How
is the interest rate determined?
What
are "Points?"
How
is my monthly payment determined?
Will
my monthly payment always be the same?
How
do you determine the amount for which I qualify?
What
is a debt-to-income ratio?
What
is LTV?
What
is FICO?
Can
I receive a loan if I am self-employed?
What
does it cost to submit a loan application?
When
do I apply for a loan?
After
I submit my loan, what happens next?
What's
APR?
What
is Prepayment Penalty?
What
is Private mortgage insurance (PMI)?
What
is Title Insurance?
What
is Title Insurance Protection?
Why
do I need a Title Insurance Policy?
When
do I need Flood Insurance?
What
do I need to know about Homeowners Insurance?
How
is the interest rate determined?
Home loans are bought and sold daily by large
privately owned multinational corporations, as well as by quasi-governmental
organizations such as the Federal National Mortgage Association
(known as Fannie Mae) and the Federal Home Loan Mortgage Corporation
(known as Freddie Mac). These groups set a price they will pay
for loans every day, prices that can be locked in for a prescribed
number of calendar days out into the future. These are called
"forward commitments," and generally translate into
rates which can be offered to individual borrowers for "locking-in"
a rate for their home loan.
Since billions of dollars in home loans are bought and sold
every day, the rate/point combinations offered by most lenders
are remarkably similar. The biggest difference occurs when one
lender or another needs to charge more to cover a higher overhead
expense. Factors which negatively affect interest rate are past
credit problems of the borrower, inability or unwillingness
to prove income or assets, low equity positions, and unique
property situations. TOP
What
are "Points?"
Points refer to percentage points of the loan
amount. Usually, one point or more is charged as a loan origination
fee to compensate the loan company and Mortgage Specialist arranging
your loan. These are called "Origination Points".
Also, additional points or partial points may be paid to lower
the interest rate from the "par" rate, with "par"
being the rate achieved by paying only one "point."
These are referred to as "Discount Points," since
they can lower your interest rate. When you hear the term "zero
points loan," this refers to a loan with no discount points
and with a rate about 1/4% higher than a loan with one origination
point.
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How
is my monthly payment determined?
Your monthly loan payment is usually determined
by using an "amortization" table. To amortize means
to gradually pay off, and all loans must eventually be repaid.
Using the loan amount, the interest rate, and the term of the
loan, one can determine the minimum monthly payment needed to
pay of a loan by the end of the term, and this what lenders
do when they calculate your minimum monthly payment.
Sometimes lenders require that you pay the monthly amount for
property insurance and property taxes along with your loan payment.
This is called "impounding" your taxes and insurance
so that you won't have to come up with a large lump sum periodically
during the year, potentially causing a strain on your budget.
Even if the lender doesn't require that monthly tax/insurance
payments be included with your loan payment, you can request
that this be done.
TOP
Will
my monthly payment always be the same?
If you have a fixed interest rate and term, your
payment will not change from month to month as long as you make
payments on time.
TOP
How
do you determine the amount for which I qualify?
We look at several factors in determining the
type and amount of loan for which you qualify. Factors include,
but are not limited to, whether or not you own a home, the amount
of equity you have in your home, the total amount of debt you
carry, your income, and payment history.
TOP
What
is a debt-to-income ratio?
A
widely used measure of financial stability, your debt-to-income
ratio is calculated by dividing monthly minimum debt payments
(excluding mortgage or rent payments) by monthly gross income.
For example, someone with a gross monthly income of $2,000 who
is making minimum payments of $400 on loans and credit cards
has a debt-to-income ratio of 20 percent ($400 / $2000 = .20).
Other authorities may offer slightly different definitions of
debt-to-income ratio. While variations will result in different
percentage outcomes, the overall concept is the same: a debt-to-income
ratio compares debt load to income.
TOP
What
is LTV?
A ratio that indicates how much of your home's
equity you're borrowing. For example, if your home is appraised
at $100,000 and you have a $60,000 mortgage balance, you have
$40,000 in home equity. $60,000 dived by $100,000 equals to
60% LTV. Many lenders only allow you to borrow up to 80% loan-to-value.
TOP
What
is FICO?
FICO stands for Fair Isaac & Company, and credit scores
are reported by each of the three major credit bureaus: TRW
(Experian), Equifax, and Trans-Union. The score does not come
up exactly the same on each bureau because each bureau places
a slightly different emphasis on different items. Scores range
from 365 to 840. More info on FICO scores.
TOP
Can
I receive a loan if I am self-employed?
There are many loan options for self-employed borrowers. Contact
us to find out which one best suits your needs.
TOP
What
does it cost to submit a loan application?
It costs nothing to submit a loan application. You can submit
your application and become pre-qualified for a loan without
incurring any charges. Later on, fees may be incurred for a
property appraisal and eventually closing costs.
TOP
When
do I apply for a loan?
Before you start looking for a home to buy, apply for a loan.
It is an essential piece of information as part of the home-search
process to determine your affordable price range using today's
interest rates.
TOP
After
I submit my loan, what happens next?
Once your loan has been submitted, one of our loan officers
will be assigned to your account and will be calling you with
information about your loan.
TOP
What's
APR?
APR stands for Annual Percentage Rate. It is one of the most
misunderstood numbers when people apply for loans. As mortgage
loans have become more complicated, it has become necessary
to regulate the way lenders advertise and notify the potential
borrower of their interest rates.
The APR is an attempt to help individuals compare similar loans
from lenders and to explain the total cost of credit they will
be borrowing. The APR is defined as the cost of credit to the
borrower in relation to the amount borrowed expressed as a yearly
rate. This is required by the Federal Truth in Lending Act,
Regulation Z.
When you apply for a mortgage, you will receive the Federal
Truth in Lending Disclosure form. In the following boxes, you
will see lots of numbers. As you will notice, the APR is slightly
higher than the note rate. This is because the APR includes
other items associated with obtaining a mortgage.
The APR utilizes the costs paid out of your pocket for the loan
to identify a true cost of loan. Even though you may pay for
items out of your pocket, and not include them in the loan,
these costs are still incurred to obtain the loan. Therefore,
they should be included in an overall cost analysis for you
to obtain the loan.
You will pay for items such as processing, underwriting, etc.
out of your pocket. These will not be included in the loan amount.
However, they are still costs to you in order to obtain the
loan. There will be a calculation to include the impact of these
costs to your overall cost. You will not pay any more for the
loan over time. You will need to have all of the information
to determine the best loan based on APR.
The following fees ARE generally included in the APR:
• Points--both discount points and origination points
• Pre-paid interest. The interest paid from the date the
loan closes to the end of the month
• Loan-processing fee
• Underwriting fee
• Document-preparation fee
• Private mortgage insurance
• Appraisal fee
• Credit-report fee
The following fees are NOT normally included in the APR:
• Title insurance or abstract fee
• Escrow fee
• Attorney fee
• Notary fee
• Title or Attorney Document preparation (charged by the
closing agent)
• Home inspection fees
• Recording fee
• Transfer taxes
Use the APR as a starting point to compare loans. The APR is
a result of a complex calculation and not clearly defined. There
is no substitute to getting a good-faith estimate from each
lender to compare costs. Remember to exclude those costs that
are independent of the loan.
TOP
What
is Prepayment Penalty?
Prepayment penalties are those charges which a lender imposes
if you wish to pay off your loan early. Typically home mortgages
are written for 15 or 30 year periods of time. While you may
not hold the mortgage for the full term, it is likely that you
will probably stay in the property longer than just one or two
years.
Loans with a prepayment penalty usually have a lower interest
rate. But, in exchange for this lower rate, you'll have to pay
a penalty if you pay off the loan early (within the first three
years of buying your home). This penalty can be up to 3% of
the loan amount.
For this reason, you should carefully read your note and mortgage
documents, in particular the prepayment penalty clause to understand
conditions which would apply to your loan. The loans which will
carry a prepayment penalty often penalize you only for paying
off the loan early in the first five years, and thereafter a
graduating scale may apply, or there may be no prepayment penalty
at all after that initial five year period.
To find out if your loan will have a prepayment penalty you
should first look at the type of loan you will be acquiring.
Traditional loans with fixed rates of interest usually do carry
a prepayment penalty while loans with an adjustable interest
rate generally do not carry the prepayment clause. There are
some types of home loans which re prohibited by law from charging
prepayment penalties. These loans include FHA and VA loans and
federally chartered credit union loans. Prepayment penalties
are illegal in some states, so you may want to check with your
lender or attorney for the laws which apply for your state.
To find out if your loan will have a prepayment penalty, ask
your lender when you first apply for your loan. Ask how much
the prepayment penalty will be if there is to be one, and for
what period of time it will apply.
It is best to find out all the details about any prepayment
penalty which may apply to your loan before you sign your loan
documents. Ask questions, and if there is to be a penalty, ask
if the lender would consider waiving the prepayment penalty
for you. You never know when your circumstances may change and
you may want to pay off or refinance your existing mortgage.
To find out what your Prepayment Panalty is use this formula:
TOP
What
is Private mortgage insurance (PMI)?
Private Mortgage Insurance (PMI) insures lenders against loses
when they have to foreclose and can only sell their foreclosure
properties for less than the loan balances. Let’s say
that a lender lends you a $142,500 to buy a $150,000 house.
You live there for a year, fall upon a hard time, and stop making
payments. The lender forecloses, takes the house back, and resells
it for the best price anybody will pay at the time, $135,000.
Somebody has to take the loss on this loan. Without PMI, the
lender has to take loss; with it, the insurer takes the loss.
Most lenders now require PMI whenever they lend more than 80%
of the appraised value of the property. Some lenders will even
lend as much as 100% of appraised values as long as the PMI
is secured on the loan.
PMI can help you buy a house by enabling you to make a smaller
down payment than you would otherwise make. Because many lenders
forbid the borrowing of any of the down payment, you would not
have to tap all of your savings accounts to come up with a down
payment. You could come up with it yourself comfortably. By
making a down payment which is only a small percentage of the
price, you would also be able to buy a bigger house than your
savings would otherwise warrant even though you could well afford
to make large monthly payments.
Most lenders will allow you to terminate PMI when your loan
balance is 80% of the value of your house or less, a requirement
which may be met by a reduction in the loan balance itself and/or
by application in the value of the house.
Should you believe that your loan balance is low enough to warrant
the cancellation of your PMI, contact your lender and find out
what you need to do for lender to drop the PMI requirements
on your loan. With the requirement dropped, you’ll save
having to pay the PMI premiums every month.
TOP
What
is Title Insurance?
A policy of title insurance is a contract of indemnity between
the insured and the insuring company relating to the title to
the land described in the policy, protecting the insured against
loss of damage by reason of defects, liens or encumbrances of
the insured title existing at the date of the policy and not
expressly excepted from its coverage.
The policy is issued after a complete search and examination
of the public records and shows the condition of the record
title, including any money obligations outstanding against the
property, easements and other matters which may affect the rights
of ownership, possession and use of the property.
Title insurance protects the "record" title, insuring
it is good subject only to the exceptions expressly set out
in the policy. lt also insures against certain matters which
do not appear of record, such as forgery, identity of parties,
incompetence of former owners, interest of missing heirs, and
status of individuals not having the "right" to sell
property.
There are different types of policies. Owners policies are issued
to real estate owners. Purchasers policies are issued to purchasers
of real estate under contract. Mortgage policies are issued
to mortgage companies. In addition there are several other special
forms of policies. There is a type of policy to meet the requirements
of almost any form of real estate transaction.
TOP
What
is Title Insurance Protection?
Title Insurance insures that the "record" title is
good subject only to the exceptions expressly set out in the
policy. lt also insures against certain matters which do not
appear of record, such as forgery, identity of parties, incompetence
of former owners, interest of missing heirs, and status of individuals
not having the "right" to sell property.
The standard owner’s policy and standard mortgage policy
are based on public records of the recording district in which
the land is located. It does not insure against matters which
would only be disclosed by actual inspection or survey of the
property. It does not insure against certain matters not shown
by the public records such as unrecorded easements, liens or
money obligations; unrecorded utility rights of way, public
or private roads, community driveways and other types of encumbrances,
or against the rights or claims of persons in possession of
the property which are not shown by the public records.
Upon application, the issuing company may specially cover matters
which are disclosed by a physical inspection and/or a survey
of the property, subject to any exceptions which the inspection
will determine to be proper. An additional risk premium is charged
for this type of coverage. Insurance of this kind is called
extended coverage.
TOP
Why
do I need a Title Insurance Policy?
An owner's policy protects only the owner while a mortgage policy
protects only the holder of the mortgage on the property. Separate
policies are required to protect both interests. Special rates
are available when both owner's and mortgage policies are applied
at the same time.
The owner’s policy of title insurance usually is issued
after the deed to the buyer is delivered and recorded. A purchaser’s
policy is usually issued after the contract has been executed
by both parties or after the signed contract has been recorded.
The mortgage policy of title insurance is usually issued after
the mortgage or deed of trust has been properly executed and
recorded.
The coverage of your policy is against all matters that appeared
of record up to the date of issuance of your policy. Since that
time many documents may have been recorded, some of which may
affect the title to your land. Taxes and assessments may have
accrued and be unpaid. There may have been actions in court
affecting your title. The purchaser is entitled to have full
information and protection as to the condition of the title
right up to the date of his purchase. In addition, there may
be matters of record which would prevent either the seller or
buyer from selling, buying, or mortgaging land until such matters
have been cleared. These items include such things as federal
tax liens, judgments, incompetencies, divorce actions, and other
conditions which the title search may disclose.
TOP
When
do I need Flood Insurance?
Flooding is not covered by a standard homeowner’s insurance
policy.
To determine if you need flood insurance, ask your insurance
professional, mortgage company or neighbors about the flood
history in your area. If there is a potential for flooding,
you should consider purchasing a policy that covers the structure
and your personal belongings.
Flood insurance can be purchased from an insurance agent or
company under contract with the Federal Insurance Administration
(FIA), part of the Federal Emergency Management Agency (FEMA).
Flood insurance is only available where the local government
has adopted adequate flood plain management regulations under
the National Flood Insurance Program (NFIP).
TOP
What
do I need to know about Homeowners Insurance?
When you insure your home, you should insure your home for the
total amount it would cost to rebuild your home if it were destroyed.
If you don't have sufficient insurance, your insurance company
may only pay a portion of the cost of replacing or repairing
damaged items.
There are three ways to insure the structure of your home:
1. Replacement Cost: Insurance that pays the policyholder the
cost of replacing the damaged property without deduction for
depreciation, but limited to a maximum dollar amount.
2. Guaranteed Replacement Cost: Insurance that pays the full
cost of replacing damaged property, without a deduction for
depreciation and without a dollar limit. This coverage is not
available in all states and some companies limit the coverage
to 120 percent of the cost of rebuilding your home. This gives
you protection against such things as a sudden increase in construction
costs due to a shortage of building materials.
3. Actual Cash Value: Insurance under which the policyholder
receives an amount equal to the replacement value of damaged
property minus an allowance for depreciation. Unless a homeowner’s
policy specifies that property is covered for its replacement
value, the coverage is for actual cash value.
For a quick estimate of the amount to rebuild your home, multiply
the local building costs per square foot by the total square
footage of your house. To find out the building rates in your
area, consult your local builders association or real estate
appraiser.
Factors that will determine the cost to rebuild your home:
• local construction costs
• the square footage of the structure
• the type of exterior wall construction -- frame, masonry
(brick or stone) or veneer
• the style of the house (ranch, colonial)
• the number of bathrooms and other rooms
• the type of roof
• attached garages, fireplaces, exterior trim and other
special features like arched windows.
Also be sure to check the value of your insurance policy against
rising local building costs each year. Ask your insurance agent
or company representative about adding an "INFLATION GUARD
CLAUSE" to your policy. This automatically adjusts the
dwelling limit when you renew your policy to reflect current
construction costs in your area. Also, be sure to increase the
limit of your policy if you make improvements or additions to
your house.
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|
Deonas Mortgage Services |
9 North 14 Street
Fernandina Beach, FL.32034
( Amelia Island )
904-277-0893
904-277-0006 |
