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Mortgage LOANS Questions / Answers

General Mortgage Questions, answers to home loans.

What should I look for in shopping loan terms among lenders?

What is the difference between a mortgage broker and a mortgage banker?

What is the difference between a Lender and a Servicer?

What is a rate lock?

What is a Balloon Loan?

Why is my interest rate going up but my payment going down?

How is my new interest rate determined?

What is an Adjustable Rate Mortgage?

Mortgage Payment questions

Will I be notified when my loan is sold?

When is my payment considered late?

Can my monthly payment amount change?

What if I want to change or correct any of my personal information, such as my mailing address or social security number?

What can I do if my loan is delinquent or I cannot make a payment

What is the Annual Percentage Rate (A.P.R.) and why is it different than my interest rate?

Why must I pay for title insurance when I refinance since I already have a title policy?

Why is my payoff amount different than my principal balance?

Can I pay extra on my loan?

 

TAXES AND INSURANCE/ESCROW ACCOUNTS

Who is responsible for paying my property taxes and homeowner's insurance?

How do I benefit from an escrow account?

How frequently are property taxes and insurance premiums paid?

When and why do you establish mandatory escrow accounts?

What is an escrow analysis?

Where do I get information regarding property tax exemption?

What type of hazard insurance coverage do you require?

Which insurance carrier may I use?

How long does the insurance policy term need to be?

What happens if I don't provide adequate insurance coverage?

What if I want to change insurance companies?

Can I cancel my mortgage insurance?

What is mortgage insurance?

What steps do I take when my property is damaged?

What is the highest deductible amount you require?

Will you accept a binder in place of a policy?

Will you require a flood insurance policy?

What amount of insurance coverage should I obtain?

How often will I receive an escrow analysis statement?

Why am I charged a fee for not having an escrow account?

Can I close my escrow account at any time?

What items are included in an escrow account?

What is an escrow account?

Will I always make my payments to the original mortgage company who funded my loan?



 
 
What should I look for in shopping loan terms among Mortgage lenders?top
Borrowers are often misled to think that the very lowest rate is the very best deal.

The "best deal" is the one that gives the lowest monthly payment with the least cost.

First, determine what your qualifications are - how much cash do you have for down payment, what is your credit rating, and how much of your income do you want to devote to a mortgage payment? Next, determine what type of loan is best for you - fixed rate or ARM or other.

This decision is often dependent upon your belief of how long you will live in the property or how soon you want to be "mortgage free". Once you know the type of mortgage and mortgage terms, contact several lenders and ask for a detailed analysis for a specific loan type that includes the interest rate and points and whether those terms are guaranteed between application and closing, the total closing costs (including the lender and title company and any third party), and the amount of cash you will be required to bring to closing. You might ask for this analysis on different loan plans if you are unsure which type of financing is best for you. Most lenders will perform most of these analysis services free of charge to you.


 
What is the difference between a mortgage broker and a mortgage banker?top
A mortgage banker is a lender that has the ability to originate, underwrite, close and fund a mortgage loan. A mortgage banker may offer a variety of loan options, but usually makes the underwriting decision, prepares closing documents and funds the mortgage loan utilizing their own staff and their own funds. After the loan is closed and funded, the mortgage banker may sell the loan to an investor in the secondary market or may retain the servicing rights to the loan.

Mortgage bankers are usually approved as lenders for the Federal Housing Administration and the Veterans Administration. A mortgage broker is not a lender but arranges mortgage financing through a third party. A mortgage broker may also offer a variety of loans from a variety of investors however a mortgage broker must rely on the investor they select for the loan to underwrite, close and fund the loan.


 
What is the difference between a Lender and a Servicer?top
Each mortgage loan has two components: the right of the investor to receive the principal and interest repayments due on the Mortgage Note, known as the Mortgage Rights; and, the right to collect the payments for principal and interest along with collecting the payments for taxes and insurance on the mortgage and the obligation to make those payments when they are due, referred to as the Servicing Rights.

The Servicer is the entity that owns the Servicing Rights to a mortgage and is the entity to whom you make your monthly payments.

A Lender originates the mortgage loan and may act as the Investor and the Servicer. Quite often, the Lender will elect to sell the Mortgage Rights to another Investor and to sell the Servicing Rights to a third party. You may have heard of the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). These entities are quasi-government agencies that are the largest investors of mortgage loans in the world. However, neither act as Services. Therefore, it is possible your Lender could sell your Mortgage Rights to Fannie Mae and retain the Servicing Rights themselves without your knowledge. (See: Will I be notified when my loan is sold?)


 
What is a rate lock?top
Lenders will quote mortgage terms to you at the time you make application for a loan. However, most loans will not close until some time after application, 30 days on the average.

Mortgage Loan terms can change drastically over a 30-day period, depending on what happens in the markets. When a lender quotes loan terms to you, if the lender guarantees that those terms will not change between application and closing, those terms are considered "locked". It is important to have any rate lock guarantee provided to you by a lender be committed in writing to you including explanations of how those terms could change, if at all.

You should be aware that locked terms usually mean that the rate and points you lock in cannot increase but they also cannot decrease unless the lender specifically offers that option in the written agreement.

Loan terms that are not locked are considered "floating" and are subject to whatever changes are required by the market. Most lenders will not offer a rate lock to you until you make formal application to purchase or refinance a particular property. Some lenders may require payment of a fee to lock your loan terms.


 
Will I be notified when my loan is sold?top
When your mortgage is sold, you will receive a letter from your mortgage lender notifying you of the sale of your mortgage and when your first payment will be due to the investor. You will also receive a letter from the investor that will include information about making payments to them, contact information and either payment coupons or a monthly billing statement.

 
When is my Home loan payment considered late?top
The due date of your monthly payment is reflected in your loan documents and on your payment coupons. Your payment should be mailed in time to be received by us on or before your due date. Any payment received more than fifteen days after the due date will be assessed a late charge.

 
Can my monthly payment amount change?top
Yes, your monthly payment amount could change for the following reasons:

Annual Escrow Analysis - At least once a year, we will analyze your escrow account, and adjust the portion of your monthly payment we collect for real estate taxes, insurance, and other escrow items. Your new monthly payment amount shown on the analysis will typically be effective on the anniversary of your first payment due date.

ARM Adjustments - If you have an adjustable rate loan, both the interest rate and principal and interest portion of your payment will change on a regular basis. To determine when your new principal and interest payment will become effective, please refer to your loan agreement. If you have an escrow account, the escrow portion of your payment will change also.


 
What if I want to change or correct any of my personal information, such as my mailing address or social security number?top
You may use the back of your billing coupon to correct your personal information.

 
What can I do if my loan is delinquent or I cannot make a paymenttop
Contact the Lender and ask to be connected to the Collections Department to discuss your financial situation. Their representative will counsel you on ways to avoid foreclosure. It is always best to notify the Lender if you are late on a payment.

 
What is the Annual Percentage Rate (A.P.R.) and why is it different than my interest rate?top
The Annual Percentage Rateis a calculation of the total cost of financing expressed as a percentage. Included in the calculation are the interest rate, any points you pay (whether origination or discount) and any fees you pay either to the lender or to a third party as a requirement of the loan.

Typically fees you pay are included if the fee would not have been incurred had you paid cash for the home. This disclosure requirement was established by the Federal Truth-in-Lending law to provide consumers a tool to compare the cost of lending between lenders. Unfortunately, the law is subject to interpretation by lenders as to what fees should be included in the calculation and, therefore it is not a perfect tool for comparison.

The Annual Percentage Rate has no effect on the monthly payment you will make on your mortgage.


 
Why must I pay for title insurance when I refinance since I already have a title policy?top
Title insurance protects the new lender (even if the new lender is the same as the current lender) against any claims against your title since the last policy was issued.

These claims could come from contractors that performed work on your home, other lenders claiming a lien against your property, encroachments to property lines or easements from improvements made by you or a neighbor, etc. In most cases when you refinance, your existing mortgage is paid off and a complete new loan is created. Since the existing lien is being paid, the new lender wants assurance that their lien will be in first position.

Some states offer an abbreviated form of title insurance or a discount on the cost of a policy depending on when the last policy was issued. FHA MORTGAGE INSURANCE

 


 
Why is my payoff amount different than my principal balance?top
Interest on a mortgage loan is paid in arrears, meaning the current month’s payment is paying the prior month’s interest.

When you close on a mortgage loan, you prepay at closing the interest due from the date of the closing until the first day of the following month and typically will not make a mortgage payment until the first day of the next month.

For example, you close on January 15 and pay interest at closing from January 15 through January 31, and the first payment due on the mortgage is March 1. When you pay the March payment, you are paying interest due for February.

The principal balance on your mortgage is the balance as of the last payment made.

The payoff will include the principle balance plus any interest due since the last payment was made.


 
Can I pay extra on my loan?top
Yes. As long as your loan is current, the lender will apply additional funds to the principal balance of your loan. Your payment coupon or billing statement will provide an option for paying more than the amount due. You must note that the additional amount is to be applied to principal.

 
Who is responsible for paying my property taxes and homeowner's insurance?top
You, as the borrower, have the responsibility to pay your property taxes, insurance or other assessments on your property.

If an escrow account has been established for some or all of these items, then you are responsible for making timely payments to the escrow account which is included with your monthly payment and the Lender will make the tax and insurance payments when due.


15.
How do I benefit from an escrow account?top
Instead of having to come up with a large sum to pay for property taxes or homeowners insurance as they become due, an escrow account provides a convenient way to accumulate these funds through monthly installments. In most cases, your property tax collector or insurance agent will bill the Lender directly, relieving you of the burden of keeping track of these bills.

 
How frequently are property taxes and insurance premiums paid?top
Property taxes are paid on a quarterly, semi-annual or annual basis as required by the local tax collector. Taxes are paid from escrow when bills are received from the taxing authorities and based on the due date of the tax collector.

If you have an escrow account for insurance, we will pay for the entire term in a single payment. If your policy is continuous until cancelled, we will pay the premium once a year. If you do not have an escrow account for insurance, please contact your insurance agent to determine your payment options.


 
When and why do you establish mandatory escrow accounts?top
Lenders expect borrowers who do not have escrow accounts to pay their taxes, insurance and other assessments when due. When these items are not paid timely, the lender’s security interest in the property may be at risk, and the lender may pay these delinquent amounts.

The lender may also establish an escrow account to be repaid, and to accumulate funds for future payment of these items. The FHA and VA require that all loans insured or guaranteed by them have an escrow account and it cannot be closed. At the time your loan was closed, we may have offered you the option to waive establishing an escrow account if you make a down payment of 20% or more. A fee is required for waiving the escrow account.


 
What is an escrow analysis?top
It is the periodic review of your escrow account to determine if the current escrow account balance and monthly escrow payments will be enough to pay taxes, insurance, and other bills when due. Adjustments to your required monthly escrow payment will result from this analysis.
 
 
What is a Balloon Loan?top
A balloon loan is usually a five or seven year loan calling for payments which are insufficient to fully amortize the amount of the loan before the maturity date. This creates a principal sum, known as a balloon payment, which is due at maturity.

 
Why is my interest rate going up but my payment going down?top
If you have remitted extra money in addition to your regular payment, you will have lowered your principal balance ahead of the normal amortization. At your interest rate change cycle, we will determine your new payment amount by using your current principal balance, new interest rate and remaining term. If you have remitted enough extra money, it is possible to lower your payment even though your interest rate increases.

 
How is my new interest rate determined?top
Most Adjustable Rate Mortgagesrequire that an index be taken on a specific date, then a margin is added to the index and the result is rounded to determine the new interest rate.

 
What is an Adjustable Rate Mortgage?top
An Adjustable Rate Mortgage (ARM) is a loan under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to in the Adjustable Rate Note signed by the homeowner.

 
Where do I get information regarding property tax exemption?top
Please contact your local Office of the Assessor-Recorder office for further information on exemptions and other property tax assistance programs that are available in your area. I received my property tax bill. What should I do with it? If your loan is escrowed for property taxes, please write your loan number on the tax bill and forward it to the Customer Service office of the Lender to whom you are making payments.

 A homeowner's area is a region where taxing agencies release the tax bills to homeowners only. If you are in a homeowner's area, it is important that you forward these bills to the Lender at least 15 days prior to the delinquency date to ensure timely payment.


 
What type of hazard insurance coverage do you require?top
We require insurance against losses caused by perils covered under an All Risk Policy, or a Standard Fire Policy with Special Form Endorsement.

Special Form is added to a fire policy to provide coverage for all risks, subject to stated exclusions and limitations. A windstorm exclusion is not allowed. An exclusion for windstorm, hail or hurricane is not acceptable, unless you are able to obtain a separate policy to cover the peril that was excluded from your primary insurance policy.


 
Which insurance carrier may I use?top
You may choose any insurance carrier that is rated a B+/IV or better in Best's Insurance Guide and licensed or otherwise authorized by law to issue insurance where your property is located. We will also accept policies insured by Lloyds. To determine an insurance carrier's rating, use A.M. Bests Rating Analysis, or ask your insurance agent.

 
How long does the insurance policy term need to be?top
The policy term must be a minimum of six months or must state that it is continuous until cancelled. Most policies have a term of 12 months.

 
What happens if I don't provide adequate insurance coverage?top
A mortgagee clause is an acknowledgment by your insurance company of the interest your lender has in the insurance policy. We require a standard mortgagee clause on all insurance policies. Please give your insurance agent your Network Funding Mortgage loan number and the following information for the mortgagee clause:

 
What if I want to change insurance companies?top
You may choose to change insurance companies at any time, but the procedure you follow will depend on whether you make this change mid-term (before the current policy expires), or when your current policy is up for renewal. Prior to changing carriers, contact the lender’s Customer Service department for instructions. As a rule, the following will apply if you pay for insurance through the escrow account: ·

Changing Mid-term - If the lender collects funds through escrow for your insurance and has already paid the premium for your current policy, the lender will not have funds to pay the new policy. In this situation, you must pay the premium for the new policy yourself and send the lender a copy of the new policy along with a paid receipt so we may update our system. You should also cancel the old insurance policy, and request a refund of any unused premium. When changing insurance companies, the effective date of the new policy must be the same as the cancellation date of the old policy, so there is no lapse in coverage.

Changing At Renewal - If the lender collects funds through escrow for your insurance and you wish to change insurance companies at the time your current policy comes up for renewal, the lender will pay the premium for the new policy from funds currently held in your escrow account. However, you must contact Customer Service at least one month prior to the renewal date to advise that you are changing companies, so the lender will not pay the renewal premium for your old policy. You must also make sure your agent sends the lender the premium billing for the new policy before the old policy expires.

When changing insurance companies, the effective date of the new policy must be the same as the expiration date of the old policy, so there is no lapse in coverage. If you pay your insurance direct and not through escrow, you may change carriers anytime and provide the lender with evidence of the revised insurance. Be sure the agent shows the Mortgagee Clause for the lender on the new policy.


 
Can I cancel my mortgage insurance?top

If you have an FHA loan:


Mandatory Cancellation - For FHA loans closed on or after January 1, 2001, FHA is required to cancel the monthly mortgage insurance premium after the principal balance, excluding any up-front mortgage insurance premium financed in the loan, reaches 78% of the lower of the initial sales price or appraised value based on the initial amortization schedule. This mandatory cancellation applies to most FHA loans but does not include loans on condominiums or FHA 203(k) rehabilitation loans.

Borrower Initiated Cancellation - Borrowers may request through the lender that FHA cancel the monthly mortgage insurance premium if the unpaid principal balance reaches 78% of the initial sales price or appraised value sooner than projected due to additional payments of principal made by the borrower. Increases in property value do not apply to this calculation. To be eligible, you must not have been more than 30-days late on a payment in the last 12 months. You must contact the lender to request this cancellation.

If you have a conventional loan:

Mandatory Cancellation - Most conventional loans will require that the monthly mortgage insurance be cancelled when your loan balance reaches 78% of the original value of your property as determined at time of closing. You should receive at closing and a notice from your lender of the date this balance is expected to be reached.

Borrower Requested Cancellation - You have the right to request of the lender that mortgage insurance be cancelled either at the date the principal balance is scheduled to reach 80% of the original value of the property as determined at closing or as of the date the principal balance actually reaches 80% of the value of the property. To be eligible for the lender to consider this request, the following conditions must be satisfied:
· You make a written request to the lender for cancellation.
· You have not been 60-days late on a mortgage payment in the last 2 years or 30-days late in the last 12 months.
· You are current on payments
· You provide at your expense, evidence satisfactory to the lender of the current value of the property establishing the 80% value

 

 
What is mortgage insurance?top
Mortgage insurance protects the lender and investor, or owner of the loan, against loss if the borrower defaults in their repayment of the loan.

This type of insurance is typically required on conventional loans with a down payment of less than 20 percent. Without the added protection of mortgage insurance, most lenders would not be willing to make loans to borrowers with small down payments or would require higher interest rates to offset their risks. Any premiums collected for the payment of mortgage insurance on your loan are remitted to the company or agency providing the insurance coverage.

Mortgage insurance is paid as part of your monthly payment or is financed in the loan amount or both. On FHA loans, mortgage insurance is provided by the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development. On Veterans Administration (VA) loans, the insurance is provided by the U.S. government in the form of a loan guarantee based on the veteran’s entitlement. No mortgage insurance is required, but a one-time VA Funding Fee is added to the loan amount. The mortgage insurance on conventional loans is typically referred to as PMI, or Private Mortgage Insurance.

This type of mortgage insurance coverage is provided by private companies. As stated above, both PMI and FHA Mortgage Insurance protect the investor who owns the loan in the event of a default on the loan. These types of mortgage insurance do not pay off the loan on your behalf if something should happen to you.


 
What steps do I take when my property is damaged?top
First, we suggest you contact your insurance agent immediately and file a claim. You should also contact the Customer Service department of the Lender to notify them of the damages.

As a general rule, proceeds for claims totaling more than $5,000 will be held by the Lender in a restricted escrow account and disbursed in progress payments as the repairs are completed. Please note that claim settlement checks include the lender as a payee. The lender must endorse these checks before you negotiate them.


 
What is the highest deductible amount you require?top
We will accept the lower of:

· $1,000, or · 1% of the amount of coverage If the insurance for your entire building is paid through your homeowner's association, then the highest deductible amount we will accept is 1% of the amount of coverage.


 
Will you accept a binder in place of a policy?top
Yes. When you apply for insurance, you may receive a binder while your application is being reviewed. A binder is acceptable for up to ninety days from the date it was issued, unless the binder states a shorter term. The original policy must be sent to our office when issued. A second binder will not be accepted.

 
Will you require a flood insurance policy?top
We require flood insurance for properties located in a Special Flood Hazard Area (SFHA) as shown on maps published by the Federal Emergency Management Agency (FEMA).

FEMA produces maps, called Flood Insurance Rate Maps (FIRM) depicting flood hazards across the United States. By law, we must require the purchase of flood insurance for mortgages on buildings shown in the flood zones on these maps. From time to time, revisions to these maps are made by FEMA and our requirements are adjusted accordingly.

This means that if your property was not in a designated flood area but is now in a designated flood area, then we will require you to maintain a flood insurance policy. On the other hand, if your property was in a flood area and is now no longer in a flood area, then we would no longer require you to maintain a flood insurance policy.


 
What amount of insurance coverage should I obtain?top
We recommend you obtain coverage equal to the replacement cost of the structures and improvements on your property.

The minimum amount of coverage we will accept is the lower of: · The replacement cost, or · The remaining principal balance on your loan. If your property is located in Alaska, Hawaii, Massachusetts, Mississippi, or Washington state, we will also accept coverage that is at least equal to the fair value of the property (replacement cost less depreciation).

Flood insurance requirements are the same as for hazard/homeowners insurance, except that we will never require more than the maximum amount of flood insurance available through the National Flood Insurance Program (NFIP).


 
How often will I receive an escrow analysis statement?top
At least once every twelve months (unless your account is delinquent or you have filed for bankruptcy), the Lender will send you an escrow analysis statement.

If your loan is sold to a new investor, an escrow analysis is usually done at the time of the sale. (See: How can my mortgage payments change?)


 
Why am I charged a fee for not having an escrow account?top
Even though you may be given the option to pay your taxes and insurance direct, the lender will continue to have the responsibility to monitor that insurance coverage remains in place and that you pay your taxes when they are due. If you fail to maintain insurance coverage and your home is damaged, the collateral for the mortgage could be affected.

If you fail to pay your taxes when due, a lien could be placed on your property that is superior to the mortgage lien. When the lender collects those items as part of your monthly payment, the lender is assured that timely payment and coverage will be maintained. When you pay your taxes and insurance direct, the lender will require a fee to compensate for the monitoring required and the additional risk associated.


 
Can I close my escrow account at any time?top
You may request a cancellation of the escrow account from the Lender if your loan is a conventional loan. You may be assessed a fee to process the cancellation.

The approval from the Lender to cancel the escrow account will be based on such items as the amount of equity in your property and your mortgage payment history.


 
What items are included in an escrow account?top
When establishing an escrow account, we can usually include any or all of the following:


·  Regular Property Taxes, Liens and Assessments
·  Hazard/Homeowner's Insurance
·  Flood Insurance
·  Regular Property Taxes, Liens and Assessments
·  Hazard/Homeowner's Insurance
·  Windstorm, Hail or Hurricane Insurance
·  Private Mortgage Insurance (PMI)

 


 
What is an escrow account?top
It is an account we open, into which you make monthly payments for property taxes, insurance, or other assessments. We pay these items from the escrow account as they become due.

An escrow account is sometimes known as an "impound account". The portion of your monthly mortgage payment that is deposited to the escrow account is called the escrow payment.


 
Will I always make my payments to the original mortgage company who funded my loan?top
Most mortgage lenderssell either the entire mortgage loan or the mortgage servicing rights during the term of the loan. The mortgage servicing rights include the collection of monthly payments from you, the payment of principal and interest to the Note Holder, and the management of the escrow account for payment of taxes and insurance when they become due. The company that holds the mortgage servicing rights to your loan is called the Servicer.

The Servicer may or may not be the company that also owns the mortgage loan itself. For example, you may have heard of Fannie Mae or Freddie Mac. These are quasi-government agencies that purchase mortgage loans from lenders but do not service mortgage loans. Therefore, your mortgage loan may be sold to Fannie Mae but the servicing rights sold to XYZ Company and you would make your payments to XYZ Company as the Servicer.

Mortgage Companies usually sell mortgage loans originated by our branches to various investors in the United States. The sale of your mortgage may occur before the first payment is due or after you have made one or more payments.


 

 

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