Mortgage Loan Questions
What is the first step in the
mortgage process?
Determining what you can afford is the
first essential step in the mortgage/home buying process. We have included the following
necessary items to consider assisting you in determining your budget.
Monthly mortgage payments are determined by a number of
factors:
- Annual income and current liabilities are important in calculating
your debt to income ratio. This ratio is used to determine the mortgage amount you will
qualify for.
- Down payment, assets, employment history, current credit
report/scores and the actual amount financed are used to determine the rate you will
receive.
The better the above items are, the more likely you will receive
the best rates available. Additional costs that are also included in mortgages, including
the following:
- Property Taxes and Homeowners Insurance - You can pay these semi
annual/annual fees yourself or they can be paid in your mortgage by establishing an
impound account. An impound account basically means that you pay your lender these fees
monthly and they (the lender) pay them for you when they become due. These items add to
your monthly expenses and must be accounted for when determining your budget/ratios.
- Mortgage Insurance (PMI) - When down payments are less than twenty
(20%) percent, mortgage insurance in usually required by the lender. It is based on the loan
to value ratio and is a percentage of the mortgage amount. When required it
increases a borrowers monthly payment.
- H.O.A. Fees - If the property you are interested in is part of a
designed community (i.e.- Condominiums and Townhouses) you may be required to pay a
monthly Home Owners Association fee that is used to maintain the exterior
of the entire community (among other things). You do receive a lot for this, but once
again, this must be accounted for when determining your budget.
Should I get Pre-Qualified?
Yes, save yourself the heartache. Many people find their perfect home
only to realize later that they cannot obtain the necessary financing to close the deal.
By Pre-Qualifying you will know exactly what you can afford so you do
not waste your time (or the agents).
Another advantage is that home sellers prefer buyers who are
pre-qualified. Escrows can close quicker, saving a seller time and money.
What is Escrow?
Escrow is the involvement of an impartial third party to
ensure that both the buyer and the seller are protected in all real estate transactions.
What is a Point?
A Point is a percentage of the loan amount, i.e.; one point equals one
percent.
What is PMI?
This is mortgage insurance used to indemnify the lender from default by
the borrower. The premium is paid by the borrower and is required with less than 20% down
payment.
What is Amortization?
This 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 an ARM?
This represents an Adjustable Rate Mortgage. The rate will vary given
that it is based on an index and margin; consequently, the mortgage payment will vary
based on when the rate is calculated and the values derived from the indices.
What is an APR?
This represents an Annual Percentage Rate. It is the reflection of the
actual note rate and associated costs of the loan transaction.
What is PITI?
This is Principal, Interest, Taxes and Insurance, the general components
of your total payment.
What is a CAP?
These are limits that are placed on adjustments to rates and mortgage
payments.
What is a Buy-Down?
This is a reduction in the interest rate on a temporary or permanent
basis, in exchange for a fee.
What is Locking-In?
This guarantees the interest rate for a specified period of time
regardless of market pricing fluctuations prior to close of escrow.
What is a Float-Down?
After a Lock-In, if rates are reduced, some lenders will allow a
borrower to choose the lower rate at closing; however, this usually requires a fee.
