FAQs
Loan Program and Rate FAQs
What is a blended rate?
The blended rate is the sum of all interest payments on two mortgages over a specified period, divided by the sum of all the balances of the two mortgages over the same period. If the terms of the two mortgages are the same, the blended rate will be the same as the weighted average rate. If the second mortgage carrying the higher rate has a shorter term, however, which is common, the blended rate will be a little lower because the higher rate loan is paid down faster.
What does "APR" mean and why is it different from my interest rate?
APR is the annual rate that is charged for borrowing expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction. The APR is normally higher than your interest rate because it includes interest, points and other finance charges. The APR is used most often to compare different types of mortgages or similar mortgages with different lenders.
What is an ARM?
ARM is short for Adjustable Rate Mortgage. This is a type of loan in which the interest rate can go up or down based on market conditions. These changes are determined by a financial index. ARM loans have a cap or a limit on how much the interest rate can change.
How does "Interest Only" work?
On mortgages with an "interest only" option, the borrower pays only the interest portion of the mortgage payment for a fixed period of time (a five or ten year interest only period is typical). Once the interest only period is up, the principal balance is amortized for the remaining term. The benefit is that the early payments during the interest only period are substantially lower than the later payments. During the intrest only years of the mortgage, the loan balance will not decrease unless the borrower makes additional payments towards principal.
What is an "80/20"? The 80/20 mortgage, often called piggyback loans or 100% financing, allows the borrower to purchase a home without having to submit a down payment or pay private mortgage insurance by taking out two loans - one for 80% of the purchase price and one for the remaining 20%, totaling 100% of the purchase price. The second 20% mortgage backs up the first mortgage, thus eliminating the need for private mortgage insurance.
What is a balloon mortgage? A type of mortgage loan that does not fully amortize over its term. Since it is not fully amortized, a balloon payment is required at the end of the term to repay the remaining principal balance of the loan.
A balloon mortgage can be attractive to short-term borrowers because these mortgages typically carry a lower interest rate than a loan with a longer term. However, the borrower must be aware of refinancing risk and/or the risk that the loan will reset at a higher interest rate. Some balloon loans have a reset option at the end of the five-year term that allows for a resetting of the interest rate based on current interest rates and a recalculation of the amortization schedule based on the remaining term. If a balloon loan does not have a reset option, it is expected that the borrower will sell the property or refinance the loan before the end of the original loan term.
What is a prepayment penalty? Prepayment means paying all or part of a mortgage debt before it is due. This could mean refinancing the mortgage or making substantial payments against the principal. A substantial payment is generally defined as an amount that exceeds 20% of the original principal balance. A mortgage with a prepayment penalty option requires you to pay a penalty or fee if all or most of the loan amount is repaid within a certain time period (generally ranging from 2 to 5 years from the start of the loan). A prepayment penalty option can be found on different types of mortgages, like a 15- or 30-year fixed-rate loan or adjustable rate mortgages.
Property FAQs
What is hazard insurance and when does my premium need to be paid? Hazard Insurance (also known as Home Owner's Insurance) is insurance that protects a property owner against damage caused by fires, severe storms, earthquakes or other natural events. As long as the specific event is covered within the policy, the property owner will receive compensation to cover the cost of any damage incurred. Evidence of insurance on your home is required a minimum of 10 days prior to your closing. The first year's premium must be paid prior to closing and it is the buyer's responsibility to obtain the insurance
Why do I need title insurance? Title insurance is used to protect buyers and home owners against loss arising from problems with the title to your property. The required insurance protects the lender up to the amount of the mortgage, but it doesn't protect your equity in the property. For that you need an owner's title policy for the full value of the home. In many areas, sellers pay for owner policies as part of their obligation to deliver good title to the buyer. In other areas, borrowers must buy it as an add-on to the lender policy. It is advisable to do this because the additional cost above the cost of the lender policy is relatively small.
What is an appraisal? An estimation of the value of real estate for the purpose of taxation, sale, or securing a mortgage. Lenders use an appraisal to establish the home in question's market value in order to justify the amount they are willing to lend. A copy of the appraisal is provided to the buyers at closing.
What is flood insurance? Insurance covering loss or damage to property arising from a flood, flood tide, or the like. Flood insurance is required only if the property being purchased is found to be in a flood zone.
Closing FAQs
What do I need to bring to closing? You should bring a photo id (yourself and any coborrower), a cashier's check payable to the title company for the total displayed on the settlement statement, any additional documents requested by your processor, and you're favorite pen!
What are typical closing costs? Typical closing costs include an appraisal fee, title and closing fees, processing fee, underwriting fee, recording fees, flood certification fee and a tax service fee. In addition to your down payment and these fees, you must also pay interest on the new loan and escrow deposits if they are required by the lender under the terms of your loan.
Where will we close? In most cases, you will close at a title company; however, some closings may take place at an agent for the seller (such as an attorney or realty office).
What is a title company? A title company is the business that actually underwrites the title insurance for your loan, as well as provides the owner's title policy. Title companies also provide closing services for real estate transactions as well as other various real estate-related services.
How do escrows work at closing? If you are escrowing for taxes and/or insurance, the lender will collect taxes up through the month of your closing plus three additional months' reserves. For example, if you are closing in May, the lender will collect a total of eight months' escrows. Keep in mind that on purchases you will receive a tax credit from the seller for the taxes on the property from the beginning of the year through closing. And, if you're refinancing, you can transfer escrow accounts if you are using the same lender, or you will receive a refund from the lender currently holding your escrows - either it will be credited on the payoff or your will receive a check from your original lender after closing.
To whom do I make my cashier's check payable at closing? The cashier's check should be made payable to the title company at which the closing is taking place.
When will I have the final total I need to bring to closing? Our policy is to have your final number to you within two days of your scheduled closing if not sooner! That being said, there are times when the final number is not available as quickly as we would prefer. We will work hard to get your numbers to you as quickly as possible. Your processor will contact you with the final total and will email or fax a copy of the settlement statement to you for review if you like.
Why are the numbers different between my GFE and the final settlement statement? In most cases our GFE (good faith estimate) is very close to the numbers on the final settlement statement. However, there are instances where the numbers differ by more than just a few dollars and cents. Sometimes closing dates change, which means the interest collected by the lender could be higher or lower than originally anticipated. There are other instances as well; however, we try to keep you abreast of any changes - for instance we change investors, you decide to escrow, you select a different program/rate or the purchase price increases etc. - by sending you an updated GFE and TIL (Truth In Lending). If you have an instance where the numbers disclosed are drastically different and you weren't notified, we definitely want to know about it! Please contact customer service immediately.
I'm selling my existing property the same day. Do I need to get a separate check? You do not need a separate check if both closings are taking place at the same title company. Most title companies will accept checks from other title companies in the same locale. If your closings take place in different cities/states, it is advised that you obtain a cashier's check payable to the title company for your purchase. You also have the option of having the funds wired from one title company to another. Please contact customer service for details.
The Process FAQs
If I refinance, how long will it take to close? In most cases, you can expect your refinance to close within 30 days of application. Often our refinance customers are surprised to find that they are closing within two weeks! Sometimes there are delays such as additional documentation requirements or appraisal/title issues, but rest assured we want you to close as quickly as possible and will do everything we can to assist.
Am I required to escrow for taxes and insurance? You are required to escrow for taxes and/or insurance if the loan to value on your mortgage exceeds 80%. In cases where there are two mortgages, the escrow requirement is determined by the loan to value of your first mortgage. If you have questions regarding whether escrows are required, please contact customer service or your home mortgage specialist.
I have received separate disclosures from another lender. Do I need to sign and return these? The disclosures you received are from the investor who will be underwriting and servicing your loan once it closes. These disclosures are for informational purposes as required by law. You do not need to sign and return the disclosures.
How long will it take to approve my loan? Thanks to modern technology, we are able to obtain a conditional loan approval rather quickly. Most investors provide automated underwriting, so a conditional loan approval is almost instantaneous based on the verifiable information you provide at application. Once the conditions of the approval are met, a final loan approval is issued.
If the loan program you have selected requires manual underwriting, your initial conditional loan approval may take longer - 48-72 hours or more in some cases.
In either case, once the conditional loan approval is received, we are able to offer you a loan commitment letter which spells out any additional documentation that may be required by the lender for final loan approval.
What is a conditional loan approval? A conditional loan approval is a commitment from an investor to lend once certain conditions are met. Some typical conditions include verification of assets and employment, satisfactory appraisal and clear title. There may be other conditions requiring additional documentation from you; in these instances your loan commitment letter will detail the additional information required or your processor will contact you directly.
What is prequalifying for a loan and how do I do it? Prequalifying for a loan means completing an application and receiving a preliminary approval prior to putting an offer on a home. This allows you to know how much of a home you can comfortably afford and gives you an idea of what your payments will be. If you would like to prequalify, simply complete an online application from our website! A Home Mortgage Specialist will contact you within a few hours to discuss your options.
Why is my processor or home mortgage specialist requesting additional documentation? Sometimes the investor requires additional documentation to complete the underwriting of your loan. Your processor and/or home mortgage specialist may need to request this documentation from you if it was not provided at your initial meeting. Rest assured, they will not ask for anything they don't absolutely need to complete the loan process! Your assistance in obtaining any additional information in a timely manner to achieve a timely and trouble-free closing is appreciated.
What does "floating" mean? Floating refers to whether you elected to lock your rate or not. Sometimes borrowers are inclined to "float" their mortgage rates until the home closing is close at hand with the hope that rates will improve. For borrowers who prefer less risk, there are longer term locks available! Please contact your home mortgage specialist for details on rate and lock terms specific to your loan program.
What is a verification of employment? A verification of employment is a confirmation of your employment status as presented at application and can be either verbal or written. The processor or underwriter on your loan will obtain a verification of employment from your current and/or previous employer to determine start dates, income and position. Most loan programs require verification of your current and/or previous employment for the last two years.
What is a verification of deposit? A verification of deposit is a written confirmation of assets. If there are assets declared on your loan application and no account statements were provided, a verification of deposit will be needed to show proof of those assets as stated. Please be aware that your bank may charge for this service, so it may be more cost effective for you to provide copies of statements for any assets listed on your application.
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