Nevada Arizona Mortgages - Credit Scores Bankruptcy Mortgage Insurance Questions

Click on any of the frequently asked mortgage questions below for more information. If you have a question that does not appear in this FAQ, please e-mail or call Bruce Specter and he will gladly answer any questions you may have about obtaining a mortgage.
How does the mortgage process work?	What is an Annual Percentage Rate (APR)?
How good does my credit need to be?	Why do mortgage rates change?
What if there are errors on my credit report?	What is the difference between "locking in" an interest rate and "floating"?
Can I get a mortgage if I've had a bankruptcy or foreclosure?	What is pre-paid interest?
How long does the mortgage process usually take?	What is an escrow account?
Why should I use a mortgage broker? Won't that cost me more money?	What is private mortgage insurance and why is it required?
Why do lenders use mortgage brokers?	How much does private mortgage insurance cost?
What is the difference between a conforming loan and a non-conforming loan?	Do lenders offer alternatives to private mortgage insurance?
How much money will I need for my down payment?	What benefits do I receive from title insurance?
What are points?	What is refinancing and when is the best time for me to refinance?

You complete the loan application with the help of your loan officer, Bruce Specter, and he will get you pre-qualified (this determines how much of a loan you can afford).

You then need to compile all required documentation on all your finances, and write any necessary letters that might be needed. Additional documentation is requested by the mortgage company, such as verifications of employment and deposit, appraisal, title, credit reports, and anything else required depending on the details of your transaction. See the Mortgage Checklist on this site for more information on documentation that is required to process your loan.

Once Bruce receives all required information, it is put together in a submission package and sent to your lending company's underwriting department. The underwriter reviews the loan and depending on the strength of the loan and the submission package, either approves your loan or denies it. If it is approved any conditions from the underwriter are cleared and the closing documents are ordered. Credit denial is rare at this stage, as the strength of your mortgage package is determined during pre-qualification . That is why it is imperative that you not change your employment, credit or asset status at any time during the mortgage process.

Once your loan is approved, the closing documents are forwarded to the title company which is where you bring the money (certified funds) for your closing costs and sign the papers. Closing costs are over and above the price of the property. These costs are incurred by the buyers and usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at the settlement. The average cost of closing is usually about 1 to 3 percent of the mortgage amount but varies depending on the area of the country. The signed documents are returned to the lender to verify everything was signed correctly. After this verification, the money is then forwarded (either by wire transfer or check) from the lender to the title company. The loan is funded and the transaction is recorded and closed. If this is a purchase and depending on what your purchase and sale agreement states, then you usually get the keys to your new house the day the loan is recorded.

There are many different grades of credit now and basically the way it works is the lower your credit FICO score (higher number of late payments and collections), the lower the loan-to-value available. In order for you to qualify for the highest loan-to-value available (up to 100%) with the best available "A" paper (conforming loan) interest rates, you should have a FICO score of 620 or above and you are typically not allowed to have more than four 30-day (or later) late payments in the last 2 years (maximum 1 on mortgage or rental payments) and all collections and/or judgments must be paid. Lenders tend to look the hardest at your last 2 years of credit history and especially on your last 2 years of mortgage and/or rental payment history. If you do not fall into this category of "A" paper due to less-than-perfect credit, then you may qualify for "B" paper (non-conforming) loans, but you will pay higher interest rates and fees on these loans. But, the good news is, once you have cleaned up your credit, Bruce can then refinance your original "B" loan into an "A" loan and possibly get you better interest rates (depending on the current market).

It is not uncommon to find errors on your credit reports. The best way to deal with these errors is to provide the credit reporting agencies with documentation that proves there are errors. The agencies are required to research your claim and if the agency is able to verify that there is an error, then they will remove it from your credit report. Your loan officer, Bruce Specter, is required to verify the information you provide in your loan application by obtaining your credit report. He will discuss the results of your credit report with you and if you believe there are errors, then you may contact the agencies to have them corrected. However, if you haven't checked your credit reports in a while, and you are anticipating a home purchase or refinancing in the near future, then it is recommended that you take a proactive approach by checking your credit reports now and taking any necessary corrective actions since the credit reporting agencies typically take 6 weeks to make any corrections or changes to your credit report. By being proactive on this, you will avoid delays in your loan approval process due to inaccurate credit information.

You can order copies of your credit report from all three of the credit reporting agencies by clicking on the following sites - Equifax, Experian (TRW), and TransUnion.

I have investors that, based on your situation, would approve you even if you are still in Chapter 13, with the court's permission. A number of other investors have programs with as little as a day after discharge. These mortgages will require a larger (up to 30%) down payment. You may still get a conforming ("A" paper) mortgage if you have re-established at least 2 years of new good credit after your bankruptcy or foreclosure discharge date. Your ability to qualify for a standard mortgage instead of a "B" credit loan will be looked at a little more closely, as there must be no negative credit after the discharge date. The longer the period since discharge, the higher the probability.

The length of time the mortgage process takes from start to finish varies with the complexity and details of your transaction. The typical time frame is usually within 30 days. On purchases, a conditional loan approval (viewed as a loan commitment by a seller or realtor) can be generated the same day your application is taken or received by me. Keep in mind that refinance transactions have a mandatory 3 day Rescission or cooling off period. What this means is you sign on day 1, have a three day period to reconsider (days 2 through 4) and then fund on day 5. Saturday is considered a Rescission day (though you cannot fund on a Saturday). Some loans can take a few months to close, such as construction loans (though I have had the loan approved in as little as a week). This is due to all the required permits needed which can take a long time to obtain.

Mortgage brokers represent you, the borrower, in obtaining financing from a variety of lending sources. If mortgage brokers are middlemen between you and the lender, how can they save you money? Don't you have to pay extra for using a mortgage broker? The bottom-line answer is NO.

Independent surveys have shown that mortgage brokers do NOT cost you more than direct lenders. In most cases, they are able save you money. Mortgage brokers increase competition in the market place, resulting in lower rates for everyone. Since mortgage brokers obtain their funds from a variety of sources, they allow you access to a large number of lenders. When you apply for a loan with Bruce Specter, you are in effect applying for loans with all the 90 + lenders that Bruce Specter represents!

Some of the advantages to using the services of a mortgage broker over going directly to an institutional lender are:

Bruce can provide financing which is customized to your needs. A direct lender has a limited number of their own loan programs to offer and their loan agent can only sell you their loan programs. In contrast, Bruce Specter, represents several lenders and hundreds of different loan programs that can be custom tailored to your specific borrowing needs and not be limited to the constraints of one particular lender.

Bruce acts as advocate and intermediary for you. He will often step in to negotiate terms and conditions which are more favorable to you than the terms you would normally receive by working directly with the lender.

Bruce does most of the work for the lender and therefore, the lender gives him a "discounted" wholesale rate on the loan. Bruce marks the rate up to a retail price which is often the same price the lender would charge you to go to them direct. The result is a better loan program for you without an additional cost!

There are numerous competitive lenders that only accept loans from mortgage brokers. You can only gain access to these competitive lenders and their programs by using a mortgage broker. These "wholesale only" lenders frequently price their loans more aggressively in your favor than institutional retail lenders.

Bruce is more flexible. On the occasion where a loan is declined by the intended first lender of choice, or when that lender imposes unacceptable conditions, then Bruce can re-package the file and easily submit the loan to another lender within a day or two. This is because Bruce processes a package that is generic to all lenders with whom he works. If you went directly to a lender and subsequently wanted or needed to switch lenders, you would need to start all over with your new lender and you would lose 2-3 weeks in processing time.

The bottom line is that lenders use mortgage brokers because they save the lenders time and money.

The mortgage broker does all the legwork of finding customers, pre-qualifying them, and compiling and submitting their loan package. As a result, lenders are able to offer discounted pricing to mortgage brokers.

Mortgage brokers offer the lenders an alternative to branch offices. Since personal contact with the customer is usually required, the broker's office serves as a lender's branch office. This saves the lender tremendous amounts of time and money.

Mortgage brokers act as a matching service - they match the right clients with the right lenders. Bruce knows what each lender is looking for and submits loans that a particular lender is likely to approve. This saves the lender a lot of time and expense since they approve a higher percentage of loans.

Mortgage brokers generate about 50% of all loans. Lenders have established wholesale divisions and have account representatives on staff just to service their mortgage brokers. There is a lot of competition amongst wholesale lenders to get broker-generated business. Bruce's relationship with these lenders gives him a competitive edge in getting you a competitive loan!

Mortgage brokers are responsible for all the sales and marketing required to find clients. Lenders in effect have a large sales force with little overhead cost.

A loan that conforms to the guidelines established by Fannie Mae or Freddie Mac is considered a conforming loan. The guidelines establish the maximum loan amount, down payment, borrower credit and income requirements, and suitable properties. Lenders that make loans established by these guidelines may sell the loans to Fannie Mae or Freddie Mac. These lenders may retain the servicing on these loans, so the borrower will continue to make payments to the original lender. Conforming loans (also known as "A" paper loans) make up the majority of loans in the United States.

A loan that does conform to the guidelines established by Fannie Mae or Freddie Mac is considered a non-conforming loan. A loan that is larger than the conforming loan limit ($359,650) is known as a Jumbo loan. Loans that do not meet the credit quality of conforming loans ("A" paper) are called "A -" "B","C" and "D" paper loans. Second mortgage loans, such as lines of credit, home equity loans, and home improvement loans are also considered non-conforming loans. Click here for more information on non-conforming lending.

Your down payment amount varies depending on your loan program. Here are some common programs with their approximate required down payments:

Fannie Mae and Freddie Mac may allow as little as a 0% down payment. These are new programs (since early 2001) and have become popular for those conserving cash. Unlike some other ZERO down programs, there is not an income limit and the loan amount is the conventional maximum.

Some lenders will do an 80% loan with the seller carrying the other 20% so you could in effect purchase with no down payment.

FHA may allow roughly 3% down, however all of that 3% can be a gift from a family member.

VA is a true 100% loan-to-value loan and the seller can pay all the closing costs which means you could purchase a home with no down payment.

Contact Bruce Specter for more information about the loan program that's right for you and he will be able to provide you with the required down payment for your program.

Points are loan fees that are paid to lenders and mortgage brokers. 1 point = 1% of the loan amount. There are two different types of points: origination points and discount points. Origination points are charged by a mortgage company as a fee to process and approve your loan, while discount points are used to buy down the rate of interest, and typically are passed through to the investor to secure that lower interest rate.

The annual percentage rate (APR) is an interest rate that reflects the cost of your mortgage loan as a yearly rate and is different from the actual note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law requires that mortgage companies disclose the APR when they advertise a rate. For example: 30-year fixed / 8% / 1 point / 8.107% APR.

The APR does NOT affect your monthly payments. Your monthly payments are calculated by your note interest rate and the length of your loan.

The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and then hiding fees that increase your costs. The APR rate is generally higher than the rate stated on your mortgage note because the APR includes other costs, such as origination fee, loan discount points, and pre-paid interest. The APR allows you to compare, in addition to the interest rate, the total cost of financing your loan, among various lenders.

Unfortunately, there is no uniform method of calculating APRs and the rules for computing APRs are not clearly defined, so different lenders calculate APRs differently! In general, the following fees are usually included in the calculation of the APR: discount and origination points; pre-paid interest (most companies assume 15 days of interest in their calculations, but some may use any number between 1 and 20); loan processing fee; underwriting fee; document preparation fee; private mortgage insurance costs; appraisal fee; and credit report fee. Sometimes, the loan application fee and credit life insurance costs may also be included in the APR calculation.

In general, the following fees are usually NOT included in the calculation of the APR: title or abstract fee; escrow fee; attorney fee; notary fee; closing document preparation fee (charged by the closing agent); home inspection fees; recording fee; and transfer taxes.

Also, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!

A borrower shopping for the best mortgage rate can easily be seduced by low rate offers that are accompanied by low annual percentage rates (APR). Federal law requires that APR be disclosed along side the actual interest rate as a means to help borrowers make a more informed decision on their mortgage.

The truth is that APR is a very poor way to comparison shop for a mortgage and can cause borrowers to make costly decisions. APR was created to provide a way for borrowers to account for costs associated with the mortgage. This sounds good because it may not be very easy to choose between a loan with a lower rate and higher fees or a loan at a higher rate with low fees.

The problem is that the APR calculation is based on bad assumptions. First, APR assumes zero inflation and that the value or buying power of a dollar today will be exactly equal to the value of a dollar 10, 20, or even 30 years from now. Next, the APR calculation assumes that the mortgage will never be pre-paid or paid. That means no refinancing or selling the home, which is highly unlikely since the average life of a home mortgage loan is less than four years. Just think about your own loans: Is it rare to see the same loan in place for even five years-forget 30 years?

The APR calculation does not consider the value of the money used for fees. So if you spent thousands of dollars in points or fees to get a lower rate, the APR calculation does not give any value to the money if it wasn't spent on closing costs. Finally, APR does not take tax consequences into consideration. This can be significant, since higher fees on the mortgage may not be deductible, while the higher interest rate typically is deductible. Moreover, APR can be easily manipulated by bad lenders, making it totally worthless.

How does APR work?
APR basically takes the base interest rates, calculates closing costs, and gives you a number. Technically, the lower the number, the better the deal. If two lender quote you the exact same (base) rate, the lender with the lower APR is supposed to be a better deal. If the lenders are playing fair, this works well in giving you accurate information.

If the two lenders are quoting different (base) rates, then the APR calculation is totally misleading.

Furthermore, the APR calculation only keeps the monthly payment information the same. Instead of the mortgage amount, APR uses "amount financed." This is the "amount financed" information on the Truth in Lending statement. Amount financed takes into consideration the fees that are lender imposed, such as application fees, points, commitment fees, and interim or per diem interest. So, amount financed is the mortgage amount less any lender fees, points, and interim interest. The more fees, the lower the amount financed. The monthly payment is then calculated as a product of the amount financed to give you the annual percentage rate or APR. So, the lower the amount financed, the higher the APR is. Amount financed can be manipulated by assuming a closing on the last day instead of the first day of the month. That would increase the amount financed and decrease the APR.

Here is a real example on a $150,000 fixed rate 30-year mortgage with zero points: Lender A is offering a great low rate of 5.875 percent and Lender B is offering a higher rate of 6.125 percent.

Let's look at the real story. The payment difference between the two is $24 per month. So is it worth paying $3,000 in fees to Lender A in order to save $24 per month? Hardly. It will take over 10 years for a borrower just to get back his investment-a bad choice when you consider that mortgage loans are typically retired within four years. To make the decision to go with Lender A even worse, if that's possible, borrowers rarely take the value of to day's dollars into account.

Rather than giving Lender A your hard-earned $3,000, you should give it to yourself. Reduce the loan balance on your mortgage by the fees you are saving. In the example given, that would reduce the loan from $150,000 to $147,000. This makes the payment difference just $6 per month instead of $24 per month! The true time to break even is really 500 months (more than 40 years). So it is impossible to benefit from the higher fee program from Lender A, because the maximum period on the loan is 30 years or 360 months. One more thing: when you calculate your tax deduction on the payment difference, it makes even more sense to avoid paying higher non-deductible fees. The obvious correct choice is to go with Lender B, even though the APR is lower with Lender A.

The bottom line is that you should forget APR and think twice about those advertised low rates when they are accompanied by higher fees.

This is yet another advantage to using the services provided by Bruce Specter because he deals with the lenders for you and gets a good-faith estimate from each lender to compare costs, so he can make sure you are getting the best rate!

Interest-rate movements are based on the simple concept of supply and demand. If the demand for credit (loans) increases, then the interest rates will also increase. This is because there are more buyers, so sellers (lenders) can command a better price, (i.e. higher rates). However, if the demand for credit reduces, then interest rates decrease. This is because there are more sellers than buyers, so buyers can command a lower better price, (i.e. lower rates). When the economy is expanding, there is a higher demand for credit so interest rates increase, whereas when the economy is slowing the demand for credit decreases and so do interest rates. This leads to a fundamental concept: A slowing economy will lead to lower interest rates, while a growing economy will lead to higher interest rates.

A major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy grows too strongly the Federal Reserve increases interest rates to slow the economy down and reduce inflation. Inflation results from prices of goods and services increasing. When the economy is strong there is more demand for goods and services, so the producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments, and higher mortgage rates.

Mortgage rates tend to move in the same direction as interest rates. However, actual mortgage rates are also based on supply and demand for mortgages. The supply/demand equation for mortgage rates may be different from the supply/demand equation for interest rates. This might sometimes result in mortgage rates moving differently from other rates. For example, one lender may be forced to close additional mortgages to meet a commitment they have made. This results in them offering lower mortgage rates even though interest rates in general may have increased.

Fannie Mae Backed Securities and Ginnie Mar Backed Securities also affect mortgage rates. Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae Backed Securities. The rates on these securities influence mortgage rates very strongly. Ginnie Mae pools large quantities of mortgages, securitizes them and sells them as Ginnie Mae Backed Securities, which influence mortgage rates on FHA and VA loans.

Also, the bond market has a strong influence on mortgage rates. There is an inverse relationship between bond prices and bond rates, so when bond prices increase, interest rates decrease and vice versa. This is because bonds tend to have a fixed price at maturity (typically $1000). If the price of the bond is currently at $900 and there are 10 years left on the bond, and if interest rates start increasing, the price of the bond starts decreasing. This is because the higher interest rates will cause increase accumulation of interest over the next 5 years and so the lower price of $880 will result in the same maturity price of $1000.

Mortgage rates can change from day to day and can even fluctuate during any given day. If you are concerned that interest rates may rise during your loan processing period, then you can "lock in" the current interest rate (and loan fees) for a short time, usually 60 days. The benefit of "locking in" a rate is the security of knowing the interest rate is locked and if interest rates should increase, your "locked in" rate will not change. However, if you are locked in and rates decrease, you may not necessarily get the benefit of the decrease in interest rates.

If you choose not to "lock in" your interest rate during your loan processing period, then you may "float", or hold off "locking in" until you are comfortable about the rate. You do take the risk of interest rates increasing during the time of your application to the time the rate is locked in. The downside is that you are then subject to the current higher interest rates. The benefit to "floating" a rate is if interest rates were to decrease, then you would have the option of locking into a lower rate than if you had already locked in the rate.

Predicting the movement of interest rates is very complex since the movement of rates is usually based on subjective, rather than objective, criteria. Bruce Specter can help you decide whether you should "lock in" or "float" a rate.

This is interim interest that accrues on the mortgage loan from the date of the settlement to the beginning of the period covered by the first monthly payment. Since you pay interest in arrears, your mortgage payment made in June actually pays for interest accrued in the month of May. Because of this, if your closing date is scheduled for June 25, your first mortgage payment will be due August 1 (and will pay for the interest for the month of July). The lender will then calculate an interest amount per day that is collected at the time of closing (hence the name pre-paid). This amount covers the interest accrued from June 25 to July 1.

An escrow account is typically established at the time you close your mortgage loan. This account is held by the lender for the future payments of recurring items relating to the mortgaged property, such as real estate taxes and insurance premiums (hazard and mortgage), as they become due. Lenders usually require you to pay an initial amount for each of those items to start the reserve account at the time of closing. You are not required to have an escrow account. You always have the option of paying your own property taxes and home owners insurance thereby reducing the amount of money you would need to pay at your time of closing. In Arizona, most lenders charge a fee to waive these escrow accounts.

Private mortgage insurance (PMI) is insurance written by a private company that protects the lender from losses in the event the borrower defaults on his or her mortgage. Borrowers are required to pay the premium for private mortgage insurance. Even if you have a good credit rating, lenders still generally require private mortgage insurance if you make a down payment of less than 20%. Without mortgage insurance, the lender could be subject to considerable financial loss so to limit their risk, private mortgage insurance is required for all conventional loans with less than a 20% down payment.

As an alternative, the blended mortgage has been popular for some time. This is a combination of a 1st mortgage and a 2nd mortgage. Since MI is only a factor for a 1st mortgage, that 1st mortgage is typically 80% of the purchase or refinance amount, satisfying the 20% "equity" required to avoid mortgage insurance. The 2nd mortgage is typically 10% or 15% of the purchase or refinance amount. The blended mortgage avoids MI with as little as 5% down, usually with a lower payment than with just 5% down and mortgage insurance, and with a better tax benefit (the interest on the 2nd mortgage is also deductible, depending on your tax situation. MI is not deductible).

There is speculation that mortgage insurance may be tax deductible in the future. Currently it is not. Please check with me or your tax professional for more information.

The cost of PMI is divided into two parts. The first part is a payment made at the time of closing. The second is an on-going monthly payment made with your principal and interest payment. Normally, PMI may be stopped when you reduce the principal of your loan to 80%. PMI also applies for refinancing. Mortgage insurance can be very expensive and there is no tax deductible benefit for you on the mortgage insurance payments, so be sure to ask your lender how to have the PMI removed once you build up enough equity. You will probably have to pay for an appraisal on your home to prove your equity is high enough, but that will be money well spent if it eliminates high PMI payments. You can avoid PMI altogether by placing a down payment of 20% or higher on your home purchase. Or, if you are refinancing, you can avoid PMI by leaving 20% equity in your house.

Some lenders offer another option for purchasing PMI. Under this program (generally referred to as "premium pricing"), a premium is added to your interest rate and origination fee. This premium pricing may benefit you because private mortgage insurance is not tax deductible and mortgage interest may be. You should speak with your tax preparer or accountant for information and advice on this matter. Another more popular method is by combining a first and second mortgage to satisfy the 20% required on your first mortgage to avoid mortgage insurance. There are programs available from Zero down. We can discuss these options if they are of interest.

Title insurance is a promise by a title insurer that "if the state of the title is other than as represented on the face of the policy, and if the insured suffers losses as a result of the difference, then the insurer will reimburse the insured for that loss up to the face amount of the policy, and any related legal expenses".

Title insurance policies protect lenders and property owners, respectively, against loss from claims due to defective titles and liens or other encumbrances that are not specifically stated in the policy as exceptions from coverage. Title insurance also protects against other matters, such as lack of access to the property and unmarketable title. The title insurance premium is paid in total at closing and the amount is based upon the amount and type of coverage requested.

When you refinance, you pay off your existing mortgage loan by taking out a new mortgage loan. The refinance process is very similar to the process you went through to purchase your house in the first place.

Would refinancing your loan benefit you by saving you money in interest and possibly freeing up some extra cash? There are several good reasons to refinance. If interest rates are lower now than when you originally bought your house, then refinancing can save you money each month in interest or help you pay off your debt faster. Also, if you have equity built up in your home you may be able to get a "cash out" refinance. You can then use the cash from the equity in your home on such things as college tuition, paying off higher interest rate debts, such as credit cards, home improvements, etc. And the added bonus is that the cash you get from your "cash out" refinance may even be tax deductible, but you would need to confirm that with your tax preparer or accountant.

Will refinancing right now save you money? C ontact Bruce Specter and he will gladly discuss the current refinancing options that would best suit your situation today!