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What is PMI
Private Mortgage Insurance (PMI) is insurance generally written by a private, independent third-party company that limits a bank or lender’s exposure to financial loss resulting from loan default. In the event that you do not have a 20% in equity lenders will allow a smaller amount, as low as 3 percent in some cases.
Any time that you do not put down 20% when buying a home, or have at least 20% equity when refinancing, this is considered a higher risk to the bank or lender. As such, borrowers are usually required to carry private mortgage insurance.
Depending on credit scores and loan structure, mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on various factors.
What is LPMI?
Lender Paid Mortgage Insurance (LPMI) is a program in which the lender will pay the mortgage insurance required for your loan in exchange for a slightly higher rate.
What is the difference between mortgage insurance and homeowners insurance?
A homeowners insurance (also known as hazard insurance) policy covers damages to your home, your belongings and accidents as outlined in your policy. Mortgage insurance is required if you have less than 20% equity (or down payment) in your home and protects the mortgage lender if a customer is unable to make loan payments and defaults on the loan.
Bottom line – homeowners protects you (the homeowner) and mortgage insurance protects the lender.
What is PITI?
PITI is an acronym for the components of a monthly mortgage payment – Principal, Interest, Taxes (property taxes), and Insurance. In addition to homeowners insurance, the monthly mortgage payment can also be expanded to include any private mortgage insurance.
What is LTV?
The Loan-to-Value (LTV) is the loan amount divided by the lessor of the sales price or the appraised value.
For example: suppose you are buying a home for $100,000 and you’re making a down payment of $5,000. Assuming the lessor of the sales price and appraised value is $100,000 your LTV would be 95%, as the loan is 95% of the home’s value.
It is important to note that lenders will always use the lesser of the appraised value or the purchase price for the value. If you are refinancing, then the appraised value is used.
What is DTI?
The Debt-to-Income (DTI) ratio is one of the primary factors used by lenders to determine whether a person is qualified for a mortgage loan. DTI is calculated by dividing your total monthly debts (including PITI, mortgage insurance, association fees, credit cards, auto payments, etc.) into your total gross monthly income.
What is a Jumbo loan?
Jumbo mortgages are loans that are in excess of conforming loan limits. Every year the Federal Housing Administration sets the limits for conforming loans.
As of 2015, most areas in the U.S. have a conforming loan limit of $417,000. There are exceptions to the rule for major metropolitan cities such as New York and San Francisco.
Jumbo mortgage loans will have higher interest rates than conventional mortgages. Jumbo mortgages will also have tougher underwriting guidelines, which means a larger down payment than conventional mortgages.
The Home Affordable Refinance Program (HARP) is a federal program of the United States, set up by the Federal Housing Finance Agency in March 2009, to help underwater and near-underwater homeowners refinance their mortgages.
Unlike the Home Affordable Modification Program (HAMP), which assists homeowners who are in danger of foreclosure, this program benefits homeowners whose mortgage payments are current, but who cannot refinance due to dropping home prices in the wake of the U.S. housing market correction.
The HARP Program can make refinancing a possibility even if you owe more on your mortgage than your home is currently worth.
What documents will I need for my loan?
What are discount points?
Loan discount points are a type of prepaid interest that mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point will usually lower your interest rate by one-eighth to one one-quarter of your interest rate, but this can vary.
Although you should consult with a tax professional regarding tax questions, generally discount points are tax deductible only for the year in which they were paid.
Does it make sense to pay points to get a lower rate?
Maybe. Paying “points” up front when you go to settlement with your mortgage will lower your interest rate but there are factors to consider.
Each “point” will cost you 1% of your original loan amount at settlement. To determine whether it makes sense to pay discount “points”, you need to compare the cost of the discount points to the monthly savings created by lowering the interest rate.
Simply divide the total cost of the discount points by the savings in each monthly payment. This calculation provides the number of payments you’ll have to make before you actually begin to save money by choosing to pay discount “points”. If the number of months it will take to regain the discount points is longer than you plan on holding this mortgage, you should consider an interest rate product that doesn’t require discount points.
Maybe, but only if you’re applying for a refinance. Each situation is unique however. We can discuss the pros and cons of rolling your costs into the loan and whether or not you’re eligible for this type of loan in more detail.
Should I refinance?
There are a number of reasons why a refinance could make sense. Some of these reasons are:
- To lower the monthly payment
- To lower the interest rate
- To switch from an adjustable rate to a fixed rate or vice-versa
- To refinance for a higher amount in order to pay off other debts or get cash
- To change the remaining term of the loan
- To drop mortgage insurance
How can I figure out how much equity I have in my home?
To understand how much equity you have in your home, just write down your home’s value and then subtract all amounts that are owed on that property. The difference is the amount of equity you have.
If you have a property worth $100,000, and the total mortgage balances owed on the property are $80,000, then you have a total of $20,000 in equity. When performing this exercise, just take your best guess as to what your property is worth, use a home value estimator, or ask me for other methods of determining value.
What are the main types of mortgage loans?
The most common mortgages are fixed- and adjustable-rate mortgages.
Fixed-rate mortgages offer the stability of regular monthly payments over a given length of time, or term. Many people feel these are ideal because they make it easy to budget family finances and there is no rate risk.
Adjustable-rate mortgage (ARM) programs offer you the flexibility of an initial interest rate and payment lower than a standard fixed-rate mortgage. ARM mortgages may also be a great option for home buyers who do not plan to stay in their current home for a long period of time.
What is a VA mortgage?
The Veteran’s Administration (VA) loan program is sponsored by the U.S. Government’s Department of Veteran’s Affairs. VA loans are available to credit-worthy individuals who are or were:
- an honorably discharged veteran
- an active duty service member
- an un-remarried surviving spouse of a military service member
- a Reservist, or
- a National Guardsperson
- 0% down payment required
- Gift funds may be used to pay for closing costs
- Maximum loan amount: $417,000 or the geographic VA maximum mortgage limit
What is an FHA mortgage?
FHA loans are government-insured loans through the U.S. Department of Housing and Urban Development, also called HUD. FHA loans offer an excellent start to first-time home buyers, with options such as a low down payment or a low closing cost option.
- Low down payment is required
- Your own personal savings are not required to pay down payment or closing costs. Gift funds may be used instead
- You can buy an existing home, or build a new one
- Some geographic limitations apply
Can I still qualify for a mortgage if my credit is less than perfect?
Very possibly. Qualifying for a mortgage loan has certainly become more challenging in the wake of the mortgage meltdown. However, you may still qualify for a mortgage depending on the severity of your credit challenges.
As a general rule, especially as it pertains to conventional loans, the rates will increase slightly as credit scores decline. Also, with a lower credit score you may be limited to a few less mortgage loan programs than you would with excellent credit.
Can I get a mortgage after a bankruptcy?
You may still qualify for a home loan even if you have a prior bankruptcy. Much like other major derogatory credit items, there are a number of factors that will impact someone’s ability to obtain mortgage financing post-bankruptcy. The type of bankruptcy (Chapter 7 vs. Chapter 13) will also be a factor.
The best way to find out if you can qualify for a home loan after a bankruptcy is for us to have a brief conversation to discuss your options.
Can I get a mortgage after a foreclosure?
You may still qualify for a home loan even if you have a prior foreclosure. Much like other major derogatory credit items, the factors that lead up to the foreclosure, the time since the foreclosure, as well as what has happened after the foreclosure will play significant roles in whether or not someone will be able to qualify post-foreclosure.
The best way to find out if you can qualify for a home loan after a bankruptcy is to meet with a loan officer and discuss your options. Be sure to bring all paperwork regarding your past bankruptcy so that your loan officer can match you with the best lenders to meet your needs.
Can I get a mortgage after a short sale?
You may still qualify for a home loan even if you have a prior short sale.
The best way to find out if you can qualify for a home loan after a bankruptcy is for us to have a brief conversation to discuss your options. Be sure to bring all paperwork regarding your past short sale so that your loan officer can match you with the best lenders to meet your needs.
How much is needed for a down payment to buy a home?
There is no set amount. In fact, you might be surprised to learn that many first-time homebuyer programs require as little as 3.5% down. Today, there are many loan programs that can be tailored to fit your needs and financial resources. Keep in mind that for down payments of less that 20%, private mortgage insurance may be required.
Which mortgage and homeowners costs are tax-deductible?
Three types of mortgage and homeowners costs may be tax-deductible: discount points, interest paid on a home loan or home equity loan and property taxes. After the year of sale, your mortgage interest and annual property taxes are the only deductible costs. For a refinanced loan, points must be deducted over time.
Consult your tax advisor for advice about your situation.
What is Right of Rescission?
According to Regulation Z of the federal Truth-in-Lending Act, borrowers must be provided with a copy of the Notice of the Right of Rescission at closing. This notice informs the borrower of your right to rescind (cancel) the loan within three (3) days of loan closing.
A Right of Rescission applies only to refinance transactions on primary residences.
Can I refinance to take cash out of my house?
Yes. There are a variety of options that allow you to tap into your home’s equity and take cash out. How much will depend on a number of variables, mostly based on the equity position you have in your home.
Can I get cash out to consolidate debt or remodel when refinancing my mortgage?
Cash-out refinancing can help homeowners who want to consolidate high-interest, nondeductible debt. Because your mortgage interest rate is likely to be lower than rates on credit cards or other types of bank loans, consolidating debt may reduce your overall monthly debt payments. In addition, your mortgage interest may be tax-deductible, while your credit card interest is not.
The amount you save on loan consolidation will vary by loan. Since a home loan may have a longer term than some of the bills you may be consolidating, you may not realize savings over the entire term of your new loan.
In addition, your loan may require you to incur premiums for hazard and, if applicable, flood insurance and mortgage insurance which would affect your monthly payment reduction. Generally, Federally Guaranteed Student Loans should not be consolidated because you will lose important federal benefits.
Do I need to have my house appraised in order to refinance?
Yes, in most cases. However, depending on the circumstances, an appraisal may not be required.
There are many common questions that people have regarding their mortgage, how to get a mortgage, what they need to qualify, and about specific concerns they have about applying for a mortgage. Here are some of the most common questions and their answers.
How do I know if I’m getting the lowest interest rate?
Unfortunately, there really isn’t a way to know if you’re getting the lowest interest rate. The good news is that nowadays, most mortgage companies will have comparable rates. There will rarely be one lender that will have significantly lower rates than another. If so, that same lender will likely have higher costs in order to obtain that low rate.
Rather than choosing a lender based on whoever can shout out the lowest rate, you may want to choose on the basis of the loan officer’s professionalism, experience and skill in finding a loan program best suited for your particular situation. Doing it this way will get you a proper loan program with a competitive rate and a borrowing process that is stress free.
What is a rate lock?
A rate lock gives you protection from financial market fluctuations that could affect your interest rate range.
You can choose to lock or not lock your interest rate range. On the date and time you lock, that interest rate range remains available to you for a set period of time.
What is the difference between “locking” and “floating” the interest rate?
Locking ensures that your loan pricing will be unaffected during the lock-in period by giving you a specified period of protection from financial market fluctuations in interest rates.
Locking sets the range of pricing available to you; it doesn’t guarantee that a specific rate will apply.
Floating – or not locking – means your rate will fluctuate with the up and down movements of the market.
The benefit to floating is if interest rates were to decrease, you would have the option of locking in at a lower level of rates. The disadvantages of course are that if rates were to increase, you stand to lose out as a higher rate could cost you thousands over the life of the loan.
When can I lock in my interest rate?
You can lock after you’ve found a property and are under contract, or start your refinancing process, up until ten business days before the closing.
You can select a specific length of time for your lock, usually between 30-60 days.
What is escrow?
Depending on your geographic location, escrow can have a different meaning to you. During the home loan process, a neutral third party known as Escrow holds documents and money (including earnest money deposits) for safekeeping until the closing.
An Escrow account is also used once you complete your home loan to hold the property tax and insurance monies that are collected with each mortgage payment.
Can I buy a house with no money down or possibly even with no money out of my pocket?
Yes you can buy a home with $0 money down. There are several different types of 100% financing out there for home-buyers and even for first-time homebuyers.
There are also programs that will allow you to finance the closing costs so that you will not have to bring any money to closing. Another popular way to not pay closing costs is to have the seller pay for your closing costs with a seller contribution. A seller contribution is something worked into the purchase price of the property where the seller may pay for some or all of your closing costs.
What are pre-paid items?
Escrow impounds are the part of your monthly house payment that cover Home Owners Insurance and Property Taxes. This is calculated by taking your annual payment amount and dividing by 12.
Sometimes, for a higher rate, the lender will allow borrowers to pay insurance and taxes themselves. However, lenders prefer to collect these in monthly installments and pay them when due. This ensures that these are paid on time and prevents tax liens or lapsing of insurance.
Typically, at closing, lenders will collect whatever is currently due plus 2 months extra for reserves or what should have been collected since the last due date for the insurance or taxes plus 2 months extra for reserves. You will always have this 2 months extra in reserves for as long as you have the loan. This allows the lender to pay your taxes and insurance on time even if you should pay your mortgage payment late.
What does my mortgage payment include?
For most homeowners, the monthly mortgage payments include four separate parts: Principal: Repayment on the amount borrowed Interest: Payment to the lender for the amount borrowed Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company.
What are seller concessions?
A seller’s concession is an agreement in a purchase contract whereby the seller agrees to pay(from the proceeds of their sale) some or even all of the buyers closing costs to purchase the home. This allows a buyer to purchase with less out of pocket expense.
How much money do I need for a down payment and closing costs?
The down payment is the cash portion of the purchase price that you use to buy a home. It is typically a percentage of the full purchase price assuming the rest is financed. Depending on the type of loan you get down payment could be anywhere from 3.5% or more of the purchase price.
Closing costs are the fees that you pay to purchase the property including loan fees, recording fees, taxes, documentation charges and title insurance. These fees may be paid by the Buyer, Seller or divided between them depending on the terms of the sale.
Closing costs are in addition to the purchase price. Ask your lender for an estimate of the total costs, including down payment and any closing costs.
What if I don't have any established credit?
If you do not have enough established credit, I can work with you to document alternate credit information. If you have been renting, we can obtain a rental rating from your landlord as a way of verifying your payment history. Or, we can contact your utility companies, phone service, cable companies or car insurance carrier to obtain a rating on your payment history.
Not all loan programs will accept alternative documentation on your credit. However, there are both government and conventional programs that will accept this type of payment history to establish credit qualifications.
What is Fannie Mae and Freddie Mac?
Fannie and Freddie provide a great majority of the money for home loans in the U.S. Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp.) do that by purchasing more than 80% of the loans made by commercial banks and mortgage companies.
What is a HUD-1? What’s the difference between a HUD-1 and a Settlement Statement?
The HUD-1 is also known as a “closing sheet” or “settlement statement”.
What's the difference between Pre-qualification and Pre-approval?
Pre-qualification is the first step in obtaining the mortgage that you need to purchase the home of your dreams. It’s a simple step where an institution examines your financial situation in terms of income and liabilities in order to establish your lending potential. This is accomplished through the review of a simple application process that includes the pertinent information. It is important to note that this is not the same as a pre-approval, as credit has not been reviewed and income has not been verified and funds for closing are not verified.
Pre-approval refers to the verification of the applicant’s ability to borrow. A pre-approval gives a potential home-buyer the advantage of knowing how big a mortgage they will qualify for and the ability to use this information in negotiating the final selling price of a home. Parts of the pre-approval process include an analysis of borrowers credit history, a review of the client’s employment history, and a verification of down payment funds.
Read more about about prequalification vs preapproval.
What is title insurance?
Protecting purchasers against loss is accomplished by the issuance of a title insurance policy, which states that if the status of the title to a parcel of real property is other than as represented, and if the insured suffers a loss as a result of title defect, the insurer will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy.
Title insurance differs significantly from other forms of insurance. While the functions of most other forms of insurance is to guard against future events (such as death or accidents or in the case of property, fire or flood), the primary purpose of title insurance is to eliminate risks and prevent losses caused by events that have happened in the past. To achieve this goal, title insurers perform an extensive search of the public records to determine whether there are any adverse claims to the subject of real estate. Those claims are either eliminated prior to the issuance of a title policy or their existence is exempt from coverage.
What is a home inspection?
A home inspection is an examination of the structure and systems: heating and air conditioning, plumbing and electrical, roof, attic, insulation, walls, floors, ceilings, windows, doors, foundation, and basement. If the inspector finds problems, it doesn’t mean you can’t sell your house, but you can be certain a buyer inspection will find them too. Finding problems before you list your property can avoid accusations of misrepresentation, low offers, and even lawsuits.
A home inspection can also help sellers comply with new, tougher disclosure laws enforced in many states. You may or may not want to make the repairs and you can always adjust the selling price or contract terms if the problems are major.
This information will also help you determine what type of financing will or will not be available for your home.
Do I need both a home inspection and an appraisal if I’m purchasing a home?
Both a home inspection and an appraisal are designed to protect you against potential issues with your new home. Although they have totally different purposes, it makes the most sense to rely on each to help confirm that you have found the perfect home.
The appraiser will make note of obvious construction problems such as termite damage, dry rot or leaking roofs or basements. Other obvious interior or exterior damage that could affect the salability of the property will also be reported. However, appraisers are not construction experts and won’t find or report items that are not obvious. They won’t turn on every light switch, run every faucet or inspect the attic or mechanicals.
That’s where the home inspector comes in. They generally perform a detailed inspection and can educate you about possible concerns or defects with the home.
A real estate appraiser is an impartial, independent third party who provides an appraisal — an objective report on the estimate of value of real estate. The appraisal is supported by the collection and analysis of data. Most licensed appraisers will provide an advance estimate of the cost to perform the appraisal, and many will commit to a fixed fee for the appraisal. It is always wise to obtain a written contract for services that includes a description.
What is a GFE?
A good faith estimate, referred to as a GFE, must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated with the loan and must be provided within 3 business days of applying for a loan.
These mortgage fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges.
A good faith estimate is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers.
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.
How much money will be required at closing when buying a home?
The purchase of a home usually entails saving for two up-front costs.
The down payment is the largest part and is a percentage of the total purchase price of the house. The percentage amount is determined by the type loan for which you’ve been approved.
In addition to a down payment, funds are needed to cover closing costs. Closing costs include all fees required to execute the sales transaction, such as attorney fees, title insurance, appraisals, points and tax escrows. While these charges vary considerably, most home buyers will need at least a few thousand dollars for closing costs. The exception to this rule is when it is negotiated that the seller pays for the buyer’s closing costs.
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