How do I know which type of mortgage rate is best for me?
There isn't a simple answer to this question. The right type of mortgage rate 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 home
- How comfortable you are with your mortgage payment changed from time to time
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What is Private Mortgage Insurance?
Private Mortgage Insurance is a type of guaranty that helps protect lenders against a loss due to foreclosure. This insurance protection is provided by private mortgage insurance companies. It allows lenders to accept lower down payments than you would normally be allowed. In effect, it substitutes for the borrower's equity that would be available to cover a lender's losses in the unfortunate event of foreclosure.
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If I have a good credit rating and meet the required monthly mortgage payments, am I obligated to have private mortgage insurance?
Even when you have an excellent credit record and the capability to meet mortgage payments, lenders require private mortgage insurance as a matter of policy for any loan with a down payment of less than 20%.
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How small can my down payment be?
Private mortgage insurance makes it possible for you to obtain a mortgage with a down payment as low as 3 to 5 percent. Such mortgages are increasingly in demand in today's home market because potential homeowners, especially first-time homebuyers, are not able to accumulate the 20 percent down payment that would be required without insurance.
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How are rates determined?
Rates are determined by the secondary market and other financial indicators. These rates can change daily or even more than once within the same day. The changes are based on may different economic indicators in the financial markets.
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What is the difference between APR and interest rate?
The APR (annual percentage rate) reflects the cost of your mortgage loan as a yearly rate. It also incorporates the cost to obtain the loan, such as: discount fees, loan origination fee, prepaid interest, and mortgage insurance, if required. The APR allows you to compare, in addition to the interest rate, the total cost of financing your loan, among various lenders. The interest rate is the actual note rate.
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What is the difference between "locking in" an interest rate and "floating"?
If you are concerned that the interest rates may rise during the time your loan is being processed, you can "lock in" the current rate for a short time, usually 30 or 60 days. When you "lock in" to an interest rate, you are guaranteed that rate for that agreed upon length of time. The benefit is the security of knowing the interest rate is fixed if interest rate should increase. If you are locked in and rate decrease, you will not usually get the benefit of the decrease in interest rates. If you choose to "float", your interest rate will fluctuate with the market and will be subject to both upward and downward trends in the market. The benefit to floating a rate is if interest rates were to decrease you would have the option of locking into a lower rate. Most lenders will allow you to lock in your rate once you have found a property and as late as up to five business days before closing. Rate locks and fees will vary.
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Will there be a fee charged at the time of application?
Yes, typically there is a fee charged at application to cover the cost of the approval and credit report.
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Do I need to fill out an application?
Yes, however, it is very easy to complete an application.
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What documents will typically be requested when I make application for a first mortgage loan?
The information listed on the Borrower's Loan Checklist may be required for your loan application. Please click here to go to the checklist. Print it out and use it as your guide while you are gathering those items so that they are readily accessible while you are applying.
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What is Title Insurance?
Title insurance provides the lender, and the buyer (if you purchase owner's coverage), with coverage for losses resulting from specific title defects listed in the policy. In cases where land and property have changed hands over time, there is always the possibility an error has occurred. If an error has occurred, it's possible that someone else may be in title to or have an interest in the property. It's also possible that improvements encroach on property lines or that other similar problems may exist. In these scenarios, if you do not have title insurance you could lose your investment in your home. Lenders require "lender's coverage" to protect their investment and it only protects the lender. Owner's coverage is optional and provides separate coverage for the borrower.
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Does the lender require title insurance for all transactions?
Yes, a Mortgagee's Title Insurance Policy or Title Guaranty will be required for all mortgage transactions; Purchase and Refinance.
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What homeowner's insurance requirements will I need to meet at closing?
Arrow Financial will require a one-year paid receipt for the homeowner's insurance policy for at least the amount of the mortgage at the loan closing.
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What is the minimum down payment required by a lender in order to eliminate PMI?
Typically, on a primary residence, the minimum that you need to put down to eliminate PMI is 20%.
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How long will I be required to have PMI on my loan?
The Homeowner's Protection Act of 1998 allows borrowers whose loans originated after July 29, 1999, to request cancellation of PMI at 80% loan to value based on amortization or actual payments if the borrower has a good payment history, if the borrower provides evidence the property value has not decreased, and certifies that there are no subordinate liens on the property. Lenders are required to terminate borrower paid PMI at 78% LTV based on the amortization schedule if the loan is current. If none of the above is done, PMI will terminate automatically at the midpoint of the loan term.
For loans originated prior to July 29, 1999, PMI guidelines will vary from lender to lender and can change at any time. Some investors will not allow the cancellation of PMI. Typically, PMI is required on your loan for a minimum of 24 consecutive payments absent any law to the contrary. After that time, if you have 20% or more equity in you property and meet certain other conditions, you may request to have it removed. Typically, there is no guarantee that your PMI will be removed, and most loan investors will require a new appraisal at your expense prior to removing PMI.
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What is an escrow account?
An escrow account is typically established at the time you close your mortgage loan. This account is held by the lender for the future payments of recurring items relating to the mortgaged property, such as real estate taxes and insurance premiums, as they become due. Lenders usually require you to pay an initial amount for each of those items to start the reserve account at the time of closing.
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Are there any limitations on how much lenders can collect from a borrower for the borrower's escrow account?
Lenders and servicers are required to follow the standard set forth in the Real Estate Settlement Procedures Act (RESPA) and applicable state law. RESPA and some states set limits on the amount which can be collected by the lender or servicer to pay for escrow items, such as property taxes and insurance, and place a cap on the amount of the reserve. Reserves are funds that a servicer may require a borrower to pay into an escrow account to cover unanticipated disbursements which will need to be made before the borrower's payment is available in the escrow account. There are limits on the additional amounts that can be collected as reserve.
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Can I have my mortgage payments deducted automatically from my checking or savings account each month?
Typically, after closing your mortgage loan, you will have the option of enrolling in an automatic mortgage payment program. You may be asked to provide an authorization form with a voided check or saving account slip attached to set up the draft. The payment is typically debited on a pre-set day each month.
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