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COMMON
MORTGAGE QUESTIONS
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 Whether
you are looking for a mortgage for the very first time,
or just looking to refinance your interest rate or
term of loan, there are many questions you need answered
before you can make a decision on which program is
best for you.
Continental Mortgage Services, Ltd. can answer all
of your questions with quick response times, just contact
us. Some of the more Frequently Asked Questions
are listed below for your convenience.
- What is a loan that originated "in
portfolio"?
- What is the secondary market?
- What kind of documentation is
normally required for a loan application?
- What is a credit check and who
performs them?
- What does a lender have to disclosure
to you by law?
- What is PITI?
- What are the conventional loan
guidelines?
- What is long-term debt?
- What are the current Fannie Mae
and Freddie Mac conventional loan limits?
- Why do I need Private Mortgage
Insurance (PMI)?
- Where do I get PMI?
- What is a drop-out or a hard-money
Lender?
- What are the limits allowed
for FHA loans?
- What is seller financing?
- What are the primary institutions
and sources of money and mortgages?
- What is a loan that originated "in
portfolio"? A self-underwritten loan
made by a bank or originator that holds
the loan in its portfolio of investments, collecting
the monthly payments until the loan is paid in
full. Nowadays, many home loans are not held "in
portfolio" and are sold to other financial
institutions or to the secondary market.
- What is the secondary market? The
secondary market is made up of organizations that
buy loans from Banks and other lending institutions.
Primary comprised of the Federal National Mortgage
Association (FNMA) (or Fannie Mae); the Government
National Mortgage Association (GNMA) (or Ginnie
Mae); and The Federal Home Loan Mortgage Corporation
(FHLMC) (or Freddie Mac). These organizations buy
and recycle loans from the original lending institution.
A large percentage of loans end up in the secondary
market. Loans that are not sold to in the secondary
market remain "in portfolio".
| Fannie
Mae |
3900 Wisconsin
Ave., NW;
Washington DC 20016-2899 |
| Freddie
Mac |
P.O. Box 723788
Atlanta GA 30339 |
| Ginnie
Mae |
451 7th St.,
SW
Washington, DC 20410-9000 |
- What kind of documentation
is normally required for a loan application?
Use this Checklist:
- Bank account numbers (savings & checking),
stock account numbers, balances and addresses
of all financial institutions you normally
deal with;
- Addresses for the past 2 to 10 years of
residence including the dates occupied and
the names and addresses of previous landlords;
- Employment history for the past 2 to 10
years including dates and addresses;
- Social Security numbers, Drivers License
numbers, Credit Card numbers;
- All records pertaining to current debt
including loans, car loans, bank loans, and
credit cards;
- Pay stubs for the previous two pay periods
along with amounts for items such as Bonus,
Overtime, or Tips;
- Value of all assets you currently have
including cash, furniture, cars, and insurance
policies;
- A check for the appraisal, credit report,
and loan application fee;
- Lease agreements from your current home
if it is rented;
- A copy of the sales contract on the home
in which you are interested in purchasing;
- Names and addresses for any previous debts
that you incurred and have completely paid
off;
- Records supporting all additional sources
of income, including child support, alimony,
pensions, social security, etc.;
- Your current and previous years tax return.
- What is a credit check and
who performs them? Lenders are required to
pull two credit reports simultaneously from two
different sources. A credit check is a check
of your previous history in making payments on
loans and debts. The nationally recognized companies
that provide these reports are TRW, The Chilton
Corporation, Trans Union, Associated Credit Services,
Associated Credit Bureau Services, and Credit
Bureau, Inc. A credit report will include such
items as your date of birth, address and place
of employment along with a list of all creditors
who have reported your history to the bureau.
- What does a lender have to
disclosure to you by law? The U.S.
Dept. of Housing and Urban Development (HUD)
requires a full disclosure of virtually everything
pertaining to your loan. This document is called
a settlement statement. A settlement statement
including two separate columns. One column lists
a Summary of the Borrower's Transactions and
the second column lists a summary of the Sellers
Transactions. The statement includes things such
as the Gross Amount of your loan, a listing of
taxes, a listing of deposits, and any and all
money due or exchanged by the buyer or the seller.
In addition, if the loan is an ARM, the lender
must also provide a historical break-down and
accounting of how the loan will perform.
- What is PITI? PITI stands
for Principal, Interest, taxes and insurance and
is basically your monthly payment.
- What are the conventional
loan guidelines?
Fannie Mae
| Value |
Qualifying Ratio with <10
Percent Down |
| PITI |
Can't exceed 28% of gross
monthly income |
| PITI + installment debt |
Can't exceed 36% of gross
monthly income |
| Value |
Qualifying Ratio with >10
Percent Down |
| PITI |
Can't exceed 28% of gross
monthly income |
| PITI + installment debt |
Can't exceed 36% of gross
monthly income |
Freddie Mac
| Value |
Loan to Value Ratio |
| PITI |
Can't exceed 28% of gross
monthly income |
| PITI + long-term installment
debt |
Can't exceed 36% of gross
monthly income |
- What is long-term debt? Any
debt that cannot be paid off in 10 months.
- What are the current Fannie
Mae and Freddie Mac conventional loan limits?
| Maximum
Loan to Value |
Loan Limit |
| 95% |
$417,000 |
Loans above
these amounts are called Jumbo Loans.
- Why do I need Private Mortgage
Insurance (PMI)? PMI protects the lender
if a default should occur. PMI protects the lender
for the top 20% of the mortgage against default
allowing the lender to sell the home below market
value to recoup the money borrowed. Generally,
if you put down more than 20%, you won't need
PMI
- Where do I get PMI? You
can shop for PMI just like any other insurance
to find the best rate. Refer to the list of Mortgage
Insurance Companies of America List.
- What is a drop-out or a hard-money
Lender? A lender who specializes in high-risk
buyers that "drop out" of qualifying
guidelines.
- What are the limits allowed
for FHA loans? The loan limits are defined
differently for each county. You need to contact
your mortgage loan agent to be sure.
- What is seller financing? When
the seller finances all or part of a real estate
purchase.
- What are the primary institutions
and sources of money and mortgages? Savings & Loan
associations, Commercial Banks, Mortgage Bankers,
Mortgage Brokers, Credit Unions, Pension Funds,
and the secondary market.
- What is the advantage of
using a mortgage broker for my home loan? Mortgage
bankers and brokers sell your loan to an investor
and use the proceeds to make new loans. Mortgage
brokers make their money by selling the loans
in the secondary market to institutional investors.
Because Mortgage brokers usually deal directly
with the investors they can most often provide
the most competitive rates in town.
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