the RIGHT LOAN for YOU
HOW DO I CHOOSE THE BEST LOAN - PROGRAM FOR ME?
personal situation will determine the best kind of loan for you.
By asking yourself a few questions, you can help narrow your search
among the many options available and discover which loan suits you
you expect your finances to changeover the next few years?
you planning to live in this home for a long period of time?
you comfortable with the idea of a changing mortgage payment amount?
you wish to be free of mortgage debt as your children approach
college age or as you prepare for retirement?
lender can help you use your answers to questions such as these
to decide which loan best fits your needs.
WHAT IS THE BEST WAY TO COMPARE LOAN TERMS BETWEEN LENDERS?
devise a checklist for the information from each lending institution.
You should include the company's name and basic information, the
type of mortgage, minimum down payment required, interest rate and
points, closing costs, loan processing time, and whether prepayment
with companies by phone or in person. Be sure to call every lender
on the list the same day, as interest rates can fluctuate daily.
In addition to doing your own research, your real estate agent may
have access to a database of lender and mortgage options. Though
your agent may primarily be affiliated with a particular lending
institution, he or she may also be able to suggest a variety of
different lender options to you.
ARE THERE ANY COSTS OR FEES ASSOCIATED WITH THE LOAN ORIGINATION
When you turn in your application, you'll be required to pay a loan
application fee to cover the costs of underwriting the loan. This
fee pays for the home appraisal, a copy of your credit report, and
any additional charges that may be necessary. The application fee
is generally non-refundable.
WHAT IS 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.
more information on RESPA,
or call 1-800-569-4287 for a local counseling referral.
WHAT IS A GOOD FAITH ESTIMATE, AND HOW DOES IT HELP ME?
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 RESPONSIBILITIES DO I HAVE DURING THE LENDING PROCESS?
ensure you won't fall victim to loan fraud, be sure to follow all
of these steps as you apply for a loan:
sure to read and understand everything before you sign.
to sign any blank documents.
not buy property for someone else.
not overstate your income.
not overstate how long you have been employed.
not overstate your assets.
report your debts.
not change your income tax returns for any reason. Tell the whole
truth about gifts. Do not list fake co-borrowers on your loan
truthful about your credit problems, past and present.
honest about your intention to occupy the house
not provide false supporting documents.
WHAT HAPPENS AFTER I'VE APPLIED FOR MY LOAN?
usually takes a lender between 1-6 weeks to complete the evaluation
of your application. Its not unusual for the lender to ask for more
information once the application has been submitted. The sooner
you can provide the information, the faster your application will
be processed. Once all the information has been verified the lender
will call you to let you know the outcome of your application. If
the loan is approved, a closing date is set up and the lender will
review the closing with you. And after closing, you'll be able to
move into your new home.
WHAT SHOULD I LOOK OUT FOR DURING THE FINAL WALK-THROUGH?
will likely be the first opportunity to examine the house without
furniture, giving you a clear view of everything. Check the walls
and ceilings carefully, as well as any work the seller agreed to
do in response to the inspection. Any problems discovered previously
that you find uncorrected should be brought up prior to closing.
It is the seller's responsibility to fix them.
WHAT MAKES UP CLOSING COST?
may be closing cost customary or unique to a certain locality, but
closing cost are usually made up of the following:
or escrow fees (Yours and your lender's if applicable)
taxes (to cover tax period to date)
(paid from date of closing to 30 days before first monthly payment)
Origination fee (covers lenders administrative cost)
premium of mortgage Insurance (if applicable)
Insurance (yours and lender's)
payment to escrow account for future real estate taxes and insurance
receipt for homeowner's insurance policy (and fire and flood insurance
documentation preparation fees
WHAT CAN I EXPECT TO HAPPEN ON CLOSING DAY?
present your paid homeowner's insurance policy or a binder and receipt
showing that the premium has been paid. The closing agent will then
list the money you owe the seller (remainder of down payment, prepaid
taxes, etc.) and then the money the seller owes you (unpaid taxes
and prepaid rent, if applicable). The seller will provide proofs
of any inspection, warranties, etc.
you're sure you understand all the documentation, you'll sign the
mortgage, agreeing that if you don't make payments the lender is
entitled to sell your property and apply the sale price against
the amount you owe plus expenses. You'll also sign a mortgage note,
promising to repay the loan. The seller will give you the title
to the house in the form of a signed deed.
pay the lender's agent all closing costs and, in turn, he or she
will provide you with a settlement statement of all the items for
which you have paid. The deed and mortgage will then be recorded
in the state Registry of Deeds, and you will be a homeowner.
WHAT DO I GET AT CLOSING?
Statement, HUD-1 Form (itemizes services provided and the fees
charged; it is filled out by the closing agent and must be given
to you at or before closing)
or Deed of Trust
Sales Contract (prepared by the seller; your lawyer should review
to your new home
WHAT IS MORTGAGE INSURANCE?
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
HOW DOES MORTGAGE INSURANCE WORK? IS IT LIKE HOME OR AUTO INSURANCE?
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.
DO I NEED MORTGAGE INSURANCE? HOW DO I GET IT?
need mortgage insurance only if you plan to make a down payment
of less than 20% of the purchase price of the home. The FHA offers
several loan programs that may meet your needs. Ask your lender
WHAT IS 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.
FINANCING QUESTIONS: THE BASICS
WHAT IS A MORTGAGE?
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
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.
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.
WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE ADVANTAGES OF
Rate Mortgages: Payments remain the same for the the life of the
cost remains unaffected by interest rate changes and inflation.
Rate Mortgages (ARMS): Payments increase or decrease on a regular
schedule with changes in interest rates; increases subject to limits
Mortgage- Offers very low rates for an Initial period of time
(usually 5, 7, or 10 years); when time has elapsed, the balance
is clue or refinanced (though not automatically)
Mortgage- Interest rate adjusts only once and remains the same
for the life of the loan
linked to a specific index or margin
offer lower initial interest rates
payments can be lower
allow borrower to qualify for a larger loan amount
WHEN DO ARMS MAKE SENSE?
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
WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR LOAN TERMS?
the first 23 years of the loan, more interest is paid off than
principal, meaning larger tax deductions.
inflation and costs of living increase, mortgage payments become
a smaller part of overall expenses.
is usually made at a lower interest rate.
is built faster because early payments pay more principal.
CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE?
By sending in extra money each month or making an extra payment
at the end of the year, you can accelerate the process of paying
off the loan. When you send extra money, be sure to indicate that
the excess payment is to be applied to the principal. Most lenders
allow loan prepayment, though you may have to pay a prepayment penalty
to do so. Ask your lender for details.
ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS?
Lenders now 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.
HOW LARGE OF A DOWN PAYMENT DO I NEED?
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.
WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT?
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?
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?
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
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?
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?
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 STEPS NEED TO BE TAKEN TO SECURE A LOAN?
first step in securing a loan is to complete a loan application.
To do so, you'll need the following information.
stubs for the past 2-3 months
forms for the past 2 years
on long-term debts
returns for the past 2 years
of any other income
and description of the property you wish to buy
the application process, the lender will order a report on your
credit history and a professional appraisal of the property you
want to purchase. The application process typically takes between
HOW DO I CHOOSE THE RIGHT LENDER FOR ME?
your lender carefully. Look for financial stability and a reputation
for customer satisfaction. Be sure to choose a company that gives
helpful advice and that makes you feel comfortable. A lender that
has the authority to approve and process your loan locally is preferable,
since it will be easier for you to monitor the status of your application
and ask questions. Plus, it's beneficial when the lender knows home
values and conditions in the local area. Do research and ask family,
friends, and your real estate agent for recommendations.
HOW ARE PRE-QUALIFYING AND PRE-APPROVAL DIFFERENT?
is an informal way to see how much you maybe able to borrow. You
can be 'pre-qualified' over the phone with no paperwork by telling
a lender your income, your long-term debts, and how large a down
payment you can afford. Without any obligation, this helps you arrive
at a ballpark figure of the amount you may have available to spend
on a house.
is a lender's actual commitment to lend to you. It involves assembling
the financial records mentioned in Question 47 (Without the property
description and sales contract) and going through a preliminary
approval process. Pre-approval gives you a definite idea of what
you can afford and shows sellers that you are serious about buying.
HOW CAN I FIND OUT INFORMATION ABOUT MY CREDIT HISTORY?
are three major credit reporting companies: Equifax, Experian, and
Trans Union. Obtaining your credit report is as easy as calling
and requesting one. Once you receive the report, it's important
to verify its accuracy. Double check the "high credit limit", "total loan", and "past due" columns. It's a good idea to get
copies from all three companies to assure there are no mistakes
since any of the three could be providing a report to your lender.
Fees, ranging from $5-$20, are usually charged to issue credit reports
but some states permit citizens to acquire a free one. Contact the
reporting companies at the numbers listed for more information.
| Company Name
| Phone Number
| Trans Union
WHAT IF I FIND A MISTAKE IN MY CREDIT HISTORY?
mistakes are easily corrected by writing to the reporting company,
pointing out the error, and providing proof of the mistake. You
can also request to have your own comments added to explain problems.
For example, if you made a payment late due to illness, explain
that for the record. Lenders are usually understanding about legitimate
WHAT IS A CREDIT BUREAU SCORE AND HOW DO LENDERS USE THEM?
credit bureau score is a number, based upon your credit history,
that represents the possibility that you will be unable to repay
a loan. Lenders use it to determine your ability to qualify for
a mortgage loan. The better the score, the better your chances are
of getting a loan. Ask your lender for details.