What are "points"?
Fees used to adjust the yield
on a mortgage to current market conditions are called points. There is an inverse relationship between points paid and the
interest rate on the mortgage. As the interest rate gets higher, the points get lower. A point equals 1 percent of the mortgage
amount. For example, 1 point on a $100,000 mortgage would be $1,000.
What is private mortgage insurance (PMI)?
Private mortgage insurance
protects the lender from loss due to payment default by the borrower. It is used with conventional financing only. It may
be paid in a lump sum at the time of settlement or in monthly installments as part of the mortgage payment. PMI is typically
required when the amount of your loan exceeds 80% of the subject property's value. This type of insurance should not be confused
with mortgage life, credit life, or disability insurance which is designed to pay off a mortgage in the event of the borrower's
disability or death.
What is title insurance?
Title insurance protects the
lender against loss due to problems or defects related to the title on the property being mortgaged. These problems would
typically involve ownership claims against the property which were not identified by the title search. It is paid for with
a one-time premium at the time of settlement.
What is an FHA or VA mortgage?
Federal Housing Administration
(FHA) or Veteran's Administration (VA) mortgages are loans insured by the respective governmental agencies. FHA programs enable
lenders to arrange financing for the borrower with a minimal down payment. Similarly, VA programs (available to veterans only)
can be made to a borrower who has little or no down payment. When borrowing under these programs, you will pay a Mortgage
Insurance Premium (FHA) or a Funding Fee (VA) to insure the mortgage. This is similar to private mortgage insurance on a conventional
loan. These insurance premiums may be paid out-of-pocket at the time of closing or financed by increasing the mortgage amount.
What is a conventional mortgage?
A conventional mortgage is
a loan not obtained under a government insured program such as FHA or VA. Conventional mortgage loans are typically held by
institutional investors such as banks or insurance companies.
What are escrows?
Escrows are funds collected
with the borrower's monthly payment and accumulated to pay for items such as property taxes or hazard insurance as they come
due. Escrows are also collected at settlement to start the escrow account. Escrowed funds can also be referred to as holdbacks,
reserves, or impounds.
What is an ARM?
Adjustable rate mortgages
(ARMs) are loans on which the interest rate is periodically adjusted to coincide with prevailing interest rates. The interest
rate is tied to an index which may go up or down during the life of the loan. The payment on an ARM will change at intervals
defined by the loan contract. The borrower can have lower initial payments with an ARM, making it easier to qualify for a
mortgage. Alternatively, a borrower could get a larger mortgage loan with an ARM than with a fixed rate mortgage.
What is a fixed-rate mortgage?
Under the terms of a fixed-rate
mortgage, the borrower's payment does not change over the life of the loan.
What is the appraisal?
The appraisal is a statement
of property value made by an independent, professional appraiser. It is done to insure that the value of the property is sufficient
to secure the loan in the event that the borrower fails to repay the loan in accordance with the provisions of the mortgage
contract. The value is set based on the home itself and on recent comparable sales of homes close to the subject property.
The appraisal does not necessarily detect or discuss defects in the property or the title to the property.
What is the loan origination fee?
This fee covers the lender's
administrative costs in processing the loan. It is often expressed as a percentage of the amount borrowed (see "points").
What is a flood certification/flood insurance?
A flood certification will
identify a specific property as being within or not within a flood hazard area as defined by FEMA, a federal government agency.
If the property is within a flood zone, you will be required to carry flood insurance, protecting you and the lender from
loss due to flood damage.
Items Needed at Loan Application!
- Most recent pay stub’s 1 month
- Last two years W-2's & 1040's
- Names & addresses of employers (for past 24 months)
- Last 3months bank statements or addresses and account# 's
- Names, addresses & account# 's for all monthly debts
- Name & address of landlord
- Copy of real estate sales contract
- If self-employed - copy of past 2 years federal tax returns
- Copy of divorce decree, separation or child support papers (if applicable)
- Bring check/book/money (for credit report and appraisal fees)
