- Why use a Mortgage Broker
- What is a closing?
- What are closing costs?
- What happens at closing?
- How often do I have to make mortgage payments?
- What is foreclosure?
- Can I get out of my mortgage if I choose?
- What is “Fannie Mae”, “Freddie Mac”, and “Ginnie Mae”?
- What is the difference between fixed mortgages and an adjustable rate mortgage?
- What does A.P.R. stand for?
- What happens if I am late or miss a mortgage payment
- How much money can I qualify for?
- What if I have credit problems?
- What is private mortgage insurance
- What is the difference between a conventional loan and a FHA loan?
- What is a convertible mortgage?
- What is amortization?
- What is a cap?
- What does it mean to lock-in?
- What is P.I.T.I.?
- What is an appraisal?
- What are discount points?
- Why would I want to buy points?
- Can the seller pay for my discount points?
- Are discount points tax deductible?
- Are discount points the same as an origination fee?
Question: Why use a Mortgage Broker
Answer:
When utilizing the services of a professional mortgage broker, you have a representative who has your best interests in mind. Brokers are not tied to selling you a specific lender’s loan program. A mortgage broker acts as your representative in opening the doors to a multitude of lenders. By assessing various lender’s programs, interest rates, loan fees, underwriting guidelines and credit requirements, the mortgage broker will recommend which lender and specific loan program best suits your needs.
Question: What is a closing?
Answer:
Closing” is the date when the buyer, seller, and lender, or their agents, agree to meet and legally transfer the property and disperse all the funds, or reference the property.
Question: What are closing costs?
Answer:
“Closing costs” are the costs associated with the transfer of property. They may be costs such as discount points, appraisal fees, title search fees, insurance charges, survey charges, mortgage brokers fees, and state filing fees. Typical costs amount to approximately 2% and 3% of the mortgage amount.
Question: What happens at closing?
Answer:
The seller, buyer, and lender, or their agents, meet and legally transfer the property, and associated funds, between parties.
Question: How often do I have to make mortgage payments?
Answer:
Depending on the lender you choose, payments will be monthly, bi-weekly, or weekly.
Question: What is foreclosure?
Answer:
“Foreclosure” is a legal action undertaken by a lender to sell a mortgaged property, in order to pay a defaulted borrower’s debt.
Question: Can I get out of my mortgage if I choose?
Answer:
Most mortgages allow you to pay off the mortgage early. Some mortgages do have a prepayment penalty, but most do not. Ask your mortgage broker about the program you’ve applied for.
Question: What is “Fannie Mae”, “Freddie Mac”, and “Ginnie Mae”?
Answer:
Fannie Mae is the term for the Federal National Mortgage Association. This is an institution incorporated by congress to buy and sell conventional, FHA insured and VA guaranteed mortgages. Freddie Mac is the term for the Federal Home Loan Mortgage Corporation, an agency that purchases mortgages from insured savings institutions and HUD approved mortgage bankers. Ginnie Mae is the term for the Government National Mortgage Association. They supply residential mortgages that are insured through the FHA or are guaranteed by the VA.
Question: What is the difference between fixed mortgages and an adjustable rate mortgage?
Answer:
Fixed rate mortgages offer an interest rate that remains fixed for the entire term of the loan. An adjustable rate mortgage (ARM) is a loan in which the interest rate changes to reflect the current interest rates. Adjustable rate mortgages may change rates according to the rate set at your closing. Ask your mortgage broker for the options right for you.
Question: What does A.P.R. stand for?
Answer:
This stands for Annual Percentage Rate. This amount also reflects the annual cost of the mortgage, taking into account the points paid and other costs incurred for the credit extended to the borrower. The A.P.R. is helpful in comparing the costs of different loan packages.
Question: What happens if I am late or miss a mortgage payment
Answer:
Typically, a late payment fee will be assessed, and must be paid. Of course, interest will continue to accumulate. If the borrower stops making payments, this will result in a defaulted mortgage, and foreclosure of the property.
Question: How much money can I qualify for?
Answer:
Typical mortgage requirements say that if you have an average debt load, you can obtain a mortgage between two and three times your annual income.
Question: What if I have credit problems?
Answer:
You will need to explain the circumstances of the credit problem. If you no longer have the problem and have kept current with your obligations for a period of one year or more, most lenders will accept your mortgage application.
Question: What is private mortgage insurance
Answer:
Private mortgage insurance may allow you to purchase a home for as little as 5% down payment, even if you do not qualify for a FHA-insured or VA-guaranteed loan. Such coverage requires a monthly insurance fee to be paid.
Question: What is the difference between a conventional loan and a FHA loan?
Answer:
A conventional loan requires you to place a down payment of between 5% and 20% of he selling price of the home. FHA (Federal Housing Administration) loans are guaranteed by the Housing and Urban Development (HUD) and you can buy a home with as little as 2.5% down payment.
Question: What is a convertible mortgage?
Answer:
When you have a convertible mortgage, it allows you to change from the initial ARM mortgage to a fixed rate mortgage. This option usually requires an extra fee.
Question: What is amortization?
Answer:
Amortization is the division of principal and total interest charges into equal payments that will result in the complete payment of the debt by the end of a fixed period of time.
Question: What is a cap?
Answer:
A cap is a limit that is placed on an ARM mortgage. It may limit the maximum loan rate amount, or the maximum amount the loan rate may increase per term, for example, a one year ARM changes once a year.
Question: What does it mean to lock-in?
Answer:
When you “lock-in”, your lender will guarantee the interest rate on your mortgage for a limited period, regardless of the current market rates. This option usually is done for a fee. If you are concerned that rates may rise before your closing date you may want to lock-in”.
Question: What is P.I.T.I.?
Answer:
This stands for the components of your regular home payment, “Principal, Interest, Taxes, and Insurance”.
Question: What is an appraisal?
Answer:
This is an estimate of the value of the property you intend to buy or refinance.
Question: What are discount points?
Answer:
Discount points are fees paid to a lender at closing in order to lower your mortgage interest rate. The cost of each point is equal to one percent of the loan amount. For instance, for a $100,000 loan one discount point equals $1,000.
Question: Why would I want to buy points?
Answer:
Paying points lowers your interest rate. The lender receives the income at closing rather than over the long term as you pay your loan.
Each discount point paid on a 30-year loan typically lowers the interest rate by 0.125 percent. That means a 7.5 percent rate would be lowered to 7.375 percent if you purchase one point.
Do the Math
Whether or not paying points makes sense for you depends in part on how long you plan to keep the loan. Use a mortgage calculator to help you decide.
1. Calculate the amount of your monthly payment at the interest rate you will be charged if you do not pay points.
2. Calculate the amount of your monthly payment at the lower rate if you do pay points.
3. Deduct the lower payment from the higher payment to find the amount saved each month.
4. Divide the amount charged for points at closing by the monthly amount saved. The result is the number of months you must keep the loan to break-even on paying points.
An Example
$100,000 Loan – 30 Year Term
7.5% Interest, no points = $699.21 monthly payment
Buying 1 point for $1,000 = monthly payment $690.68
Monthly Savings = $8.53
$1000 $8.53, Break Even Point = 117 Months
In the example above you would have to keep the home loan for nearly ten years to recover the cost of buying discount points (considering only the simple calculation of those funds at today’s value).
Question: Can the seller pay for my discount points?
Answer:
Probably. Talk with your lender about what’s allowed with your loan. The seller will probably want a higher sales price if paying a portion of your fees, but you can move into the house with less cash at closing.
Question: Are discount points tax deductible?
Answer:
Yes, points paid for residential real estate are tax deductible in the year they are paid. Buyers may deduct the amount paid even if the seller pays for the points at closing.
Question: Are discount points the same as an origination fee?
Answer:
An origination fee is a fee charged to process your loan. It typically costs the same as one point, but it is a separate fee. Ask each loan officer or mortgage broker you talk with if you will be charged an origination fee.
FAQ
