FAQ
Mortgage Terms
Q. What is a mortgage?
A. A conveyance of an interest in property as security
for the repayment of the loan.
Q. What is an APR?
A. The annual percentage rate (APR) is a standardized
method of calculating the cost of a mortgage, stated as a yearly rate, which includes
such items as interest, mortgage insurance, and certain points or credit costs.
Q. What are points?
A. Points are fees used to adjust the yield on a
mortgage to current market conditions. There is an inverse relationship between
points paid and the interest rate on a mortgage. As the interest rate gets higher,
the points get lower. A point equals 1 percent of the mortgage amount. For example,
1 point on a $100,000 mortgage would be $1,000.
Q. What is a
FICO score?
A. A FICO score is a credit
score developed by Fair Isaac & Co. A reliable evaluation that condenses a
borrowers credit history into a single number.
Credit scores includes such factors as:
- Late payments
- The amount of time credit has been established
- The amount of credit used vs. the amount of credit available
- Length of time at present residence
- Employment history
- Negative credit-bankruptcies, collections etc...
There are 3 FICO scores provided by 3 credit bureaus: Experian, Trans Union and
Equifax on a credit report, the middle score being the average.
Q.
How can I increase my score?
A.
- Pay your bills on time.
- Do not apply for credit frequently, the number of inquires reduces the score.
- Reduce credit card balances.
- If you have collections, pay them off A.S.A.P.
Q. What's the difference between a fixed- rate mortgage
and an ARM ?
A. A fixed- rate mortgage (30 yr. 15 yr.) is one
where the borrowers payment does not change over the life of the loan.
An ARM is an adjustable rate mortgage (3yr. 5yr. 7yr.) that changes periodically
to coincide with current interest rates. Which may go up or down but not exceeding
a set cap.
Q.
Can my loan be sold to another lender or bank?
A. Yes, your loan can be sold at any time. There
is a secondary mortgage market, which buys pools of mortgages from lenders and
sell securities backed by these mortgages (Freddie Mac-Federal Home Loan Mortgage
Co.). Nothing changes on your loan except whom you make your payment to. Your
existing lender will notify you when this happens.
Q. Who is Fannie
Mae?
A. Fannie is a nickname for the Federal National
Mortgage Association. A government-chartered non-bank financial services co. and
the nations largest source of financing for home mortgages.
Q. What's the difference between: a
thrift, a mortgage banker and a mortgage Broker?
A. Thrifts are mutual savings banks that also offer
mortgages.
Mortgage bankers do nothing but lend money.
Mortgage brokers are not bankers and have no money of their own to lend. They
act as an intermediary, working with a number of lenders to find the best
possible loan to match a borrower's particular needs.
Q. Will a mortgage broker be able to
find me a better rate than a mortgage banker?
A. Mortgage brokers work with many lenders including
commercial banks, thrifts and mortgage bankers. Brokers may also have access to
lenders who don't have an office located in your state but are licensed to lend
money there.
Q. How do I know how much money I can afford for
buying a house?
A. Generally speaking, you can purchase a home with
a value of 2 or 3 times your annual household income. However, the amount that
you can borrow will also depend on your employment history, credit history, current
savings and debts, and the amount of down payment.
Q.
What does my mortgage payment include?
A.
For most homeowners, the monthly mortgage payments include 3 separate parts:
- Principal- Repayment on the loan 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.
Q. What is the difference between Pre-Qualification
& Pre-Approval?
A. A Pre-Qual is an
early evaluation by a lender of a potential home buyer's credit report plus earning,
savings and debt info. The homebuyer gets a nonbinding estimate of the mortgage
amount the borrower would qualify for or how much house the borrower can afford.
Buyers who pre-qualify can go a step further and seek pre-approval. Pre-Approval
means the lender has contacted the borrower's employer, bank and other places
to verify all claims of earnings and assets. In return, the borrower receives
a letter stating that the lender is willing to grant a mortgage for a specified
amount, within a limited period of time.
Q.
What is a loan origination fee or broker fee?
A. A fee covering the administrative costs in processing
the loan. It is often expressed as a percentage of the amount borrowed ( see points).
Q.
How much cash will I need when purchasing a home?
A. The amount of cash usually depend on 3 factors:
- Earnest Money-The deposit you put down when you make an offer on a house.
- Down Payment-A percentage of the cost of the home that is due at settlement.
- Closing Costs- Costs associated with processing paperwork to purchase or refinance
a house.
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.
Mortgage & Investment Consultants can help you evaluate your choices and make
the best possible decision for you and/or your family.
>> Please contact a loan officer for a free
mortgage evaluation or complete the prequalification
form. << |
