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FAQ: Financing
Basics
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SHORTCUTS
Career Opportunities
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WHAT IS A MORTGAGE? |
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| Answer: Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest. | |||||||||||||||||||||||
| WHAT IS A LOAN TO VALUE (LTV) HOW DOES IT DETERMINE THE SIZE OF MY LOAN? | |||||||||||||||||||||||
Answer: The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay,$2,500 as a down payment. The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy. |
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| WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF EACH? | |||||||||||||||||||||||
Answer:
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| WHEN DO ARMS MAKE SENSE? | |||||||||||||||||||||||
| Answer: An ARM may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates. | |||||||||||||||||||||||
| WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS? | |||||||||||||||||||||||
| Answer: | |||||||||||||||||||||||
30-Year:
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In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses. |
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15-year: |
Loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal. |
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| ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS? | |||||||||||||||||||||||
Answer: Yes. WE offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities. |
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| HOW LARGE OF A DOWN PAYMENT DO I NEED? | |||||||||||||||||||||||
Answer: There are mortgage options
now available that only require a down payment of 5% or less of the
purchase price. But the larger the down payment, the less you have
to borrow, and the more equity you'll have. Mortgages with less than
a 20% down payment generally require a mortgage insurance policy to
secure the loan. When considering the size of your down payment, consider
that you'll also need money for closing costs, moving expenses, and
- possibly -repairs and decorating. |
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| WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT? | |||||||||||||||||||||||
| Answer: The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner's insurance, and mortgage insurance (if applicable). | |||||||||||||||||||||||
| WHAT FACTORS AFFECT MORTGAGE PAYMENTS? | |||||||||||||||||||||||
| Answer: The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment. | |||||||||||||||||||||||
| HOW DOES THE INTEREST RATE FACTOR IN SECURING A MORTGAGE LOAN? | |||||||||||||||||||||||
| Answer: A lower interest rate allows you to borrow more money than a high rate with the some monthly payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they offer a rate "lock-in"which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan. | |||||||||||||||||||||||
| WHAT HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED RATE LOAN? | |||||||||||||||||||||||
| Answer: If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees. | |||||||||||||||||||||||
| WHAT ARE DISCOUNT POINTS? | |||||||||||||||||||||||
| Answer: Discount points allow you to lower your interest rate. They are essentially prepaid interest, With each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases With each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them. | |||||||||||||||||||||||
| WHAT IS AN ESCROW ACCOUNT? DO I NEED ONE? | |||||||||||||||||||||||
| Answer: Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner's insurance, make sure you are not penalized for late payments since it is the lender's responsibility to make those payments. | |||||||||||||||||||||||
| WHAT IS RESPA? | |||||||||||||||||||||||
| Answer: RESPA stands for Real Estate Settlement Procedures Act. It requires lenders to disclose information to potential customers throughout the mortgage process, By doing so, it protects borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices, and business relationships between closing service providers and other parties to the transaction. | |||||||||||||||||||||||
| WHAT IS A GOOD FAITH ESTIMATE, AND HOW DOES IT HELP ME? | |||||||||||||||||||||||
| Answer: It's an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan. | |||||||||||||||||||||||
| WHAT IS MORTGAGE INSURANCE? | |||||||||||||||||||||||
| Answer: Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It's required primarily for borrowers making a down payment of less than 20%. | |||||||||||||||||||||||
| HOW DOES MORTGAGE INSURANCE WORK? IS IT LIKE HOME OR AUTO INSURANCE? |
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| Answer: Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can't repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses. | |||||||||||||||||||||||
| WHAT IS PMI? | |||||||||||||||||||||||
| Answer:PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI's usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit. | |||||||||||||||||||||||
