FAQs
Frequently Asked Questions
Debt Consolidation
- What is the point to consolidating debt?
- What are the benefits of debt consolidation?
- Who should consider debt consolidation?
Credit Reporting
- What are Credit Reporting Agencies?
- Are there different types of Credit Reports?
- Why is having good credit important?
- I’ve never missed a payment so I should have a high credit score, right?
- What is a FICO score?
Mortgage
- Why do Lenders pull credit?
- What is Private Mortgage Insurance (PMI)?
- Can I avoid PMI?
- What are points?
- What are closing costs?
- What is the difference between the interest rate and APR?
- I have to close quickly. How can I speed up the loan approval process?
- What is a home equity loan?
- What is the difference between a Mortgage Broker and a Lender?
- What is a Pre-qualification?
- What is a Pre-approval?
Debt Consolidation
Q:1 What is the point to consolidating debt?
Debt Consolidation is a loan, provided to consolidate debts into one loan with one payment. Refinancing your home can help you pay down your high-interest debt and can be tax deductible. It can help you save you money and get you a lower monthly payment.
Q:2 What are the benefits of debt consolidation?
Consolidating your debt into one monthly payment can greatly reduce the risk of incurring late charges and additional interest. You will pay a lower interest rate since in some situations you could be paying over 20 percent on some of your credit cards. After a debt consolidation, you may find that your interest rates have been cut in half.
Q:3 Who should consider debt consolidation?
Many people are able to maintain a sizable amount of credit card debt and only paying the minimum monthly payments for years ending up deeper in debt. Evaluate your position. You need to assess your debt-to-income ration and determine how much is manageable for you given situation. If you find that your debt-to-income ration is too high, you should consider debt consolidation.
Credit Reporting
Q:1 What are Credit Reporting Agencies?
There are three agencies that accumulate data on which to base your credit history and score. They rate the ability of a consumer to pay back a loan and are important to determine the perceived risk element incorporated into interest rates applied to the loan.
Equifax
P.O. Box 105873
Atlanta, GA 30348
(800) 685-1111
Experian
P.O. Box 8030
Layton, UT 84041-8030
(800) 520-1221
Trans-Union
P.O. Box 390
Springfield, PA 19064
(800) 961-8800
Q:2 Are there different types of Credit Reports?
There are three types of reports.
1) Single Bureau Report – Provides information from a single agency
2) Three Bureau Merged Report – Provides information from all three agencies
3) Standard Factual Credit Report – A more detailed credit report including your credit history from all three credit reporting agencies.
Q:3 Why is having good credit important?
A good credit rating is very important as it will impact whether lenders may choose to grant or deny credit, provided you receive fair and equal treatment. Lenders inspect your credit history when they evaluate your application for credit, insurance, employment and leases.
Q:4 I’ve never missed a payment so I should have a high credit score, right?
Never missing a payment and paying on time is one of the variables that make up your credit score but having many open credit account will decrease your credit score. This reason is because lenders look at your potential to spend to your credit maximums. By closing old accounts that you don’t use anymore, it may improve your credit score. Also, try to keep credit balances less than 50& of your credit limit as this will quickly downgrade your score and having a higher score can mean higher interest rates.
Q:5 What is a FICO score?
A FICO score is a generic term for credit agencies to the score derived from the FICO statistical model. It measures the relative degree of risk a potential borrower represents to the lender or investor.
FICO scores vary from about 375 to 900 points. If you score at least 680, you are considered ‘A’ credit or have ‘Excellent’ credit.
Mortgage
Q:1 Why do Lenders pull credit?
When a lender is evaluating you for a loan, your credit history is one of the most important factors in determining your credit worthiness. Your credit history will show the debts you own and your ability to pay them. This helps the lender determine their risk, meaning how likely you are to repay your debts. The credit report will also show any items on public records including liens, bankruptcies, foreclosures, etc.
To get your credit report, a lender will order a credit report from a credit bureau. The credit bureau will then return your information or score back to the lender. There are three main credit bureaus in the United States. They are:
* Equifax
* Trans Union
* Experian
These bureaus do not approve or deny you for a loan. They simply report your credit information. The bureau may include a credit score with your credit report.
Q:2 What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance is also known as PMI. On a conventional loan PMI is required if you borrow over 79.99% of the appraised value of the home. The insurance protects the lender against financial loss if the loan defaulted.
PMI charges vary depending on the size of the down payment and the loan, but they typically amount to about one-half of one percent of the loan.
Q:3 Can I avoid PMI?
There are programs that lenders can develop to avoid PMI, such as an 80-10-10 loan. This program involves two loans and a 10 percent down payment. The 90 percent loan is financed with a first mortgage equal to 80 percent of the sale price and a second mortgage for the remaining 10 percent of the sale price.
Q:4 What are points?
Points represent an origination fee charged by the lender and loan discount points sometimes charged on the notes rate to lower the interest rate.
Q:5 What are closing costs?
These fees/costs are paid by both buyer and seller at closing. Closing costs generally may include: origination fee, discount point, appraisal fee, credit report, title search, and recording fees.
Q:6 What is the difference between the interest rate and APR?
The interest rate is the cost to borrow the lenders’ money. APR is the total cost of the mortgage over the life of the loan, including closing costs and lender points.
Q:7 I have to close quickly. How can I speed up the loan approval process?
Be sure to return the phone mortgage company’s phone calls soon as possible. Provide the documentation or data they need because they usually cannot move forward on your loan without it.
You could assist further by providing your mortgage company with a file containing all the information they will need (i.e. tax returns, income statements, bank and investment records). Ask your lender or broker which documents are required.
Q:8 What is a home equity loan?
A home equity loan is a second mortgage that provides you with a credit line, turning you home equity into cash and allowing you to spend it on home improvements, debt consolidation, college education or other expenses. Home equity loans and lines of credit are usually repaid in a shorter period than first mortgages, such as 15 years instead of 30 years.
Q:9 What is the difference between a Mortgage Broker and a Lender?
A lender will work with you directly to transact the loan and provides the money to the borrower at closing. Lenders who perform all the loan origination functions are called ‘retail lenders’.
Mortgage Brokers do not lend. They are independent contractors who offer the loan products of multiple lenders, called wholesalers. They work with potential customers and counsel them on loans available from a variety of lenders. Once they’ve started the process with the consumer and the file is complete, it is handed off to the lender who funds the loan.
Q:10 What is a Pre-qualification?
The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.
Q:11 What is a Pre-approval?
Allows the ability to get approved for a specific loan amount prior to finding the home you want to purchase. The loan is underwritten and the lender commits to a specific loan amount. This can give a great advantage with a homeowner or realtor is someone else is interested in the same home at the same time.