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Common Questions

Shopping for a mortgage ... some helpful hints.

Good Faith Estimate ... what are they and what should I look for.

Glossary of Terms ... the words and terms in the mortgage industry can be confusing.

Loan Process Questions

Locking a Loan ... when should I lock my loan?

Credit Help ... this page contains helpful information on how to maintain and correct credit issues.

Credit Scores ... where and how can you obtain your own credit score information?

PMI ... (Private Mortgage Insurance) what is it and do I want it?

Appraisals ... some interesting points

Apply Now ... or ... Need to be Prequalifited?

Questions ... can we help?

How do I shop for a mortgage?

Shopping for a mortgage can seem an impossible task at times with interest rates subject to change without notice, different costs associated with closing and points for one thing or another; who really knows what is going on? Actually you can make the process fairly easy with a few simple questions and knowledge of some do's and don'ts.

Your objective as a buyer is to place the companies you speak with all on the same basis so that you are comparing interest rates and costs on the same mortgage program or product. Most lenders or brokers will want to talk to you about a unique product or one that appears different so that it is hard to comparison shop. As the statement goes, you want to be comparing "apples and apples and oranges and oranges, not apples and oranges." To do this you will need to state up front what you want interest rates for and under what conditions or terms.

Important information the loan person will need are:

• Is it a Purchase or Refinance and if refinancing is it a "cash-out" where you receive cash or pay of debt other than the mortgage?

• Is this for your primary home, a vacation which is also called a second home, or is it an investment property.

• Is the property a single family, multi-family, condo or townhouse?

• What loan program are you interest in a fixed or adjustable rate mortgage such as a 30 year fixed rate mortgage?

• Term or length of time to payoff the mortgage; typically 30, 20, 15 or 10 years?

• The purchase price if buying a home or the estimated value if refinancing.

• The loan amount, that is, how much do you want to borrow?

Tell the loan person that you want is an interest rate quote as a percentage and based on the following. The objective here is to receive a single interest rate figure that is as straight forward as possible. After you receive this rate write it down and ask what the monthly payment and any PMI will be? In particular you are looking for a loan with:

• No ... prepayment clause.

• No ... origination points; a percent of the loan amount. Origination points are typically points paid to the lender or broker or both.

• No ... discount points; a percent of the loan amount. Discount points are points paid to reduce the interest rate.

• No ... broker points; a percent of the loan amount. Broker points are points paid directly to the broker.

• A single mortgage, that is, a first mortgage and not a combination of a first and second mortgage.

• Important: This is not the time to talk about paying down the interest rate with discount points or possible seller concessions to pay closing costs or paying discount points.

By now you should have received a mortgage interest rate quote and it is now time to find out about costs. Advise the loan person that you need to know what the total of the 800 series costs, these are the lender fees, for the loan amount discussed. If there are no origination, discount and broker points the loan person should be able to provide this as an unqualified dollar amount ... write it down.

Finally, ask them to provide you with a written Good Faith Estimate. Any reliable lender will be willing to provide this to you to back up what the information they provided. With this information in hand you will now be able to compare companies and mortgage programs in a straight forward manner.

Also remember, interest rates and costs are only part of what is important. You should also ask yourself if the person knowledgeable, courteous, prompt in responding, and seem like a person you will be comfortable working with? Finally, are the person and company you are thinking of working with located within the state you are buying the property in? This may seem unimportant but it can be and is worthy of consideration.

Once you have made you determination place your application with that company and stop shopping in all fairness to both of you.

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Good Faith Estimates 

What is it? It is important to understand that a Good Faith Estimate is just that ... an estimate and not a guarantee. I have had people call me back years to refinance and find out that their current interest rate is higher than what I had quoted them 1, 2 or even 5 years earlier. Work with a reputable company and check their credentials such as their published testimonials.

Are any of the Closing Costs guaranteed? The originator, the lender or mortgage broker, can only guarantee the "lender or 800" fees, excluding appraisal fees. It is important to remember all other fees are third party fees, that is, fees charge buy a company whose fees cannot be controlled by the originator. Just as the originator cannot guarantee what your trash or garbage company will charge they cannot guarantee or determine what the appraise, title company and governmental agencies will charge for their services in your purchase or refinance.

Can I control third party fees? Within limits you can. Naturally, you cannot control governmental fees such as recording fees, document stamps and other similar taxes. You have some impact on other fee such as lender, appraiser and title company fees. You are at this site because you are shopping for a possible originator and part of your shopping includes their "lender or 800" fees.

     Title companies can definitely be shopped ... call around! Make calls to various title companies in the state of your purchase or refinance letting them know what you are doing, the purchase price or appraised value and the proposed mortgage amount. They can give you a specific dollar amount and have them send you a proposal. Be sure you have a proposal sent. I have had borrowers get quotes that were not honored by the title company and this can be corrected by having their proposal in writing.

Specific information to look for on the GFE. Be sure to double check the following:

Loan Program - be sure this states "fixed" or "adjustable" depending on what you are seeking.

Loan Amount - the amount of dollars of financing you are seeking.

Terms - the length of time of financing in "months"; 120 = 10 yrs, 180 = 15 yrs, 240 = 20 yrs, 360 = 30 yrs.

• Line 801 - Loan Origination Fee, has a value only if you are pay points for the originator's services.

• Line 802 - Loan Discount, has a value only if you are "buying down" the mortgage rate.

• Lines 900 - are prepaids or items paid "in advance" such as prepaid interest (interest from the closing day to the end of the month), homeowners insurance (most insurance companies ask for a 12 month premium at the outset) and VA or FHA funding fees.

• Lines 1000 - are reserves deposited, that is, escrows the funds deposited with the lender each month for purposes of paying insurance when it comes due in the future, taxes when they come due and mortgage insurance, if applicable.

• Lines 1100 - are fees charged by the title company.

• Lines 1200 - are fees and taxes charged by governmental agencies.

• Lines 1300 - are additional potential fees such as pest inspection, flood certification, survey, etc.

All items except the 900 &1000 series are considered "closing costs" and 900 & 100 series are called "prepaid" items.

FRM's or Fixed Rate Mortgages are all straight forward and the Good Faith Estimate will provide you with all needed information. If, however, you are asking for an ARM or "adjustable rate mortgage" be sure you understand not just the length of the mortgage but when it will adjust, the "fully indexed" interest rate which may differ from the Good Faith rate, and at times does the rate change and what is the maximum change. PS on this be sure to estimate the maximum because it will probably happen.

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PMI what is it & do I want it? 

What is it? PMI or mortgage insurance is insurance for the lender against default on the mortgage. Before the advent of PMI borrowers needed to put no less than a 20% down payment on their new home. PMI has made it possible for people to finance up to 100% of the purchase price because the lender is guaranteed that even if there is a default they will have 20% equity in the property.

PMI versus a Second Mortgage: Whether an individual should choose to have a single mortgage with PMI or a second mortgage and no PMI depends mostly on how long the borrower plans to own the home. In the short term a second mortgage can be advantageous but in the long term PMI is potentially better. The reason for the difference is a second mortgage never goes away until it is paid off while PMI can go away when the homeowner has 20% equity in the home. With 20% equity and the removal of PMI the homeowner’s monthly payment decreases to reflect the removal of PMI but, as said, the second mortgage remains in place until it is paid off.

When does PMI go away? Traditional PMI can be removed when the loan is at an 80% value of the home by virtue of payments, property improvements and appreciation. If the market in your neighborhood is super hot you may be eligible after only 12 months when you can re-appraise and have the PMI removed. Keep in mind historically home values have consistently increased at a rate of 8-9% per year since the 40’s. This national trend generally makes it possible to have PMI removed within 18 months conservatively.

Starting in 2007 - PMI is Tax Deductible

Is PMI tax deductible? This is the most often stated reason for having a second mortgage. PMI is starting in 2007 tax deductible check with your accountant for details.

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Appraisal ... some points of interest. 

General considerations:

   - Purchase price is the most relevant information the appraiser has because technically someone is willing sell property

     for and another willing to buy it for is its value. Market considerations help insure that buyer is not taken advantage of.

  - Refinance appraisal orders generally do not permit an estimate of value.

Square footage: the home's square footage and its use is of greatest value to an appraiser.

  - The appraiser attempts to compare homes of comparable square footage and property type.

  - The appraiser matches as well as possible the number of bed, bath and other rooms.

Extra features: many homes have extra features some of which may be exceptionally expensive. Although these can be very attractive their actual value may be limited based on comparable property with similar features in the market area. A lack of similar features can affect to value; ie. for an earthen home to appraise it needs earthen homes in the market to compare to.

Acreage: always plays a role in home values up to a limit. Although a home could have 50 or 100 acres nationally based guidelines limit the acreage for appraisal consideration to between 5 to 10 acres depending on the norm for the market area. Some homeowners because of this limit of attached acreage at times spin off excess acreage to separate land holding.

Comparables: helps insure that the property value is consistent with market values.

  - Compared sales must be within a reasonable distance; ie. 1 mile.

  - Comparable sales must have “closed” within the prior 6 months.

  - For sale property cannot be included in the comparables.

  - Extras like exceptionally expensive features do not necessarily help value.

  - Home maintenance is important and can affect your value.

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