Return to Top What are points?

An amount equal to 1% of the principal amount of a mortgage loan. Discount points are a one-time charge assessed at closing by lender to increase the yield on the mortgage loan to a competitive position with other types of investments. For instance, one percent of a $100,000 loan is equal to $1,000.

Return to Top What does it mean to “lock a rate”?

“Rate locks” are a way of protecting from a possible rise in interest rates during the processing of your loan. With some lenders, you can lock a rate up to 90 days. Generally speaking, if you choose to lock for an extended period of time, the cost of the loan goes up. Furthermore, if rates improve during the processing of your loan, you will still get the rate you locked. Some lenders may require a home purchase contract before they will allow you to lock an interest rate.

Return to Top What if I have little or no credit?

Use your good payment history on rent and utilities, as well as credit obtained through family members or friends. Provide a year’s worth of canceled checks to validate consistent monthly payments. This information will become part of your application for the mortgage loan.

Return to Top What if I have a credit problem because of an unusual situation?

If you normally pay your bills on time but failed to pay because unusual or temporary situation, write a detailed letter explaining your circumstances. Also provide supporting documentation with your letter such as a doctor’s letter that will add credence to your case. The information will become part of your loan application. Your lender will be able to overlook a credit problem if you can provide a good reason for neglecting your obligation.

Return to Top What is an Appraisal?

An appraisal is an independent valuation of a property. Appraisals are commonly required at the time of purchase or refinancing. They typically include an inspection of the home, its interior, upgrades and general condition. Mortgage companies will finance the property based on whichever is lower - the appraised value or the sale price.

Return to Top What is Annual Percentage Rate (APR)?

The total finance charges for a loan that is expressed as a percentage. APR takes into account the total cost of a mortgage, including interest, closing fees, lender points, and other charges over the life of a loan.

Return to Top What is a Conventional Loan?

A mortgage or deed of trust that is not insured or guaranteed under a government insured program.

Return to Top What is a Convertible ARM?

The Convertible ARM has traits similar to the ARM loan, but offers an option for the borrower to change the mortgage to a fixed-rate loan during an early interest rate adjustment period.

Return to Top What is a Balloon Loan?

A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a “balloon” is due at maturity.

Return to Top What is a Buydown Loan?

A mortgage with a starting interest rate below the interest rate stated on the Promissory Note. The lender lowers the starting rate in return for an interest rate subsidy paid by the seller, buyer, builder, or lender.

Return to Top What is a FHA Loan?

The Federal Housing Administration provides mortgage insurance for residential mortgages and sets underwriting standards. The loan is partially guaranteed by the Department of Housing and Urban Development and a private lender.

Return to Top What is a FICO score?

A FICO score is a credit score developed by Fair Isaac & Company. It is a credit scoring method to determine the likelihood of credit users paying their bills. Since the 1950s, Fair Issac & Co were pioneers in setting credit scoring standards and even today their method has become the most widely accepted and reliable scoring method used by lenders in credit evaluation.

A credit score attempts to condense your credit history into a single number. Credit scores analyze your credit history by considering numerous factors such as:

• Late payments
• The amount of time credit has been established
• The amount of credit used versus the amount of credit available
• Length of time at present residence
• Employment history
• Negative credit information such as bankruptcies, charge-offs, collections, liens, etc.

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance.

Return to Top What is a Good Faith Estimate?

When you file your application for a loan, the lender must, under the terms of RESPA, provide you with a Good Faith Estimate of settlement services that will likely incur. The estimate may be stated as either a dollar amount or a range for each charge.

Return to Top What is an Adjustable Rate Mortgage (ARM) and how
does an ARM work?

An Adjustable Rate Mortgage (ARM) is a mortgage or deed of trust, which allows the lender to adjust the interest rate periodically as agreed to at the inception of the loan. The interest rate on an ARM is tied to a market index and is fixed for a specific period of time. Once that period of time is over, the interest rate is adjusted periodically (every 6 to 12 months) following the changes in the interest rate of index that is associated with the loan. Examples of market indexes include, but are not limited to, LIBOR, Constant Maturity Treasury, and 11th District Cost of Funds. If you are interested in an adjustable-rate mortgage, it is important to discuss all of the features and options of an ARM with our Mortgage Consultant so they can help you make an assessment of the best ARM to meet your specific needs.

Return to Top What is Hazard Insurance?

Hazard insurance is an insurance policy to protect homeowners against property damage. This premium prepayment is for insurance protection for you and the lender against loss due to fire, windstorm and natural hazards. If a catastrophe does happen, hazard insurance should cover the costs to rebuild your home. Most Lenders often require you to get a policy before you buy or refinance a home and usually require you to pay the first year’s premium at settlement.

Return to Top What is an Origination Fee?

A fee or charge for work involved in evaluating, preparing and submitting a proposed mortgage loan. For FHA and VA loans this fee is limited to 1% of the loan amount.

Return to Top What is P.I.T.I?

Principal, Interest, Taxes, and Insurance. The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

Return to Top What is Prepaid Interest?

This amount represents the interest that accrues between the close of your loan and the last day of the month in which the loan closes. Interest on your loan after that date is included in your regular monthly payments.

Return to Top What is Private Mortgage Insurance (PMI)?

Insurance written by a private company that protects the lender against loss if you default on the mortgage.

Return to Top What is Title Insurance?

Insurance policy that is issued by a company regarding title to real property.

Return to Top What is a Truth In Lending Disclosure?

The disclosure is designed to give you information about the cost of your loan.

Return to Top What is a VA Loan?

An independent agency of the federal government that offers benefit programs to veterans. These programs encourage mortgage lenders to offer long-term, no down payment financing to eligible veterans by guaranteeing the lender against any loss.

Return to Top When should I choose a fixed-rate loan?

A fixed-rate loan offers a borrower the comfort of knowing exactly what their payments will be, month after month, for the life of the loan. Loan terms can range from 15, 20, 25, and up to 30 years. In a low-rate environment, borrowers tend to prefer a fixed-rate product that can protect them from possible interest-rate increases.

Return to Top When should I choose an Adjustable Rate Mortgage or ARM?

Generally speaking, an ARM enables borrowers to secure a loan at an initially lower interest than a fixed-rate loan. This means a borrower has lower monthly payments for a specific period of time when compared to other loan options. Lower monthly payments may allow you to qualify for a higher loan amount.