FAQ

1. Are there special mortgages for first-time homebuyers?
Yes. Now there are several affordable mortgage options being offered that can help first-time homebuyers overcome obstacles that make buying their first home difficult in the past. Including those with little or no down payment, or closing cost funds, those with bad or no credit, debt issues, or unstable income.

2. How much for a down payment do I need?
There are some mortgages that are available which only require a 5% down payment of the purchase price, or less. Although, when the down payment is larger, less you have to borrow, and the more equity you'll have. Mortgages with a down payment under 20% generally require a mortgage insurance policy to secure the loan.

3. What is the difference between a fixed rate and adjustable rate mortgage?
A fixed rate mortgage, means the interest rate and payment remains constant over the life of the loan. Opposed to an adjustable rate mortgage, where the interest rate may either increase or decrease.

4. How long does the loan process take?
The length of time for loan approval and funding varies depending on the type of loan and the complexity of your personal finances. On average, the process can take from 14 to 60 days.

5. What are points?
Points are loan fees that are paid to lenders and mortgage brokers. 1 point = 1% of the loan amount. There are two different types of points: origination points and discount points. Origination points are charged by a mortgage company as a fee to process and approve your loan, while discount points are used to buy down the rate of interest, and typically are passed through to the investor to secure that lower interest rate.

6. What Is A Mortgage?
Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.

7. What Is A Loan To Value (LTV) And How Does It Determine The Size Of The Loan?
The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $125,000, you could borrow up to $118,750 (95% of $125,000), and you would have to pay $6,250 as a down payment.

The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to payout of their own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.

8. What Types Of Loans Are Available And What Are The Advantages Of Each?

  • Fixed Rate Mortgages: Payments remain the same for the life of the loan
    Types:
    • 15-year
    • 30-year

Advantages:

  • Predictable
  • Housing cost remains unaffected by interest rate changes and inflation
  • Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits
    Types:
    • Balloon Mortgage: Offers very low rates for an initial period of time (usually 5, 7, or 10 years); when
      time has elapsed, the balance is due or refinanced (though not automatically)
    • Two-Step Mortgage: Interest rate adjusts only once and remains the same for the life of the loan
    • ARMS linked to a specific index or margins

Advantages:

  • Generally offer lower initial interest rates
  • Monthly payments can be lower
  • May allow borrower to qualify for a larger loan amount

9. Are There Special Mortgages For First-Time Homebuyers?
Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past.

Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

10. What Is Included In A Monthly Mortgage Payment?
The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner's insurance, and mortgage insurance (if applicable).

11. What Factors Affect Mortgage Payments?
The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment.

12. What Is An Escrow Account? Do I Need One?
Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance (if applicable), and property taxes.

13. What Is a Conventional Loan?
A conventional home loan is one which is not guaranteed by the Federal government. This is also true of FHA and VA loans.

14. Is an Equity Loan the same as a Second Mortgage?
An equity loan is usually defined as a loan against the owner's equity in the property. As there is usually a first mortgage against the property, the equity loan is usually a second mortgage on the property. An equity loan can be a "straight second" mortgage in which the borrower takes the loan in a lump sum and pays it back as agreed. A popular version of equity lending is the "equity line of credit" which is a more flexible way of using homeowner equity.

15. Who are Fannie Mae, Freddie Mac, and Ginnie Mae, and what do they have to do with home loans?
Fannie Mae is the more personalized name for The Federal National Mortgage Association (FNMA), Freddie Mac is a similar name for The Federal National Mortgage Loan Corporation (FHLMC), and Ginnie Mae refers to the Government National Mortgage Association (GNMA). Fannie and Freddie are quasi-governmental agencies which serve as a conduit between the capital markets of Wall Street and home lending across the United States. Ginnie Mae performs a similar function for government FHA and VA home loans.

16. What is an Annuity?
In its simplest definition, an annuity is an amount payable annually. More specifically, an annuity describes a contract offered by insurance companies which allows you to accumulate funds for retirement on a tax-favored basis and then, if you choose, receive a guaranteed income payable for life or for a period certain such as five or ten years. Usually, the payments are made monthly, but many companies offer to make the payments quarterly, semi-annually, or annually if you so desire.

How does an annuity work?
An annuity is a vehicle for accumulating retirement savings in that you pay a premium to an insurance company and they promise to pay you interest. Unlike other retirement savings instruments, as long as you keep your monies with the insurance company, you are not required to pay income tax on your gains. This is what is known as 'tax deferral.' Only when you decide to withdraw your funds are your gains subject to income tax. An annuity also differs from other retirement savings instruments in another significant way. When you decide to withdraw your funds, the insurance company will give you the option to receive a guaranteed income for as long as you live.

What are the advantages of an annuity?
All annuities have three primary advantages: Tax Deferral, Avoidance of Probate, and a Guaranteed Income for Life.