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FYI:  The State of California and The San Diego Housing Commission has enacted Grant programs the help first time home buyers.  You may be eligible for up to $15,000 towards the purchase of your home. Funds are available on a first come, first served basis. Certain income eligibility requirements must be met in order to qualify for San Diego Housing Assistance Programs.

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You have questions, We have answers.

 


Why Use a Mortgage Broker?
What should I know about the Loan Process?

What is Credit Scoring?

What is Escrow and how does it work?
What is Title Insurance?
Do I need Home Owner's Insurance?
Why do a home inspection?
What is the difference between a fixed rate mortgage and an ARM?

What is a VA Loan?
What is a Comparable Sale?
What is Market Value?
What should I know about construction loans?
What should I know about commercial loans?
What should I know about loans for manufactured homes?
What is a Good Faith Estimate?
What is a Truth in Lending Statement (Reg-Z)?
What is APR?

 


 

 

 

 

Why use a Mortgage Broker?

The answer is simple – to SAVE TIME and MONEY! With tremendous competition in today’s marketplace for your business, mortgage brokers continue to be the preferred provider for home loans. In 2005, mortgage brokers originated over 70% of all residential mortgages. This clearly indicates consumers are choosing superior options, convenience, service and expertise offered by mortgage brokers.
 
The mortgage broker is an expert mentor who guides the consumer through the complex mortgage lending process. The broker offers the consumer extensive choices and access to affordable home loans while balancing the consumer’s financial interests and goals.
 
Consumers could conceivably shop around to many financial institutions, but that can be time consuming and very confusing. Most people are either too busy or are overwhelmed by the process. The broker works as a liaison between the borrower and the lender to create a cost effective and efficient loan process. Brokers bring financial institutions to the consumer. The borrower doesn’t have to spend time and energy visiting websites, playing phone tag with multiple loan officers, and trying to compare loan options with different rates, points, closing costs and terminology. The borrower is approved with one application, instead of having to qualify a dozen times by shopping themselves.
 
Unlike direct lenders, brokers are not limited to one set of loan programs. Individual lenders offer only a fraction of the programs that might be beneficial to the consumer. Mortgage brokers shop the market and direct consumers to lenders who have the loan products that best meet their needs. Brokers deal with multiple lenders ( 40 on average ) and are able to select the lender with the best rates and programs for any given loan scenario. The lender with the lowest on a 30 year fixed loan probably doesn’t have the best rate on a 5/1 Interest Only ARM. A savvy broker provides great flexibility and choice to the borrower.
 
Interest rates change daily. The lender with the best rate today may not have the best rate two weeks from now. Brokers can cancel a rate lock with a lender and relock with another to capture a lower rate if the market shifts. Sometimes, the best deal may not always equal the lowest rate. A loan with a very low rate may not be the best choice for a consumer with limited cash, if that rate comes with high points and fees. The best deal for any consumer depends on his financial circumstances, needs and goals.
 
While rates are an important consideration in selecting a lender, brokers also make their professional recommendations based on a lenders reputation for service, their underwriting criteria, their ability to fund a loan on time, and their compliance with the consumer’s requirements. If problems arise in underwriting that cannot be satisfied, the mortgage broker can take the deal to a different lender and get the loan closed on
schedule without starting over.
 
Often, direct lenders have limiting criteria with no ability to be creative to qualify the consumer. Mortgage brokers are responsive and have pioneered the subprime credit market, using innovative loan programs to approve borrowers with less than perfect credit histories. Many would not have been able to enjoy homeownership without the assistance and dedication of a mortgage broker.
 
In conclusion, consumers demand choice, convenience, and expertise. Mortgage brokers deliver. By continuing to provide individualized attention and sound advice tailored to the borrower’s needs and wants, mortgage brokers can expect increased market share.

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What Should I know about the Loan Application Process?

The mortgage application process requires considerable paperwork. First there is the application form, which asks for detailed information about you, your employment record, the house you want to purchase, etc. The lender will need documentation pertaining to your personal finances--your earnings, your monthly expenses, and your debts--to help gauge your willingness and ability to repay the mortgage.
 
Lenders also will examine your file at the credit bureau to learn if you pay your bills on time. A lender may reject your application if the report shows that you have a poor credit history. Thus, you may want to make sure your credit file is accurate before you apply for your mortgage. You have a right to know what information is contained in your credit report and to have someone from the credit bureau help you understand what the report says. The names of credit bureaus can be found in the phone book.

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Escrow : How Does it Work?

The principals to the escrow : buyer, seller, lender, borrower : cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow officer. If a broker is involved, he will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents.
The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be "closed." Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand.
The duties of an escrow holder include; following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms funds in accordance with instructions and provide an accounting for same : the Closing or Settlement Statement.
 
Why do I need an Appraisal?


Because much private, corporate, and public wealth lies in real estate, the determination of its value is essential to the economic
well-being of society. It is the job of the professional appraiser to determine these values by gathering, analyzing, and applying information pertinent to a property.
Unquestionably, the professional opinion of the appraiser, backed by extensive training and knowledge, influences the decisions of people who own, manage, sell, purchase, invest in, and lend money on the security of real estate. And because the appraiser is trained to be an impartial third party in the lending process, this professional serves as a vital "check in the system," protecting real estate buyers from overpaying for property as well as lenders from over lending to buyers.

Appraiser Qualifications
Many states require all real estate appraisers to be, at a minimum, state licensed or state certified and have fulfilled rigorous education and experience requirements and must adhere to strict industry standards and a professional code of ethics as promulgated by the Appraisal Foundation. To see the specific requirements for any state click here.
 
How long does an appraisal take?
The physical inspection of the real property being appraised can take from approximately fifteen minutes to several hours, depending upon the size and comlexity involved.

After the initial inspection of the property the appraiser spends time touring through the neighborhood or area. The purpose of this tour is to search for comparable sales (other properties that are similar to the property being appraised) that have sold within the last six months to a year or so. When the field work is finished, the appraiser completes the report at his office. The report can consist of a short form report (typically under ten pages) to a long narrative report which can sometimes exceed a hundred pages. A short form report usually takes between three to six hours to complete. A narrative report can take weeks or sometimes even months, depending upon the complexity of the assignment.

Where does an appraiser get the information needed to complete an appraisal?
The appraiser gets his or her information from a wide variety of sources, including the local Multiple Listing Service, local tax assessors records, local real estate professionals, county courthouse records, private public record data vendors, interviews with sellers and buyers, appraisal data co-operatives and his or her own personal knowledge or office files from previous appraisals. The quality and reliability of each piece of information is considered by the appraiser.

Appraisal VS. Engineer or Whole House Inspection?
The appraiser is not a whole house inspector, engineer, architect, electrician, plumber, H.V.A.C. technician or contractor. The appraiser briefly walks through the house to get an idea of the general condition and room count. An appraisal is not a guarantee of condition. The appraiser will ask about any visible problems and those which may not be visible, and will do his/her best to gauge any impact on value attributable to those problems. You are encouraged to seek the advice of experts if you have any questions about the structural or mechanical aspects.

What does the appraiser look for?
Typically, an appraiser needs to document the condition
of the property, both inside and out, from the layout and features to degree of modernization including any updates as well as the overall quality of construction. This information will help to assist the appraiser throughout the valuation and comparison process.

The appraiser estimates the square footage (GLA - gross living area), by measuring the exterior of the home. Non-living areas, such as garages or covered porches, aren't included in GLA, but are accounted for and considered in value seperately. Finished basements are also calculated separately from the above-ground GLA. The local market will dictate the contributory value of the finished basement, which can be influenced by governmental regulations, the degree of modernization, the quality of the finish, and other factors.

The appraiser will generally consider only permanent fixtures and real property. Because many above-ground swimming pools and small sheds are not permanent structures, they typically usually aren't included in the valuation. Depending on the specific installation process and local custom, however, an above ground pool or small shed might be considered part of the real property.

What improvements add the most value to my home?
Just how much any particular individual improvement might add to your home's market value, what appraisers typically call the contributory value, can often vary widely from market to market, dictated by the wants and needs of each neighborhood. However, a local appraiser familiar with your market can help you figure out the best home-improvement value. Check out Remodeling On-Line's Cost Vs. Value Report which features some information on how improvements might increase the value of your home from market to market.

If my appraisal comes out higher than my tax value, could my real estate taxes go up?
Absolutely not!. The appraiser is required to maintain confidentiality with the client, which would typically be you (if you undertook the appraisal) or the bank (in a mortgage related appraisal), not the local tax authorities.
Short form "2055" Vs. "URAR Fannie Mae" Form Appraisal Report
A "Fannie Mae" - URAR form report has many items required by the secondary mortgage lending market, that are not neccesarily needed in a simple report to find the market value. Both primarily rely on a direct sales comparison or market approach with a comparison grid (see below) to determine the market value of the subject property. The lenders report has many additional arbitrary requirements which have little bearing on the value found by a report needed for many other purposes. The traditional "lender" reports need census tract & smsa information for tracking lending patterns. Some lender reports require a lot of the appraisers effort to determine and substantiate how much additional rental income is available to support a higher mortgage. In addition, a great deal of detail is required to help the lender determine what if any, necessary repairs might be needed before the property meets their underwriting requirements. All of these things and much more, may be quite important for a lender, but probably are useless for most people, who just want to know what a property is worth for a variety of reasons. Our short form reports are particularly well suited for helping a seller to price a home for sale, helping a buyer to decide how much to offer or pay for a home, for estate tax, gift tax, tax grievance, uncontested divorce & most any other potential use other than for obtaining a mortgage or in litigation where the report will be used in conjunction with expert testimony.
Services provided
In our complex society, you may need and use the services of a professional real estate appraiser for a variety of reasons. Depending upon an appraiser's designation and qualifications, he or she can provide some or
all of these services: Appraisals - Residential or Commercial; Counseling and Consulting; Evaluations; Expert Witness Testimony; Litigation Preparation; Feasibility Studies; Market Analysis; Market Rent & Trend Studies; Tax Assessment Review and Advice or Zoning Testimony.
Know Your rights in the appraisal process!
Under the Equal Credit Opportunity Act, your lender must provide you with a copy of the appraisal report upon your written request. If you are dissatisfied with any information contained in your appraisal report, you should contact your lender immediately.
What is the difference between a certified appraisal and a brokers market analysis or price opinion?
A certified appraisal is a formal, impartial estimate or opinion of value, usually written, of an adequately described property, as of a specific date, and supported by the presentation and analysis of relevant data. It is prepared as a result of a retainer, for reliance by identified parties, and for which the appraiser accepts responsibility. Only a state certified appraiser can provide a certified appraisal.

A comparative market analysis or brokers price opinion is an informal estimate of market value, based on comparable sales in the neighborhood, performed by a real estate agent or broker. You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder's or assessor's offices, through private companies or increasingly on the Internet through such sources as Domania or Yahoo etc.

The most important difference between a certified appraiser and broker or real estate sales agent is their motivation. A brokers typical goal is to obtain a listing and earn a commission. Although most brokers and agents are honest some might tell you what they think you want to hear. A certified appraiser is independent and has no axe to grind. They have no ulterior motives. Their only concern is to deliver a fair, accurate objective appraisal.
The following Items, if available, will help your appraiser to provide a more accurate appraisal in a shorter period of time.
A survey of the house and property; A deed or title report showing the legal description; a recent tax bill; a list of personal property to be sold with the house if applicable; a copy of the original plans & specifications, The date and purchase price you paid when you purchased the property; a list of recent improvements & cost as well as any other information you feel may be pertinent.
 

The Appraisal Process
The appraisal process is an orderly and concise method of reaching an estimate of value. The process has six major steps which include: definition of the problem, preliminary survey and appraisal plan, data collection and analysis, application of the three approaches to value, reconciliations of value indications, final estimate of defined value. This process assists the appraiser in reaching a sound conclusion. The major phase of this process involves the application of the three approaches to value which include the Market Data Approach, the Cost Approach and Income Approach. The three approaches are reconciled and the value via most applicable approach, in the opinion of the appraiser, is selected as the final estimate of value. In most residential appraisals, particulary those of single or two family dwellings, the direct sales comparison or market approach best reflects the actions of buyers and sellers and is the most convincing and defendable approach to value.
The market or direct sales comparison approach to value
The market or direct sales comparison approach to an estimate of value is a process of comparing market data, that is, prices paid for similar properties, prices asked by owners, and offers made by prospective pur
chasers or tenants willing to buy or lease. Typically a comparison grid is used and adjustments are made to each of the comparable sales used for major differences between the comparable and the subject property for such items as location, gross living or building area, lot size, condition/effective age, market conditions, degree of remodeling, construction quality and significant amenities, ie: fireplace, jacuzzi, in ground pool, garage, deck, patio, porch and central air conditioning etc. In the market approach, the appraiser attempts to both gauge and reflect the anticipated reaction by a typical purchaser to the subject property.
 

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Comparable sales
A comparable sale is a property, that is similar to the subject property in most respects, is located in a similar (nearby) location, and has sold recently at arms length. The selection of comparable sales is in most residential appraisals, the single most important determining factor in establishing value. It is the appraisers responsibility to adequately research the local real estate market and determine which comparable sales best represent the value characteristics of the subject property.

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Market value
Market value or fair market value is the most probable price that a property should bring (will sell for) in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised; (3) a reasonable time is allowed for exposure to the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
The cost approach to value The cost approach combines an estimate of land value with an estimate of depreciated reproduction or replacement cost of the improvements. The principle of substitution is the basis of the cost approach, in that no rational person will pay more for a property than the amount for which he can obtain, by purchase of a site and construction of a building, with undue delay, a property of equal desirability and utility.

Title Insurance

A policy of title insurance is a contract of indemnity between the insured and the insuring company relating to the title to the land described in the policy, protecting the insured against loss of damage by reason of defects, liens or encumbrances of the insured title existing at the date of the policy and not expressly excepted from its coverage.

The policy is issued after a complete search and examination of the public records and shows the condition of the record title, including any money obligations outstanding against the property, easements and other matters which may affect the rights of ownership, possession and use of the property.

Title insurance protects the "record" title, insuring it is good subject only to the exceptions expressly set out in the policy. lt also insures against certain matters which do not appear of record, such as forgery, identity of parties, incompetence of former owners, interest of missing heirs, and status of individuals not having the "right" to sell property.

There are different types of policies. Owners’ policies are issued to real estate owners. Purchasers’ policies are issued to purchasers of real estate under contract. Mortgage policies are issued to mortgage companies. In addition there are several other special forms of policies. There is a type of policy to meet the requirements of almost any form of real estate transaction.

Are there different types of Title Insurance policies?
Yes. Basically there are two different types of policies - a loan policy and an owner's policy. The loan policy protects the lender's interest
in the property as security for the outstanding balance under the buyer's investment or equity in the property up to the face amount of the policy. (Title insurers in many states offer increased policy coverage through inflation endorsements to cover increases in value due to inflation.)
How much does title insurance cost?
Probably a lot less than you think. Charges vary in different sections of the country, but generally the cost of title insurance (including search, examination and related services) amounts to about one percent or less of the cost of the property. And unlike other insurance premiums, which must be paid annually, a title insurance premium is paid one time only, usually at settlement.
How long does my coverage last?
For as long as you or your heirs retain an interest in the property and, in some cases, even beyond.
Where can I get title insurance?
From any licensed title insurance company or its representatives operating in your state. When choosing a title insurer, it is important that you look for a company with expertise and experience, as well as the financial strength to protect you should a claim arise. Your broker or attorney can recommend such a company.

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Termite report
Although the buyer usually will have a home inspection done, I recommend to many clients that they go to the expense of having a termite report done on their own. The reason being that you can take care of any problems and improve the marketability of your home.
 

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Warranty
Any home, new or used, will have minor problems. For instance, an electrical outlet may not work, there may be a leaking faucet or maybe roof, one of the appliances may not work. The purpose of a home inspection is to insure that the buyer is aware of all problems and potential problems with a home before they buy. A seller is required in most cases to make the necessary repairs to insure everything is in working order. The buyer or their realtor should schedule a home inspection immediately after acceptance of an offer to purchase. Basically the inspector will check the home from the roof to the foundation and everything in between. He will run the dishwasher, check the heating and cooling systems, check the plumbing, electrical, check for leaks, etc. He will give the buyer and/or the buyer’s agent a written report on the spot or fax or mail the report within 2 or 3 days. At the buyer’s or the buyer’s agent’s request the seller or seller’s agent will be given a copy of the report as well. The buyer may want or need to also have a separate roof inspection. If the buyer wants to have inspections for radon, lead-based paint, environmental hazards, etc. they will need to have these completed within the same period. Pest control inspections are generally not done until 30 days before closing, due to lender requirements. In many cases the home inspection company may be a licensed pest control company as well. It would not be prudent for a homebuyer to forego a home inspection before purchasing a home. Under Virginia law the seller must disclose (seller’s disclosure) to the buyer all known facts that materially and adversely affect the value of the property being sold and that are not readily observable. The key word is known. Your agent should have you fill out this disclosure before you put your home on the market. There are often things wrong with your home that you may not know about. The home inspection checks the interior and exterior of the home, goes up into the attic space, and goes in the crawl space, if there is one. The price of a home inspection will vary with the size of home and with the amenities of the home (crawlspace, pool, etc.). Expect to pay anywhere from $250 to $500.

 

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Seller Responsibility

The inspection is done to determine whether any warranted items are in need of repair. Generally the seller warrants that the structure (including roofs and pool) are structurally sound and are watertight, and that the appliances, heating, cooling, mechanical, electrical, security, sprinkler, plumbing systems, dock and pool equipment, if any, are in working condition and will be maintained in working condition until closing. The seller does not warrant and is not required to repair cosmetic conditions (unless the cosmetic condition resulted from a defect in a warranted item). Cosmetic conditions means aesthetic imperfections that do not affect the working condition of the item, such as tears, worn spots and discoloration of items such as floor coverings, wallpapers, window treatments; nail holes, scratches, dents, scrapes, chips and caulking in bathroom ceilings, walls, flooring, tile, fixtures, mirrors; tears or holes in screens; and minor cracks in windows, driveways, sidewalks, pool decks, garage and patio floors. The seller is not obligated to bring any items into compliance with existing building code regulations (unless necessary to repair a warranted item). Codes are constantly changing, and vary from one municipality to another. If the item was installed properly under the code existing at the time of installation no more can be required. The inspector will point out items that he recommends bringing to current code, such as GFI (ground fault interrupt) outlets, but this is a buyer option, not a seller requirement. Note that most contracts provide that a licensed contractor or repair person must do any repairs.
Items commonly noted in an inspection:

Electrical panel: a fuse that is double lugged.

Faucet that will not turn completely off.

Outlet that does not have power.
Who pays for the inspection and how much does it cost?
The buyer pays for the home inspection. Most inspectors charge about $200 to $300 for a condo and about $250-$500 for a house. Of course larger properties with 2 or more stories, larger square footage, or older homes that are in very poor condition can be higher. Always describe the property accurately to the inspector in order to get an accurate price quote.
Is a Termite Inspection required?
A termite inspection is not always required. However, most of the time it is performed. One of the main reasons is that most lenders making the loan require a pest inspection and repairs if there is damage.
Who picks the Termite Inspector?
Generally the buyer (or the buyer's agent) picks the termite inspector since they will be paying for it. In many cases the company doing the inspection of the home may also be licensed to do the termite inspection.
Termite Inspection on condominiums or townhouses
The type of structure determines if an inspection is required. Typically the HOA (Homeowners Association) is responsible for termite issues in the common areas and exterior of your condo. It is fairly uncommon for a termite company to recommend tenting a condo building when a sale occurs. Usually the HOA will contract with a termite company for periodic inspections and maintenance. In most cases a termite inspection is not required for a condo. However, some lenders still may require a complete termite report and clearance for condos.

 

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Home Warranty Policy
The last thing a home buyer wants to worry about after closing is what could possibly break or malfunction in her new home. Since that can cover a multitude of items and systems, for peace of mind, it's a good idea to get a home protection plan. It's especially a good idea to obtain a home warranty if you're a first-time home buyer with no experience maintaining a home.
Who Pays for the Home Warranty?
Now, whether the seller pays for the home protection plan and home warranty coverage or whether the buyer pays for it, will depend on your local customs. It varies. In many locales, it's normal for a seller to pay for the coverage because it's a seller benefit. Why? Because then the buyer won't be calling the seller after closing if something breaks. Many real estate agents will also give buyers a home warranty as a gift at closing.
How Much does a Home Warranty Cost?
They are fairly inexpensive, typically ranging from $250 to $400, depending on coverage. Home warranty companies sometimes run special sales and either discount policy prices or offer additional coverage for the same price. The policies are prepaid for a year in advance, at which time they expire or can be renewed.
How Do They Work?
Although specific plans provide for specific types of coverage, most operate the same way.
If a home system or appliance breaks or stops working, the home owner calls the home warranty company.
The home warranty company calls a provider with which it has a business arrangement.
The specific provider calls the home owner to make an appointment.
The provider fixes the problem. If an appliance is malfunctioning and cannot be repaired, depending on contract coverage, the home warranty company will pay to replace and install the appliance.
The home owner pays a small trade service fee (less than $100).
Types of Coverage
Because all plans differ, you will want to ask specifically what is covered. Ask your real estate agent if upgrades are available. Pay close attention to whether the home warranty company will pay for repairs to make certain types of systems or appliances compliant with new regulations.
What If I Disagree With the Diagnosis?

Sometimes a service provider will deny a claim. (See below.) If that happens or if you are unhappy with the service provided, call your real estate agent and complain. Your real estate agent, if she has a good working relationship with the representative from the home warranty company that is covering your home, well, she can seek resolution for you. Agents all over the country are going to be very upset at this suggestion, but it works. If my client calls me with a problem, I call my rep, and she eventually finds a way to work out a solution acceptable to all the parties involved.
In short, don't take "no" for an answer! Call your real estate agent.
What is Not Covered?
Outdoor items such as sprinklers
Faucet repairs are not covered under all plans
Not all plans pay for refrigerators, washers & dryers or garage door openers
Spa or pools, unless specific coverage requested
Permit fees
Haul aways
What Can Cause Denial of Payment?
Improper maintenance
Code violations
Unusual wear and tear
Improper installation

General Coverage
Air conditioning
Dishwashers
Doorbells
Furnace / heating
Water heater
Ductwork
Garbage disposal
Inside plumbing stoppages
Ceiling fans
Electrical systems
Range and oven
Telephone wiring
Because coverages vary from state to state and from policy to policy, ask to see a sample copy of a policy before you commit.
More Home Buying / Selling Quick Tip

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Home Inspection
Why You Need a Home Inspection
Buying a home is one of the most important purchases you will make in your lifetime, so you should be sure that the home you want to buy is in good condition. A home inspection is an evaluation of a home’s condition by a trained expert. During a home inspection, a qualified inspector takes an in-depth and impartial look at the property you plan to buy. The inspector will:
Evaluate the physical condition: the structure, construction and mechanical systems.
Identify items that should be repaired or replaced.
Estimate the remaining useful life of the major systems (such as electrical, plumbing, heating, air conditioning), equipment, structure and finishes.
The home inspector does not estimate the value of the house.
After the inspection is complete, you will receive a written report of the findings from the home inspector, usually within five to seven days.
This brochure is primarily for homebuyers that buy their homes with the help of the Federal Housing Administration (FHA) mortgage insurance programs. All homebuyers can benefit from the information in this brochure to understand the difference between home inspections and appraisals, the benefits of home inspections, how to find a qualified inspector, and the importance of radon testing.

Home Inspections Are Not Appraisals
A property appraisal is a document that provides an estimate of a property’s market value. Lenders require appraisals on properties prior to loan approval to ensure that the mortgage loan amount is not more than the value of the property. Appraisals are for lenders; home inspections are for buyers.
FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), requires lenders to obtain appraisals of properties securing FHA-insured loans. FHA requires appraisals for
three reasons:
To estimate the market value of the property.
To make sure that the property meets FHA minimum property requirements/standards (health and safety).
To make sure that the property is marketable.
The FHA appraisal process will note property deficiencies that are readily observable and found not in compliance with HUD’s minimum property requirements/standards (Handbook 4905.1 REV-1 and Handbook 4910.1). These deficiencies may not be the same as those items noted in a home inspection report.

About FHA Home Inspections
FHA helps individuals and families become homeowners by providing lenders with mortgage insurance for certain loans.
FHA does not guarantee the value or condition of your future home, and FHA does not perform home inspections. If you find problems with your new home after closing, FHA cannot give or lend you money for repairs, nor can it buy the home back from you.
That’s why it is so important for you, the buyer, to get an independent home inspection. Ask a qualified home inspector to thoroughly examine the physical condition of your future home and give you the information you need to make a wise decision.
The Bottom Line: Spending Hundreds May Save Thousands
When you make a written offer on a home, you should insist that the contract state that the offer is contingent on a home inspection conducted by a qualified inspector. You will have to pay for the inspection yourself, but it could keep you from buying a house that will cost you far more in repairs down the road. If you are satisfied with the results of the inspection, then your offer can proceed.
FHA does not guarantee the value or condition of your potential new home, and FHA does not perform home inspections.

Finding a Qualified Home Inspector

As the homebuyer, it is your responsibility to carefully select a qualified inspector and pay for the inspection.
The following sources may help you find a qualified home inspector:
State regulatory authorities. Some states require licensing of home inspectors.
Professional organizations. Professional organizations may require home inspectors to pass tests and meet minimum qualifications before becoming a member.
Phone book yellow pages. Look under “Building Inspection Service” or “Home Inspection Service.”
The Internet. Search for “Building Inspection Service” or “Home Inspection Service.”
Your real estate agent. Most real estate professionals have a list of home inspectors they recommend.
Radon Gas Testing
The U.S. Environmental Protection Agency and the Surgeon General of the United States have recommended that all houses should be tested for radon. For more information on radon testing, call the National Radon Information Line at 1-800-SOS-Radon or 1-800-767-7236. As with a home inspection, if you decide to test for radon, you may do so before signing your contract, or you may do so after signing the contract as long as your contract states the sale of the home depends on your satisfaction with the results of the radon test.

 

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Why buy Home Owner's Insurance?
Owners: To protect both your house and personal property.
Tenants: To protect your personal property.

Everyone: Protection against liability for accidents that injure other people or damage their property.

How much home insurance do I need?
Asset Protection: More coverage generally means you will have less to pay out of your own pocket if disaster strikes. You must determine the amount you can financially afford to lose. Depending upon your determination, more insurance may be the answer. You need enough liability coverage to protect yourself from lawsuits resulting from your possible negligence.
Lender Requirements: Your lender may require you to cover the house for at least the amount of the mortgage. You are not required to purchase insurance from the insurer recommended by your lender.
Policy Requirements: Insurers may impose some conditions for replacement cost protection, including insurance of the property to value.

What affects home insurance prices?
Type of Construction: Frame houses usually cost more to insure than brick.
Age of House: New homes may qualify for discounts. Some insurance companies offer limited coverage or may not insure older homes.
Local Fire Protection: The number of fire hydrants and fire departments and the availability of water are some factors that determine your area's fire protection class. If you reside in an area without fire protection, you will pay more for fire insurance.

What's a peril?
A peril is a condition that can cause a loss. Three examples are fire, windstorm, and theft.

What deductible should I choose?
The deductible applies only to the coverages on your house and personal property. It is the amount you have to pay out of your pocket on each claim. You can collect on your insurance policy once the deductible amount is exceeded. A policy with a $100 deductible will cost more than one with a $250 deductible. Higher deductibles also will result generally in fewer claims, at a time when insurers are nonrenewing if the number of claims is considered "excessive."

What basic coverages are available?

The most common basic coverages are: property damage, additional living expenses, personal liability and medical payments.

What does property damage cover?
Property damage coverage helps repair your home and personal property when damaged by such perils as fire, lightning, windstorm or hail. The perils of flood and earthquake are covered when the coverage is added to your policy. If you believe you need flood insurance and your insurance company will not provide it, you may obtain coverage through the federal government's National Flood Program ("NFP"). To learn more about the NFP, you can contact an insurance agent or contact the NFP at (800) 638-6620. You should carefully read your policy before you have a loss to determine exactly what types of losses will be covered.

What does personal property insurance coverage include?
In general, the contents of your home and other personal belongings owned by you or family members who live with you are covered under the policy equal to 50 percent of the value carried on your dwelling. However, high-valued personal property such as jewelry and cameras should
be listed on the policy so that you are adequately protected.

What does additional living expense or loss of use cover?
Most home insurance policies cover extra costs you incur if your home is damaged by an insured peril and you cannot live there while repairs are made or if you are denied access to your home by government order. The coverage is generally subject to duration limits and commonly covers any expense incurred by you so that your household can maintain its normal standard of living. In some instances, this coverage may include the costs of a motel, eating in a restaurant or storing some property.

What is personal liability insurance coverage?
Personal liability coverage protects you and all family members who live with you against a claim or lawsuit resulting from (non-auto and non-business) bodily injury or property damage to others and for which you become legally obligated to pay. Defense costs are included, but the insurance company has no duty to defend you after the limit of liability on the policy has been exhausted.

What does medical payments insurance cover?
Regardless of fault, this coverage pays the reasonable expenses for others accidentally injured on your premises or the areas immediately adjoining your property such as sidewalks or alleys. Medical payments coverage does not apply to your own injuries or those of family members living with you or injuries arising out of activities involving a business that you operate out of your home, your intentional acts, or rental use of your premises.

What is replacement cost?
Replacement cost is the amount necessary to replace or rebuild your home or repair damages with materials of similar kind and quality without deducting for depreciation.

What is actual cash value?
Actual cash value usually means amount needed at the time of the loss to repair or replace the property destroyed, less depreciation. Most standard home insurance policies cover the contents of your home (i.e., personal belongings) on an actual cash value basis, but it is possible to purchase replacement cost coverage.

What should I do if my premium increases and I want to get quotes from other companies?
Missouri only requires insurers to give you 30 days notice on your renewal, which often is not enough time. If you need more time, considering paying monthly installments until you make a final decision on your insurer.

When shopping around, try to get all your quotes in a two-week period. Shopping around for insurance coverage can now damage your credit score because each insurer may run a credit check. As best we can tell, getting all your insurance quotes and buying a new policy in a two-week period increases the chance that you can keep damage to your credit score at a minimum.

If you receive a premium notice that doubles your insurance premium on your homeowners policy form the previous year, we encourage you to call the Missouri Department of Insurance, Financial Institutions
& Professional Registration at 1-800-726-7390.

How can I get a lower premium?
Strongly consider a higher deductible so you can cut your premium. In the current insurance market, don't tempt yourself with the possibility of a small claim, considering that many insurers now refuse to renew polices with a claim history and refuse to accept new customers with prior claims. View your homeowners insurance as catastrophic coverage only, and set aside your premium savings to cover minor repairs.

What if I receive a notice of nonrenewal?
Explore whether your company will extend your coverage if you increase your deductible. With many insurers dropping frequent claimants, the higher deductibles will mean fewer claims and, if nothing else, buy time until you have the opportunity to find another insurer.

Apply for coverage with several companies simultaneously. Otherwise, you may not have enough time to get competitive bids. This grouping of applications also gives you the best chance of avoiding major damage to your credit score. Ask in advance if a company accepts new applicants with recent claims. Most preferred companies will not insure anyone with one claim in 3 years.

Make every effort to get regular coverage, even though you can expect to pay more than for your current policy. The alternatives in Missouri are the MO Property Insurance Placement Facility (FAIRPLAN), which provides a fire policy (no liability) with no more than $100,000 in coverage for your home and contents combined, or the surplus lines market, which seldom insures any home less than $100,000 and provides very expensive coverage.

If you have a mortgage and your coverage lapses, the finance company or bank may be able to provide insurance and charge you high rates for inadequate coverage; these forced placement contracts only covers its stake in your home's value, not your equity.

I had a loss, and my roof needs repair. The company is only willing to pay for repairing part of the roof even though the contractor has said that I need to replace the entire roof.
If the shingles that are currently on your roof are no longer manufactured, the company is responsible for replacing your entire roof. But if your shingles are manufactured and do not match the existing shingles due to weathering, the company is only responsible for replacing the damaged shingles, not the whole roof.

I have replacement coverage for contents under a homeowner's policy. Some of my property has been stolen. Can the company settle for an amount less than replacement?
The company will usually pay the actual cash value, which is the replacement cost minus depreciation, for the loss or damage - until the property is replaced. Once the insured replaces the damaged property and provides receipts to the company, the company should reimburse the difference.


I have had homeowner's insurance with the same company for years. I had two claims last year, and now the company will not renew my policy. Can they do this?
Yes. Each company has its own underwriting guidelines, which indicate what risks they will assume. State law permits an insurer to nonrenew a homeowner's policy on the policy anniversary date as long as they give the insured 30 days advance written notice and the specific reasons for the nonrenewal.

What protection does the personal liability coverage in my homeowner's insurance policy provide?
This coverage protects you and all family members living with you against claims or lawsuits resulting from bodily injury or property damage to others for which you are negligent and legally liable, with exceptions such as intentional acts.

Does my homeowner insurance policy cover flood damage?
Generally, homeowner insurance policies do not offer protection against flood losses. You should check your policy under Section I - Exclusions. It would probably be listed under "water damage".
Flood insurance is available through the federal government's National Flood Insurance Program. It may be purchased through any licensed property/casualty insurance agent or through many private insurance companies that are now writing flood insurance under arrangements with the Federal Insurance Administrator.
 

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What is credit scoring?
A credit score is a snapshot of your credit at one point in time. The credit information from your credit report is put through a mathematical formula (credit scoring model) that assigns weights to the various factors and summarizes your credit information into a three-digit number ranging from zero to 999. Many insurers believe that the lower the number, the more likely the consumer will file a claim.

How is credit scoring used?
If your insurance company relies on credit scoring, they may use it in two ways:
Underwriting — Deciding whether to issue you a new policy or to renew your existing policy.
Rating — Deciding what price to charge you for your insurance by placing you into a specific rating "tier" or level.

Some insurers use credit information along with other more traditional rating factors, such as claims history. Other insurers may use credit alone to determine your rate. (A new Missouri law prohibits the use of credit scores solely to decide whether to accept you as an auto or homeowners customer, effective July 1, 2003.) Insurance rates based on credit information can vary from company to company; if you feel your rate is too high, shop around.

What affects a credit score?
Several factors determine credit scores. Each factor is assigned a weighted number that, when applied to your specific credit information and added together, equals your final three-digit score. Following is a list of common factors:
Major negative items — Bankruptcy, collections, foreclosures, liens, charge-offs, etc.

Past payment history — Number and frequency of late payments.
Length of credit history — Amount of time you've been in the credit system.
Homeownership — Whether you own or rent.
Inquiries for credit — Number of times you've recently applied for new accounts, including mortgage loans, utility accounts, credit card accounts, etc.
Number of open credit lines — Number of major credit cards, department store credit cards, etc., that you've actually opened.
Type of credit in use — Major credit cards, store credit cards, finance company loans, etc.
Outstanding debt — How much you owe compared to how much credit is available to you.

Know your credit history
Your current or prospective insurance company likely is looking at your credit. So review the accuracy of your credit history. Request a copy of your credit history from the credit bureau Equifax, Experian, or Trans Union. You can also contact the Federal Trade Commission for consumer brochures on credit.

The Fair Credit Reporting Act requires an insurance company to tell you if they have taken an "adverse action" against you, in whole or in part, because of your credit report information. If your company tells you that you have been adversely affected, they must also tell you the name of the national credit bureau that supplied the information so that you can get a free copy of your credit report and correct any errors.

Take charge of your credit history
If your insurance company is using your credit score to evaluate your rates, you can take steps to improve your premiums.
Get a copy of your credit report and correct any errors. Notify your insurance agent and company of any errors.
Improve your credit history if you've had past credit problems. If your credit score is causing you to pay higher premiums, ask your insurer if they will re-evaluate you when your credit improves.
 

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What is a Fixed Rate Mortgage?
A fixed rate mortgage is a mortgage in which the interest rate and the principal payments do not change during the entire term of the loan. The most common mortgage terms are 15 and 30 years.
What is an ARM?
An ARM is an Adjustable Rate Mortgage. It is a mortgage in which the interest rate is adjusted periodically based on a pre-selected index. The Fully Amortizing ARM is the most common type of ARM. The monthly payment is calculated to payoff the entire mortgage balance at the end of the term. The term is typically 30 years. After any fixed interest rate period has passed, the interest rate and payment adjusts annually. A Fully Amortizing ARM will also have a maximum rate that it will not exceed. Components of an ARM include and Index, Margin, Adjustment Period, Adj
ustment Cap and Lifetime Cap.
Below is a list of the most common types of Fully Amortizing ARMs.
Common Adjustable Rate Mortgages
 
ARM Type
Months Fixed
10/1 ARM
Fixed for 120 months, adjusts annually for the remaining term of the loan.
7/1 ARM
Fixed for 84 months, adjusts annually for the remaining term of the loan.
5/1 ARM
Fixed for 60 months, adjusts annually for the remaining term of the loan.
3/1 ARM
Fixed for 36 months, adjusts annually for the remaining term of the loan.
1 year ARM
Fixed for 12 months, adjusts annually for the remaining term of the loan.
What is an Interest Only ARM?
An Interest Only ARM only requires monthly interest payments. Since you are not paying any principal you typically have a lower monthly payment. However, since your mortgage’s principal balance is not decreased, you may have a balloon payment at the end of the mortgage’s term. Like a Fully Amortizing ARM, an Interest Only ARM will often have a period where the interest rate is fixed, and then it is adjusted annually. An Interest Only ARM will also have a maximum interest rate that it will not exceed.

What is a Hybrid ARM?

A Hybrid ARM unlike a true ARM that adjusts for the same periods for the life of the loan is fixed for a set starting period. After the starting period the interest rate adjusts for the same period for the remaining life of the loan.

What is an Option ARM?

An Option ARM is an adjustable rate mortgage with added flexibility of making one of several possible payments on your mortgage every month, in order to better manage your monthly cash flow. The most typical payment options start with the minimum payment option in which your monthly payment is set for 12 months at your initial interest rate. After that, the payment changes annually, and a payment cap limits how much it can increase or decrease each year. If the minimum monthly payment is not sufficient to pay the monthly interest due it results in negative amortization. The options also include an interest-only payment, a fully amortized payment based on a 30-year loan and a fully amortized payment based on a 15-year payment.

What is Negative Amortization?

Negative amortization is an amortization method in which the borrower pays back less than the full amount of interest owed to the lender each month. The shorted amount is then added to the total amount owed to the lender. Negative amortization is also referred to as deferred interest. Such a practice would have to be agreed upon before shorting the payment so as to avoid default on payment. Negative amortization loans today are mostly ARMs and many have a graduated payment option. This option offers a set monthly payment at the initial interest rate. After that, the payment changes annually, and a payment cap limits how much it can increase or decrease each year. This typically results in negative amortization. Since the payment increases over time, it has aspects of the ARM loan until amortizing payments are required.

What is an Index?
An index is a published interest rate against which lenders measure the difference between
the current interest rate on an adjustable rate mortgage and that earned by other investments. It is used to adjust the interest rate on an adjustable mortgage up or down.
Common indexes used to establish ARMs include:
LIBOR
PRIME RATE
MTA
CMT
T-BILL
CODI
COFI
COSI
CD

What is a Margin?
A margin is the amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate. The margin is one of the most important aspects of ARMs because it is added to the index to determine the interest the borrower pays. The margin added to the index is known as the fully indexed rate. As an example if the current index value is 5.50% and your loan has a margin of 2.5%, your fully indexed rate is 8.00%.

What is an Adjustment Period?

The adjustment period is the number of months between each rate adjustment after the 1st adjustment.

What is an Adjustment Cap?
An adjustment cap is the maximum percentage that the rate will increase for each subsequent adjustment periods after the first adjustment.

What is a Lifetime Cap?

A lifetime cap is the maximum percentage that the note rate can rise to.
 

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What is a FHA Loan?

Is FHA financing complicated?
Years ago, FHA financing was more complicated than conventional financing. However changes over the years have streamlined the FHA loan process and in many cases, FHA home loans are easier than conventional financing.
Who qualifies for a FHA home loan?
The program is open to virtually everyone. There are a few restrictions placed upon credit and residency that may preclude someone from obtaining a FHA home loan.  
Is it true that the down payment can be gifted?
Yes. Current FHA guidelines permit a relative, a governmental agency, or approved non-profit organization to gift the borrower's down payment. A gift, according to HUD, is just that--a gift. HUD does not permit the borrower to repay the gift as a stipulation of giving the gift.
What is the minimum amount of money I need to buy a home with a FHA mortgage?

The National Housing Act requires the minimum cash investment to be 3 percent of the sales price. Even though the actual down payment may be less than 3 percent, the balance would go towards the borrower's closing costs. In the event that there are no closing costs, the down payment would be increased to 3 percent. 
I have had a bankruptcy in recent years. Can I get a FHA loan?
Generally a bankruptcy will not preclude a borrower from obtaining a FHA loan. Ideally, a borrower should have re-established a minimum of two credit accounts (such as a credit card, car loan, etc.) and wait 2 years since the discharge of a Chapter 7 bankruptcy or have a minimum of 1 year of repayment with a Chapter 13 (the borrower must also seek permission of the courts to allow this). Furthermore, the borrower should not have any late payments, collections, or credit charge-offs since the discharge of the bankruptcy. If a borrower has suffered through extenuating circumstances (such as surviving cancer but had to declare bankruptcy because the medical bills were to much), special exceptions can be made (rarely).  
Is the upfront mortgage insurance premium negotiable?
No. In order to cover some of the costs incurred by HUD for FHA loans, they must assess the upfront and monthly mortgage insurance to the home buyer. This upfront fee equals 1.50% and the borrower will have to pay 0.5% annually in mortgage insurance premiums. However, if you are buying a condominium, you do not have to pay the upfront mortgage insurance premium.
How long does it take to receive my MIP refund?
Generally, it takes approximately four to six weeks to receive your MIP refund if you have sold your home and paid off an existing FHA home loan or refinanced your FHA mortgage to another mortgage other than FHA. If you refinance your property to another FHA loan, a MIP refund credit will be applied to the balance you owe against the home at the time of closing. Former FHA borrowers who think they might be due a refund can call a toll free number, 1-800-697-6967, or write HUD at P.O. Box 23669, Washington DC 20026-3699. Or you can look for your name with the HUD Refund Search Form  
How do I find out if a condo or PUD is HUD approved? 
You can search online at the following website urls:
Condos: https://entp.hud.gov/idapp/html/condlook.cfm
PUDs: https://entp.hud.gov/idapp/html/subdivlook
 

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VA Home Loan Mortgage Questions

Definition of a VA Loan - What is a VA loan?
 
The VA loan began in 1944 through the original Servicemen's Readjustment Act, also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans. VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.

 
Using the VA Loan is a Good Idea
 
The more you know about our home loan program, the more you will realize how little "red tape" there really is in getting a VA loan. These loans are often made without any downpayment at all, and frequently offer lower interest rates than ordinarily available with other kinds of loans. Aside from the veteran's certificate of eligibility and the VA-assigned appraisal, the application process is not much different than any other type of mortgage loan. And if the lender is approved for automatic processing, as more and more lenders are now, a buyer's loan can be processed and closed by the lender without waiting for VA's approval of the credit application.

 
Uses for a VA Home Loan
 
To buy a home (including townhouse or condominium unit in a VA-approved project), to build a home, to simultaneously purchase and improve a home, to improve a home by installing energy-related features, or to bu
y a manufactured home and/or lot. On manufactured homes, there must be land included with the home and the home must be at least 24 feet wide. The manufactured home must have an identifiable tag.

 
The maximum amount of guarantee the VA will allow on a home loan and maximum loan amounts
 
The maximum guarantee authorized by the VA is 25 percent of the loan amount up to $104,250. The maximum VA home loan is $417,000. The maximum guarantee in the states of HI and AK is 25 percent of the loan amount up to $156,375. The maximum VA home loan in these states is $625,500.

 
What can be done when both husband and wife are eligible
 
They may acquire property jointly, but the amount of guarantee on the loan may no exceed the lesser of 40 percent of the loan amount or $36,000 ($104,250 for certain loans over $144,000).

 
I am a Veteran who purchased a home with my spouse utilizing my VA eligibility. I am now divorced and my spouse was awarded the home. How do I get my eligibility back?
 
When the property is awarded to the Veteran's spouse as a result of the divorce, entitlement cannot be restored unless the spouse refinances the property and / or pays off the VA loan in full or the ex-spouse is a veteran who substitutes their entitlement.

 
I heard the VA has an inventory of foreclosed homes. How can I find out more about this?
 
The Department of Veterans Affairs (VA) acquires properties as a result of foreclosures on VA guaranteed loans. These acquired properties are marketed through a property management services contract with Ocwen Federal Bank FSB, West Palm Beach, Florida. The properties are listed by local listing agents through local Multi Listing Systems (MLS). A list of properties for sale may also be obtained from Ocwen's website at http://www.ocwen.com/ . If you are interested in buying a VA-acquired property when it is listed for sale by Ocwen Federal Bank FSB, please contact a local real estate broker of your choice to see the property. Interested Listing Brokers and subcontractors may also access Ocwen Federal Bank's website at http://www.ocwen.com/ for information on selling VA-acquired properties.

 
VA Home Loan Entitlement - Isn’t the VA home loan automatic? It's one of my entitlements, Right?

 
Some first-time homebuyers are misinformed as to the workings of a VA Loan. The Veterans Administration does not normally act as a lending agent. Instead, the VA is in the business of guaranteeing the loans of veteran. In most cases, the VA offers a guaranty to those who meet the requirements, the first of which include a good credit rating. If you are considering any kind of home loan, it's best to consult a credit counselor and a financial planner to find out what credit rating you already have and what you can do to improve your credit rating before applying for the guaranty. It's important to know that a VA home loan guaranty is available only if the veteran has the income to handle house payments. A VA loan guaranty is not an automatic benefit. Your financial planner or credit counselor can go a long way towards helping you prepare your personal finances before filling out that home buyer's paperwork.

 
The VA Guaranteed Loan - Advantages
 
If you are looking to purchase a home with no money down, you're in luck if you qualify. VA mortgage loans can be guaranteed with no money down in most cases up to $417 thousand dollars. An added bonus? No private mortgage insurance requirement with a VA guaranteed loan. The VA even offers help for those looking to refinance. Don't investigate these benefits without asking for information about the interest rate reduction loan, part of something called the Streamline Refinancing Program, which allows veterans to refinance at little or no expense to them. VALoans.com can give you all the details you'll need to take full advantage of your VA home loan benefits.

 
Adjustable Rates - Do I have to take a fixed-rate VA loan?
 
Veterans who shop around will learn it's possible to get a fixed rate loan, negotiated with the lender of your choice. Another option? The adjustable rate loan, where interest may be adjusted one percent annually, up to five percent over the duration of the loan period. Which to choose? No matter which way you think is best, do your homework, shop around and get the best rate possible. Some make the mistake of taking the first offer that sounds fair, but don't be intimidated by the process. You may be eager to get the "hard part" over with and get into a home. Take some time to research the biggest purchase of your life! When in doubt, consult an expert, a legal advisor or a trusted friend in the real estate business. The more research you do, the better you'll feel at closing time. The VA is in the business of loan guaranty, but the choice of which loan to take is strictly up to you. It's also a good idea to look for businesses who make a habit of cultivating customers who are veterans--you may find their expertise in VA matters quite valuable to reduce unnecessary waiting times on paperwork.

 
Get Pre-Approved / Should I get a pre-approved loan?
 
Obtaining pre-approval for your VA loan amount is an excellent time-saving step. Once you know the exact amount you're eligible for in y
our VA home loan, you can begin searching for a home as a 'serious buyer'. You'll know in advance exactly what you can afford and what is outside your price range. It's the kind of security you'll be grateful for as you search for the best value for your money. With pre-approval, you avoid wasting time with property that's out of your price range or sellers who are unsure whether you mean business.

 
Are You Eligible for a VA Home Loan Guaranty - How do I get proof of eligibility?
 
It's easy to use an online program called ACE--the Automated Certificate of Eligibility--to get started in the VA loan guaranty process, yet can only have this done by a VA approved lender. Unfortunately, the automated system won't work for everyone. Some people don't have enough information in the ACE database, and are required to fill out a VA Form 22-1880, a Request for Certificate of Eligibility. If this applies to you, simply fill out the form and mail it to your regional Eligibility Center along with supporting paperwork including a copy of the DD214 discharge paperwork. Don't send originals of the DD214, a photocopy will do. The certificate of eligibility process can be tricky for veterans who were separated from the military with a discharge other than honorable. In this case the VA must investigate the discharge to insure it was not classified as dishonorable. People who fall into this category should seek help from their local VA office, especially if you need to file an appeal to the results of your request of eligibility.

 
Your Discharge May Affect Your Chances - I don’t have an honorable discharge. Am I automatically disqualified from VA loan eligibility?
 
The nature of your discharge can affect your eligibility for a VA loan. The certificate of eligibility process gets complicated for veterans separated from the military with a discharge other than honorable. In these cases the VA checks to see if the discharge was classified dishonorable. If you had an 'other than honorable' discharge, seek help from their local VA office, it's best to get some expert advice on what additional information to file, where to send the paperwork and what to do if an appeal is necessary. Be sure to include copies of your DD214 form, plus any paperwork or documentation showing that you either didn't receive a dishonorable discharge, or had your discharge upgraded, modified, or corrected.

 
I Lost My DD214 - What if I can't find my DD214 form?
 
Those who have been discharged, separated or retired should keep multiple copies of the DD214--your discharge paperwork. It's the most important military document in your records. This is proof of your military status, whether you are retired, separated, discharged. It also displays the nature of your discharge, and what your status is with the National Guard or a Reserve Unit. The lack of a DD214 form can bring some of your VA processes to a halt, but fortunately you can get a replacement copy by writing to the National Personnel Records Center. Enclose a completed form SF-180 along with a letter stating the reason for your request, you name, rank, social security number. If you are a recently discharged military member who separated or retired at an overseas location, remember that your DD214 form may be delayed overseas for up to a year before it beco
mes part of the National Record Center archives. If this is the case, you contact the orderly room, First Sergeant or Sergeant Major in charge of where you separated or retired and request a copy directly from your final base.

 
Already Have a VA Loan? - Is it possible to use my VA eligibility more than once?
 
Check with your lender about interest-rate reduction refinancing on your existing VA loan. This is a great advantage and there's no need to re-establish VA loan eligibility. Instead, ask your lender to use the VA's "email confirmation procedure". You may also re-use your VA loan eligibility for another VA loan. The requirement here includes having completed payments on the previous note, and you must no longer own the property. When applying for re-eligibility, include copies of the paperwork that proves your old VA loan has been paid off-a "paid-in-full" letter from your bank, or a copy of the "HUD-1 settlement statement."

 
A One-Time Deal / What is the one-time exception for renewing VA eligibility?
 
A VA certificate of eligibility is renewable on a one-time basis. You qualify if the existing VA loan is paid in full, but you still own the property. Under the rules, you ordinarily must prove the property has been sold, but thanks to the one-time exception you may renew the VA certificate of eligibility. All you need to do is complete VA form 26-1880 and send it to the nearest VA Eligibility Center. Remember that getting released from liability for a VA loan or having a debt waived by the VA is not the same as paying off the loan. In that case you'll have to pay back the government's loss. Once that is done, the certificate of eligibility may be renewed.


Partial Eligibility - Can I get eligibility for another VA loan even though I am still working on the first one?
 
If you have an existing VA loan, you may still be able to get VA loan eligibility for second loan. A VA certificate of eligibility may be available for any unused amount of what you are entitled to receive. You'll have to negotiate a downpayment with the lender, and your leftover eligibility may not be sufficient for the entire amount of the second loan. Partial eligibility is sometimes complicated, and it's best to get the advice of a VA rep before filling out any paperwork.

 
VA Loans and Rental Properties - Can I use my VA loan to buy a rental property?
 
The idea of buying a building intended as a rental property is sound-but VA mortgages aren't intended for this purpose. If you buy a home with a VA home loan, you must certify that you intend to "personally" live in the house. There are naturally exceptions made for houses that are in the building stages when the sale is made, but the general rule is you must occupy the house within sixty days of the loan closing. The occupancy requirement applies to all VA guaranteed loans except one; the Interest Rate Reduction Refinancing Loan or IRRRL. For these loans, the veteran is required to certify that the dwelling was previously occupied as the home.


Bankruptcy and VA Eligibility - What happens if I file bankruptcy and wish to buy another home at some point?
 
Veterans who file for bankruptcy are still allowed to use a VA home loan if they are eligible. Unfortunately the process does require a waiting period. You are allowed to purchase another home two years after the "discharge date" of your bankruptcy. Keep in mind that the filing date does not factor in-you must wait the two years after bankruptcy has been discharged. Once you are eligible to buy another home, the usual
credit and income requirements apply.

 
VA Loans and Your Debt Ratio - How is my VA home loan eligibility determined?
 
To qualify for a VA home loan, you must fall into a certain debt ratio. Your income, credit card debts and the new indebtedness created by the VA mortgage are all tallied up to see where you land in terms of debt. The maximum debt ratio you may have and still qualify for a VA home loan is 41%. This is only one factor used to determine eligibility, the others include your reliable income and credit rating. If you are considering applying for a VA home loan, you may wish to make an appointment with a financial planner and debt counselor to see how you might improve your standing in advance of the application process.

 
The VA Loan for Home Equity Refinancing - Can I refinance with the VA?
 
" If you own a home and are considering refinancing, VA refinancing may be just what you need. Under the terms of VA refinancing, your current real estate debt is paid out of the proceeds of a new VA mortgage. The requirements? The same borrower must use the same property as before. This type of refinancing is also known as a 'Cash Out"" refinance, and is only good for homes that are used as the owner's residence. Refinancing is available for up to 90% of the appraised value plus all closing costs in many cases. Your home must have enough equity to cover the loan. These terms may not be available in all states, depending on local lending laws. Check with your local VA rep to learn more."

 
What VA Loans Are Used For - Am I limited to buying an existing home with a VA loan?
 
A VA home loan has more flexibility than you might think. While many use this benefit to purchase existing homes, there are many other applications. Did you know you a VA home loan may be used to purchase and improve a home at the same time? You may also use a VA loan to improve your existing home by increasing energy efficiency. There is also a provision for people to use a VA loan to purchase a manufactured home and lot, under the right conditions. There are many applications for a VA home loan, sometimes all you need to do is ask!

 
Does the VA Charge A Fee? - Are there fees associated with my VA home loan?

 
There is a "VA funding fee" required by law. A first-time buyer will pay a little over two percent for a 'no money down' loan, and a second time buyer's fee is just above three percent. The reason for the fee includes the idea that the veteran is reducing taxpayer burden by contributing to the cost of his VA mortgage. The higher fee for second-time borrowers presumes that there is equity in the home, or the borrower has had plenty of time to save in order to pay for the extra percentage. There is also a fee for VA refinance loans, and they fall within the same general price guidelines; just above two percent for first-timers and just above three percent for those who borrow again.

 
VA Fees Part 2 - Who is exempt from paying the VA funding fee?
 
While there is a funding fee for a VA home loan, some people are exempt from paying. If you are a veteran getting disability compensation for service-related medical issues, or are entitled to get compensation if you aren't drawing retirement pay, you are exempt from the VA funding fee for your VA home loan. Also, surviving spouses of those who died in the service, or from service related disabilities are also exempt. It doesn't matter in this case whether the spouse has any of their own entitlements. Remember that the VA has the last word on who is exempt, and some issues may be dealt with on a case-by-case basis. If you have any doubts, ask your local VA rep to review your service records (or your spouse's records) and get a determination from the VA.

 
Co-signers on VA Loans / Can I bring on a co-signer on my VA home loan?
 
It's true that the legally married spouse of a military member or veteran can co-sign a VA loan. There is no "penalty" for doing so, the veteran loan is still fully guaranteed by the VA. Two unmarried military members are also able to co-sign on a VA loan with the same results. When a military member or veteran wants to bring an unrelated, non-military cosigner, the VA allows this with one major exception. The VA guarantee is limited to the amount of the veteran's interest in the property. Some companies won't allow these types of "mixed" loans, so you may have a bit of shopping around to do before finding a lender willing to work with you. If you find yourself in this position, give yourself plenty of extra time to hunt for the right lender.

 
The Veterans Benefits Act of 2004 - How does the Veterans Benefits Act change my loan process and entitlements?
 
The Veterans Benefits Act of 2004 made many changes to the VA loan process. If you haven't had to get eligibility or otherwise deal with the VA for a loan since the act passed, you may be surprised
at the changes. One of the major differences; the maximum guaranty amount of $60,000 has been modified. Now, for qualifying loans in excess of $144,000, the maximum is a sum equal to 25 percent of the Freddie Mac conforming loan limit, which is determined under the Federal Home Loan Mortgage Corporation Act. If you feel your VA mortgage may be affected by changes created by the Veterans Benefits Act, contact your lender for more information.

 
Fair Housing - I think I may be encountering discrimination in my search for a home. Can the VA help?
 
Federal law requires lenders who participate in VA home loans to obey Fair Housing Laws. The law prohibits a great many things including refusal to negotiate, false claims that a residence is sold or otherwise unavailable, and discrimination in financing. Chances are you won't be confronted by these problems, but in the event you do experience something you perceive to be in violation of Fair Housing laws, you can report the activity to your local VA office. The local office will investigate your complaint, which you file by filling out VA Form 26-8827, Housing Discrimination Complaint form.

 
I Can't Find A House - Do I have any alternatives?
 
Those with VA loan eligibility or pre-approval may, depending on the location, have trouble finding new homes for sale. Fortunately, there are alternatives. In many areas, the VA can offer repossessed homes available for purchase to qualified buyers. You may also wish to inquire about state programs. Much the same as your veteran educational benefits, individual states offer veteran programs independently of the your federal benefits. Contact the VA office in your area to learn what may be available. Every state has different options, you may find just what you are looking for! Don't forget that the qualifications and requirements may also differ from federal guidelines.

 
VA Foreclosures - Can I use a VA loan to buy a repo house? Does the VA have any such homes?
 
It's true, the VA does get control of properties with VA loan foreclosures. VA foreclosures are offered to the public in the same manner as repossessed HUD and USDA Development homes. If you are interested in one of these foreclosed single family houses, check the government website http://www.homesales.gov/ to see what might be available in your area. There are many different agencies offering homes on the website. Eligible buyers should contact a broker to have the Offer to Purchase And Contract of Sale VA form completed and submitted. All the routine eligibility and credit terms apply, as with any housing purchase. Check with your lender if you are unsure of the terms and conditions of purchase.

 
Improving Credit - How can I help myself before applying for a VA home loan?
 
Because your VA loan eligibility depends on your debt ratio, it's a good idea to start thinking about fixing your credit long before actually filling out loan paperwork. The best way to help yourself out is to follow the advice of a credit counselor, but you can also take steps on your own to increase your eligibility for a VA home loan. Eliminate as much credit card debt as possible. If you can get yourself down to a single card and stay that way for six months, you will be well on your way to improving your debt ratio and your credit rating. Remember that the maximum debt ratio allowed
for approval is 41%, and that your credit rating is also a factor. If you are within a few months of paying off a major debt such as an automobile loan, do so as quickly as possible. You'll most likely need to allow for credit reporting agencies to "catch up" with your newly paid off cards and loans.

 
VA Homebuyer's Help? - What sort of advantages or help does the VA offer in the homebuying process?
 
When applying for a VA home loan there are some advantages to having the VA on your side during the home buying process. Did you know that VA loans offer limitations on closing costs? The VA also offers leniency to qualified VA borrowers who are having temporary financial problems. Other benefits of a VA home loan include long terms of repayment, prepayment rights (with certain guidelines) and under the right conditions, no downpayment required. You are also entitled to get an accurate assessment of the reasonable property value of your proposed purchase. These are just a handful of the added benefits of applying for a VA home loan.

 
Homebuyer's Help Part 2 - Will the VA give me help if my property is poorly built or defective?
 
The VA has a great many ways to assist those seeking a VA mortgage, but there are also restrictions. When you purchase a home using a VA home loan, the VA does not offer guarantees that your home is free from defects. While the VA does conduct an appraisal of the property, this should not be misconstrued as an 'inspection' or approval of the condition of the property. The VA does not order builders to correct problems or defects in the construction of your home. It's the buyers responsibility to seek expert advice about the condition of a property before purchase. Additionally, the VA cannot offer legal counsel of any kind. The buyer is responsible for being informed about rights and responsibilities with regard to new property purchases. When in doubt, hire a lawyer or an expert in property evaluation.

 
"Farm Loan"? - Can I buy a farm with a VA loan?
 
A veteran generally cannot get a VA loan to purchase a farm with one notable exception. If the farm has a residence where the veteran intends to live. There is no 'farming requirement' for this kind of purchase, but if the veteran does intend to operate a farm business as a major source of income for loan qualification purposes, it's required to show that the business can turn a profit. There are other options available to veterans who wish to operate a farm. The Farmers Home Administration does show preference to veterans, and can be used as a way to finance veteran-owned farm operations.

 
Foreign Purchases - Can I purchase outside America?
 
The VA does not allow veteran mortgages for properties outside the United States. The VA does allow purchases in "American territories and possessions". These areas include Puerto Rico, Virgi
n Islands, American Samoa , Guam, and the Northern Mariana Islands. If your proposed purchase is in one of these areas, you should be able to apply in the usual ways, but check with your VA rep for any special requirements or conditions based on the laws which cover lending in those territories. (Our company, www.valoans.com, only originates VA home loans for properties in the United States.

 
What If I Die Before Paying Off My VA Loan? - What if I die before paying off my VA loan?
 
Unless mortgage life insurance is purchased, the responsibility of a veteran mortgage passes to the spouse or the veteran's estate in the event of his or her death. There is a continued obligation to make payments, but don't forget the VA's "Leniency Policy" with regard to forbearance for qualified borrowers who fall on temporary hard times. Mortgage life insurance can take care of this issue once and for all, but it is not offered through the VA. You'll need to find a qualified private insurance company to make these arrangements. The terms of such insurance may vary from agency to agency.

 
Selling My VA Loan Property - Once I sell my property, am I released from my VA loan obligation?
 
Some people may assume that selling the property purchased with a VA loan releases them from obligation to the VA loan. This is not automatic! The borrower must notify either the VA or the lender and request that liability be transferred to the new owner. The borrower needs to request a 'release from liability" notice from the VA. There is an exception to this policy for those with loans closed before March 1, 1988. In these cases no notification is required, but it is a very good idea to request a release from liability from the VA anyway.

 
Mortgage Payments - What happens if my mortgage is sold to another mortgage company?
 
Chances are you will make payments to different lenders over the course of your VA mortgage. Selling mortgages from lender to lender is common, and sometimes a VA mortgage payment is sent to the old loan holder because notification of the new owner of your loan and your payment became crossed in the mail. If this happens, you may receive a notice of non-payment from the new loan holder. Don't delay in contacting the new owner of your VA mortgage to straighten up the problem. While it is technically up to the two lenders to fix the matter, your credit rating and payment schedule could be affected if you don't act accordingly.
 

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Construction Loans

Construction loans are story loans. That means that the lender has to know the story behind the planned construction before they're willing t
o loan you money. Because it's a story loan, it's not going to be standardized like mortgage loans underwritten to Freddie Mac or Fannie Mae guidelines. That said, there are some common features to a construction loan. Construction loans typically require interest-only payments during construction and become due upon completion. Completion for homeowners means that the house has its certificate of occupancy.
Construction loans are usually variable-rate loans priced at a spread to the prime rate or some other short-term interest rate. You, the contractor and the lender establish a draw schedule based on stages of construction, and interest is charged on the amount of money disbursed to date.
Another variable in construction loans is how much of the project cost the lender is willing to lend. If you already own the land, then that can be considered as equity on the construction loan.
Many homeowners use construction-to-permanent financing programs where the construction loan is converted to a mortgage loan after the certificate of occupancy is issued. The advantage is that you only have to have one application and one closing.
Depending on your view on interest rate trends, you could also purchase a rate-lock agreement valid through the expected completion of the construction. Just make sure you allow for the inevitable construction delays.
A construction loan, unlike a mortgage, isn't meant to be around for a long time. If you're taking out a $200,000 construction loan for six months and you pay an extra 0.5 percent on the loan, it costs you an additional $250. (Assumes an average $100,000 loan balance over a six-month construction period.)
You may be willing to pay a higher rate on the construction loan if you're doing construction-to-permanent financing and can get better mortgage terms or a longer, better rate lock from that lender.
 

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Financing Manufactured (Mobile) Homes


Under the Title I program, approved lenders make loans from their own funds to eligible borrowers to finance the purchase of a manufactured home and/or lot, and FHA insures the lender against loss if the borrower defaults. Credit is granted based upon the applicant's credit history and ability to repay the loan in regular monthly installments.
Title I manufactured home loans are not Government loans or grants, and are not low interest rate loans. The interest rate is fixed and is generally based upon the prevailing market rate in the area at the time the loan is made. FHA does not lend money.
Purpose of the Loan
A Title I loan may be used for the purchase or refinancing of a manufactured home, a developed lot on which to place a manufactured home, or a manufactured home and lot in combination. The home must be used as the principal residence of the borrowers.
Maximum Loan Amount
manufactured home only - $48,600
manufactured home lot - $16,200
manufactured home & lot - $64,800
The dollar limits for lot loans and combination loans may be increased up to 85 percent in designated high-cost areas. For further
information on high-cost area limits, contact the local HUD field office.
Maximum Loan Term
20 years for a loan on a manufactured home or on a single-section manufactured home and lot.
15 years for a manufactured home lot loan.
25 years for a loan on a multi-section manufactured home and lot.
Manufactured homes are usually purchased through dealers or retailers that sell the homes. The names of lenders in your area which specialize in financing manufactured homes can be obtained from local retailers. These retailers are listed in the yellow pages of your telephone directory. They have the required application forms. FHA neither loans money nor gives grants to purchase homes. Also, manufactured homes must comply with the National Manufactured Home Construction and Safety Standards. The approved FHA lender can explain the mortgage credit and income eligibility requirements to qualify for a loan.
Consumer Protection
HUD provides two types of consumer protection. The borrower must sign a HUD Placement Certificate agreeing that the home has been installed and set-up to their satisfaction by the retailer before the lender can give the loan proceeds to the retailer. After moving in, the borrower can call HUD at (800) 927-2891 to get assistance about the problems with construction of the home.
Eligible Borrowers Must:
Have sufficient funds on hand to make the minimum required downpayment of 5 percent.
Be able to demonstrate that they have adequate income to make the payments on the loan and meet their other expenses.
Intend to use the manufactured home as their principal residence.
Have a suitable site on which to place the manufactured home. The home may be placed on a rental site in manufactured home park, or on an individual homesite owned or leased by the borrowers.
An Eligible Manufactured Home Must:
Meet the National Manufactured Home Construction and Safety Standards.
Carry a one-year manufacturer's warranty if it is a new manufactured home.
Be installed on a homesite that meets established local standards for site suitability and has adequate water supply and sewage disposal facilities available.
The proceeds of a Title I manufactured home loan may not be used to finance furniture (for example, beds, chairs, sofas, lamps, rugs, etc.). However, built-in appliances and equipment and wall-to-wall carpeting are eligible for financing.
Equal Opportunity in Housing
The Fair Housing Act prohibits discrimination in housing and related transactions--including mortgages and home improvement loans. Lenders may not deny funds or offer less favorable terms and conditions in lending on the basis of the borrower's race, color, religion, sex, national origin, familial status (i.e., the presence or number of children in a household) or disability. In addition, lending decisions may not be based on the race, color, sex, religion, national origin, familial status or disabilities of persons associated with the borrower or with the area surrounding the property. If you believe you have been the victim of discrimination in mortgage lending on one of the prohibited bases, you may file a fair housing complaint by contacting a local fair housing advocacy group, the Office of Human Rights for your state or local government, or by calling the nati

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Multi-Unit or Commercial Loans

How much money can I borrow?
The amount of allowable money borrowed is contingent on many factors. The strength of credit history, previous credit limits, income, residence status, business gross sales, and your time in business are some of the major factors that contribute to acquiring a commercial loan.

Is a line of credit better than a loan?
A line of credit can be much better during the initial stages. The payments are lower and it gives the borrower more flexibility. Monthly payments on lines of credit are usually 1% to 2% of the balance. Monthly payments on a loan will vary depending on the terms lasting from 24 to 84 months.

What qualifies as a business loan?
A business loan requires a minimum of 24 months in business with an average of gross sales of $150,000 or higher. Business credit does play a role, but the overall credit of all owners is the deciding factor.

Do I need to be currently employed to get a business loan?
Though current income is one of the factors contributing to getting approved, some lenders will not require you to be currently employed. Some lenders will dedicate their focus more upon the business a person is looking to start or buy.

Do I have to put my home up for collateral as part of the financing?
If you have equity in your home, then it will be attached; but, it is not warranted for your home to be contributed for collateral. Lenders are looking for veritable cash flow and not collateral necessarily.

How much money do I have to contribute towards the purchase price?
Lenders want to see the business buyers take some risk as well; though the minimum down is usually 10% to 15%, putting down 20% is more common and desired by most lenders. Down payments can come from savings, equity from a home, retirement funds, etc.

How long does it usually take to get financing?

Approval normally takes place within a week and the funding is provided within the first month of approval.

Is cash flow or adjusted net income important?

Lenders tend to look more upon positive cash flow or adjusted net income than equity or collateral. A "positive net income" factors in the owner's salary, net income, and depreciation. Revenue and cash trends over the previous three years are highly scrutinized by lenders.

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Good Faith Estimate

A Good Faith Estimate must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated with your loan and must be provided within three business days of applying for a loan.
These mortgage fees, also called settlement costs or
closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges.
A good faith estimate is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers.
The good faith estimate is only an estimate. The final closing costs may be different – sometimes very different.
[edit] Fees and Charges
The fees included within a good faith estimate fall into six basic categories:
Loan fees
Fees to be paid in advance
Reserves
Title charges
Government charges
Additional charges
The following is a list of the typical charges. Each charge starts with a number – the same number is the number of the charge on a HUD-1 Real Estate Settlement Statement. This makes it easier to compare the charges you are looking for on your good faith estimate to the HUD-1.
800 ITEMS PAYABLE IN CONNECTION WITH LOAN:
801 - Loan Origination Fee
This fee is a charge for originating or creating the loan
802 - Loan Discount
This is an upfront charge paid to the lender to get a lower mortgage rate – the same as “buying the rate down”
803 - Appraisal Fee
This is the cost of the independent appraisal. It is usually paid by the buyer.
804 - Credit Report
This is the cost of the credit report
805 - Lender's Inspection Fee
This is the lender’s cost of inspecting a property – some may double check the appraisal provided by an independent appraiser
808 - Mortgage Broker Fee
This is the upfront charge that a mortgage broker charges. Brokers can also earn a “rebate” from the lender which is not listed here
809 - Tax Related Service Fee
Lender fee, usually small, for handling tax related matters
810 - Processing Fee
This is the charge for processing the loan – collecting your application, running credit, collecting pay stubs, bank statements, ordering appraisal, title, etc.
811 - Underwriting Fee
This is the cost of the loan underwriter (approver)
812 - Wire Transfer Fee
This is the cost of wiring the money around, which is usually done by escrow.
900 ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE
901 - Interest for days X $ per day
This is your prepaid interest for your mortgage loan.
902 - Mortgage Insurance Premium
This is the prepaid mortgage insurance premium, if you have one. This is the insurance premium some lenders charge for loans with little equity.
903 - Hazard Insura
nce Premium
This is your home’s hazard insurance being prepaid.
905 - VA Funding Fee
This is the Veterans Administration funding fee, which is something you will not incur unless you go through a VA program.
1000 RESERVES DEPOSITED WITH LENDER
1001 - Hazard Insurance Premiums # months @ $ per month
This is any prepayment of your future hazard insurance expense
1002 - Mortgage Ins. Premium Reserves months @ $ per month
This is any prepayment of your future mortgage insurance expense
1003 - School Tax months @ $ per month
This is any prepayment of your future school tax expense
1004 - Taxes and Assessment Reserves months @ $ per month
This is any prepayment of your future tax expenses, such as property taxes
1005 - Flood Insurance Reserves months @ $ per month months
This is any prepayment of your future flood insurance expense
1100 TITLE CHARGES
1101 - Closing or Escrow Fee
This is the cost of escrow. This is the service of a neutral party that actually handles the money between all the different parties in a real estate transaction, including: the lender, the buyer, the seller, the agents, notary, etc. This is often done by the “Title Company” – a related entity in the same office that provides title insurance
1105 - Document Preparation Fee
This is the charge for preparing the loan documents. Lenders often email the loan documents to the escrow company, which in turn prints them out and reviews them before signing
1106 - Notary Fees
This is the cost of the notary. This is to have all of the legal documents surrounding this transaction notarized
1107 - Attorney Fees
Any legal charges
1108 - Title Insurance
This is the cost of insuring the title of the property. If there is a question about title (who really owned the property), after the transaction is done then this insurance protects the lender from future problems
1200 GOVERNMENT RECORDING & TRANSFER CHARGES
1201 - Recording Fees
This is the cost of updating relevant government records
1202 - City/County Tax/Stamps
Unavoidable government charge
1203 - State Tax/Stamps
Unavoidable government charge
1300 ADDITIONAL SETTLEMENT CHARGES
1302 - Pest Inspection
This is the cost of the pest inspector. Their purpose is to document the state of the property that the lender is making the loan on.

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Truth in Lending Statement (reg-Z)

The Truth In Lending Disclosure Statement is neither a contract nor a commitment to lend.
Your loan officer or mortgage broker is required to provide you with the Truth in Lending Disclosure Statement within three business days of the date that you apply for your loan.
The purpose of the Truth in Lending Disclosure Statement is to show you the estimated total costs of borrowing, the expected payment amounts over the life of the loan, and other significant features of your loan.
Now let's look at the different sections of the Truth in Lending Disclosure Statement.
The Annual Percentage Rate or APR is the cost of your loan expressed as a yearly rate.
ANNUAL PERCENTAGE RATE
The cost of your credit as a yearly rate
%
The Finance Charge is the dollar amount the loan will cost you.
FINANCE
CHARGE
The dollar amount the credit
will cost you
$
The Amount Financed is the amount of credit provided to you or on your behalf.
AMOUNT
FINANCED

The amount of credit
provided to you or on your
behalf
$
The Total of Payments is the amount you will have paid after making all payments as scheduled.
TOTAL OF
PAYMENTS
The amount you will have
paid after making all
payments as scheduled
$
The purpose of an APR is to allow you to quickly compare the total costs between competing loans without having to analyze all of the individual costs within each loan.
For example:
A $100,000 30-year fix rate loan @ 7% interest rate with finance costs of $5,000 = an APR of 7.52%.
While the same loan @ 8% interest rate with finance costs of $4,000 = an APR of 8.44%.
By comparing the APR’s (7.52% and 8.44%.) alone, we can see from our example that the first loan (7.52% ) initially seems to have a higher cost. However, because the interest rate is lower, it will provide a lower total cost to you in the long run. Comparing APR's on loans is a quick way to get a feel for which loan is the better deal.
The second major section shows you the monthly payments you will make over the life of the loan.
Truth in lending disclosure statements vary from lender to lender. Toward the bottom, there are several categories of services on your statement. Again, these vary from lender to lender. Be sure to ask about the sections that are checked before you sign.
For example:
Pre-Payment Penalty is a penalty that you may have to pay if you pay the loan off early. Not knowing you have a Pre-Payment Penalty can be a very costly oversight later on.
Balloon Payments are a lump sum payment due at a specific point in the loan. A balloon payment may be for the entire balance you owe.
TIP:
By Law, the lender must disclose this information to you upfront on this disclosure form.

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What is APR?
The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.
Example:

30-year fixed
8%
1 point
8.107% APR
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.
The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
If life were easy, all you would have to do is compare APRs from the lenders/brokers you are working with, then pick the easiest one and you would have the right loan. Right? Wrong!
Unfortunately, different lenders calculate APRs differently! So a loan with a lower APR is not necessarily a better rate. The best way to compare loans in the author's opinion is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. Then delete all fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.
The reason why APRs are confusing is because the rules to compute APR are not clearly defined.
What fees are included in the APR?
The following fees ARE generally included in the APR:
Points - both discount points and origination points
Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
Loan-processing fee
Underwriting fee
Document-preparation fee
Private mortgage-insurance
The following fees are SOMETIMES included in the APR:
Loan-application fee
Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)
The following fees are normally NOT included in the APR:
Title or abstract fee
Escrow fee
Attorney fee
Notary fee
Document preparation (charged by the closing agent)
Home-inspection fees
Recording fee
Transfer taxes
Credit report
Appraisal fee
An APR does not tell you how long your rate is locked for. A lender who offers you a 10-day rate lock may have a lower APR than a lender who offers you a 60-day rate lock!

Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.
Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.
Finally, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!
Conclusion :
Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.
 

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