Thursday, March 23, 2017
30-Yr Fixed to $424,100
15-Yr Fixed to $424,100
5-Yr ARM to $424,100
30-Yr Fixed to $636,150
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Frequently Asked Questions
1. What is APR?
APR stands for annual percentage rate. Your annual percentage rate (APR) is related
to your actual mortgage interest rate and various cost associated with obtaining
a mortgage. Generally, for fixed rate programs with the same offered rate, a lower
APR equates to a lower cost for you as a borrower. However, although APR may help
you compare the cost of loans offered by different lenders, you should not evaluate
a loan based only upon the APR offered.
2. What is ARM?
An adjustable rate mortgage (ARM) is a mortgage loan in which the interest rate
on the note is periodically adjusted based on a variety of indices. The loan is
established with a fixed rate for a specified number of years, but the interest
rate is changed throughout the remaining term of the loan (normally 30 years).
ARM loans generally have rate caps that are used to limit the frequency of interest
rate adjustments, including how high or low your ARM can be adjusted in a given
period and over the life of the loan. For example, a 5/1 Year ARM indicates that
the loan will have a fixed rate for the first five years and change once each year
for the remaining 25 years. This particular loan also has 5/2/5 cap, which means
that the rate may be adjusted to a maximum of two percent every year after the first
adjustment, with no more than five adjustments throughout the life of the loan.
3. What is DTI?
Debt to Income Ratio (DTI) is a very important concept to consider when applying
for a mortgage. The lender will qualify your borrowing capacity based on this data.
Your DTI is determined by dividing your total monthly income by your total monthly
liabilities. Liabilities include not only your mortgage payment, car loan, and credit
card balances, but also expenditures such as child support, HOA fees, home equity
line (even with a zero balance), collection, tax, and insurance. The maximum debt-to-income
ratio allowed varies by lenders and loan program, with a general maximum at 45 percent.
4. What is LTV?
Your loan-to-value ratio (LTV) is determined by dividing the appraised value of
your property (or sale price of your property, whichever is less) by your mortgage
amount. Also consider:
- A LTV that is less than 60 percent may help to lower your interest rate.
- For a condominium property, super confirming loan, and investment property, a LTV
less than 75 percent will help you obtain a better rate.
- A LTV greater than 80 percent is required to purchase mortgage insurance.
- The maximum LTV for a conventional loan can be up to 95 percent.
5. What is a "Title Company"?
A title company provides the title report and title insurance for your property,
as well as conducts closing for the purchase/refinance transaction. This company
will collect funds from the borrowers and lenders to pay off any existing liens
and transaction expenses. It also pays the seller the net proceeds of sale. All
fees will be shown on the settlement statement, or "HUD-1", at closing.
6. What is "Title Insurance"?
Title insurance includes two types of policies: the owner's policy and the lender's
policy. These policies are designed to protect an owner or lender's financial interest
in the property against loss due to title defects, liens, or other matters. An owner's
policy is a one-time optional purchase, and will be effective until you sell the
property. Every lender requires a lender's policy. The borrower needs to purchase
a new policy each time he/she completes a purchase/refinance.
7. What is an escrow account? Can I waive escrow?
An escrow account is an account created by the lender to collect and hold funds
to pay your property taxes, homeowners' insurance, and other charges on the borrower's
behalf. With an escrow account, your monthly payment includes the principal, interest,
and escrow payment (one month's property tax and insurance, generally). Opening
an escrow account is optional. However, if you choose to waive the escrow account,
lenders will often slightly increase the interest rate offered (generally 0.125
percent higher), because it perceives the transaction to carry additional risk.
Most lenders will require an escrow account if your loan-to-value ratio exceeds
8. What should I look for on a Good Faith Estimate (GFE)?
A Good Faith Estimate (GFE) is a lender's proposal regarding what your estimated
costs or fees will be associated with your mortgage. The costs listed on the GFE
- Loan Origination Fee: Lender's processing fee, including an underwriting
fee, tax certification, flood certification, and credit certification.
- Broker Point/Fee: If your broker charges any additional fees, they will be
added to the lender's fee described above.
- Appraisal Fee: This fee is paid to a third party that conducts the appraisal
inspection. The lender will assign the appraiser.
- Title Fee: This fee includes title processing and title insurance (only lender's
policy if refinanced, but owner's policy may be included if the transaction is an
- Transfer Tax: There are three types of transfer tax for purchase. The transfer
tax applied to your purchase depends on the county in which you reside. If your
agreement stipulates that you are responsible for half of these taxes, while your
seller covers the remaining half, the portions you can expect to pay include:
All of the items described above are considered closing costs.
- County Transfer Tax: 0.5 percent of the house value.
- State Recordation Stamps: 0.25 percent of the house value.
- State Transfer Tax: 0.25 percent of the house value (this tax will be waived if
you are a first-time home buyer in MD). In Virginia, this tax accounts for 3.333
percent of the house value and loan amount. If refinancing in the state of Maryland,
this tax will account for 0.5 percent (depends on county) of the cash out amount
when the loan being considered is a "cash out" refinance. If refinancing in the
state of Virginia, this tax will account for 3.333 percent of the loan amount.
- Reserved Items with Lender: If the loan has an escrow account associated
with it, the new lender will require several months of property tax and insurance
fees to be reserved in the escrow account. This account holds the funds, which accumulate
month by month, to pay property tax and homeowners' insurance. In a refinance transaction,
the old lender will return the funds in the original escrow account to the borrowers
after the loan has been paid off. These items are not part of the closing costs.
- One Year Insurance Premium: This applies only for a purchase transaction.
The home/flood insurance premium must be paid at closing.
9. What is a "no cost" refinance? How does it differ from
a "with cost" refinance?
A "no cost" refinance means that the lender will pay all closing costs associated
with the refinance transaction. Ivy Mortgage, Inc., offers no cost refinancing,
which means that our borrowers provide only the associated escrow reserves, which
they should receive from a previous lender, and several days of interest at closing.
Generally, the rate for refinance without cost is 0.125 percent higher than with
10. How do I determine if now is a good time to refinance
First, you need to focus on the interest that you can save by refinancing your current
loan. Here is an example to consider: Let's say we had a 30-year loan with a fixed
interest rate at 4.5 percent. The original loan amount was $250,000, and we have
already paid for three years on the monthly principle and interest of $1,266.71.
The current loan amount is $237,300, and we are thinking about refinancing to an
interest rate of 4.0 percent, including $2,000 closing cost.
- We need to compare both scenarios using the same time frame. The monthly principle
and interest for $237,300 at 4.0 percent for 27 years is $1,198.86, which is more
than the new principle and interest of $1,132.91. The amount we are saving is approximately
$68/month over 27 years.
- We also need to consider the cost as how much we pay to get this rate. In this example,
we pay $2,000. Using standard formulas, we can see that we will begin to benefit
from this refinance within 30 months. Therefore, if we are planning to refinance
again within 30 months, doing so right now may not be a good idea. This is why many
clients opt for a "no cost" refinance. They do not have to pay closing costs, which
allows them to save money from the beginning.
- Also, if we continue to pay the same amount after refinancing, it will shorten the
amount of time needed to pay on the loan. Using the example previously discussed,
it would take approximately 24.5 years to pay off the new loan if we continue to
pay $1,266.71. The new loan's cumulative interest is approximately $2,000 less than
the old loan.
* Net Present Value (NPV) of currency is not considered in this case.
11. What is the seasoning requirement for my next refinance?
Generally, you will need to wait approximately six months to refinance again.
12. May I know more about Refinance without cost Vs Refinance
Many clients asked us about the difference between a refinance with or without cost,
and which one is better.
In fact, there is always cost associated with refinance and purchase transactions,
you will see title service and lender's title insurance, recording fee and transfer
tax, underwriting fee and appraisal fee, and so on. And you can choose to pay these
fees by yourself in order to get the lowest rate or have broker/lender covering
this part. Generally, the rate for refinance without cost is 0.125% higher than
that with cost.
One example, $300,000 loan amount, 30yr fixed,
$300,000; 30YR Fixed
P + I
Option 1 no cost
Option 2 with cost
The monthly payment difference is $ 20.67, total difference is $7,441.20 over 30yr.
Option 2 saves$4441.20 over 30yrs ($7,441.20- $3000).
However, the upfront closing cost $3000 will be recouped in 145 months ($3000/$20.67),
and we start saving in the 146th months (more than 12 years). If the rate drops
in 145 months, and we refinance again, the upfront cost would be a loss. While refinance
without cost saves money from day 1. From this perspective, no cost refinance makes
In summary, refinance without cost saves interest from the very beginning, while
lower rate with cost save money over 30yrs.
13. How should I read the HUD-1 settlement statement from
People who have purchased houses before must know an important document named HUD-1,
also known as closing statement or settlement statement. This legal document contains
important information like expenses for title transfer and cost breakdown. The settlement
company usually provides the HUD-1 to the borrower the day before settlement.
You can open a blank HUD-1 file by clicking the link below:
The second page of the settlement charges includes closing cost and prepared items.
Closing cost typically means item 800, 1100, 1200, and 1300.
- A. Item 800 (from 801 to 815) is the lender charge. It varies from different lenders,
but they are fixed. Costs covered by item 800 are property appraisal fee and underwriting
fee. Some banks will charge tax service fee, flood certification fee, wiring fee,
etc. Sometimes you can see P.O.C., which is short for "paid out of closing", next
to property appraisal fee, which means the fee has been paid before settlement.
- B. Item 1100 (from 1101 to 1113) is charged by the title company, includes title
service, lender's title insurance, settlement/closing fee, notary fee and so on.
This cost varies by company.
- C. Item 1200 (from 1201 to 1205) is the tax charged by the government, like recording
tax and transfer tax；therefore, the amount would be the same no matter who the lender
is. Recording fee is collected by the county where the house is located. The recording
fee, which usually falls between $100 and $180, is calculated by the number of pages
of the recording document.
In the case of no-cost refinance, all the fees mentioned above would be covered
by lender's rebate; while borrower is responsible for prepaid items (Item 900, 1000).
- D. Item 900 (from 901 and 905) is borrower's prepaid item, including interest, private
mortgage insurance and hazard insurance, etc. For instance, if the funding date
is May 22, and the first mortgage payment starts from June 1, the interest between
May 22 and June 1 is calculated by number of days. If the LTV (loan to value) exceeds
80%, the borrower is required to purchase private mortgage insurance and set up
- E. Item 1000 (from 1000 to 1008) is typically the reserve required by lender. The
money is deposited into lender's escrow account to pay for the hazard insurance
and property tax for next year. Item 1000 would be 0 if there's no escrow account.
After knowing the items on HUD-1, we can calculate the actual out-of –pocket expense
from borrower in a no-cost refinance:
Out-of-pocket expense=mortgage payoff amount (item 104)-new loan amount (item 202)
+prepaid items (item 900, 1000)-fees already paid (for example, property appraisal
fee, item 804)
If the settlement fee (item 303) is greater than the out-of-pocket expense, then
the lender will refund the difference to borrower.
If the settlement fee (item 303) is smaller than the out-of-pocket expense, then
the lender has given extra credit or rebate to borrower.
HUD-1 is the checklist of borrower's expenses. It's recommended to review HUD-1
the day before the settlement or even earlier and double check the figures. If there
are questions, please consult with the mortgage broker or lender as soon as possible.
14. The General Process of Applying Mortgage Loan in the
When purchasing a property, applying for a mortgage loan is essential if the transaction
is not made by cash. Foremost, the lender wants to see if the borrower is able to
repay the mortgage loan on time. The lender evaluates various factors including:
1. Borrower's income; 2. Borrower's asset; 3. Value of the property; 4. Borrower's
credit report, and others. Here's a basic introduction of the process of applying
for a mortgage loan:
- Consult with the mortgage loan broker or agent about the mortgage rate and compare
the costs. Determine the type of loan product, terms, and the amount of down payment.
- Fill up the 1003 application form and provide supporting documents, which include
(but may not limited to):
- The most recent paystub cover to one month
- Recent two years W-2
- Federal income tax returns from the past two years
- Recent one month bank statement with all pages
- Copy of Driver license for all borrowers
- Copy of Green card if borrower is applicable
- Copy of Passport and H1/L1 visa approval noticeis applicable
- The mortgage loan broker or agent will obtain the borrower's FICO score through
the credit vendor and provide the borrower Good Faith Estimate (GFE) regarding the
costs, along with other loan disclosure documents (about 30 pages total). All the
documents should be signed and dated by the borrower and returned to the mortgage
loan broker or agent.
- Schedule appraisal: the lender will assign an appraiser to appraise the value of
the subject property. The appraiser will call ahead of time to schedule an appraisal.
The appraisal report will be completed in about 2 to 3 days after the appraisal
- Lock in the mortgage rate: the mortgage rate fluctuates with the market. Once the
rate is locked in, it won't change anymore. And it's guaranteed within the lock
period. The general lock periods are 15 days, 30 days, 45 days, and 60 days. The
longer the lock period is, the higher the mortgage rate.
- Provide conditional approval documents: the lender's underwriter will review all
the documents provided by the mortgage loan broker or agent. If the mortgage loan
is approved, the lender will require additional documents to clear the conditions.
This step usually takes the longest time. Once all conditions are cleared, then
settlement can be scheduled.
- Sign the mortgage loan documents: the documents signed by the borrower need to be
notarized by the attorney.
- Funding: once all the conditions are cleared, the lender will fund the mortgage
Not all mortgage loan application processes will follow the steps above. Lender's
requirements also vary. The purpose of the article is to briefly introduce the loan
application procedures to help people's understanding of a loan processing in general.
15. Why should I apply for a mortgage through a mortgage
broker instead of a bank?
There are several reasons that you may want to consider when choosing which organization
to apply for a mortgage with, including:
- Banks offer retail rates, while mortgage brokers offer wholesale rates. Generally,
retail rates are higher than wholesale rates.
- Loan officers from the bank are typically sales people who transfer your documents
to the bank without carefully structuring the loan to meet each client's individual
needs. However, mortgage brokers are typically more experienced professionals who
carefully review each client's documents to ensure the loan can be approved before
submitting the paperwork.
- Banks only offer limited programs, while mortgage brokers can engage with many different
lenders to offer a variety of products designed to best fit the interests of their
borrowers, especially those with complicated or failed loan applications.
16. What happens if my property value decreases?
Typically, if your current LTV ratio is more than 80 percent, you will have to pay
mortgage insurance if you want to refinance. However, if your mortgage lender was
Fannie Mae (since March 1, 2009) or Freddie Mac (since May 31, 2009), you might
be eligible to refinance without mortgage insurance attached to your loan. These
programs can only be used once in accordance with certain other restrictions. Please
call our office for details.
17. What is subordination? Why do I need it?
Generally, if you have two existing mortgages on your property, you want to refinance
but avoid paying off the second mortgage. Your mortgage broker will help you obtain
a subordination agreement from your second lender at a certain cost. According to
this agreement, the second lien holder agrees to take a less significant position
in the property. The lien position is issued by recording time, with the first lien
recorded first. When the first lien is released, the second lien will move to the
first position. Without subordination, your second lien (the new first mortgage)
would remain in the second position since it was recorded after the previous second
mortgage. Your new lender will not allow this.
18. Will my credit score affect my rate?
Every borrower receives credit scores from the three national credit report agencies:
TransUnion, Equifax, and Experian. Typically, the lender will use the middle score
to determine whether or not you qualify for the mortgage for which you have applied.
Other things to consider include:
- Any score equal to or above 740 is acceptable for all mortgage loans.
- The 15-year fixed program does not have strict requirements for a borrower's credit
score. Typically, if your score is higher than 620, it will be acceptable.
- The lower your credit score, the higher your interest rate. The lowest score accepted
for any mortgage loan is 620, though certain products may require a score of 680
- Credit scores pulled by mortgage lenders may sometimes be lower than those you receive
online because the highest score in the lender's system is 850, while it may be
900 for other agencies.
19. Can I appeal my appraisal report? Can I transfer the
report from one lender to another?
The appraisal value from the report will not affect your county assessment. It is
private information that is only viewed by one lender unless you want to release
it to other party. The appraiser generates the value from recent sales of other
properties nearby. If you do not agree with the value, you can appeal the report
by providing the MLS listings for each recently closed sale. This information may
be a bit difficult to obtain, however, and the process will take several weeks.
Some lenders may accept appraisal reports from other lenders within three months
effective time, but it may take longer to review and approve these reports.
20. Can I really save money by converting my payment method
from monthly to bi-weekly?
Many mortgage lenders suggest that converting a payment method from monthly to bi-weekly
shortens the loan term and eventually reduces the overall interest payment. Is it
true? Let's compare these two payment methods.
Generally, a monthly payment is the most common way to pay mortgage, while a bi-weekly
method is the second most common type. A borrower needs to pay 12 times and 26 times
a year under a monthly and a bi-weekly payment method, respectively. But most of
the banks actually do not offer the true bi-weekly payment method. The way it works
is that a bank asks a 3rd party company, which doesn't have any affiliation with
the bank, to withdraw half of the monthly payment from the borrower's account every
two weeks and deposit the money into the lender's account after collecting two half-monthly
withdraws. Since there are 52 weeks in a year and 26 bi-weekly terms, the borrower
actually makes the monthly payment 13 times a year. This includes one more monthly
principal every year and the loan term will be shortened.
If the bank offers the true bi-weekly method to directly receive payments from the
borrower without the 3rd party, the loan term will also be shortened and the principal
will be paid off earlier. With the shorter compounding period, the overall interest
payment will be lower. This explains that a bi-weekly payment method can reduce
the overall interest payment. Then, how much can you save by switching your payment
Assume the loan amount is $300,000, the interest rate is 3.375%, and the mortgage
loan program is 30 years fixed interest rate. Here are the scenarios of a monthly,
a bi-weekly with a 3rd party, and a direct bi-weekly payment method:
- Monthly Mortgage Payment
- Monthly payment due is $1,326.28 and total payment amount is $477,463.91.
Therefore, the total interest payment would be $477,463.91 - $300,000 = $177,463.91.
- Bi-weekly Mortgage Payment with a 3rd Party (pay extra 1/12 monthly principal
- Monthly payment due is $1,436.80 and total payment amount is $452,595.80.
Therefore, the total interest payment would be $455,595.80 - $300,000 = $152,595.80.
- Direct Bi-Weekly Mortgage Payment
- Bi-weekly payment due is $663.14 and total payment amount is $451,411.35.
Therefore, the total interest payment would be $451,411.35 - $300,000 = $151,411.35.
The total payoff term is shortened from 30 years to 26 years.
According to these scenarios, the borrower has to pay significantly more interest
in a monthly payment method than in a bi-weekly payment method. Switching to a bi-weekly
payment method will reduce the overall interest payment over the life of the loan;
however, it also means that the borrower needs to pay more principal in each year.
The difference in the overall interest payment between Scenario II and III is quite
limited; it is only $1,184.45 ($ 152,595.80-$151,411.35) over the entire
life of the loan. Due to processing fees in changing payment types, it wouldn't
save that much from converting the program from Scenario II to III. If the borrower
pays one month extra principal every year, the result will be basically the same
as a bi-weekly payment method, and there won't be any processing fee.
21. Brief Analysis of Mortgage Loan for Investment Properties
and Rental Income Calculation
Two of the most frequently asked questions about a mortgage loan for an investment
property are how much money can be loaned and whether the rate would be same as
the one for a primary property. The biggest difference between mortgage loans for
a primary and an investment property is that the minimum down payment for a primary
property is less than 3%, while the one for an investment property should be at
least 20%. As for the mortgage rate, the rebate for an investment property is about
1.75 point lower than the one for a primary property given the same circumstances.
Therefore, the mortgage rate for an investment property will be higher than that
of a primary property by from 0.25% to 0.5%.
Many people who plan to purchase an investment property usually also wonder about
whether lenders consider the rental income eligible for personal income.
Rental income from investment properties may work as a plus in a mortgage loan application,
but it can only be used to offset the mortgage loan and expenses for the investment
properties. It cannot be added into a borrower's personal income to strengthen the
financial ability to repay the mortgage loan. There are generally two ways to calculate
- Based on Federal Tax Return Form: a borrower needs to provide the current lease
and Federal Tax Return Forms from last one or two years. Here's an example of the
calculation using the Schedule E from 2012 Tax Return Form:
Rental Income from a subject investment property calculation (both steps must be
Rent Earned from a Non-Subject Property:
- a) Line 3 (Rent Received) + Line 12 (Mortgage Interest) + Line 9 (Insurance) + Line
16 (Taxes) – Line 19 (Expenses Subtotal) / 12 = Monthly Income or Loss
- b) Monthly Income or Loss – Monthly Subject PITI = Net Monthly Rental Income or
If the rental income from the past two years is used and the second year's income
is lower than the first year, then the lower income will be used for calculation.
If the second year's income is higher than the one for the first year, then the
average of the income will be used.
- a) Line 3 (Rent Received) + Line 12 (Mortgage Interest) – Line 19 (Expenses Subtotal)
/ 12 = Monthly Income or Loss
- b) Monthly Income or Loss – Monthly Non-Subject PI = Net Monthly Rental Income or
- Based on rent: If the investment property is the subject property of the current
purchase, lender will use another way to calculate the net rental income, which
is 75% of the rent listed on the lease deduct monthly PITI payment.
The premise of this calculation is that the tenant will move in right after the
settlement, and the following documents are required:
Note: PITI= Mortgage Principal + Interest + Property Tax + Home Insurance + HOA
- Copy of lease agreement
- Proof of collected rent
- A rent schedule and an income operating statement (provided by appraiser)
If the figure is positive, then it will be the net rental income. If it's negative,
it means that you suffer a loss on the rental property. It becomes your monthly
debt, which won't help raise the mortgage loan amount.
22. How do I determine if my visa status is eligible for
Any non-permanent resident alien (NPRA) who is granted the right to live and work
in the United States for a specific purpose and period is eligible to apply for
a mortgage loan. Requirements may vary depending on the lender selected, but most
lenders require applicants to have a valid social security number, satisfactory
Alien Status ID Certification, and to have resided in the U.S during the loan application
process. A NPRA is always required to provide a valid Visa I-94 with classifications
E-1, E-2, G-4, H-1, H-2, H-3, L-1, P-1, R-1, TC-1, TN, approval or pending notice
for I485-Application to Adjust Status, and documentation indicating that you are
allowed residence in the U.S for at least 90 days from the date the loan is funded.
However, a non-resident alien (NRA) who is granted the right to enter the U.S on
a temporary basis, but not authorized to work, including J-1, B-1, F-1 visa holders,
are ineligible for most loans.
23. What does the lender want to know about my employment?
According to Fannie Mae and Freddie Mac, borrowers need to provide two years' worth
of employment history, even if they are unemployed at the time.
- If you have been working for more than two years without a gap in employment, and
recently changed jobs, you will need to work at your new job for at least one month
by the time the loan closes.
- If you are re-entering the workforce with an employment gap of more than 60 days
within the past two years, you will need a minimum of six months at your current
job as well as evidence of a previous employment history.
- If you are self-employed, you must report two years of self-employment on your tax
returns for the lender to qualify this income.
- For students who have recently graduated or interns who have recently become full-time
employees, only one month at your current job is required before applying for a
24. What is a "super conforming" loan?
A super conforming loan is considered a conforming loan, though its interest rate
is slightly higher than loans with an amount lower than $417,000. The limit varies
for different counties. Here we list some loan limits for your reference:
- Anne Arundel: $494,500.00
- Baltimore: $494,500.00
- Baltimore (city): $494,500.00
- Carroll: $494,500.00
- Frederick: $625,500.00
- Harford: $494,500.00
- Prince George's: $625,500.00
- St. Mary's: $417,000.00
- Washington: $417,000.00
- Alexandria: $625,500.00
- Arlington: $625,500.00
- Carroll: $417,000.00
- Chesapeake: $458,850.00
- Fairfax: $625,500.00
- Fairfax (city): $625,500.00
- Falls Church: $625,500.00
- Frederick: $417,000.00
- Hampton: $458,850.00
- Hanover: $535,900.00
- Richmond: $417,000.00
- York: $458,850.00
Any loan amount that is higher than the limits provided here will be considered
as a "jumbo loan." Typically, your local bank will provide a better interest rate
for a jumbo loan.
25. What is the lender's requirement for my bank statement?
Typically, a lender will require one month's (30 days) bank statement with all pages
provided. Each large deposit (larger than $1,000) must be explained and sourced.
For a purchase transaction, the account you use to pay your earnest money deposit
(EMD) will need to be provided as well.
26. What is the difference between the signing date and
funding date of my loan? When is my first payment due?
For primary refinancing loans in MD and VA, there is a three-day recession period
between the signing date and funding date. After you sign the closing documents,
the fund will be released to the title company after three days. For all purchase
and investment refinancing transactions in MD and VA, the funding date is the same
as signing date, which means the title company will receive the fund from the lender
on the same date.
Your first payment will be due one month after your closing (e.g., if you closed
in December, your first payment will be due February 1. If you closed in January,
your first payment will be due March 1). If you close your loan within the first
five days of the month, there will be an interest credit back to you, and your payment
will be due the following month (e.g., if you close on December 1, the lender will
credit one day's interest back to you and your next payment will be due January
27. How to calculate the value of the house you can afford?
Having their own house is one of the main goals for numerous Chinese people in the
United States. However, not many people know the price range that they should look
for based on their income level. When choosing this range, the amount of the mortgage
loan and down payment that a borrower can take are important considerations. Based
on the income and the liability of a borrower, a bank determines the highest mortgage
loan amount that they can lend.
Banks will use two ratios to determine the maximum amount of monthly payment:
The first ratio is called a front-end-ratio, and is calculated by mortgage monthly
payment divided by monthly gross income. Mortgage monthly payment includes the principal,
interest, property tax, and hazard insurance each month. In general, the mortgage
monthly payment cannot exceed 38% of the household gross income.
The second ratio is called back-end-ratio, and is calculated by all monthly fixed
liability over household gross income. The monthly fixed liability consists of monthly
mortgage payments and other monthly payments such as auto loans, credit card payments,
and personal loans. Generally, back-end-ratio cannot be greater than 45%.
Let's compare the two ratios:
Assume the property value is $500,000, loan amount is $400,000, 30 years fixed rate
as 3.250%, monthly mortgage payment is $1740.83, property tax is $390/month, hazard
insurance is $50/month, borrower's monthly gross income is $6700, and the total
of other liabilities is $700.
Front-end-ratio = (1740.83+390+50) / 6700 = 32.55%
Back-end-ratio = (1740.83+390+50+700) / 6700 = 42.99%
You can calculate the highest amount of mortgage loan available to you using Prequalification
The amount of mortgage loan that one should apply also depends on his/her consumption
habit and other expenses.
28. How to Maintain a Good Credit Score?
Our clients come to us with questions about credit scores on a regular basis. While
we don't provide credit counseling, we would like to share some credit score information
with you, based on our experience in the loan industry.
Typically, a lender will use the middle score from the three major credit bureaus,
Equifax, Experian and TransUnion, when evaluating you for a loan. These three companies
collect information about your credit history over time, including mortgage, car
or student loan payments, and credit card payments. Each bureau assembles this information
into a credit report and assigns you a score based on your overall use of credit.
Below, we've listed some factors that can influence your score:
1. Balance-to-Limit Ratio
Generally, you will find three types of accounts on your credit report: mortgage,
installment and revolving accounts. Installment accounts are paid off over time,
usually on a monthly basis. Student and auto loans are examples of installment accounts,
while credit card activity is separated into revolving accounts.
If you have a credit card, you have a Balance-to-Limit ratio. This ratio applies
only to revolving accounts, and it can have a significant impact on your credit
score. The three credit bureaus calculate the Balance-to-Limit ratio by taking the
amount of your outstanding debt and dividing it by the amount of your available
credit. Keeping this ratio at or below 40% is one way to maintain an excellent credit
score. This ratio is especially important when you are applying for a loan.
2. Late Payments
Having any late payments on your credit report will be detrimental to your score.
Once a payment is 30 days late, a creditor can send that information to the credit
bureaus. Late payments are displayed in increments of 30 (i.e., past due 30 days,
60 days, 90 days, and so on). The foreclosure process starts when your payment is
90-120 days past due, similar to the repossession of a car or the collection process
for a credit card. Generally, late mortgage payments are more detrimental to your
report than a late installment payment, and a late installment payment is more detrimental
than a late credit card payment. However, it's important to take all payments seriously,
as late payments can significantly lower your score, and will remain on your credit
report for up to 7 years. Even if your credit report already contains late payments,
your score will improve with time as long as no new late payments are reported by
a creditor. For example, a late payment dated April 2010 will impact your score
less significantly than a more recent late payment which is dated April 2012.
If you have neglected to make payments on one of your accounts for a long period
of time (normally at least three months), the transaction could be submitted to
a collection agency. The agency will then send you a letter to confirm that the
debt belongs to you. Unless you provide evidence which proves that you are not responsible
for the debt, the collection process will begin. Collection activity has a hugely
adverse impact on a credit score. If your collection activity is very recent, it
could lower your credit score by hundreds of points. In this case, you might think
that paying off your debt would solve the problem. Unfortunately, a paid collection
is still a collection. If an unpaid collection lowers your score by 100 points,
a paid collection may still lower your score by 70.
In order to maintain a good credit score, you will need to respond to any collection
letter you receive as soon as possible. If you are able to solve the problem within
30 days after you receive the letter, that particular collection activity will not
be allowed on your credit report.
4. Public Records
Public records may include judgments, tax liens and any bankruptcy history. Judgments
stay on your credit report for up to 7 years, while tax liens and bankruptcy information
can stay on your report for up to 10 years. Sometimes, a federal tax lien may be
permanent. Any of these records will have a seriously adverse impact on your credit
score, and you should take all measures to avoid them.
Every time a party pulls your credit report, it counts as one "inquiry." In other
words, the credit system will see it as a sign of you applying for a new account.
While applying for credit can be a good idea, too many inquiries within a short
period of time can adversely impact your score. To maintain a strong credit score,
you should avoid applying for credit unless it is absolutely necessary. However,
if you request a copy of your credit report for personal use, or if it's pulled
for a promotion by a credit card company, your credit score will not be affected.
6. Payment History
From the moment your first credit card is approved, you begin building your credit
history. Your social security number may have existed long before you got your first
credit card, but without any trade line (credit card, car loan or mortgage), you
will not have a credit score. A long history of payments is beneficial to your score.
However, don't be worried if you're just starting to build credit. Some of our clients
only have a one or two year payment history, and still have good credit scores.
When applying for your first credit card, it might be easier to get a student card
or a "secured" credit card. Another option is to get a card through the bank where
you have your checking or savings accounts.
As a side note, we would like to debunk a common misconception that keeping a balance
on your credit card is better for your score. This is untrue – it's always better
to pay your credit card balance in full, whenever possible.
It's rare that a person will be able to reach the maximum credit score of 850. In
theory, a person would be able to reach this number by making payments on one or
two credit cards with large limits on a monthly basis, having few or no inquiries
in recent years, no public records, and by having a long payment history. Luckily,
having a score that high isn't important or necessary. Normally, any score above
740 will be considered excellent, and you can easily reach this score by making
your payments on time and by following the other guidelines we've listed above.
Everyone in the states have the right to get a free copy of your credit file disclosure,
once every 12 months, from each of the nationwide consumer credit reporting companies,
Equifax, Experian and TransUnion. Unfortunately this report won't have credit score
and you have to pay extra dollar to get your score. But based on the information
above, you could estimate your score by using the credit report.
To order your free annual credit report