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Frequently Asked Questions
What You Need to Know About Home Loans Simply put, a mortgage is a loan secured by real property and paid in installments over a set period of time. The mortgage secures your promise that the money borrowed for your home will be repaid. Components of a Mortgage Include: 1. Mortgage Approval: Qualifying for a mortgage requires meeting a pre-determined set of guidelines established by a lender, which may include credit history, income, employment and assets. In addition to personal qualifying factors, a property must also meet certain standards set by lenders before a borrower can obtain a mortgage loan secured by real estate. 2. Mortgage Payments: On a traditional 30 or 15 years fixed rate mortgage program that involves principal and interest, each payment made is divided into two parts (we’re not including taxes or homeowners insurance as part of this discussion). The first part of the mortgage payment, which is commonly referred to as principal, goes to paying down the initial amount borrowed. The second part is the interest paid for the money borrowed to purchase the property. The amount paid in interest decreases each month, as the amount paid towards the principal balance increases. This apportioning is referred to as amortization. Other types of mortgage payments available can include options for paying interest only or a teaser rate. Either way, it is extremely important to have a solid understanding of the full payment and terms before moving forward with a particular option. 3. Mortgage Programs: Mortgage Programs come in many different types of flavors and colors depending on the down payment and/or monthly budget a borrower has been approved for. There are also federally insured mortgages, such as FHA and VA loans, which have more flexible qualifying guidelines. |
4. Closing Costs/Fees: The actual cost of obtaining a mortgage mainly depends on whether or not the borrower is paying points for a lower mortgage rate. In some cases, there are also other loan processing and underwriting fees associated with the work involved in the transaction. Fortunately, there are several consumer protection policies implemented by the government to help borrowers understand their options during the initial mortgage pre-qualification process. However, please keep in mind that there may be other closing costs not associated with a mortgage or real estate transaction to be aware of. Appraisal, pre-paid property taxes, insurance and interest, HOA dues and inspections are a few additional out-of-pocket expenses you should budget for.
5. Mortgage Rates: While mortgage interest rates may change several times a day, there are a few market factors you can pay attention to which may impact your final payment. Whether you’re shopping for the best rate, or trying to determine the difference between the Note Rate and APR, it definitely helps to understand what questions to ask a mortgage lender about your specific loan scenario. Whether you’re a First-Time Home Buyer or seasoned investor, the mortgage approval process can be a slightly overwhelming adventure without a proper road map and good team in your corner. Updated program guidelines, mortgage rate questions and down payment requirements are a few of the components you’ll need to be aware of when getting mortgage financing for a purchase or refinance.
5. Mortgage Rates: While mortgage interest rates may change several times a day, there are a few market factors you can pay attention to which may impact your final payment. Whether you’re shopping for the best rate, or trying to determine the difference between the Note Rate and APR, it definitely helps to understand what questions to ask a mortgage lender about your specific loan scenario. Whether you’re a First-Time Home Buyer or seasoned investor, the mortgage approval process can be a slightly overwhelming adventure without a proper road map and good team in your corner. Updated program guidelines, mortgage rate questions and down payment requirements are a few of the components you’ll need to be aware of when getting mortgage financing for a purchase or refinance.
Mortgage Approval Components
Mortgage lenders approve borrowers for a loan, which is secured by real estate, based on a standard set of guidelines that are generally determined by the type of loan program. The following bullets are the main components of a mortgage approval:
Debt-To-Income (DTI) Ratio: A borrower’s DTI Ratio is a measurement of their income to monthly credit and housing liabilities. The lower the DTI ratio a borrower has (more income in relation to monthly credit payments), the more confident the lender is about getting paid on time in the future based on the loan terms.
Loan-to-Value (LTV): Loan-to-Value, or LTV, is a term lenders use when comparing the difference between the outstanding loan amount and a property’s value. Certain loan programs require a borrower to invest a larger down payment to avoid mortgage insurance, while some government loan programs were created to help buyers secure financing on a home with 96.5% to 100% LTV Ratios. EX: A Conventional Loan requires the borrower to purchase mortgage insurance when the LTV is greater than 80%. To avoid having to pay mortgage insurance, the borrower would have to put 20% down on the purchase of a new property. On a $100,000 purchase price, 20% down would equal $20,000.
Credit: Credit scores and history are used by lenders as a tool to determine the estimated risk associated with a borrower. While lenders like to see multiple open lines of credit with a minimum of 24 months reporting history, some loan programs allow borrowers to use alternative forms of credit to qualify for a loan.
Property Types: The type of property, and how you plan on occupying the residence, plays a major role in securing mortgage financing. Due to some HOA restrictions, government lending mortgage insurance requirements and appraisal policies, it is important that your real estate agent understands the exact details and restrictions of your pre-approval letter before placing any offers on properties.
Debt-To-Income (DTI) Ratio: A borrower’s DTI Ratio is a measurement of their income to monthly credit and housing liabilities. The lower the DTI ratio a borrower has (more income in relation to monthly credit payments), the more confident the lender is about getting paid on time in the future based on the loan terms.
Loan-to-Value (LTV): Loan-to-Value, or LTV, is a term lenders use when comparing the difference between the outstanding loan amount and a property’s value. Certain loan programs require a borrower to invest a larger down payment to avoid mortgage insurance, while some government loan programs were created to help buyers secure financing on a home with 96.5% to 100% LTV Ratios. EX: A Conventional Loan requires the borrower to purchase mortgage insurance when the LTV is greater than 80%. To avoid having to pay mortgage insurance, the borrower would have to put 20% down on the purchase of a new property. On a $100,000 purchase price, 20% down would equal $20,000.
Credit: Credit scores and history are used by lenders as a tool to determine the estimated risk associated with a borrower. While lenders like to see multiple open lines of credit with a minimum of 24 months reporting history, some loan programs allow borrowers to use alternative forms of credit to qualify for a loan.
Property Types: The type of property, and how you plan on occupying the residence, plays a major role in securing mortgage financing. Due to some HOA restrictions, government lending mortgage insurance requirements and appraisal policies, it is important that your real estate agent understands the exact details and restrictions of your pre-approval letter before placing any offers on properties.
Credit Report Basics
What is credit scoring and how does it affect me?
Credit scoring is a system creditors use to help determine your creditworthiness. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. The credit agencies use sophisticated algorithms to assign a score representing your creditworthiness based on your credit history, payment history, number of accounts, balance of existing accounts, and delinquent accounts, if there are any. Because your credit report is an important part of many credit scoring systems, it is very important to make sure it’s accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:
Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report, but everyone gets one free credit report per year! Go to Free Annual Credit Report for your free annual credit report. There is no obligation as this service is mandated by law.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) is designed to help ensure that CRAs furnish correct and complete information to businesses to use when evaluating your application. Your rights under the Fair Credit Reporting Act:
•Any company that denies your application must supply the name and address of the CRA they contacted, provided the denial was based on information given by the CRA.
•You have the right to a free copy of your credit report when your application is denied because of information supplied by the CRA. Your request must be made within 60 days of receiving your denial notice.
•You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction.
•You have the right to receive a copy of your credit report. The copy of your report must contain all of the information in your file at the time of your request.
•You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes.
•If you contest the completeness or accuracy of information in your report, you should file a dispute with the CRA and with the company that furnished the information to the CRA. Both the CRA and the furnisher of information are legally obligated to reinvestigate your dispute.
Credit scoring is a system creditors use to help determine your creditworthiness. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. The credit agencies use sophisticated algorithms to assign a score representing your creditworthiness based on your credit history, payment history, number of accounts, balance of existing accounts, and delinquent accounts, if there are any. Because your credit report is an important part of many credit scoring systems, it is very important to make sure it’s accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:
Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report, but everyone gets one free credit report per year! Go to Free Annual Credit Report for your free annual credit report. There is no obligation as this service is mandated by law.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) is designed to help ensure that CRAs furnish correct and complete information to businesses to use when evaluating your application. Your rights under the Fair Credit Reporting Act:
•Any company that denies your application must supply the name and address of the CRA they contacted, provided the denial was based on information given by the CRA.
•You have the right to a free copy of your credit report when your application is denied because of information supplied by the CRA. Your request must be made within 60 days of receiving your denial notice.
•You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction.
•You have the right to receive a copy of your credit report. The copy of your report must contain all of the information in your file at the time of your request.
•You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes.
•If you contest the completeness or accuracy of information in your report, you should file a dispute with the CRA and with the company that furnished the information to the CRA. Both the CRA and the furnisher of information are legally obligated to reinvestigate your dispute.
Home Appraisal Basics
Appraisal is a document that gives an estimate of a property’s fair market value. An appraisal ascertains the market value of a property. The appraisal is performed by an “appraiser” who is typically a state-licensed individual trained to use existing data to come to a home valuation. In an appraisal, consideration is given to the property, its location, amenities, and the current market values of similar properties. An appraisal is a necessary step in the home purchase or home refinance process. Most lenders will not lend on a property without an appraisal.
Closing Basics
lAt the closing, ownership of the newly purchased home is officially transferred to you. It may involve you, the seller, the real estate agent, representatives from the title or escrow firm, and a variety of clerks, secretaries, and other staff. Closing can take as little time as an hour to sign all the forms and transfer ownership or it can take several hours, depending on the contingency clauses in the purchase offer (and any escrow accounts that may need to be set up). Make sure you have eaten and have water with you. You do not want to be rushed when closing on your new home.
Before you close on the house, you should have a final inspection, or walk-through, to make sure any repairs you requested have been made and that items which were to remain with the house (drapes, light fixtures) are still there. This is when you must call attention to any problems or issues you see with the home that should not be present. In most states, settlement is done by a title or escrow firm to which the appropriate cashiers’ checks, and the firm will make the necessary disbursements. The real estate agent or another representative of the title company will deliver the check to the seller and the house keys to you.
Closing Costs and Expenses Include:
Fees and Taxes:
*Transfer Taxes
*Recording Fees
*Pro-rated Taxes
*Impound Account Requirements
*Other state and local fees can include mortgage taxes levied by states as well as other local fees that may be induced by local authorities..
Third-Party Closing Costs:
*Attorney Fees
*Title Search Costs
*Home owner’s Insurance
*Real Estate Agent Sales Commission
*Finance and Lender Charges
*Origination or Application Fees
*Inspections
*Document Preparation Fees
Contact First Choice Financial TODAY to speak with a licensed professional mortgage consultant. We can review your credit and finances and preapprove you for a loan. First Choice Financial -Making Home Loans a Breeze.
Before you close on the house, you should have a final inspection, or walk-through, to make sure any repairs you requested have been made and that items which were to remain with the house (drapes, light fixtures) are still there. This is when you must call attention to any problems or issues you see with the home that should not be present. In most states, settlement is done by a title or escrow firm to which the appropriate cashiers’ checks, and the firm will make the necessary disbursements. The real estate agent or another representative of the title company will deliver the check to the seller and the house keys to you.
Closing Costs and Expenses Include:
Fees and Taxes:
*Transfer Taxes
*Recording Fees
*Pro-rated Taxes
*Impound Account Requirements
*Other state and local fees can include mortgage taxes levied by states as well as other local fees that may be induced by local authorities..
Third-Party Closing Costs:
*Attorney Fees
*Title Search Costs
*Home owner’s Insurance
*Real Estate Agent Sales Commission
*Finance and Lender Charges
*Origination or Application Fees
*Inspections
*Document Preparation Fees
Contact First Choice Financial TODAY to speak with a licensed professional mortgage consultant. We can review your credit and finances and preapprove you for a loan. First Choice Financial -Making Home Loans a Breeze.
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First Choice Financial, Inc. 261 N University Drive Suite 500 Plantation FL 33324 954-317-0573 FL Mortgage License#MLD608 /NMSL ID 815955 © Copyright 2012