FAQ
Q. Will getting my mortgage be difficult?
A. No. If you are able to provide us with the requested information and documentation, we can give you a quick firm answer that meets your needs. At Realnet Lending Group, you will work with mortgage professionals who are experts in every aspect of the process, from data entry to loan closing. Our employees will make sure you are kept informed throughout the process.
Q. Should I refinance?
A. The most common reason for refinancing is to save money. Saving money through refinancing can be achieved in two ways:
By obtaining a lower interest rate that causes one’s monthly mortgage payment to be reduced.
By reducing the term of the loan, thus saving money over the life of the loan. For example, refinancing from a 30-year loan to a 15-year loan might result in higher monthly payments, but the total interest paid during the life of the loan can be reduced significantly.
B. Another popular reason why homeowners refinance is to receive cash. There are many reasons to take cash out such as putting money away “for a rainy day”, to pay for college tuition, to pay off high interest consumer debts (which are not tax-deductible), to invest in a retirement plan, to complete home repairs, etc.
C. People also refinance to convert their adjustable mortgage to a fixed loan. The main reason for doing this is to obtain the stability and the security of a fixed loan. Fixed loans are very popular when interest rates are low, whereas adjustable loans tend to be more popular when rates are higher.
D. Sometimes, you do not have a choice–you are forced to refinance. This happens when you have a loan with a balloon payment and no conversion option. In this case, it is best to refinance several months before the balloon payment is due.
The answer to the question, “Should I refinance?” is a complex one, since every situation is different and no two homeowners are in the exact same situation. Whatever you are considering, consulting with a seasoned mortgage professional at Realnet Lending Group will save you time and money!
Q. What is a FICO score?
A. A FICO score is a credit score developed by Fair, Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. A credit score attempts to condense a borrower’s credit history into a single number.
Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit. Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit bureau reports.
Credit scores analyze a borrower’s credit history considering numerous factors such as:
- Late payments
- The amount of time credit has been established
- The amount of credit used versus the amount of credit available
- Length of time at present residence
- Employment history
- Negative credit information such as bankruptcies, charge-offs, collections, etc.
There are really three credit scores computed by data provided by each of the three bureaus–Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may use the middle score as is typically the case for a mortgage.
How can I increase my score? While it is difficult to increase your score over the short run, here are some tips to increase your score over a period of time.
- Pay your bills on time. Late payments and collections can have a serious impact on your score.
- Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.
- Reduce your credit-card balances. If you are “maxed” out on your credit cards, this will affect your credit score negatively.
- If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score.
What if there is an error on my credit report? If you see an error on your report, report it to the credit bureau. The three major bureaus in the U.S., Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) all have procedures for correcting information promptly. Alternatively, the mortgage professionals at Realnet Lending Group may help you correct this problem as well.
Q. What is the difference between getting pre-qualified and pre-approved?
A. Pre-qualification is normally determined by a loan officer. After interviewing you, the loan officer determines the potential loan amount for which you may be approved. The loan officer does not issue loan approval; therefore, pre-qualification is not a commitment to lend. After the loan officer determines that you pre-qualify, he/she then issues a pre-qualification letter. The pre-qualification letter is used when you make an offer on a property. The pre-qualification letter informs the seller that your financial situation has been reviewed by a professional, and you will likely be approved for a loan to purchase the home.
Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is submitted to a lender’s underwriter by the loan officer, and a decision is made regarding your loan application. When your loan is pre-approved, you receive a pre-approval certificate. Getting your loan pre-approved allows you to close much more quickly when you do find a home. Pre-approval can also help you negotiate a better price with the seller.
Q. Can my loan be sold? What happens if my lender goes out of business?
A. Your loan can be sold at any time. There is a secondary mortgage market in which lenders frequently buy and sell pools of mortgages. This secondary mortgage market results in lower rates for consumers. A lender buying your loan assumes all terms and conditions of the original loan. As a result, the only thing that changes when a loan is sold is to whom you mail your payment. In the event your loan is sold you will be notified. You’ll be informed about your new lender, and where you should send your payments.
If your lender goes out of business, you are still obligated to make payments! Typically, loans owned by a lender going out of business are sold to another lender. The lender purchasing your loan is obligated to honor the terms and conditions of the original loan. Therefore, if your lender goes out of business, it makes little difference with regards to your loan payments. In some cases, there may be a gap between the date of your lender’s going out of business and the date that a new lender purchases your loan. In such a situation, continue making payments to your old lender until you are asked to make payments to your new lender.
Q. What is Private Mortgage Insurance (PMI)?
A. PMI is normally required when you buy a home with less than 20 percent down on a conventional mortgage. Mortgage insurance is a type of guarantee that helps protect lenders against the costs of foreclosure. This insurance protection is provided by private mortgage insurance companies to protect the lender. It enables lenders to offer loans with lower down payments. In effect, mortgage insurance pays the lender a certain percentage of your original purchase price to cover a lender’s losses in the unfortunate event of foreclosure. Therefore, without mortgage insurance, you would need to make a 20 percent down payment in order to buy a home.
Canceling your PMI:
Federal law requires PMI to be cancelled under certain circumstances, and Fannie Mae guidelines provide for cancellation of PMI in additional situations if the loan is owned by Fannie Mae. In general, PMI for a loan originated on or after July 29, 1999, which is secured by the borrower’s one-family principal residence or second home will be canceled at the borrower’s request when the loan-to-value ratio (LTV) reaches 80 percent based on the value of the home at loan origination. In order to cancel PMI under the rules of July 29, 1999, the borrower must have a good payment history and the property value must not have declined.
PMI on mortgages owned by Fannie Mae can also be canceled at the borrower’s request when the LTV reaches 75 percent based on the current value of the home as established by a new appraisal, provided that the borrower has a good payment history and that the loan is at least two years old.
If the borrower does not request PMI cancellation, the PMI servicer must automatically cancel PMI on these loans when the LTV is scheduled to reach 78 percent, based on the value of the home at loan origination, provided that the loan is current at that time. For loans originated before July 29, 1999, which are secured by the borrower’s principal residence or second home and that are owned by Fannie Mae, PMI will generally be canceled at the midpoint of the loan term, provided that payments at that time are current.
Q. What is an Annual Percentage Rate (APR)?
A. The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.
Example:
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The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.
Unfortunately various lenders calculate APRs differently! A loan with a lower APR may not be the best choice.
The reason why APRs are confusing is because the rules to compute APR are not clearly defined.
The following fees ARE generally included in the APR:
- Points – both discount points and origination points
- Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, some companies may use any number between 1 and 30!
- Loan-processing fee
- Underwriting fee
- Document-preparation fee
- Private mortgage-insurance
The following fees are SOMETIMES included in the APR:
- Loan-application fee
- Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)
The following fees are normally NOT included in the APR:
- Title or abstract fee
- Escrow fee
- Attorney fee
- Notary fee
- Document preparation (charged by the closing agent)
- Home-inspection fees
- Recording fee
- Transfer taxes
- Credit report
- Appraisal fee
Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.
Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.
Conclusion:
Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.
