1. What documentation does the lender typically require to process my mortgage?

It depends on the quality of your credit and the amount of equity you have in your property. On the typical fully documented mortgage (when an applicant is seeking to qualify on an employee’s salary) the lender will require: one month’s current pay stubs, W-2’s for the prior two years and bank and investment account statements for the prior 2-3 months. If an applicant is self employed (having 25% or greater ownership in a business) then additional documentation may be required.

2. Are there limited documentation mortgages available? (a.k.a. EZ doc, no income qualifier)

There are a variety of programs available with limited documentation. Some have self-employment, credit, equity or asset requirements, so it may be advisable to have a mortgage consultant direct you to the appropriate product for your needs. Also there are mortgages available for individuals who cannot verify either their income or assets; these are referred to as NINA mortgages. Keep in mind that these products may carry higher interest rates than that of a mortgage that is fully documented. The more documentation a borrower can provide for the lender, the lower the rate they will typically get.

3. How can I avoid having to get mortgage insurance?

Many borrowers choose a combination first and second mortgage, when having less than 20% equity in their homes, in order to avoid mortgage insurance. The 80-10-10 (an 80% 1st mortgage, 10% 2nd mortgage with 10% equity) is the most common method of financing without mortgage insurance. An 80-15-5 (requiring an 80% 1st mortgage, 15% 2nd mortgage with 5% equity) is also available.

4. Should I pay points up front to reduce the interest rate?

When points are paid on a mortgage, the result is to buy down the interest rate. Typically 1 point (or 1%) will buy the rate down .25%. The key to analyzing whether paying points makes financial sense is to determine: 1.) How long do you anticipate remaining in the property? 2.) When would the breakeven point occur? Example: If you pay two points to buy your rate down from 8.00% to a 7.50% on a $300,000 mortgage, the payment at 8.00% would be $2,201 and at 7.50% the payment would be $2,098, with the difference in payment being $103/month. Two points would cost $6,000. Dividing that by the savings of $103/month it would take 58.2 months or 4.85 years to break even. You would want to hold the mortgage and remain in the property approximately 5 years for this to make sense. Other factors to consider are the tax implications of paying points as well as the time value of money. In other words, could the money be put to a better use?

5. Is it possible to obtain a no cost mortgage when refinancing your mortgage?

Yes, no cost mortgages are very popular among refinances. It is easy to analyze how soon money is saved on a monthly mortgage payment by refinancing, because a borrower pays no non- recurring closing costs. Many homeowners will consider refinancing for as little as .25% improvements to their mortgage rate with no-cost mortgage refinancing.

6. What is a mortgage prepayment penalty and is it advisable to get a mortgage that has one?

A prepayment penalty on a mortgage allows the lender to charge a borrower additional interest, usually six months worth, when a mortgage is repaid during the penalty period, which is typically somewhere in the first three to five years of the mortgage. If the mortgage does have a prepayment penalty, this is clearly stated in the mortgages disclosers. It will either be stated on the mortgage note or a prepayment penalty rider to the note. The advantage of taking a mortgage with a prepayment penalty is that it could carry a lower rate of interest or you may be permitted to take a mortgage without paying for non-recurring closing costs.

7. What is an Adjustable Rate Mortgage?

It is a loan under which the interest rate is periodically adjusted to more closely coincide with current rates. The amount and times of adjustment are agreed to in the Adjustable Rate Note signed by the homeowner.

8. What is a balloon loan?

It is usually a five or seven year loan calling for payments which are insufficient to fully amortize the amount of the loan before the maturity date. This creates a principal sum, known as a balloon payment, which is due at maturity.

9. How do I know if it makes sense for me to refinance?

First you need to determine your financial related goals. For example; are you looking to improve your monthly cash flow, reduce you mortgage term, do you need to take cash out utilizing the equity from your home? Getting the right mortgage for you particular needs could make sense even when rates are not at their lowest levels. First you should identify your goal and contact a mortgage professional for suggestions on mortgage programs that would best help you meet you objectives. Then you should shop for rates after you have selected the appropriate mortgage program.

10. What is the difference between a conforming and a non-conforming, jumbo, mortgage?

A conforming mortgage is one that does not exceed the maximum mortgage limit of the two primary Government Sponsored Enterprises (GSE’s), Fannie Mae and Freddie Mac. The current conforming maximums are: $333,700 for a 1 unit property, $427,150 for a 2 unit property, $516,300 for a 3 unit property and $641,650 for a 4 unit property. These maximums apply to all states except Alaska and Hawaii. There for a jumbo mortgage is one that has a mortgage amount exceeding the aforementioned limits. The interest rates on jumbo mortgages are typically between 1/4- 5/8 % higher than on conforming mortgages.

11. What is the difference in rate for non-owner occupied vs. owner occupied financing, when refinancing investment or rental property?

Conforming non-owner occupied rates are typically 3/8% higher than owner occupied interest rates. The equity requirement is usually higher for non-owner occupied mortgages as well, usually 20-30%

12. What is a home equity loan and what can I use it for?

You can tap into you home’s equity and use the money to consolidated debt, finance your remodeling projects, buy a new car, pay your children’s tuition, or even take your dream vacation. This allows you to take advantage of interest rates that are often lower than credit card interest rates. Interest on both a home equity loan and line of credit may be tax deductible.

13. What is the difference between a home equity loan and a home equity line of credit?

Most home equity loans are simply second mortgages. They have fixed rates with varying terms over a period of time. Theses loans are amortized, so your monthly payment is applied to principal and interest. You receive the amount of money you borrow in one lump sum. For this reason, home equity loans can be ideal for short term financial goals. A home equity line of credit is a revolving line of credit from which money may be drawn. You can continuously use it for a certain amount of time up to your credit limit. One of the best parts of a home equity line of credit is that the interest rate is usually lower than a credit card and the interest paid might be tax deductible.

14. What is a loan assumption?

It is a transaction in which a person takes over responsibility for the loan exactly as it is. The terms, principal balance, interest rate, and monthly payments do not change. The monthly payments are made without lapse.

15. Do I have a “grace period”?

Most Notes provide a period of time after the due date for payments to be received before a late fee is assessed, though the payments are sill considered late. It is recommended that every effort be made to ensure your payment is received by the due date, to avoid the risk of damage to your credit or the assessment of a late charge.

16. Do I need to carry insurance on my home?

The terms of you mortgage require that you have homeowners insurance on your property for an amount equal to the remaining loan balance or the insurance value of your property (whichever is less). Keep in mind, this is a safeguard to protect both your and our interest in the property should any damage occur.

17. Can I pay my own insurance?

If you have a VA, FHA or Conventional loan with Private Mortgage Insurance, your insurance premium must be collected and paid through your Lender’s escrow account. For other types of loans you may possibly have the option of paying your insurance separately. Some Lender’s may charge a slightly higher interest rate or fee to avoid including escrow in your loan. Please keep in mind that an escrow account provides a convenient, no-hassle service by allowing your Lender to pay your insurance premiums for you.

18. Do I have to have Flood Insurance?

Federal law requires you to maintain and provide proof of flood insurance coverage, if your property lies within flood zone “A” or “V”. Otherwise your lender will not require you to carry flood insurance.

19. Why did my payment increase?

Your monthly payment will increase or decrease with any changes to your taxes and/or insurance. Your taxing authority and insurance company/agent will notify your Lender when they make any type of change, which will affect your monthly payment. You may wish to contact your local taxing authority or insurance company/agent for details concerning changes to your annual bills.

20. Why am I being billed for property taxes when I just bought my home?

Property taxes are assessed against the property, not the person. The Treasurer’s Office does not pro-rate taxes between new and prior owners. However, during the closing of a typical real estate transaction, tax amounts are prorated between buyer and seller. You may confirm this by reviewing your closing statement.

21. What should I do if I receive a tax bill?

If your loan is not escrowed for tax payment, you should pay the amount due to the taxing authority listed on you bill. If your loan is escrowed and the tax bill you received has not been paid, please write your loan number on the bill and fax it to the tax department, and notify your lender.

22. Why do I need to pay for another policy of title insurance when I already own the property and purchased title insurance when we bought the house?

Your lender must be certain that the title to the property will be free and clear, free of prior defects and indebtedness, before closing your new mortgage. A new policy is needed to protect the new lender and subsequent investor of your new mortgage. A homeowner and prospective lender need to be certain that what is available on the property is what is referred to as a “marketable title”. A title company researches the legal history of the property that entails searching public records in the offices of the county recorder. Problems with the title could threaten the mortgage, limit ones use and enjoyment of the property and could result in financial loss. A policy of title insurance protects a homeowner’s title and the insurer covers the cost of any legal challenges.

23. Does it remove my liability, if I deeded my interest in the property to my spouse or someone else?

No, deeding your interest in the property to someone else only means that you no longer own the home. You are still obligated to make the payments, as stated in your Note and Mortgage.

24. Am I still liable for the loan if my spouse is obligated to make the mortgage payment under our divorce agreement?

You are still liable for the payments if you signed the Note and Mortgage. A divorce agreement does not alter you obligation to make payments.

25. What if my loan is in foreclosure and I want to reinstate my mortgage?

You can reinstate your mortgage at any time up to the foreclosure sale date if you pay all past due payments plus any fees and costs associated with the foreclosure. There are a few states, such as Michigan, where the mortgagor can redeem the property after the sheriff sale date. Redemption involves a total due payment to a court official, for the amount that was established by the foreclosure action.