Frequently Asked Questions - All FAQs
A FICO score, or credit score, is a method of determining the likelihood that credit users will pay their bills. A credit score attempts to condense a borrowers credit history into a single number, calculated using numerous factors of their credit history
The amount of time credit has been established
The amount of credit used versus the amount of credit available
Length of time at present residence
Negative credit information such as bankruptcies, charge-offs, collections, etc.
Some lenders use one of these three scores, while other lenders obtain scores from all three bureaus and use the middle score.
If you see an error on your report, report it to the credit bureau. They each have procedures for correcting information promptly.
The most common mortgages are fixed and adjustable rate mortgages. Fixed-rate mortgages offer the stability of regular monthly payments over a given length of time, or term. Many people feel these are ideal because they make it easy to budget family finances and there is no rate risk.
Adjustable-rate mortgage (ARM) programs offer you the flexibility of an initial interest rate and payment lower than a standard fixed-rate mortgage. ARM mortgages may also be a great option for homebuyers who do not plan to stay in their current home for a long period of time.
The interest rate is used to calculate your monthly payment using the loan amount and the loan term, and there is only one interest rate on every mortgage. The Annual Percentage Rate (APR) is disclosed on the Truth In Lending Disclosure (aka the Federal Confusion Form). This yield rate takes into consideration certain applicable closing costs in conjunction with your loan terms to formulate said APR. Generally speaking you’d like to have the APR as close as possible to the interest rate. There are state and federal guidelines in place to protect consumers from high cost mortgage loans and the APR is one of the determining factors.
Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy. Mortgage loan rates will also factor in credit score, income and assets to determine the best possible rate for you. So while banks will post current daily rates, those aren’t always an accurate gauge of what the interest rate will be on your home loan.
You cannot close a mortgage loan without locking in an interest rate. The longer the length of the lock, the points or the interest rate will become higher. This is because the longer the lock, the greater the risk for the lender offering that lock. After a lock expires, most lenders will let you re-lock at the higher of the original price and the originally locked price. In most cases you will not get a lower rate if rates drop.
Typically, you will be asked to provide the following information:
Two years W-2 and one month of paystubs. If you are self-employed, two years tax returns (all schedules attached).
Two months statements for each bank, stock, mutual fund account, and 401k.
If you own rental real estate, as proof of income you will need to provide all rental agreements and two years tax returns, including Schedule E.
If divorced, you will be asked to provide a copy of the divorce decree and property settlement agreement (if applicable).
If you are not a US citizen, you will need a copy of your green card, or H-1 or L-1 visa.
A pre-qualification is normally conducted by your mortgage specialist after he has interviewed you and determined, based on the information you’ve verbally provided him, the dollar amount you can be approved for. Your mortgage specialist will then issue you a pre-qualification letter. Mortgage specialists, however, do not make the final approval, so a pre-qualification is not a commitment to lend. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is then submitted to an underwriter and a decision is made regarding your loan. If your loan is pre-approved, you are then issued a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a house. A pre-approval can help you negotiate a better price with the seller.
An escrow account is established to hold separate funds for the purpose of paying bills, such as homeowner’s insurance and property taxes. Funds are deposited into the escrow account each month along with your monthly payment and then then funds in escrow pay the bill for you when it comes due. By taking the annual amounts charged for homeowner’s insurance, property taxes and other annually paid items and dividing them by 12, the escrow department establishes a payment amount that is added to your monthly principal and interest payment. This spreads the cost of those items over 12 months, making it easier to budget those expenses.
An equity loan is closed – you will get all of your money up front and make fixed payments until the loan is paid in full. You can only be charged interest on the outstanding principal balance. Equity loans are best used for: home improvements, debt consolidation, etc. An equity line is open – you can get numerous advanced amounts as needed. They are usually accessed through a credit card or checkbook. You can only be charged interest on the outstanding balance. Equity lines are best used when you have periodic needs for money.
The most common reason people refinance is to save money. They are saving money by obtaining a lower interest rate, causing their monthly mortgage payment to be reduced or by reducing the term of the loan, thus saving money over the life of the loan. People may also choose to refinance to consolidate debts and replace high-interest loans with a low-rate mortgage. The debts being consolidated may include credit lines, credit cards, second mortgages, student loans, etc. In many cases, a debt consolidation results in tax savings, because consumer loans are not tax deductible, and a mortgage loan is tax deductible. Another reason to refinance is to convert ARM loans to a fixed loan. The main reason behind this type of refinance is to obtain the stability and the security of a fixed loan. Fixed loans are very popular when interest rates are low, whereas adjustable loans tend to be more popular when rates are higher. When rates are low, homeowners refinance to lock in low rates. When rates are high, homeowners prefer adjustable loans to obtain lower payments.
The Home Affordable Refinance Program (HARP) was established by the Federal government in 2009 for certain residential first mortgages owned by Fannie Mae (FNMA) or Freddie Mac (FHLMC). The primary purpose of HARP is to help homeowners who have been current on their mortgage payments to be able to refinance into today’s low interest rates even if they have less than 20% equity in their respective homes, up to 125% loan-to-value (LTV). Recently, this program was expanded by removing several previous restrictions, including the 125% LTV limit. Qualified homeowners can now refinance even if they owe more than 125% of their home’s current value. The expanded version of this program is unofficially called HARP 2.0 READ MORE ABOUT HARP HERE