Bob Dohn Schaumburg Real Estate


 

 

Mortgage FAQs

 

 

When should I start shopping for a mortgage and how do I know what I can afford?

What is a pre-approval?

Can I be pre-approved for a loan before I’ve found a property?

Can I be pre-approved for a loan if I have credit problems?

How much does it cost to get a loan decision?

How long will it take to get my loan decision?

What does a mortgage lender consider when making a loan decision?

Do I need to sell my existing home before I apply for a new mortgage loan?

Can I change the loan amount, down payment or program after I've received my loan decision?

What are points?

What is a Good Faith Estimate?

Why is an appraisal necessary? Can I use the tax value of the home?

Why is the Annual Percentage Rate (APR) different from the interest rate?

Can I bring a personal check to the closing?

What are the most common types of mortgage loans available?

 

When should I start shopping for a mortgage and how do I know what I can afford?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifThe best time to look for a mortgage is when you’re ready to start looking for a house. This way you'll know exactly the amount of money you can borrow. Either I or our team Loan Advisors can help you determine these numbers as well as your estimated monthly payments. Get pre-approved for a mortgage before shopping for a home and you'll maximize your negotiating power. With Coldwell Banker Home Loans it's free and will take only a matter of minutes to get a decision, and there's no obligation until you want to reserve your funds. (Click here to get pre-approved NOW!)

What is a pre-approval?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifGenerally speaking, it’s a preliminary decision based on the information provided during the application interview. It should take into account your current income, debt and credit history. There are different levels of “pre-approval,” depending on how far the lender takes the process. The best type of pre-approval includes a tri-merged credit report from the top credit agencies and a review by an underwriter or an approved automated underwriting program. A pre-approval is not a full-fledged loan commitment, however. Once you find a property and sign a sales agreement your lender can continue processing your loan. (Click here to get pre-approved NOW!)

Can I be pre-approved for a loan before I’ve found a property?

Absolutely! We not only support the idea, but strongly encourage it. By getting pre-approved now, you will know exactly what you qualify for before you begin shopping. Your REALTOR® and sellers will know you are a serious buyer because your financing is already arranged. This may be an advantage when making an offer.

Can I be pre-approved for a loan if I have credit problems?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifThere are many mortgage loan options to customers who may not have perfect credit. If you are concerned about your credit, or have other questions about credit, it’s best to consult with an experienced Mortgage Advisor for more information.

How much does it cost to get a loan decision?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifIt doesn't cost you anything! Coldwell Banker Home Loans will give you a loan decision free of charge. (Click here to get pre-approved NOW!) Only when you’ve found the right home and initiate the actual processing of your loan application will they charge a nonrefundable $350.00 fee.

How long will it take to get my loan decision?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifIn most cases, Coldwell Banker Home Loans can provide a mortgage pre-approval in minutes, after a brief telephone interview with one of our team Mortgage Advisors or online after you complete the six easy steps and submit. (Click here to complete the 6 easy steps to pre-approval.) However, there are always situations that will need further review before we get back to you with a loan decision.

What does a mortgage lender consider when making a loan decision?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifA mortgage lender generally looks at three areas:

  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifIncome and Assets: To determine your ability to repay the loan.
  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifDebts and Credit History: To evaluate your buying habits and your history of repaying other financial obligations.
  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifProperty Information: An appraiser compares the home you are buying to similar homes in your area to make sure the property provides sufficient collateral for your loan.

Do I need to sell my existing home before I apply for a new mortgage loan?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifAbsolutely not! You can apply for a new mortgage loan before you sell your current home. However, depending on your income and debt levels, you may need to sell your current home before you can close on your new home.

Can I change the loan amount, down payment or program after I've received my loan decision?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifYes, as long as you meet the criteria for the new loan amount or new program you've selected. Your personal mortgage processor can help you determine if you meet the requirements. If you have not decided upon a rate lock option, you can make changes to your information online and resubmit for a new loan decision.

What are points?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifPoints are a percentage of the loan amount paid at closing that affect your interest rate. For instance, on a $90,000 loan, 1 point = 1% or $900. How it works is that if you pay points, you buy down the rate. Alternatively, in exchange for a higher rate, the lender pays points to offset your closing costs. These are considered negative points. Negative points may be a wise option if you have limited funds to use at closing. Points are also disclosed as discount points. Whatever the name, they are itemized on your Good Faith Estimate and are typically paid at closing.

What is a Good Faith Estimate?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifRequired by federal law, the Good Faith Estimate (GFE) is a written list of the estimated closing costs associated with your mortgage transaction, including the lender's charges along with the local closing agent's charges and fees. It also includes estimated amounts for real estate property taxes and homeowner's insurance. Once you've been pre-approved through Coldwell Banker Home Loans, you can access your GFE online from your "My Loan Status" page.

Why is an appraisal necessary? Can I use the tax value of the home?

Appraisals compare the current market value of your home to other homes in your area that have recently been sold. Tax values can sometimes be higher or lower and may not reflect the actual appraised value of the home. A current appraisal is necessary for the lender to justify the loan amount you've requested and is required by our secondary investors. You should not, however, rely on the appraisal for assurance about the condition of your home or as a guarantee of the value of your home.

Why is the Annual Percentage Rate (APR) different from the interest rate?

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifThe annual percentage rate is intended to reflect the total cost of your mortgage loan. To calculate the APR, lenders consider the interest rate on your mortgage loan, the term of the loan, and other loan fees such as closing costs, points, etc. Your monthly payment is calculated based on the mortgage note rate, not the APR. The APR will be higher than your interest rate, especially if you are paying any points.

To be used as a valid evaluation tool the APR must be loan specific. The actual APR will show up on the Truth-in-Lending statement that you will see once you have submitted your information and reserved your funds. When comparing loan programs based on APR make sure you ask each lender their criteria for determining the APR.

Can I bring a personal check to the closing?

You will need a cashier's check or certified check for closing. Since this is such a large transaction, a cashier's check provides verification that the funds are actually available.

What are the most common types of mortgage loans available?

There are many kinds of loan products available, designed to meet the needs of almost any borrower in any situation. Here are some of the more commonly seen loans:

Fixed-Rate Mortgages

A fixed-rate mortgage means the interest rate and principal payments remain the same for the entire life of the loan. This is the most common type of mortgage loan, preferred by many because it provides a relatively stable payment, (subject only to changes in property taxes and/ or casualty insurance) and the amount that is owed decreases with each payment. As the loan progresses, the ratio between principal and interest changes. In the early stages of the loan, the amount of interest far exceeds the amount of principal. At the end of the loan, the opposite is true.

Advantages of fixed-rate mortgages: Consistent principal and interest payments make this loan stable your rate won’t change, so you don’t need to worry about market fluctuations. A good choice if you’re likely to stay in this house for a long time or if you want to avoid the potential volatility of adjustable rate mortgages.

Disadvantages of fixed-rate mortgages: They may cost you more initially— these loans are usually priced higher than an adjustable-rate mortgage. Keep in mind that, on average, most people move or refinance within seven years. If rates in the current market are high, you’re likely to get a better price with an adjustable-rate loan.

Adjustable rate Mortgages (ARMs)

An adjustable-rate mortgage (ARM) means that the interest rate changes over the life of the loan — according to the terms specified in advance. With ARMs:

  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifThe initial interest rate is usually lower than with a fixed-rate mortgage.
  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifThe monthly repayment would also be lower.
  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifThe interest rate may be adjusted (up or down) at predetermined times.
  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifThe monthly payment will then increase or decrease.
  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifMost ARM programs do offer "rate cap" protection, which limits the amount the rate can be increased, both each year and over the life of the loan.
  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifAll ARMs are amortized over 30 years.

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifAdvantages of ARMs: ARMs are usually priced lower than fixed-rate mortgages so you can increase your buying power and lower your initial monthly payments. If interest rates go down, you’ll enjoy lower payments. Usually an ARM is the best choice for homeowners who plan to relocate (for example, with their company or the military), or for those who are purchasing their first home and plan to be in the property only for three to five years. Remember that, on average, most people move or refinance within seven years.

Disadvantages of ARMs: Your monthly payments can increase if interest rates go up. Keep in mind that ARMs are best for homeowners who aren't planning on staying with a property for a long period. If you’re on a fixed income, an ARM (especially a short-term ARM) may not be your best choice.

Federal Housing Administration (FHA) Mortgages

FHA mortgages are mortgages secured by the Federal Housing Administration (FHA) allowing a down payment as low as 3% of the purchase price. FHA loans are designed to make purchasing a home more affordable than it would be with a conventional loan, especially for the first-time homebuyer. FHA loans are subject to limits on the amount of money that can be borrowed. These limits vary from state to state.

Veteran Affairs (VA) Mortgages

VA mortgages are guaranteed by the Department of Veteran Affairs (VA) and require little or no down payment. VA loans are available only to military personnel, veterans, or the spouses of veterans who died of service-related injuries. VA loans are designed to make purchasing a home more affordable than it would be with a conventional loan. Under the law, veterans are entitled to VA home loan benefits based on military service. Eligible veterans must still meet credit and income standards in order to qualify for a VA-guaranteed loan.

A lender cannot make a VA-guaranteed loan to an ineligible applicant under any circumstances. Please contact a Coldwell Banker Home Loans loan consultant to discuss eligibility and details.

Jumbo Loans

A loan for an amount of money larger than the conforming loan limit set by the government-backed agencies Fannie Mae and Freddie Mac is called a jumbo loan. The agencies buy groups of mortgages and re-sell them as investments. The conforming loan limit is the maximum loan amount that these agencies will buy. Jumbo loans typically come with higher interest rates that reflect the higher level of risk involved. Your REALTOR® or Mortgage Advisor can advise you as to the current level at which a loan is considered a jumbo loan.

 

Balloon Mortgages

With a balloon mortgage, you start by making payments as you would with a full-term loan, but after a certain period the balance of the mortgage comes due. For example, with a 7 Year Balloon:

  • Your mortgage is amortized over the full term of the loan repayment period.
  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifAt the end of a specified period, the balance comes due — a balloon payment needs to be made.
  • So with a 7 year balloon, you would make monthly payments for seven years that have been calculated based on a 30 year mortgage payment plan.
  • http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifAt the end of those seven years, the remaining principal balance is due and payable in full.

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifAdvantages of Balloon Mortgages: You’ll get a lower price on the loan, which will increase your buying power — and remember that your payments will be calculated as if the term were 30 years. You’ll also usually have a conditional right to refinance after seven years, though on average most owners will have already made a change. If you know you have a lump sum of money on the way (such as an inheritance, bonus, or dividend payment), if you expect to relocate in a short period of time, or if you simply think you’ll be in a better position to refinance later, this may be a choice worth your consideration.

Disadvantages of Balloon Mortgages: If you plan on keeping this property for longer than seven years, a longer-term loan may be a stronger choice.

Interest Only Fixed-Rate Mortgages

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifWith a Fixed Interest Only product, the interest rate remains fixed for the life of the loan (either 30, 35 or 40 years). During the first 5, 10 or 15 years, you will make monthly payments of interest only on the principal balance. You will not reduce your principal balance during the first 5, 10 or 15 years of the loan. Starting in the 6th, 11th or 16th year of the loan, you will make monthly payments of principal and interest in an amount sufficient to completely repay the unpaid principal balance, at the current interest rate, over the remaining term of the loan.

Interest Only Mortgages

http://images.mortgagequestions.com/img/brand95/utilities/dotclear.gifA customer pays interest only payments for the first three, five, seven, or ten years of the loan. During the Interest Only period, the loan will be re-amortized at the remaining principal balance each month, allowing the customer to benefit from any principal curtailments made during the interest only timeframe. After the fixed interest only period, the loan payments become fully amortized payments of both Principal and Interest for the remaining term. During this time, the interest rate adjusts every year, based on a specified index, plus a margin.

 

Coldwell Banker Schaumburg Coldwell Banker Residential Brokerage
20 South Roselle Road, Schaumburg, IL 60193

 

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