Do you have questions? We can help! You will find the answers to several frequently asked mortgage questions below.
What does a lender look at to approve me?
At the heart of approving a potential borrower is what lenders call 'the three C's of underwriting:'
Credit - your credit history
Collateral - the value of the property securing the loan (your house)
Capacity - your financial ability to assume and repay debt
Taken together, these create a portrait of a potential borrower's risk - that is, whether or not he or she will pay back his or her loan.
What are points?
1) Origination Points (or Fee) - This is the gross profit for the Lender. 2) Discount Points (or Fee) - This is commonly used to cover the cost of giving you a lower rate.
Points are tax deductible. The deduction is usually combined with your mortgage interest paid on line 10 of your schedule 'A'. Consult your tax accountant for additional information.
What is a GFE?
It is an estimate of the fees that you will pay to close your loan.
What is an impound/escrow account?
An impound account or an escrow account (the terms are interchangeable; each is used in different states) is the name of the account in which a lender collects payments you make toward your property taxes and hazard/fire insurance. If you have an impound/escrow account, each of your monthly payments will contain a fraction of your annual property tax and insurance costs. Your lender keeps these funds in the impound/escrow account and then pays your taxes and insurance directly when they become due.
An impound/escrow account can be a convenient and trouble-free manner of ensuring that your insurance and tax payments are made on time.
What are closing costs?
Miscellaneous costs associated with closing a real estate transaction. Items such as points, appraisals, credit reports, prepaid interest, homeowner's insurance, title insurance, and reserves the lender collects for future taxes and insurance. The downpayment is not considered a closing cost.
The typical fees that cover the loan processing and closing are: Lender Fees
Appraisal fee
Credit report
Tax Related Service Fee
Underwriting fee
Processing fee
Flood certification
Bank/Investor fee
Title charges
Title insurance
Recording tax
Escrow fee
Notary fee
Prepaid expenses (not part of the actual cost of the loan, but included with payment)
Prepaid interest (interest that accrues between closing and the end of the closing month - paid in advance)
Homeowner's insurance
Real estate taxes.
What is 'locking in a rate?'
You can secure your rate by completing a written agreement in which the HLC Team guarantees a specified interest rate for a specified period of time. Locking in a mortgage rate protects you against interest rate changes from the date of the rate lock until the date of the closing as long as your rate lock has not expired. Should interest rates rise during that period, the HLC Team is obligated to honor the committed rate. Should interest rates fall during that period, you must honor the lock.
How is the value of my home determined by an appraiser?
The appraiser's role is to provide an estimate of value, as well as a complete, accurate description of the property by which the underwriter judges the property's acceptability as security for the requested loan.
The fair market value can be obtained in three ways; cost approach, sales comparison approach or income approach. The cost approach breaks down the property and gives a value to each piece; i.e., the lot of land, the dwelling, the garage or any other outbuildings. It also takes into consideration depreciation to determine the estimate of cost to rebuild the home just as it is.
The sales comparison approach is the most common method of determining value in one to four family homes. The appraiser researches the local home sales market and determines a minimum of three homes that have sold in the designated neighborhood that are the most like the subject property. Each of the sold properties are compared to the subject property and adjustments are made from the comparable sales price to determine what the subject property would sell for in the current market.
The income approach is not applicable unless the property is income producing. If it is a non-owner occupied property or a property with two to four units in which one unit is occupied by the owner. This approach may be completed if the property earns income but is rarely used as the value indicator.
What is the difference between pre-approval and pre-qualification?
The pre-approval process is much more complete than pre-qualification. For pre-qualification, the loan officer asks you a few questions and provides you with a pre-qual letter. Pre-approval includes all the steps of a full approval, except for the appraisal and title search. Pre-approval can put you in a better negotiating position, much like a cash buyer.
Usually people refinance to save money, either by obtaining a lower interest rate or by reducing the term of the loan. Refinancing is also a way to convert an adjustable loan to a fixed loan or to consolidate debts. The decision to refinance can be difficult, since there are several reasons to refinance. However, if you are looking to save money, try this calculation:
Calculate the total cost of the refinance
Calculate the monthly savings
Divide the total cost of the refinance (#1) by the monthly savings (#2). This is the "break even" time. If you own the house longer than this, you will save money by refinancing.
Since refinancing is a complex topic, consult a mortgage professional.
A rate lock is a contractual agreement between the lender and buyer. There are four components to a rate lock: loan program, interest rate, points, and the length of the lock.
What is the difference between a mortgage broker and a lender?
A mortgage broker counsels you on the loans available from different wholesalers, takes your application, and usually processes the loan which involves putting together the complete file of information about your transaction including the credit report, appraisal, verification of your employment and assets, and so on. When the file is complete, but sometimes sooner, the lender "underwrites" the loan, which means deciding whether or not you are an acceptable risk.
Will I save money going directly to a mortgage lender?
Not necessarily. In fact, if you are a reasonably astute shopper, you will probably do better dealing with a mortgage broker. Mortgage brokers do not add any net cost to the lending process, because they perform functions that would otherwise have to be done by employees of the lender. Furthermore, because mortgage brokers deal with multiple lenders -- in a typical case, 25 to 30, sometimes more -- they can shop for the best terms available on any given day. In addition, they can find the lenders who specialize in various market niches that many other lenders avoid, such as loans to applicants with poor credit ratings, loans to borrowers who do not intend to occupy the property, loans with minimal or no down payment, and so on.
Both income and assets are disclosed and verified, and income is used in determining the applicant's ability to repay the mortgage. Formal verification requires the borrower's employer to verify employment and the borrower's bank to verify deposits. Alternative documentation, designed to save time, accepts copies of the borrower's original bank statements, W-2s and paycheck stubs.
Stated income/verified assets: Income is disclosed and the source of the income is verified, but the amount is not verified. Assets are verified, and must meet an adequacy standard such as, for example, 6 months of stated income and 2 months of expected monthly housing expense.
Stated income/stated assets: Both income and assets are disclosed but not verified. However, the source of the borrower's income is verified.
No ratio: Income is disclosed and verified but not used in qualifying the borrower. The standard rule that the borrower's housing expense cannot exceed some specified percent of income, is ignored. Assets are disclosed and verified.
No income: Income is not disclosed, but assets are disclosed and verified, and must meet an adequacy standard.
Stated Assets or No asset verification: Assets are disclosed but not verified, income is disclosed, verified and used to qualify the applicant.
No asset: Assets are not disclosed, but income is disclosed, verified and used to qualify the applicant.
No income/no assets: Neither income nor assets are disclosed.
It is an upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount; e.g., "2 points" means a charge equal to 2% of the loan balance.
This is the process of determining whether a customer has enough cash and sufficient income to meet the qualification requirements set by the lender on a requested loan. A pre-qualification is subject to verification of the information provided by the applicant. A pre-qualification is short of approval because it does not take account of the credit history of the borrower.
