There are many common questions that our clients have regarding their mortgage; how to get a mortgage, what they need to qualify, and about specific concerns they have about applying for a mortgage. Here are some of the most common questions and their answers.
Q: If my credit is not very good can I still qualify for a mortgage?
A: Yes, a mortgage can be obtained by people with all kinds of credit (Excellent, Great, Average, Below Average, and Poor Credit). Obviously, the rates will increase slightly as credit score get a little lower but a mortgage can still be obtained. Also, with a lower credit score you may be limited to a few less mortgage loan programs than you would with exellent credit. Sometimes compensating factors such as a lot of money put away in checking or savings accounts, 401k’s, investments, etc…, good job time, low LTV (loan to value), low DTI’s (debt to income ratios), and lower terms (15 year instead of a 30 year) may help to compensate somewhat for a lower credit score and qualify you for a little better rate.
Q: What mortgage loan terms are available for me as a borrower?
A: You can choose almost any loan term that you desire. The most common loan terms are 5, 10, 15, 20, 25, 30 and now even 40 year home loan terms. Some lenders will still let you do the years in between these ones also, although it is not very common. The 40 year loan term is still relatively new to the market but the rest have been around for quite some time. Generally the lower the term you select, the lower the rate can be. The 30 year mortgage term is the most common loan term used for home mortgage financing.
Q: What is PMI?
A: PMI, or Private Mortgage Insurance, is an insurance from a private company that is required on conforming loans where the borrower does not have a minimum of 20% equity in the home. PMI is an insurance that you, the borrower, pay for to protect the bank in case you default on your loan. Any time that you do not put down 20% for a purchase transaction or have at least 20% equity in a refinance transaction this is considered a higher risk to the bank and this is why they require this type of insurance.
Q: What is the best mortgage for me?
A: There are many mortgage options for a borrower today. We will assess your situation and provide the best options for you at that time. We have any program from a simple fixed rate mortgage, interest only, pay option arms, lot loans, construction, rehab, manufactured, commercial and many other options to fulfill your lending needs.
Q: Can I get a mortgage after a bankruptcy?
A: You may still qualify for a home loan even if you have a prior bankruptcy. The best way to find out if you can qualify for a home loan after a bankruptcy is to meet with a loan officer and discuss your options. Be sure to bring all paperwork regarding your past bankruptcy so that your loan officer can match you with the best lenders to meet your needs.
Q: What is APR?
A: APR, or Annual Percentage Rate, is the effective rate that takes the lender bank’s charges into consideration and express the total of all bank charges in the form of an interest rate. Because there are always other finance charges in addition to the note rate (the interest rate base on which payments are calculated), the APR is almost always higher than the note rate. The APR is one of the items required by the Truth-in-Lending to disclose to every potential borrower.
Q: What is PITI?
A: PITI, or Principal, Interest, Taxes (property taxes), and Insurance, is basically the cost of living in your particular home. PITI can also be expanded to include any private mortgage insurance and homeowners association fees or condo association fees.
Q: What is Lender Paid Mortgage Insurance (LPMI)
A: Lender paid mortgage insurance is a program in which the lender will pay the mortgage insurance in exchange for a slightly higher rate.
Q: Do you have the lowest rates?
A: We have loan programs to fit just about every situation with rates that are competetive with anyone. Playing the rate game in the mortgage world can get quite frustrating. Many lenders advertise rates that are simply not available just to get you to talk to them and get you in the process with them. The fact is that mortgage money that all lenders lend comes from the same sources. There is never one lender that will have significantly lower rates than another. Rather than choosing a lender based on whoever can shout out the lowest rate, why not choose on the basis of the loan officer’s professionalism, experience and skill in finding a loan program best suited for your particular situation. Doing it this way will get your a proper loan program with a competetive rate and a borrowing process that is stress free.
Q: Can I get a mortgage with bad credit (not so good credit, poor credit)?
A: Of course you can get a mortgage with bad credit. Consult with a licensed mortgage consultant to find out what programs are available for you and your maximum loan amount. Usually, the lower your credit score the higher your rate will be, however most mortgage professionals can provide you with a mortgage loan at maybe a little higher rate now, along with a plan on how to improve your credit so that within a couple of years you can qualify for the best rates available and the rates you deserve. Also, keep in mind that some of the closing costs may be tax deductible and that the mortgage interest is tax deductible too so even paying a little higher rate for a year or two will still have its advantages until you are ready to qualify for the best rates.
Q: What is a Good Faith Estimate (GFE)?
A: A GFE is a prelimanary estimate of the closing costs and fees for your mortgage. When comparing a GFE between mortgage brokers be sure to have the Truth N’ Lending (TIL) with you.
Q: What is a Truth N' Lending (TIL) statement?
A: A TIL is used in connection with the GFE. A TIL gives you the total cost of a mortgage with the closing costs and fees included. A TIL will allow you to determine if a higher rate with low fees is better for you than a lower rate and higher fees, & vice versa.
Q: How big is an acre?
A: An acre is equal to 43,560 square feet. So if you are looking at buying a house that sits on 3 acres of land, that would be equivalent to 130,680 square feet, or a possible lot size of approximately 130 feet wide by 1000 feet deep.
Q. What are impounds?
A. Impounds are the part of your monthly house payment that cover Home Owners Insurance and Property Taxes. This is calculated by taking your annual payment amount and dividing by 12. Sometimes, for a higher rate, the lender will allow borrowers to pay insurance and taxes themselves. However, lenders prefer to collect these in monthly istallments and pay them when due. This ensures that these are paid on time and prevents tax leins or lapsing of insurance. Typically, at closing, lenders will collect whatever is currently due plus 2 months extra for reserves or what should have been collected since the last due date for the insurance or taxes plus 2 months extra for reserves. You will always have this 2 months extra in reserves for as long as you have the loan. This allows the lender to pay your taxes and insurance on time even if you should pay your mortgage payment late.
Q. Can I buy a house with no money down or possibly even with no money out of my pocket?
A. Yes you can buy a home with 0 money down. There are many different types of 100% financing out there for home-buyers and even for first-time homebuyers. There are also programs that will allow you to finance the closing costs so that you will not have to bring any money to closing. Another popular way to not pay closing costs is to have the seller pay for your closing costs with a seller contribution. A seller contribution is something worked into the purchase price of the property where the seller may pay for some or all of your closing costs. Therefore there are many ways to obtain financing for a home purchase with no money down and/or no money out of your pocket.
Q. What is Loan To Value (LTV)?
A. LTV is the size of your loan in proportion to the value of your home. For example, if you are buying a home for $100,000, and you make a down payment of $10,000, then your loan amount would be $90,000. Your LTV would be 90% (the loan is 90% of the value). It is important to know that lenders will always use the lesser of the appraised value or the purchase price for the value. If you refinance, then the appraised value is used.
Q: What is DTI?
A: DTI stands for Debt to Income Ratio. This pretty much will decide how much of a loan you can afford. Your DTI is calcuated by dividing your total monthly debts and your total monthly income.
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A: The online company where you applied may not be a mortgage company at all. Many “lead providers” have websites where they collect your information and sell it over and over again to the highest bidders. The solution: Use caution when applying online and never provide your personal information to a website without first determing their reputation in the industry.
Q: How does my credit affect my ability to buy a home?
While credit is an important part of the loan process, don’t be discouraged if yours is less then perfect. Judgments, late payments, and bankruptcy can all affect your credit score, but they won’t necessarily prevent you from getting a loan.
Q: Can I get a loan if I am self-employed?
A: Yes. There are loan programs available for self-employed borrowers.
Q: I have seen interest rates advertised on television sometimes as low as 1%, why are you not providing this low of a rate to me?
A: Many of the televised rates are “too good to be true.” You will call the company, and by a series of add ons, and criteria specific to your deal, the rate will raise to something closer to the market average. However, there are some loan programs that can offer payments with rates extremely low, such as Pay Option ARMS, but make certain to talk to a series of mortgage professionals before you commit to such a loan.
Q: Why should I buy instead of rent?
A: A home is an investment. When you rent that money is gone forever and you are essentially paying your landlord’s mortgage. When you own your home, you can deduct the cost of your mortgage loan interest from your taxes. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years.
Q: What is a credit report?
A: A credit report is a file that contains information on how you pay your bills, where you live and work, and any information that is on public record, i.e., bankruptcy, judgments, tax liens and lawsuits. Your permission is required in order for a lender to order a copy of your credit report-they will request your name, address and social security number.
Q: How long can negative information remain on my credit report?
A: Most derogatory credit comments remain on credit reports for seven years. Exceptions are bankruptcies, which can appear for 10 years, as well as some lawsuits, which can remain on the credit report until the statute of limitations runs out.
Q: Why is the APR different from the interest rate for which I applied?
A: The APR is computed from the amount financed and based on what your proposed payments will be on the actual loan amount credited to you at settlement, In a $50,000 loan with $2,000 prepaid finance charges, a 30 year term and a fixed interest rate of 12%, the payments would be $514.31 (principal and interest). Since the APR is based on the amount financed ($48,000), while the payment is based on the actual loan amount given ($50,000), the APR (12.533%) is higher than the interest rate.
Q: How is an index and margin used in an ARM?
A: An index is an economic indicator that lenders use to set the interest rate for an ARM. Generally the interest rate that you pay is a combination of the index rate and a pre-specified margin. Three commonly used indices are the One-Year Treasury Bill, the Cost of Funds of the 11th District Federal Home Loan Bank (COFI), and the London InterBank Offering Rate (LIBOR).
Q: What is the amount financed?
A: The amount financed is the loan amount applied for, minus the prepaid finance charges. Prepaid finance charges include items paid at or before settlement, such as loan origination, commitment or discount fees (points): adjusted interest, and initial mortgage insurance premium . The amount financed is over lower than the amount you applied for because it represents a NET figure. If you applied for $50,000 and the prepaid finance charge total $2,000, the amount financed would be $48,000.
Q: What is the total of payments?
A: The figure represents the total amount you will have paid if you make the minimum required payments for the entire term of the loan. This includes principal,. Interest and mortgage insurance premiums, but does not include payments for real estate taxes or property insurance premiums.
Q: How do I know which type of mortgage is best for me?
A: There is no simple formula to determine the type of mortgage that is best for you. This choice depends on a number of factors, including your current financial picture and how long you intend to keep your house. Foundation Capital Group can help you evaluate your choices and help you make the most appropriate decision.
Q: What does my mortgage payment include?
A: For most homeowners, the monthly mortgage payments include three separate parts:
Principal: Repayment on the amount borrowed
Interest: Payment to the lender for the amount borrowed
Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company.
Q: Is there a real savings to no closing cost loan?
A: No. Usually the lender will merely increase the interest rate to offset the costs of waiving fees.
Q: What is a seller concession?
A. A seller’s concession is an agreement in a purchase contract whereby the seller agrees to pay(from the proceeds of their sale) some or even all of the buyers closing costs to purchase the home. This allows a buyer to purchase with less out of pocket expense.
The information contained in this article on ‘Mortgage FAQ’s’ is a collection of contributions by licensed mortgage professionals and is not the opinion of MSA Mortgage. Always consult a licensed professional before applying for a mortgage.