FREQUENTLY ASKED QUESTIONS

FREQUENTLY ASKED QUESTIONS

 

What types of mortgages are available? 

Please refer to our Loan Choices section

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What is the minimum amount required for a down payment?

Down Payments can be up to 20 percent of the sales price, but many schemes are available with much lesser or even no down payment required.

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What should be done in case of a default on a Mortgage?

Sometimes it may happen that financial problems prevent you from making mortgage payments on time. In cases of prolonged delay in payments, the lending agency may decide on a foreclosure. A foreclosure is a loss-arresting step taken by the lender.

 

In case you are not able to make your payments on time for some reason, the best thing to do is have a frank discussion with your lender. In most cases they are more than willing to help as they too are not very keen on a foreclosure which can cost them more than the foreclosure sale. If the situation is not very serious, it is possible to draw up a practical, satisfactory plan to make up for missed payments and bring the loan current.

 

Remember that a good past payment record is vital so that in the event of a default, your lender will see that you have not made any unexplained and prolonged late payments and thus will look upon you favorably.

 

If you are falling behind in your payments, or know that you are likely to in the immediate future, there are some steps that you should take before talking with the lender about alternative payment arrangements.

 

First, you need to prepare a monthly list of your income and expenses, using realistic figures based on your current financial situation. You will also need to put together a complete financial disclosure package, showing your assets and liabilities, including all debts and monthly payments and when they are due. Pay stubs, unemployment check stubs or other proof of current income should be in the package, along with two years’ tax returns. Get an estimate of the value of your property. You can usually get a local real estate broker to give you an idea of the current market value, free of charge. Finally, prepare a written explanation of your situation for the lender and offer any plan or suggestion you may have on how you can bring the situation under control.

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When is refinancing a good idea?

Most home buyers who consider refinancing usually have an Adjustable Rate Mortgage (ARM) which they want to convert into a fixed-rate loan or want to convert it into an ARM with a lower interest rate than what their current ARM offers.

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What is a credit report?

A credit report is a document created by a credit bureau that records your credit or repayment history, and any information on public record like bankruptcy, lawsuits, tax liens, etc. A credit record is used to determine your creditworthiness. Your permission is required for a prospective lender to access your credit report.

 

A good credit report helps you make it easier to secure loans, so it is very important to maintain a good credit history.

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What should be done if there are errors in my credit report?

If, for some reason, you believe that the information on your credit report is inaccurate or incomplete, you must bring it to the notice of the credit reporting agency. An investigation is required to be carried out by the credit reporting agency within 30 days and if the information in your credit report was false or incomplete, it will be given in writing along with a new, corrected/completed credit report. If the credit reporting agency cannot verify the dispute, then it must be deleted.

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What if my mortgage application is rejected?

There may be many reasons for a loan application to be rejected. And there are solutions too.

 

The law requires that your lender mention in writing why you have been denied a loan. If your application was rejected due to a bad credit report, the lender has to inform you of the name and address of the credit reporting agency that supplied your credit report. You can order a copy of the report within 60 days and find out where exactly you can improve your credit standing.

 

If your application was rejected because your income was deemed to be insufficient, then you may consider applying for low to moderate housing loan programs such as FHA or VA loans. Sometimes the cause for a rejection maybe that the appraisal of the property was much lower than the purchase price. If your requested loan amount is larger than 90 – 95 percent of the appraised price, the loan may be denied. In this case you may try to negotiate with the seller to lower the purchase price. If that is not possible, then you can make additional down payment to make up for the difference between the appraised price and the purchase price and accept a lower loan amount.

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What is Title Insurance?

Title Insurance is an insurance policy that protects the lender (and sometimes the property owner as well) against loss due to disputes over the ownership of a property and defects in the title that were not found in the search of the public record. It protects the insured against loss of damage due to defects, liens or encumbrances of the insured title.

 

The Title Insurance policy is issued after public records regarding the condition of the title are examined. This may include any money obligations outstanding against the property and other matters which may affect the rights of ownership, possession and use of the property.

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What is Private Mortgage Insurance?

Private Mortgage Insurance (PMI) is taken out to cover loss by a lender if a borrower defaults on payments. PMI is similar to insurance by a government agency such as FHA, except that it is issued by a private insurance company. Generally, this insurance is required by the lender when the down payment is less than 20% of the property value. The premium is paid by the borrower and is included in the mortgage payment.

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What are the components of a Mortgage Payment?

A mortgage payment typically consists of the principal, interest, taxes and insurance (PITI). The principal is the original amount of money loaned. The interest is the fee charged for borrowing the principal. Taxes refer to property taxes charged by the community based on the value of your home. An insurance policy covers your home and your personal property against losses from fire, theft, bad weather and other causes.

 

The insurance amount is collected and paid much like the taxes. Each month 1/12th of the insurance bill is collected and stored in an escrow account until the bill is due. Even if you pay cash for your home, it is a good idea to buy hazard insurance in the event your home is damaged or destroyed.

 

Principal and interest comprise the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period of time. With amortization, your initial monthly payments are largely interest, and as the loan matures, a greater portion of your payment is allocated toward the principal.

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What is the maximum loan amount I can qualify for? 

Depending on your income and the cost of your new home, lenders would generally prefer that your housing expenses (including mortgage payment, insurance and property taxes, and special assessments) do not exceed one-third of your gross monthly income. Debt ratios (total debt divided by gross income) should not exceed 38%. This loosely translates to mortgage affordability of two-and-one-half times to three times gross household income. Although these ratios are fairly widely accepted parameters in the mortgage industry, compensating factors, like the amount of a down payment and credit scores, are also taken into account.

 

Long-term debt is another guideline used by lenders. Long-term debt is monthly expenses extending more than 10 months into the future. Long-term debt should not exceed one-third of the homeowner’s gross monthly income.