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FREQUENTLY ASKED MORTGAGE QUESTIONS
Here are the most commonly asked mortgage questions we receive. If your question is not here, please send it to us with the form to the left. We'll be glad to answer.
What is the difference between Interest Rate and APR?
What is a Discount Point?
Why are on-line credit scores different?
What is a no closing cost loan?
What are closing costs vs prepaids?
How long do I have to wait before I can refinance?
What is the difference between a fixed interest rate, an ARM and a Balloon?
What is the minimum downpayment?
Do I qualify as a first time buyer?
Can I purchase/refinance a rental property?
Can my parents co-sign on my mortgage?
What is the difference between Interest Rate and APR?
The interest rate determines the amount of money you pay on the loan, amortized over a specified time period. For example; A $100,000.00 loan at 5% interest, fixed for 30 years has a payment of $536.82 per month.
If $2,500.00 of the loan was used to pay closing costs, you actually used $97,500.00 for mortgage purposes. Recalculating the payment of $536.82, for 30 years on $97,500.00 show an annual percentage rate (APR) of 5.22%.
It's a way of disclosing to you what the actual cost to finance the closing cost into the loan. If you paid for the closing cost yourself, your APR would be the same as your interest rate.
You can expect the APR to be slightly higher that the mortgage note's interest rate. It's hard to be more specific because that difference can be more, or less, depending on the loan amount, closing cost, term, etc. We'll explain your specific loan cost and options.
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What is a Discount Point?
Discount points are a percentage of the loan amount (.5%, 1%, etc) used to buy down the interest rate. Generally, discount points make sense if you are going to stay in the property for several years and you are comfortable with amount of time it takes to recover the cost.
On our $100,000.00 loan example above, your payment is $536.82 at 5%. If you pay 1 discount point to get a rate of 4.75%, it will cost you $1,000. Your new payment would be $521.65 or $15.17 less. Divide $1,000 by the $15.17 savings and it will take 66 months to recover the cost; that's 5 1/2 years. Fairly long but how long do you plan on staying in the same mortgage? If you paid .5% discount ($500) it would take about 2 3/4 years to recover that cost.
Discount points should be given serious consideration. If the payback time is reasonable for you; you should consider it. Today's rates are near historic lows and once they go up there's no telling if they will come back down.
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Why are on-line credit scores different?
Credit scores are calculated according to the type of credit you apply. Car dealers, credit card companies and mortgage lenders each have a different formula according to their needs. On-line credit reports may be close; maybe not. Also, we have to pull credit in our name. Any other company's credit report is not valid.
American South Lending, Inc. does not pull credit until we have talked with you and we have your permission.
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What is a "no closing cost loan"?
Mortgage loans have closing costs. The question is better put "How do I pay for closing costs?"
There are four ways.
1. The seller can pay them on a purchase. (A fixed percentage of the sales price)
2.
You can pay closing cost by bringing a certified check to closing.
3. You can (usually) add closing cost to the loan.
4. You can might be able to absorb closing cost as part of the interest rate. (5.5% instead of a 5.0% rate, as an example).
Again, it's a question of how long you intend to stay in the property or your available cash in deciding how closing cost should be handled for you.
Your Sr. Loan Officer will explain your options so you can decide what's best for you.
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What are closing costs vs prepaids?
People like to roll these into one number but they shouldn't. These are two separate collections.
Closing Costs are the fees and services charged for completing the loan. They are listed on your Good Faith Estimate and are used to calculate your APR. Closing cost include origination, appraisals, attorney fees, and other specific items.
Prepaids are simply deposits you make toward your taxes and insurance for next year. It's your money. Prepaids are held (in escrow) and accumulate until it'is time for the servicer (where you send your check each month) to pay your annual property taxes or renew you homeowner's insurance.
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How long do I have to wait before I can refinance?
In most cases, you can refinance right away. Some programs, like FHA streamline, require 6 months seasoning before you can refinance. Conforming loans (Fannie/Freddie) have no minimum time. Check to see if you have any prepayment penalities on your current mortgage. It may cost you a fee of 3% of your original loan amount, or more, to refinance if you don't meet the required time. American South Lending, Inc. does not apply prepayment penalities to any of our loans.
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What is the difference between a fixed interest rate, an ARM and a balloon?
Fixed rates provide a simple constant payment (principle and interest) over the life of the loan.
An ARM (adjustable rate mortgage) will adjust periodically. If you have an ARM, it will have an adjustment cap for each adjustment and a lifetime maximum. These adjustments could be severe. ARMs do have their place. If you're only going to be in the property a few years, an ARM may suit you best.
A balloon usually has a short fixed rate for a few years then the full amount of the loan is due. A 15 year balloon may have fixed payments, amortized ovr 30 years, but the note is due and payable in 15 years. You have to pay the entire remaining balance off or refinance.
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What is the minimum downpayment?
It varies with the type of program. VA and USDA allow 100% financing (No Downpayment). FHA requires 3.50% downpayment from your funds. Conforming loans (Fanie/Freddie) require 10% downpayment.
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Do I qualify as a first time buyer?
If you've never purchase a house, of course you are a first time buyer. ALSO, If you haven't owned a home in the last 3 years. you're also a first time buyer.
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Can I purchase/refinance a rental property?
Yes, but not to the same loan-to-value ration as your primary residence. Lenders consider these loans a higher risk than your primary residence. They require higher downpayments, higher credit scores to qualify and a cash out refinance is difficult. We'll be glad to go over your options if you are considering investment property.
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Can my parents co-sign on my mortgage?
Yes, but only FHA. This would be a Non Owner Occuping Co-Borrowers property or Investment. The rules are very limiting on what you can and cannot do. Your Sr. Loan Officer can discuss your options.
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