Frequently Asked Questions

1. When does is make sense to refinance?

2. What is a rate lock?

3. When can I lock in a rate for my mortgage?

4. What's the difference between a mortgage broker and a lender?

5. What is a full documented loan?

6. What are other types of loans?

7. What is a good faith estimate?

8. What is a conforming loan?

9. What is a jumbo mortgage?

10. Why was my mortgage transferred to another lender?

11. Is the interest on my home equity loan or line of credit tax deductible?

12. Is the interest rate fixed or variable?

13. What's the difference between a home equity loan and a home equity line of credit?
    

Question 1: When does it make sense to refinance?

Usually people refinance to save money, either by obtaining a lower interest rate or by reducing the term of the loan. Refinancing is also a way to convert an adjustable loan to a fixed loan or to consolidate debts. The decision to refinance can be difficult, since there are several reasons to refinance. However, if you are looking to save money, try this calculation:

• Calculate the total cost of the refinance

• Calculate the monthly savings

• Divide the total cost of the refinance (#1) by the monthly savings (#2)
  

This is the "break even" time. If you own the house longer than this, you will save money by refinancing. Since refinancing is a complex topic, consult a mortgage professional.

Question 2: What is a rate lock?

A rate lock is a contractual agreement between the lender and buyer. There are four components to a rate lock: loan program, interest rate, points, and the length of the lock.

Question 3: When can I lock in a rate for my mortgage?

You can lock in your interest rate after:

- You have been approved. 
- You have paid your Good Faith Deposit (if applicable). 
- You have provided us with the required additional processing information.

Question 4: What's the difference between a mortgage broker and a lender?

A mortgage broker counsels you on the loans available from different wholesalers, takes your application, and usually processes the loan which involves putting together the complete file of information about your transaction including the credit report, appraisal, verification of your employment and assets, and so on. When the file is complete, but sometimes sooner, the lender "underwrites" the loan, which means deciding whether or not you are an acceptable risk.

Question 5: What is a full documented loan?

Both income and assets are disclosed and verified, and income is used in determining the applicant's ability to repay the mortgage. Formal verification requires the borrower's employer to verify employment and the borrower's bank to verify deposits. Alternative documentation, designed to save time, accepts copies of the borrower's original bank statements, W-2s and paycheck stubs.

Question 6: What are other types of loans?

Stated Income/Verified Assets: Income is disclosed and the source of the income is verified, but the amount is not verified. Assets are verified, and must meet an adequacy standard such as, for example, 6 months of stated income and 2 months of expected monthly housing expense.

Stated Income/Stated Assets: Both income and assets are disclosed but not verified. However, the source of the borrower's income is verified.

No Ratio: Income is disclosed and verified but not used in qualifying the borrower. The standard rule that the borrower's housing expense cannot exceed some specified percent of income is ignored. Assets are disclosed and verified.

No Income: Income is not disclosed, but assets are disclosed and verified, and must meet an adequacy standard.

Stated Assets or No Asset Verification: Assets are disclosed but not verified; income is disclosed, verified and used to qualify the applicant.

No Asset: Assets are not disclosed, but income is disclosed, verified and used to qualify the applicant.

No Income/No Assets: Neither income nor assets are disclosed.

Question 7: What is a good faith estimate?

It is the list of settlement charges that the lender is obliged to provide the borrower within three business days of receiving the loan application.

Question 8: What is a conforming loan?

A loan eligible for purchase by the two major Federal agencies that buy mortgages, Fannie Mae and Freddie Mac. The loan limits are currently $300,700 for a single-family house.

Question 9: What is a jumbo mortgage?

A mortgage larger than the maximum eligible for purchase by the two Federal agencies, Fannie Mae and Freddie Mac, currently $300,700.

Question 10: Why was my mortgage transferred to another lender?

When you take out a mortgage with a mortgage company or a bank, there is always a possibility that the lender will "sell" or "transfer" the servicing of your loan to another institution. "Servicing" means the collection of payments and management of operational procedures related to a mortgage. When servicing is sold, it means that another lender will be taking your payments, handling your escrow accounts, paying your insurance and taxes and answering your questions. This may happen right after you close on the loan or several years later.

The practice of selling or "transferring" the servicing of your loan is legal and very common in the mortgage industry. When the servicing is sold, it is usually packaged in a bundle with lots of other loans. Some mortgage companies only originate loans and sell or transfer the servicing immediately. It is more cost-effective for these companies to do this because servicing is not a part of their business. It is not uncommon to get your mortgage from a neighborhood lender and have it transferred to an institution in another state. It is also possible for your mortgage servicing to be transferred more than once during the life of your loan.

Whether or not your servicing is sold has nothing to do with the quality of your loan or your payment history. It has, in fact, nothing whatever to do with you personally.

Question 11: Is the interest on my home equity loan or home equity line of credit tax deductible?

In many cases, the interest on a Home Equity Line of Credit or Home Equity Loan may be tax deductible. Consult your tax advisor concerning the deductibility of interest.

Question 12: Is the interest rate fixed or variable?

Home equity loans may offer a fixed interest rate and the principal is amortized over the term, while home equity lines of credit feature a variable rate. Interest rates are based on the amount you borrow and the loan term.

Question 13: What's the difference between a home equity loan and a home equity line of credit?

Generally, a Home Equity Loan is for a fixed dollar amount, for a fixed period of time, with fixed monthly payments, and the borrowed amount is received as a single lump sum. With a Home Equity Line of Credit, you can take out the amount of money you need, when you need it. Payments are required only when there is an outstanding balance, and you pay interest only on the outstanding balance.

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