Mortgage Lending FAQ
Q: What is a pre-qualification?
A: A pre-qualification will estimate how much money a prospective homebuyer will be eligible to borrower before you actually apply for a mortgage loan. You must be prepared to provide basic information such as income, debts and assets. A pre-qualification is not a pre-approval or loan approval.
Q: How important is my credit?
A: Your credit is an important consideration for determining your creditworthiness. Information in your credit report is prepared by a credit report bureau or credit-reporting agency. Any late payments or other adverse information contained in your credit report will receive additional review during the underwriting of your loan application, and may require further written explanation(s) or documentation from you as we consider your loan request.
Q: How much money will I have to come up with to buy a home?
A: That depends on a number of factors, including the cost of the home and the type of mortgage you get. Generally, you need to have access to the funds to cover the following costs:
- Earnest Money
- Down Payment — A percentage of the cost of the home that you must pay at time of settlement. If less than 20% of the purchase price, private mortgage insurance is necessary.
- Closing Costs — The costs associated with the mortgage transaction.
Q: What are closing costs?
A: Closing costs cover all the fees and expenses associated with a mortgage loan transaction. These costs may include the following fees: appraisal, credit report, title insurance, bank fees, document preparation fees, recording fees, property transfer tax and points. The closing costs vary depending upon the loan product chosen.
Q: What is title insurance and why do I need it?
A: The function of a title insurance company is to make sure your rights and interests to the property are clear, that the transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected. Title insurance companies normally issue two type policies: a lender’s policy that covers the lending institution and the owner’s policy, which covers the homebuyer. Both policies are issued at the time of closing for a single premium.
The title insurance assures the homebuyer that any valid claim against the property will be covered by the title insurance company.
Q: What is Private Mortgage Insurance (PMI)?
A: PMI is insurance provided by a non-governmental insurer that protects the lender against loss if the borrower defaults. Loans with a down payment of less than 20% of the purchase price require private mortgage insurance. Mortgage Insurance premiums are based on the loan-to value ratio, type of loan and the amount of coverage required by the lender. The premium is normally included in with your monthly mortgage payment.
Q: Will I always have to pay Private Mortgage Insurance (PMI)?
A: Federal Regulations require that PMI be canceled when the principal balance on the mortgage reaches a certain point. Automatic termination of PMI normally occurs for many borrowers when their principal balance has been amortized down to 78% of the original property value.
Q: What information do I need to apply for a loan?
A: We will ask for information about your employment, income, assets, debts and the property you wish to purchase, construct or refinance. Other information may be requested depending upon your situation.
Q: What term (length of loan) is best for me?
A: Mortgages with longer terms have lower payments because the amount you owe is spread out over a longer period of time. For example, a 30-year mortgage will require lower payments than a 15-year mortgage. You owe the same principal amount in both instances, but have more time to pay it off with the 30-year term. However, a shorter term can offer a lower interest rate, which can save you a considerable amount of money as the loan amortizes.
If you can afford higher payments, you stand to save more altogether with a shorter term. If you’d prefer to pay less on a monthly basis, a longer term might be for you. Still not sure? Speak with one of our loan advisors, who can assess your situation and help you choose the term that works best for you.
Q: What will my mortgage cover?
A: Most loans have 3 parts:
- Principal: the repayment of the amount you actually borrowed
- Interest: payment to the lender for the money you borrowed
- Property taxes: the annual city/county/school taxes assessed on your property divided by the number of mortgage payments you make in a year. During the life of the loan you will repay more in interest than you will in principal, because of the way mortgage loans are structured, you will pay mostly interest in the early years and mostly principal in the final years.
Q: What do I need available when I apply for a mortgage?
A: You should have the following available:
- Social Security Numbers for all borrowers
- Copies of you’re checking and savings accounts for the past three months.
- Evidence of any other assets like stocks or bonds
- Recent pay-stubs detailing your earnings and two most recent years W-2’s.
- Two most recent years tax returns for self-employed applicants
- Evidence of Pension or Social Security income
- List of all credit card accounts and the approximate balance and monthly payment amounts
- List of loan account numbers and the approximate balance and monthly payment amount
Q: If I refinance, do I need a new appraisal and credit report?
A: Yes, a new appraisal and credit report are necessary.
Q: Why do I need to pay for another title insurance policy when we already own the property?
A: A new policy is necessary for the lender to be certain there are no liens, claims, or encumbrances against the property.
Q: What is a cash-out refinance?
A: The difference between your loan balance and home value is called equity. If you’ve held your mortgage for some time, you probably have begun to reduce the outstanding principal on your loan and have built up some equity.
You may be able to refinance your home for more than you currently owe with a loan to value ratio of less than 80% to use the cash for home improvements, debt consolidation, college expenses or other major purchases.
Q: If I have an existing mortgage loan with you do I have to qualify again?
A: Yes, you will have to qualify for a refinance loan.
Q: Can I have my monthly payment transferred from my checking or savings account?
A: Yes, your monthly payment can be automatically deducted from your Citizens Savings Bank checking or savings account.
Q: Is flood insurance required?
A: Federal regulations requires that we have a flood determination performed on your property prior to loan settlement and monitor the flood map changes for the life of your loan. If your insurable improvement is located in a Special Flood Hazard Area or Zone A as determined by the Federal Emergency Management Association (FEMA), we will require a flood insurance policy and we will maintain an escrow account for the premium payments.
Q: Does it make sense to pay “points” to get a lower interest rate?
A: Paying “points” up front when you go to settlement with your mortgage will lower your interest rate but there are factors to consider. Each “point” will cost you 1% of your original loan amount at settlement. To determine whether it makes sense to pay discount “points,” you need to compare the cost of the discount points to the monthly savings created by lowering the interest rate.
To do so, divide the total cost of the discount points by the savings in each monthly payment. This calculation provides the number of payments you’ll have to make before you actually begin to save money by choosing to pay discount “points.” If the number of months it will take to regain the discount points is longer than you plan on holding this mortgage, you should consider an interest rate product that doesn’t require discount points.
Q: What is the best way to determine the banks rates and total costs?
A: The Annual Percentage Rate (APR) is required to be disclosed when advertising or providing the customer with the Federal Truth in Lending disclosures. Lenders are required to disclose the actual “cost” of borrowing and the APR is intended to make it easier to compare lenders and loan options. However, not all fees are included in the APR; fees such as the appraisal are not included although the customer is usually responsible for them.
The APR is not the actual interest rate. Your monthly principal and interest payment will be based on the actual interest rate, the loan amount and the term of your loan.
Q: Are there any prepayment penalties?
A: There are no prepayment penalties on any of the loan products that Citizens offers.
Q: What is the amount of homeowners insurance that will be required?
A: You will be required to insure the property for at least the amount of the loan since the lender is looking to protect its investment in your property in the event there is a loss. However, the replacement value of your home may be considerably higher and the borrower should consider that there is sufficient replacement coverage in case there is a total loss.
Q: What are the benefits of buying a home versus renting?
A: Take a moment to review the following advantages and disadvantages to see how your situation fits in:
- More fixed costs for the term of the lease; when the lease is up you can just move
- Generally less work in maintaining a home or apartment
- Smaller “up-front” cash needed.
- No matter what happens with the value of the home, you will never gain equity — but the owner will
- Limited or no ability to personalize your living space
- No tax advantage to renting — your landlord gets all the available tax breaks
- Over time, the mortgage balance decreases and the equity builds, even if the value of the home does not increase
- You can remodel the home to match your needs
- There can be tax advantages attached to home ownership
- Variable costs
- Generally a larger initial investment, particularly with regard to the initial down payment
- If you want to move, home generally must be sold
- Improvements or maintenance work needs to be done by you and paid by you
- Value of home can decrease.
Q: What if I’m having problems making my monthly mortgage payment?
A: Citizens Savings Bank fully supports efforts to help families cure delinquencies, avoid foreclosure and remain in their homes. Please contact Citizens Savings Bank directly at 1.800.692.6279 extension 671.
Servicemembers Civil Relief Act
Those who serve in the armed forces may be entitled to certain legal protections and debt relief. Find out if you, your spouse, or a dependent qualifies under the Servicemembers Civil Relief Act (PDF).
Home Ownership Counseling
Want independent advice about whether a particular loan is a good fit for you? Find approved counseling agencies at the Consumer Financial Protection Bureau’s (CFPB) website or by calling 1-855-411-CFPB (2372).
You can also access a list of nationwide counseling intermediaries at the U.S. Department of Housing and Urban Development’s website.