Learning Center FAQ's

You may feel a bit new at the process of applying for a home mortgage loan and wonder which direction is best for you. To help you understand home mortgage lending, we have included some answers to your frequenty asked questions, and a section on what you should expect to help explain the 'techno' talk involved.

How do I know what I can afford?

Use our convenient mortgage calculators or stop in and visit with one of our mortgage bankers about getting pre-qualified for a mortgage loan.

What are the advantages and disadvantages of a 15 year mortgage?

The 15-year fixed rate mortgage offers two big advantages for most borrowers:
1) You own your home in half the time it would take with a traditional 30-year mortgage and
2) You save more than half the amount of interest of a 30-year mortgage.

Lenders usually offer the 15-year mortgage at a slightly lower interest rate than with 30-year loans. It is this lower interest rate added to the shorter loan life that creates real savings for 15-year fixed rate borrowers.

Possible disadvantages associated with a 15-year fixed rate mortgage are:
1) The monthly payments for this type of loan are roughly 10 percent to 15 percent higher per month than the payment for a 30-year and
2) Because you'll pay less total interest on the 15-year fixed rate mortgage, you won't have the maximum mortgage interest tax deduction possible.

Should I pay points?

Points are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them, up front, at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing, however, you will have lower monthly payments over the term of your loan.

To determine whether it makes sense for you to pay points, you should compare the cost of the points to the monthly payment savings created by the lower interest rate. Divide the total cost of the points by the savings in each monthly payment. This calculation provides the number of payments you'll make before you actually begin to save money by paying points. If the number of months it will take to recoup the points is longer than you plan on having this mortgage, you should consider the loan program option that doesn't require points to be paid.

What is an appraisal and why is it necessary?

The lender needs to know if the value of your home is enough to secure the loan. To get this information, the lender typically hires an independant appraiser, who gives an appraisal report about the value of your home. An appraisal report is a written description and estimate of the value of the property. National standards govern not only the format for the appraisal; they also specify the appraiser's qualifications and credentials. In addition, most states now have licensing requirements for appraisers evaluating properties located within their states.
The appraiser will provide a written report for us and you'll be given a copy at your loan closing.

What does it mean to lock my interest rate?

The interest rate market is subject to movements without advance notice. Locking in a rate protects you from the time that your lock is confirmed to the day that your lock period expires. A lock is an agreement by the borrower and the lender and specifies the number of days for which a loan's interest rate and points are guaranteed. Should interest rates rise during that period, your lender is obligated to honor the committed rate. Should interest rates fall during that period, the borrower must honor the lock.

What is Title Insurance and why do I need it?

If you've ever purchased a home before, you may already be familiar with the benefits and terms of title insurance. But if this is your first home loan or you are refinancing, you may be wondering why you need another insurance policy. The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected.

Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders, and others who have an interest in real estate transfer.

Title companies typically issue two types of title policies:
1) Owner's Policy. This policy covers you, the homebuyer.
2) Lender's Policy. This policy covers the lending institution over the life of the loan.

Both types of policies are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you probably already have an owner's policy that was issued when you purchased the property, so we'll only require that a lender's policy be issued.

Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed.

What is Private Mortgage Insurance?

Private mortgage insurance and government mortgage insurance protect the lender against default and enable the lender to make a loan which the lender considers a higher risk. Lenders often require mortgage insurance for loans where the downpayment is less than 20% of the sales price. You may be billed monthly, annually, by an initial lump sum, or some combination of these practices for your mortgage insurance premium.

What is flood insurance and why do I need it?

Most lenders will not lend you money to buy a home in a flood hazard area unless you pay for flood insurance. Some government loan programs will not allow you to purchase a home that is located in a flood hazard area. You should be notified if flood insurance is required. If a change in flood insurance maps brings your home within a flood hazard area after your loan is made, your lender may require you to buy flood insurance at that time.

What happens at closing?

The closing will take place at the office of a title company or at your lender's office. If you are purchasing a new home, the seller may also be at the closing to transfer ownership to you. During the closing you will be reviewing and signing several loan papers. A few of the most important documents you will be signing include:

HUD-1 Settlement Statement

This document provides an itemized listing of the final fees charged in connection with your loan. If your loan is a purchase, the settlement statement will also include a listing of any fees related to the transaction between you and the seller. If this loan will be a refinance, the settlement statement will show the pay off amounts of any mortgages that will be paid in full with your new loan. Most items on the statement are numbered according to a standardized system used by all lenders. These numbers will correspond to the numbers listed on the Good Faith Estimate. This document is also commonly known as the closing statement and both the buyer and seller must sign this document.

Truth-in-Lending Statement (TIL)

This document provides full written disclosure of the terms and conditions of a mortgage, including the annual percentage rate (APR) and other fees. It is exactly the same as the TIL that you received immediately after your initial application, except it has been updated to reflect the final rate and fee information. Federal law requires that all lenders provide you with this document at closing.

Note

This is the document you sign to agree to repay your mortgage. The note will provide you with all of the details of your loan including the interest rate and length of time to repay the loan. It also explains the penalties that you may incur if you fall behind in making your payments.

Mortgage

This document pledges a property to the lender as security for repayment of a debt. Essentially this means you will give your property up to the lender in the event you cannot make the mortgage payments. The Mortgage restates the basic information contained in the note, as well as details the responsibilities of the borrower. If your loan is a refinance, Federal Law requires that you have three days to decide positively that you want a new mortgage after you sign the documents. This means the loan funds won't be disbursed until three business days have passed. The closing agent will provide more details at the closing.