Frequently Asked Questions
Jump to: Escrow and Real Estate Taxes
How do I know what type of mortgage is best for me?
The ultimate answer to this question will be obtained through one of our mortgage specialists. That person will help you arrive at the “best” answers; here are some items to consider in helping you address this question:
- Your current financial picture.
- How long you intend to keep your house, one of the most important aspects of your decision-making process! Our experts will help you understand why.
- Do you expect your finances to change?
What is pre-qualification?
Initial establishment of a borrower’s qualification for a mortgage loan amount (or range), based on the borrower’s assets, debts, income, and selected loan program(s).
Here is a simple, straightforward evaluation:
What is your capacity to pay the debt?
Two debt ratios are used to determine your capacity to repay a loan.
The “Housing Ratio”:
Monthly Housing Expenses* / Gross Monthly Income = Housing Ratio
* This includes loan payment (principal and interest), real estate taxes, hazard insurance, flood insurance, mortgage insurance, homeowners’ association dues, ground rent (leasehold), special assessments, and subordinate financing.
The “Debt Ratio”:
Monthly Fixed Expenses** / Gross Monthly Income = Debt Ratio
**This includes monthly housing expenses, installment credit balances with more than 10 months remaining, revolving credit with more than 10 months remaining, real estate loan payments on the non-income-producing property or negative cash flow on the non-owner-occupied property, alimony, child support, or maintenance.
What is a buy-down?
Where the buyer, seller, or lender pays additional discount points in return for a below-market interest rate. During times of high-interest rates, buy-downs may induce buyers to purchase a property they may not otherwise have purchased.
What is the origination fee?
The amount charged to originate and close a mortgage loan. Origination fees are usually expressed in points, however, some companies may state a portion of the fees as origination fees plus points.
What are closing costs?
Costs payable by both seller and buyer at the time of loan settlement (close of escrow), when the purchase or refinance of a property is finalized. These costs usually include but are not limited to the following:
- Title search and insurance, escrow fees
- Sales commissions (Realtor)
- Origination fee
- Discount points
- Recording fees
- Courier charges
- Processing and document preparation fees
What is an escrow account – or – an impound account?
When borrowers make their monthly mortgage payments, they usually also make a payment towards the anticipated annual amount needed to pay taxes and insurance premiums. These funds are placed in an escrow account (also known as an impound account) until the lender pays the taxes and insurance as they become due.
What is the APR?
APR is an acronym for Annual Percentage Rate. It is the actual interest rate, taking into account points and other finance charges, for the projected life of a mortgage. Disclosure of the APR is required by the Truth-In-Lending Law and allows borrowers to compare the actual costs of different mortgage loans.
What is amortization?
The reduction of a debt by regular, (usually) monthly, installments of principal and interest.
Lock-in, what is that?
The guarantee of a specific interest rate for a specific period of time. An interest rate can be “locked in” for a set amount of time – the shorter length of time for the lock in, the lower the cost in points – our loan specialists can help you determine the optimal lock-in period based on your needs and goals.
When can I Lock-in the interest rate?
Generally, as soon as you complete your loan application. You should notify your loan agent that you would like to lock or float. Remember, the shorter the time of the lock in – the lower the points.
How long are lock-ins valid?
The lock-in should be long enough to allow for the loan to close escrow. Some examples of lock-in terms are for 10, 15, 30, or 45 days; locks are available for longer terms as well, but again, at a higher cost for the amount of time forward.
What are points?
Charges levied by the lender based on the loan amount. Each point is one percent of the mortgage loan amount; for example, one point of a $100,000 mortgage is $1,000.
How long will the loan process take?
Once you apply, we will begin to verify all the information you provided. The total can take anywhere from a week plus. Other factors include whether the applicant is self-employed, title clearance, etc. Time delays can also occur if outside sources or you do not provide documents to the lender in a timely manner. Be sure to respond promptly to requests for information while processing is taking place.
Where do I go to sign up for my loan – close my escrow?
This service is usually provided by a third party; such as a title/escrow company, or an attorney. Funds have taken to escrow by the borrower usually need to be in the form of a cashier’s check. This can be discussed once the closing date has been established. Most lenders will handle all of the details for you.
What is a conventional or conforming loan
A loan that conforms to Fannie Mae or Freddie Mac lending guidelines. A loan that is not insured, guaranteed, or funded by the Veterans Administration (VA), the Federal Housing Administration (FHA), or the Rural Economic Community Development (RECD) (formerly Farmers Home Administration). Loans guaranteed by the agencies listed above are referred to as “government loans.”
What is a jumbo loan?
A loan that is larger than the conventional / conforming limits set by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. This is also referred to as a non-conforming loan.
What is PITI?
An abbreviation for principal, interest (on the mortgage loan), property taxes and insurance – the total amount of those items.
What is hazard insurance?
A form of insurance that protects the insured property against physical damage such as fire. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property that is equal to at least the amount of the mortgage loan.
Will my loan be sold?
The “servicing” on your loan (e.g., the right to collect payments for a fee) is a marketable asset, which your lender can sell to other sources. As part of the loan documentation, you will sign a form that recognizes the fact that the servicing of your loan may be sold. Most fixed rate loans are in fact sold.
By selling loans into the “secondary market” the lender removes interest rate risk to themselves, investment companies “pool” or package millions or billions of dollars of these loans. Shares are issued to individual investors – based on the value and anticipated risk associated with the “pool”. This “Secondary Market” has contributed to lower interest rates for all of us.
Is there a prepayment penalty if I pay the loan in advance, either monthly or in full?
On some loans. Check with your loan agent, but most allow you to pay off the entire loan or make additional payments anytime without penalty.
What does LTV stand for?
LTV is an acronym for Loan-to-Value. This is the relationship, expressed as a percentage, between the amount of a loan and a property’s value or sales price. For example, a $75,000 loan on a property appraised at $100,000 is a 75% LTV.
What is the difference between a fixed rate and an adjustable rate mortgage?
A fixed rate mortgage is a mortgage that has an interest rate that stays fixed for the life of the loan. On an adjustable rate mortgage, the interest rate changes based upon a specific financial index (such as Government Treasury bill rates) and payments may go up or down based on the movement of that index.
What is private mortgage insurance?
This insurance protects lenders against loss due to foreclosure or loan default. Mortgage insurance is required on conventional loans with less than a 20 percent down payment or equity at a closing of less than 80% loan-to-value.
Private mortgage insurance, who pays for it?
It is typically paid monthly by the borrower as part of their monthly mortgage payment. Some lenders have programs in which they pay for the private mortgage insurance, however, your interest rate will generally be higher for these programs.
Should I do a no point, no fee loan?
These loans are an excellent idea if you are planning on moving in 4 to 6 years. If you plan on staying for a longer term, you will probably benefit by paying points, to ‘buy’ yourself a lower interest rate.
What is a Credit Score?
Credit scores are numeric representations of your credit profile. The higher the score the better credit risk you are. Presumably, you can be denied a mortgage loan if your score is too low.
These scores have been around for several years but started to be used in the mortgage lending business in 1995.
- They are based on years of computer “modeling” aimed at predicting who might be a good or bad credit risk.
- Their purpose is to reduce the cost of examining a credit report and speed mortgage approvals.
- Important negative factors are bankruptcies, delinquencies, credit lates, collections, “too much” credit, or too little credit history.
- The score is only as good as the data. The amount of credit data history is so large that there are problems with it.
Why do interest rates go up and down?
Because lenders pool loans into securities and then sell them in “the secondary market” they are competing with the entire pool of worldwide investment opportunities like treasury bonds, stocks, etc.
Any inflationary news can trigger investor moves that trigger smaller values for fixed rate securities. This would cause a rise in mortgage interest rates. Many additional factors, too numerous to mention here, can also affect interest rates. Markets move on emotions, thus no one can really tell what will happen on a day-to-day basis.
What are IRS Forms 4506, 8821, and 9501?
IRS 4506, 8821, and 9501 are forms which allow the lender to receive an electronic abstract of your tax returns.
In this day of scanners, laser printers, and tax preparation software it is easy to prepare a set of “phony” tax returns to submit to the lender. This form allows us a lender to check the returns you supply us with those at the IRS.
Can I change the loan amount or program after I’ve applied for a loan?
Of course. Please remember that any changes that you make may extend the time that it takes to close your loan, or may increase the cost of closing.
After I apply, what should I expect?
Within 2 business days, you will receive a package from us. The package will include a copy of your application and a list of documents that we need to close your loan. If you do not receive your package within two days, please don’t apply online again. Call us, and we’ll try to help you.
How do you save me money?
Our website and software were developed to guide borrowers through the loan decision and application process with ease. The efficiencies of receiving a complete application file and supporting documentation dramatically reduce our costs. Those savings are passed on to you.
After I send my paperwork back, what happens?
Your loan will be reviewed or pre-underwritten. Once it’s submitted to the final lender, there may be additional needs. We will, of course, try to anticipate those and make the process easy for you.
When should I lock my rate?
We recommend watching the market and then locking in. Please note that a lock can’t be changed once you select your product, so we ask that you be certain of your request.
What about the appraisal?
We’ll arrange for an appraisal of your property and will use your estimated value as a guideline. The appraisal must be paid COD.
Who handles my closing and where do I sign?
If you’re buying a home, your closing agent(Title/Escrow Co.) will be selected by your Realtor or you can pick one yourself. If you’re refinancing a property, you can choose the company or we’ll select a closing agent for you.
Is my interest rate locked in as soon as I apply for a loan?
We have found that clients prefer watching the market before they commit to a specific rate. You can request a rate lock after you have returned your application and we have reviewed your documentation and credit information.
Escrow Account & Real Estate Taxes
I escrow for taxes. Why do I still get a bill?
Municipalities do not send tax bills to mortgage companies they always send them to the homeowner.
- Leader Bank uses a 3rd party tax service company to get tax amounts due, due dates and we remit
payments through them by the due date.
- When you get your tax bills you should review it and if it’s your regular bill and we are escrowing
you can just file it for your records.
- If it’s a supplemental bill / special assessment you will want to pay it (even if we are escrowing) as
this is outside of your regular standard bill.
What is an escrow analysis?
We analyze the amount of money in your escrow account once a year to determine if there is enough for
next year’s expected tax and/or insurance payments.
When do you perform escrow analysis?
We (Leader Bank) perform escrow analysis in May, the results are mailed to you by the 3rd week of May.
If there are any changes to your payment it begins with the July 1st payment due date.
What are the most common reasons for my escrow payment change?
The most common reasons are changes to your property taxes and/or insurance premiums.
What is an escrow overage?
An escrow overage happens when our escrow analysis shows you have more money in your escrow
account than the required minimum balance. All escrow overages greater than $50 will be refunded via
check if account is current as of the date of the escrow analysis.
What is an escrow shortage?
An escrow shortage happens when our escrow analysis shows there’s not enough money in your
account to meet the required minimum balance. After the escrow analysis, we will adjust your monthly
payment to make up the shortage over 12 months or you may cover the shortage by making a one-time
payment. The one-time payment must be made by June 16th for your July 1st bill to adjust correctly.
Which month will the payment adjustment begin with?
Any adjustments to your monthly escrow payment will take effect with the July 1st payment. Please be
sure to adjust your monthly payments accordingly to avoid being delinquent.
What is required minimum balance?
The required minimum balance is the smallest amount of money you can have in your escrow account
at any time during the year. The required minimum balance (also called a cushion) may include up to
two months of escrow payments minus mortgage insurance to cover potential increases to your taxes
and homeowner’s insurance.
Who should I contact if my monthly escrow payment increased?
Your escrow payment most likely increased due to tax or insurance changes. Contact your local tax
authority or insurance agent with questions about any tax or insurance payment changes.
What do I need to do if my payment amount changed, and I have automated payments set up?
If you make recurring payments where Leader Bank drafts your payments using the Leader Bank
Automatic Payment form, the payment amount will automatically update based on your most recent
escrow analysis statement.
If you make recurring payments through External Transfer or Bill Pay the payment amount will not
update automatically and you will need to update the amount of any scheduled payments. For
payments made through another institution, please follow their process for changing your payment
My loan is not escrowed. What are my obligations regarding my real estate tax bill?
It is your responsibility to pay your real estate taxes.
What happens if I do not pay my taxes on time on a non-escrowed loan?
If your taxes remain unpaid after the delinquency date, we reserve the right to pay the outstanding
installment and set up an escrow account on your loan. We will establish an escrow account to collect
the tax installment we have advanced the monies to pay for, in addition to collecting monies to cover
the upcoming tax installments for your property. These actions may cause an increase in your total
mortgage payment amount.
My monthly payment went up. How can I tell if it is because my property tax increased?
Using the most recent escrow analysis statement on your loan issued each May, you can compare the
forecast amounts to the actual amounts related to annual real estate taxes. If the actual amounts for
the tax payments are greater than the forecast amounts, the tax bills that we received and processed
were increased over what your escrow account anticipated.