We understand that not everyone is familiar with some of the terminology used with mortgages. We want to make sure that you feel comfortable and well informed when you’re presented with your loan options. Below are some of the most frequently asked questions we have come across with our applicants and a glossary of key terms. If there is a question you have that’s not listed below, feel free to contact us. We are here to help.

What is an FHA loan and what are the benefits?

FHA loans are loans insured by the Federal Housing Administration.  The benefits of FHA loans are generally easier credit qualifying and typically lower down payments required to purchase a property. 

What is considered a good credit score and how will my score affect the loan terms?

Credit scores range from 350 to 850. The higher one’s credit score the better their credit standing. The major factors that affect one’s credit score are timing of payments (do they pay their credit cards, mortgages, auto loans, etc. on time) and the amount of debt. Typically any score that is over 700 will receive the lowest interest rates available. 

What is the turnaround from the time of the application to closing?

There are many factors that can affect the turnaround time of a mortgage loan. However, typically for a purchase it can range anywhere from 15 to 20 days. A refinance is typically much quicker, ranging anywhere from 10 to 15 days. 

Why would anyone get into an adjustable rate mortgage?

Adjustable rate mortgages are loans where the interest rate is fixed for a specified period of time. This fixed period can range from as low as one month to 10 years and up. Typically the longer the fixed period the higher the rate  during the fixed period and vice versa. After this fixed period is over the rate on the loan is then recalculated according to a market index plus a pre-specified fixed margin. The advantage of an adjustable rate mortgage is that typically the rate during the fixed period is lower than a conventional fixed rate mortgage. This translates into lower monthly payments.  Homeowners that intend to sell or refinance and keep the loan for a relatively short period of time are the typical applicants of adjustable rate mortgages.

What is a prepayment penalty and does it have any affect on my loan? 

A prepayment penalty is charged to the loan applicant if the loan is paid off before the specified term of the penalty. In general, a prepayment is applied to the loan at the discretion of the loan applicant. Often a bank will offer a lower rate if a prepayment penalty is applied. A prepayment penalty typically ranges from 1 to 5 years. Banks or lenders include a prepayment penalty to offset the inability to collect enough interest to cover the costs of making the loan.

How much should I suspect to pay for property taxes and insurance?  

The amount of property taxes that is paid on a property is based on the mileage rate (tax rate) multiplied by the (assessed value-any exemptions). The mileage rate(tax rate) is different for every municipality and is set by county officials.  The higher the mileage rate the higher the property taxes for a home in the area. To access a chart that shows the mileage rates for miami-dade county go to http://www.miamidade.gov/taxcollector/property_tax_real_estate.asp.  

Regarding homeowners insurance, the best advice is to shop around. To get a general idea of the monthly expenditure for taxes and insurance take (the sale price or appraised value x .04) divided by 12. Note, in condominiums and townhomes, typically the homeowners insurance may be included in the monthly maintenance or association fee. Be sure to ask the association or the seller for budgeting purposes. 

100% Financing

The above figures are calculated based on financing 100% of the purchase  price. Only the total closing costs  are given up front at closing. There is no down payment towards the purchase price. 

Total Closing Costs

Closing costs are referred to as all the fees or expenses that are associated with making the loan. These include loan origination fees, state and county recording fees, prepaid interest, etc.

PMI

This stands for Private Mortgage Insurance. Typically banks charge this in the form of a monthly charge in addition to your mortgage payment to  help offset the high risk associated with making the loan. PMI is typically charged for loans that are over 80% of the purchase price or appraised  value. However, there are exceptions.

Monthly Payment

Monthly payment on a mortgage is based on three major factors: interest  rate, loan amount and term. In general, the higher the interest rate and size of the loan, the higher the monthly payment. In contrast, the higher the term (30yrs versus 15) the lower the monthly payment. The loan program one chooses also affects the monthly payment. The are programs which include  principal + interest (PI), interest only (IO), or principal + interest +property taxes + homeowners insurance (PITI).
 

Amortization

The term used to describe the reduction of debt due from the scheduled payments of the loan. “Negative Amortization” describes the opposite affect, as the principle balance of the loan increases.

Appraisal

The process and act of placing a value on real property.

Appreciation

An increase in value.

Commitment

A promise by the lender to make a loan for a prospective borrower.

Quitclaim Deed

An instrument in writing often used to transfer title of real property from one party to another.

Equity

The difference between the value of the property and the total owed on all mortgages on the property.

Foreclosure

The legal process where the borrower loses his interest in the real property. Typically occurs when borrowers fail to make mortgage payments.