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What is a Good Faith Estimate? |
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A good faith estimate is provided to you by your lender which clearly outlines the following information: Your closing costs in detail. It is important to note that lenders can not always determine the exact closing costs as pre-paid interest may fluctuate, the purchase price or loan amount may change thus altering tax related fees etc. It is meant to be an estimate for the consumer. |
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What is a cash out refinance? |
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Essentially, a cash out refinance assumes that you have equity in your home. You can choose a cash out refinance to draw cash out of your equity at closing. The funds can be used for paying off debt, putting on an addition, adding a pool or purchasing an auto, etc. |
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What is the housing to income ration? |
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Lenders base their approval process on three key things, Credit, Collateral and whether or not you can afford the monthly payments. The housing to income ratio is determined by dividing the proposed monthly payment of your new mortgage into your monthly income. Each lender may have a slightly different ratio for qualifying. |
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What is the appraisal process? |
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The lender wants to make certain that your home is worth a certain dollar amount before it will secure a mortgage against the property. The appraiser is hired by a lender and is a third party individual who will come to the property, take measurements, note upgrades and then will do research to see what comparable sales there have been in the area.
The appraisal is then compiled and forwarded to the lender. |
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What is an escrow account for? |
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An escrow account is used for the sole purpose of collecting homeowners or hazard insurance and property taxes. In most cases, lenders require you to put aside a certain dollar amount to pay your real estate taxes and homeowners insurance. The lender will actually disburse these funds to your municipality and then your insurance company when they come due.
Depending on your municipality, the balance needed in the escrow account may fluctuate. For example, property taxes can go up as well as homeowners insurance. The lender will then seek the difference from you, the consumer. |
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What is income to debt ratio? |
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Much like the housing to income ratio, this formula is utizlied by a lender to determine your ability to handle a mortgage payment as well as all of your installment or revolving debt. The total monthly dollar amount of debt is added up and divided by your monthly income before taxes. Lenders may sometimes refer to this as the 'back end ratio.' |
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What is PITI? |
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PITI is an acronym for the following:
Principal : Interest : Taxes and Insurance. PITI is the payment amount you will be paying the lender monthly. |
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What is Private Mortgage Insurance or PMI? |
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PMI is usually necessary for any loans with a loan to value ratio over 80%. This insurance is designed to protect the LENDER. The school of though, the more equity you have in your home, the lesser the likelihood of foreclosure, therefore, the mortgage insurance is attached to 'higher risk' loans. |
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What are closing costs? |
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Closing costs are all of the costs associated with obtaining a mortgage including but NOT limited to the following: appraisal fee, survey fee, tax service fee, underwriting fee, tax service fee, processing fee, flood certification fee, credit report fee, prepaid interest, escrowed property taxes and hazard insurance just to name a few. In some good equity situations, closing costs can be rolled into the loan with some exceptions. |
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What does it mean to lock in a rate? |
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Locking in a rate is essentially the lender reserving a certain dollar amount (your loan amount) to the best interest rate pricing of the day. Since rates fluctuate daily, it is up to the lender to make certain the rate quoted was locked at the bank which will disperse the funds. Rate locks can for as little as fifteen days up to 180 days. The longer the rate lock, the more it can cost both the borrower and the lender. The lender will secure the rate lock based on when the anticipated closing date is. |
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What is Equity? |
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Equity is the cash value of your home that is not mortgaged. As the home market improves or worsens, your equity can be affected. Simply put, say your home is worth $200,000 and your mortgage is for $180,000 you have $20,000 in home equity. |
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What is a mortgage? |
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When you secure a loan to a property you are acquiring a mortgage. The mortgage gives the end lender interest in the propery in question. When you close you mortgage, you are signing two main documents, one, the actual mortgage note which obligates you to pay the mortgage in a timely monthly fashion, the second is the deed of trust which pledges your property as security in the event of you not being able to pay the mortgage any further. |
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