                           
4700 Duke Drive
Suite 135
Mason, OH 45040
Tel:513.453.8000
866.677.9040
Fax:513.671.1629
MB.803019.000
MB19626 | FAQs / Glossary of Terms
| A tax credit of up to $8,000 is now available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and no later than November 30, 2009. Unlike the tax credit passed in 2008, this new credit does not have to be repaid. For more information, visit www.federalhousingtaxcredit.com.
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| Prequalification is the process where the lender will look at a basic copy of your credit report and use the information you supply to determine how much mortgage you can afford based on your income. No accounts or employment information are verified. Preapproval occurs when credit, assets and income are verified by the loan officer with paystubs, bank statements and W-2s. The loan officer will also run your loan scenario through one of our automated underwriting systems, LP or DO. Final loan approval occurs when the property has been appraised, the title search shows clear title, all credit documentation is in the hands of the underwriter and all contingencies have been met. |
| For most first-time buyers (defined in Ohio as someone who has not had ownership interest in their principal residence in the last three years), you can use the funds in these retirement accounts without penalty.
According to the IRS, If both husband and wife are first-time homebuyers, they each can withdraw up to $10,000 for qualified acquisition costs penalty-free for a first home.
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| Yes we do! Through our partnership with the Ohio Housing Finance Agency (OHFA), we offer a grant to help with most of your down payment for your first home or we may provide you with an interest-free loan to use toward your down payment on your first home. |
| Qualified acquisition costs include the following items: costs of buying, building, rehabilitating or rebuilding a home. These may include any usual or reasonable settlement, financing, or other closing costs.
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| A first-time homebuyer is, in Ohio, any individual (and his or her spouse, if married) who has not had any ownership interest in a primary residence in the past three years (based on closing dates). |
| Along with the interest rate, the number of points (up-front interest) is an important consideration when comparing mortgages. Paying one point (one percent of your loan amount) USUALLY reduces the interest rate 0.25% from the initial rate. It takes approximately four years of interest savings to make up your 1% up-front investment. |
| Although there are some new programs that allow buyers to purchase a home with little or no cash, you will generally need some funds for downpayment, closing costs or both. Since a mortgage payment will take a good percentage of your income, lenders will usually want you to be "involved" (meaning having your money involved) from the very beginning. There are options for low down payment (3%) mortgages such as FHA and Flex 97 loans, where the entire down payment can be a gift from someone else. And there is always the possibility that the seller could pay some of your closing costs, up to 6% of your purchase price.
We do offer 100% financing for some buyers, many times with just one loan. Some of those do not even require private mortgage insurance (PMI)!
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| One of the most frequently misunderstood aspects of mortgaging a home, especially for first-time buyers, is Private Mortgage Insurance (PMI). The most common misconception is that PMI is a mortgage life insurance policy whereby the mortgage would be paid off should the borrower die. It is not.
Instead, PMI is an insurance that most lenders require of all borrowers who put less than 20% down. Its purpose is to protect the lender against losses should the borrower default.
Virtually all conventional mortgages with less than a 20% down payment will dictate the inclusion of PMI. FHA mortgages, which are insured by the Federal Government, require a different type of insurance with different coverage. The cost of PMI will depend on a number of factors, including the insurance carrier and the size of the loan, but monthly payments for the insurance will generally fall into the $25 - $100 range for median priced homes.
What's In It For Me?
When confronted with PMI for the first time, many buyers will ask "If I'm paying the premium but it is the lender who is protected, what's in it for me?" Simply this: the ability to purchase a home with less than 20% down. Lenders have found that those who put down less than 20% are far more likely to default than those who put down more. With the protection of PMI, lenders are able to make more loans (and more buyers are able to buy homes) with down payments as low as 5% or 10%. This is especially important to first-time buyers, where liquid cash for down payments and closing costs is often tight.
Unlike the mortgage insurance on FHA loans (which remains through the life of the loan) PMI is, under certain circumstances, cancelable. A new law, the Homeowners Protection Act of 1998, simplified this cancellation process greatly. Where once it was an involved process to get the PMI removed from the loan, the procedure is now much more "owner-friendly". With all qualifying loans that originated after July 29, 1999, a homeowner has the right to request cancellation when the mortgage balance is less than 80% of the original purchase price or appraised value (whichever is less). In order to request cancellation, the loan must be current with no delinquencies in the last 1-2 years. In addition, an appraisal of current value (at the homeowner's cost) may be required.
The Homeowners Protection Act also stipulates (in the case of most loans) that when the balance reaches 78%, cancellation is automatic. Again, the loan must be current for the cancellation process to begin.
Tips on PMI
Obviously, your first goal should be a 20% down payment level since this achieves a number of goals. First, it eliminates the cost of PMI entirely. Second, it lowers your monthly payment (since you have financed less). Third, it allows you to buy more house since the money that would have been for PMI can now be for a higher mortgage payment.
There are plans which allow you to avoid PMI by getting an immediate 2nd mortgage when you purchase the home. For example, you would get a first mortgage for 80% of the purchase price (no PMI), a 2nd mortgage for 10% of the purchase price and put 10% down in cash (commonly known as an 80-10-10 mortgage). The benefit here is obvious (you avoid PMI) but there are several potential downsides:
• The 2nd mortgage will be at a rate higher than the 1st mortgage, eating up some of your payment savings.
• The 2nd mortgage may have a variable rate, meaning that your payment can increase.
• The 2nd mortgage may have a balloon payment, meaning that the new balance will become due and payable long before the 1st mortgage is paid off.
Summing up
Although at first glance PMI appears to benefit only the lender (and paid for by you!) there actually is the big advantage of the ability for a homebuyer to purchase a home with a much smaller down payment. Just be certain to keep a close watch on your equity so that you can cancel the PMI at the first possible opportunity.
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| Click any of the terms below to reveal their definition. Contact Humphries Mortgage for more information. |
| An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly. |
| A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal. |
| The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report. |
| An initial statement of personal and financial information which is required to approve your loan. |
| A fee charged by an appraiser to render an opinion of market value as of a specific date. Required by most lenders to obtain a loan. |
| The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments. |
| A lump sum payment for the unpaid balance of the loan. |
| The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage. |
| Receiving money back when refinancing your present mortgage. |
| The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage. |
| Any fees paid by the borrowers or sellers during the closing of the mortgage loan. Including but not limited to an origination fee, discount points, attorney's fees, title insurance, underwriting and processing and appraisal. |
| Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree. |
| The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer. |
| (or Points)--The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000). |
| The difference between the purchase price and loan amount. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender. |
| A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full. |
| A claim against a property by another party which usually affects the ability to transfer ownership of the property. |
| The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance. |
| A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances). |
| An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount. |
| More appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default. |
| A written estimate of closing costs which a lender must provide you within three days of submitting an application. |
| A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report. |
| For qualifying purposes, the income of the borrower before taxes or expenses are deducted. |
| A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation. |
| A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans. |
| A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium. Also known as homeowner's insurance. |
| A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development. |
| A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security. |
| The periodic charge, expressed as a percentage, for use of credit. |
| Mortgage loans over $417,500. Terms and underwriting requirements may vary from conforming loans. |
| A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below. |
| A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed. |
| An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages. |
| The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only," (simple interest). In other plans, the minimum payment may include principal and interest (amortized). |
| (MIP or PMI)--Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home's value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death. |
| A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security. |
| The lender in a mortgage loan transaction. |
| The borrower in a mortgage loan transaction. |
| Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan. |
| Principal, interest, taxes and insurance, which comprise your monthly mortgage payment. |
| The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000). |
| A fee paid to the lending institution for paying a loan prior to the scheduled maturity date. |
| The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans. |
| The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills. |
| The written evidence that proves the right of ownership of a specific piece of property. |
| Protection for lenders or homeowners against financial loss resulting from legal defects in the title. |
| The process of verifying data and approving a loan. |
| An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly. |
| More appropriately termed "VA Insured Loan." A loan for which the Veteran's Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility. |
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