1.   Why should I buy, instead of rent?

A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years (appreciation). Finally, you'll enjoy having something that's all yours - a home where your own personal style will tell the world who you are.

2.   Is a large down-payment important?

This really is a matter of personal choice, and your own "comfort zone". A large down-payment does not automatically qualify you for a mortgage, since approval often depends on what the lender thinks you can comfortably pay back. We can do loans up to 103% of the house value.

3.   How can I avoid having to get mortgage insurance on my mortgage?

Many borrowers who have less than 20% equity in their homes, choose a combination first and second mortgage (referred to as a piggyback mortgage) to avoid private mortgage insurance (PMI). The most common method of financing without PMI is an 80-10-10 (an 80% 1st mortgage, 10% 2nd mortgage with 10% equity). Also available is an 80-15-5 (requiring an 80% 1st mortgage, 15% 2nd mortgage with 5% equity) or as an 80-20 (requiring an 80% 1 st mortgage and a 2 nd mortgage of 20%).

4.   Should I pre-qualify before I start looking for a house?

Yes. It is easier to buy a home if you have been pre-qualified, and you don't have to worry about whether you will get the loan or not when you find your dream home. To pre-qualify, make an appointment with Shara Hayden at Top Gun Mortgage. Be sure to bring all your paperwork with you: two months of bank statements, W-2 forms for the past two years, and the last month’s worth of paycheck stubs.

At this time, we will discuss financing programs and you will decide which financing option best suits your needs. After completing an application, we can then have your application “graded” by different lenders in order to offer you the most competitive rate. (The mortgage lenders will grade your application by reviewing your credit report and examine your documents.)

5.   Can I qualify for a mortgage even though I had problems in the past?

Yes, you can qualify - bad credit in the past does not mean the same thing as a bad credit risk. While Top Gun Mortgage is very competitive in the conforming mortgage market, our true strength is non-conforming and sub-prime loans. This means we will work with you to find the best rate that you qualify for.

6.   What do I do if my mortgage loan application is rejected?

It is very rare that a mortgage loan application is rejected outright. Rather, you are often told that a loan is "not possible at this time." The last three words of this phrase are crucial. You can actually work at getting approved. Shara Hayden will make a commitment to working with you to identifying what the obstacles are and how to change them. Then its up to you to work at removing those obstacles.

7.   I am self-employed. What documentation do I need to get a mortgage?

You will need to show the following: Two years personal income tax returns, two years business income tax returns (if you are incorporated). With subprime loans, we can sometimes use the last 6-12 months of bank statements. Some of the lenders may ask for a list of documents.

8.   Do I have to have a tax and insurance escrow account?

There is no law stating that you have to have these accounts in place. But lenders do expect them. If, however, you have a large down-payment (25% and over), this rule for an escrow account can some times be waived. Keep in mind that not having an escrow account means that you have to be disciplined enough to look after your own insurance and tax payments.

9.   Should I pay off my bills before buying a home?

In general no, do not deplete your cash reserves, because you need to show these reserves to the lender so he or she knows that you can save and manage your money. An empty bank account does not inspire confidence in a lender. Proceed with paying your bills in a normal way, and get a prequalified.

10.   What is the difference between a mortgage banker and mortgage broker?

A mortgage banker generates the loan, servicing it and collecting the monthly payments for the investor. He or she is paid a percentage for this service.

A mortgage broker generates a loan to sell to someone else for the servicing part. The broker works as the liaison between the borrower and the lender to create a cost effective and efficient loan process. The mortgage loan process can be arduous, costly, and seemingly impossible to the consumer which is why having a broker can help make you at ease with the financing process. Brokers typically only pull your credit scores twice, once at the beginning of the process, and once when going into final approval with the lender, this helps to keep your credit score as high as possible. Additionally brokers work with a large number of lenders and can have a large number of different types of loans available to choose from.

11.   Why do mortgage rates go up and down all the time?

There are a lot of investors making home mortgage loans in the market. In general when the stock market goes down, the bond market often goes up as investors change their investments. The best way to gauge the movement of interest rates is to watch the bond market.

12.   What are Points?

Your lender will quote you something like, 6½% interest. That "6½%" is the interest rate your mortgage note will carry. (This is where you will make the payments amortized over the years you selected 15-40 years.) That 6½% includes the origination fee- which is some times called  a point. The origination fee can vary, of course depending on your loan product (usual range is 1-4%). 

Some loan products give you the option of buying down your interest rate by purchasing "a discount point" - which is 1% of the loan value. Don't get this confused with the origination fee. This fee is in addition to the origination fee.

13.   Can I benefit from discount points?

Yes, you can. An IRS rule allows the buyer to deduct the discount points (which is interest paid up-front to secure a lower interest on the entire loan) paid by the buyer to the seller. You are entitled to the deduction of this interest.

14.   Who is an underwriter?

An underwriter makes sure that all the documentation in your file is complete, and he determines if your application fits the investor's entire guidelines and requirements. He also determines if you will get a mortgage or not, depending upon your credit file, or your credit-worthiness.

15.   How do I know if it makes sense for me to refinance?

First determine your financial mortgage related goals: i.e. are you looking to improve your monthly cash flow, reduce your mortgage term, do you need to take out cash utilizing the equity from your home? Obtaining the right mortgage for your particular needs could make sense even when rates are not at their lowest levels. First identify your goal and contact Shara for suggestions on mortgage programs that would best help you meet your objectives.

16.   What are biweekly mortgages?

You make your mortgage payment every other week rather than every month.  This way you end up making 26 payments in a year. This often reduces the amount of interest being charged and reduces the term of the loan as well.

17. How do I choose a mortgage program?

There isn't a simple answer to this question. The right type of mortgage for you depends on many different factors:

• Your current financial picture.
• How you expect your finances to change.
• How long you intend to keep your house.
• How comfortable you are with your mortgage payment changing.

For example, a 15-year fixed-rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage -- but your payments could get higher when the interest rate changes.

18.   Will the lender require an appraisal? And will I get a copy of it?

Yes. The property is the collateral for the mortgage, therefore an appraisal is almost always required. You will pay the appraiser upfront the charge for the fee. You are entitled to receive a copy once it is completed.

19. Can my loan be sold? What happens if my lender goes out of business?

Your loan can be sold at any time. There is a secondary mortgage market in which lenders frequently buy and sell pools of mortgages. This secondary mortgage market results in lower rates for consumers. A lender buying your loan assumes all terms and conditions of the original loan. As a result, the only thing that changes when a loan is sold is to whom you mail your payment. In the event your loan is sold you will be notified. You'll be informed about your new lender, and where you should send your payments.

If your lender goes out of business, you are still obligated to make payments! Typically, loans owned by a lender going out of business are sold to another lender. The lender purchasing your loan is obligated to honor the terms and conditions of the original loan. Therefore, if your lender goes out of business, it makes little difference with regards to your loan payments. In some cases, there may be a gap between the date of your lender's going out of business and the date that a new lender purchases your loan. In such a situation, continue making payments to your old lender until you are asked to make payments to your new lender.

20. What is an Annual Percentage Rate (APR)?

The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.

The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.

The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.

Ideally, one should be able to compare APRs from various lenders, then select the loan with the lowest APR.

Unfortunately it's not that simple. Various lenders calculate APRs differently! A loan with a lower APR may not be the best choice. A good way to compare different lenders is to ask them to provide a Good Faith Estimate of closing costs. Be sure you compare the same loan program (e.g., 30-year fixed), interest rate and rate lock period. You may ignore fees that are independent of the loan, such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Pay particular attention to loan fees. The lender with the lowest loan fees will likely have the best deal.

The reason why APRs are confusing is because the rules to compute APR are not clearly defined.

What fees are included in the APR?

The following fees ARE generally included in the APR:

• Points - both discount points and origination points
• Pre-paid interest. The interest paid from the date the loan closes to the end of the month. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
• Loan-processing fee
• Underwriting fee
• Document-preparation fee
• Private mortgage-insurance

The following fees are SOMETIMES included in the APR:

• Loan-application fee
• Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)

The following fees are normally NOT included in the APR:

• Title or abstract fee
• Escrow fee
• Attorney fee
• Notary fee
• Document preparation (charged by the closing agent)
• Home-inspection fees
• Recording fee
• Transfer taxes
• Credit report
• Appraisal fee

Calculating APRs on adjustable and balloon loans is even more complex because future rates are unknown. The result is even more confusion about how lenders calculate APRs.

Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.

Finally, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!

Conclusion :
Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.

The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with Shara Hayden, your mortgage professional.