Frequently Asked Questions

• Whenever loans are discussed, they talk about APR. What is it?
  
  
• I see that various lenders charge different points. What are points and why do they differ from loan to loan?
  
  
• I was told I needed PMI, but my friend didn’t. What is PMI, and what is the difference in our loans?
  
  
• What is the difference between fixed rate and adjustable rate mortgages?
  
  
• Is it better to be pre-approved?
  
  
• How long does it take before my loan closes?
  
  
• What is the difference between obtaining a loan through a bank and a mortgage broker?
  
  
• What if I have less than perfect credit?
  
  
• How much interest is saved on a 15-year loan versus a 30-year loan?
  
  
• What is the length of the interest rate lock and what does it do for me?
  
  
• I’ve heard that bi-weekly payment plans help save money? If so, how do they work?
  
  
• Why do interest rates fluctuate?
  
  
• How can I ensure that the information on my credit report is correct?
  
  
• How will my credit score affect my loan application?
  
  
• How can I improve my credit score?

Whenever loans are discussed, they talk about APR. What is it?
The APR (Annual Percentage Rate) is the cost of the loan in percentage terms. These are various loan charges that include loan discount points, origination fees, prepaid interest, and document and underwriting fees. These charges are spread over the life of the loan.

I see that various lenders charge different points. What are points and why do they differ from loan to loan?
Points are costs a mortgage company charges a borrower to obtain the loan. Each point is equal to one percentage point of the principal amount of the loan. For example, one point on a $200,000 mortgage would equal $2,000.00. The number of points charged for a mortgage depends on the circumstances. Sometimes it is advantageous to pay higher points and get a lower interest rate so as to end up paying less over the life of your loan. Points are paid at the time of closing and can be deducted as interest on your income tax return. Be sure to talk to your tax professional!

I was told I needed PMI, but my friend didn’t. What is PMI, and what is the difference in our loans?
When borrowers make less than a 20% down payment on a house, they must have PMI (Private Mortgage Insurance). This is required by lenders to partially protect their loss if the borrower fails to make the mortgage payments. Depending on your loan program, but generally when you’ve paid off 20% of your loan and/or when your LTV (loan-to-value) ratio is 80% or below, you may ask for the PMI requirement to be removed which will result in decreasing your total monthly loan payment. PMI deletion requirements vary according to loan program and state requirements.

What is the difference between fixed rate and adjustable rate mortgages?
Great for the borrower who plans on staying in the home for many years, fixed rate mortgages have an interest rate that does not change, determined when one is approved for a mortgage and remaining the same for the term of the loan. Adjustable-rate mortgages (ARMs) have an interest rate that may vary over the course of the loan. Typically, the interest rate is lower the first year, then increases at predetermined intervals, meaning that payments will increase as well. These mortgages are good for the borrower who plans on moving within three to five years.

Is it better to be pre-approved?
It is to the buyer’s advantage to be pre-approved. Pre-approval is credit approval by a lender to an applying borrower, prior to a property being identified. The buyer’s maximum borrowing power is established, which may result in a stronger negotiating position when bidding on homes. This conditional approval is subject to a satisfactory title review and appraisal of the property that will secure your loan, and no substantial changes prior to closing in the information you provide.

How long does it take before my loan closes?
Loan approval can be obtained in as little as 24 - 48 hours. However, it may take longer depending on the particulars of the loan package.

What is the difference between obtaining a loan through a bank and a mortgage broker?
A bank provides mortgage financing with its own funds and those of investors. A broker is a company (or individual) with access to many wholesale mortgage bankers and banking institutions, rather than using the company's own funds.

What if I have less than perfect credit?
There are various loan products for borrowers with less than perfect credit history. They may cost more, but we can still help you obtain financing for your home.

How much interest is saved on a 15-year loan versus a 30-year loan?
The amount saved is dependent upon the amount borrowed and the interest rate charged, but on average, the savings can be up to 60%! For example, interest charged on a $350,000 loan for 30 years at 8.0% would be $574,543, but the interest charged on a $350,000 loan for 15 years at 8.0% with an interest total of $252,060, a savings of approximately 44%.

What is the length of the interest rate lock and what does it do for me?
There are many options available for lengths of time to locking in a rate. These depend on your need for convenience, and your security and protection. The least amount of lock time, the lower the cost. Commonly priced in 15-day increments, (15, 30, 45, 60, etc.) the pricing difference is usually an extra 0.125 to the points per additional 15 days. For example, if the loan points for an interest rate of 7.5% were 1.0 at a 15-day price, then to secure that same rate for 45 days, they would be 1.25 (extra 0.25 for 30 extra days).

I’ve heard that bi-weekly payment plans help save money? If so, how do they work?
Bi-weekly payment plan programs set a system to pay one additional payment per year. Every two weeks, one-half of the mortgage payment is automatically withdrawn from an established account, giving 26 one-half payments, equaling 13 full monthly payments. This will cut approximately 6 - 7 years off of a standard 30-year fixed rate mortgage, therefore saving time on the loan and interest.

Why do interest rates fluctuate?
Interest rates are tied to inflation and the reaction of the financial markets. When inflation increases, mortgage rates will rise because lenders pool loans into securities and then sell them in the secondary market, competing with the entire pool of worldwide investment opportunities. Inflation causes the value of fixed-rate securities to go down, so mortgage rates go up.

How can I ensure that the information on my credit report is correct?
Each of your creditors reports information regarding your various accounts to the credit bureaus who then compile the report. The information changes each time something is added or deleted from your credit file. For instance, paying off an account, opening several new credit accounts, or making a late payment on one of your accounts will appear on your credit record.

The best way to make sure that the information in your credit file is correct is to periodically request copies of your credit report. If you think an entry is in error, notify the appropriate credit bureau and ask that the error be corrected.

Here is contact information for the three leading credit reporting agencies:

• Equifax - Call 1-800-685-1111 or visit www.equifax.com
• Experian - Call 1-866-200-6020 or visit www.experian.com
• Trans Union - Call 1-800-888-4213 or visit www.transunion.com

How will my credit score affect my loan application?
Your credit score plays a significant role when you apply for a loan. People with higher credit scores are eligible for more loan options and better interest rates. If you've had credit difficulties in the past, you may still qualify for some mortgage programs, but these usually cost more, depending on the severity of your credit problems.

How can I improve my credit score?
Your credit score is based on the credit data supplied by your creditors to the credit-reporting agency on the day the score is requested by a lender. To improve your credit score follow these tips:

• Pay your bills consistently and on time.
• Check your credit report and work to correct any errors.
• Keep your spending and debt under control.
• Maintain only a reasonable amount of unused credit.

For example, keep the number of credit cards you use to a minimum. Avoid too many credit inquiries. Contact creditors immediately if you cannot make a payment on time. This may keep them from reporting your delinquency to a credit agency.

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