PERSONAL BANKING – LOANS – HOME
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.
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.
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.
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.
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.
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.
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.
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.
YES! BSV’s experienced staff is available to discuss your refinance needs. Contact any of our branch locations for information about our loan products.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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%.