General Questions
Can I apply for a loan before I've found my property?
Yes. You can obtain pre-approval for a maximum purchase price, loan amount and loan program. Once a contract
has been signed, any of these variables can be changed to match the specifics of the actual transaction. Some
lenders will even provide a mortgage commitment prior to purchasing a home based on generic loan conditions;
some fees may be associated with the commitment.
How much do I have to pay up-front to apply for a mortgage loan?
Pre-approvals are generally free, but once you have a contract on a home, you will need to apply for a mortgage.
This cost will vary slightly from lender to lender, but you can anticipate anywhere from $250 to $700 depending on
the loan program and property type. Connecticut Home Mortgage does not require an up-front application fee, per
se, but does collect up-front expenses for the credit report and the appraisal (this amount varies slightly depending
upon the property and loan program). This is standard in the industry as credit reports and appraisals need to be
done prior to issuing a mortgage commitment and therefore these expenses need to be paid up-front. Connecticut
Home Mortgage will take it one step further and issue a mortgage commitment prior to purchasing a home for a
nominal processing fee of $99. This is a great way to position yourself to negotiate a contract.
What is an appraisal?
An appraisal is a determination of the value of the property you intend to buy or refinance, as set by an
uninterested third party (appraiser or appraisal company). Appraisals are required on most loan applications to
determine the fair market value of the property in comparison to other similar homes in the market.
Does my credit have to be perfect?
Your ability to purchase a home will depend, in part, on your credit history as profiled in a credit report. The
information on the credit report is used to determine how responsible you are in meeting your obligations and
managing your debts on a monthly basis. You do not have to have perfect credit to be approved for a mortgage,
but if you have a number of late payments, you may need to provide a letter explaining why those payments were
late. Some ‘derogatory’ items, like late payments on mortgages, judgments or collections may affect the type of
mortgage program that you qualify for.
When can I lock an interest rate?
It all depends on the loan product and the lender. Connecticut Home Mortgage offers a wide range of lock-in
periods depending on your needs. Most customers will lock in at application with a fully executed contract, but you
can float your rate and lock with-in 5 business days of closing as well.
Can I lock a rate for a loan before I've found my property?
For specific loan programs and for certain borrowers, it may be possible to lock a rate before finding a property.
Government loans (like CHFA) cannot be locked without a fully executed contract.
What does it mean to “buy down” the interest rate?
Buying down the rate refers to the pre-payment of interest at closing in exchange for a lower initial interest rate. In
other words, you pay for a portion of the interest up-front at closing for the first one to three years and enjoy a
lower mortgage payment over that time period. This is a good option for customers who anticipate increases in
their income and want lower payments to start as their income increases.
What is a point or Discount point?
Points are another form of prepaid interest, which may be charged by the lender for the purpose of providing a
lower interest rate. If points are paid, they are normally payable at the time of closing as well. Each “point” is equal
to a percentage point (or 1%) of the principal loan amount. For example, one point on a $150,000 mortgage would
be $1,500. The more points you pay, the lower your interest rate will be, thus lowering your monthly payment. By
paying points at closing, you save yourself substantial interest over the life of the loan.
Do I need to pay an Origination Fee?
The origination fee is also a percent of the loan amount and covers the cost of processing and closing your
mortgage loan. Some lenders can waive an origination fee, generally by offering a higher interest rate. The first
“point” is generally disclosed as an origination fee, so if a lender is quoting you a rate with 0 points but charging
you an origination fee of 1%, you are getting your rate with the equivalent of 1 point anyway.
How often do interest rates change?
Interest rates change daily and sometimes several times daily based on the bond market. Rates are also
dependent on the type of mortgage loan (government versus conventional) and the loan-to-value (LTV) that is
being borrowed. Higher LTVs will have higher interest rates because the lender is assuming more of the risk.
Are rates going up or down?
This is the million-dollar question! The bond market changes daily. No one can predict fluctuations in the bond
market and therefore cannot predict which way rates will go. As your mortgage financial consultant, it is my job to
explain current trends in the market to assist in your decision to lock or float your loan.
Should I lock now?
You have the option to lock in an interest rate or float at any time. Since no one person can accurately predict what
rates will do, the decision to lock or float must be yours.
What is the best way to compare rates from lender to lender?
When shopping for rates, we suggest that you get a Good Faith Estimate from all lenders you are shopping and
compare rates and fees (i.e. apples to apples). This ensures that there are no hidden costs or fees and allows for a
fair comparison between lenders. You may also want to compare the APR on the Truth in Lending Statement. This
indicates the total cost of doing the loan. The lower the APR the less cost associated with the loan.
What is APR?
APR is abbreviated for Annual Percentage Rate. The APR is the annual cost of the mortgage expressed in the form
of a yearly rate. The APR is generally higher than the note rate because the APR includes the interest on the
mortgage plus related closing costs such as points, fees and other pre-paid charges that are paid at closing. All of
these figures are totaled and divided by the term of the loan to show the true cost of financing the loan under the
terms you have agreed to. The APR can be used to compare the actual cost of different types of mortgages to
keep lenders and brokers on an even playing field. The following chart shows some items that factor into the APR.
What is amortization?
Amortization is the repayment of a mortgage debt with periodic payments of both principal and interest, calculated
to retire the obligation at the end of a fixed period of time. Most first mortgages are amortized over 30 years (360
payments).
What are closing costs?
Closing costs cover all the charges associated with the transaction, including points, origination fee, appraisal fee,
attorney fees, title insurance, survey, charges for credit reports, etc. Closing costs vary depending upon the loan
product and the fees that are customary in your region.
Why do I have to pay title insurance?
Title insurance protects the lender and the homeowner against loss resulting from any defects in the title or claims
against a property that were not uncovered in the title search and that are not specifically listed as exemptions to
the coverage on the title insurance policy.
What is an escrow payment?
An escrow payment is the portion of your monthly payment held by your lender to pay the taxes and/or insurance
associated with home ownership. Your annual taxes and/or insurance premiums are simply divided by 12 to
determine a monthly cost. This amount is then added to your mortgage payment to give you a total payment due to
the service provider. Your lender or service provider is responsible for collecting and disbursing these funds as
they come due. Escrows are also called impounds or reserves in some states.
How long will the loan process take?
It will generally take about 15 to 30 days to process your loan. Once we receive your loan application, the
processor assigned to your loan will be in continual communication with you regarding your loan status. Some files
can be processed in as little as 24 hours if needed.
Will you sell my loan?
Transfer of servicing is a common business practice in the mortgage industry and is not based on personal or
payment history reasons. No lender can guarantee that your loan will remain with them throughout the term of your
loan.
Questions about Loan Types
What are “conforming” and “non-conforming” loans?
A “conforming” loan meets loan limits and underwriting guidelines established by Federal lending agencies such as
Federal National Mortgage Association (Fannie Mae or FNMA) and Federal Home Loan Mortgage Corporation
(Freddie Mac or FHLMC). These agencies purchase mortgages from lenders in bulk in the secondary market. “Non-
conforming” loans and/or “jumbo” mortgages exceed these guidelines for some reason or another, but most often
due to loan limits. Currently, the conforming loan limit for single-family homes is set at $417,000 effective January 1,
2007 for the continental US.
What is a jumbo loan?
Jumbo loans are mortgages that exceed the maximum loan amount established by the Federal National Mortgage
Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC). Currently, any loan over $417,000
for a single-family residence is considered a jumbo.
What is the difference between a Fixed Rate Mortgage and an Adjustable Rate Mortgage?
Fixed-Rate Mortgages With this type of mortgage your monthly payments for interest and principal never change.
Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.
Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "bi-weekly"
mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52
weeks in a year, you make 26 payments, or 13 months of payments, over a 12-month span.)
Adjustable-Rate Mortgages (ARMS) These loans generally begin with an interest rate that is below a comparable
fixed rate mortgage, and could allow you to buy a more expensive home. However, the interest rate changes at
specified intervals (for example, every year) depending on changing market conditions; if interest rates go up, your
monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also. Click
here to see the ARM indexes for the last 10 years.
What is a convertible mortgage?
This is a mortgage that allows a borrower to convert from an Adjustable Rate Mortgage to a Fixed Rate Mortgage
during specified time periods. A conversion fee usually applies.
What is a VA Loan?
Administered by the Department of Veterans Affairs, these special loans make housing affordable for Active Duty
military and U.S. Veterans. To qualify you must be a veteran, reservist, on active duty, or a surviving spouse of a
veteran that died with a service-related injury and had 100% entitlement. A VA loan is simply a fixed rate mortgage
with a very competitive interest rate and no PMI. Qualified buyers can also use a VA loan to purchase a home with
no money down and no cash reserves. Your VA regional office can tell you if you are eligible for this VA benefit.
What is an FHA Loan?
FHA (Federal Housing Administration) loans are insured by the U.S. Department of Housing and Urban
Development (HUD) which enables homebuyers to obtain mortgages with low down payments. Both fixed and
adjustable rate FHA loans are available. Credit guidelines are more lenient than conventional financing and gift
funds can be used for down payments and closing costs. FHA loans require PMI regardless of the downpayment
amount but at a lower rate than a conventional mortgage.
Mortgage Insurance Questions
What is Private Mortgage Insurance?
Private Mortgage Insurance, or PMI, is insurance that protects the lender in case the buyer defaults on the loan. It
is typically paid for by the borrower and exists on conventional mortgages when the buyer’s down payment is less
than 20% and on FHA loans for at least 5 years regardless of the down payment. FHA also charges an up-front
mortgage insurance premium that is generally financed into the original mortgage.
Will I always have to pay Private Mortgage Insurance?
You may request that your lender cancel Private Mortgage Insurance when your mortgage balance reaches 80% of
your home’s original appraised value. Your mortgage payments must be current, you must have no other loans on
the house, and your lender must be satisfied that your property value has not declined. When your mortgage
balance reaches 78% of your home’s original value, your lender may cancel your Mortgage Insurance
automatically. Again, you must be current on your payments. Some exceptions apply to certain “high risk” loans.
FHA will require mortgage insurance for at least 5 years regardless of the loan-to-value.
Payment Questions
What does P.I.T.I. mean?
Principal-Interest-Taxes-Insurance. These elements together are called P.I.T.I. For most borrowers, monthly
mortgage payments include three components: a payment toward the principal of the loan (that is the amount
borrowed); a payment representing interest; and a payment into a special account (called an escrow account) that
your lender maintains to pay your hazard insurance and property taxes. If you will be paying private mortgage
insurance or condo association fees, these may also be included in the payment amount.
What happens if I’m late with a payment or miss a payment?
Continued delinquency (late payments) or defaulting on your mortgage (failing to make one or more payments) can
lead to foreclosure and/or a judgment against you. If you are having difficulty making a payment it is better to
contact the service provider directly to make arrangements than to have something affect your credit.
How often do I have to make mortgage payments?
Payments are typically monthly, but certain programs or lenders offer a biweekly option.
Please contact me if you have any additional questions.