Frequently Asked Questions (FAQ)
What is a mortgage?
A mortgage or a home loan is a legal contract between a lender and a borrower. The borrower uses his property (lot, house, and building) as collateral to secure the loan. The lender, usually a bank or financial firm, then gains the right to take away the property in case the borrower is not able to pay the arranged home loan payments.
What is a mortgage refinance?
A mortgage refinance happens when a borrower uses the money gained from the loan to pay off an existing loan. Most borrowers do this to prolong the period of their home loan, to acquire a lower interest or to use some money out of their equity.
What is a home equity loan?
A home equity loan is a type of loan that allows a home owner to acquire cash loans based on the present value of his property. This does not include the mortgage amount that is left to be paid up. Home owners often apply for this type of loan when they need to pay for home remodeling, college education, debt consolidation and other investments or expenses.
What is a home equity line of credit or HELOC?
Home equity lines of credit or HELOC’ s give homeowners access to an open line of credit, where only the outstanding balance garners interest. HELOC’s provide flexibility by allowing borrowers access to money on a needed basis.
What is a second mortgage?
A second mortgage is a type of mortgage refinancing that allows you to acquire a second loan on your home in addition to your first home loan.
What is a reverse mortgage?
Reverse mortgages are loans that allow homeowners to transfer some of their home equity into cash. In contrast to traditional home loan mortgages, reverse mortgages do not require borrowers to repay their home loan until the homeowner no longer lives primarily at that residence, although he or she stills owns the residence.
What is a mortgage lender?
A mortgage lender is a financial institution that provides prospective homeowners with the funds over a long-term period to pay off their home loan mortgage. Borrowers are required to pay monthly installments to their lender which includes principle, interest, and additional lender fees. Some examples are banks and financial institutions.
What is the difference between a mortgage broker and a mortgage banker?
A mortgage broker is the middleman who helps match borrowers with lenders based on corresponding needs and standards. Mortgage brokers arrange more the 80% of all transactions between borrowers and lenders, yet mortgage bankers actually finance and distribute the largest portion of home loans compared to all other lenders.
What is a mortgage principle?
The mortgage principle is the amount of loan money that a homeowner borrows excluding the interest.
What does APR mean?
Annual Percentage Rate ( APR ) is the percentage used to figure out the total cost of your cash advance loan by taking into account all fees charged by your lender in addition to your loan principle and interest.
What is a fixed rate mortgage?
A fixed rate mortgage is a home loan with steady interest rates and monthly payments that do not change throughout the life of the loan.
What is the adjustable rate mortgage (ARM)?
An adjustable rate mortgage has monthly payments that change periodically due to fluctuations in market interest rates.
What is an interest-only mortgage?
An interest-only mortgage is a loan that requires the borrower to pay only interest on the principle in monthly installments for a fixed period.
Which is better, a fixed or an adjustable interest rate?
If you plan to be in your home for a long period of time, you may want to consider a fixed rate mortgage, which offers predictable payments and long-term protection against rising mortgage interest rates. If you plan to be in your home for a short period, an adjustable rate mortgage could be attractive. Keep in mind that with an adjustable rate mortgage (ARM), the monthly payments will go up each time your interest rate adjusts.
What is an amortized mortgage?
Amortized Mortgages refer to loans that are paid in installments comprised of both principle and interest, and which is paid off (or amortized) over a fixed period of time.
How do you calculate loan-to-value ratio (LTV)?
The loan-to-value (LTV) ratio of your home is calculated by dividing the fair market value of your home by the amount of your home loan.
What are lender fees?
Lender fees usually range from 2- 5 % and may include, but not limited to, things such as application costs document preparation, and appraisal costs.
What is the Truth in Lending Act?
The Truth in Lending Act is a federal law that is part of the Consumer Protection Act. This particular law requires lenders to reveal all of the information to the borrower and details of all costs associated with the transaction or loan.
What is Accident, Sickness and Unemployment Insurance (ASU)?
It’s just another name for Mortgage Payment Protection Insurance (MPPI) but the name isn’t really used any more.
Can I get a mortgage after a bankruptcy?
You may still qualify for a home loan even if you have a prior bankruptcy. The best way to find out if you can qualify for a home loan after a bankruptcy is to meet with a loan officer and discuss your options. Be sure to bring all paperwork regarding your past bankruptcy so that your loan officer can match you with the best lenders to meet your needs.
Can I get a mortgage with bad credit?
Of course you can get a mortgage with bad credit. Consult a mortgage consultant to find out what programs are available for you. Usually, the lower your credit score the higher your rate will be, however most mortgage professionals can provide you with a mortgage loan at maybe a little higher rate now, along with a plan on how to improve your credit so that within a couple of years you can qualify for the best rates available and the rates you deserve. Also, keep in mind that some of the closing costs may be tax deductible and that the mortgage interest is tax deductible too so even paying a little higher rate for a year or two will still have its advantages until you are ready to qualify for the best rates.
What documents will I need to apply for a mortgage?
Traditional loans usually require documents that verify your employment, income and assets. They may include the following documents:
DISCLAIMER: The information contained in this article on ‘Mortgage FAQ’s’ is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.