- Why use a mortgage broker instead of a bank?
Unlike most banks, mortgage brokers are not limited to one lender. We are free to shop for the best deal from many lenders. We can also offer programs that many banks cannot. You should not pay more in fees or rate for using a mortgage broker.
- What is APR?
The annual percentage rate (APR) is a representation of the true cost of credit over the life of the loan. It takes into consideration certain closing costs, such as points, and annualizes them to arrive at a more accurate percentage rate. Keep in mind that your monthly payment is based on the note rate, not the APR. For example, a 6.5% rate with a 1% origination fee will have a higher APR than a 6.5% rate without the 1% fee, but the monthly payment will be exactly the same.
- What is title insurance and why do I need it every time I close a mortgage loan?
Title insurance is a policy that protects the lender from any defects in the title. It ensures that the lender or investor is given a clear title to the property. Title companies research the title of a property at the county courthouse and provide that report to the lender. The title policy also pays for any legal fees that arise if there is a claim against the validity of the title.
- When should I pay points to reduce the rate?
Since paying points reduces the note rate, you need to figure out how long you will have this loan, or how long you will be in the house. Paying 1 point usually reduces the rate 0.25%. For example, 1 point on a $100,000 loan is $1000. If that point reduces your rate from 6.5% to 6.25%, your payment will drop $16.35 per month. Simply divide $1000 by $16.35 to equal 61.1 months, or just over 5 years. You would have to stay with this loan for 5 years to realize the savings in buying down the rate. You should also talk to a tax profession about possible tax implications in paying points.
- If an appraisal is needed, do I get a copy of it?
Yes. Since the property is used as collateral for the loan, every lender will require some sort of appraisal. If you are paying for the report, then you will receive a copy of it.
- When should I expect to see an estimate of my closing costs?
Lenders have 3 days from your application date to provide a Good Faith Estimate and Truth in Lending. These forms will give you a reasonable estimate of your closing costs and overall cost of the loan.
- What is the difference in rate between an owner occupied property and an investment property?
Investment property rate are usually 0.375% higher than owner occupied rates. Investment loans also require higher equity positions as well, typically 10-20%.
- Am I required to escrow taxes and insurance?
Lenders require escrow accounts if your LTV is greater than 80%. If your LTV is below 80%, you have the option of waiving the escrow account. There is usually a fee to do so.
- My parents are willing to cosign with me to buy my first home. What program will allow this?
FHA is still the most common program to allow a non occupying co borrower. That person or persons would have to be a direct relative or former guardian. You are qualified on the aggregate totals of income and debt for both you and your co-borrowers.
- I am going to build a house on land that was given to me. Can I use it as a down payment?
You will need a minimum of 5% down of your own funds for a construction loan. However, if the value of the land is 20% or more of the total cost of construction plus the value of the land, then no additional down payment is needed. For example, if the cost to build is $100,000 and the land is worth $25,000, simply add the cost of construction to the value of the land for a total acquisition price of $125,000. Since the value of the land is 20% of the total cost, no further down payment is necessary.
- What is MI?
Mortgage insurance, or MI, is an insurance policy that protects the lender from loss in the event you default on the loan. A lender will require it if the first mortgage is more than 80% of the value of the property or the purchase price.
- What is automated underwriting?
This is a common form of underwriting conforming loans where the borrower’s information and credit are entered into a software program from either Fannie Mae or Freddie Mac. The software analyzes the information and determined whether the borrower meets the minimum guidelines for the desired loan product. The system will them approve pr deny the loan. If it is approved, the loan will be accepted by any bank or investor that uses automated underwriting.
- What is the difference between conforming and non conforming loans?
Conforming loans are loans that are sold on the secondary market and are backed by Fannie Mae or Freddie Mac. They have specific loan size limits, currently $417,000 for a single family residence for example. These loans are underwritten using a standard set of guidelines that every bank follows. Non-conforming loans, or jumbo loans, exceed the maximum loan size for each type of property. They are underwritten using similar guidelines, but are not backed by Fannie Mae or Freddie Mac.