906 Bertha Court, Baldwin, NY 11510 • Phone: 516-223-1000 • Fax: 516-223-4455 • E-mail: nomisrealty@nomisrealty.com
300 Old Country Road, Mineola, NY 11501 • Phone: 516-248-9000 • Fax: 516-378-1800
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Mortgage Info / Calculators

     
 

 

 

 

Equal Monthly Payments to Amortize a Loan $1,000

Interest Rate 15 Years 30 Years   Interest Rate 15 Years 30 Years
3 0 6.91 4.22   5 5/8 8.24 5.76
3 1/8 6.97 4.29   5 3/4 8.31 5.84
3 1/4 7.03 4.35   5 7/8 8.38 5.92
3 3/8 7.09 4.42   6 0 8.44 6.00
3 1/2 7.15 4.50   6 1/8 8.51 6.08
3 5/8 7.22 4.57   6 1/4 8.58 6.16
3 3/4 7.28 4.64   6 3/8 8.65 6.24
3 7/8 7.34 4.71   6 1/2 8.72 6.33
4 0 7.4 4.78   6 5/8 8.78 6.41
4 1/8 7.46 4.85   6 3/4 8.85 6.49
4 1/4 7.53 4.92   6 7/8 8.92 6.57
4 3/8 7.59 5.00   7 0 8.99 6.66
4 1/2 7.65 5.07   7 1/8 9.06 6.74
4 5/8 7.72 5.15   7 1/4 9.13 6.83
4 3/4 7.78 5.22   7 3/8 9.20 6.91
4 7/8 7.85 5.30   7 1/2 9.28 7.00
5 0 7.91 5.37   7 5/8 9.35 7.08
5 1/8 7.98 5.45   7 3/4 9.42 7.17
5 1/4 8.04 5.53   7 7/8 9.49 7.26
5 3/8 8.11 5.60   8 0 9.56 7.34
5 1/2 8.18 5.68   8 1/8 9.63 7.42

All figures are from sources deemed to be accurate but are not guaranteed and should be independently verified.

Your Monthly Payment = Mortgage Loan + Property Taxes + Insurance

In order to determine your monthly mortgage payment, multiply the appropriate number from the above chart times the number of thousands in the mortgage loan for which you are applying.  You may also wish to add in the amount of the monthly property taxes (yearly taxes / 12) and the monthly cost of your homeowner’s policy.  Also, if needed, you might also wish to add the monthly cost of flood insurance and private mortgage insurance. 

 

Major Banks Providing Residential Mortgage Loans

Thomas Drew
Wells Fargo Home Mortgage
Kathleen Liegey
Chase Mortgage
Bryant Edelman
National City Mortgage

 

 

Mortgage Information

topGeneral Information and Basic Terms

If you are purchasing a home (or any other kind of real estate), unless you are paying all cash, you will need some type of real estate financing.

A loan is a sum of borrowed money. It is referred to as principal and is generally repaid with some amount of interest.

A mortgage is a legal document that pledges a property to a lender as security for payment of the loan. In the event of a default (for example, missing loan payments) the lender may foreclose the mortgage and take back title (i.e. ownership) to the property.

It is to be noted that the borrower is referred to as the mortgagor (the person or entity that gives the mortgage to the lending institution), while the lending entity or institution is referred to as the mortgagee. Consequently, a homebuyer does not apply for a mortgage but rather applies for a mortgage loan and provides the lender with a mortgage as security for the repayment of the mortgage loan. The promise to pay back the mortgage loan and the terms on which the mortgage loan will be repaid (for example, the interest rate) are described in a promissory note or bond that the homebuyer signs. Thus the homebuyer applies for a mortgage loan, signs a note promising to pay back the loan, and gives the lender a mortgage which pledges the property as security for repayment of the mortgage loan as required by the note.

In some states, unlike New York, a deed of trust is used instead of a mortgage. The deed of trust is held by a third party who is called a trustee. In New York a judicial foreclosure (in which the lender must file an action in court against the owner) is generally needed to take back a property from a homeowner who is not making the mortgage loan payments. Deed of trust states use a non-judicial foreclosure process which is generally much faster than a judicial foreclosure.

This section provides some basic information regarding mortgage loans, the mortgage loan process, and how one might proceed in evaluating and obtaining the most favorable real estate financing available. It is by no means an exhaustive discussion of the topic, but rather attempts to provide the prospective buyer with a basic understanding of some of the important concepts and the relevant issues. It is to be emphasized that the best kind of mortgage loan will vary from buyer to buyer depending upon a number of variables which must be carefully considered and evaluated. It is generally recommended that a potential borrower consult one or more professionals in the area of real estate financing.

Additional information, including the names and contact information of reputable mortgage bankers and brokers, may be obtained by contacting our office at (516) 223-1000 or NomisRealty@att.net.

Disclaimer – it is to be noted that all information contained within this section is deemed to be accurate but is not guaranteed and should be independently verified by all prospective users of said information. Nomis Realty Inc./Simon Realty International, LTD assumes no responsibility or liability for any inaccuracies that may be contained within said information.

topMortgage Bankers and Mortgage Brokers

Mortgage Bankers – are individuals or entities that generally originate and fund their own loans, which are then usually sold on the secondary mortgage market (see below).   Once the mortgage loan is sold on the secondary mortgage market, the mortgage banker may or may not service (see below) the loan.

Mortgage Brokers – are individuals or entities that solicit mortgage loans and then place said loans with investors/lending institutions such as mortgage bankers, savings and loan associations, commercial banks, and financial organizations with whom they generally have previously established relationships.  Mortgage brokers do not fund the loans that they solicit.

Other Lending Entities – in addition to mortgage banks, there are a number of other lending entities that fund their own mortgage loans, including savings and loan associations, banks, credit unions, trust companies, life insurance companies, and private investment companies.

Direct Lenders  –  fund their own mortgage loans and either retain them in their own portfolio or sell them on the secondary mortgage market.

Retail Lenders – offer mortgage loans directly to the public while wholesale lenders operate through mortgage brokers who solicit mortgage loans but who do not fund them.

Portfolio Lenders – are lenders that retain the loans they originate and fund in their portfolios, while temporary lenders sell the mortgage loans that they originate and fund.

A Servicer – is a business entity that collects payments from borrowers and credits the proper amounts to principal reduction, the payment of interest and any escrow accounts such as for property taxes and insurance.  Many servicers do not own the mortgage loans that they service.

Secondary Mortgage Market –  mortgage loans that are funded by lenders directly are known as the primary mortgage market.  Quite often these lenders will sell these mortgage loans in the secondary mortgage market.  This frees the lenders to have more available funds to provide new mortgage loans.  It is to be noted that the sale of a mortgage loan by a lender does not in any way change any of the borrower’s rights or obligations. 

Within the secondary mortgage market, mortgage loans may be sold between lenders or may be sold to three organizations that have been established to provide a market for the sale of mortgage loans generated by the primary mortgage market.  These three organizations are as follows:

  1. Federal National Mortgage Association (FNMA, Fannie Mae) –  created in 1938, purchases VA and FHA mortgage loans, as well as conventional loans;
  2. Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)  –  created in 1970, purchases mortgage loans from any member of the Federal Home Loan Bank or any bank where the deposits are insured by an agency of the federal government; and
  3. Government National Mortgage Association (GNMA, Ginnie Mae) – an agency of HUD established in 1968, only purchases VA, FHA and RHS mortgage loans.

Loan Officers, Loan Representatives, Account Executives (and/or other titles) –individuals who work for mortgage bankers and mortgage brokers. 

topMortgage Loan Pre-qualification and Pre-approval

These are the processes for determining what kind and amount of real estate financing is available to a prospective buyer and the specific terms (for example, interest rate) of the real estate financing that is available.

Pre-qualification – is a process by which a lender informs a prospective buyer how much the buyer can borrow based upon information provided by the buyer regarding income, employment, assets and debts.  It is simply an opinion from the lender, based upon the accuracy of the information provided by the prospective buyer.  Information regarding income, employment, assets and debt is generally not verified.  The buyer’s credit is assumed to be satisfactory but is generally not checked.  Accordingly, a pre-qualification is generally of limited value. 

Pre-approval – unlike a pre-qualification, with a pre-approval the lender reviews and verifies the accuracy of all information provided by the borrower with regard to income, employment, assets and debts.  The lender also, with the buyer’s consent, reviews the borrower’s credit history, usually by generating a tri-merged credit report (discussed later).  The mortgage loan can then be tentatively approved.  

Final approval takes place when all requested documents have been submitted to the lender and have been carefully evaluated and approved by the lender (a process known as underwriting), the property’s appraisal has been found to be satisfactory, and any contingencies have been fulfilled.  Thus, a pre-approval is MUCH STRONGER than a prequalification.   It is to be noted that a pre-approval is not binding and may be subject to change based upon a number of factors including, but not limited to, interest rate changes and changes in the borrower’s financial situation (for example, loss of a job).

Note – There is some variability relating to how the terms “ pre-qualification” and “pre-approval” are used. Thus it is frequently important to clarify exactly how they are being used within specific contexts.

topImportance of Mortgage Loan Pre-approval

As a potential buyer it is very important to get pre-approved for a mortgage loan for at least two reasons:

  1. To determine the highest mortgage loan for which you qualify; and
  2. To determine the cost of the highest mortgage loan for which you qualify, as well as the cost of lower mortgage loans (please see section on monthly payments).

Just as there are buyers who cannot qualify for high enough mortgage loans to purchase the homes that they want, there are also buyers who can qualify for mortgage loans that generate monthly payments that are higher than they find acceptable.

Once a prospective buyer knows the mortgage loans for which the buyer qualifies (and what the resulting payments will be) and knows the cost of property taxes and insurance, as well as the amount of his/her downpayment, the buyer will then have a good estimate regarding the maximum price of the home that the buyer can afford depending upon what maximum monthly payment (principal, interest, property taxes and insurance) that the buyer finds acceptable. It is important that prospective buyers look at homes that are in the correct price range in terms of what mortgage loan amounts they qualify for and in terms of what monthly payments they find to be acceptable.

When a buyer makes an offer for a desired home and has a pre-approval document from a reputable source, the buyer is frequently in a significantly stronger negotiating position because the seller realizes that the buyer is pre-approved and is financially able to purchase a home. Many sellers have had previous experiences with potential buyers who were unable to perform financially.

Note – For obvious reasons it is important that any mortgage loan prequalification or pre-approval be in writing, on the lender’s stationery, and be signed by an authorized representative of said lender. 

topComponents of the Mortgage Payment

Generally speaking, the usual mortgage loan payment consists of the following four components:

  1. Principal – repayment of the original amount of money borrowed, usually on a monthly basis;
  2. Interest – the cost of borrowing the principal amount, usually repaid on a monthly basis (unless it is an interest only or negative amortization loan);
  3. Real Estate Property Taxes – frequently paid by the borrower on a monthly basis into an escrow account maintained by the lender from which the lender pays necessary property taxes to the appropriate government agencies as they become due.  Some lenders will let borrowers pay their property taxes directly; and
  4. Insurance – including homeowner’s insurance, as well as any other insurances that might be required, such as private mortgage insurance (PMI) and flood insurance. 

These four items are known as the “PITI Payment” – principal, interest, taxes and insurance.  It is the magnitude of this PITI payment that a prospective buyer should carefully consider (as part of the buyer’s total budget) and with which the prospective buyer should be financially comfortable, regardless of how large a loan the buyer might qualify for based upon a lender’s qualifying ratios (see below) and other criteria.

topWhat Important Information is Used by Lenders To Determine:

  • Whether prospective purchasers qualify for a mortgage loan; and
  • The terms and conditions of the mortgage loan for which they qualify?

There are at least four (4) important variables which lenders carefully review in making their evaluations regarding qualifying for mortgage loans:

  1. Downpayment – what is the source and amount of the downpayment and what magnitude of Loan-To-Value (LTV) ratio is generated?  The LTV ratio is the percentage relationship between the amount of the loan and the appraised value or sale price, whichever is lower.  For example, if a buyer is putting down $100,000 on a home that the buyer is purchasing for $500,000 (but which appraises for $550,000) the loan will be $400,000 and the LTV ratio will be $400,000 divided by $500,000 or 80%.  The lower the LTV ratio, the safer the loan for the lender.
  2. Income – sources, amounts and duration.  Many mortgage loan programs use qualifying ratios based upon gross monthly income.  These qualifying ratios are discussed elsewhere in this section.
  3. Assets – what are the amounts and nature of the current assets of the prospective borrower(s), aside from the downpayment?
  4. Credit History – what kind of history does the prospective borrower(s) have with regard to the repayment of debt?  The borrower’s credit history is shown in a credit report that is published by a credit repository or credit reporting agency.  There are three well known credit reporting agencies – Experian, Equifax and Trans Union.  An individual’s creditworthiness is most succinctly summarized by a FICO score, which may range from 300 to 850, and which is discussed elsewhere in this section.

    Generally speaking, the greater/higher the downpayment, income, assets and credit – the easier it is to obtain a loan, the higher the amount of loan that can be obtained and the more favorable the terms and interest rate of the loan. As the downpayment, income, assets and credit decrease, it generally becomes more difficult to obtain a mortgage loan, the amount of money that can be borrowed decreases, and the terms and interest rate become less favorable.

topQualifying Ratios

With a full document mortgage loan, part of the mortgage application process will involve the lender evaluating the maximum mortgage loan that a borrower can afford based upon the borrower’s income and debt. In completing their evaluation the lender will typically use two ratios, the front ratio and the back ratio, which are generally defined as follows:

  • Front Ratio – the total monthly mortgage payment including principle, interest, taxes and all insurances (PITI), as well as any condominium or homeowner association fees, divided by the total gross (i.e., before taxes) monthly income.
  • Back Ratio – the total monthly mortgage payment (PITI) plus monthly debt service, divided by total gross monthly income. Monthly Debt Service includes all monthly payments required on credit cards, installment loans, boat loans, car payments, home equity loans, student loans and any other loan payments. However, monthly debt service does not include monthly payments for the mortgage loan for which the borrower is applying, nor does it include the monthly property taxes or insurance for the property that the borrower is purchasing.

Historically lenders have generally required that the front ratios not exceed 28%, while the back ratios not exceed 36%. Sometimes there may be mitigating factors (for example, exceptionally good credit, large downpayment, etc.) to justify increasing these ratios. Moreover, in recent years many lenders have routinely increased their ratios significantly, up to 50% and higher. Although this trend has been somewhat reversed in recent years because of the skyrocketing foreclosure rates, it is still possible to find lenders who will allow the borrower to go beyond the traditional 28% and 36% front and back ratios. However, the buyer should carefully evaluate their budget, both present and projected, before they choose to take advantage of higher ratios. Borrowers who are committed to spending over 45% of their income for PITI and debt service frequently find that they have to make difficult sacrifices in other areas of their lives and/or are more vulnerable to financial problems and even financial disaster.

topCredit Reporting Agencies

As mentioned above, there are three main credit reporting agencies – Equifax, Experian and Trans Union.  These credit reporting agencies all generate a credit score for a prospective buyer by applying a mathematical equation to the information that is contained within the buyer’s credit file.

You can contact the credit reporting agencies to order a copy of your current credit report, to request other assistance, or to report fraud , as follows:

Bureau Consumer Help Report Fraud
Equifax
http://www.equifax.com/home/
P.O. Box 740241
Atlanta, GA 30374
800-685-1111
Same address

800-525-6285
Experian
http://www.experian.com/
P.O. Box 2104
Allen, TX 75013
888-397-3742
Same address

888-397-3742
Trans Union
http://www.transunion.com/
P.O. Box 2000
Chester, PA 19022
800-916-8800
Fraud Victim
Assistance Division
P.O Box 6790
800-680-7289

 

topCredit Scores

The best known credit score is called the FICO Score, which is based on a model developed by Fair Isaac and Company. Each credit reporting agency applies the FICO model to the information contained in that agency’s credit file. Equifax’s credit score is called the Beacon FICO score, Experian’s is called the Experian/Fair Issac score and Trans Union’s credit score is called the Empirica score. FICO scores may range from 300 to 850 – the higher the score, the better the credit, the easier it is to obtain a mortgage loan, and the better the terms of the loan are likely to be.

Many variables may influence the FICO score including, but not limited to, the current balances on the borrower’s accounts, number of accounts with balances, reported delinquencies, proportion of balances to credit limits, length of time accounts have been established, collection items and judgments, bankruptcies and foreclosures, number of recent inquiries, and the length of time that the borrower has been at their present address. FICO scores may also be influenced by the type of credit for which one is applying. For example, when applying for an auto loan, the applicant’s recent auto loan history will probably be weighed more heavily.

topTri-merged Credit Report

A tri-merged credit report – is one that combines the credit reports from all three major credit reporting agencies – Equifax, Experian and Trans Union.   Tradelines are arranged so that same accounts, as reported by the three bureaus, can be seen next to each other so that differences can be noted.  Tri-merged credit reports are commonly used by lenders in making decisions pertaining to mortgage loan applications.

topImportance of Regularly Reviewing Your Credit Reports

It is important that you periodically review your credit reports carefully – checking for accounts that you didn’t open, charges you didn’t make, and delinquencies for which you were not responsible.  Information about disputing inaccuracies is available by contacting our office (516-223-1000), by contacting the credit agencies directly, and/or by reviewing the Fair Credit Reporting Act (FCRA).  Maintaining good and accurate credit is extremely important.

Note – There are a number of firms that offer programs to protect your credit information and to reduce the possibility of fraud and identity theft.  Additional information regarding these firms and the programs that they offer may be obtained by contacting our office at NomisRealty@att.net

topThe Fair Credit Reporting Act (FCRA)

Enacted in 1971 and subsequently amended, the Fair Credit Reporting Act (FCRA) is a federal law that restricts who has access to your credit information and limits how this information can be used. This law also provides specific procedures that consumers can follow to dispute information on their credit reports and to have inaccurate information deleted.

topFree Credit Report

The Fair and Accurate Credit Transactions Act of 2003 (FACTA) gives US Citizens the right each year to request one free copy of their credit report from each of the three major credit reporting agencies (Experian, Equifax, and Trans Union).  This free annual credit report does not include a credit score, which can be purchased from each of the credit reporting agencies.  Additional credit reports may be purchased at any time.

The annual free credit report required by FACTA may be requested online at www.annualcreditreport.com, by phone at 877-322-8228, or by mail at Annual Credit Report Service, P.O. Box 105281 Atlanta, GA 30348

topTypes of Mortgage Loans

There are many different types of mortgage loans. The best mortgage loan may vary from individual to individual, depending upon a number of variables and the individual’s specific circumstances. This section provides only a brief overview of basic information relating to some of the different types of mortgage loans. Individuals shopping for a mortgage loan should consult one or more competent professionals to discuss their specific situations in depth.

Government Loans vs. Conventional Loans ? mortgage loans may be classified as either government loans or conventional loans. Government loans are loans that are either insured or guaranteed by an agency of the federal government like the Federal Housing Administration (FHA), The Department of Veteran Affairs (VA) or The Farmers Home Administration (FmHA). Government loans account for about 20% of all mortgage loans. All other non-government residential mortgage loans are called conventional loans and account for about 80% of all mortgage loans.

Conforming Loans vs. Jumbo Loans ? as discussed above, secondary mortgage markets are markets in which mortgage loans and mortgage-backed securities are bought and sold.  The Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) are two federally chartered corporations that purchase mortgages in the secondary market.  They are private corporations that are regulated by the government.  Mortgage loans that fall within  Fannie Mae and Freddie Mac loan limits, and which may be purchased by Fannie Mae and Freddie Mac, are called conforming loans, while loans that exceed these limits are called either jumbo loans or non-conforming loans.  Limits for conforming loans are periodically modified by the federal government and often vary in different areas of the country.  Interest rates for conforming loans are generally lower than interest rates for jumbo loans. 

Fixed Rate Mortgage Loans ? with fixed rate mortgage loans the interest rate and term are fixed at the start of the mortgage and do not change during the duration of the mortgage loan.  Accordingly,  the principal and interest parts of the monthly mortgage payment (as opposed to the taxes and insurance) do not change during the term of the loan. The term of the mortgage loan is the length of the mortgage loan.  The most common terms are 15 and 30 years. Since payments are generally made monthly, with a 15 year mortgage loan there are 180 payments and with a 30 year mortgage loan there are 360 payments.  Each month part of the payment is applied to paying interest and part of the payment is applied to reducing the principal.  With a fully amortizing mortgage loan, at the end of the term the entire principal has been paid and the homeowner can receive a mortgage loan satisfaction.  A document showing the progress of the payments (how much each month is credited towards paying interest and how much each month is credited towards reducing principal), and the remaining balance after each payment, is known as an amortization schedule.  An amortization schedule for any fixed rate mortgage may be generated by clicking on the financial calculator at the top of this page, selecting “How much will my fixed rate mortgage payment be?” and checking the box “Show payment schedule”. 

Adjustable Rate Mortgages (ARMs) ? with adjustable rate mortgages the interest rate and monthly payments will fluctuate over the term of the loan.  The date on which the interest rate changes is called the adjustment date.  The changes in interest rates that take place on each adjustment date are based on a defined index which is established at the time of application.  The margin is the amount added to the interest rate index on each adjustable date.  A periodic or adjustable cap limits how much the interest rate can change on any adjustment date, while a lifetime cap limits the amount an interest rate can change over the life of the loan. Adjustable rate mortgages will usually have an initial interest rate lower than fixed rate mortgages but generally adjust upwards after the first year (or whenever the first adjustment takes place).

Balloon Mortgage Loans ? a mortgage loan that requires that the  outstanding principal balance be paid before the end of the term of the loan.  For example, a balloon mortgage loan might be amortized over a 30 year term but require that the entire remaining balance be paid at the end of 15 years.

Piggyback Mortgage Loans ? a combination of a first mortgage loan equal to 80% of a property’s purchase price and a second mortgage loan equal to 5%, 10%, 15%, or 20% of the property’s purchase price (depending upon the borrower’s downpayment).  Although the interest rate on the second mortgage loan is generally higher, piggyback mortgage loans are frequently less expensive than paying private mortgage insurance (PMI) which is generally required on loans with loan to value ratios of more than 80%. 

Hybrid ARMs ? an adjustable rate mortgage loan which has a fixed interest rate for a specific period of time but then changes to an adjustable interest rate once this specific period of time has expired. A 5/1 ARM, for example, is a mortgage loan on which the interest rate is fixed for 5 years but then adjusts each year thereafter.  The initial lower interest rate is sometimes referred to as a “teaser rate” and in some cases may lead to “payment shock” (see below).

Interest Only Mortgage Loan ? a mortgage loan in which, for a certain time period, usually ten years, the monthly mortgage payment only pays the interest that is due.  During this period of time the outstanding loan balance remains the same.  After the initial interest only period, the interest and principal are repaid over the remaining term of the loan.  With interest only mortgage loans, the initial monthly payments are lower but the borrower is not building any equity unless the market value of the property increases.

Payment – Option ARM – an adjustable rate mortgage loan in which the interest rate adjusts monthly and which offers the borrower several payment options each month, generally including: (1) a traditional amortizing payment of principal and interest for a thirty year loan term; (2) a traditional amortizing payment of principal and interest for a fifteen year loan term; (3) an interest only payment; and (4) a minimum payment (“option payment”) that may be less than the amount of interest due that month, resulting in negative amortization (see below).  While such mortgage loans may have lower initial monthly payments and may entice some buyers to purchase  more expensive homes, for borrowers choosing the minimum payment option these loans may lead to payment shock – a sudden and significant increase in monthly payments that is largely unexpected.

Negative Amortization Mortgage Loans ? a mortgage loan for which, for some period of time, the monthly mortgage payment is less than the interest due.  During this period of negative amortization, the loan balance owed by the borrower increases as the interest that is not paid is added to the outstanding balance. 

Home Equity Loans ? a fixed or adjustable rate mortgage loan that is secured by the equity in the borrower’s home.  The amount of the home equity loan, when added to the amounts of any existing loans against the home, cannot exceed a certain maximum loan-to-value ratio that is acceptable to the lender.

Home Equity Line of Credit (HELOC) ? a loan which provides the homeowner with the capacity to borrow monies at anytime the homeowner chooses, up to a maximum credit limit for which the homeowner has qualified.

Home Equity Conversion Mortgage Loans (Reverse Annuity Mortgage Loans) ? a mortgage loan in which the lender makes payments (usually monthly) to the homeowner by converting the equity in the owner’s home into cash.  The loan is secured by the equity in the owner’s home.  The borrower qualifies on the basis of equity in the borrower’s home rather than income and the loan does not have to be repaid while the borrower is occupying the property.

Second Mortgage Loan – is a loan with a second priority claim against a property.  In the event of a default, the lender holding the second mortgage only gets paid after the lender holding the first mortgage has been paid. 

Subordinate or Junior Mortgage –  is any mortgage that is lower in priority as compared to another mortgage.  Priority refers to the order in which the mortgage holders will get paid in the event of a default.  A subordinate mortgage may be a second mortgage, a third mortgage, a fourth mortgage, and so forth.

Purchase Money Mortgage Loan – is a mortgage loan that is given by a seller to a buyer to cover part of  the purchase price of the property.

topIncome Requirements for Mortgage Loans

Income Verification Mortgage Loans – are mortgage loans that are based upon full disclosure and verification of the borrower’s income based upon documents such as pay stubs, W-2’s and tax returns. These mortgage loans are sometimes referred to as full doc loans.

No-Income Check Mortgage Loans –  are mortgage loans that are negotiated without any disclosure or verification of the borrower’s income. They are generally based largely upon the borrower’s credit and the appraised value of  the property that is being purchased. Such no-income check mortgage loans generally have significantly higher interest rates and require significantly higher downpayments (i.e., lower loan to value ratios)  than income verification mortgage loans.

Stated Income Mortgage Loans – are mortgage loans in which the borrower states his/her income but this stated income is not verified by the lender and no proof is provided. Since this type of mortgage loan has apparently been the subject of a great deal of abuse in recent years, it has largely disappeared from today’s mortgage loan market.

topMortgage Loan Application Process: Some Basic Concepts

Application ? a request for a mortgage loan that includes detailed financial information about the potential borrower(s), as well as information regarding the property to be financed and the type of loan that is requested, which is submitted to one or more lenders for their review and consideration.  Most typically, a standardized application form called the “1003” is used to gather information from the borrower(s) to submit to potential lenders.  Some lenders charge an application fee which (a) may or may not cover other costs such as property appraisal and a credit report, and (b) may or may not be refundable if the lender declines the loan.

Mandatory Disclosure ? a variety of laws and regulations, both state and federal, that specify the exact information that lenders must disclose to borrowers, as well as stating when this information must be disclosed and the specific procedures for so doing.

Hud 1 Settlement Statement ?  a statement received by the buyer and the seller at the closing which itemizes and summarizes all the costs associated with the real estate transaction.  The use of this form throughout the United States is mandated by the Department of Housing and Urban Development (HUD).

Points ? are fees charged by lenders to cover loan origination costs and/or to provide compensation to lenders or brokers.  One point equals one (1%) percent of the amount of the mortgage loan.  For example, two points on a $350,000 mortgage loan would be $7,000.  Borrowers are sometimes given the choice of paying discount points in order to obtain a lower interest rate.

Prepayment Penalty – a charge imposed by a lender in the event that a borrower pays off a mortgage loan before the end of the term of the loan.  This charge may be a percent of the balance of the loan or a specified number of months interest.  Prepayment penalties may make it less desirable to refinance a mortgage loan to get a better interest rate or to pay off a mortgage loan for other reasons.

Appraisal ? a written estimate of a property’s current market value prepared by an appraiser. An appraiser is a professional who is knowledgeable about real estate markets and who is trained to evaluate the market value of specific properties.  In New York State, as well as many other jurisdictions, appraisers must be licensed.   When applying for a mortgage loan, the appraiser is selected by the lender but paid for by the potential borrower(s).

Good Faith Estimate ? a form which the lender must provide to the borrower(s), within three business days of receiving the loan application, that lists the settlement charges that the borrower(s) must pay at closing.

Annual Percentage Rate (APR) ? a measure of the cost of credit expressed as a yearly rate which includes not only interest but also certain upfront costs to obtain a loan, such as broker fees and certain other credit charges.  As a result, the APR is a higher rate than the interest rate contained within the mortgage note.  Since the APR is supposed to be computed in the same way by all lenders, it provides a helpful way of comparing the cost of mortgage loans being offered by different lenders.   The APR does not include the costs of title insurance, appraisal and credit report.

Loan Amount ? the amount of money that the borrower promises to repay as set forth in the note.  This loan amount differs from the amount of money disbursed by the lender by the amount of points and other upfront costs included in the mortgage loan.

topLock

A lock – is an option exercised by a borrower, at the time that the mortgage loan application is taken or later, to “lock in” the interest rate and points prevailing at the time of the “lock in”.

A float-down – is a rate lock, and in addition, an option to reduce the rate if the prevailing market interest rates decrease during the lock period.  Float-downs cost more than locks because they are more expensive to the lender.

A lock period – is the length of time during which any lock or float-down remains in effect.  The longer the lock period, the higher the cost.

A lock-in agreement – is an agreement between the borrower and the lender for a mortgage loan at a set interest rate and number of points.  This lock-in agreement must specify the time frame of the lock-in, whether the lock-in fee is refundable or if it will be applied to closing costs, and the terms and conditions of refund.

A lock commitment letter – is a written statement from a lender confirming that interest rate, points and other terms of a mortgage loan have been locked.

A maximum lock period – is the longest period of time for which a specific lender will lock the interest rate and points for a specific loan program.  The most common maximum lock period is 60 days but longer periods are possible.

Note ? Please note that regardless what a lender tells you verbally regarding your locked in rate and points, it is very important that you have accurate written confirmation from the lender.

topClosing Costs

The term closing costs generally refer to any costs paid by the buyers or sellers during the closing of the mortgage loan.  These costs typically include any origination fees, discount points,  attorney fees, survey fees, title insurance, as well as any items that must be prepaid, such as property taxes and escrow payments (some lenders will let borrowers pay property taxes and insurance premiums directly, but most lenders want to escrow for these expenses).

Closing costs may be divided into non-recurring costs and pre-paid items.  The former are any items, such as title insurance, that are only paid once.  The latter are items that are paid on a regular on-going basis such as property taxes and homeowners insurance.

Closing costs typically run anywhere from three (3%) to six (6%) percent of the amount of the mortgage loan.  For example, if one is borrowing $400,000 one might expect closing costs to range anywhere between $12,000 and $24,000.  The Good Faith Estimate, which the lender must provide within 3 days of taking a mortgage loan application, should provide a reasonably accurate idea of how much the closing costs will be.

Note – In addition to the downpayment, the borrower should be certain to carefully budget for closing costs.  Sometimes it is possible to add a “seller’s concession” which involves, with the lender’s knowledge and consent, increasing the price of the property and having the seller pay some or all of the buyer’s closing costs.  For example, let’s assume that a seller accepts a $500,000 offer for the seller’s property and agrees to a five (5%) percent seller’s concession to help the buyer with the buyer’s closing costs.  With the lender’s consent, a five (5%) percent seller’s concession is added by dividing $500,000 by .95 which equals $526,315.79.  The sum of $26,315.79 is now available to help pay the buyer’s closing costs.  With a seller’s concession the property has to appraise for more ($526,315.79) than what the seller is actually receiving ($500,000).  Consequently, the seller will often request that the property be appraised prior to contract in order to be reasonably certain that the seller’s concession can be accommodated.  With a seller’s concession the buyer is actually paying the closing costs over the life of the buyer’s mortgage loan rather than having to pay them at the closing table.

topTypes of Insurance

When purchasing real estate there are a number of different types of insurances that may be required by your lender and with which you should be familiar. Whatever insurances may be required (except title insurance) must be figured into the borrower’s mortgage loan qualifying ratios as part of PITI, whether the lender is paying the insurance premiums on behalf of the borrower out of an escrow account established for the borrower or allowing the borrower to pay the insurance premiums directly.

Title Insurance – is insurance that protects borrowers and lenders against financial loss resulting from defects in title (for example, someone showing up and claiming that they have an ownership interest in a property that you have just purchased).  Title insurance is issued by a title insurance company only after it has completed a title search to satisfy themselves that clear title (i.e., title with no legal defects) is being conveyed.  Unlike other types of insurance that the borrower pays on an on-going basis, title insurance is paid only once at the time of the closing and remains in effect as long as title does not change. 

Homeowner’s Insurance – a type of insurance that combines hazard insurance and personal liability insurance.  Hazard insurance protects against property loss or damage due to hazards such as fire and wind.  Liability insurance provides protection against loss due to negligence and accidents.  If the buyer is borrowing money for the purchase of a home, the lender is listed on the policy as an additional insured

Private Mortgage Insurance (PMI) – is an insurance that most lenders require when a borrower puts down less than twenty (20%) percent.  PMI provides protections to the lender in the case of a default.  A homeowner may request cancellation of PMI when the current mortgage loan balance reaches a point where it is less than 80% of the original purchase price or current appraised value, whichever is less.

Mortgage Insurance Premium (MIP) – insurance required on government insured (FHA) and guaranteed (VA) loans to insure the lender and the government against loss in the case of default.  Unlike PMI which is only paid on loans with more than 80% LTV ratios, MIP is paid on all government insured/guaranteed loans regardless of the loan to value ratios.  Borrowers who pay off government insured loans prior to maturity may be entitled to an MIP refund.

Flood Insurance – is insurance issued by the federal government that protects against loss or damage caused by floods.  While homeowners insurance generally protects against water damage caused by leaking pipes or faulty plumbing, it does not protect against flood damage.  Lenders will frequently require flood insurance for properties on the water and sometimes even for properties within a certain distance from the water. Additional information regarding flood insurance may be obtained by visiting http://www.floodsmart.gov/, the official site of the National Flood Insurance Program or http://www.fema.gov/, the website of the Federal Emergency Management Agency (FEMA) which is part of the Department of Homeland Security.  To determine whether your property is in a flood zone visit http://www.nassaunyfloodmap.com/

For information and price qoutes regarding both flood and homeowner's insurance please visit http://www.americanagency.com/.

 

Note – if you are having difficulty obtaining either homeowner’s insurance and/or flood insurance for waterfront properties, please contact our office (516-223-1000) and we will be happy to attempt to be of assistance. 

Note - It might be noted that none of these types of insurance which are often required by lenders have anything to do with insurance that will pay off a mortgage loan in the event of death or disability.  Mortgage Life and Disability Insurance may be purchased separately but are generally not required by the lender.

topMortgage Loan Comparisons

Probably the best way to maximize the probability of obtaining the best possible mortgage loan given your specific circumstances is to carefully shop your loan to a number of reputable lenders and to carefully compare all costs and features (including interest rates) of the loans which they recommend.  A chart that you can use to make these comparisons is available by clicking the link below.

Always remember that interest rates and points can change on a daily basis and can only be guaranteed by lock-in procedures.

When comparing mortgage loans, be certain to compare not only interest rates but also closing costs. Each possible lender should clearly itemize each of the closing costs in order to facilitate accurate comparisons.

topObtaining the Best Possible Mortgage Loan

As mentioned above, obtaining the best possible mortgage loan is not always an easy process. For one thing the best possible mortgage loan will often differ from one borrower to another depending upon their specific circumstances. For another thing there is generally a myriad of possibly confusing mortgage loan products that are available to borrowers. Interest rates and points are subject to change and are not guaranteed until they are locked.

Given all these factors and the potential confusion that they may cause, probably the best course of action for borrowers is to first educate themselves as much as possible about the various mortgage loans that are available and about the mortgage loan process in general.

Then the potential borrower should, within the same time framework, obtain interest rate and closing costs quotes from a number of different reputable lenders. These quotes should be in writing, signed by an appropriate agent of the lender, and should carefully itemize each and every closing cost. It is only with such detailed written quotes that valid comparison can be made.

Finally, it is probably a good idea for most borrowers to seek an independent evaluation and opinion from an experienced real estate attorney or knowledgeable accountant. Even if this costs a few hundred dollars, it is probably still a good idea given the magnitude of the financial commitment that the borrower is undertaking. It is important to understand and to bear in mind that the lender does not necessarily have your best interests as a first priority, especially when your best interests conflict with those of the lender. Having your own independent real estate attorney or accountant review the mortgage loans that are being offered or suggested by different lenders is well worth the extra expense, and may save you significantly more money in the long run.

topBrief Mortgage Loan Qualifying Questionnaire

If you would like a Free Consultation to provide you with some idea of your ability to obtain a mortgage loan, how much of a loan you are likely to be able to obtain, what the approximate monthly payments are likely to be, as well as some possible lenders for you to consult ? simply complete the brief questionnaire below and forward to our office.

OR
If you prefer, you can contact our office at any time
Ask to speak with a Mortgage Consultant

 

Financial Calculators

The information provided by these calculators is for illustrative purposes only. The information entered may vary from your actual loan, mortgage, investment, or savings results. Interest rates are hypothetical and are not meant to represent any specific investment. Rates of return will vary over time, particularly for long-term investments. The calculated results are not guaranteed to be accurate and are in no way endorsed, offered or guaranteed.

 

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