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Nicolas Romo |
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(714)
231-3772 |
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Lic.
# 01787685 |
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Hablo Español |
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| Frequently Asked Real Estate
and Mortgage Questions |
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How do I know how much house I can afford? |
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Generally speaking, you can
buy a home with a value of 2 or 3 times your
annual household income. However, the amount
that you can borrow will also depend upon
your employment history, credit history,
current savings and debts, and the amount of
down payment you are willing and capable of
making. You may also be able to take
advantage of special loan programs for first
time buyers, such as FHA and VA loans, to
purchase a home with a higher value. |
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What is Private Mortgage Insurance (PMI)? |
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Private
mortgage insurance is normally required when
you buy a home with less than 20% down
payment. Mortgage insurance is a type of
guarantee that helps protect banks against
the high expenses of foreclosure. This
insurance protection is provided by private
mortgage insurance companies to protect the
lender. It provides banks the flexibility to
offer loans with lower down payments from
borrowers. In effect, mortgage insurance
pays the lender a certain percentage of your
original purchase price to cover a lender's
losses in the unfortunate event of
foreclosure. Therefore, to completely avoid
paying a mortgage insurance premium, you
would need to make a 20% down payment in
order to buy a home |
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The cost
of PMI increases as your down payment
decreases. For example, the cost on a 15%
down payment is less than the cost on a 10%
down payment. The PMI premium is typically
added to your monthly mortgage payment. |
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Cancelling your PMI: |
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Federal
law requires PMI to be cancelled under
certain circumstances, and Fannie Mae
guidelines provide for cancellation of PMI
in additional situations if the loan is
owned by Fannie Mae. In general, PMI for a
loan originated on or after July 29, 1999,
which is secured by the borrower's
one-family principal residence or second
home will be cancelled at the borrower's
request when the loan-to-value ratio (LTV)
reaches 80% based on the value of the home
at loan origination. In order to cancel PMI
under the rules of July 29, 1999, the
borrower must have a good payment history
and the property value must not have
depreciated. |
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PMI on
mortgages owned by Fannie Mae can also be
cancelled at the borrower's request when the
LTV reaches 75 percent based on the current
value of the home as established by a new
appraisal, provided that the borrower has a
good payment history and that the loan is at
least 2 years old. |
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If the
borrower does not request PMI cancellation,
the PMI servicer must automatically cancel
PMI on these loans when the LTV is scheduled
to reach 78 percent, based on the value of
the home at loan origination, provided that
the loan is current at that time. For loans
originated before July 29, 1999, which are
secured by the borrower's principal
residence or second home and that are owned
by Fannie Mae, PMI will generally be
cancelled at the midpoint of the loan term,
provided that payments at that time are on
time. |
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What is the difference between a fixed-rate loan &
an adjustable-rate mortgage(ARM)? |
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With a
fixed-rate mortgage, the interest rate
remains the same during the lifetime of the
loan. With an adjustable-rate mortgage, the
interest changes periodically, typically in
relationship to an index. While the monthly
payments that you make with a fixed-rate
mortgage are relatively stable, payments on
an ARM loan will likely change. There are
advantages and disadvantages to each type of
mortgage, and the best way to select a loan
product is by consulting with a qualified
home loan consultant. |
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How is an index and margin used in an ARM? |
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An index
is an economic indicator that banks use to
set the interest rate for adjustable rate
mortgages. Generally, the interest rate that
you pay is a combination of the index rate
and a pre-specified margin. Three commonly
used indices are the 1-Year Treasury Bill,
the Cost of Funds of the 11th District
Federal Home Loan Bank (COFI), and the
London Inter Bank Offering Rate (LIBOR). |
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What are the differences between being pre-qualified
and pre-approved? |
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Pre-qualification is usually determined by a
home loan consultant. After interviewing
you, the loan officer determines the
potential loan amount for which you may be
approved. The loan officer does not issue
loan approval; therefore, pre-qualification
is not a commitment to lend. After the loan
officer determines that you pre-qualify,
he/she then issues a pre-qualification
letter. The pre-qualification letter is used
when you make an offer on a property. The
pre-qualification letter informs the seller
that your financial situation has been
reviewed by a professional, and you will
likely be approved for a loan to purchase
the home. |
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Pre-approval is a step above
pre-qualification. Pre-approval involves
verifying your credit, down payment,
employment history, etc. Your loan
application is submitted to a lender's
underwriter, and a decision is made
regarding your loan application. When your
loan is pre-approved, you receive a
pre-approval certificate. Getting your loan
pre-approved allows you to close very
quickly when you do find a home. This can
also help you negotiate a better price, etc.
with the seller. |
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How do I know which type of mortgage is best suite
for my situation? |
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Unfortunately, there is no easy formula to
help you determine the type of mortgage that
is best suited for you. Making this choice
depends on a number of factors, including
your current financial situation and how
long you plan to keep your home. Your home
loan consultant can help you evaluate your
choices and assist you with making the most
appropriate decision based on your unique
circumstances. |
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What
does my mortgage payment include? |
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How much money will I need to buy my home? |
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Is a home
inspection necessary? |
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Although
a home inspection is not required, you, as
the buyer, should definitely consider having
one done by a licensed and qualified home
inspector, which you should attend if you
can. A home inspection is meant to help you
discover the true condition of the home you
are about to buy. The inspector will usually
uncover conditions that would normally have
been missed by most borrowers who “inspect”
the home on their own. Doing this will help
you negotiate better with the seller,
especially if you learn about conditions
that you were not aware of. However, sellers
are not obligated to make any requested
repairs although most will. Sometimes,
instead of making the necessary repairs,
sellers will, at times, simply lower the
price of the home to make up for the
repairs. An inspection normally costs a few
hundred dollars and takes about 2 hours or
so, depending, of course, on the condition
and size of the home in question. |
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What is an Annual Percentage Rate (A.P.R.)? |
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The
annual percentage rate (A.P.R.) is an
interest rate that is different from the
note rate (normally it is higher than the
note rate since it takes into consideration
most of the costs of securing a mortgage).
The A.P.R. is commonly utilized to compare
loan programs from different banks.
Basically, you want to go with the bank that
has the lowest A.P.R.. The Federal Truth in
Lending law requires mortgage companies to
disclose the A.P.R. when they advertise a
note rate. Typically, the A.P.R. is found
next to the note rate. For example: |
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20 Year Fixed |
7 % |
1 Point |
7.190% APR |
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The A.P.R.
does not affect your monthly payments. Your
monthly payment is a result of the interest
rate & the length of the mortgage. |
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The A.P.R.
is a very perplexing figure even to many
mortgage bankers and brokers who admit it is
confusing to them. The A.P.R. is meant to
measure the true cost of a loan. It creates
a level playing field for banks.
Fortunately, it prevents banks from
advertising a low interest rate & hiding any
fees. |
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Ideally,
a borrower should be able to compare A.P.R.s
from several banks and then choose the
lender who is offering the lowest A.P.R.. |
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Sadly, it
is not that easy. Several banks calculate
A.P.R.s differently. A loan with a lower
A.P.R. may not be the best choice. A good
way to compare different banks is to ask
them to provide a Good Faith Estimate (GFE)
of the closing costs. Please make sure you
compare the same loan program (i.e. 30-year
fixed), interest rate and rate-lock period.
You can ignore fees that are independent of
the loan, such as attorney fees, homeowners
insurance, title fees, escrow fees, and so
on. Pay special attention to loan fees
because the lender with the lowest loan fees
will most likely have the best deal. |
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The
reason that A.P.Rs are confusing is that the
rules to compute the A.P.R. are not clearly
defined. |
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Generally, the following fees are included
in the A.P.R.: |
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Points -
both discount points & origination points |
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Pre-paid
interest which is the interest paid from the
date the loan closes to the end of the
month. Most lenders assume 15 days of
interest in their calculations. However,
lenders may use any number between 1 & 30.
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Loan-processing fee |
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Underwriting fee |
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Document-preparation fee |
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Private
mortgage-insurance |
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The
following fees are sometimes included in the
A.P.R.: |
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Loan-application fee |
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Credit
life insurance (insurance that pays off the
mortgage in the event of a borrowers demise) |
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The
following fees are normally not included in
the A.P.R.: |
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Home-inspection costs |
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Recording
fee |
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Transfer
taxes |
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Credit
report |
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Appraisal
cost |
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Title or
abstract fee |
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Escrow
fee |
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Attorney
fee |
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Notary
fee |
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Document
preparation (charged by the closing agent)
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Calculating A.P.R.s on adjustable rate and
balloon loans is even more unclear because
future rates are unknown. The result is even
more confusion about how banks calculate
A.P.R.s. |
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Don’t
attempt to compare a 30-year loan with a
15-year loan using their respective A.P.R.s.
A 15-year loan may have a lower interest
rate, but could have a higher A.P.R., since
the loan fees are amortized/spread over a
shorter period of time. |
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Finally,
due to the reason that many banks use
software programs to compute their A.P.R.s,
they are unsure of what they include in
their A.P.R. It is very possible that the
same lender with the same fees using 2
different software programs may arrive at 2
different A.P.R.s. |
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NOTE: Use the
A.P.R. as a starting point to compare mortgage
loans. The A.P.R. is a result of a complex
calculation and is definitely not clearly defined or
understood. There is no substitute to getting a
good-faith estimate (GFE) from each lender to
compare costs, etc. Remember to ignore those costs
that are independent of the loan. |
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