a prequalification
analysis and a pre-approval application?
A
prequalification analysis is typically the result of
information shared between a mortgage lender and a potential
mortgage borrower and usually does not incorporate information
obtained from a credit report. The end product for a
prequalification analysis will be a "ballpark" estimate of the
maximum mortgage amount for which you may qualify. Typically
there is no cost or commitment on behalf of either party for a
prequalification analysis.
What is the minimum down payment for conventional,
FHA, and VA loans?
As a general rule, conventional
loans are available with a minimum down payment of 5%. FHA
loans are available with as little as 3-5% down. With VA
loans, veterans are not required to put any money down when
purchasing a home. Veterans are still required to pay for
their closing costs, which includes a VA funding fee, and
prepaid items. Please consult your individual lender for
specific down payment requirements and programs.
How do I apply for a mortgage?
Most
lenders will take your application by phone or in person. The
application interview typically takes 30-60 minutes.
How do I determine which mortgage product will meet
my needs?
Everyone's situation is different. Most
people will benefit from either consulting by phone or in
person with a mortgage professional who is committed to
discovering your needs, and helping you match those needs with
a suitable mortgage product.
Do most mortgage lenders provide construction
loans?
Many mortgage lenders have
construction-to-permanent financing loan programs. Programs
will vary with each individual lender. Typically, a
construction loan is an interim loan secured by the property
on which a dwelling is being constructed. The funds are
usually disbursed throughout the construction period and
replaced with permanent financing once the construction is
completed. You may also choose to utilize separate lenders for
the construction financing and the permanent financing.
Do mobile homes need to be permanently affixed to
receive financing?
Some lenders specialize in
financing mobile homes which are not permanently affixed to a
foundation. Most lenders will finance double-wide homes that
have been permanently affixed to a foundation.
Will there be a fee charged at the time of
application?
Application fees vary according to
each lender. This fee is generally used to cover the cost of
the appraisal and credit report and other items required to
process the loan.
Do I need to fill out an
application?
Yes, but some lenders will allow you
to complete the application verbally right over the phone. A
copy of your application will be provided at the closing,
which you will need to review and sign at that time.
What documents will typically be requested when I
make application for a first mortgage
loan?
Frequently lenders will request: W2's,
paystubs, bank statements, and the purchase contract on the
home you are buying. Documentation requests vary by loan type
and lender.
Do most lenders require a homeowner's
inspection?
No, a homeowner's inspection is
generally requested by the buyer as a condition to the
purchase of the home. Many homebuyers, however, will make the
purchase of their home contingent upon a homeowner's
inspection. A homeowner's inspection should not be confused
with an appraisal, which is required by most mortgage lenders
in order to support the valuation of the mortgage
security.
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Approval and Closing
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Title Insurance
Title Insurance
What is title insurance?
Title
insurance provides the lender and the buyer (if you purchase
owner's coverage) with coverage for losses resulting from
specific title defects listed in the policy. In cases where
land and property have changed hands over time, there is
always the possibility an error has occurred. If an error has
occurred, it may be that someone else may be in title to or
have an interest in the property, that improvements encroach
on property lines or that other similar problems may exist. In
these scenarios, if you do not have title insurance you could
lose your investment in your home. Lenders require "lender's
coverage" to protect their investment and it only protects the
lender. Owner's coverage is optional and provides separate
coverage for the borrower.
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Private Mortgage Insurance
What is PMI and why is it
required?
Private mortgage insurance (PMI) is
insurance written by a private company that protects the
lender from losses in the event the borrower defaults on the
mortgage. Borrowers are required to pay the premium for
private mortgage insurance. Private mortgage insurance limits
a lender's exposure to financial loss resulting from loan
default. If you make a down payment of less than 20%, even if
you have a good credit profile, lenders generally require
private mortgage insurance.
What is the minimum down payment required by a
lender in order to eliminate PMI?
Typically, on a
primary residence, the minimum that you need to put down to
eliminate PMI is 20%. If you are putting less than this down,
but wish to avoid PMI, your lender may have alternative
products and pricing options they may offer in lieu of PMI.
How long will I be required to have PMI on my
loan?
The Homeowner's Protection Act of 1998
allows borrowers whose loans originated after July 29, 1999,
to request cancellation of pmi at 80% loan to value (LTV)
based on amortization or actual payments if the borrower has a
good payment history, if the borrower provides evidence the
property value has not decreased, and certifies there are no
subordinate liens on the property. Lenders are required to
terminate borrower paid pmi at 78% LTV based on the
amortization schedule if the loan is current. If none of the
above is done, pmi will terminate automatically at the
midpoint of the loan term.
How much does mortgage insurance
cost?
The cost of PMI is divided into two parts.
The first part is a payment made at the time of closing. The
second is an ongoing payment made each month with your
principal and interest payment.
Do lenders offer any alternative to mortgage
insurance?
You definitely have options. Explore mortgage
insurance alternatives offered by xxxxx
Mortgage or check out our programs that allow you to avoid
private mortgage insurance altogether.
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Escrow Account
What is an escrow account?
An escrow
account is typically established at the time you close your
mortgage loan. This account is held by the lender for the
future payments of recurring items relating to the mortgaged
property, such as real estate taxes and insurance premiums, as
they become due. Lenders usually require you to pay an initial
amount for each of those items to start the reserve account at
the time of closing.
Are there any limitations on how much lenders can
collect from a borrower for the borrower's escrow
account?
Lenders and servicers are required to
follow the standards set forth in the Real Estate Settlement
Procedures Act (RESPA) and applicable state law. RESPA and
some states set limits on the amount which can be collected by
the lender or servicer to pay for escrow items, such as
property taxes and insurance, and place a cap on the amount of
the reserve. Reserves are funds that a servicer may require a
borrower to pay into an escrow account to cover unanticipated
disbursements which will need to be made before the borrower's
payment is available in the escrow account. There are limits
on the additional amounts that can be collected as
reserves.
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Mortgage Repayment
Can I have my mortgage payment deducted
automatically from my checking or savings account each
month?
Typically, after closing your mortgage
loan, you will have the option of enrolling in an automatic
mortgage payment program. You may be asked to provide an
authorization form with a voided check or savings account slip
attached to set up the draft. The payment is typically debited
on a preset day each month.
Will a lender allow me to pay my mortgage payment
with a credit card?
Most lenders do not allow
mortgage payments to be charged to a credit card. However,
some lenders can set up an automatic mortgage payment in which
your payment will be taken from your checking account each
month. This means that you would not need to remember to send
a check each month.
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Cash-Out Refinance vs Home Equity Financing
| Cash-Out
Refinance (review the Refinance Process ) |
Home Equity Financing |
| One loan and one loan payment | You can choose between a lump sum loan or a revolving line of credit. |
| Your existing mortgage is refinanced for a higher overall amount using some of the accumulated equity in your home | You can borrow all or just part of your home's equity - the difference between your mortgage balance and your home's estimated market value. |
| Get cash and spread the payments out over a longer term | A home equity loan can offer the flexibility of a shorter term to help to build equity faster because you can pay the loan off sooner OR reduced monthly payments by spreading the cost over a longer term. |
| Lower interest rate than home equity financing | You can borrower more money - sometimes
up to 100% of the value of your home. With a line of credit, interest is paid only on the money you actually use, and you can access it whenever you want without having to reapply |
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