Frequently Asked Mortgage Questions

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F.A.Q. for Mortgages

1. How much money can I qualify for?

You can usually obtain a mortgage valued at between two and three times your annual household income, assuming you have an average debt load.

2. What if I have had credit problems?

You will need to explain the circumstances. If you have overcome the problem and kept up with your obligations on a timely basis for a year or more, most lenders will accept your mortgage application. However, if you believe you have a possible credit problem, please contact us to discuss it. We may be able to help.

3. What is the difference between a conventional loan and an FHA loan?

A conventional loan requires you to place a down payment of between 5% and 20% of the selling price of the home you want to buy. However, with loans insured by the Federal Housing Administration(FHA) you can qualify for a mortgage with as little as 2.5% down. Loans guaranteed by the Department of Veterans Affairs(VA) require no money down.

4. What is "private mortgage insurance?"

Private mortgage insurance (PMI) is provided by an insurance company to the lender for a part of the outstanding balance of a loan. In case of foreclosure the lender can collect the insurance if the sale proceeds do not cover the outstanding balance of the loan. It is a risk management tool used by lenders to reduce their risk on some loans. Loans with an LTV of less than 80% usually do not require PMI. You can pay the PMI monthly or in one payment at closing.

5. What are "Fannie Mae", "Freddie Mac" and "Ginnie Mae"?

"Fannie Mae" is the colloquial term for the Federal National Mortgage Association, an institute incorporated by Congress which buys and sells conventional residential mortgages, as well as FHA-insured and VA-guaranteed mortgages. "Freddie Mac" is the Federal Home Loan Mortgage Corporation, an agency that purchases mortgages from insured savings institutions and HUD-approved mortgage bankers. The government National Mortgage Association -- "Ginnie Mae" -- funds residential mortgages insured through the FHA or guaranteed by the VA.

6. What is the difference between fixed rate mortgages and adjustable rate mortgages?

The differences are that fixed rate mortgages are offered with an interestirateithat remains unchanged for the term of the loan. Adjustable rate mortgages, sometimes referred to as ARMs and also called variable rateimortgages, have rates that change at predetermined intervals during the term to reflect general interest rates.

7. What is a "convertible mortgage"?

This is a mortgage that allows a borrower to convert from an adjustable rate to a fixed rate during specified time periods. An additional fee usually applies.

8. What is an "adjustable interval"?

This is the time between changes in the interest rate and/or the monthly payment on an adjustable rate mortgage.

9. What is "amortization"?

Amortization is the division of principaliand 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.

10. What are "points"?

Points (sometimes called "loan discount points") are pre-paid interest on your mortgage, charged at closing. Each point is equal to 1% of the mortgage amount.

11. What does "APR" stand for?

This stands for Annual Percentage Rateiand reflects the annual cost of the mortgage, taking into account points and other credit costs. The APR can be used to compare the annual cost of different types of mortgages.

12. What is an index?

An "index" is a financial reference rate on which a lender bases mortgage and other loan rates. Typical indices include the rate of return on 1-, 3- or 5-year U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan associations. As this rate goes up or down, so too, will your mortgage rate.

13. What is a "buy-down"?

A "buy-down" occurs when a lender lowers the interest rate on a mortgage -- for a fee -- for the first few years of the loan.

14. What are "caps"?

"Caps" are limits that are placed on the changes allowed in the interest rate and/or monthly payment on an adjustable rate mortgage.

15. What is "locking-in"?

"Locking-in" means that your lender will guarantee the interest rate on your mortgage for a limited period, regardless of fluctuations in market rates. If you are concerned that rates will go up between the time you apply and the time the loan closes, you should lock-in A fee may be charged if the lock is for a long time period.

16. What is "PITI"?

It is simply "Principal, Interest, Taxes and Insurance" -- the components of your monthly mortgage payment.

17. What is an appraisal?

An estimate of the value of the property you intend to buy or reference.

18. What is closing?

"Closing" is the date set when the buyer, seller and lender, or their agents, agree to legally transfer the property and all associated funds, or refinance the property.

19. What is "escrow"?

"Escrow" is the process wherein a neutral, third-party is responsible for carrying out the buyer's and seller's instructions and paperwork relating to closing. Escrow can also refer to an account set up by the mortgage lender into which a portion of each mortgage payment is deposited to cover insurance and taxes, or an account set up to hold funds for needed repair.

20. What are "closing costs"?

"Closing costs" are those costs that include the mortgage broker's fee, discount points, appraisal and titleisearchifees, insurance charges, surveyifees and other charges associated with the legal transfer of the property. These costs typically amount to between 2% and 3% of the mortgage amount.

21. What happens at closing?

This is also called the "settlement". The buyer, seller and lender, or its agents, meet and legally transfer the property and all associated funds.

22. How often do I have to make mortgage payments?

This depends on the lender you choose as you may select from monthly, bi-weekly or weekly payments.

23. What happens if I'm late with a payment or miss a payment?

Continued delinquency (late payment) or defaulting on your mortgage (failing to make one or more payments) can lead to foreclosure, or judgment against you on the note for the amount owed.

24. What if I want out of my mortgage?

You may pay off the loan prior to the end of the term. Some mortgages do have a prepayment penalty, but many do not. Ask your lender or broker about the program you are applying for.

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