1. What will my payment be?
Your payment will be based on the loan amount and interest rate. It may also include taxes, insurance and mortgage insurance. Don’t forget to consider homeowners’ fees, too; even though they are not part of your monthly payment, they can be a significant part of the cost of owning a home
2. What is an origination fee?
This is a fee that lenders may charge for services involved in creating the mortgage loan. Generally expressed as a percentage of the loan amount, the fee is usually no more than 1% of the total amount borrowed. Not all rates quoted will include this fee
3. What is a discount point?
Discount points refer to a payment the buyer makes in addition to the origination fee, and actually represent pre-paid interest on the loan. This payment allows the lender to offer a lower rate because the borrower has “bought down” their rate by paying the interest upfront. Discount points are calculated as a percentage of the loan amount, and vary daily based on the fluctuating interest rates offered by our investors
4. What are lender fees?
Lender fees, which can vary from lender to lender, are charges to cover the cost of preparing, processing and underwriting the loan application. At IMC, we only charge for services rendered, and pride ourselves in providing first class service without over charging our customers
5. How are rates determined?
Mortgage interest rates can fluctuate daily based on a variety of market conditions. There is no clear correlation between a particular index such as the S&P 500 or another stock market indicator. Each mortgage company sets its own interest rates daily based on a number of factors, including the rates on 10-year and 30-year T-bills, the price of Fannie Mae and Ginnie Mae bonds and other market data available. There is no industry standard for interest rates – they can vary from company to company. Not only will rates vary from lender to lender, but points, and fees vary too
6. What’s the difference between a “floating” rate and one that’s “locked”?
To lock in your interest rate, you must specifically notify your loan officer that you want to do so. Until you do, the interest rate “floats” with the daily fluctuations in the market. Once you lock in your rate, however, you are guaranteed to receive that rate when you go to settlement.
7. When can I lock in, and how long does it last?
Generally, rate locks last for 50 days. Make sure that your loan will close within the lock period. Otherwise, the lock could expire, and you would have to accept the current prevailing rate for your loan or pay to extend the lock. There are programs that allow you to “extend” a lock up to 540 days. These programs vary by investors — so please consult your loan officer for associated details and costs
8. How can I compare rates and fees when mortgage shopping?
When shopping for a loan, a borrower should compare points, fees and the Annual Percentage Rate (APR). The APR includes all of the fees included in your loan, and, sometimes, these fees may be significant. Therefore, the APR is a good way to compare lenders equally. Make sure the assumptions that go into computing the APR are the same. The closing date, loan type and even attorney fees can have an impact on the APR. Most importantly, you should feel comfortable with the products, services and answers that your lender provides throughout the loan process
9. What is the difference between the Annual Percentage Rate (APR) and my interest rate?
The APR is the cost of your loan expressed as an annual rate. It includes interest, points, mortgage insurance (if any), and finance charges associated with the loan. It is a helpful tool when comparing different types of mortgages. The interest rate, in contrast, is the actual rate at which you are borrowing your money, and is used to calculate the payment on the loan
10. Why is the APR on the Truth-in-Lending disclosure higher than the rate shown on my mortgage note?
The APR includes other costs associated with securing your loan, which can include: interest, loan origination points, discount points, mortgage insurance and other finance charges. The APR is expressed as a percentage to allow you to compare different loans using a standardized means of comparison
11. What are the minimum down payments for conventional, FHA, and VA loans?
Conventional loans from Fannie Mae and Freddie Mac require as little as 3% down – loans with less than 20% down may require private mortgage insurance (PMI). An FHA loan requires 3.5% down. A VA loan requires no down payment but the borrower must be an eligible veteran. Ask your loan officer for details on any of these programs. (For information on PMI, see question #13 below)
12. What is the difference between a Conforming and Jumbo loan?
A Conforming loan meets Fannie Mae and Freddie Mac loan limit requirements, set by the Federal Housing Finance Board. The current limit on a Conforming loan is $417,000 nationally and the high balance conforming limit is $625,500 in the Washington DC metro area and other high cost markets. This limit is reviewed and adjusted annually by county. A Jumbo loan is any loan that exceeds the conforming loan limit. It is sometimes referred to as a “Non-Conforming” loan.
13. What is Private Mortgage Insurance (PMI)?
PMI is insurance issued by a private mortgage insurance company that protects the lender in case the borrower defaults on the loan. It is generally required if the borrower does not have 20% of their own money invested in the property. There are 4 kinds of mortgage insurance – monthly, borrower paid single premium, lender paid and split premium. The requirement for mortgage insurance can be avoided by utilizing a second trust, allowing the borrower to make a down payment of as little as 5%. Ask your loan officer for details
14. What is an 80/10/10 or an 80/15/5?
These terms refer to loan programs that have an 80% first trust (mortgage) and a second trust (mortgage) of either 10% or 15%. The remaining 10% or 5% is the borrower’s down payment and, in most cases, must come from the borrower’s own funds. These loans allow the purchase of a home with low down payment and no PMI
15. What is title insurance?
Title insurance provides the lender with coverage in case there are claims against the title of the property. The borrower may also purchase an owner’s title insurance policy to protect their interest; however, this is not required. In cases where land and property have been bought and sold over time, there is always the possibility an error has occurred in the recording of one of these transactions. If an error has occurred, it may be that someone else may still hold title to or has an interest in the property. Title insurance protects lenders (and owners, if they have owner’s policies) against any possible claims that may result. If such a claim should take place and you do not have title insurance, you could lose your investment in your home. All lenders require “lender’s coverage” to protect their interest
16. What is an escrow account?
An escrow account is money that is aside each month from the borrower’s mortgage payment to pay the real estate taxes and hazard insurance on the property. Every time a mortgage payment is made, a portion of the payment is put into an escrow account. When the taxes or insurance bills come due, the lender pays the bills with the money from the escrow account. The establishment of an escrow account is not always required. When a loan is paid in full, due to sale, refinance or reaching the end of the loan, the escrow account balance is refunded to the borrower
17. What is a Loan Estimate (LE)?
This is an estimate of fees that you will be required to pay at closing that will be given to you within 3 days of loan application. This is a preliminary estimate prepared in good faith by the lender. Although every attempt is made to give accurate figures to the borrower, the final settlement statement (called the closing disclosure) will contain the complete accounting of the real estate transaction. Note that some costs on the loan estimate, like the lender fees, cannot increase on the closing disclosure. Also note the LE may not contain all of the costs associated with purchasing a home including the costs of home inspections and warranties, homeowners’ association fees or capital contributions, and the cost of additional commissions/broker fees that may be charged by your realtor
18. What is a balloon mortgage?
A balloon mortgage is a loan that has equal monthly payments that last for a specified period. At the end of that period, the loan is not fully paid off and the remaining balance is due in one “balloon” payment. This is most commonly used with second trust mortgages, which are called 30/15 balloons. This arrangement amortizes the loan over 30 years but sets a payment schedule for 15 years. At the end of the 15 years period the remaining balance comes due. Balloon mortgages are much less common since the enactment CFPB (Consumer Finance Protection Bereau) lending guidelines in January, 2014
19. What are ratios, and how do they affect my ability to get a loan?
There are generally two types of qualifying ratios: “front ratio” and “back ratio.” The “front ratio” is calculated by dividing your monthly housing expense (PITI) by your gross monthly income. The result is expressed as a percentage, usually no more than 28%-33%. The “back ratio” is calculated by dividing the borrower’s total fixed monthly debt by their gross monthly income. The fixed monthly debt includes your PITI as well as car loans, student loans, credit card payments and installment loans. This ratio is expressed in a percentage that usually cannot exceed approximately 38%. These ratios give the lender a better picture of a borrower’s ability to afford a particular payment. Using today’s automated underwriting guidelines, these ratios are somewhat flexible. Ask your loan officer for more details.
20. I am self-employed. Can I still get a loan?
Yes. Self-employed borrowers can apply for a loan by providing two years of tax returns that verify their annual earnings. Generally a two-year verifiable job history in the same line of work will be required