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Thank You!FREQUENTLY ASKED QUESTIONS
- What are points?
- How do I get pre-approved for a loan?
- What is the difference between the mortgage rate and the APR?
- What is a loan-to-value (LTV) and how does it determine the size of the loan?
- What is a combined loan to value (CLTV)?
- What is Private Mortgage Insurance (PMI)?
- What is an escrow account?
- What are the benefits/drawbacks to having an escrow account?
- Is bi-weekly payment a good deal?
- What is a reverse mortgage?
- What does DTI mean?
- What is title insurance?
- Should I lock in my interest rate?
- How is my personal information protected after I apply?
- Who is Louie the Wonderdog?
What are points?
A point is a charge equal to one percent of the loan amount. Points typically are paid in order to obtain a lower interest rate. A rate of 7.875% with 1 point for a loan of $100,000 would require the borrower to pay a total of $1000 to the lender upon approval of the loan. A rate of 8.000% with 0 points will require no payment to the lender but the interest rate is slightly higher. There are pros and cons on whether or not to pay points and it is important to consider all options before making a decision on if paying points are beneficial for you.
How do I get pre-approved for a loan?
Getting Pre-approved is an easy and important step in getting prepared to buy a home. A Pre-Approval let’s a seller know you are a qualified buyer and adds strength to your offer to purchase. Obtaining a Pre-approval normally takes less than an hour and can be done either in person, by email, or over the phone.
What is the difference between the mortgage rate and the APR?
The APR (Annual Percentage Rate) of a loan is supposed to be an overall interest rate with all the applicable closing costs factored in. Unfortunately, not all lenders include the same costs so not all APRs are created equally. Use the APR as a general guide to the overall cost of the loan but keep in mind that you have to look at the details of what’s included to be sure.
What is a loan-to-value (LTV) and how does it determine the size of the loan?
The loan to value ratio is the amount of money you borrow compared with the appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: With a 95% LTV loan on a home priced at $100,000, you could borrow up to $95,000. The higher the LTV, the less cash homebuyers are required to pay out of their own funds. So, to protect lenders against potential loss in case of default, the higher LTV loans (over 80%) usually require a mortgage insurance policy.
What is a combined loan to value (CLTV)?
A combined loan to value (CLTV) is the total amount of all mortgages on a property, such as a first mortgage and a home equity loan compared to the appraised value of the home. For example: if you had a first mortgage on your house with a balance of $60,000 and a home equity loan at $15,000, you would owe a total of $75,000 on the property. If the property was valued at $100,000, then your CLTV would be 75% since $75,000 accounts for 75% of the house’s value. The difference between an LTV and a CLTV is that the LTV only takes into account the first mortgage, whereas the CLTV accounts for all the loans on the house.
What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance is an insurance policy that offsets losses in the case where a mortgagor is not able to repay the mortgage and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property. It is normally required on mortgages where the borrower has less that 20% equity in the property.
What is an escrow account?
An escrow account is an account set up by the lender into which the borrower makes periodic payments, usually monthly, for taxes, hazard insurance, assessments, and mortgage insurance premiums into it along with their mortgage payment. This account holds the money until it is needed for disbursement. For example: if your annual homeowner insurance premium was $600, you would make a monthly payment of $50 (1/12th the annual amount) into the escrow account. When the premium comes due, the escrow account servicer pays the amount from the funds in the escrow account.
What are the benefits/drawbacks to having an escrow account?
In some cases you can choose whether or not to have the lender setup an escrow account. The benefits and drawbacks can help you choose what is right for you.
Benefits:
- With an escrow account, your tax and insurance payments are handled for you. You won’t have to worry about being caught unprepared when the yearly tax bill comes in.
- You are protected from surprises. If your property taxes were to suddenly go up, you will not be forced to immediately come up with the funds. The escrow account will pay the amount and allow you to cover the difference over time (usually 12 months) interest free. Without an escrow account you would have to come up with the money immediately or possibly incur interest and penalties.
- The escrow account is free. In some cases the lender will impose a one-time fee to allow you to waive the escrow account requirement.
Drawbacks:
- The money you put into the escrow account is in advance. This means you will be making payments into the account normally 12 months before the bill comes due. For example: if your annual homeowner insurance premium was $600, you would make a monthly payment of $50 (1/12th the annual amount) into the escrow account. This payment would begin 12 months prior to the bill coming due for there to be sufficient money in the account to pay the bill. The drawback is that your money will sit in a non-interest bearing account until it comes time to pay out the funds.
Ultimately the decision whether or not to have an escrow account comes down to personal preference. If you like keeping things simple and easy and are not the type to plan for bills months in advance, and escrow account is probably the best option. If you monitor your finances closely and want the maximum possible interest out of your money, you may want to request having the escrow account waived.
Is bi-weekly payment a good deal?
There has been a great deal of advertising touting the benefits of making bi-weekly payments on your mortgage. The advertising usually claims to "payoff your mortgage years early" or "save thousands of dollars in interest". While paying bi-weekly on your mortgage can save you considerable money over time, the true nature of how it is accomplished is usually made vague by these companies that wish to handle this procedure for you... for a fee. It is Liberty Lending’s feeling that in almost all cases it is inadvisable to pay a company to enter into a bi-weekly program. For more information on this we invite you download to a copy of the "Bi-weekly mortgage truth" article which is located on our forms library page.
What is a reverse mortgage?
A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is "reversed." Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you.
What does DTI mean?
One of the most important factors in determining whether or not a consumer qualifies for a particular loan is the individual's debt ratio. The debt ratio is essentially a way to determine how much of an individual's monthly income is spoken for every month in the form of payments that are due. A debt ratio of 60%, for instance, means that 60% of your income every month is required to make your minimum payments on all of your outstanding liabilities.
What is title insurance?
a policy issued by an insurance company guaranteeing that the title to a parcel of real property is clear and properly in the name of the title owner and that the owner has the right to deed the property (convey or sell) to another. Should a problem later arise with the title (such as an inaccurate description), the insurance company will pay the damages to the new title holder or secured lender or take steps to correct the problem.
Should I lock in my interest rate?
When you apply for a mortgage loan you will be most likely have the option to lock in your interest rate or float it. Locking in your interest rate means that the mortgage broker is securing your agreed upon interest rate for a set period of time (normally 30-45 days). This "lock" protects you from interest rate fluctuations while your mortgage application is being processed. The "locked in" rate is the interest rate you will get (provided you are approved) regardless of whether the interest rates go up or down during the processing period. If you choose to "float" your rate, you have no protection from market fluctuations. "Floating" your rate is just like playing the market in stocks; you’ll either a. win because the rates dropped or b. lose because the rates went up. Our advice? LOCK! Playing the market with your mortgage rate is like playing the market with one single stock worth the same amount as your mortgage. The outcome can cost your 10’s of thousands if your gamble is wrong.
How is my personal information protected after I apply?
Any and all information provided to our company is handled with the highest level of confidence and security. We never sell, distribute, transfer, or otherwise release any of your confidential information to third parties that are not directly involved in the processing and/or underwriting of your application. All confidential information becomes imaged and stored in a triple key locked computer server that cannot be accessed from the internet and is thus impervious to hacking or other intrusion. Any paper documents are then shredded and destroyed.
Who is Louie the Wonderdog?
Louie is the mascot of Liberty Lending. He was part of Liberty Lending when we first opened our doors in 2000 and came to the office every day to provide motivation and perform various acts of heroism when duty called. Sadly, Louie passed on in June of 2008, but his spirit lives on in the hearts of all that knew him.