What
is a Mortgage?
A written instrument that creates a lien upon real estate as security
for the payment of a specified debt. A Mortgage is simply a loan that
is secured by the equity in your home. You must own your home or be
purchasing a home in order to get a mortgage.
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What is a "point", when referring to a mortgage?
One (1) point is equal to 1% of the loan amount. Example: Your loan
amount is $120,000, one point would be $1,200
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What
is Equity?
Equity is the remaining value of your property after subtracting any
loans and/or liens against your property from the total property value.
Equity is typically expressed as a percentage of the property value.
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What
is Loan to Value?
This is the loan amount divided by the value of the property.
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What
is a Conforming Loan?
A loan that conforms to the guidelines established by Fannie
Mae or Freddie Mac. These guidelines establish
the maximum loan amount, down payment, borrower credit (generally must
be good) and income requirements, and suitable properties.
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What
is a Non-Conforming Loan?
A Non-Conforming loan is one that does not conform to the guidelines
established by Fannie Mae or Freddie
Mac. Loans that do not meet the credit quality of conforming
loans ("A" paper) are generally referred to as "B","C" and "D" loans.
Second mortgage loans - credit lines, home equity loans, home improvement
loans are also examples of non-conforming loans.
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What
is a "sub prime" loan?
A sub prime loan is a term used to refer to loans given to people with
less than perfect credit. These loans can also be referred to as non-conforming,
"B-C-D", "impaired", "damaged", "blemished", "less-than-perfect", etc.
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What
is APR and what does it include?
The Annual Percentage Rate (APR) is different from the interest rate
for the loan. It is commonly used to compare loan programs from different
lenders. Your monthly payments are a function of the interest rate and
the length of the loan, the APR does NOT affect your monthly payments.
The
APR is a very confusing number! Use the APR as a starting point to compare
loans. The APR is a result of a complex calculation and not clearly
defined. The APR is designed to measure the "true cost of a loan." It
creates a level playing field for lenders. The Federal Truth in Lending
law requires mortgage companies to disclose the APR when they advertise
a rate which prevents lenders from advertising a low rate and hiding
fees.
Unfortunately,
different lenders calculate APRs differently! So a loan with a lower
APR is not necessarily a better rate. If you truly want to compare APR's
from different lenders my suggestion would be to make sure that you're
comparing apples-to-apples. One of the best ways is to ask lenders to
provide you with a good-faith estimate of their costs
on the same type of program (e.g. 30-year fixed) at the same interest
rate. Note that a 30 year fixed will have a different APR than a 15
yr fixed due to the length of the loan. Then delete all fees that are
independent of the loan such as homeowners insurance, title fees, escrow
fees, attorney fees, etc. Now add up all the loan fees. The lender that
has lower loan fees has a cheaper loan than the lender with higher loan
fees. Are you confused yet?
The
following fees ARE generally included in the APR:
* Points - both discount points and origination
points * Pre-paid interest. The interest
paid from the date the loan closes to the end of the month. Most mortgage
companies assume 15 days of interest in their calculations. *
Loan-processing fee * Underwriting
fee * Document-preparation fee *
Private mortgage-insurance
The
following fees are SOMETIMES included in the APR:
* Loan-application fee *
Credit life insurance (insurance that pays off the mortgage in
the event of a borrowers death)
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What is a credit score, and what is it's importance?
your individual credit history will determine your "credit score". This
is a grade assigned by a scoring agency. The "score" is a number which
is a measure of your past credit history. The number of credit accounts
you hold, your pay history, even the number of inquiries on your account
are all factors in your credit score.
A score of approximately 640 or higher is generally considered "A" credit.
Normally"B" credit starts at about 620, however, there are many programs
that will consider 620 and up "A" credit.
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What is a Good Faith Estimate?
The Good Faith Estimate, also known as the GFE, is an estimate of the
fees and charges associated with getting your mortgage. There are fees
that you will be expected to pay at the closing or your mortgage. These
fees are outlined on the GFE. The Real Estate Settlement Procedures
Act requires every bank or mortgage company to give the buyer the estimate
within three days of applying for the loan. It will list expenses related
to inspections, taxes, title insurance and a host of other charges.
Please keep in mind that this is an "Estimate".
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What are Closing Costs?
Listed below are typical closing costs, your loan may have less or additional
costs. The general rule-of-thumb is closing costs amount to 3 percent
to 6 percent of the sale price. - Loan application fees and credit report
(Abacus Diversified Mortgage does not charge for either of these items.
- Title search and insurance fees
- Lender's attorney fees
-Property appraisal
- Inspections
- Survey
- Recording fees
- Transfer taxes
- Buyer's attorney
- Documentary stamps on new note
- Points and origination fees
- Escrow account balances/prepaid
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What is "Locking" a rate?
Locking a rate is what a Mortgage Specialist will do to secure the rate
promised for your loan. Once you've been approved for a loan type and
you and your Mortgage Specialist determine that the rate is where you
would like it, the Mortgage Specialist sends a Lock Request to the Lender
to secure that rate for you. By locking the rate you are gaurenteed
that rate for your loan regardless of whether or not the rates go up
the next day or not. Rate locks do expire, so it is always a good idea
to find out how long your rate is locked in the event you run into unforeseen
problems.
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Should I rate shop?
Rate shopping is a very small part of getting the best mortgage. All
mortgage rates are based on the prime rate and marked up from there
depending on your credit score, the Loan-To-Value you are interested
in, etc. Mortgage rates change daily on fixed term mortgage products.
If you are rate shopping and a mortgage specialist tells you they can
get you a rate that is what you are looking for; request to have the
rate "locked". If you find that they can't
lock that rate find someone else to do your mortgage, the rate was fake
and the mortgage professional is dishonest. If the rate is achievable
than they will have no problem locking it for you. The slight point
in interest rate that you might save by shopping doesn't mean anything
if your mortgage doesn't close. You should never choose a lender
based on the interest rate alone, there are just too many variables
that determine what your interest rate will be. A good Mortgage Specialist
will not give you a definite rate until they have some documents from
you and have pulled your credit. This enables them to see the big picture
and give you accurate information.
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What
Is "Truth In Lending"?
Federal law requires lenders to provide specific disclosures to borrowers
within three days of receiving a loan application. These disclosures
are called Truth In Lending or Regulation Z disclosures, and they are
intended to provide the borrowers with a Good Faith Estimate
of the fees, APR, and program specifics. The law
says that every time there is a material change, a new disclosure will
be produced.
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What
Is Fannie Mae?
Fannie Mae provides financial products and services that make it possible
for low-, moderate-, and middle-income families to buy homes of their
own. They are also referred to as FNMA. Fannie Mae is a private, shareholder-owned
company that works to make sure mortgage money is available for people
in communities all across America. They do not lend money directly to
home buyers. Instead, they work with lenders to make sure they don't
run out of mortgage funds, so more people can achieve the dream of home
ownership.
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What
Is Freddie Mac?
Freddie Mac is a stockholder-owned corporation chartered by Congress
in 1970 to create a continuous flow of funds to mortgage lenders in
support of home ownership and rental housing. Also referred to as FHLMC.
Freddie Mac purchases mortgages from lenders and packages them into
securities that are sold to investors. Ultimately this helps them provide
homeowners and renters with lower housing costs and better access to
home financing.
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What
is a VA Loan?
A VA loan is a home loan guaranteed by the U.S.
Veterans Administration, enabling a veteran to buy a home with no
money down. These loans are often made with a low downpayment or possibly
no downpayment for Veterans that qualify. VA loans generally offer lower
interest rates than ordinarily available with other kinds of loans.
The veteran must have a "veteran's certificate of eligibility" to qualify
for this program.
What
is private mortgage insurance also referred to as PMI?
Private Mortgage Insurance protects the lender from loss due to payment
default by the borrower. PMI is generally required when the amount of
the loan exceeds 80% of the property value. The payment for this type
of insurance can be made two ways, paid as a lump sum at the time of
the closing or in monthly installments as part of the mortgage payment.
Please do not confuse this type of insurance with mortgage life, credit
life or disability insurance which are designed to pay off a mortgage
in the event of the borrower's disability or death. This insurance is
strictly for default of payment to the lender.
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What
is Title Insurance?
Title insurance is issued to protect the lender against loss due to
problems or defects related to the title on the property being mortgaged.
Typically these problems would involve ownership claims against the
property which were not identified by the title search. The premium
for this insurance is paid in one lump sum at the time of closing/settlement.
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What
are escrows?
Escrows are funds collected, by the lender, with your monthly mortgage
payment and accumulated over time. This money is then used to pay such
items as property taxes or hazard insurance as they come due. The property
tax and home owners hazard insurance bills are sent to the mortgage
lender and they will take care of making the payment out of your escrow
account. Generally there are some funds collected at settlement to start
the escrow account up. You may also hear these funds referred to as
hold backs, reserves or impounds. Lenders prefer that you escrow your
taxes and insurance. If you choose not to escrow many lenders will charge
a higher interest rate for the added risk.
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What
is an appraisal?
The appraisal is a statement of property value and condition made by
an independent, professional appraiser. Lenders require them to be done
to insure that the value of the property is sufficient to secure the
mortgage. Lenders require this as protection against the event that
the borrower fails to repay the loan in accordance with the provisions
of the mortgage contract. The value of the property is based on the
home itself and on recent comparable sales of similar homes sold close
to the subject property. The appraisal does not discuss or detect defects
in the title to the property.
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What
is flood certification or flood insurance?
The lender may require flood certification depending on the proximity
of the dwelling to a body of water. Flood certification will identify
a specific property as being within or not within a flood hazard area
as defined by FEMA. If it is determined that the property is within
a flood zone, the borrower will be required to carry flood insurance
which would protect both the lender and the borrower from loss due to
flood damage.
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What
is Amortization?
A gradual paying off of a debt by periodic installments which pay principal
and interest.
What
is "3-Day Rescission Right" for refinance?
For refinance loans, the law says the borrowers need to wait out a full
3 days (till after midnight the 3rd day not counting the day of escrow
sign off) before the loan could be funded. These days, this 3 day rescission
right can't be waived. During the 3 day time period, a borrower can
legally rescind (refuse or change their mind about getting the loan)
the deal without any legal obligation. After the 3 days are over you
may no longer rescind the loan and the loan is funded. This is when
you are given a check for any proceeds from the loan. This law is only
for Refinanced loans. You do not have a 3 day Right Of Rescission on
Purchase loans.
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What documents do I have to provide?
Last two months bank statements. If you are self employed you will be
required to provide your last two years of tax returns (business &
personal) including all schedules. You may be required to provide a
year to date profit & loss and balance sheet. Remove the bottom
two comments regarding proof of down payment & rent checks.
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How
much money will I need at closing?
Many different factors will affect how much you will need for your closing
costs. Some examples of items that will be included are, prepaid taxes,
mortgage insurance, attorney's fees, title insurance, notary fees, etc.
Shortly after you apply for a loan through First Bank of Snook,
you will receive an approximation of these costs, known as a "good faith
estimate"
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Monthly
mortgage payment vs. bimonthly payment vs. paying ahead, which is better?
Absolutely you can pay ahead on your mortgage anytime and as often as
you want, just keep records of each time that you do it. It will save
you a considerable amount of money in interest, create equity in your
home quicker and possibly shorten your loan term.
Monthly
mortgage payments is generally the payment method most commonly chosen.
You have a set amount, for a fixed rate mortgage, that is due at the
same time each month. When you choose to have a monthly payment you
can always send in extra payments or pay ahead when you have extra money
but you don't have to.
Paying
ahead or sending in extra payments are strictly voluntary. If you have
a month or two that you don't have extra money that's OK, you're not
locked into paying it every month. Here's an example of how paying ahead
can help you. If you make just one (1) extra payment a year, 13 payments
instead of 12, and do this faithfully you will have shortened your 30
year mortgage to 23 years, saving yourself 7 years of interest on your
mortgage balance. A 15 year mortgage would be paid off in 12 years,
saving yourself 3 years in additional interest. You can make your additional
payments in many different ways here are two different possibilities.
Divide your mortgage payment by 12 and pay that much additional, toward
principal, each month or you can send in one additional check for the
full amount. Either way you choose, make sure you document the additional
principal paid and make a copy of your check prior to mailing.
Semimonthly
payments work just fine but they don't save quite as much in interest
as you would by paying additional amounts monthly or making an extra
payment each year. Mortgage Lenders usually have an additional enrollment
fee to set up this type of payment.
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What
is the difference between a fixed-rate mortgage and an adjustable-rate
mortgage?
Fixed-rate loans have an interest rate that remains unchanged throughout
the life of the loan. An adjustable-rate mortgage (ARM) has a rate that
changes at set intervals throughout the life of the loan.
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What are the benefits between a 15 or a 30 year fixed rate mortgage?
The payments on a 15 year mortgage will be higher than the 30 year (example:
$100,000 at 7.25% fixed interest rate. 15 year monthly payments are
$913 and 30 year monthly payments are $682).
If, you can afford the $913 payment the advantage of taking
a 30 year fixed rate mortgage over the 15 would be that you can pay
the $913 a month and pay the mortgage off in 15 years, however, if you
ever get into a bind you can revert back to paying $682, whenever you
need.
Additionally, since the average loan is only held for 7 years,
the difference in payments isn't likely to be very dramatic. Give us
a call or email us to consult
with our Loan Professional.
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What
does Equal Housing Opportunity mean?
The
Fair Housing Act and other Federal and State laws were enacted to guarantee
a persons right to a national housing market free from discrimination
based on;
