What is a pre-approval letter and do I need one to begin house hunting?
When you begin your home search, you need to know just how much home you can afford. The best way to do this is to speak with your local Mortgage Consultant who can issue you a pre-approval letter. A pre-approval letter is based on a verification of your income, credit, and assets. This letter provides proof to real estate agents and sellers that you are approved up to a set amount for a mortgage loan. In addition, this letter lets sellers know you are committed to the process of buying a home which can give you an edge over other buyers. Obtaining a pre-approval letter is quick and easy and is a service provided to you at no cost. (top)
What is the maximum monthly payment I can afford?
1st Source Mortgage will qualify you as a prospective borrower by looking at your total monthly income and debts. There is no "Magic Number" that tells you what you can afford. It is best to look at your budget to determine how much of a payment you are comfortable with and start from there. (top)
What does my monthly mortgage payment consist of?
Your monthly mortgage payment consists of a payment on the principal of your loan, the interest payment, and your escrow payment. These four components are often referred to as your PITI. Principal (P) refers to the portion of the monthly payment that reduces the remaining balance of your mortgage. Interest (I) is the fee you are charged for borrowing money. Taxes (T) and insurance (I) refer to the amounts that are paid into an escrow account each month for property taxes, mortgage insurance, and hazard insurance.
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What is a credit score and how is it determined?
Your credit rating is based on the information in your credit report maintained by credit reporting agencies. This information is converted into a number, called your Credit Score, and is used by your lender to determine whether you are likely to repay your loan in a timely manner. The scores used in mortgage lending are typically in the 300 to 900 range. A general guide is the higher your score the better. Your 1st Source Mortgage Consultant can review this information with you. (top)
How does my credit score affect my mortgage loan?
Most mortgage loans today have minimum credit score requirements. Therefore, if your credit score does not meet the guidelines of the program, you will not be able to qualify for that particular loan program. While your credit score is not the only factor in determining your eligibility for a particular program, it is an important part of the equation. Your credit score can allow you to qualify for a better interest rate on your mortgage, thereby reducing your monthly payment (top)
What is an escrow account?
An escrow account is money that is deposited with a third party – other than the buyer and the seller -- to be used to pay various fees. A borrower typically provides funds that will pay taxes, mortgage insurance, lease payments, hazard insurance premiums, and other payments. These funds are placed in the escrow account until the payment is due. (top)
What are discount points?
Discount points are a percentage of the loan amount that you can pay to reduce your interest rate. One "point" equals 1% of the loan amount. If you're going to be in your home for a relatively short period, it may not be beneficial to pay discount points to reduce your rate. If you would like to lower your monthly payment by lowering your interest rate, then paying points up front may be the best way to do this.
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What is an APR?
APR stands for "annual percentage rate" and reflects the interest rate charged on the loan plus prepaid finance charges, such as the points and financing costs you pay in obtaining the loan. Other lenders may quote a low interest rate, but often charge miscellaneous fees in addition to origination and closing fees. You'll want to look closely at the APR to see how much you're really paying for your loan. (top)
What items will I need at application?
While it is true that certain mortgage programs require more information than others, it is still important to be as prepared as possible for your meeting with your Mortgage Consultant. The more information you can provide at application, the quicker your loan will be processed.
Please be prepared to provide the following at application:
A copy of your most recent pay-stub, complete with year to date and gross pay. The pay-stub must be dated within 30 days of application.
A copy of your prior two years W-2s.
If self-employed, include copies of your past two years 1040 tax returns and corporate returns with all schedules. All returns must be signed and dated by all borrowers.
A copy of the two most recent bank, retirement, and investment statements.
If you are currently renting, please bring with you your landlord’s name and address along with your monthly payment amount.
A copy of your driver’s license or social security card.
If this is a purchase transaction, a copy of the sales contract for the subject property.
If this is a refinance, a copy of your recent homeowner’s insurance policy showing coverage amount and annual premium.
If this is a refinance, a copy of a recent statement from your current mortgage company showing address and account number.
If this is a refinance, a copy of your most recent property tax notices showing the amount of taxes due
Your closing costs will depend upon the type of your loan as well as the various fees charged to finalize the purchase of your home. Generally, conventional loans can offer no closing costs or require a minimum of 3% to 10% of the sales price in down payment. FHA loans require at least 1.25% to 5% down payment, while VA loans can often be financed for 0% down payment. Closing cost fees will include such items as mortgage insurance, prepaid taxes, attorney's fees, title insurance, etc. Depending on the interest rate of your loan, no-closing cost options are available. It is best to check with your 1st Source Mortgage Consultant to find the right loan with the right terms for your individual situation. (top)
What is the difference between a fixed rate and an adjustable rate mortgage?
A fixed-rate mortgage charges a set interest rate that does not change throughout the life of the loan. The main advantage of a fixed-rate mortgage is that the borrower is protected from sudden and potentially significant increases in monthly mortgage payments if interest rates rise.
The interest rate for an adjustable-rate mortgage(ARM) varies over time. The initial interest rate on an ARM is generally below the market rate on a comparable fixed-rate loan. As time goes by, the interest rate will change based on a specific formula and may exceed the going rate for fixed-rate loans.
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How do I know which loan program will best suit my needs?
Fixed rate, no down payment, adjustable rate…there are so many loan programs available today that without expert advice it’s virtually impossible to know which one will best fit your needs. To ensure you are selecting a loan program that works for you, please call your local 1st Source bank branch and speak with one of our qualified Mortgage Consultants. They can help evaluate your situation, determine your long-term housing goals, and put you in the loan program that best fits your needs.
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You can send your payment to:
1st Source Bank Mortgage Department
Attn: Customer Service Department
P.O. Box 149
South Bend, IN 46624
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Why was my loan sold?
The sale of mortgages from one lender to another is a common practice in today’s mortgage market as a means to increase the availability of mortgage funds. When we sell loans we are able to reinvest those funds back into the areas we serve. In this way we can provide financing for others in our community just as we have done for you.
Why was my loan selected? Groups of loans are selected for sale based on like characteristics. This includes loan type (FHA, VA, Conventional), interest rate and the term of the loan. When you closed on your loan you were grouped with other loans containing similar characteristics.
Can you remove my loan from the sale? Unfortunately no. Under the terms of our agreement, once a group of loans is selected for sale the entire group must be sold.
My loan officer told me my loan would not be sold, that’s why we used you for our lender. While it has always been our goal to retain servicing on new loans and build our servicing portfolio, the sale of your loan has always been an option.
What did we do wrong? You have done nothing wrong. Groups of loans are selected for sale based on similar loan characteristics. Loans are not selected on an individual basis. The transfer of loans is a common practice in today’s mortgage market and is not a reflection on any customer.
Will any terms of my mortgage change? Absolutely not. The terms of the note and mortgage you signed at closing cannot change. You also have certain rights that are fully explained in the letter that you received.
A bi-weekly mortgage requires payments every two weeks or, in other words, 26 payments a year. This results in one additional monthly payment per year which is applied to the principal balance of the mortgage. Compared to a mortgage with twelve monthly payments each year, a bi-weekly mortgage reduces the interest expense paid on the mortgage enabling a mortgagor to pay off their debt more quickly.
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What are escrow accounts and how much do I need in my escrow account?
Escrows payments are additional amounts paid each month for the purpose of paying the taxes, insurance, and other payments associated with home ownership. Your lender is responsible for the timely disbursement of escrow funds to pay the these bills as they come due. Usually, a mortgage company collects funds for placement into the mortgagor’s escrow account with the mortgagor’s regular mortgage payment. An escrow account has sufficient funds if there is enough to pay all bills when they come due. It is common practice for mortgage companies to hold a reserve amount for a mortgagor. The reserve can provide the funds necessary to pay any increases in amounts due. (top)
What is escrow analysis?
Escrow Analysis occurs once each year. At this time we review your real estate and insurance bills to ensure that the escrow portion of your monthly payment is sufficient to keep your tax and insurance bills current and paid in full. (top)
How can my monthly payment increase when I have a fixed rate mortgage?
The increase is due to the escrow portion of your payment, not the principal and interest. The principal and interest is the portion on your mortgage note that is at a fixed interest rate and never changes, nor do the terms of your mortgage note. (top)
Why did my payment increase?
Our analysis is based on the most recently paid bills from your escrow account. The most common cause for an increase is due to an increase in your real estate taxes or your homeowners insurance.
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What is an Escrow Shortage?
An escrow shortage occurs when there is an insufficient balance in your escrow account to meet your tax or insurance obligation when it becomes due. (top)
Can I pay my shortage in full and have my payment lowered?
Yes. You may pay your shortage in full and we can reduce your monthly payment to reflect that the shortage has been paid. Or you may pay the shortage back, interest free, over the course of the next 12 months with the elevated payment.
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When will I receive my refund?
If the balance in your escrow account exceeds an amount permitted by regulation, you will receive a refund for the excess as noted on your statement. You will receive your refund check within 30 days from your most recent analysis. (top)
