Frequently Asked Questions
- What is a Mortgage?
- What do I need to bring with me when I apply for a Mortgage?
- What are points?
- What is Private Mortgage Insurance (PMI)? Is it required for my loan?
- What can I expect at settlement?
- What is the turn around time, from application through closing, for purchases and refinances?
- What is an Adjustable Rate Mortgage (ARM)?
- How does an adjustable rate mortgage work?
- What is the difference between a fixed rate and adjustable rate mortgage?
- What is a lock-in rate?
- What is an escrow account?
- What is a conventional loan?
- What is a jumbo loan?
- What is mortgage life insurance?
- What is hazard insurance?
- What is an origination fee?
- What are closing costs?
- Why did my payment increase?
A mortgage is a loan secured by real estate which is often used to purchase a home. Many different types of mortgages exist and our mortgage processors will help you choose the mortgage that best fits your needs.
At application, each applicant will need:
- W-2 for last two years and one months' recent pay stubs
- Place of residence for the last two years
- Employer name, address and phone number for the last two years
- If this is a purchase, fully executed agreement of sale signed by both buyer(s) and seller(s)
- Bank names, account numbers and balances
- Most recent bank statements for the last month, all pages
- An appraisal will be conducted for a minimal fee
- If self-employed, last two years' tax returns with all schedules
- Green card for permanent resident aliens
- Account numbers, addresses, balances/monthly payments on all open loans and credit cards
Points, also referred to as discount points, are an up front interest paid to buy a lower rate on the mortgage for the term of the loan. A point is expressed as a percentage of the total loan amount. For example on a
loan amount of $100,000, one point would be equal to $1,000 or two points would be equal to $2,000. This amount would be paid at closing in addition to the down payment and other closing costs.
Points are not beneficial to every borrower and need to be evaluated on a case-by-case basis. To determine if it is beneficial to you to pay points, you need to first calculate the principal and interest payment for the
loan amount based on a rate with 0 points and then also, a payment based on a rate with points. The difference in the two payments is the amount you will save by paying points.
The next step is take the total cost of the points and divide by your monthly savings. This figure shows you how many months it will take to recoup the costs of the points. If you plan on being in your home longer than
it takes to recoup the costs and can afford to pay the points, then it is an advantage to you. However if not, then you are better off to take a rate without points.
Private Mortgage Insurance (PMI) is required for all mortgage loans with less than a 20% down payment. This insurance is included in your monthly payment and protects the lender in the case of default.
You should be prepared to sign various paperwork at settlement, including the mortgage, note and all disclosures. Be sure to bring the following with you: two forms of valid identification; remaining down payment and closing costs in the form of a certified check payable to the settlement agent and a paid receipt for your homeowner's insurance.
We will meet your closing date on purchases as long as there is a reasonable time frame until the scheduled closing. If we have all of your required documentation and the appraisal and title insurance are complete and acceptable, we can usually close in 20 to 30 days. Refinances generally can close within 45 days, depending upon current mortgage volume.
An ARM is a loan which allows for the adjustment of its interest rate according to the terms of the note and as market interest rates change. The ARM interest rate is based upon one of many indices which reflect market interest rates. The borrower assumes the risk that interest rates (and their monthly payment) will rise. By assuming this risk, lenders may charge a lower initial interest rate compared to fixed rate loans. The lower initial rate is the main reason borrowers choose ARM loans--it allows them to qualify for a larger loan and obtain a higher-priced home.
The adjustable rate loans offered by People First FCU are 1/1, 3/1, 5/1, 7/1 and 10/1 ARMs. The first number tells how long the loan will remain at the initial interest rate before the loan adjusts. For instance, the 1/1 ARM will not change for the first year but will change every year after that first year. The 5/1 ARM will not change in the first 5 years but will then change every year after the first 5 years.
With a fixed rate mortgage, the interest rate remains constant over the life of the loan. Whereas, with an adjustable rate mortgage, the interest rate can either increase or decrease, based upon the terms of the loan. This could cause the monthly payments to increase in order to have the loan paid in full by maturity.
The lock-in represents the interest rate you will receive on your mortgage and will be the interest rate used to calculate your monthly payment. The lock-in secures the interest rate during the process of your loan approval as long as your loan is processed and closed prior to the rate expiration date. This date is given to you when you lock-in the rate.
You can lock or float your interest rate at any time during the processing of your loan. The loan officer will discuss these options with you upon taking your loan application.
An account maintained by the lender to collect funds from the borrower in order to pay the taxes and property insurance due on the loan.
A mortgage not obtained under a government insured program (such as Veterans Administration (VA), Federal Housing Administration (FHA), Farmer's Home Administration (FMHA) or State Bond Agencies).
A conventional loan that exceeds the maximum agency (Fannie Mae, Freddie Mac) mortgage amount guidelines for a conventional loan.
This insurance would pay the balance owed on your mortgage home loan in the event of your death during the term of the mortgage.
This represents the insurance that protects your investment in your home. It provides compensation to the insured in case of property loss or damage.
The origination fee is charged by the lender, and is typically 1% of the loan amount you borrow. This fee is used to cover expenses during the processing of the loan.
Fees and costs that both buyer and seller must pay at closing. They generally include: origination fee, discount point, appraisal fee, credit report, title search, recording fees, and other costs described in the HUD 1 at settlement.
Your total monthly payment will increase or decrease with any change to your taxes and/or insurance. Your taxing authority and insurance company/agent will notify us when they make any type of change, which ultimately will affect your monthly payment. You may wish to contact your local taxing authority or insurance company/agent for details concerning changes to your annual bills.
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Your savings are federally insured to at least $250,000 by the National Credit Union Administration and backed by the full faith and credit of the U.S. Government.