Frequently Asked Questions

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FAQ

Frequently Asked Questions

What are the different types of mortgage programs?

Which mortgage is best for me?

Is it possible to get a smaller down payment?

How do I get the best rates?

What is an APR?

What about my credit history?

What are the different types of mortgage programs?
Note: This is only a partial listing of the programs offered at First Equity Mortgage. Please feel free to contact our offices to discuss other loan programs we offer.

30 Year Fixed Rate Program

A 30 year fixed mortgage is a type of mortgage loan that is repaid by the borrower making 360 equal monthly payments over a period of 30 years. Since the borrower's payments are 'fixed', the borrower can expect to make the same monthly payment for the entire term of the loan. A 30 year mortgage loan is the most widely accepted program used to finance a residential purchase, and is available for conventional, jumbo, FHA, and VA loans.
15 Year Fixed Rate Program

A 15 year fixed mortgage is a type of mortgage loan that is repaid by the borrower making 180 equal monthly payments over a period of 15 years. Since the borrower's payments are 'fixed', the borrower can expect to make the same monthly payment for the entire term of the loan. A 15 year mortgage loan is the most widely accepted program used to finance a residential purchase, and is available for conventional, jumbo, FHA and VA loans.
1, 3, 5, 7, 10 Year Adjustable Rate Program

An Adjustable Rate Mortgage (ARM) is a mortgage loan that is most widely known for its low starting interest rate (when compared to the 30 & 15 year mortgage loans). This 'low' introductory rate is used to calculate the mortgage payment for a specified period of time. Once this introductory period is over, the interest rate is adjusted periodically based on a pre-selected index. The most commonly used index is the yield on the one-year Treasury Bill. The new interest rate is determined by adding this index to a set margin (which is determined by the lender). Although there are a variety of adjustable rate mortgage programs available, the most common program is the One Year Adjustable Mortgage (one Year ARM), which is available for conventional, jumbo, FHA and VA loans. The interest rate on the one year ARM is adjusted once each Year, for 30 years. APR's on variable rate loans are subject to increase but may decrease from year-to-year, the borrower should be prepared to handle an increase in his/her monthly payment (should the index rate increase). This program is usually used by borrowers who expect an increase in income later to compensate for the increasing rate of the mortgage.
15, 30-Year Jumbo Programs

A jumbo mortgage is a mortgage loan which is larger than the limits set by Fannie Mae and Freddie Mac ($252, 700 as of 1/2000). Since these two agencies will not purchase these types of loans, they usually carry a higher interest rate (to enhance their value and marketability to investors).
15 & 30 Fixed, and 1 Year ARM FHA Programs

An FHA mortgage loan is insured by the Federal Housing Administration (a division of the (HUD)). Although mortgage lenders provide the mortgage funds, the FHA sets underwriting standards for approving applicants. In many cases, FHA underwriting guidelines are more lenient than conventional (not government insured or guaranteed) underwriting guidelines. This leniency makes it easier for borrowers to qualify for a mortgage loan (low down payment requirements and a higher monthly debt allowance). FHA limits the types of loan programs it insures, but it will insure the more popular 30 year fixed, 15 year fixed and one-year adjustable loan programs. However, borrowers are limited to the amount that they can borrow using an FHA-insured mortgage. Applicable loan limits differ by county, so contact your local HUD office or First Equity Mortgage for specifics.
15, 30 year VA (Veterans Loan)

A VA mortgage loan is a mortgage loan that is guaranteed by the Department of Veterans Affairs. One of the biggest advantages of using a VA loan is that the borrower can finance the purchase of a property with no-money down. However, VA loans are restricted to individuals qualified by military service. Another advantage of this mortgage is that it allows the seller to pay the purchaser's closing costs and pre-paids. This allows a unique advantage for veterans in that no out of pocket expenses are incurred. The Department of Veterans affairs will guarantee the more popular 30 year fixed, 15 year fixed. They no longer offer a 1 Year ARM. Contact First Equity Mortgage to find out the best way to match your needs and your eligibility for this program.
5/25, 7/23 Balloon Programs

A balloon mortgage loan is a type of mortgage loan that has a short term (typically 5 or 7 years), but the monthly payment is computed using a 30 year term. When a borrower uses a balloon loan, he/she will make the monthly payment for the scheduled loan term (5 or 7 years). When this loan term is over, the borrower is required to pay off the remaining balance in one lump-sum payment. If the borrower decides not to sell the property after the loan term is over, the borrower has the option to refinance the mortgage with a new one. A 7/23 balloon mortgage gives the borrower the option to convert to a fixed rate program (for a nominal fee) after the initial term (7 years) is over. If the conversion feature is used, the interest rate for the remaining term of the loan (23 years) will be adjusted once to reflect market conditions, then remain fixed for the remainder of the loan term.

Which mortgage is best for me?
There isn't a single or simple answer to this question. The right type of mortgage for you may not be the same type your friends or co-workers got. Since everyone's situation is different, it’s hard to judge someone else's experience with your own. The right type of mortgage for you depends on many different factors:

Your current financial picture. Income, credit history and job stability are just a few of the components that make up your personal financial picture.

How you expect your finances to change. Whether you are expecting raises or promotions in the future should be considered. Will both spouses continue working when you start a family? How long you intend to keep your home. Are you subject to transfer? Is this a starter home? Or, are you expecting to be an "empty nester" soon? Would you feel comfortable with a changing payment to get more house? Is the area you are considering in a special lending district? Some rural areas and certain cities around the country may offer special financing.

The amount and source of your down payment can limit some types of financing. For example, a 15-year mortgage can save you thousands vs. a 30-year amortization, but your payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but those payments could change in the future. Also, a 3, 5, 7, or 10 year balloon mortgage could get you a lower interest rate or more house for the same payment, but you need to be informed as to what happens when the balloon is due.

Loans are primarily offered on the basis of two factors:
The buyer's ability to repay the loan: This includes your current employment and income. Your employment stability is reviewed and a two-year history is documented. For those just entering the job market out of school, if your education leads to your new job, such as a doctor or a lawyer, your time in school may be considered as job history. The other factors considered are your "ratios" which compare your mortgage payment to your monthly income, and your total monthly obligations to your monthly income. Allowable ratios vary greatly from program to program, so let First Equity Mortgage help you here.
The other factor involved in a loan decision is the borrower's willingness to pay. The borrower's willingness to pay is determined by how they have handled previous financial commitments. A credit report and mortgage or rental payment history is reviewed to establish a tract record. Don't worry if your credit report is not perfect. Not everyone's is, and an experienced mortgage underwriter may allow a slip up or two along the way as long as a pattern of "slow pays" has not developed. The best mortgage for you can only be determined through an in-depth analysis of your situation. Don't be afraid to divulge any information to First Equity Mortgage. By utilizing our resources together we can make an informed decision.

Is it possible to get a smaller down payment?
Yes, you can get loans with a smaller down payment. An important factor in understanding this is in the LTV (Loan to Value). This is simply the amount mortgaged in proportion to either the appraised value of the home or the sales price. The lender will always choose the lesser. If the appraised value is $90,000 and the sale value is only $80,000 then the lender will choose to base the LTV on $80,000. Let’s say that you have saved up for a $5,000 down payment for your new home. That means that you will have to have the remaining $75,000 mortgaged. Your LTV will be: $75,000/$80,000 = 93.75%

Home mortgage down payments are nothing like car loan down payments. Cars depreciate in value as soon as you drive them off the lot. Homes usually appreciate due to the increasing values of property. This allows you to put down whatever down payment you can afford. The only thing that will increase by putting less down is your mortgage insurance. Mortgage insurance is simply insurance that safeguards the lender to some degree that you will repay your loan. Mortgage insurance varies as to which program you are in, but increases can be minimal to your monthly budget. Conventional loans do not require mortgage insurance with a LTV of 80% or less. Programs like the FHA require a minimum 3% down payment. However, your closing costs can be part of the down payment. VA loans may not require any down payment.

How do I get the best rates?
Everyone wants to get the lowest rates. In addition, everyone is looking for the lowest fees. Not to mention, all borrowers expect exceptional service. These goals are not unreasonable, but you need to know a little more about each category. When shopping for rates, call around. Make sure you speak to a loan originator and describe a specific situation so the loan originator can offer you a rate on your specific program. Rates can be extremely volatile. It is not uncommon that rates can change one quarter of one percent in the time it takes to fill out an application. Therefore, you have to do your rate shopping within a small time frame. If you were to get one lender's rates on Monday and call another on Tuesday, the rates may have changed. Just remember, if you are not ready to apply right then and there, the market will change in the meantime.

Next, just because the rate you found is the lowest today, it doesn't mean they offer the cheapest. Check the fees. Fees to compare are origination, discount, processing, underwriting, administration, express mail, and other fees that your lender would include in his APR. Each lender has certain fees that they charge. They may have different names, but your concern is in the total cost and the APR. Then find out if your lender has good connections with appraisers, attorneys, pest control technicians, and surveyors. Good working relations sometimes can lead to saving a few dollars more.

Finally, don't get lost on rates and fees alone. Experience and product knowledge is what is going to save you possibly thousands in the long run. Originating a mortgage loan is a complicated process. It can cause havoc and emotional stress. Because every situation is different, experience is the most important factor. Just like with any financial transaction, it doesn't hurt to check the Better Business Bureau or Department of Consumer Affairs to see how they may have handled troubled borrowers in the past. Ask your friends and co-workers how their experiences were with specific lenders and whether or not they would recommend a lender. Just make sure you feel comfortable with the level of professionalism your lender provides. Timing can be everything to the mortgage process. If your calls are not returned on a timely bases in the beginning of the process, don't be afraid to call another lender. Be reasonable, but remember, First Equity Mortgage is here to serve you.

What is an APR?
The Annual Percentage Rate is a tool in comparing different lenders and the total costs involved in financing your new home. The APR takes into consideration all the costs involved in getting a mortgage and give a clearer picture of what you are paying in interest. When you look just at the interest rate this sometimes can be deceiving since there are so many ways and programs available for mortgages. A lower interest rate is always realized with Adjustable Rate Mortgages at first and then the interest rate will increase over the years. Also a lower interest rate cannot always be seen as a better deal because the lender could be charging more fees that will offset the benefit of the lower interest rate.

APR's take into effect all of those costs involved in getting your loan. These include: origination fees (points), appraisal fees, credit report fees, processing fees, and document fees. When you have an APR for one loan and an APR for another you can compare them directly because they include all costs incurred in getting your mortgage. Also a document required by the government for lenders to give to borrowers is The Truth In Lending Statement. This statement gives you a breakdown of the costs of the loan, which gives you the total amount paid in interest, and all other costs incurred when getting the loan. If you need an analysis of a particular mortgage and want to know what you will be paying for contact First Equity Mortgage.

What about my credit history?
Your credit report is a very important part of the mortgage process. It gives the lender an insight into how you have repaid loans in the past. If you were on time with your payments and have always paid your debts they see you as an angel. Yet there are those of us that have had problems or missed payments here and there. Whatever the reason may be, you may be worried that your credit history will hold up the loan process. The best thing for you to do is research your credit history before you meet with a lender. Understand why there may be a problem and fix it. It is your responsibility to clear this up. By fixing mistakes or giving legitimate reasons for past credit problems the lender will know you better and feel safer giving you the money for your new home. If a mistake in credit will not be fixed before you apply for the loan then get a letter in writing from that creditor addressing that the problem is being fixed and that it will be cleared up soon. First Equity Mortgage offers free mortgage pre-qualifications, which include a complete 3 repository credit report. If there are problems with your credit, we can help you contact the company and resolve any issues.

Other Considerations: When you do have problems with your credit, lenders will look at your other strengths to back up your obligation to repay the loan. Your equity, income stability, documentation, and assets will also play a role in the approval decision. Contact First Equity Mortgage to discover the many programs we offer to borrowers with imperfect credit.

Late Mortgage Payments and Bankruptcies: These are the most important problems when a lender looks at you. A couple of late mortgage payments, especially in the past year can make it very hard to find a new mortgage. Also Bankruptcies (Chapter 7, 11, or 13) are looked at with scrutiny to see that you will repay your new loan, and also that you have re-established your credit since the bankruptcy. Considering each individuals situation is the key. There are ways to get a mortgage if you have had some problems. Let First Equity Mortgage help you find a way.

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