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Frequently Asked Questions

Answers to some frequently asked questions to help you get more out of the mortgage process..

1. Why might my actual costs be higher (or lower) than the estimated costs I see here?
2. Can I borrow more money to cover closing costs?
3. What’s the difference between non-recurring and recurring costs?
4. How much does it cost?
5. What is escrow for taxes and insurance?
6. What type of insurance do I need?
7. What are Interest Rates?

1. Why might my actual costs be higher (or lower) than the estimated costs I see here?
A: Final closing costs can differ from an estimate for a variety of reasons including:

  • A special inspection of the property may be required (termite, electrical, plumbing, etc.).
  • A more in-depth property value analysis may be required if the property has unique structure/design aspects or presents other factors that make it difficult to determine the market value.
  • The cost for title insurance in a purchase money transaction (acquiring property by payment of money or equivalent) is usually negotiated.
  • Some small fees (recording, notary, title, etc.) are based on the number of pages in your title/closing documents and can’t be included in an estimate.

2. Can I borrow more money to cover closing costs?
A: Yes. Depending on the loan-to-value (LTV) ratio, you may be allowed to borrow more money to cover your non-recurring closing costs and possibly some of your recurring costs up to 1% of your property’s value.

3. What’s the difference between non-recurring and recurring costs?
A: Non-recurring costs are one-time fees associated with closing a loan and include loan fees, appraisal and title fees, taxes and points. Recurring costs are ongoing fees that can include mortgage insurance, property taxes and insurance.

4. How much does it cost?
A: Simply put, closing costs/fees are the various costs associated with closing a loan. The different types of closing costs can include:

  • Lender Fees – these are the fees that are paid to your lender to cover the costs of processing your loan. Typically, your are charged an application fee to cover costs associated with checking your credit, underwriting your loan, as well as other activities done to prepare for your closing.
  • Third-party Fees – these are fees that are paid to third parties performing services in connection with the closing of your loan, for example to a title company to obtain a title insurance policy on the home or to an appraiser to ascertain the value of the home.
  • Impound/Escrow Amounts – these amounts are collected when your lender pays your annual property taxes and homeowner’s insurance on your behalf. Typically, we require you to put a certain portion of funds in your escrow account at closing to ensure there is enough to pay your taxes and insurance when they are due. Thereafter, additional impound/escrow amounts will be collected with each monthly mortgage payment.
When you apply with your lender, they will send you a Good Faith Estimate that outlines the different fees associated with your loan.

5. What is escrow for taxes and insurance?
A: An escrow or impound account is an account your lender will set up for you to prepay certain recurring costs associated with your mortgage and home ownership, such as property taxes and homeowner’s insurance. You will normally be expected to prepay (into your escrow/impound account) your first 6 months of taxes, your first 2 months of homeowner's insurance, and your first 2 months of mortgage insurance (if required).

These amounts are not technically closing costs (even though they are due at closing), since they are prepayments of future recurring costs, as opposed to one-time fees associated with the loan.

6. What type of insurance do I need?
A: There are typically three types of insurance policies involved in getting a mortgage and owning a home.

  • Title Insurance
    A title insurance policy identifies any party who has a lien on your home or the home that you are looking to purchase. The policy also protects you and your lender against any title dispute that may arise in the future.
  • Homeowners Insurance
    Homeowners insurance protects you not only against property damage caused by a fire or a severe rainstorm, but can also shield you against theft, vandalism, as well as for stolen cash and personal items.

    Basically, the more coverage you want, the higher your monthly premium will be. If a catastrophe does happen, homeowner’s insurance should cover the costs to rebuild your home. If you live in an area that’s prone to natural disasters, like earthquakes and floods, you’ll need separate policies.
  • Mortgage Insurance
    Mortgage Insurance is an insurance policy (often called MI or PMI) that helps your lender recover losses we incur if you default on your loan. If you do not put down at least 20% of the purchase price of your new home, your lender typically requires you to purchase mortgage insurance. Mortgage Insurance payments are included in your monthly payment.

    If you are required to pay Mortgage Insurance, you can ask to drop the policy once you have 20% equity in your home. You can reach the 20% mark by either paying down your mortgage and/or the value of your home increasing.

    For some customers, a “combo loan” or “piggyback loan” works better than paying for mortgage insurance. With a combo loan, you get a 1st mortgage for 80% of the purchase price, a 2nd mortgage for 10% of the purchase price, and put down 10%.

7. What are Interest Rates?
A: The main cost of borrowing money is interest. It's like rent that is charged to use our money. Your interest rate, along with the term and amount of your loan, determines the size of your monthly principal and interest mortgage payment.

Interest rates may vary based on several factors, including:

  • Loan type (fixed, ARM, etc.)
  • Loan-to-Value ratio (or the loan amount versus the value of your home)
  • Type of home (primary residence, second home, investment property)

You can “buy down” the interest rate on your loan by paying points up front.

An annual percentage rate (APR) shows the total annual cost of a mortgage (closing costs and interest) over its full term (usually 30 years) as a yearly rate.

APR is a good way to compare mortgages as it reflects the true cost of the loan.

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