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Frequently
Asked Questions
Entire State of Florida
Should I prequalify before I start looking at houses?
Yes. It is easier to buy a home if you have been prequalified, and you don't have to worry about whether you will get the loan or not when you find your dream home. Not to mention, that when it comes times to making an offer, the sellers real estate agent may ask for the prequalification letter along with the offer.
Can I qualify for a mortgage even though I have had problems in the past?
Yes, you can qualify - because bad credit in the past meant that you fixed whatever it was that became a financial problem for you. This shows strength and commitment to a lender. Remember, bad credit in the past does not mean the same thing as a bad credit risk.
When you refinance, you might be able to lower your interest rate and monthly payment. You might also be able to "cash out" some of the built-up equity in your home, which can be used to consolidate debt, make home improvements -- whatever you want or need. With lower rates and balances, you might also be able to build up home equity faster with a shorter-term new mortgage.If you decide to refinance, you're paying for most of the same things (closing costs) you paid for when you obtained your original mortgage. These might include settlement costs and other fees, an appraisal, lender's title insurance, underwriting fees, and so on. You may want to make sure there is no prepayment penalty, you can reviews your previous closing paperwork or call the bank to verify. Not to worry, I can help you figure it out.Ultimately, for most people the amount of the closing costs are made up very quickly by your monthly savings. I'll work with you to determine what program is best for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your taxes.
What documentation will I need for the loan?
Should I pay off my bills before buying a home?
No, do not deplete your cash reserves, because you may need to show these reserves to the bank so they know that you can save and manage your money. A depleted bank account does not inspire confidence in a bank. Proceed paying your bills in a normal way, and get a prequalification letter. That way you won't have to worry about paying off the bills. Click here to Prequalify.
What is a FICO score?
A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable.
Credit scores analyze a borrower's credit history 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, etc.
There are really three FICO scores computed by data provided by each of the three bureaus--Experian, Trans Union and Equifax. Most banks use the middle of these three scores.
How can I increase my score?
While it is difficult to increase your score over the short run, here are some tips to increase your score over a period of time.
- Pay your bills on time. Late payments and collections can have a serious impact on your score. Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score. Reduce your credit-card balances. If you are "maxed" out on your credit cards, this will affect your credit score negatively.
- If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score.
What if there is an error on my credit report?
If you see an error on your report, report it to the credit bureau. The three major bureaus in the U.S., Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) all have procedures for correcting information promptly.
What is the difference between pre-qualifying and pre-approval?
A pre-qualification is normally issued by a loan officer, who, after interviewing you, determines the dollar value of a loan you can be approved for. However, loan officers do not make the final approval, so a pre-qualification is not a commitment to lend. After the loan officer determines that you pre-qualify, he/she then issues you a pre-qualification letter. This pre-qualification letter is used when you are making an offer on a property. The pre-qualification letter indicates to the seller that you are qualified to purchase the house you are making an offer on. Click here to Prequalify.
Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is submitted to an underwriter and a decision is made regarding your loan application. If your loan is pre-approved, you are then issued a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a house. A pre-approval can help you negotiate a better price with the seller, since being pre-approved is very close to having cash in the bank to pay for the house! Click here to check the status of your loan.
Fixed Rate versus Adjustable Rate loans:
With a Fixed-rate loan, your monthly payment of principal and interest never change for the life of your loan. Fixed-rate loans are available in various ways: 30-year, 20-year, 15-year, even 10-year. During the early amortization period of a fixed-rate loan, a large percentage of your monthly payment goes toward interest, and a much smaller part toward principal. That gradually reverses itself as the loan ages.
With a Adjustable Rate Mortgages (a.k.a. ARMs ) , come in even more varieties. Generally, ARMs determine what you must pay based on an outside index, perhaps the 6-month Certificate of Deposit (CD) rate, the one-year Treasury Security rate, the Federal Home Loan Bank's 11th District Cost of Funds Index (COFI), or others. They may adjust every six months or once a year.
Most programs have a "cap" that protects you from your monthly payment going up too much at once. There may be a cap on how much your interest rate can go up in one period -- say, no more than two percent per year, even if the underlying index goes up by more than two percent. You may have a "payment cap," that instead of capping the interest rate, it directly caps the amount your monthly payment can go up in one period. In addition, almost all ARM programs have a "lifetime cap" -- your interest rate can never exceed that cap amount, no matter what.ARMs often have their lowest, most attractive rates at the beginning of the loan, and can guarantee that rate for anywhere from a month to ten years. You may hear people talking about or read about what are called "5/1 ARMs" or "7/1 ARMs" or the like. That means that the introductory rate is set for five or seven years, and then adjusts according to an index every year thereafter for the life of the loan. Loans like this are often best for people who anticipate moving -- and therefore selling the house to be mortgaged -- within three or five years, depending on how long the lower rate will be in effect.You might choose an ARM to take advantage of a lower introductory rate and count on either moving, refinancing again or simply absorbing the higher rate after the introductory rate goes up. With ARMs, you do risk your rate going up, but you also take advantage when rates go down by pocketing more money each month that would otherwise have gone toward your mortgage payment.
What are biweekly mortgages?
You make your mortgage payment every other week rather than every month. This way you end up making 26 payments in a year. This often reduces the amount of interest being charged and reduces the term of the loan as well. In essence it is like paying an extra mortgage payment each year.
What is an APR?
The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.
Example:
| 30-year fixed 8% 1 point |
8.107% APR |
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan. It is a very confusing number! 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 is a result of a complex calculation and not clearly defined. Remember to exclude those costs that are independent of the loan.
What is PMI? Can I get rid of the PMI on my loan?
PMI or Private Mortgage Insurance is normally required when you buy a house with less than 20% down. Mortgage insurance is a type of guarantee that helps protect banks against the costs of foreclosure. This insurance protection is provided by private mortgage-insurance companies. It enables banks to accept lower down payments than they would normally accept. In effect, mortgage insurance provides what the equity of a higher down payment would provide to cover a lender's losses in the unfortunate event of foreclosure. Therefore, without mortgage insurance, you might not be able to buy a home without a 20% down payment.
The cost of PMI increases as your down payment decreases. Example: The cost of PMI on a 15% down payment is less than the cost of PMI on a 10% down payment. Your PMI premium is normally added to your monthly mortgage payment. The decision on when to cancel the private insurance coverage does not depend solely on the degree of your equity in the home. The final say on terminating a private mortgage-insurance policy is reserved jointly for the bank and any investor who may have purchased an interest in the mortgage. However, in most cases, the lender will allow cancellation of mortgage insurance when the loan is paid down to 80% of the original property value. Some lenders may require that you pay PMI for one or two years before you may apply to remove it. To cancel the PMI on your loan, contact your bank. In most cases, an appraisal will be required to determine the value of your property. You will probably also be required to pay for the cost of this appraisal. Another way of cancelling the PMI on your loan is to refinance and to get a new loan without PMI.
What is a rate lock?
You cannot close a mortgage loan without locking in an interest rate. There are four components to a rate lock:
- Loan program. Interest rate. Points.
- Length of the lock.
The longer the length of the lock, the higher the points or the interest rate. This is because the longer the lock, the greater the risk for the bank offering that lock. Let's say you lock in a 30-year fixed loan at 7% for 1 point for 15 days on May 4. This lock will expire on May 19 (if May 19 is a holiday then the lock is typically extended to the first working day after the 19th). The bank must disburse funds by March 19th, otherwise your rate lock expires, and your original rate-lock commitment is invalid. The same lock might cost 1.375 points for a 30-day lock or 1.625 points for a 60-day lock. If you need a longer lock and do not want to pay the higher points, you may instead pay a higher rate.
After a lock expires, most banks will let you re-lock at the higher of the original rate/points or extend your current rate/points.
What do you do if the rates drop after you lock?
Most banks will not budge unless the rates drop substantially (3/8% or more). This is because it is expensive for them to lock in interest rates. If lbanks let the borrowers improve their rate every time the rates improved, they spend a lot of time relocking interest rates, since rates fluctuate daily. Also they would have to build this option into their rates and borrowers would wind up paying a higher rate.
What is a "no-closing-costs loan?"
If you pay no closing costs, then usually you will end up paying more interest, because the bank will pay all the fees that are required at the time of the closing. But you have to pay for this privilege by agreeing to a higher interest rate for the term of the loan.
Can my loan be sold? What happens if my lender goes out of business?
Your loan can be sold at any time. There is a secondary mortgage market in which banks frequently buy and sell pools of mortgages. This secondary mortgage market results in lower rates for consumers. A bank buying your loan assumes all terms and conditions of the original loan. As a result, the only thing that changes when a loan is sold is to whom you mail your payment. If your loan has been sold, your existing bank will notify you that your loan has been sold, who your new bank is, and where you should send your payments from now on.
If your bank goes out of business, you are still obligated to make payments! Typically, loans owned by a bank going out of business are sold to another bank. The bank purchasing your loan is obligated to honor the terms and conditions of the original loan. Therefore, if your bank goes out of business, it makes little difference with regards to your loan payments. In some cases, there may be a gap between the date of your bank's going out of business and the date that a new bank purchases your loan. In such a situation, continue making payments to your old bank until you are asked to make payments to your new bank.
I'm building a new home, when is the best time to submit an application?
Your builder will very likely want a loan commitment in order to proceed with construction, so you will want to begin the application process as soon as possible. Click here to submit an online application.
What is a mortgage?
A mortgage loan is a loan that uses your house and land used as security. The loan is secured by a lien (the "mortgage") against the property. The lender doesn't own the house — you do. They just have the lien with your house as their collateral.
Have a question you did not see on the list? Feel free to email me and I will get back to you shortly. |
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