Benefits of using Mortgage Brokers vs. Direct Lenders

PRICE
Many lenders use the services of Mortgage Brokers to perform what is known as the "Origination" of the loan to meet with and prequalify the borrower, verify the credit and property aspects of the loan, and then provide it to them for funding. For performing this function, the Lenders give the mortgage broker a WHOLESALE, that allows your Mortgage broker to be always competitive with those lenders that utilize their own staff to perform the function of the mortgage broker. IT DOES NOT COST MORE TO USE THE SERVICES OF A MORTGAGE BROKER.

SERVICE
Your Mortgage Broker knows that the financing has a third ingredient beyond rate and fees timely performance. The Mortgage broker has an intense desire to honor their commitment to provide financing requested in a timely manner, for to do so gives them the lifeblood of their industry loan referrals from satisfied brokers and borrowers. THE MORTGAGE BROKER IS COMMITTED TO CUSTOMER SATISFACTION.

SELECTION
If you were to apply for a loan from a bank directly, the lender would attempt to make your needs conform to fit their paarticular lending program. Your Mortgage broker receives rate quotes daily from Wholesale lenders, both local and out of area, with hundreds of different programs and loan approval criteria. Your mortgage broker, as the representative of the borrower and not the lender, then finds the program to meet the needs of the Borrower- the only real way to get the "best loan". MORTGAGE BROKERS REPRESENT THE BORROWER-NOT THE LOAN PROGRAM.

PROTECTION
Interest rates change daily, and the your mortgage broker can provide the borrower the safest loan available. The borrower can, under most programs, choose to obtain a letter of commitment from the mortgagee broker at the initial application that will insure that the rate being offered will be available at the close of escrow. THE MORTGAGE BROKER PROTECTS THE BORROWER.

PROFESSIONALS
The world of mortgage finance is a world of constant change, your local Mortgage Broker is dedicated to keeping up with this change to provide the maximum professional service to their clients. This dedication is based on the belief that professionalism is only achieved by having the correct blend of product knowledge, and an intense commitment to customer satisfaction. MORTGAE BROKERS ARE REAL PROFESSIONALS.

ANSWERS TO THE MOST FREQUENTLY ASKED TRUTH-IN-LENDING QUESTIONS


Q: What is a Truth-In-Lending Disclosure, and why do I receive it?
A: The Disclosure is designed to give you information about the costs of your loan so that you may compare the costs with those of other loan programs or lenders.

Q: What is the Annual Percentage Rate?
A: The Annual Percentage Rate (APR) is the cost of your credit expressed as an annual rate. Because you may be paying loan discount points and the prepaid finance charges at closing, the APR disclosed is often higher than the interest rate on your loan. This APR can be compared to the APR on other loan programs to give you a consistent means of comparing rates and programs.

Q: Why is the APR different from the interest rate for which I applied?
A: The APR is computed from the amount financed and based on what your proposed payments will be on the actual loan amount credited to you at settlement, In a $50,000 loan with $2,000 prepaid finance charges, a 30 year term and a fixed interest rate of 12%, the payments would be $514.31 (principal and interest). Since the APR is based on the amount financed ($48,000), while the payment is based on the actual loan amount given ($50,000), the APR (12.533%) is higher than the interest rate.

Q: What is the finance charge?
A: The finance charge is the cost of credit expressed in dollars. It is the total amount of interest calculated the interest rate over the life of the loan, plus prepaid finance charges and the total amount of any required mortgage insurance charged over the life of the loan.

Q: What is the amount financed?
A: The amount financed is the loan amount applied for, minus the prepaid finance charges. Prepaid finance charges include items paid at or before settlement, such as loan origination, commitment or discount fees (points): adjusted interest, and initial mortgage insurance premium . The amount financed is over lower than the amount you applied for because it represents a NET figure. If you applied for $50,000 and the prepaid finance charge total $2,000, the amount financed would be $48,000.

Q: Does this mean I will get a smaller loan than I applied for?
A: No. If your loan is approved in the amount requested, you will receive credit toward your home purchase or refinance for the full amount for which you applied. In the example above, you would therefore receive a $50,000 loan, not a $48,000 loan.

Q: What is the total of payments?
A: The figure represents the total amount you will have paid if you make the minimum required payments for the entire term of the loan. This includes principal,. Interest and mortgage insurance premiums, but does not include payments for real estate taxes or property insurance premiums.

Q: M disclosure says that if I pay the loan off early, I will not be entitled to a refund of part of the finance charge. What does this mean?
A: This means that you will be charged interest for the period of time in which you used the money loaned to you. Your prepaid finance charges are generally not refundable, nor is any interest which has already been paid.

Mortgage Terms

Shopping for a home can be exciting but also very confusing. You may have already discovered that there are many unfamiliar terms in the mortgage industry. For example, you've probably heard terms such as "ARM," "discount points," and "escrow account." Because you may be wondering what this terminology means, this web site contains a glossary of the most common terms used during the mortgage financing process. It is important that you completely understand these terms before you sign your mortgage. Your loan officer can explain these terms in greater detail and also provide you with more information.

Adjustable Rate Mortgage (ARM): A mortgage loan in which the market conditions determine fluxuations in the interest rate. Changes in the interest rate are determined by a financial index. ARM loans have a cap or a limit on how much the interest rate can change.

Amortization: Repayment of a mortgage loan with equal periodic payments of both principal and interest. The payments are calculated so that the debt is paid off at the end of a fixed period of time.

Annual Percentage Rate (APR): A term that expresses the cost of a mortgage as an annual rate. The APR is normally higher than the advertised interest rate because it includes interest, points, and other finance charges. The APR is used to compare different types of mortgages.

Appraisal: A report created by a qualified appraiser that is an estimate of the value of the property being purchased.

Assessment: An assessed value given to property which is used solely for determining property taxes.

Asset: An item that has monetary value such as cash, stocks and real estate. Information about your assets is required when applying for a mortgage loan.

Balloon Mortgage: a short-term mortgage loan of equal monthly payments in which a large final payment (balloon) is due on a specified date. The final payment is equal to the remaining balance of the loan.

Biweekly Mortgage: A mortgage loan in which payments are due every two weeks, totaling 26 (or possibly 27) payments each year.

Closing: The final step in the mortgage loan process which follows underwriting. The closing is a meeting between the homebuyer, seller and lender in which mortgage documents are signed and title to the property passes from the seller to the buyer. At the same time, the homebuyers receives the funds needed to purchase the property and pledges the property as security for repayment of the debt.

Closing Costs: Fees paid at closing which are usually 3 to 6 percent of the mortgage amount. Some examples of closing costs are: realtor fees, appraisal fees and taxes.

Collateral: Property pledged as security for repayment of the mortgage loan.

Conventional Loan: A mortgage loan made by an approved lender in which the borrower's ability to repay the debt is not insured by a government agency such as the FHA or VA.

Convertible Mortgage: a type of adjustable rate mortgage loan that can be converted to a fixed-rate mortgage.

Discount Points: Also called "points". A one-time charge paid to the lender at closing to obtain a lower interest rate on the mortgage loan. One point is equal to 1 percent of the loan amount. For example, two points on a $100,000 mortgage would cost $2,000.

Escrow Account: An account often required by the lender to pay taxes and insurance. Every time a mortgage payment is made, a portion goes into the escrow account. When the taxes and insurance bills are due on your own home, the lender pay the bills with funds from this account.

Equity: The amount of the home that you actually own. Equity is the difference between the market value of the home and what you still owe on it.

Federal Housing Administration (FHA): A division within the Federal Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting.

FHA Loan: A mortgage loan made by an approved lender in which the Federal Housing Administration insures the borrower's ability to repay the debt.

Good Faith Estimate: An estimate of the fees you will be required to pay at closing. It is required by law that the lender provide the good faith estimate within three days of your initial loan application.

Growing Equity Mortgage (GEM): A type of mortgage loan in which payments increase yearly until the mortgage is paid off. The increasing payments are applied directly to the principal, allowing the homebuyer to acquire equity more rapidly and pay off the mortgage sooner.

Housing-to-Income Ratio: A ratio that compares all your monthly housing expenses to your monthly income. Normally, housing expenses are equivalent to 28 percent of your monthly income. This ratio is used by the loan to see if you qualify for a mortgage.

Mortgage: A legal document that pledges you r property as security for repayment of the Mortgage loan.

Mortgage Broker: A real estate financing professional who brings homebuyers and sellers together arrange funding and negotiate contract.

Mortgage Insurance: Insurance that protects the lender in case the house payments are not made. Typically you would be required to pay a fee for mortgage insurance if your down payment is less than 20 percent.

Mortgage Note: A document that you sign at closing which states your promise to pay a um of money at a specific rate for a fixed period of time.

Mortgagee: the lender

Mortgagor: the homebuyer or borrower

Origination: The first step in the mortgage loan process. During the origination phase, a loan application is filled out with details of your financial position. You will be asked to provide supporting documentation such as W-2s and paystubs. Your loan officer will then be required to provide you with Good Faith Estimate and a Truth-in-Lending disclosure shortly after your initial loan application.

Origination Fee: A fee that the lender charges the homebuyer for the service of creating the mortgage loan. You will not have an origination fee if you are using the services of a Mortgage Broker.

Points: See Discount Points.

Prequalification: A process in which the loan officer calculates the housing-to-income ration and the total debt-to-income ratio to see if you qualify for a mortgage loan.

Principal: The amount owed on a loan, excluding interest.

Private Mortgage Insurance (PMI): Insurance provided by a private mortgage insurance company that protects the lender in case the house payments are not made. Typically, you would be required to pay a fee for mortgage insurance if your downpayment is less than 20 percent.

Processing: The second step in the mortgage loan process which follows origination. During processing, documents are collected and your loan file is examined to ensure that all information is complete and accurate. Verifications, appraisals, credit reports and other necessary documents are ordered at this time.

Recording Fees: Fees that the lender charges for officially recording the signed mortgage documents to make them a public record

Servicing: Activities that the lender performs such as collecting the payments and paying taxes and insurance if you have an escrow.

Title: A document describing the legal owner of a specified piece of property. The title is sometimes called the deed.

Title Insurance: An insurance policy which insures the homebuyer against errors in the title search. The fee for the title insurance policy is paid at closing.

Title Search: An examination of officially recorded documents to determine the legal ownership of property.

Total Debt-to-Income Ratio: A ratio which compares all of your monthly debt payments, such as credit cards and car payments, to your monthly income. Normally, your monthly debt payments are equivalent to 36 percent of your monthly income. This ratio is used by the loan officer to see if you qualify for a mortgage loan.

Truth-in-Lending Disclosure: A document which the lender is required by law to give to the homebuyer shortly after loan application. This disclosure gives detail of the house payments along with the corresponding APR.

Underwriting: The third step in the mortgage loan process which follows processing. During underwriting, the documents in the loan file are evaluated to determine whether the loan should be approved, denied, or approved with conditions.

Veterans Administration (VA): Known as the Department of Veterans Affairs, an agency within the Federal Government which administers benefit programs for veterans.

VA Loan: A long-term, low or no-downpayment mortgage loan in which the Veterans Administration guarantees the homebuyers' ability to repay the debt. Only veterans are eligible for this type of loan.