Frequently Asked Questions
1. What are points?
A point is a fee that can be charged into your closing costs, to directly effect your interest rate. A point equals one percent of your loan amount. Points are generally referred to as Loan Origination Fee, Broker Fee, Application Fee or Discount Points.
2. How long will the loan process take?
This entire process generally takes between 20-45 days from the date of application. Usually, the more complicated the loan, the longer the process takes.
3. What is title insurance?
If you use a bank for financing your home, you will be required to provide the bank with a title insurance policy. Title insurance covers only the name insured and does not include damages, which may effect your equity. As you pay off the lender, the title insurance amount for the lender is reduced. Title insurance reimburses the lender only for actual losses. The more you pay off the lender, the less actual loss is incurred by a title defect.
4. If rates drop before we close this loan, can I re-lock with a better rate?
Locking a rate is a means of protection. If rates rise before the close of your loan, your rate is guaranteed. There are risks and benefits to locking vs. floating as well as the responsibility of both parties to honor that decision no matter what happens to rates in the future. Merely re-locking with another lender is not an option-it is unethical to switch lenders. Your lock typically requires a "best-effort" delivery and flipping loans is the best way to lose an investor relationship.
5. What is APR?
The federal government tries to standardize the cost of mortgages by combining extra fees with the interest rate. This figure, which is compiled and disclosed, is the Annual Percentage Rate (APR). Basically, speaking, this figure takes into account rates, points and other costs of a financing instrument such as a mortgage loan. The APR has no affect on your monthly payment or the terms of your loan.
6. What are escrow (impound) accounts? How do they work? Am I required to have them?
Escrow or impound accounts are set up for you anytime you place less then 20% down payment on a house, or if you would like to have your property taxes and homeowners insurance included into your monthly payment. They will collect a maximum of 14 months depending on the month you close. You will then add every month to these accounts with part of your total house payment. The lender will make sure they are paid in full each year. If you have 20% equity or more, you have the option to pay your property taxes and insurance on your own.
7. Where will I sign my paperwork to complete this loan?
You will sign your paperwork to complete this loan at the Title Company or with an assigned notary at a location TBD. The Title Company, also known as Escrow, is a neutral third party, which handles the financial end of the transaction. They pay off any outstanding liens and mortgages, and maintain current taxes. They pay all the fees out of escrow so that at the time of closing, all parties' final expenses are satisfied and the seller or previous lender has their proceeds.
8. What is the 3-day Right of Rescission?
The 3-day right of rescission period is a waiting period for all refinances of owner occupied properties. This is designed to give the owner time to review the documents and make certain that the refinance is in their best interest. It also allows the lender to make certain all the documents are correct and the numbers add up. The 3 days start the day that you sign your loan papers at the Title Company. Anytime during the 3 days if you wish to cancel the transaction you need to let your lender or the Title Company know in writing that you wish to cancel.
9. What is mortgage insurance? Am I required to pay it?
Mortgage insurance protects the lender against default. Insurance can be issued by private sources (Private Mortgage Insurance) or by the Federal Housing Administration. Mortgage insurance is required when you put less than 20% down payment on a purchase, or do now have 20% equity in the home on a refinance. There are several exceptions to this rule on the purchase of some non-owner occupied properties and cash-out refinances. Consult Knight Financial about your particular situation to see if you will be required to pay mortgage insurance.
10. What is pre-paid interest?
Prepaid interest is the interest you are paying on your new loan, which accrues daily. When you make your mortgage payment, you are paying for your principal and interest for the previous month. At closing, you will pay the interest from the day you fund the loan until the last day of that month. Your first house payment will cover the following months principal and interest.
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