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  1. What are points?
  2. What is Credit Scoring?
  3. What is the difference between conforming and non-conforming loans?
  4. How much for a down payment do I need?
  5. Who are the 3 most common Credit Reporting Agencies ?

Please scroll down for additional information.

What is an Annual Percentage Rate (APR)?

The annual percentage rate (APR) is an interest rate that reflects the cost of your mortgage loan as a yearly rate and is different from the actual note rate.  It is commonly used to compare loan programs from different lenders.

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What are points?

Points are loan fees that are paid to lenders and mortgage brokers. One point = 1% of the loan amount. There are two different types of points: origination points and discount points. Origination points are charged by a mortgage company as a fee to process and approve your loan, while discount points are used to buy down the rate of interest, and typically are passed through to the investor to secure that lower interest rate.

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What is Credit Scoring?

Consider if everyone had perfect credit and think about what it takes to really have it. If you pay your bills on time, you're never late on your credit card payments, you are generally considered a no-risk, then you're probably an A-1 customer. The standard range for credit scores are 300's to a high above 800. The score represents a statistical evaluation of how likely you are to default on a loan. The lower the score, the higher you are likely to default. Lateness, collections and bankruptcies weigh most heavily against your credit score.

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What is the difference between conforming and nonconforming loans?

The term "conforming," as opposed to "nonconforming," is sometimes used to explain loans that offer terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These are the two private, congressionally chartered companies that buy mortgage loans from lenders, thereby ensuring that mortgage funds are available at all times in all locations around the country.

The most important difference between a loan that conforms to Fannie Mae/Freddie Mac guidelines and one that doesn't is its loan limit. Fannie Mae and Freddie Mac will purchase loans only up to a loan amount of $417,000.

If your loan amount will be for more than the conforming loan limit, the interest rate on your mortgage may be higher or you may have slightly different underwriting requirements. 

FYI: Nonconforming loans are sometimes called "jumbo loans."

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How much for a down payment do I need?

There are some mortgages that are available which only require no down payment.  Although, when the down payment is larger, less you have to borrow, and the more equity you'll have.  Mortgages with a down payment under 20% generally require a mortgage insurance policy to secure the loan unless you use "creative financing" such as an 80/20.  (An 80/20 loan program is where the first mortgage is 80% of the sales price and the 2nd mortgage is the remaining 20% of the purchase price.)

Who are the top 3 Credit Reporting Agencies?

EQUIFAX

EXPERIAN

TRANS-UNION

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How much money can I qualify for?
You can usually obtain a mortgage valued at between two and three times your annual household income, assuming you have an average debt load.
  • What if I've had credit problems?
    You need to explain the circumstances. If you have overcome the problem and kept up with your obligations on a timely basis for a year or more, most lenders will accept your mortgage application.
  • What is the difference between a conventional loan and an FHA loan?
    With loans insured by Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), you can qualify for a mortgage with a 5% down payment, or even no money down.
  • What is "private mortgage insurance?"
    Private mortgage insurance may allow you, even if you do not qualify for an FHA-insured or VA-guaranteed loan, to purchase a home for as little as 5% down. Such coverage requires a monthly insurance fee to be paid.
  • Who are "Fannie Mae," "Freddie Mac" and "Ginnie Mae?"
    So you might ask. However, it is not "who," but "what."
    • "Fannie Mae" is the colloquial term for the Federal National Mortgage Association, an institution incorporated by Congress which buys and sells conventional residential mortgages, as well as FHA-insured and VA-guaranteed mortgages.
    • "Freddie Mac" is the Federal Home Loan Mortgage Corporation, an agency that purchases mortgages from insured savings institutions and HUD-approved mortgage bankers.
    • The Government National Mortgage Association - "Ginnie Mae" - funds residential mortgages insured through the FHA or guaranteed by the VA.
  • What is the difference between fixed rate mortgages and adjustable rate mortgages?
    The differences are as follows:
    • Fixed rate mortgages are offered with an interest rate that remains unchanged for the term of the loan.
    • Adjustable rate mortgages -- sometimes referred to as ARMs and also called variable rate mortgages -- have rates that change at predetermined intervals during the term to reflect general interest rates.
  • What is a "convertible mortgage?"
    This is a mortgage that allows a borrower to convert from an adjustable rate to a fixed rate during specified time periods. An extra fee usually applies.
  • What is an "adjustment interval?"
    This is the time between changes in the interest rate and/or the monthly payment on an adjustable rate mortgage.
  • What is "amortization?"
    Amortization is the division of principal and total interest charges into equal payments that will result in the complete payment of the debt by the end of a fixed period of time.
  • What are "points?"
    Points (sometimes called "loan discount points") are pre-paid interest on your mortgage, charged at closing. Each point is equal to 1% of the mortgage amount.
  • What does "APR" stand for?
    This stands for annual percentage rate and reflects the annual cost of the mortgage, taking into account points and other credit costs. The APR can be used to compare the annual cost of different types of mortgage loans.
  • What is an "index?"
    An "index" is a financial reference rate on which a lender bases mortgage and other loan rates. Typical indices include the rate of return on 1-, 3- or 5-year U.S. Treasury bills or the monthly average interest rate on loans closed by savings and loan associations. As this rate goes up or down so, too, will your mortgage rate.
  • What is a "buy-down?"
    A "buy-down" occurs when a lender lowers the interest rate on a mortgage -- for a fee -- for the first few years of the loan.
  • What are "caps?"
    "Caps" are limits that are placed on the changes allowed in the interest rate and/or monthly payment on an adjustable rate mortgage.
  • What is "locking-in?"
    "Locking-in" means that -- for a fee -- your lender will guarantee the interest rate on your mortgage for a limited period, regardless of fluctuations in market rates. If you are concerned that rates will go up between the time you apply and the time the loan closes, you should lock-in.
  • What is "PITI?"
    It is simply "Principal, Interest, Taxes and Insurance" -- the components of your total monthly mortgage payment.
  • What is an appraisal?
    An estimate of the value of the property you intend to buy or reference.
  • What is closing?
    "Closing" is the date set when the buyer, seller and lender -- or their agents -- agree to legally transfer the property and all associated funds, or reference the property.
  • What is "escrow?"
    "Escrow" is the process wherein a neutral, third-party is responsible for carrying out the buyer's and seller's instructions and paperwork relating to closing. Escrow can also refer to an account set up by the mortgage lender into which a portion of each mortgage payment is deposited to cover insurance and taxes, or an account set up to hold funds for needed repairs.
  • What are "closing costs?"
    "Closing costs" are those costs that include the mortgage broker's fee, discount points, appraisal and title search fees, insurance charges, survey fees and other charges associated with the legal transfer of the property. These costs typically amount to between 2% and 3% of the mortgage amount.
  • What happens at closing?
    This is also called the "settlement." The buyer, seller and lender -- or their agents -- meet and legally transfer the property and all associated funds.
  • How often do I have to make mortgage payments?
    This depends on the lender you choose as you may select from monthly, bi-weekly or weekly payments.
  • What happens if I'm late with a payment of miss a payment?
    Continued delinquency (late payment) or defaulting on the mortgage (failing to make one or more payments) can lead to foreclosure, or judgements against you on the note for the amount owed.
  • What is "foreclosure?"
    "Foreclosure" is a legal action undertaken by a lender to sell a mortgaged property in order to pay a defaulting borrower's debt.
  • What if I want out of my mortgage?
    You may pay off the loan prior to the end of the term. Some mortgages do have a prepayment penalty, buy many do not. Please feel free to ask us about the program you are applying for. 
 

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