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Are
discount points tax deductible?
In
many cases they are, however, The Bank of Southside Virginia is not
a tax advisor. Therefore, we recommend you contact your tax preparer
or the IRS to obtain a qualified opinion on the deductibility of
discount points.
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What
does Prepaid Interest mean?
Prepaid
interest is typically paid at loan closing. It is the interest paid
on a new loan from the day of closing through the end of the month.
All future interest on a mortgage loan is then paid in arrears. For
example, if your new loan closes on February 19th, prepaid interest
would be paid at closing from February 19th through the end of the
month of February. Interest would then be paid monthly with your
first payment beginning April 1st, which would pay March interest.
Your payment on May 1st would pay April interest, etc.
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Why
is the Annual Percentage Rate (APR) on the Truth in Lending
Disclosure higher than the rate shown on my note, which is the rate
I thought I chose?
All
lenders are required by the Real Estate Settlement and Procedures
Act (RESPA) to show the rate which will be charged on the note
signed at closing, including the total cost to obtain the loan. This
includes, but is not limited to, the total interest paid over the
life of the loan, assuming the full term is carried out at the note
rate, plus certain closing costs. Closing costs could include
prepaid interest, Private Mortgage Insurance/FHA Mortgage Insurance
Premium or VA Funding Fee, whichever may be applicable, and various
miscellaneous costs such as an underwriting fee, tax service fee,
etc., as may be charged by the lender. All of these "Finance
Charges" are taken into consideration when calculating the APR
to give a more accurate picture of the total cost of the loan.
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Why
do I have to obtain a new loan when all I want to do is lower my
interest rate?
The
mortgage you currently have involves a series of legal documents,
which in most cases do not provide for a reduction or change of
interest rate. If this is the case, one way to lower your interest
rate is to obtain a new mortgage and pay off the old mortgage. Most
fixed rate mortgage instruments today are like this since the
majority of these mortgages are used to create mortgage-backed bonds
(called either MBS's, PC's or GNMA mortgage-backed securities).
If
your mortgage does contain an option to modify its terms, you may
want to compare the terms of the modification to current refinance
rates and costs before finalizing the modification. In some cases, a
new refinance can be the better (less expensive) option over the
modification.
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What
is the difference between locking or floating my interest rate?
When
the borrower chooses to "lock-in" the interest rate, the
lender takes the risk of interest rates increasing during the period
of time from lock-in to loan closing. The down side is if interest
rates fall, the borrower is locked in at the higher interest rate.
The benefit is the security of knowing the interest rate is locked
in if interest rates should increase.
When
floating the interest rate for any amount of time, the borrower
takes the risk of interest rates increasing during the period from
application to the time of lock-in. The downside to this, of course,
is if interest rates increase during this time, the borrower is
subject to the then current higher interest rates. The benefit would
then be if interest rates went down, the borrower would have the
option of a lower interest rate than if locked in previously.
The
decision of whether to lock-in or not is a personal choice. The
borrower needs to decide just how much risk to take.
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Should
discount points be paid to lower (buy down) an interest rate?
This
question is best answered after careful consideration of your own
personal financial goals. Buying down the interest rate (paying
points on the mortgage - one point is one percent of your mortgage
amount) may not be in your best interest. Here are some reasons why:
Mortgage
interest paid is tax deductible in most cases (seek the advice of an
accountant or the IRS).
The
funds are no longer available to invest, save or use (ie. purchase
an IRA, pay off credit card debt at a higher rate, etc.)
Falling
interest rates can be taken advantage of sooner if discount points
are not paid to buy down the interest rate (the original interest
rate was higher).
In
the past, if a consumer bought down the interest rate and then
refinanced (buying down the rate again), it is possible not enough
time will have elapsed to recover the "buy down" amount
through the reduced monthly payment. This also occurs if the
consumer sells the home before recovering the "buy down"
amount.
Not
only does the amount paid in discount fees ("buy down
amount") need to be recovered, the "time value" of
the money spent or its "present value" also needs to be
recovered. Present value is the income you could have earned or the
satisfaction you could have received through alternative use of your
money. Remember, consider the tax consequences of your ultimate
decision.
Individuals
should do what best fits their own personal situation and goals.
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What
does the origination fee cover?
The
origination fee is the fee lenders charge to cover some of the costs
of making the loan and is calculated by multiplying the total
mortgage loan amount by the percentage shown. This fee is typically
1% or lower but may also be influenced by market conditions or the
type of loan being sought.
BSV’s
allows you to choose what rate and pricing that fits best into your
budget! Contact us to obtain this information. You may be able
to take advantage of a rate with no origination fee.
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How
long does the loan process take?
The
number of days from application to closing can vary from a couple of
weeks to 45 days or more depending on a number of factors. Some of
the factors are loan type, whether an appraisal is needed, title
clearance, etc. Time delays also occur if outside sources or the
borrowers do not promptly provide documents to the lender.
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Can
BSV refinance my current mortgage loan?
YES!
BSV’s experienced staff is available to discuss your refinance
needs between the hours of 8:30 A.M. and 5:00 P.M., Monday through
Friday. Contact us at 804-520-0299 or by email at mortgage@bsvnet.com
for information about BSV’s loan products and competitive interest
rates.
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What
is an escrow account?
When
borrowers make their monthly mortgage payments, they generally also
pay one-twelfth of the anticipated annual amount needed to pay taxes
and insurance premiums. These additional funds are deposited into an
escrow account, until the lender pays the taxes and insurance
premiums as they come due. The borrower benefits for budgeting
reasons because costs are spread through the year rather than as a
lump sum. This method allows the lender greater control in avoiding
tax delinquencies or lapses of hazard insurance coverage on the
property. Mortgage documents often stipulate lenders establish an
escrow account.
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Are
lenders limited in the amount of escrow funds they can collect from
borrowers?
The
Real Estate Settlement Procedures Act (RESPA) sets standards for the
calculation of the amount mortgage lenders require borrowers to
deposit into the escrow account. RESPA limits the initial deposit
into an escrow account to an amount equal to the sum sufficient to
pay taxes, insurance premiums, and other charges on the mortgaged
property for the first payment period, plus a cushion.
An
escrow cushion is an amount of money held in the escrow account to
prevent the account from being overdrawn when increases in
disbursements occur.
On
a monthly basis, mortgage lenders may not require borrowers to pay
more than one-twelfth of the total amount of the estimated annual
taxes, insurance premiums, and other charges, plus an amount
necessary to maintain the allowable cushion.
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Can
I pay my own taxes and insurance?
When
a loan is originated, the mortgage documents specify the escrow
conditions. Lenders are required to establish escrow accounts for
all FHA insured mortgages. This has become a standard practice for
all mortgages, including VA and conventional mortgages. The interest
rates quoted to borrowers are normally based on lenders collecting
escrows. Occasionally on conventional loans, BSV waives the
collection of escrow requirement at closing by collecting a fee to
compensate for the lost value of the escrows. Once an escrow account
is established, it continues for the life of the loan.
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What
do I do if I receive a tax statement?
Many tax authorities
will mail an informational copy of the real estate tax statement to
the homeowner in addition to the mortgage company. BSV does not
require you to mail real estate tax statements to our office for
payment.
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Why
did my mortgage payment amount change?
There
may be several reasons. Some mortgages, such as ARM loans, provide
for periodic adjustments to your principal and interest payment
amount. A second reason for a change may be due to an annual
analysis of your escrow account. In compliance with the Real Estate
Settlement Procedures Act (RESPA), you will receive an Annual Escrow
Disclosure Statement, which shows the adjustment to your escrow
payment based on current tax and insurance amounts.
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What
is an ARM loan?
An
ARM loan is an Adjustable Rate Mortgage. The interest rate on an ARM
loan is adjusted periodically based on the terms of the mortgage
documents. The interest rate is typically based on a common index
published periodically, adjusted by a margin. The margin is an
interest rate charged in addition to the index and typically does
not change over the life of the loan.
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What
benefits do I receive from mortgage insurance?
Prior
to the existence of mortgage insurance, individuals typically could
not purchase a home unless they had a down payment of at least 20%
of the purchase price. Mortgage insurance benefits the mortgage
lender directly by reducing the costs associated with borrower
default. It also benefits consumers by lowering down payments,
thereby allowing more people to achieve homeownership.
FHA
insured mortgages require mortgage insurance premiums (MIP) and
conventional loans with a loan-to-value greater than 80% (and in
some cases even lower percentages) require private mortgage
insurance (PMI).
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How
is interest calculated on a mortgage loan?
Most
mortgages originated today calculate interest in arrears, unlike
consumer loans, which calculate interest to the date of payment
receipt. As an example, when borrowers pay their February mortgage
payments, they are paying the January interest. This method of
calculating interest is based on a 360-day year in which each month
has 30 days.
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My
previous mortgage lender sold my loan to another lender. Does BSV
sell their mortgage loans?
BSV
does sell these types of mortgages and the servicing (the right to
receive mortgage payments and maintain the customer relationship
with the borrower) as a business practice, as do many other lenders.
We plan to sell servicing after the close of your mortgage loan.
In most cases your first mortgage payment will be paid to
another lender. The new lender will contact you with detailed
information about the selling of your loan. However, it is BSV’s
goal to actively originate and assist you with this
sometimes-confusing and exciting process. We view the stability you
will receive from our relationship with you as an important part of
the Premier Service we provide our customers. Trust is
established from long lasting relationships with our customers and
BSV will make one of the most important investments a priority and a
pleasant experience.
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Why
does the title have to be cleared before I can get a mortgage?
When
a lender makes a mortgage loan (other than a home equity loan), the
lender typically requires a first lien position. This means there
can be no other outstanding liens against the property that are
superior to the new mortgage. Liens can result from a variety of
sources, such as home equity loans or lines of credit, child support
judgments, divorce settlements, delinquent taxes, and special
assessments. Most realtors, mortgage companies, title companies, and
escrow companies will assist the seller and/or borrower in clearing
title. The ultimate responsibility, however, lies with the sellers
of the property who are warranting clear title to the buyers. It is
important the buyers receive clear title from the sellers so there
are no future claims against their property ownership rights.
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How
much time will it take to close my loan (sign the loan documents)?
Generally,
the process takes as long or short as the borrower wishes.
Explaining and signing the documents takes approximately 15 to 20
minutes. However, the borrower may choose to sign the documents and
be on his/her way or ask a number of questions and spend more time.
Closings may also vary from closing agent to closing agent.
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How
will I know how much I can qualify for?
A
Loan Officer can work with you to get you qualified BEFORE you look
for a home. Based upon information you present to the Loan Officer
at the loan application, they will determine the approximate amount
of money that you will be allowed to borrow. You will be
"pre-qualified" for that loan amount. By allowing your
Loan Officer to run your credit report and verify your assets and
income, your loan application can be submitted to the underwriter
for a full credit approval. We can help you obtain a complete
written credit approval (subject to an appraisal) before you make an
offer on a home, if you desire.
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What
are income and debt ratios?
The
Income Ratio is your total monthly housing expense divided by your
gross monthly income (before taxes). The Debt Ratio is your total
monthly housing expense PLUS any recurring debts (i.e. monthly
credit card minimum payment, car payments, or other loan payments)
divided by your income. Standard underwriting suggest a maximum
guideline of 28% on the Income Ratio and 36% on the Debt Ratio, but
these ratios can vary based on the loan program, the financial
strength of the borrower and the down payment.
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What
are "Cash Reserves"?
Cash
Reserves are the funds a borrower has remaining after their loan
funds. The normal requirement could be monies equal to 2 months of
the mortgage payment. The amount of Cash Reserves varies by loan
program, but larger reserves are a strong compensating factor.
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How
much money do I need for a down payment and closing costs?
There
are loan programs available that do not require any down payment.
These loan programs have higher interest rates and they may have a
prepayment penalty. For most loans a minimum down payment of 5% is
required plus money for closing costs, which average 3.5%. Some
programs allow the down payment and/or closing costs to be a gift
from a family member. A Loan Officer can advise you about these
different types of loans.
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Can
I qualify for a VA loan?
VA
loans, guaranteed by the Veteran's Administration, are for veterans
who meet a certain criteria. VA loans do not require any down
payment and in some cases the seller may be willing to pay all or
part of the closing costs. This allows the veteran to purchase a
home with little or no money down. To find out if you qualify for a
VA loan, ask your loan officer for an 1880 form for you to complete.
After you have completed this form, take it and your discharge
papers (or DD214) to your local VA office to determine your
eligibility. Active military personnel may also be eligible for a VA
loan.
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What
if I don't have any established credit?
If
you do not have enough established credit, your Loan Officer can
work with you to document alternate credit information. If you have
been renting, we can obtain a rental rating from your landlord as a
way of verifying your payment history. Or, we can contact your
utility companies, phone service, cable companies or car insurance
carrier to obtain a rating on your payment history. Not all loan
programs will accept alternative documentation on your credit. There
are both government and conventional programs that will accept this
type of payment history to establish credit qualifications.
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What
if I have had credit problems in the past or have filed bankruptcy?
Your
credit payment history lets the Lender know your intentions to repay
the loan. Therefore a good credit history is important, but a
perfect credit history is not. Credit counseling agencies specialize
in meeting with clients and reviewing your credit history. If you
have any outstanding credit obligations that need to be dealt with,
the credit agency can work with you and help you make arrangements
to pay any outstanding debts that you may have. First time home
buyers can also attend seminars that will go through the home
purchasing process and requirements with you.
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What
if I am new on my job?
A
new job can work in your favor when you apply for your loan. Loan
program guidelines look for a 2 year job history in the same field,
but a job change for a better position is looked on favorably. If
you are a recent college graduate, you may be able to obtain a loan
even though you don't have a 2 year work history.
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What
does "loan to value" mean?
Loan
to value (LTV) is the loan amount divided by the lesser of the sales
price or appraised value. For example, if you are paying 15% of the
total cost of the home as a down payment, you would only be
borrowing 85% of the total sales price from the lender. Therefore
your LTV would be 85%.
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