Frequently Asked Questions

Part of my service to my Clients is educating on the process of buying or selling a house, but I also explain common terms and processes used throughout the industry. The list below are the most frequently asked questions:

I really want to own my own home, but I'm not sure I can afford it. Where do I start?

Lots of people don't even consider buying a home because they're afraid they can't afford it. But for most people, home ownership is within reach - especially with some of the special programs for first-time home buyers. In fact, for many, home ownership is as affordable as renting - in some cases even more affordable.

How do I know how much house I can afford?

Before you start looking at homes, you need to have some idea of what you can afford. As a general guide, you can purchase a home with a value of two or three times your annual household income, depending on your savings and debts. However, you may be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value.

When should I talk to a mortgage lender?

The short answer: when you start thinking about buying a home. It's true you can't actually apply for a mortgage until you've chosen your home and signed a contract to buy it. But you shouldn't wait until then to start talking with a Mortgage Loan Originator.

Our experienced Mortgage Loan Originators at CNB will be happy to help you as you look for a home. The Mortgage Loan Originator will work with you to determine how much house you can afford, help steer you to special mortgages for first time home buyers, and perhaps make suggestions that could make it easier to get the best mortgage for you.

Another advantage: you'll already have a good relationship with a Mortgage Loan Originator when it comes time to apply for your mortgage.

How do I choose a mortgage lender?

When most people think about choosing a mortgage lender, they think about finding the lowest rate. Period.

Of course, financial considerations are important to every home buyer, and you certainly should consider the different rates lenders offer. But you also want a lender you can trust, and someone you can work with effectively. So don't let rates be your only criterion. Here's the process we recommend:

Compare rates for similar loans. Among the things you'll want to discuss with prospective lenders are the rates they offer on mortgages. But when comparing rates between lenders, be sure the rates are for comparable loans -- and remember to include fees and other costs so you're really comparing apples to apples.

How do I know which type of mortgage is best for me?

There isn't a single, 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;

And how comfortable you are with your mortgage payment changing from time to time.

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. And 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.

Do they really need to know everything about me for the application?

Mortgage loans are underwritten to credit, capacity and collateral. Your lender needs to make sure you have the willingness to repay the debt (credit), you can afford the monthly payments (capacity) and the property value is sufficient to support the loan request (collateral). You will need to provide quite a few details about your employment, income, assets and other information deemed pertinent to proving your ability to repay the mortgage debt. Your application process will go much smoother if you’re prepared. Be sure to ask your Mortgage Loan Originator what information you’ll need to provide to complete your application.

How much will my credit history affect my ability to get a mortgage?

Your credit history plays a very important role in proving your ability and willingness to repay a mortgage. If you have had past credit problems, be prepared to discuss them honestly with your Mortgage Loan Originator. You may be asked to provide a written explanation for any derogatory credit showing on your report.

I have a bad credit rating, will anyone lend to me?

There are mortgage programs available for virtually every situation. It is best to call a lender for more information.

How much will I need for the down payment?

It's probably less than you think. Many first-time buyers are surprised to learn there's no set answer to this question. Generally, though, your down payment can be anywhere from three to twenty percent of the home's value. Down payments can be lower for first time home buyer loans. If you are a veteran or active military you could qualify for a zero down payment loan.

What First Time Buyer Programs are available?

There are several different programs available. The requirements and benefits vary greatly from program to program.

How much will my closing costs be?

Closing costs vary by lender and program. Therefore it's always a great idea to shop around and compare all programs before making an offer on that dream house.

Should I spend the money to have a home inspection?

Absolutely. The $200 to $500 that a professional home inspection costs could be the best money you ever spend on your house. Not only does the home inspection seek out any defects (and gives you some peace of mind), the home inspector will often give you tips on maintaining and repairing your house.

What is an appraisal? Will I need one?

An appraisal is an opinion of value of the home you want to purchase. Virtually every lender will require some sort of appraisal before the loan is approved.

How much money will I save by choosing a 15-year loan rather than a 30-year loan?

A 15-year fixed rate mortgage gives you the ability to own your home free and clear in 15 years. And, while the monthly payments are somewhat higher than a 30-year loan, the interest rate on the 15-year mortgage is usually a little lower, and more important - you'll pay less than half the total interest cost of the traditional 30-year mortgage.

What is title insurance and why do we need it?

If you've ever purchased a home before, you may already be familiar with the benefits and terms of title insurance. But if this is your first home loan or you are refinancing, you may be wondering why you need another insurance policy.

The answer is simple: 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 homebuyer 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.

What is mortgage insurance and when is it required?

First of all, let's make sure that we mean the same thing when we discuss "mortgage insurance." Mortgage insurance should not be confused with mortgage life insurance, which is designed to pay off a mortgage in the event of a borrower's death. Mortgage insurance makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with low down payment lending. Low down payment mortgages are becoming more and more popular, and by purchasing mortgage insurance, lenders are comfortable with down payments as low as 3 - 5% of the home's value. It also provides you with the ability to buy a more expensive home than might be possible if a 20% down payment were required.

The mortgage insurance premium is based on loan to value ratio, type of loan, and amount of coverage required by the lender. Usually the premium is included in your monthly payment.

It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount - below 78% to 80% of the property value. Recent Federal Legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance has been amortized down to 78% of the original property value. If you have any questions about when your mortgage insurance could be cancelled, please contact a lender.

What is the annual percentage rate ("APR")?

A mortgage APR - Annual Percentage Rate - takes into consideration fees or costs associated with your mortgage loan and expresses them as a cost of the credit in relation to the amount borrowed. This comparison tool is disclosed to you on the Loan Estimate you receive at the beginning of the loan application process so you will be able to use it to shop for a mortgage by comparing rates and costs.

Your "note rate" is the interest rate used to determine your monthly payment based on the loan amortization term and the loan amount. This interest rate will always be lower than your APR. The APR considers certain costs associated with obtaining a mortgage loan and expresses them as a yearly interest calculation. These costs can include the lender’s origination charges, discount points, processing fees, underwriting fees, tax service fees, mortgage insurance, odd days interest or other fees deemed to impact the APR.

The APR should be considered a useful tool when considering your options but should not be the sole reason you choose a mortgage product or lender. You should consider obtaining a mortgage through a lender that you trust and who can also offer you excellent service.

What are Closing Costs?

Closing Costs are the fees involved in the origination of the mortgage. These fees include, but are not exclusive of, the Appraisal Fee, title insurance, mortgage tax, recording fees, mortgage insurance premium (if applicable), tax service fee, attorney fees, bank fees, flood certification fee and any discount points that may apply. If you should be required or choose to have an escrow account initial escrow payments will be collected at closing in order to fund your Escrow Account. This would include Property taxes, Hazard Insurance, Mortgage Insurance and Flood Insurance if applicable.

All fees associated with the Mortgage Application and Closing will be disclosed on a Loan Estimate which will be provided to you at time of Application. You will also find other fees and/or credits that may be paid by the borrower or the seller disclosed on this Estimate such as a Home Inspection Fee, the Buyers Personal Attorney Fee and any Seller Credits that may have been negotiated via the Purchase Contract.

What is Interest Rate Lock in?

Locking in the interest rate on your mortgage is one of the most important steps of the application process. By locking in your interest rate you are determining the interest portion of your monthly Principal and Interest Payment (P&I). Your interest rate can be locked at any point during the application process up to 10 days prior to closing.

Generally speaking, people often lock their interest rate at application so that they have peace of mind throughout the process that the rate won’t change. If you should choose not to lock in at application you are subject to any and all market changes. Interest rates are dependent on a number of different factors and are constantly changing. Some variations in interest rates are noticeable and some are minute, but they are always changing. If you choose to float, which means that you do not lock your rate at application, you would be subject to these changes. Sometimes you may win and the market could move in your favor allowing you to lock in the rate a bit lower than what was quoted at application. You could also lose and the market could move against you. In this case the rate could be higher than what you were quoted at application.

The decision to lock in your rate is solely your own. Your Mortgage Loan Originator can give you a feel for recent market activity, but the decision of when to lock is yours. Once you lock your rate, the rate cannot change, so any swings in the market will have no effect on your locked rate.

When you do decide to lock in your rate, the length of time that you lock that rate for is determined by your contract close date or when you are planning to close on a refinance. If you were to lock for an extended period of time it could cost more, either resulting in a higher rate or paying points to get more time. You may pay discount points to get a lower than market rate. Most people choose not to do this as whether it is worth paying points to save some money in interest depends on how long you plan to be in your home before selling or refinancing. Your Mortgage Loan Originator can explain this to you in further detail and advise you on whether it would benefit you or not. Should you not close by your expiration date there may be a fee involved to extend your interest rate.