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Mortgage FAQ.

Question: 

How do I know how much house I can afford? Answer...

Even before you start looking for a home, you can apply for pre-approved financing from Tower Bank. You will know what you can afford and the seller will know you are a serious buyer. It’s also a great way to speed up the buying process.

Question: 

What is the difference between a fixed rate and an adjustable rate mortgage? Answer...

Fixed rate mortgages feature a constant interest rate which remains the same for the entire term of the loan. With adjustable rate mortgages (ARMs) the interest rate may vary over the course of the loan. Typically, the interest rate is lower the first year, then increases at predetermined intervals. This means your payments increase as well.

Question: 

Is comparing annual percentage rates (APRs) the best way to decide which lender has the lowest rate and fees? Answer...

The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees, in addition to the interest rate, determine the estimated cost of financing over the full term of the loan. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up-front costs over the entire loan term.

Also, unfortunately, the APR doesn't include all the closing fees and lenders are allowed to interpret which fees they include. Fees for things like appraisals, title work, and document preparation are not included even though you'll probably have to pay them.

For adjustable rate mortgages, the APR can be even more confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.

You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that's best for you. Look at total fees, possible rate adjustments in the future if you're comparing adjustable rate mortgages, and consider the length of time that you plan on having the mortgage.

Don't forget that the APR is an effective interest rate--not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.

Question: 

What are points? Answer...

Sometimes it is advantageous to pay points to get a lower interest rate, as you’ll end up paying less over the life of your loan. One point equals 1% of the loan amount. For example, 2 points on a $300,000 house would be 2% of $300,000, or $6,000. You pay the points when you close on your loan, and may be able to deduct that amount on your income tax return. (Consult a tax professional.)

Question: 

Should I pay discount points in exchange for a lower interest rate? Answer...

Discount points are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them, up front, at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing, however, you will have lower monthly payments over the term of your loan.

To determine whether it makes sense for you to pay discount points, you should compare the cost of the discount points to the monthly payment savings created by the lower interest rate. Divide the total cost of the discount points by the savings in each monthly payment. This calculation provides the number of payments you'll make before you actually begin to save money by paying discount points. If the number of months it will take to recoup the discount points is longer than you plan on having this mortgage, you should consider the loan program option that doesn't require discount points to be paid.

If you'd prefer not to make this calculation the “old-fashioned way,” we have a discount points calculator.

Question: 

How much money will I save by choosing a 15-year loan rather than a 30-year loan? Answer...

A 15-year fixed rate mortgage gives you the ability to own your home free and clear in 15 years. And, while the monthly payments are somewhat higher than a 30-year loan, the interest rate on the 15-year mortgage is usually a little lower, and more importantly, you’ll pay less than half the total interest cost of the traditional 30-year mortgage. However, if you can't afford the higher monthly payment of a 15-year mortgage don't feel alone. Many borrowers find the higher payment out of reach and choose a 30-year mortgage. It still makes sense to use a 30-year mortgage for most people.

Question: 

What does Loan to Value (LTV) mean? Answer...

LTV compares your total loan balances outstanding to the appraised value of the property. For example, if your appraised value is $100,000 and your mortgage balance is $80,000, your loan to value is 80%.

Question: 

What is PMI? Answer...

Private Mortgage Insurance (PMI) is required when a borrower provides a down payment of less than 20%. PMI partially protects the lender from loss if the borrower fails to make his or her mortgage payments. When the loan-to-value (LTV) reaches 80% or below, the PMI requirement can be removed. This will decrease the total monthly loan payment. PMI deletion requirements may vary.

Question: 

What are closing fees and how are they determined? Answer...

A home loan often involves many fees, such as the appraisal fee, title charges, closing fees, and state or local taxes. These fees vary from state to state and also from lender to lender. Any lender or broker should be able to give you an estimate of their fees, but it is more difficult to tell which lenders have done their homework and are providing a complete and accurate estimate. We take quotes very seriously. We've completed the research necessary to make sure that our fee quotes are accurate to the city level, and that is no easy task!

To assist you in evaluating our fees, we've grouped them as follows:

Third Party Fees:

Fees that we consider third party fees include the appraisal fee, the credit report fee, the settlement or closing fee, the survey fee, tax service fees, title insurance fees, flood certification fees, and courier/mailing fees.

Third party fees are fees that we'll collect and pass on to the person who actually performed the service. For example, an appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee, and a title company or an attorney is paid the title insurance fees.

Typically, you'll see some minor variances in third party fees from lender to lender since a lender may have negotiated a special charge from a provider they use often or chooses a provider that offers nationwide coverage at a flat rate. You may also see that some lenders absorb minor third party fees such as the flood certification fee, the tax service fee, or courier/mailing fees.

Taxes and Other Unavoidable Fees:

Fees that we consider to be taxes and other unavoidable include: State/Local Taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose. If some lenders don't quote you fees that include taxes and other unavoidable fees, don't assume that you won't have to pay it. It probably means that the lender who doesn't tell you about the fee hasn't done the research necessary to provide accurate closing costs.

Lender Fees:

Fees such as discount points, document preparation fees, and loan processing fees are retained by the lender and are used to provide you with the lowest rates possible.

This is the category of fees that you should compare very closely from lender to lender before making a decision.

Required Advances:

You may be asked to prepay some items at closing that will actually be due in the future. These fees are sometimes referred to as prepaid items.

One of the more common required advances is called “per diem interest” or “interest due at closing.” All of our mortgages have payment due dates of the 1st of the month. If your loan is closed on any day other than the first of the month, you'll pay interest, from the date of closing through the end of the month, at closing. For example, if the loan is closed on June 15, we'll collect interest from June 15 through June 30 at closing. This also means that you won't make your first mortgage payment until August 1. This type of charge should not vary from lender to lender, and does not need to be considered when comparing lenders. All lenders will charge you interest beginning on the day the loan funds are disbursed. It is simply a matter of when it will be collected.

If an escrow or impound account will be established, you will make an initial deposit into the escrow account at closing so that sufficient funds are available to pay the bills when they become due.

If your loan requires mortgage insurance, up to two months of the mortgage insurance will be collected at closing. Whether or not you must purchase mortgage insurance depends on the size of the down payment you make.

If your loan is a purchase, you'll also need to pay for your first year's homeowner's insurance premium prior to closing. We consider this to be a required advance.

Question: 

How will my credit score affect my loan application? Answer...

Your credit score, while important, is only one of many factors considered when we look at a mortgage loan application. Other factors considered are assets, loan-to-value, stability, and debt-to-income ratios. We have a wide variety of products to fit individual situations and needs.

Question: 

What if I have little or no credit? Answer...

There are non-traditional means by which to show a credit history when it comes to a mortgage loan. You can prove your responsible handling of obligations through credit references on utilities, rental payments, insurance payments, and other monthly obligations.

Question: 

How can I ensure that the information on my credit report is correct? Answer...

Your credit report reflects the information reported to the credit bureaus by each of your creditors. The information changes each time something is added or deleted from your credit file. For instance, paying off an account, opening several new credit accounts, or making a late payment on one of your accounts will appear on your credit record. The best way to ensure that the information is correct is to periodically request copies of your credit report. If you think an entry has been made in error, notify the appropriate credit bureau and request that the error be corrected.

Contact information for the three leading credit reporting agencies:
Equifax: Call 800.685.1111 or visit www.equifax.com
Experian: Call 866.200.6020 or visit www.experian.com
Trans Union: Call 800.888.4213 or visit www.transunion.com

Question: 

Can I access my Tower Bank loan information online? Answer...

Yes. From any page of the Tower Bank website, click on the Mortgage login link. You will need your account number and the primary borrower's social security number to access your file.

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