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Frequently Asked Questions
Are discount points tax deductible? top
In many cases they are. However, Greenway Mortgage is not a tax advisor. Therefore, we recommend you contact your tax preparer or the IRS to obtain a qualified opinion on the deductibility of discount points.
What does Prepaid Interest mean? top
Prepaid interest is typically paid at loan closing. It is the interest paid on a new loan from the day of closing through the end of the month. All future interest on a mortgage loan is then paid in arrears. For example, if your new loan closes on February 19th, prepaid interest would be paid at closing from February 19th through the end of the month of February. Interest would then be paid monthly with your first payment beginning April 1st which would pay March interest. Your payment on May 1st would pay April interest, etc.
Why is the Annual Percentage Rate (APR) on the Truth in Lending Disclosure higher
than the rate shown on my note, which is the rate I thought I chose? top
All lenders are required by the Real Estate Settlement and Procedures Act (RESPA) to show the rate which will be charged on the note signed at closing, including the total cost to obtain the loan. This includes, but is not limited to, the total interest paid over the life of the loan, assuming the full term is carried out at the note rate, plus certain closing costs. Closing costs could include prepaid interest, Private Mortgage Insurance, and various miscellaneous costs such as an underwriting fee, tax service fee, etc., as may be charged by the lender. All of these "Finance Charges" are taken into consideration when calculating the APR to give a more accurate picture of the total cost of the loan.
Why do I have to obtain a new loan when all I want to do is lower my interest rate? top
The mortgage you currently have involves a series of legal documents, which in most cases do not provide for a reduction or change of interest rate. If this is the case, one way to lower your interest rate is to obtain a new mortgage and pay off the old mortgage. Most fixed rate mortgage instruments today are like this since the majority of these mortgages are used to create mortgage-backed securities.
If your mortgage does contain an option to modify its terms, you may want to compare the terms of the modification to current refinance rates and costs before finalizing the modification. In some cases, a new refinance can be the better (less expensive) option over the modification.
What is the difference between locking or floating my interest rate? top
When the borrower chooses to "lock-in" the interest rate, the lender takes the risk of interest rates increasing during the period of time from lock-in to loan closing. The down side is if interest rates fall, the borrower is locked in at the higher interest rate. The benefit is the security of knowing the interest rate is locked in if interest rates should increase.
When floating the interest rate for any amount of time, the borrower takes the risk of interest rates increasing during the period from application to the time of lock-in. The downside to this, of course, is if interest rates increase during this time, the borrower is subject to the then current higher interest rates. The benefit would then be if interest rates went down, the borrower would have the option of a lower interest rate than if locked in previously.
The decision of whether to lock-in or not is a personal choice. The borrower needs to decide just how much risk to take.
Should discount points be paid to lower (buy down) an interest rate? top
This question is best answered after careful consideration of your own personal financial goals. Buying down the interest rate (paying points on the mortgage - one point is one percent of your mortgage amount) may not be in your best interest. Here are some reasons why:
Mortgage interest paid is tax deductible in most cases (seek the advice of an accountant or the IRS).
The funds are no longer available to invest, save or use (ie. purchase an IRA, pay off credit card debt at a higher rate, etc.)
Falling interest rates can be taken advantage of sooner if discount points are not paid to buy down the interest rate (the original interest rate was higher).
In the past, if a consumer bought down the interest rate and then refinanced (buying down the rate again), it is possible not enough time will have elapsed to recover the "buy down" amount through the reduced monthly payment. This also occurs if the consumer sells the home before recovering the "buy down" amount.
Not only does the amount paid in discount fees ("buy down amount") need to be recovered, the "time value" of the money spent or its "present value" also needs to be recovered. Present value is the income you could have earned or the satisfaction you could have received through alternative use of your money. Remember, consider the tax consequences of your ultimate decision.
Individuals should do what best fits their own personal situation and goals.
What does the origination fee cover? top
The origination fee is the fee lenders charge to cover some of the costs of making the loan and is calculated by multiplying the total mortgage loan amount by the percentage shown. This fee is typically 1% or lower but may also be influenced by market conditions or the type of loan being originated.
How long must I wait if I've had a recent bankruptcy? top
Greenway Mortgage has lenders who finance borrowers one day after a bankruptcy has been discharged. However, for the most competitive interest rates, we recommend waiting two years after the bankruptcy has been discharged and rebuilding your credit status during that time. We understand that current financial standings may necessitate an immediate loan, and we can help you make the right decision.
How long does the loan process take? top
The number of days from application to closing can vary from a few days to 45 or more days depending on a number of factors. Some of the factors are loan type, whether an appraisal is needed, title clearance, etc. Time delays also occur if outside sources or the borrowers do not promptly provide documents to the lender.
The typical Greenway Mortgage loan takes about 10 minutes to get approved and as little as 5 days to complete the process for conventional loans.
How much can I afford to spend? top
The purchase price of your new home should be based upon how much you can afford to spend a month on your payment. The general guideline is for 28% of your gross income to be spent on your mortgage payment. However, with differing down payments and adjustable rate mortgages, call a Greenway Mortgage loan officer to determine which loan program is right for you and what mortgage payment is comfortable for you. You can reach Greenway Mortgage between the hours of 9:00 A.M. to 5:00 P.M., Monday through Friday at (719) 544-4888 or toll free at (888) 223-6064.
Can Greenway Mortgage refinance my current mortgage loan? top
YES! Depending on whether you are trying to lower your monthly payment, get cash back, or consolidate debt, our loan officers can determine the best loan program and help you start saving money immediately. Just call a loan officer at (719) 544-4888 or toll free at (888) 223-6064.
What documents do I need to bring to my appointment? top
Although program guidelines vary, it is best to bring in as much documentation as you can. Typically, we will need:
- One month's worth of paystubs
- The last 2 year's tax returns and W-2 forms
- Two month's worth of bank statements
- The most recent 401K, retirement, or pension statement
- A copy of the homeowners insurance form
- Any lease agreements or notes receivable
- Driver's license and Social Security Card
Your loan officer will give you a more accurate list of information when you call to schedule an appointment. Often, Greenway Mortgage can take an application by phone and have a lender approval with specific documents needed before you even make an appointment. Call us today to find out what you will need to bring.
What is an escrow account? top
When borrowers make their monthly mortgage payments, they generally also pay one-twelfth of the anticipated annual amount needed to pay taxes and insurance premiums. These additional funds are deposited into an escrow account (also known as an impound account), until the lender pays the taxes and insurance premiums as they come due. The borrower benefits for budgeting reasons because costs are spread through the year rather than as a lump sum. This method allows the lender greater control in avoiding tax delinquencies or lapses of hazard insurance coverage on the property. Mortgage documents often stipulate lenders establish an escrow account.
Are lenders limited in the amount of escrow funds they can collect from borrowers? top
The Real Estate Settlement Procedures Act (RESPA) sets standards for the calculation of the amount mortgage lenders require borrowers to deposit into the escrow account. RESPA limits the initial deposit into an escrow account to an amount equal to the sum sufficient to pay taxes, insurance premiums, and other charges on the mortgaged property for the first payment period, plus a cushion.
An escrow cushion is an amount of money held in the escrow account to prevent the account from being overdrawn when increases in disbursements occur.
On a monthly basis, mortgage lenders may not require borrowers to pay more than one-twelfth of the total amount of the estimated annual taxes, insurance premiums, and other charges, plus an amount necessary to maintain the allowable cushion.
Can I pay my own taxes and insurance? top
Greenway Mortgage can waive the collection of escrow requirement at closing by collecting a fee to compensate for the lost value of the escrows.
Why did my mortgage payment amount change? top
There may be several reasons. Some mortgages, such as ARM loans, provide for periodic adjustments to your principal and interest payment amount. A second reason for a change may be due to an annual analysis of your escrow account. In compliance with the Real Estate Settlement Procedures Act (RESPA), you will receive an Annual Escrow Disclosure Statement, which shows the adjustment to your escrow payment based on current tax and insurance amounts.
What is an ARM loan? top
An ARM loan is an Adjustable Rate Mortgage. The interest rate on an ARM loan is adjusted periodically based on the terms of the mortgage documents. The interest rate is typically based on a common index published periodically, adjusted by a margin. The margin is an interest rate charged in addition to the index and typically does not change over the life of the loan.
What benefits do I receive from mortgage insurance? top
Prior to the existence of mortgage insurance, individuals typically could not purchase a home unless they had a down payment of at least 20% of the purchase price. Mortgage insurance benefits the mortgage lender directly by reducing the costs associated with borrower default. It also benefits consumers by lowering down payments, thereby allowing more people to achieve homeownership.
Conventional loans with a loan-to-value greater than 80% (and in some cases even lower percentages) require private mortgage insurance (PMI). This mortgage insurance payment drops when the loan-to-value reaches 80% of the appraised value.
How is interest calculated on a mortgage loan? top
Most mortgages originated today calculate interest in arrears, unlike consumer loans which calculate interest to the date of payment receipt. As an example, when borrowers pay their February mortgage payments, they are paying the January interest. This method of calculating interest is based on a 360 day year in which each month has 30 days.
Why does the title have to be cleared before I can get a mortgage? top
When a lender makes a mortgage loan (other than a home equity loan), the lender typically requires a first lien position. This means there can be no other outstanding liens against the property that are superior to the new mortgage. Liens can result from a variety of sources, such as home equity loans or lines of credit, child support judgments, divorce settlements, delinquent taxes, and special assessments. Most realtors, mortgage companies, title companies, and escrow companies will assist the seller and/or borrower in clearing title. The ultimate responsibility, however, lies with the sellers of the property who are warranting clear title to the buyers. It is important the buyers receive clear title from the sellers so there are no future claims against their property ownership rights.
How much time will it take to close my loan (sign the loan documents)? top
Generally, the process takes as long or short as the borrower wishes. Explaining and signing the documents takes approximately 15 to 20 minutes. However, the borrower may choose to sign the documents and be on his/her way or ask a number of questions and spend more time. Closings may also vary from closing agent to closing agent. Generally, plan forty-five minutes for the closing. |
