FAQS

FAQs

Frequently Asked Questions


When should I refinance?

It's generally a good time to refinance when mortgage rates are 2% lower than the current rate on your loan.
It may be a viable option even if the interest rate difference is only 1% or less. Any reduction can trim your
monthly mortgage payments. Example: Your payment, excluding taxes and insurance, would be about $770
on a $100,000 loan at 8.5%; if the rate were lowered to 7.5%, your payment would then be $700, now you're
saving $70 per month. Your savings depends on your income, budget, loan amount, and interest rate
changes. Your trusted lender can help you calculate your options.

What are points?

A point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is
$1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms.
Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest
up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1
point, or 1% of the loan amount.

Should I pay points to lower my interest rate?

Yes, if you plan to stay in the property for a least a few years. Paying discount points to lower the loan's
interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan
amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two,
your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front.

What is an APR?

The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This
rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into
account points and other credit costs. The APR allows homebuyers to compare different types of mortgages
based on the annual cost for each loan. The APR is designed to measure the "true cost of a loan." It creates a
level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.

The APR does not affect your monthly payments. Your monthly payments are strictly a function of the
interest rate and the length of the loan.

Because APR calculations are effected by the various different fees charged by lenders, a loan with a lower
APR is not necessarily a better rate. The best way to compare loans is to ask lenders to provide you with a
good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate.
You can then delete the fees that are independent of the loan such as homeowners insurance, title fees,
escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a
cheaper loan than the lender with higher loan fees.

The following fees are generally included in the APR:
• Points - both discount points and origination points
• Pre-paid interest. The interest paid from the date the loan closes to the end of the month.
• Loan-processing fee
• Underwriting fee
• Document-preparation fee
• Private mortgage-insurance
• Escrow fee

The following fees are normally not included in the APR:
• Title or abstract fee
• Borrower Attorney fee
• Home-inspection fees
• Recording fee
• Transfer taxes
• Credit report
• Appraisal fee

What does it mean to lock the interest rate?

Mortgage rates can change from the day you apply for a loan to the day you close the transaction. If interest
rates rise sharply during the application process it can increase the borrower’s mortgage payment
unexpectedly. Therefore, a lender can allow the borrower to "lock-in" the loan’s interest rate guaranteeing
that rate for a specified time period, often 30-60 days, sometimes for a fee.

What documents do I need to prepare for my loan application?

Below is a list of documents that are required when you apply for a mortgage. However, every situation is
unique and you may be required to provide additional documentation. So, if you are asked for more
information, be cooperative and provide the information requested as soon as possible. It will help speed up
the application process.

Your Property
• Copy of signed sales contract including all riders
• Verification of the deposit you placed on the home
• Names, addresses and telephone numbers of all realtors, builders, insurance agents and attorneys
involved
• Copy of Listing Sheet and legal description if available (if the property is a condominium please
provide condominium declaration, by-laws and most recent budget)

Your Income
• Copies of your pay-stubs for the most recent 30-day period and year-to-date
• Copies of your W-2 forms for the past two years
• Names and addresses of all employers for the last two years
• Letter explaining any gaps in employment in the past 2 years
• Work visa or green card (copy front & back)

If self-employed or receive commission or bonus, interest/dividends, or rental income:
• Provide full tax returns for the last two years PLUS year-to-date Profit and Loss statement (please
provide complete tax return including attached schedules and statements. If you have filed an
extension, please supply a copy of the extension.)
• K-1's for all partnerships and S-Corporations for the last two years (please double-check your return.
Most K-1's are not attached to the 1040.)
• Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120)
including all schedules, statements and addenda for the last two years. (Required only if your
ownership position is 25% or greater.)

If you will use Alimony or Child Support to qualify:
• Provide divorce decree/court order stating amount, as well as, proof of receipt of funds for last year

If you receive Social Security income, Disability or VA benefits:
• Provide award letter from agency or organization

Source of Funds and Down Payment
• Sale of your existing home - provide a copy of the signed sales contract on your current residence
and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing
Statement)
• Savings, checking or money market funds - provide copies of bank statements for the last 3 months
• Stocks and bonds - provide copies of your statement from your broker or copies of certificates
• Gifts - If part of your cash to close, provide Gift Affidavit and proof of receipt of funds
• Based on information appearing on your application and/or your credit report, you may be required
to submit additional documentation

Debt or Obligations
• Prepare a list of all names, addresses, account numbers, balances, and monthly payments for all
current debts with copies of the last three monthly statements
• Include all names, addresses, account numbers, balances, and monthly payments for mortgage
holders and/or landlords for the last two years
• If you are paying alimony or child support, include marital settlement/court order stating the terms
of the obligation
• Check to cover Application Fee(s)

How is my credit judged by lenders?

Credit scoring is a system creditors use to help determine whether to give you credit. Information about you
and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late
payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit
application and your credit report. Using a statistical program, creditors compare this information to the
credit performance of consumers with similar profiles. A credit scoring system awards points for each factor
that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict
how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when
due.

The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your
score will fall between 350 (high risk) and 850 (low risk).

Because your credit report is an important part of many credit scoring systems, it is very important to make
sure it's accurate before you submit a credit application. To get copies of your report, contact the three major
credit reporting agencies:

Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report.

You are entitled to receive one free credit report every 12 months from each of the nationwide consumer
credit reporting companies – Equifax, Experian and TransUnion. This free credit report may not contain your
credit score and can be requested through the following website: https://www.annualcreditreport.com

What can I do to improve my credit score?

Credit scoring models are complex and often vary among creditors and for different types of credit. If one
factor changes, your score may change -- but improvement generally depends on how that factor relates to
other factors considered by the model. Only the creditor can explain what might improve your score under
the particular model used to evaluate your credit application.

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your
score will be affected negatively if you have paid bills late, had an account referred to collections, or
declared bankruptcy, if that history is reflected on your credit report.

What is your outstanding debt? Many scoring models evaluate the amount of debt you have
compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to
have a negative effect on your score.

How long is your credit history? Generally, models consider the length of your credit track record.
An insufficient credit history may have an effect on your score, but that can be offset by other
factors, such as timely payments and low balances.

Have you applied for new credit recently? Many scoring models consider whether you have applied
for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you
have applied for too many new accounts recently, that may negatively affect your score. However,
not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at
credit reports to make "prescreened" credit offers are not counted.

How many and what types of credit accounts do you have? Although it is generally good to have
established credit accounts, too many credit card accounts may have a negative effect on your score.
In addition, many models consider the type of credit accounts you have. For example, under some
scoring models, loans from finance companies may negatively affect your credit score.
Scoring models may be based on more than just information in your credit report. For example, the model
may consider information from your credit application as well: your job or occupation, length of
employment, or whether you own a home.

To improve your credit score under most models, concentrate on paying your bills on time, paying down
outstanding balances, and not taking on new debt. It's likely to take some time to improve your score
significantly.

What is an appraisal?

An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending
on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more
than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed
professional who is trained to render expert opinions concerning property values, its location, amenities, and
physical conditions.

What is PMI (Private Mortgage Insurance)?

On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home
mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you
default on your mortgage. Sometimes you may need to pay up to 1-year's worth of PMI premiums at closing
which can cost several hundred dollars. The best way to avoid this extra expense is to make a 20% down
payment, or ask about other loan program options.

What is 80-10-10 financing?

Surprising as it may seem, some folks with hefty incomes find that it’s mighty tough for them to save enough
money to make a 20% cash down payment on their dream homes. Using conventional financing, such buyers
must purchase Private Mortgage Insurance (PMI) which increases the cost of home ownership and, ironically,
makes it even more difficult to qualify for the mortgage. However, if you’re a dues-paying member of the
cash-challenged class, don’t despair. Given that your income is sufficiently high, it’s eminently possible to
avoid getting stuck with PMI. That is why 80-10-10 financing was invented. It is called 80-10-10 because a
savings and loan association, bank, or other institutional lender provides a traditional 80% first mortgage, you
get a 10% second mortgage, and make a cash down payment equal to 10% of the home’s purchase price. By
using this method, you are no longer obligated to take out PMI on your property.

The same principle applies if you can only afford to make a 5% down, 80-15-5 financing is also available.
However, because a smaller cash down payment increases the lender’s risk of default, do not be surprised
when you are asked to pay higher loan fees and a higher mortgage interest rate for 80-15-5 than you pay for
80-10-10.

What happens at closing ?

The property is officially transferred from the seller to you at "Closing" or "Funding".

At closing, the ownership of the property is officially transferred from the seller to you. This may involve you,
the seller, real estate agents, your attorney, the lender’s attorney, title or escrow firm representatives, clerks,
secretaries, and other staff. You can have an attorney represent you if you can't attend the closing meeting,
i.e., if you’re out-of-state. Closing can take anywhere from 1-hour to several depending on contingency
clauses in the purchase offer, or any escrow accounts needing to be set up.

Most paperwork in closing or settlement is done by attorneys and real estate professionals. You may or may
not be involved in some of the closing activities; it depends on who you are working with.

Prior to closing you should have a final inspection, or "walk-through" to insure requested repairs were
performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.

In most states the settlement is completed by a title or escrow firm in which you forward all materials and
information plus the appropriate cashier's checks so the firm can make the necessary disbursement. Your
representative will deliver the check to the seller, and then give the keys to you.