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Lenders FAQs
What do I need to know about interest Rates?What is “APR?”
What about my Credit Score?
What is PMI and how do I get rid of it?
What information do I need about my mortgage application?
What type of mortgage is right for me?
What is a Construction Loan?
What is a Home Equity Mortgage?
What is a “RAM” (Reverse Annuity Mortgages)?
What is a Home Equity Line of Credit?
What is a Bridge Loan?
What is a wrap around loan?
What do I need to know about interest rates?
Most lenders will negotiate on both the loan interest rate and the number of points. Rates generally fluctuate with the market and are set within each lending institution. It is a good idea to shop around for loan rates to find the best deal available. When shopping for rates watch for published rates on trusted sites on the internet.
Once the time is right and you have chosen your lender, they will lock in your loan rate for 30 to 60 days to guarantee that rate (in the event that rates rise dramatically during that window). A lock-in is given at the time of application because it could take several weeks to approve your loan application.
There will most likely be lock in fees, and other processing fees charged with your loan application. Make sure to go over these fees with one of our experienced Real Estate Agents to ensure you are not paying more than typical fees.
One option is to “buy down” your rate by paying points. Paying points and “buying down” the rate lowers your interest
rate for the long term, although it costs you up front. A point is calculated as one percent of the loan amount. There are government and first time homebuyer programs that offer lower rates. Don’t forget to ask your lender if you qualify for these loans.
What is “APR”?
This is the interest rate figure that is most important to you. The Annual Percentage Rate (APR) is the relative cost of credit as determined in accordance with the Board of Governors of the Federal Reserve System. The APR is the actual yearly interest rate paid by the borrower, figuring in the points charged to initiate the loan and other costs. The APR discloses the real cost of borrowing by adding on the points and by factoring in the assumption that the points will be paid off incrementally over the term of the loan. The APR is usually about 0.5 percent higher than the note rate.
What about my credit Score?
Yes, it is that important. A credit report is used by lenders as one measure of the risk and a borrower’s likelihood to repay. There are many situations that would raise a red flag on your credit report. Some, though not all of these occurences are: missed or late credit card payments, prior loan defaults or bankruptcy, collections activity; or other liens, judgments and fines levied against you.
A poor credit score can cause you to lose your loan. If there is misinformation on your credit report, you will need to contact the agency and provide proof that the report should be amended.
You can order a copy of your own credit report by calling the three major credit reporting agencies: Experian at (800) 311-4769, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050. You are entitled to a free copy of your credit report and can obtain that copy by going to www.freecreditreport.com.
Yes, it is true that frequent or multiple checks on your credit can have a negative effect on your credit score.
What is PMI and how do I get rid of it?
PMI (Private Mortgage Insurance) insures the lender against a default. It is required when the borrower is making a cash down payment of less than 20 percent of the purchase price. Some lenders will recommend breaking your loan into two loans (a primary and a secondary) to avoid paying this PMI. Once you have approximately 20 to 25% equity built up on your property, you can request that the lender remove this PMI charge from your monthly payment. Actually, the lender is supposed to remove it without your request, though it is in your best interest to stay on top of this important matter.
What information will I need for my mortgage application?
In today’s market, lenders are requiring a tedious amount of information and verification to ensure that lending you money for a certain property is not a risk.
To determine your eligibility the lender will want information on you and anyone else buying the property as well as information on the property itself. Some information required includes:
The name and address of your bank, your account numbers, and statements for the past three months
Credit report
Investment statements for the past three months
Social Security Card, Passport/License or other photo I.D.
Pay stubs, W-2 withholding forms, or other proof of employment and income
Balance sheets and tax returns, if you're self-employed
A list of all debt and income to derive your debt to income ration.
Once you apply, your lender will verify all the information you’ve provided. This is the loan approval process and it can take one to eight weeks, depending on the type of mortgage you choose and other factors that will affect your approval such as fulfillment of contract contingencies.
During the loan application process your lender is required by law to give you several documents. Within three business days of applying for the loan, the lender must inform you of the mortgage's rate of interest, or annual percentage rate (APR). You are also entitled to an itemized good-faith estimate of your closing costs and a government publication that explains those costs. Make sure that the loan officer or one of our experienced agents reviews these materials with you.
Since the home that you're purchasing will serve as collateral for the loan, the lender will order appraisal of the property to find out its true market value. A typical down payment in today’s market is 20% or the appraised market value or total loan amount.
It is very important to make sure that the lender receives all of the necessary documentation in order to ensure a trouble free purchase. Our Real Estate Agents will make sure that there are no issues with your loan that could delay the final settlement.
What type of mortgage is right for me?
Most buyers will need a mortgage to purchase their home or property. There are many types of mortgage products available. It is very important that you ask your lender what loan is the best fit for you. Two common loan types are fixed rate mortgages and adjustable rate mortgages: rate mortgage keeps the same interest rate for the life of the loan.
A fixed rate mortgage provides the most stability in a loan and allows you to pay a fixed amount (principal and interest) over the entire life of the loan. The only variable number involved in the equation is fluctuating taxes. This allows you to hedge against market fluctuations, though you are free to pay additional monies beyond your set monthly payment. These will be deducted directly from the principal and allow you to pay off your loan earlier.
One disadvantage of a fixed interest loan is that the interest rate may be higher than otherwise. One important statistic is that people tend to refinance or buy/sell within a short time frame (three to five years). Because of this, you may want to explore other loan options besides fixed rate loans.
30 Year Fixed-Rate Mortgages have consistent monthly payments for the entire 30 years you have the mortgage. If the market is offering low interest rates, this is a great option.
20 Year Fixed-Rate Mortgages have consistent monthly payments for entire 20 years you have the mortgage. This option allows you to pay off the loan more quickly that you would with a 30 year loan and allows you to save on interest that you would have paid on the 30 year loan.
15 Year Fixed-Rate Mortgages have consistent monthly payments for the entire 15 years you have the mortgage. This option effectively halves your repayment period and saves you a great deal on interest. If you can afford this option and it fits your goals, go for it.
An adjustable-rate mortgage (ARM) is one where the interest rate changes over the life of the loan - according to the terms specified in advance. The interest rate fluctuates and so does your payment. One advantage of an ARM is that the initial interest rate is usually lower than with a fixed-rate mortgage which translates into a lower monthly payment.
These ARMs typically offer lower rates relative to fixed loan products and allow you to “purchase more house than otherwise” by offering lower payments or interest only payments. The problem with ARMs is that they rise with interest rates. If not careful, your monthly payment could double or triple very quickly. ARMS provide a fixed initial rate of the loan for (X) years and the interest rate readjusts to the market rate every (Y) years. For example a 10/1 (X/Y) Arm would have a fixed rate for the first ten years and then adjust every year thereafter. Some ARM options are 10/1, 7/1, 5/1 and 3/1.
Some other types of loans include: construction loans, home equity mortgages, reverse mortgages, home equity line of credit, bridge loans, blanket loans and wrap-around loans.
Construction Loan
A construction loan allows you to draw funds from the loan in increments that correspond to the construction schedule. For example, one draw may be for the foundation, the next for framing and after that electrical and plumbing.
Home equity mortgage
A home equity mortgage allows you to take a second mortgage loan on top of the first loan in order to utilize some of the equity that has accumulated on your property.
Reverse Annuity Mortgages (RAMs)
A reverse annuity mortgage is a special type of loan available only to older homeowners with full or nearly full equity in their homes. In this case owners can borrow against the equity they have built up over the years, and enjoy regular payments. The owner does not have to repay this loan until they sell the property.
Home equity line of credit
A home equity line of credit is a form of revolving credit in which your home serves as collateral. The interest rate for a home equity line of credit is typically adjustable, though it may be fixed. You may have a check book or debit card that is tied directly to your home equity line of credit.
Bridge Loan
A bridge loan is a short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral, such as real estate or inventory. Bridge loans are also known as interim financing, gap financing or a swing loan. Bridge loans are fairly common, as there can often be a time lag between the sale of one property and the purchase of another. Bridge loans allow a homeowner some flexibility.
Wrap-Around Loans
A wrap-around mortgage is a loan transaction in which the lender assumes responsibility for an existing mortgage. A wrap-around is attractive to lenders because they can leverage a lower interest rate on the existing mortgage into a higher yield for themselves. Usually, but not always, the lender is the seller.
Most lenders will negotiate on both the loan interest rate and the number of points. Rates generally fluctuate with the market and are set within each lending institution. It is a good idea to shop around for loan rates to find the best deal available. When shopping for rates watch for published rates on trusted sites on the internet.
Once the time is right and you have chosen your lender, they will lock in your loan rate for 30 to 60 days to guarantee that rate (in the event that rates rise dramatically during that window). A lock-in is given at the time of application because it could take several weeks to approve your loan application.
There will most likely be lock in fees, and other processing fees charged with your loan application. Make sure to go over these fees with one of our experienced Real Estate Agents to ensure you are not paying more than typical fees.
One option is to “buy down” your rate by paying points. Paying points and “buying down” the rate lowers your interest
rate for the long term, although it costs you up front. A point is calculated as one percent of the loan amount. There are government and first time homebuyer programs that offer lower rates. Don’t forget to ask your lender if you qualify for these loans.
What is “APR”?
This is the interest rate figure that is most important to you. The Annual Percentage Rate (APR) is the relative cost of credit as determined in accordance with the Board of Governors of the Federal Reserve System. The APR is the actual yearly interest rate paid by the borrower, figuring in the points charged to initiate the loan and other costs. The APR discloses the real cost of borrowing by adding on the points and by factoring in the assumption that the points will be paid off incrementally over the term of the loan. The APR is usually about 0.5 percent higher than the note rate.
What about my credit Score?
Yes, it is that important. A credit report is used by lenders as one measure of the risk and a borrower’s likelihood to repay. There are many situations that would raise a red flag on your credit report. Some, though not all of these occurences are: missed or late credit card payments, prior loan defaults or bankruptcy, collections activity; or other liens, judgments and fines levied against you.
A poor credit score can cause you to lose your loan. If there is misinformation on your credit report, you will need to contact the agency and provide proof that the report should be amended.
You can order a copy of your own credit report by calling the three major credit reporting agencies: Experian at (800) 311-4769, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050. You are entitled to a free copy of your credit report and can obtain that copy by going to www.freecreditreport.com.
Yes, it is true that frequent or multiple checks on your credit can have a negative effect on your credit score.
What is PMI and how do I get rid of it?
PMI (Private Mortgage Insurance) insures the lender against a default. It is required when the borrower is making a cash down payment of less than 20 percent of the purchase price. Some lenders will recommend breaking your loan into two loans (a primary and a secondary) to avoid paying this PMI. Once you have approximately 20 to 25% equity built up on your property, you can request that the lender remove this PMI charge from your monthly payment. Actually, the lender is supposed to remove it without your request, though it is in your best interest to stay on top of this important matter.
What information will I need for my mortgage application?
In today’s market, lenders are requiring a tedious amount of information and verification to ensure that lending you money for a certain property is not a risk.
To determine your eligibility the lender will want information on you and anyone else buying the property as well as information on the property itself. Some information required includes:
Once you apply, your lender will verify all the information you’ve provided. This is the loan approval process and it can take one to eight weeks, depending on the type of mortgage you choose and other factors that will affect your approval such as fulfillment of contract contingencies.
During the loan application process your lender is required by law to give you several documents. Within three business days of applying for the loan, the lender must inform you of the mortgage's rate of interest, or annual percentage rate (APR). You are also entitled to an itemized good-faith estimate of your closing costs and a government publication that explains those costs. Make sure that the loan officer or one of our experienced agents reviews these materials with you.
Since the home that you're purchasing will serve as collateral for the loan, the lender will order appraisal of the property to find out its true market value. A typical down payment in today’s market is 20% or the appraised market value or total loan amount.
It is very important to make sure that the lender receives all of the necessary documentation in order to ensure a trouble free purchase. Our Real Estate Agents will make sure that there are no issues with your loan that could delay the final settlement.
What type of mortgage is right for me?
Most buyers will need a mortgage to purchase their home or property. There are many types of mortgage products available. It is very important that you ask your lender what loan is the best fit for you. Two common loan types are fixed rate mortgages and adjustable rate mortgages: rate mortgage keeps the same interest rate for the life of the loan.
A fixed rate mortgage provides the most stability in a loan and allows you to pay a fixed amount (principal and interest) over the entire life of the loan. The only variable number involved in the equation is fluctuating taxes. This allows you to hedge against market fluctuations, though you are free to pay additional monies beyond your set monthly payment. These will be deducted directly from the principal and allow you to pay off your loan earlier.
One disadvantage of a fixed interest loan is that the interest rate may be higher than otherwise. One important statistic is that people tend to refinance or buy/sell within a short time frame (three to five years). Because of this, you may want to explore other loan options besides fixed rate loans.
An adjustable-rate mortgage (ARM) is one where the interest rate changes over the life of the loan - according to the terms specified in advance. The interest rate fluctuates and so does your payment. One advantage of an ARM is that the initial interest rate is usually lower than with a fixed-rate mortgage which translates into a lower monthly payment.
These ARMs typically offer lower rates relative to fixed loan products and allow you to “purchase more house than otherwise” by offering lower payments or interest only payments. The problem with ARMs is that they rise with interest rates. If not careful, your monthly payment could double or triple very quickly. ARMS provide a fixed initial rate of the loan for (X) years and the interest rate readjusts to the market rate every (Y) years. For example a 10/1 (X/Y) Arm would have a fixed rate for the first ten years and then adjust every year thereafter. Some ARM options are 10/1, 7/1, 5/1 and 3/1.
Some other types of loans include: construction loans, home equity mortgages, reverse mortgages, home equity line of credit, bridge loans, blanket loans and wrap-around loans.
Construction Loan
A construction loan allows you to draw funds from the loan in increments that correspond to the construction schedule. For example, one draw may be for the foundation, the next for framing and after that electrical and plumbing.
Home equity mortgage
A home equity mortgage allows you to take a second mortgage loan on top of the first loan in order to utilize some of the equity that has accumulated on your property.
Reverse Annuity Mortgages (RAMs)
A reverse annuity mortgage is a special type of loan available only to older homeowners with full or nearly full equity in their homes. In this case owners can borrow against the equity they have built up over the years, and enjoy regular payments. The owner does not have to repay this loan until they sell the property.
Home equity line of credit
A home equity line of credit is a form of revolving credit in which your home serves as collateral. The interest rate for a home equity line of credit is typically adjustable, though it may be fixed. You may have a check book or debit card that is tied directly to your home equity line of credit.
Bridge Loan
A bridge loan is a short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral, such as real estate or inventory. Bridge loans are also known as interim financing, gap financing or a swing loan. Bridge loans are fairly common, as there can often be a time lag between the sale of one property and the purchase of another. Bridge loans allow a homeowner some flexibility.
Wrap-Around Loans
A wrap-around mortgage is a loan transaction in which the lender assumes responsibility for an existing mortgage. A wrap-around is attractive to lenders because they can leverage a lower interest rate on the existing mortgage into a higher yield for themselves. Usually, but not always, the lender is the seller.