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Common questions that are asked related to mortgages :
What are the different loan programs available to me?
What kind of documentation do you need to process my loan?
How do I know which loan is best for me and my family?
What is the difference between adjustable rate mortgages (ARMs) and fixed rate loans?
What is negative amortization or NegAm?
What is the difference between interest only loans and fully amortized loans?
What affects my interest rate?
What is loan-to-value (LTV)? How does it affect my loan?
What is included in my mortgage payment?
How can I find out about my credit score and history on my own?
Do you charge an application fee?
What other fees are there during the process that I should know about?
What documents do I get at closing?
What are the different loan programs available to me?
There are many more mortgage programs available to homeowners and real estate investors today compared to 10 years ago. And although the mortgage industry has been hit hard with tighter lending guidelines and the removal of some of the riskier programs since the subprime crash, there are still a wide variety of mortgage programs available to you and thankfully now the programs left are more stable and offer real estate buyers a sense of security. Just for a quick summary :
Adjustable rate mortgages (ARMs) are fixed for a certain period of time before the rate adjusts according to market conditions, this type of program includes: 5 year fixed ARMs, 3 year fixed ARMs, 10 year fixed ARMs, etc. Fixed rates are fixed for the entire life of the loan, this type of program includes: 15 year fixed, 30 year fixed, 40 year fixed, etc. Option-ARMs provide borrowers with mortgage payment options, but it also involves negative amortization, this type of program includes: Option-ARM, Hybrid Option-ARM.
There are also different ways of calculating the payments for each loan program. Interest only loans only require the interest due be paid monthly. Fully amortized loans require full monthly payments with interest and principal. Negative amortization loans require a minimum payment while providing payment options for more on each mortgage statement. We have the article in our Library : All Types of Loan Programs to give you a comprehensive understanding of more mortgage programs, their advantages, and their disadvantages.
What kind of documentation do you need to process my loan?
To begin the process of prequalification and preapproval, we first work with you to complete the loan application. You can speak to one of our loan officers to complete the application or you can complete the application at your convenience online. Your information will be securely transmitted to one of our loan officers to begin your one and only mortgage experience. In addition to the loan application we request the following information:
- One month's worth of pay stubs or income documentation
- Two years worth of tax returns
- Two months worth of bank statements
- If refinancing, we also need a copy of your most recent mortgage statement(s)
The reason it is difficult to say exactly what kind of documentation we will need from you is because each person has their own unique situations and mortgages are customized. Each loan requires different things, but as a basic guideline we would need is the documents mentioned above.
How do I know which loan is best for me and my family?
Finding the right loan program is one of the most important steps when buying a home, along with knowing your mortgage payment comfort level and the future of your family's financial security. In our Library we have an article titled : "Choosing the Best Loan for You" to help you determine what is best for you and your family by taking many things into consideration.
You can also take advantage of our Loan Profiler which is an online, easy and fun way to find out what loan programs we recommend for you.
What is the difference between adjustable rate mortgages (ARMs) and fixed rate loans?
Adjustable rate mortgages or ARMs are fixed for an indicated period of time and upon the expiration of the time period, the interest rate adjusts according to market conditions. For example, Three year ARMs have an interest rate fixed for the initial three years and adjusts according to the market when those three years are up.
Fixed rates mortgages are fixed for the entire life of the loan. For example, 30 year fixed loans have an interest rate fixed for the entire 30 years offering stability but higher interest rates to compensate for the security provided by the loan.
What is negative amortization or NegAM?
Negative amortization, also known as NegAm or Graduated Payment Mortgage, is an amortization or payment calculation method where the borrower pays less than the full amount of interest due on a loan each month. The result of this type of program over months and years is ultimately a higher loan balance than initially borrowed. This type of program gained popularity and is based on the concept of appreciation -- the property will appreciate faster than the loan balance increases.
For example, a borrower gets a loan of $300,000 with a minimum payment rate (NegAm) of 1.000% compared to the normal interest only rate of 6.500%. The borrower makes the minimum NegAm payment of $964.92 when the actual interest due is $1,625. The difference of $660.08 is then added to the balance of $300,000 every month. Assuming interest rates do not adjust, 6 months later the actual loan amount the borrower owes the lender is now $303,960.48.
Be very cautious when considering applying for a mortgage like this, it is very risky and can be very dangerous if your financial situation is not planned out sufficiently. You can read more about this type of mortgage program in the mortgage section of our Library.
What is the difference between interest only loans and fully amortized loans?
Interest only loans only require the interest due be paid monthly. Fully amortized loans require full monthly payments consisting of interest and principal. Borrowers could potentially save hundreds of dollars by obtaining an interest only loan rather than a fully amortized, traditional mortgage.
For example, on a loan for $400,000 with an interest rate of 6.000%, a fully amortized monthly payment is $2398.20 and the interest only monthly payment is $2000. You see a monthly savings of $398.20 by obtaining an interest only mortgage.
What affects my interest rate?
Interest rates are a fickle thing. There are man factors that can affect your interest rate -- the following reasons take into consideration what you can do to change the interest rate, not the external factors such as government rate changes, stock market fluctuations, etc :
- Documentation method
The more documentation you provide the lender, the lower the interest rate
- Credit score
The higher your credit score and steadier your credit history, the better the loan programs and interest rates available are to you
- Financed amount
The lower the loan amount is in comparison to the purchase price or property value (when refinancing), the lower the interest rate
- Debt-to-Income (DTI) ratio
Lenders like to see that your total debt including your mortgage and other monthly payments are less than 40% of your gross income, but the lower it is the better the interest rate
- Property Type
Single family homes are going to have the best rates -- condos, manufactured homes, duplexes, triplexes, and fourplexes will all generally have higher interest rates
- Occupancy
Owner-occupied properties have the lowest interest rates, followed by vacation or second homes, and then investment properties.
- Points
You can choose to pay points to lower the interest rat
What is loan-to-value (LTV)? How does it affect my loan?
Loan-to-Value is a calculation of the percentage of the loan to the value of the property or the purchase price. For example, if you are purchasing a home for $300,000 and you get a loan for $150,000, the loan-to-value or LTV is 50%. In the case of refinancing, the value of the property according to the approved appraisal is used in place of the purchase price.
For the loan, the lower the loan-to-value percentage the lower the interest rate. In other words, assuming all other aspects of the loan are identical, someone borrowing 80% of the purchase price may get an interest rate of 6.250% whereas someone borrowing 65% of the purchase price may get an interest rate of 5.875%.
What is included in my mortgage payment?
You can elect whether or not you wish to have impounds built into your loan -- having impounds is the more traditional type of mortgage payment and provides more security but also has its disadvantages.
With impounds, your monthly payment includes : your mortgage payment, property tax, and homeowner's insurance. The lender will take your entire monthly payment and reserve the additional impound portion to pay for your property tax and your insurance premiums when due. The disadvantage? When you first close escrow on your property you are required to pay two additional months of reserves to the lender to start the impound account. Also, by having to pay the additional amount every month you cannot invest your money and make a return, your money will be tied up in the impound account.
Without impounds, your monthly payment includes : your mortgage payment. You will be responsible for putting aside sufficient savings to pay for property tax and homeowner's insurance when due.
How can I find out about my credit score and history on my own?
It is now governmen-mandated that every individual has the right to pull his or her own credit report once a year free of charge through the three credit bureaus: TransUnion, Experian, and Equifax. In order to this go to the official website Annual Credit Reports. There you can pull your credit for free without any hidden agendas or sales pitches. You must pull your credit individually through each bureau in order to obtain the most thorough version of your credit report.
If you would like to monitor your credit more often than once a year you can subscribe with the individual credit bureaus for their memberships which offer monthly credit updates and more.
Do you charge an application fee?
No. For some banks and brokers, an application fee is a standalone fee to compensate the loan officer for time spent in the preliminary stages of the relationship with the client. This is generally in case the application does not go through or the client backs out. For other banks and brokers, an application fee is a fee that in addition to the standalone fee mentioned above also includes the expenses of appraisals, credit reports, and other third party reports that must be generated for the lenders.
To avoid charging an application fee we do not request for an appraisal to be done until we have received the loan approval and have begun the mortgage application process entirely. We do however pull your credit report, but we do this in good faith that the client will not back out later in the process. All other third party fees will be charged accordingly through escrow rather than through an additional application fee where you are charged even more for services.
What other fees are there during the process that I should know about?
The other fees make up the closing costs. Some of these fees include :
- Title: Lender's title insurance, Borrower's title insurance, document prep fees
- Appraisal
- Credit Report
- Property inspection (optional but recommended)
- Transfer Tax
- City & County Tax
- Non-Recurring Closing Costs: prepaid interest, prepaid tax transfe
What documents do I get at closing?
You are provided with the standard documents that you have paid for including :
- Appraisal Report
- Credit Report
But you are also provided a customized closing report created specifically for you and your new property. The report is a joint effort written by your mortgage consultant and Simpluxe.
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