Mortgage Questions

1. What is prequalification?
Prequalification is the process of determining what price home a prospective buyer can purchase.

2. My real estate agent recommended that I get a commitment letter. What is a commitment letter, and why should I get one?
A commitment letter is given by a lender stating the terms, which it agrees to provide a mortgage to a homebuyer. Commitment letters help you set realistic goals while you're "house-hunting", provide the same negotiating ability as a cash buyer, and enable you to move quickly once the perfect home is found.

3. When mortgage lenders refer to "PITI", what are they referring to?
PITI is Principal, Interest, Taxes, and Insurance - the components of monthly mortgage payments.

4. When my loan officer asks me if I want to waive escrows, what exactly does he mean?
When you waive escrows, you take the responsibility of paying your taxes and insurance, as opposed to having them included in your monthly payment. Waiving escrows may add a small fee to your closing costs. You can only waive escrows if your loan to value is 80% or less on your first lien.

5. What does my mortgage lender mean by points?
One point is equal to one percent of the loan amount. Points are used to buy down the interest rate.

6. How does the annual percentage rate differ from the interest rate?
The annual percentage rate (APR) is the effective rate of interest for a loan if the calculation is based on the original loan amount less the closing costs. This is the rate that will appear on your preliminary Truth in Lending. Please note that the APR is higher than the interest rate on your Real Estate Lien Note.

7. How do I know what my interest rate will be?
Upon request, David DeBowsky will search for the lowest rate and "lock" your rate. The "lock-in" guarantees the homebuyer a specified interest rate provided the loan closes and funds with that buyer within a set period of time. The lock-in also specifies the number of points to be paid at closing.

8. Do I need to have a certain amount of money left after I buy a home?
Most loan programs require a cash reserve sufficient enough to make the first two mortgage payments (PITI).

9. What is Debt-to-Income ratio?
A ratio used by lenders to determine whether a person is qualified for a mortgage. Debt-to-Income is the total amount of monthly debt, including house payment, credit cards and other loans, divided by the gross monthly income.

10. What is the difference between a FHA loan and a VA loan?
A FHA loan is a loan guaranteed by the Federal Housing Administration. FHA issues specific guidelines for mortgages. A VA loan is guaranteed by the Veterans Administration. To obtain a VA loan, the borrower must have served in the armed forces.

11. What is Private Mortgage Insurance (PMI)?
PMI is insurance required to cover the lender should the borrower default on the loan.

12. Do I always have to have PMI on my loan?
PMI can be eliminated by having a down payment of at least 20% or by obtaining a second lien with an 80-10-10 or an 80-15-5 loan program.

13. Will I have 2 separate payments if I have a second lien?
The second lien is often from a different company than the first lien. Therefore, borrowers with a second lien will make two separate payments each month- one to the first lien and one on the second lien.

14. What does the lender mean by "papertrail?"
A "papertrail" is copies of all paperwork necessary to prove a financial transaction: copies of all checks, deposit slips, loan paperwork, forms to liquid assets, etc.

15. Why did I receive a Truth In Lending?
Truth In Lendings are sent to all borrowers after loan application has been made, regardless of whether they have a contract on a property. The Truth In Lending Act is a federal law requiring lenders to reveal all the terms of a mortgage. The APR that appears on your Truth In Lending will be higher than the interest rate on your Real Estate Lien Note.

16. Will I get a copy of my credit report and appraisal?
You will receive a copy of your credit report directly from the credit agency. If we need a credit letter explaining any credit issues, we will notify you. You will receive a copy of your appraisal at closing.

17. What inspections does the lender require?
The lender requires only a clear termite report and an appraisal. If the appraiser recommends repairs, the lender will require that those repairs be done correctly. Appraisers seldom require repairs. If the termite report recommends treatment, treatment is required. We will need a receipt showing the name and amount of chemical used.

18. When will I find out what my final figure is for the total cost to close?
The Title Company will prepare a HUD1 Settlement Statement detailing the closing figures. We will review this statement and provide you with an amount for closing. If you need this figure more than 24-hours before closing, call- and request a new good faith estimate. Remember to bring a cashier's check made payable to the Title Company.

19. Where do I go for closing?
Your closing will take place at the Title Company. The Title Company's name and address appears in your sales contract. If you are refinancing a property, call for the name and address of your Title Company.

20. Where do I send my first payment?
Refer to your first payment letter in your closing documents to find out where to send your first mortgage payment. If you receive a statement from your new lender prior to the due date of your first payment, send your payment to the new lender. Otherwise, send your first payment to Prime Lending, Inc. and detailed "First Payment Letter." If you have questions about your first payment, contact Mr. DeBowsky- unless you had your loan serviced elsewhere.