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General Questions
- What is an origination fee?
- What is a discount point?
- What are lender fees?
- How are rates determined?
- What is the difference between my rate "floating" and "locked"?
- When can I lock in and how long does it last?
- What is the difference between the Annual Percentage Rate (APR) and my interest rate?
- Why is the Annual Percentage Rate (APR) on the Truth-in-Lending disclosure higher than the rate shown on my mortgage note?
- What are the minimum down payments for conventional, FHA, and VA loans?
- What is the difference between a Conforming and Jumbo loan?
- What is Private Mortgage Insurance (PMI)?
- What is an 80/10/10 or an 80/15/5?
- What is Title Insurance?
- What is an escrow account?
- What is a Good Faith Estimate?
- What is a balloon mortgage?
- What are ratios, PITI, and how do they affect my ability to get a loan?
- What steps are involved in the loan approval process?
- I am self-employed, can I get a loan?
What is an origination fee?
An origination fee maybe charged for services provided to create the mortgage loan. The fee is usually stated as a percentage and is typically no more than 1% of the loan amount. Signature Mortgage does not typically charge an origination fee. However, if a borrower chooses to "buy down" his/her interest rate, any points paid would first be reflected as a loan origination fee. Origination fees are considered prepaid interest and are therefore tax deductible.
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What is a discount point?
Discount points are points paid in addition to any origination point and constitute pre-paid interest on the loan. These points allow the borrower to "buy down" the interest rate by paying the interest upfront. Discount points are paid as a percentage of the loan amount and vary daily with fluctuating interest rates.
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What are lender fees?
Lender fees cover the cost of preparing, processing and underwriting the loan application. Signature Mortgage charges lender fees which fall within the industry norm. We pride ourselves in providing extraordinary service at moderate cost to the borrower.
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How are rates determined?
Mortgage interest rates fluctuate daily based on many market conditions. There is no clear correlation between the decisions of the Federal Reserve Board or a particular index such as the S&P 500. Interest rates vary daily based on a number of factors such as the trading price of 10-YR Treasury bills and mortgaged backed securities. Bond market trading makes mortgage funds a commodity which results in relatively small differences in interest rates from one legitimate lender to another.
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What is the difference between my rate "floating" and "locked"?
You must actually notify your Signature Mortgage loan officer that you want to "lock" your interest rate. Until you do so, your rate will "float" and be susceptible to the fluctuating market conditions. Once you lock your rate, you are guaranteed to receive that rate as long as you settle within the lock period. Generally, consumers choose to float their rate if they believe that rates will improve prior to their settlement date. They choose to lock in order to protect themselves against rates moving the wrong direction.
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When can I lock in and how long does it last?
Historically, rates had been locked for 60 days. However, the mortgage industry has been moving to lock periods as short as 20 days. Your settlement must occur within your lock period. If your lock expires prior to settlement, you must re-lock your interest rate at the higher of either the current market rate or the originally locked rate. "Extended locks" of up to 260 days may also be available. Please consult your Signature Mortgage loan officer for details and associated costs
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What is the difference between the Annual Percentage Rate (APR) and my interest rate?
The APR is the cost of the loan expressed as an annual rate. It includes interest, points and finance charges associated with the loan. The APR is helpful when comparing different types of mortgages. The interest rate is the actual rate at which you are borrowing your money and is used to calculate the interest payment on the loan.
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Why is the Annual Percentage Rate (APR) on the Truth-in-Lending disclosure higher than the rate shown on my mortgage note?
The APR includes other costs associated with securing your loan. These costs include interest, loan origination points, discount points, and other finance charges associated with your loan. The APR is expressed as a percentage in order to allow the borrower to compare different loans using a standardized method of comparison.
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What is the minimum down payment requirement for a conventional loan, and FHA and VA loans?
Conventional loans come in many forms. Down payment requirements vary from no money down to 20% down. An FHA loan requires 2.25% down payment and a total investment of 3% in the purchase transaction. A VA loan requires no down payment; however, the borrower must be an eligible veteran. Ask your loan officer for details on any of these programs.
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What is the difference between a "Conforming" and "Jumbo" loan?
Fannie Mae and Freddie Mac set the underwriting standards for "conforming" loans, the first of which is a maximum loan amount. The loan limit for the Washington DC Metropolitan area is currently $417,000. Loans exceeding that amount are "jumbo" or "non-conforming" loans.
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What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI) insures the lender against losses associated with defaults on loans. PMI is generally required the loan-to-value exceeds 80%.
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What is an 80/10/10 or an 80/15/5?
80/10/10 and 80/15/5 refer to loan programs which utilize first and second trusts (mortgages). The first trust is 80% of the sales price and the second trust is either 10% or 15% of the sales price. The remaining 10% or 5% is the borrower's down payment and typically comes from the borrower's own funds. This type of financing eliminates the need for PMI.
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What is Title Insurance?
Title insurance is intended to protect the insured against a legitimate claim of ownership to a particular property. While rare, such claims do occasionally occur. All lenders require "Lender's Title Insurance" to secure their interest. Owner's Title Insurance, though not required, provides similar protection for the borrower.
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What is an escrow account?
Most first trust mortgage loans have a requirement for tax escrows and insurance escrows. In such instances a calculated portion of the monthly mortgage payment is placed into the borrower's escrow account to pay real estate property taxes, homeowner's insurance premiums, and in some cases, private mortgage insurance. The establishment of an escrow account may be waived in certain circumstances, and usually for a fee.
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What is a Good Faith Estimate?
The mortgage lender will provide a Good Faith Estimate (GFE) which estimates all anticipated charges associated with a purchase or a refinance transaction such as government fees and settlement company fees. Mortgage lenders should provide a GFE at the time of the loan application or must, by law, provide it within 3 days of the application. While only an estimate, it should accurately reflect, within several hundred dollars, the settlement figures of the final HUD-1 Settlement Statement.
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What is a balloon mortgage?
A balloon mortgage is commonly used as a second trust loan which requires the principal balance to be paid in full prior to the amortization maturity date. For example, a 30/15 balloon loan is amortized over 30 years; however the balance must be paid in one "balloon" payment after 15 years.
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What is PITI?
The total monthly housing expense is known as PITI (Principle, Interest, Taxes and Insurance). The monthly housing expense for a borrower includes the payment for the principle balance of the loan, the interest payment of the loan, the real estate taxes, and the homeowner's insurance for the property. Homeowner's association dues are typically included in the calculation of PITI.
What are ratios and how do they affect my ability to get a loan?
Ratios are a standard used in the mortgage banking industry to qualify a borrower. The "front ratio", also known as the housing ratio, is your monthly housing expense (PITI) divided by your gross monthly income. The underwriting guideline standard for the housing ratio is 28%-33% of your gross monthly income. The "back ratio", also known as the total debt ratio, is calculated by dividing the borrower's total fixed monthly debt by their gross monthly income. This fixed monthly debt includes your PITI as well as car loans, student loans, credit card payments and any other installment loans. The underwriting guideline standard for the debt ratio is typically no higher than 38% of your gross monthly income. These ratios outline a borrower's ability to afford a particular monthly housing payment. However, using today's automatic underwriting guidelines, these ratios can be somewhat flexible. Ask your Signature Mortgage loan officer for more details.
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What steps are involved in the loan approval process?
Loan approvals are available much more quickly today than in the past. Today's electronic underwriting systems often allow for an expedited loan approval process. In most cases we are able to generate an approval subject to property appraisal, clear title report and evidence of insurance within minutes of having received the loan application. In order to have your loan papers ready for settlement, however, the following steps must be completed:
- A formal loan application must be completed with your Signature Mortgage loan officer. The better prepared you are to give your loan officer all the information required, the smoother the application process. To make sure you understand what will be required of you during a formal loan application, please review the Application Checklist on our website.
- Your Signature Mortgage loan officer will collect the required documentation from you and will also order a credit report, appraisal, and other necessary documents required for your particular loan. These may include such items as Verification of Employment (VOE), Verification of Deposit (VOD), etc. Required documentation will depend on your particular situation and the loan program you choose.
- The loan application will be submitted for underwriting review. This submission is usually handled through one of the automated underwriting programs now available to mortgage lenders. In most cases, the loan is approved shortly after submission. After the loan has been approved and any conditions for the approval have been satisfied, the loan is reviewed once more by an underwriter who verifies that the electronic submission was accurate and that all conditions have been met.
- The closing or settlement documents are prepared by our closing department in coordination with the settlement attorney. The settlement attorney prepares the final HUD-1 statement, which is a detailed financial accounting of the entire transaction. The HUD-1 provides the exact amount of cash necessary for settlement.
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I am self-employed, can I get a loan?
Yes. Self employed borrowers can obtain a Signature Mortgage loan by providing two years of tax returns which verify their annual income. As an alternative, you may qualify for a No Ratio or No Income/No Asset verification loan. Generally a two year verifiable job history in the same line of work will be required.
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