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If you're looking to purchase a home or refinance your
current home, chances are you've got some questions.
You're not alone.
To help you navigate more quickly through some frequently
asked questions, we've broken them down into the following
categories:
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| Please Contact me as your personal home mortgage consultant, and I will be happy to answer any additional questions you may have. |
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| Rates
& Fees |
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| What is an origination fee? |
| The amount charged for services
performed by the company handling the initial application and
processing of the loan. |
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| What is a discount point? |
| A discount point is paid to the
lender to permanently buy down or lower an interest rate. It
is usually a percentage of the loan amount. |
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| May I pay additional discount
points to reduce my interest rate? |
| Yes, most lenders will allow
you to pay additional discount points to lower your interest
rate. |
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| What are lender fees? |
| Lender's fees are fees that offset
the cost of producing the loan. Different companies may refer
to them by different names, such as, processing fees or underwriting
fees. |
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| How are rates determined? |
| Rates are determined by the stock
market and other financial indicators. These rates can change
daily or even more than once within the same day. The changes
are based on many different economic indicators in the financial
markets. To obtain current interest rates, contact your mortgage
lender. |
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| How can I compare rates
and fees when shopping for a mortgage? |
| When comparison shopping, look
at points, fees and the Annual Percentage Rate (APR). The APR
includes the fees that are charged on your loan. Although one
lender may have a slightly lower rate, they may charge more
fees, and hence have the same APR as a lender with the slightly
higher rate. |
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| What is the difference between
APR and interest rate? |
| The APR reflects the cost of your mortgage loan as a yearly rate. It also incorporates the cost to obtain the loan, such as discount fees and loan origination fee. The interest rate is the actual note rate. |
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| Why is the APR on the Truth-in-Lending disclosure higher than the rate shown on my mortgage note? |
| The rate reflected on the APR shows the cost of the credit as a yearly rate. This rate is generally higher than the rate stated on your mortgage note because, in addition to the interest rate, APR includes other costs such as origination fee, loan discount points, pre-paid interest, and mortgage insurance. The APR allows you to compare, in addition to the interest rate, the total cost of financing your loan, among various lenders. |
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| What is prepaid interest? |
| This is the interim interest that accrues on the mortgage loan from the date of the loan closing to the beginning of the period covered by the first monthly payment. For example, if your closing date is scheduled for June 15, the first mortgage payment is due August 1. The lender will calculate a per-day interest amount that is collected at the time of closing. This amount covers the interest accrued from June 15 to July 1. Some lenders prohibit the collection of pre-paid interest. |
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| What is the difference between
'locking' and 'floating'? |
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A lock gives you a specified period of time - usually 60 days - of protection
from financial market fluctuations in interest rates by setting the range
of pricing available to you. If you choose to "float" or defer
"locking," your rate will fluctuate with the market and will be
subject to both upward and downward movements in the market. The benefit
to floating is if interest rates were to decrease, you would have the option
of locking in at a lower level of rates. |
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| When can I lock and how much does it cost? |
| Most lenders will allow you to lock once you have found a property and as late as up to five business days before closing. Some lenders may allow you to lock prior to finding a property. Rate locks and fees vary by lender. |
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| The Prequalification and Application Process |
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| How can I determine what
mortgage amount I will qualify for? |
| Based on your income, your current debts and estimated down-payment, your lender can usually help you determine the maximum mortgage amount for which you could qualify within minutes. Many lenders have a toll-free 800 number where you may speak with a mortgage professional or you may also reference the lender's mortgage calculator located on its mortgage Internet site. This process is frequently referred to as a "prequalification analysis". |
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| What is the difference between a prequalification analysis and a pre-approval application? |
| A prequalification analysis is typically the result of information shared between a mortgage lender and a potential mortgage borrower and usually does not incorporate information obtained from a credit report. The end product for a prequalification analysis will be a "ballpark" estimate of the maximum mortgage amount for which you may qualify. Typically there is no cost or commitment on behalf of either party for a prequalification analysis. |
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| A mortgage loan pre-approval application typically results in a written loan decision following a complete mortgage application. Many lenders will require an application fee. You can typically apply for a pre-approved mortgage prior to signing a purchase agreement for a home. Many lenders will also allow you to lock an interest rate at the time you apply for a pre-approved mortgage. A pre-approval can also add to your negotiating strength when you are ready to make an offer on a home. |
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| What is the minimum down
payment for conventional, FHA, and VA loans? |
| As a general rule, conventional loans are available with a minimum down payment of 5%. FHA loans are available with as little as 3-5% down. With VA loans, veterans are not required to put any money down when purchasing a home. Veterans are still required to pay for their closing costs, which includes a VA funding fee, and prepaid items. Please consult your individual lender for specific down payment requirements and programs. |
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| How do I apply for a mortgage? |
| Most lenders will take your application
by phone or in person. The application interview typically takes
30-60 minutes. |
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| How do I determine which
mortgage product will meet my needs? |
| Everyone's situation is different. Most people will benefit from either consulting by phone or in person with a mortgage professional who is committed to discovering your needs, and helping you match those needs with a suitable mortgage product. |
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| Do most mortgage lenders
provide construction loans? |
| Many mortgage lenders have construction-to-permanent financing loan programs. Programs will vary with each individual lender. Typically, a construction loan is an interim loan secured by the property on which a dwelling is being constructed. The funds are usually disbursed throughout the construction period and replaced with permanent financing once the construction is completed. You may also choose to utilize separate lenders for the construction financing and the permanent financing. |
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| Do mobile homes need to
be permanently affixed to receive financing? |
| Some lenders specialize in financing
mobile homes which are not permanently affixed to a foundation.
Most lenders will finance double-wide homes that have been permanently
affixed to a foundation. |
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| Will there be a fee charged
at the time of application? |
| Application fees vary according
to each lender. This fee is generally used to cover the cost
of the appraisal and credit report and other items required
to process the loan. |
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| Do I need to fill out an
application? |
| Yes, but some lenders will allow you to complete the application verbally right over the phone. A copy of your application will be provided at the closing, which you will need to review and sign at that time. |
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| What documents will typically
be requested when I make application for a first mortgage loan? |
| Frequently lenders will request: W2's, paystubs, bank statements, and the purchase contract on the home you are buying. Documentation requests vary by loan type and lender. |
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| Do most lenders require
a homeowner's inspection? |
| No, a homeowner's inspection is generally requested by the buyer as a condition to the purchase of the home. Many homebuyers, however, will make the purchase of their home contingent upon a homeowner's inspection. A homeowner's inspection should not be confused with an appraisal, which is required by most mortgage lenders in order to support the valuation of the mortgage security. |
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| Approval
& Closing |
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| How long does it take to
obtain loan approval? |
| Depending on your credit history and down payment and the loan program selected, some lenders may be able to approve your mortgage in as little as 24 hours. The average number of days from application to approval will vary from lender to lender. However, 7-10 business days is typical. |
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| How long will it take to
close if I applied for my mortgage through a "pre-approval"
program? |
| If you applied through a "pre-approval"
program and were approved, some lenders can close within 3 weeks
after a purchase contract has been signed. In most cases, 45-60
days from application to closing is typical. Each lender's timeframe
will vary and the transaction itself may cause the timeframes
to vary. |
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| If I refinance my loan with
my existing lender, will I have to pay all the closing costs
again? |
| Typically, yes, as there is a cost to process any new loan application. This cost may include fees paid to third parties, such as the appraisal provider and the title and closing providers. |
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| Will the lender agree to
include my closing costs in the loan amount? |
| On a purchase transaction, you typically cannot finance your closing costs into the loan amount. Some lenders do, however, have special programs under which you may be able to finance some, or all, of the costs by agreeing to a slightly higher interest rate. Also, if you are refinancing, you may be able to refinance some, or all, of your closing costs. |
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| How quickly can a lender
close on my home loan? |
| Many lenders can facilitate closing 2 to 3 weeks after you have agreed on a purchase contract for a home. If you need more time, you can take as long as you need, while still closing prior to any rate lock expiration dates. Many lenders require 30-60 days from purchase contract and application to closing. |
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| Can I close on a home without
having to be at the closing table? |
| Many lenders are willing to accommodate
what is termed a "mail away" closing. You may also
appoint someone to act for you by using a Power of Attorney.
In this scenario, you would actually assign someone to sign
on your behalf. Each state has its own specific requirements,
so please check with your closing agent for state specific requirements.
If you select a "mail away," the lender will coordinate
overnight delivery of the documents to ensure a timely closing.
Please note this process may require some additional coordination
time. |
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| What is direct billing? |
| A direct billing program allows a relocation lender to pay all the non-recurring closing costs on your behalf and, in turn, bill them directly to your employer. This makes the closing process easier and reduces the out-of-pocket expenses you are responsible for at the time of closing. Direct billing is only available in certain situations. |
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| How much money will be required
at closing? |
| You should consult with your individual lender and closing agent; however, the amount of money needed for cash to close is comprised of your down payment, closing costs, as well as the prepaid items for your initial taxes and insurance escrow accounts. A lender is required to provide you with a good faith estimate of settlement costs at the time of application. Also, typically within 24 hours prior to your closing, the closing agent will provide you with the final sum of money required for the closing. |
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| Does the lender require
title insurance for purchase transactions? |
| Yes, a Mortgagee's Title Insurance
Policy will be required on purchase transactions. |
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| What homeowner's insurance
requirements will I need to meet at closing? |
| Most lenders require a one-year
paid receipt for homeowner's insurance policy for at least the
amount of the mortgage at the loan closing. |
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| Title
Insurance |
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| What is title insurance? |
| Title insurance provides the
lender and the buyer (if you purchase owner's coverage) with
coverage for losses resulting from specific title defects listed
in the policy. In cases where land and property have changed
hands over time, there is always the possibility an error has
occurred. If an error has occurred, it may be that someone else
may be in title to or have an interest in the property, that
improvements encroach on property lines or that other similar
problems may exist. In these scenarios, if you do not have title
insurance you could lose your investment in your home. Lenders
require "lender's coverage" to protect their investment
and it only protects the lender. Owner's coverage is optional
and provides separate coverage for the borrower. |
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| Private
Mortgage Insurance |
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| What is PMI and why is it
required? |
| Private mortgage insurance (PMI) is insurance written by a private company that protects the lender from losses in the event the borrower defaults on the mortgage. Borrowers are required to pay the premium for private mortgage insurance. Private mortgage insurance limits a lender's exposure to financial loss resulting from loan default. If you make a down payment of less than 20%, even if you have a good credit profile, lenders generally require private mortgage insurance. |
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| What is the minimum down
payment required by a lender in order to eliminate PMI? |
| Typically, on a primary residence, the minimum that you need to put down to eliminate PMI is 20%. If you are putting less than this down, but wish to avoid PMI, your lender may have alternative products and pricing options they may offer in lieu of PMI. |
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| How long will I be required
to have PMI on my loan? |
| The Homeowner's Protection Act of 1998 allows borrowers whose loans originated after July 29, 1999, to request cancellation of PMI at 80% loan to value (LTV) based on amortization or actual payments if the borrower has a good payment history, if the borrower provides evidence the property value has not decreased, and certifies there are no subordinate liens on the property. Lenders are required to terminate borrower paid PMI at 78% LTV based on the amortization schedule if the loan is current. If none of the above is done, PMI will terminate automatically at the midpoint of the loan term. |
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| For loans originated prior to July 29,1999, PMI guidelines will vary from lender to lender and can change at any time. Some investors will not allow the cancellation of PMI. Typically, PMI is required on your loan for a minimum of 24 consecutive payments absent any law to the contrary. After that time, if you have 20% or more equity in your property and meet certain other conditions, you may request to have it removed. Typically, there is no guarantee that your PMI will be removed, and most loan investors will require a new appraisal at your expense prior to removing PMI. |
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| How much does mortgage insurance
cost? |
| The cost of PMI is divided into two parts. The first part is a payment made at the time of closing. The second is an ongoing payment made each month with your principal and interest payment. |
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| Do lenders offer any alternative
to mortgage insurance? |
| You definitely have options. Explore mortgage insurance alternatives we offer or check out our programs that allow you to avoid private mortgage insurance altogether. |
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| Escrow Accounts |
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| What is an escrow account? |
| An escrow account is typically established at the time you close your mortgage loan. This account is held by the lender for the future payments of recurring items relating to the mortgaged property, such as real estate taxes and insurance premiums, as they become due. Lenders usually require you to pay an initial amount for each of those items to start the reserve account at the time of closing. |
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| Are there any limitations
on how much lenders can collect from a borrower for the borrower's
escrow account? |
| Lenders and servicers are required to follow the standards set forth in the Real Estate Settlement Procedures Act (RESPA) and applicable state law. RESPA and some states set limits on the amount which can be collected by the lender or servicer to pay for escrow items, such as property taxes and insurance, and place a cap on the amount of the reserve. Reserves are funds that a servicer may require a borrower to pay into an escrow account to cover unanticipated disbursements which will need to be made before the borrower's payment is available in the escrow account. There are limits on the additional amounts that can be collected as reserves. |
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| Mortgage
Repayment |
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| Can I have my mortgage payment
deducted automatically from my checking or savings account each
month? |
| Typically, after closing your mortgage loan, you will have the option of enrolling in an automatic mortgage payment program. You may be asked to provide an authorization form with a voided check or savings account slip attached to set up the draft. The payment is typically debited on a preset day each month. |
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| Will a lender allow me to
pay my mortgage payment with a credit card? |
| Most lenders do not allow mortgage payments to be charged to a credit card. However, some lenders can set up an automatic mortgage payment in which your payment will be taken from your checking account each month. This means that you would not need to remember to send a check each month. |
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| Cash-Out
Refinance vs. Home Equity Financing |
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| Using your home's equity to get tax-deductible* borrowing power for big-ticket expenses such as college tuition or home improvements is an option many homeowners choose. Both cash-out refinance and home equity loans are usually tax deductible, but the similarity ends there. Comparing the features of each loan will help you make the best decision. |
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| Cash-Out Refinance |
vs. |
Home Equity Financing |
| One loan and
one loan payment. |
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You can choose
between a lump sum loan or a revolving line of credit. |
| Your existing mortgage is refinanced for a higher overall amount using some of the accumulated equity in your home |
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You can borrow
all or just part of your home's equity – the difference
between your mortgage balance and your home's estimated
market value. |
| Get cash and
spread the payments out over a longer term. |
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A home equity loan can offer the flexibility of a shorter term to help to build equity faster because you can pay the loan off sooner OR reduced monthly payments by spreading the cost over a longer term. |
| Lower interest
rate than home equity financing. |
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You can borrow more money - sometimes up to 100% of the value of your home. With a line of credit, interest is paid only on the money you actually use, and you can access it whenever you want without having to reapply. |
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| *Check with your tax advisor
regarding deductibility of interest. |
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| Home Asset ManagementSM
Account |
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| How do Home Asset Management Account
interest rates work? |
| You can take advantage of competitive interest rates, whether you choose a fixed-rate or adjustable-rate first mortgage. The equity line of credit on your second mortgage has a variable interest rate, with a fixed-rate loan conversion option. |
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| So if rates increase on the equity line of credit, what are my options? |
| One of the flexible features of a Home Asset Management Account is the option to convert all or part of your line of credit to a fixed-rate/fixed-term home equity loan when interest rates are low, or you think they might go up. There is a $10,000 minimum on the line-to-loan conversion option. |
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| What are the benefits of converting part of my equity line of credit to a fixed-rate loan? |
| As market conditions change, a Home Asset Management Account offers you the freedom to plan wisely, act responsively and manage your money more effectively. You pick the right time You decide on the amount. And you arrange a rate and pay-off schedule that fit your budget and further your financial goals. |
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| Are there any restrictions on how I can use my equity line of credit? |
| There are none! That's why a Home Asset Management Account is such a useful financial management tool. You control your home equity, making responsible decisions about how and when to use it. |
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| Does the equity line of credit have any standard costs? |
| The line of credit has a standard $75 annual fee, which is waived for the first year. There is no additional charge if you don't use your line. Your money is there when you need it. If you close your equity line of credit within the first three years of getting a Home Asset Management Account, there is a deferred origination fee of $500 unless you obtain another Wells Fargo mortgage or equity loan. After three years, this fee no longer applies. There is a $50 fee for each loan conversion. |
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| How do I gain access to the home equity portion of my account? |
| With a Home Asset Management Account, you're able to access funds as needed after closing. You can get an EquityLine® Platinum Card or use the ready-to-write convenience checks you automatically receive. It's good to have a choice in case you work with a merchant or service provider who doesn't accept credit cards. When a major purchase or expense arises, you always have ready access to your equity line of credit without applying, waiting or paying additional fees. |
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| Are there restrictions on the tax deductions I can claim when I use my equity? |
| Unlike credit cards or other installment loans, the interest you pay on your home equity line is tax deductible in most cases. We recommend consulting a tax advisor regarding tax deductibility limits. Standard federal regulations apply for all home equity loans and lines of credit. |
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| How many bills will I receive and how often? |
| You receive two separate billing statements per month - one for the first mortgage and one for the equity line of credit. You may choose the convenience of our automatic payment program. In addition, as a unique Home Asset Management Account customer service, you will also receive consolidated quarterly and annual reviews to help you monitor and manage your total home ownership investment. |
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| What is the difference between the quarterly
and annual reviews? |
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Quarterly reviews define and illustrate your current home asset position based on mortgage principal payments made, and equity used, in the past three months. Annual reviews define and illustrate any increases in your home asset position. As long as our annual credit reports confirm you have maintained your high credit standing, both reviews generally present opportunities to increase your equity line of credit. The decision is yours, however. You remain in control.
Detailed quarterly and annual reviews track equity changes and estimated home value increases. So it's easier to plan for life events, make informed funding choices and manage your financial goals.
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| How often are my mortgage principal payments transferred to my equity line of credit? |
| Principal credits occur quarterly, unless you exercise your right to decline the increase. This money is transferred to your line of credit through the years, so you are able to work with your growing home equity. |
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| How does the Annual Account Review work? |
| Historically, real estate has proven to be a sound investment. Like all investments, however, the value of your home asset can fluctuate. As long as our annual credit report confirms you have maintained your high credit standing, and the Annual Account Review determines property appreciation, this generally results in an increase to your equity line of credit. Should there be an instance when an Annual Account Review determines depreciation, you will not be offered an equity line of credit increase. But you will still have access to any previously offered funds that you haven't used or declined, as long as you have maintained your high credit standing. |
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| How are increases to my estimated home value calculated? |
| We use a home price index to estimate increases to home values. The index is computed each year by comparing current sales prices to historical sales prices of properties similar to yours in value, in your area. The valuation is not an actual tax or property assessment or appraisal. And it is no guarantee you can sell your home at this price. Still, it is beneficial information most homeowners don't have access to, provided exclusively to Home Asset Management Account customers. |
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| Information is accurate as of date of printing and is subject to change without notice. Home equity loans and home equity lines of credit are available through Wells Fargo Home Equity, a division of Wells Fargo Bank, N.A. Home equity loans and lines of credit are not offered on property located in Texas. |
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