Frequently Asked Questions

What is a closing?
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.

What are closing costs?
"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.

What happens at closing?
The seller, buyer, and lender, or their agents, meet and legally transfer the property, and associated funds, between parties.

How often do I have to make mortgage payments?
Depending on the lender you choose, payments will be monthly, biweekly, or weekly.

What is foreclosure?
"Foreclosure" is a legal action undertaken by a lender to sell a mortgaged property, in order to pay a defaulted borrower's debt.

Can I get out of my mortgage if I choose?
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.

What is "Fannie Mae", "Freddie Mac", and "Ginnie Mae"?
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.

What is the difference between fixed mortgages and an adjustable rate mortgage?
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.

What does APR stand for?
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.

What happens if I am late or miss a mortgage payment?
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.

Why use a mortgage broker?
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.

How much money can I qualify for?
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.

What if I have credit problems?
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.

What is private mortgage insurance?
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.

What is the difference between a conventional loan and a FHA loan?
A conventional loan requires you to place a down payment of between 5% and 20% of the 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.

What is a convertible mortgage?
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.

What is amortization?
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.

What is a cap?
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.

What does it mean to lock-in?
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".

What is P.I.T.I.?
This stands for the components of your regular home payment, "Principal, Interest, Taxes, and Insurance".

What is an appraisal?
This is an estimate of the value of the property you intend to buy or refinance.

What's the difference between a thrift, a mortgage banker and a mortgage broker?
A thrift is your typical neighborhood bank -- mutual savings banks and savings-and-loan institutions offering savings accounts, mortgages and other financial products and services. Mortgage bankers are in the sole business of lending money. Mortgage brokers are middlemen who, by state law, work on behalf of borrowers. Brokers research a number of lending sources -- commercial banks, thrifts and mortgage bankers -- to find appropriate loans to meet the specific needs of borrowers they represent.

Can a mortgage broker find me the best interest rate?
Possibly, because mortgage brokers work with many different lenders. They may also have access to lenders that do not have an office in your state, but are licensed to lend money there. However, while mortgage brokers research many lending sources, it would be nearly impossible for them to access every single lender and every mortgage product, simply because there are thousands out there.

Will I pay more for my loan if I get it through a broker?
Not necessarily, though the broker does perform a service for which he or she receives a fee. When a broker processes the paperwork on a loan, it costs less for the lender to make the loan. Therefore, lenders often discount loans to brokers. Here's an example of how it might work: Say a borrower finds a loan on their own at a rate of 7.5 percent with two points. A broker gets the same loan for 7.5 percent, but pays only one point. The broker may then add one point to cover his or her fee, but the cost to the borrower is the same - 7.5 percent with 2 points. The borrower pays no additional cost and benefits from the broker's service. By state law, the broker's fee and the discount the lender offers the broker must be disclosed to the borrower.

Should I focus on the lenders advertising the lowest rates rather than the type of institution I borrow from?
You can, but remember, there is no guarantee you will lock in at the advertised rate. Those rates may only be available for a 30 or 60-day period and it typically takes longer to close on a loan. Interest rates can also change daily. The best way to compare rates is to ask each lender what the rate would be if you closed in a certain time period, for example, 90 days. And be sure to get everything in writing. It is also possible to get a loan with a longer lock-in period but, in that case, you usually pay a higher rate.

What documents will I need to provide when I apply for a loan?
Be prepared to provide verification of income, including your pay stub and tax returns for the previous two years. You will also need to provide bank account numbers and details about your long-term debt, including credit cards, auto loans, child support, etc. If you are self employed, you may need to provide financial statements for your business. Lenders want detailed information. For example, the origin of your down payment will be queried. Be sure to inform your lender of any changes in your employment, salary, debt or marital status between the time you submit your application and the time you close.

Does it make sense to pre-pay my mortgage or should I invest that money elsewhere?
Pre-paying your mortgage shortens the term of your loan which will save you thousands of dollars in interest. As a general rule, on a 30-year mortgage, you save $3 for every $1 you pre-pay. On an after-tax basis, you get back $2 for every $1 you pre-pay. Pre-paying your mortgage is an easy, risk-free investment. Even if you round your monthly payment up to the nearest $100, it will save you money over the long term.

If you mortgage rate is 8 percent per year, that's what you'll earn on your pre-payment. Compare that return with what you'd earn in other comparably safe investments, like a Certificate of Deposit (CD). Also weigh the advantages of pre-paying your mortgage against paying off debt. If your credit card interest rate is 18 percent, it makes more sense to pay off this higher-interest debt rather than to pre-pay your 8 percent mortgage.

Some newspaper ads for home loans show surprisingly low rates. Are these loans for real, or is there a catch?
Some of the ads you see are for adjustable-rate mortgages (ARMs). These loans may have low rates for a short time-maybe only for the first year. After that, the rates can be adjusted on a regular basis. This means that the interest rate and the amount of the monthly payment can go up or down.

Will I know in advance how much my payment may go up?
With an adjustable-rate mortgage, your future monthly payment is uncertain. Some types of ARMs put a ceiling on your payment increase or rate increase from one period to the next. Virtually all must put a ceiling on interest-rate increases over the life of the loan.

Is an ARM the right type of loan for me?
That depends on your financial situation and the terms of the ARM. ARMs carry risks in periods of rising interest rates, but can be cheaper over a longer term if interest rates decline. You will be able to answer the question better once you understand more about adjustable-rate mortgages.

Mortgages have changed, and so have the questions that need to be asked and answered.
Shopping for a mortgage used to be a relatively simple process. Most home mortgages loans had interest rates that did not change of the life of the loan. Choosing among these fixed-rate mortgage loans meant comparing interest rates, monthly payments, fees, prepayment penalties, and due-on-sale clauses.

Today, many loans have interest rates (and monthly payments) that can change from time to time. To compare one ARM with another or with a fixed-rate mortgage, you need to know about indexes, margins, discounts, caps, negative amortization, and convertibility. You need to consider the maximum amount your monthly payment could increase. Most important, you need to compare what might happen to your mortgage costs with your future ability to pay.