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Frequently Asked Questions

Mortgage Loan FAQs

What are Mortgage Points?

Points are fees paid directly to the lender at closing, in exchange for a reduced interest rate. There are two differnt types of mortgage points to be aware of; discount points and origination points. One point will generally cost 1% of the total amount that is loaned. Paying mortgage points in exchange for a lower rate is a fairly common practice. The major benefit to paying points is to “buy down” your long term interest rate which could save you thousands of dollars in interest over the life of the loan. A single point will generally reduce the interest rate on your mortgage by .25%.

What is the difference between my interest rate and APR?

The APR is an accurate measure of the cost of borrowing money. The APR or annual percentage rate reflects not only the interest rate but also any mortgage points, fees, and any other charges that you may pay to get the loan. The interest rate alone is the cost you will pay each year to borrow the money. Unlike the APR, interest rate does not reflect fees or any other charges you may have for the loan.

What is an appraisal?

An appraisal is an unbiased professional evaluation of the value of a property. If you need a mortgage to buy a new home or take cash out using a refinance, a professional appraisal will usually be required.

Can I consolidate credit card debt when refinancing my home?

Using a cash-out refinance, homeowners can pay off their high-interest, non tax-deductible debt. Since your mortgage interest rate is usually much lower than rates on credit cards, consolidating debt may reduce your overall monthly debt payments. In addition, your mortgage interest is typically tax-deductible creating additional savings, unlike higher interest credit card and revolving consumer debt.

What does PMI or MI stand for?

When you buy a home or refinance your first mortgage and have less than 20% equity in your home, mortgage insurance (also referred to as private mortgage insurance or PMI), is generally required. The mortgage insurance premium is typically included in your monthly mortgage payment. Some programs allow for the PMI to be cancelled when your LTV (loan to value) reaches 80%.

Are there mortgage programs available for first time home buyers?

First, there is an FHA home loan. With an FHA loan, the Federal Housing Administration insures the mortgage. FHA loans have competitive interest rates, smaller down payment requirements and lower closing costs than conventional loans. If you have a credit score of 580 or higher, you could be eligible for a mortgage with a down payment as low as 3.5 percent of the purchase price.

The U.S. Department of Veterans Affairs (also known as the VA) provides home loan benefits for active-duty military members, veterans and surviving spouses. VA loans have very competitive interest rates and typically require no down payment. With a VA loan closing costs may be rolled into the mortgage so the borrower doesn't need to bring any cash to close.

The US Mortgages Home. Made Simple.® Down Payment Grant Program increases home ownership opportunities for Colorado individuals and their families. Qualified borrowers can get up to 5% of the purchase price of the home to use for your down payment from US Mortgages.The grants funds are non-repayable as long as the borrowers lives in the home for 2-3 years.

Fannie Mae has the HomeReady program which is ideal for first time or repeat borrowers with low to moderate income, who may have limited funds for a down payment. Unlike government insured mortgages, HomeReady borrowers may have the option to cancel their mortgage insurance once their home equity reaches 20%. Cash for the down-payment and closing costs may come from multiple sources, including gifts and grants, and no minimum personal funds are required.

Freddie Mac’s HomePossible program requires only a 3% down payment, and borrowers without credit scores are eligible for a 5% down payment option. Just like the HomeReady program, borrowers using the HomePossible program may also have the option to cancel their mortgage insurance once their home equity reaches 20%. Cash for the down payment may also come from multiple sources.

The Good Neighbor Next Door program, which is sponsored by HUD (The Department of Housing and Urban Development), provides assistance for police officers, firefighters, EMT and teachers.

The Energy-Efficient Mortgage (EEM), is a “green” mortgage, which is designed to help you add environmentally friendly home improvements. EEM loans are available from lenders who offer FHA or VA programs.

Local grants and programs provided by the federal government, and many states and cities, also offer down payment assistance to first-time homebuyers. Before buying a home, check your state’s or community’s website for information on housing grants and programs available in your area.

Which mortgage costs are tax-deductible?

There are three varieties of mortgage costs that may be tax-deductible, including discount points, interest paid on the principle mortgage balance, as well as state and local property taxes. The first year after you buy your house, only your mortgage interest and annual property taxes are deductible. For a refinanced loan, points can be deducted over time. Consult your personal tax advisor to learn more about how to claim all available tax deductions.

Can I buy a home if I have average or below average credit?

Yes. US Mortgages offers the Fresh Start Program™ for borrowers with credit challenges and has access to additional programs that are backed by the federal government that are available for borrowers with less than perfect credit.

How is my credit report used by mortgage lenders?

Your credit report is reviewed by your lender to analyze how you handled your credit in the past and what the risk is for handling your credit lines in the future. Most mortgage lenders use the median FICO score of the three major bureaus as well as looking at length of credit history and any derogetories like late payments, judgements or liens before making a decision to lend. There are 3 major credit reviewers who will give you a free copy of your credit report:

Equifax www.equifax.com 1-800-685-1111
Experian www.experian.com 1-888-397-3742
TransUnion www.transunion.com 1-800-888-4213

How can I improve my credit score?

Your payment history and the amount you of credit in use versus the total amount of credit extended to you are the two most important components that make up your credit score. It is extremely important to your pay bills on time. A good principal to follow is to never “max out” your credit lines. Because, the balance on open accounts is a big factor, lower balances are always better. When balances exceed 30% of the available credit at the time of reporting, you may see a dip in your credit score.

What does LTV (Loan-to-Value) mean?

Loan-to-value, sometimes referred to as LTV is a term used by mortgage lenders to show the ratio of a loan or loan balance to the value of a property that is purchased or refinanced. The term is commonly used by mortgage lenders, banks, and other financial institutions to represent the ratio of the mortgage lines as a percentage versus of the total appraised value of real property.

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