FAQ
Why
Buy Instead of Rent?
Decades
after the phrase "the American dream" was first coined,
home ownership is still a meaningful goal for a large number
of individuals and families. Buying a home is considered
by many to be a wise investment because typically, houses
increase in value over time. And, as the years go by, you
can build ownership interest called equity, which you can
borrow against. In contrast to renters, most homeowners
receive significant tax breaks, because interest paid on
a home mortgage is almost always tax deductible. Finally,
there's the personal satisfaction of having a home you can
call your own to share and enjoy with friends and family.
What
does the application consist
of?
The
typical application is basically an outline of who you are,
the property you want to buy or refinance, and your financial
assets and liabilities.
What Happens Next?
You've applied for your mortgage. Now what? This simple,
four-step walk through to loan closing will help you understand
the procedure and give you an idea of what to expect.
1. Processing
We lender collect the information needed to process your
loan and initiate a credit check. Documentation requirements
vary depending on the loan program you apply for and your
individual financial and credit profile. If your property
does not qualify for an automated valuation or drive-by
assessment, an appraisal will be ordered to determine the
fair market value of the property you wish to purchase.
You will have the option to lock in your interest rate or
float your interest rate.
Depending upon the information from your credit report and
the type of property you want to finance, you may need to
provide additional documents or letters that:
- Verify
the income you'll use for loan qualification
- Confirm
your down payment and closing expenses in your bank account
- Clarify
any incorrect items on your credit report
- Verify
any debts not listed on your credit report
2. Decisioning
Most JC Capital mortgage applications receive approval decisions
swiftly and easily through our automated system. On occasion,
loan applications need to be reviewed by underwriting. Underwriters
are trained to evaluate your financing requirements and will
do everything possible to help approve your application. In
the case that your application is not approved, we can help
you determine what actions need to take place in order for
you to obtain financing.
If your loan is approved, JC CApital will issue a loan commitment
(a binding agreement) to lend you the money. The commitment
includes conditions required prior to or at closing, information
on when the commitment expires; and important information
you should know when closing on your home. You should review
your loan commitment thoroughly to make sure the terms are
acceptable to you.
3. Pre-Closing
Prior to closing, sometimes referred to as "loan settlement,"
we may ask you to provide certain insurance and real-estate-related
documents. When you are ready to schedule your closing date,
all involved parties will be contacted to arrange for the
closing to take place at a convenient time and location for
you. You will be notified of the exact amount of money you
may need at the closing and any additional documents you may
need to bring with you.
In the case of new construction, we will want the appraiser
to inspect the home just prior to closing. This is to ensure
that it is in accordance with the plans and specifications
furnished by the builder or contractor.
4. Closing
At your closing, ownership interest of the property is transferred
to you. A closing agent (an attorney of your choice or a title
agency representative, depending on what is customary in your
area) coordinates and distributes all the paperwork and funds,
according to the terms agreed upon by you and the seller.
What's
the difference between conforming and non-conforming loans?
A conforming
loan is one with an original balance of $333,700 (for 2004)
or less for a single-family home. The conforming loan limit
is adjusted annually at year-end by Fannie Mae and Freddie
Mac. Conventional non-conforming or "Jumbo" loans have original
loan amounts greater than the conforming loan amount. In
most cases, jumbo loans have slightly higher interest rates
than conforming loans.
Are
there different types of mortgages?
Yes.
The two basic types of mortgages are fixed rate and adjustable
rate.
Fixed
Rate Mortgages
If
you're looking for a mortgage with payments that will remain
unchanged over its term, or if you plan to stay in your
home for a long period of time, a fixed rate mortgage is
probably right for you. With a fixed rate mortgage, the
interest rate you close with won't change-and your payments
of principal and interest remain the same each month-until
the mortgage is paid off.
The fixed rate mortgage is an extremely stable choice. You
are protected from rising interest rates and it makes budgeting
for the future very easy. But in certain types of economies,
the interest rate for a fixed rate mortgage is considerably
higher than the initial interest rate of other mortgage
options. Once your rate is set, it does not change and falling
interest rates will not affect what you pay.
Fixed rate mortgages are available with terms of 10, 15,
20 and 30 years with the 15-year term becoming more and
more popular. The advantage of a 15-year over a 30-year
mortgage is that while your payments are higher, your principal
balance will be paid off sooner, saving you substantial
money in interest payments over the life your loan. Also,
interest rates are usually lower with a 15-year loan.
Adjustable
Rate Mortgages (ARMs)
An
adjustable rate mortgage is considerably different from
a fixed rate mortgage. ARMs have only been around since
the early 1980s. They were created to provide affordable
mortgage financing in a changing economic environment.
An ARM is a mortgage where the interest rate changes at
preset intervals, according to rising and falling interest
rates and the economy in general. In most cases, the initial
interest rate of an ARM is lower than a fixed rate mortgage.
Most ARMs have caps-limits the lender puts on the amount
that the interest rate or payment may change at each adjustment,
as well as during the life of the mortgage. With an ARM,
you typically have the benefit of lower initial rates. Plus,
if interest rates drop and you want to take advantage of
a lower rate, you may not have to refinance as you would
with a fixed rate mortgage. An ARM may be especially advantageous
if you plan to move after a short period of time.
Another type of ARM is the convertible ARM which allows
you to convert to a fixed rate mortgage after a specified
period of time has elapsed. For instance, you could get
a one-year ARM with the option to convert to the prevailing
fixed interest rate at any time after the first through
the fifth adjustment period. Convertible ARMs offer the
ability to take advantage of lower rates initially and have
possible savings, and the option to convert to a fixed rate
loan later on when you may be able to better afford it.
Depending on your financial needs, you might find this option
the best of both worlds.
What
is an FHA or VA Loan?
The
Federal Housing Administration (FHA) insures a wide variety
of first mortgages, including fixed rate and ARM products.
Down payments are low and gift funds can be used for all
costs. Qualifying ratios are generally more liberal than
conventional loans. However, mortgage insurance is required
and the property being purchased must be owner-occupied.
The Department of Veteran's Affairs (VA) guarantees mortgage
loans made to eligible veterans or reservists who are first-
or second-time homebuyers. In most cases, no down payment
is required. For the most part, VA-guaranteed loans are
fixed rate products.
What
does my mortgage payment include?
Typically,
your monthly mortgage payment is made up of four parts:
principal, interest, taxes and insurance (PITI).
Principal is the amount of money you borrow. In the early
stages of your mortgage term, your monthly payment includes
only a small portion of your principal. As you continue
to make payments through the years, a greater portion of
your payment goes to reduce the principal.
Interest is the cost of borrowing money. In the early stages
of your mortgage term, your monthly payment is mostly interest.
As you continue to make payments through the years, a smaller
portion of your payment goes to interest.
Taxes are paid by homeowners to local governments, and are
usually charged as a percentage of the assessed property
value. Tax amounts vary depending on where you live.
Homeowner's or Hazard Insurance is a policy that protects
you against financial losses on your property as a result
of fire, wind, natural disasters or other "hazards." In
addition, mortgage
How
much will I need for the down payment?
JC
Capital has a wide variety of loan programs. Many of which
require no down payment.. Some homebuyers may be eligible
for a down payment assistance program if one is available
in the area in which you are thinking of buying a home.
What
is a discount point?
When
inquiring about rates, be sure to check if the quoted interest
rate reflects payment of points. Many loan programs allow
you to receive a discounted interest rate by paying a fee
in points and/or origination fees. One point equals 1% of
the loan amount, and the more points you wish to pay, the
more you can discount your rate. Paying points is not a
requirement; it's just an option JC Capital offers to accommodate
the immediate or long-term monthly payment concerns of our
customers.
What
is Prepaid Interest?
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 interest is
paid in arrears, a 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 15, the
first mortgage payment is due August 1. The lender will
calculate an interest amount per day that is collected at
the time of closing. This amount covers the interest accrued
from June 15 to July 1
What
is an escrow account?
An
escrow account is established at the time you close your
mortgage loan. This account is held by the lender for future
payments as they become due of recurring items relating
to the mortgaged property such as real estate taxes and
insurance premiums.
What
are third party fees?
Third
party fees are fees that are passed on to a lender for services
rendered by a third party to facilitate the loan process
which are then passed on to the borrower. These fees may
include, but are not limited to, appraisal, flood search,
abstract or title search, title insurance, recording fees
and transfer taxes.
Can
I close on a home without having to be at the closing table?
In
many cases we can send a mobile agent to close your loan.
You may also appoint someone to act for you by using a Power
of Attorney. In such a scenario, you could assign a spouse
or an attorney to sign on your behalf. Check with your loan
officer for requirements specific to your state.
What
is the APR?
To
protect the public, congress decided that a more precise
measure of the true cost of a mortgage loan was needed.
The concept of the annual percentage rate (APR) was developed
to more accurately reflect this cost factor. The APR represents
not only the rate of interest charged on the loan but certain
other pre-paid finance charges. These costs are expressed
in terms of percent and may include, among other costs,
the following: origination fees, loan discount points, private
mortgage insurance premiums, and the estimated interest
pro-rated from the closing date to the end of the month.
Please note: What may appear as a low interest rate may
have a lot of optional loan discount points added to increase
the effective rate to the lender. Reviewing the APR will
help you to determine if this type of situation exists.
When shopping for mortgage rates, get the APR from your
lender to make sure you have an accurate comparison to other
available mortgage rates.
Why
is the Annual Percentage Rate (APR) on the Truth in Lending
Disclosure higher than the rate shown on my mortgage note?
The
APR rate reflects the cost of your mortgage loan as a yearly
rate. This rate is generally higher than the rate stated
on your mortgage note because the APR includes other costs,
such as loan discount points, pre-paid interest and mortgage
insurance (if required). The APR allows you to compare,
in addition to the interest rate, the total cost of financing
your loan, among various lenders.
What
is the difference between 'locking in' an interest rate
and 'floating'?
Mortgage
rates can change from day to day or even more often. If
you are concerned that interest rates may rise during the
time your loan is being processed, you can 'lock in' the
current rate for a short time, usually 60 days or less.
The benefit is the security of knowing the interest rate
is locked if interest rates should increase. 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
the processing of your loan, you may 'float', or hold off
locking in until you are comfortable about the rate.
What
is a Home Equity Loan?
The
dollar difference between the market value of your home
and your current mortgage balance determines your home's
equity. In other words, if you sold your home this would
be the cash that would be available after the sale. A home
equity loan allows you to access this cash without selling
your home by using your home as collateral. As you pay down
your mortgage, and/or your home's value increases, your
available equity increases accordingly.
Why
are Home Equity Loans and Lines of Credit so popular?
Because
home equity loans and lines of credit are secured by your
home, there are three distinct advantages over other types
of personal loans: lower interest rates, tax deductible
interest (consult your tax advisor) and large loan amounts.
Based on your personal financial situation, you may be able
to borrow up to 100% of your available home equity.
You can use a home equity loan or line of credit for almost
any expense -- to buy a car, consolidate debt, build an
addition, remodel your home, or pay college tuition. Many
people use home equity loans to pay off higher interest
debt such as credit cards, auto loans, and personal loans.
What
is the difference between a Home Equity Loan and a Home
Equity Line of Credit?
A home
equity loan is advanced in one lump sum. You make fixed
monthly payments over a fixed term and are charged interest
only on the unpaid balance. A loan makes it easier to budget
since your monthly payments are fixed over the life of the
loan.
A home equity line of credit is a set amount of money you
are approved to use whenever you like. You access your funds
by writing checks. As you repay the balance, you can continue
to access your credit line up to your approved credit limit.
You are charged interest based on the unpaid balance. A
line of credit gives you the flexibility to borrow funds
when you need them.
