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FAQ

faq

 

What is a mortgage? 
A Mortgage is a legal contract made between a lender and a borrower that uses property as collateral to secure the loan. The lender can take possession of the property if the borrower fails to pay the prearranged home loan payments.

What is a mortgage refinance? 
This occurs when borrower uses the money from a refinanced loan to pay off an existing home loan. Borrowers typically do this to extend their home loan period, apply for a lower interest rate, or to use some money out of their equity.

What is a Cash Out refinance? 
A Cash Out Refinance is taken out as cash to the borrower. Combining a first and a second where the second was not used in the purchase of the property is considered cash out refinancing.

What is a Rate and Term Refinance? 
A Rate and Term Refinance is defined as a refinance to lower the payment or improve the terms of the present loan (lower interest rate, convert to fixed rate from a variable rate, shorten the loan term).

What is mortgage insurance? 
Mortgage insurance is a policy purchased by the borrower for the lender.  It protects the lender against monetary loss in case of default on the loan by the borrower.  Mortgage insurance is required on any loan where the loan amount is great than 80% of the property (LFT-loan-to-value-ratio).
Conventional loans call it PMI (Private Mortgage Insurance), with FHA it’s MIP (Mortgage Insurance Premium), and USDA has the “Guarantee Fee and VA uses a “Funding Fee”.  However, all are used for the same purpose and the actual amount of the premium and whether it is paid for in a lump sum or monthly or a combination of both can depend upon credit, LTV and the specific loan program.

What is a reverse mortgage? 
Reverse mortgages are loans that allow homeowners to transfer some of their home equity into cash. In contrast to traditional home loan mortgages, reverse mortgages do not require borrowers to repay their home loan until the homeowner no longer lives primarily at that residence, although he or she stills owns the residence.

What is a mortgage lender? 
A mortgage lender is a financial institution that provides prospective homeowners with the funds over a long-term period to pay off their home loan mortgage. Borrowers are required to pay monthly installments to their lender which includes principal, interest, and additional lender fees. Examples, mortgage bankers, mortgage brokers and commercial banks.

What is mortgage principal? 
The mortgage principal is the amount of loan money that a homeowner borrows excluding the interest.  A portion of principal is paid with each mortgage payment.

What does APR mean? 
Annual Percentage Rate ( APR ) is the percentage used to figure out the total cost of your cash advance loan by taking into account all fees charged by your lender in addition to your loan principal and interest.

What is a good faith estimate (GFE)?  
The GFE is an estimate which must include an itemized list of fees and costs associated with the loan and must be provided within three business days of applying for a loan. These mortgae fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges when known. The good faith estimate is only an estimate. The final closing costs may be different; however the difference can only be 10% of the third party fees. Once a good faith estimate is issued the lender/broker cannot change the fees in the origination box.

What is a fixed rate mortgage? 
A fixed rate mortgage is a home loan with a fixed interest rate and monthly payments that do not change throughout the life of the loan.

What is an adjustable rate mortgage? 
(ARM) have monthly payments that change periodically due to fluctuations in market interest rates.

What is an interest-only mortgage? 
These are loans that require the borrower to pay only interest on the principle in monthly installments for a fixed period.

What are lender fees? 
These fees usually range anywhere from 2 to 5 percent and may include, but are not limited to, things such as appraisal costs, document preparation, application costs and title and escrow fees.

What is the Truth in Lending Act?
The Truth in Lending Act is a federal law that was enacted as part of the Consumer Protection Act. This law requires lenders to reveal all information to the borrower and detail all costs associated to the transaction.

How long must I be at my job?
You must have two years of continuous employment at the same line of work. You may have several employers but you must remain in a related field of work. If self-employed, you must have been in business for at least two years and have two years of tax returns with business income reported.

What is the minimum required credit score?
Minimum credit score will vary with the type of program and the amount of down payment or amount of equity for a refinance. FHA provides the most liberal credit guidelines but also a higher overall payment. Conventional financing requires the higher credit scores and, generally, lower overall payments. A credit score of at least 640 will allow for most types of financing but, under certain conditions, we can go as low as 580.

What is the minimum Down Payment Required?
We have programs which require no down payment. There will still be closing costs which you can calculate at about 2-5% of the purchase price but there are ways to reduce this amount too.

What if I have no credit score?
There are programs available which allow for what is termed “manual underwriting”. In this case, your history of utility payments, insurance payments, cell phone payments and other recurring monthly payments can be analyzed to determine credit worthiness. At least 3 accounts with a 12 month history will be required.

How long after a bankruptcy, foreclosure or loan modification can I get another loan to purchase a home?
This varies with the loan program. Please see the following chart:
Conventional Loans

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