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| Frequently
Asked Questions |
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| 1.
How will I know how much I can qualify for ? |
2. What
are income and debt ratios? |
3.
What are "Cash Reserves"? |
4.
How much money do I need for a down payment and closing costs? |
5. What
is Mortgage Insurance? |
6.
What if I don't have any established credit? |
| 7. What
if I have had credit problems in the past or have filed bankruptcy? |
| 8. What
if I am new on my job? |
| 9.
What does "loan
to value" mean? |
| 10.
How do I "lock-in" my
interest rate? |
11. What
is an 80/10/10 and an 80/15/5? |
| 12. What
do I need to bring to closing? |
| 13.
How much do I need to insure my home for? |
| 14.
What is the Annual Percentage Rate on my Truth in Lending Document? |
15.
Why should I use a realtor ? |
| 16.
Why and how do interest rates change ? |
| 17.
What happens once I am pre approved ? |
18.
When should I consider refinancing ? |
| 19.
What is an origination fee ? |
| 20.
What is title insurance ? |
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| 1. How
will I know how much I can qualify for ? Your
Mortgage Planner can work with you to get you qualified BEFORE
you look for a home or while thinking about refinancing. Based
upon information you present to the Mortgage Planner at the loan
application, they will determine the approximate amount of money
that you will be allowed to borrow. You will be "pre-qualified" for
that loan amount. By allowing your Mortgage Planner to run your
credit report and verify your assets and income, your loan application
can be submitted to the underwriter for a full credit approval.
We can help you obtain a complete written credit approval (subject
to an appraisal) before you make an offer on a home, if you desire. |
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| 2. What
are income and debt ratios? The Income Ratio is your
total monthly housing expense divided by your gross monthly income
(before taxes). The Debt Ratio is your total monthly housing
expense PLUS any recurring debts (i.e. monthly credit card minimum
payment, car payments, or other loan payments) divided by your
income. Standard underwriting suggests a maximum guideline of
28% on the Income Ratio and 36% on the Debt Ratio, but these
ratios can vary based on the loan program, the financial strength
of the borrower and the down payment |
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| 3. What
are "Cash Reserves"? Cash Reserves are
the funds a borrower has remaining after their loan funds. The normal
requirement could be monies equal to 2 months of the mortgage payment.
The amount of Cash Reserves varies by loan program, but larger reserves
are a strong compensating factor. |
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| 4. How
much money do I need for a down payment and closing costs? None!
There are loan programs available that do not require any down
payment. These loan programs have higher interest rates and they
may have a prepayment penalty. For most loans a minimum down
payment of 5% is required plus money for closing costs, which
average 3.5%. Some programs allow the down payment and/or closing
costs to be a gift from a family member. A Mortgage Planner can
advise you about these different types of loans. |
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| 5. What
is Mortgage Insurance? Mortgage Insurance insures
lenders in the event of a borrower's foreclosure. It is paid
for by the borrower, and allows lenders to grant loans that they
otherwise would not consider. Depending on credit scores and
loan structure, mortgage insurance may be required when the down
payment is less than 20%. |
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| 6. What
if I don't have any established credit? No
problem! Most Lenders will tell you that you “must have” flawless
credit to apply and receive a loan. Please visit our credit information page |
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| 7.
What if I have had credit problems in the past or have filed
bankruptcy? No problem! Most Lenders
will tell you that you “must have” flawless credit to
apply and receive a loan. Please visit our credit information page. |
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| 8. What
if I am new on my job? A
new job can work in your favor when you apply for your loan. Loan
program guidelines look for a 2 year job history in the same field,
but a job change for a better position is looked on favorably. If
you are a recent college graduate, you may be able to obtain a loan
even though you don't have a 2 year work history. |
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| 9. What
does "loan to value" mean? Loan to value
(LTV) is the loan amount divided by the lesser of the sales price
or appraised value. For example, if you are paying 15% of the total cost of the
home as a down payment, you would only be borrowing 85% of the total sales price
from the lender. Therefore your LTV would be 85%. |
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| 10.
How do I "lock-in" my interest rate? A
Mortgage Planner can "lock-in" the interest rate quoted,
over the telephone during their pre-qualification interview with you.
This may vary between 10 days and 60 days depending upon your projected
closing date |
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| 11.
What is an 80/10/10 and an 80/15/5? An
80/10/10 is an 80% first lien, a 10% second lien and a 10% down
payment. The 80/10/10 structure allows for 90% financing without
mortgage insurance. When a borrower chooses to put less than
20% down for a down payment, he may either split the loan amount
into two liens (80/10/10 for example), or he may opt to have
one 90% lien and pay mortgage insurance (see below). In the same
manner, an 80/15/5 is an 80% first lien, a 15% second lien and
a 5% down payment. |
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| 12.
What do I need to bring to closing? The closing will take place
at the title company or your home. Each borrower will need to bring
a valid driver's license the day of closing. The funds due at closing
must be in the form of either a cashier's check made out to the title
company or a wire transfer. |
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| 13.
How much do I need to insure my home for? |
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A. It is your responsibility
to secure homeowner's insurance on the home you are purchasing
prior to closing. The minimum dwelling coverage required is the
lesser of either:
a) The total combined loan amount
or
b) The replacement cost on the appraisal
Because you may begin shopping for homeowner's insurance before the appraisal
is in, it may be necessary to begin gathering quotes with a minimum dwelling
coverage of the combined loan amount. You will be notified of the replacement
cost once your appraisal is in. |
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| 14.
What is the Annual Percentage Rate on my Truth in Lending Document?
The Annual Percentage Rate (APR) is the cost of
your credit expressed as an annual interest rate. Points and other prepaid finance
charges are factored into the APR to show the true yield on the loan, which is
why the APR is often higher than your note rate. The APR can be compared to the
APR on other loan programs to give you a consistent means of comparing rates
and programs. |
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| 15.
Why
should I use a realtor ? First
and foremost, because you need an experienced professional working
on your behalf. The realtor's commission is not paid by the buyer,
but by the seller of the home being purchased, and it is in each
party's best interest to have professional representation. As a
seller, profits are generally maximized by having an experienced
realtor market and sell your home, rather than deal with the headaches
of trying to do it all on your own |
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| 16.
Why and how do interest rates change ?
Many people are surprised to learn that rates change
on a daily and sometimes hourly basis. Interest rates fluctuate in response to
changes in the financial markets. The bond market is generally a good indicator
of the general trend of interest rates |
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| 17.
What happens once I am pre approved
You are ready to buy a home! Remember that it is
very important to inform us of any changes in the financial information that
was provided at the time of approval, as it may make a change in the amount or
type of loan that you can qualify for |
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| 18.
When should I consider refinancing ? The old rule of thumb
was at least 2%, but this is no longer the case. Many different
individual factors need to be analyzed to determine if refinancing
is right for you, such as the length of time you intend to stay
in your home, or the type of loan you currently hold. We are
always happy to provide a recommendation to you for your particular
circumstances. |
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| 19.
What is an origination fee ? Typically, it is 1% of your loan
amount, and works exactly like a discount point. You can avoid
all or part of this fee by paying a higher interest rate. In Colorado,
rates are typically quoted assuming this 1% origination fee |
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| 20.
What is title insurance ? It is a
policy provided by the title company guaranteeing the accuracy
of the title work done on your home at the time of purchase.
As a buyer, you are required to purchase a lenders policy of
title insurance as part of your standard closing costs, which
only protects the mortgage company. You may also choose to purchase
an owners policy, which would protect you against any loss in
the event of any legal issues relating to the title of your home. |
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