Frequently Asked Questions

  • All
  • Closing and Escrow
  • Down Payment
  • Insurance
  • Loans
  • Misc
  • Rates
  • Real Estate
What is an assumable mortgage?

A type of financing arrangement in which the outstanding mortgage and its terms can be transferred from the current owner to a buyer. By assuming the previous owner’s remaining debt, the buyer can avoid having to obtain his or her own mortgage.

Buyers are typically attracted to homes with existing assumable mortgages during times of rising interest rates. This is because they can assume the seller’s mortgage, which was created when interest rates were lower, and use it to finance their purchase.

What is a comparative market analysis?

A comparative market analysis (CMA) is an examination of the prices at which similar properties in the same area recently sold. Real estate agents perform a comparative market analysis for their clients to help them determine a price to list when selling a home or a price to offer when buying a home.

Since no two properties are identical, agents make adjustments for the differences between the sold properties and the one that is about to be purchased or listed to determine a fair offer or sale price. Essentially, a comparative market analysis is a less-sophisticated version of a formal, professional appraisal.

What is an offer to purchase?

A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

What are seller paid concessions?

Many people buying a home may not know about seller concessions, also known as seller contributions. The concept is basically this: The home buyer must pay for certain home financing costs, but an agreement can be made between the buyer and seller where the seller pays for those costs on the behalf of the buyer.

These costs are paid when you close your mortgage (hence, they are referred to as “closing costs”) and can include, but are not limited to:

  • Discount points
  • Fees for pulling credit
  • Title insurance
  • Processing fees
  • Attorney’s fees
  • Appraisal fees
  • Origination fees
  • Inspection fees
  • Transfer taxes
  • Real estate taxes covering any period after the closing date
  • Interest charges and hazard insurance covering any period after the closing date
  • Homeowner association dues
What is title insurance and why do I need it?

The purchase of a home is most likely one of the most expensive and important purchases you will ever make.  You, and especially your mortgage lender, want to make sure the property is indeed yours, that no individual or government entity has any right, lien, claim or encumbrance on your property.

The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a home buyer are fully protected.

Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders, and others who have an interest in real estate transfer.  Title companies typically issue two types of title policies:

  1. Owner’s Policy: Covers you, the homebuyer
  2. Lender’s Policy: Covers the lending institution for the life of the loan

Both types of policies are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you probably already have an owner’s policy that was issued when you purchased the property, so your lender will only require a lender’s policy.

What is private mortgage insurance?

Private mortgage insurance (PMI) is a policy provided by private mortgage insurers to protect lenders against loss if a borrower defaults.  This allows the borrower to make a smaller down payment (less than 20%), but then the borrower is usually required to pay an initial premium payment and possibly an additional monthly fee depending on the type of loan.

Most lenders have systems in place to discontinue the PMI premiums once you reach 78% LTV, but you may request from their lender to have the PMI premiums discounted as early as 80% LTV (additional requirements may apply).

Can I use a gift from someone else for my down payment?

For some loan programs gifted funds are an acceptable source of down payment, if the gift giver is related to you or your co-borrower.  You will need to provide the name, address and phone number of the gift giver, as well as the donor’s relationship to you.

Prior to closing, the lender will need to verify that the gift funds have been transferred to you by obtaining a copy of your bank receipt or deposit slip to verify that you have deposited the gift funds into your account.

How can I pay for my down payment?

Acceptable sources of down payments may include (but not limited to) cash in a bank account, mutual funds, IRA, 401k, proceeds from the sale of another property, and gifts from an immediate relative.

What are Prepaid Costs?

Prepaid items are amounts that are required by the lender to be paid at settlement, in advance of their due date.  These may include taxes, accrued interest, association dues, mortgage insurance premiums and hazard insurance premiums.

Prepaid items contribute to the total amount of the loan’s closing costs and will have to be paid at closing.

What are closing costs?

Closing costs are expenses, over and above the price of the property that buyers and sellers normally incur to complete a real estate transaction. Costs incurred include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges.

Also known as “settlement costs.

What is the difference between pre-approval and pre-qualification?

Pre-approval is a more in-depth assessment of the amount that a person can afford to borrow and is done by a financial institution that will state the maximum amount that it would lend to the borrower.

Pre-qualification is an initial evaluation of the credit worthiness of a potential borrower that is used to determine the estimated amount that the person can afford to borrow.

What are discount points?

A type of prepaid interest mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments.

Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate.

Discount points are tax deductible only for the year in which they were paid.

When do I lock in my interest rate?

For purchase transactions, the interest rate will not be locked in until the property is under contract. The sales contract will determine how long we need to lock in the rate and the specific dollar amount of the loan.

However, an interest rate does not have to be locked as soon as one goes under contract. You are allowed to float a rate for up to eight days before the closing date.

When a rate is not locked, it is considered “floating”, and there is risk that the rate will increase due to changing market conditions. Conversely, the risk pays off if rates drop due to a market rally.

For refinance transactions, rates should always be locked as soon as you are ready to move forward with the transaction.

What is APR?

APR stands for Annual Percentage Rate, and is usually associated with the interest rate for your mortgage loan. The APR is the cost of credit expressed as an annual rate.

Because there are closing fees associated with obtaining a mortgage loan, the APR almost always will be higher than the actual interest rate.

APR takes into account some of the borrower’s costs for getting the loan, including points, most loan fees and mortgage insurance, and can be used as an accurate tool for comparing rates from different lenders.

What is an adjustable-rate mortgage (ARM)?

Adjustable-rate mortgages (ARM) are loans where the initial rate and monthly payments are fixed for a certain period of time (3-year, 5-year, etc.), but after that initial fixed period the interest rate may change for the remainder of the loan term.

These types of loans are typically tied to some sort of index (e.g. London Interbank Offered Rate Index) to calculate the changes in interest rates.  ARMs are typically best for borrowers who anticipate moving or selling the home before the initial fixed period ends.

What is a fixed-rate mortgage?

With a fixed-rate conventional loan, your interest rate and payment doesn’t change for the entire duration of the loan term.  The benefit to this is that you do not have to worry about your interest rate increasing and you will always know exactly how much your monthly payment will be.

Why would I use a Mortgage Banker over my local bank?

Mortgage bankers have long-term servicing and loan placement relationships with lenders that help clients improve structuring and pricing.  Having a relationship with a mortgage banker can help a client obtain better rates, more document flexibility, and possibly reduce reserves and escrow deposits, and obtain a few more loan dollars.

A mortgage banker who knows their borrower, the property type, and industry will know which lender is best suited for the transaction.  Mortgage bankers have a diversified portfolio of lenders to shop each deal and know where to shop to save the borrower time and money.

What is a Mortgage Banker?

The distinguishing feature between a mortgage banker and a mortgage broker is that mortgage bankers close mortgages in their own names, using their own funds, while mortgage brokers facilitate originations for other financial institutions. Mortgage brokers do not close mortgages in their own names.