it comes to mortgages, there are many questions that all borrowers seem to have. If you are interested in a mortgage refinance or a new home loan, these FAQs
can help you along.
1. What are the closing costs? All of the
fees you must pay to have the loan originated, the title cleared, lender fees and many other fees are due at
closing and constitute closing costs. A Good Faith Estimate and a
Truth-In-Lending disclosure should be provided to you and these costs will be listed on those.
2. Is my down payment the same thing as
cash-to-close? All of the money you are required to bring to the loan
closing is considered cash-to-close. This may include the down
payment, homeowner's insurance premium, and all of the closing costs. It is important to note that it cannot be paid in cash but must be in the form
of a cashier's check or a wire transfer from the bank.
3. What is loan-to-value? Also called
LTV, a loan-to-value means the percentage of your loan in relation to the market value of the
house. For example, if the house appraises for $200,000 and your
mortgage is $150,000, then you have a 75% LTV.
4. What does it mean to have a bad credit
mortgage? This is a type of mortgage that is designed for people who don't have a great
credit score or who have a poor credit history. Because of the
higher risk, the interest rate is often higher.
5. Why do I need an appraisal? Because the
house itself is the collateral for the mortgage refinancing or home loan, an appraisal must be done to determine
its value. The official appraisal will take into account any
additions that increase the value as well as problems that decrease it.
6. How can I get out
of paying PMI? When you purchase a house you will need to have
at least 20% in a down payment in order to avoid PMI or Private Mortgage Insurance. For mortgage refinancing, you need to borrow less than 80% of the value of the
home if you don't want to pay PMI.
7. Why does a
mortgage take so long to pay off? A mortgage is designed to be
a long term obligation because the loan is so large. This makes it
possible for people to afford a home. More interest
than principal is paid at the beginning of the loan so that the lender is being taken care of.
8. Is it possible to
pay off a mortgage early? Many people refinance to a shorter
term to shorten the length of the mortgage loan, but making extra payments to the principal can shorten the time