Mortgage FAQ’s
What are the differences between APR and the interest rate?
Annual Percentage Rate (APR) will be outlined on your Truth in Lending disclosure (TIL) that you receive after your application.
The APR is different than your note rate, or the interest rate you were quoted, because the APR includes, in addition to interest, some of the additional costs associated with acquiring your financing.
The APR is often higher than the quoted interest rate, or note rate.
In simple terms, if there were no costs in obtaining your financing, your interest rate and the APR would be the same.
What are Escrows and Prepaids?
Escrows
It is common to include an escrow agreement in your financing where the borrower adds a specified amount for taxes and hazard insurance to the regular monthly mortgage payment. This amount is commonly 1/12 of your annual property taxes and annual insurance premium. The money goes into an escrow account on your behalf. Thus, when you escrow for taxes and insurance, the lender will pay these bills when they are due.
Prepaids
Two items fall into the prepaid category in your financing. At your closing, you will be prepaying the interest in your loan covering the time gap between closing on your property and your first mortgage payment. In addition, you will prepay the premium for your first year of hazard insurance, also known as homeowner’s insurance.
What is the difference between an Origination Fee and a Discount Point?
Origination Fee
An upfront fee customarily charged by lenders, usually expressed as a percentage of the loan amount.
Discount Points
A point equals one percent of the loan amount. Points are usually paid at closing. Discount points are fees paid by the buyer to the lender to reduce the loan’s interest rate.
What is meant by the term “locking my interest rate”? When and how do I lock my interest rate?
When a lender “locks” your interest rate, it means that you are guaranteed a specific interest rate for a specified period of time. That period of time is known as the lock period.
The lock guarantees your rate as long as your loan closes and funds prior to the expiration date of your lock. If your closing is delayed beyond your lock expiration date, you could be exposed to higher market rates. It is recommended to lock for a period longer that you need, or a period of time beyond your scheduled closing date. This will protect you in case unforeseen circumstances arise that delay your closing.
Typical lock periods are 15, 30, 45 and 60 days. In a stable interest rate environment, shorter lock periods provide you the potential for a lower interest rate. However, the market can be volatile and rates move with the money market, up and down.
If you have not yet locked in when you receive your disclosure package, you will notice that an interest rate has been inputted. You are not committed to this interest rate; we have intentionally used an assumed rate with which to qualify you. Once you have a property under contract, we can then lock your rate and your loan program in accordance with your financial objectives.
Is it okay to use internet statements instead of actual hard copy bank statements to verify my bank and investment accounts?
For most programs, internet statements are allowed as long as they reflect your name and/or bank account number.
Please include ALL pages for each statement, even if there is nothing on the final page and the first page is an advertisement. Standard mortgage guidelines require ALL pages of a statement to verify accounts. Copies are not acceptable and missing pages always present a problem. Ensuring that all pages are sent will help in avoiding unnecessary delays and frustration. Receiving partial statements is probably the greatest reason we have to come back to clients and ask for additional documentation.
Who orders the appraisal and survey?
Element Funding orders the appraisal, and the closing attorney or title company orders your survey. You will receive a copy of your appraisal shortly before your closing. Surveys determine whether there has been an encroachment to the property lines, building lines, or easements. If your home is new construction, the builder may order the survey just after completion, or just before closing. Although we recommend all buyers purchase a survey, they are not required on most mortgage programs in South Carolina or Georgia. However, in Florida they are required on all mortgage programs.
What is the difference between the appraisal and the home inspection?
An appraisal is a written estimate of a property’s current market value prepared by an appraiser. Appraisals are required on all mortgage programs.
A home inspection is not required by Sunshine Mortgage but we do recommend that you order one. The home inspector will go to your new property and check to see that all is in good working order. If repairs are recommended, the inspector’s report will advise you accordingly.
What key items help ensure an on-time, stress-free closing?
There are several key items that need to be completed to ensure an on-time, stress-free closing.
Homeowner’s Insurance, or Hazard Insurance, is coverage that compensates for physical damage to the property by fire, wind or other natural causes. It is very important for you to obtain your Homeowner’s Insurance at the earliest possible date so that there are no delays in your closing or in obtaining the necessary closing funds.
The Declaration Page of your Homeowner’s Insurance policy with proof of payment must be sent to your Sunshine Mortgage loan processor no later than five days prior to your closing date. The responsibility to order and produce a clear Termite Certification depends on the terms in your contract. Check with your Sunshine Mortgage loan processor for details. Your loan cannot close without proof of Homeowner’s Insurance.
In addition to obtaining Homeowner’s Insurance, South Carolina residents are required to obtain Wind and Hail Insurance; this is often a separate policy from your Homeowner’s Insurance. Wind and Hail Insurance is coverage that compensates for physical damage to the property by wind and hail. Proof of payment for Wind and Hail Insurance must also be provided by you to your Element Funding loan processor.
Where will the closing take place? What funds do I have to bring to closing and can I bring a personal check?
Closing costs, escrows, prepaid items and down payment comprise the funds required at closing. We will provide you with a Good Faith Estimate of the closing costs as part of the disclosure package you receive. We will call you prior to your closing date to provide you with an estimate indicating the required funds to close. This ensures that you have ample time to attain the necessary funds.
At closing, you will be required to have certified funds in the form of a cashier’s or certified check made payable to yourself. Although we do not anticipate any major variations from the preliminary HUD-1, you should bring your personal checkbook to closing in the event there are any last minute adjustments. If you are due a refund at closing, the attorney or title agent will issue you a check.
Closing will typically take place at the attorney’s or title agent’s office. You will be given instructions on where the closing will take place, along with the phone number and a fax number for the closing attorney in case you have any questions. All borrowers associated with the mortgage loan transaction will be required to bring picture identification to the closing. Driver’s license, passport, etc. are suitable. If you are unable to attend the closing, we can arrange for you to close by a power of attorney. We will need to know if this will be necessary no later than 14 days prior to the scheduled closing date. In this event, you will need to arrange for a wire transfer of funds required for closing to the closing attorney or title company in advance of your closing date.
Does Element Funding sell their loans? To whom do I send my payment?
Some clients ask if Element Funding will sell their loan. Another way of asking that question is, “Who services my loan?” The answer is, Element Funding originates loans; we process, underwrite, close and fund your loan from our offices. That gives us total control of the transaction and a greater ability to help you through the process.
We have multiple investors who will purchase your loan from us after closing. This flexibility allows us to offer competitive interest rates and a wide variety of loan programs to best address your needs. Each month, your servicer will forward you a billing statement showing the amount due and the address where your payment should be mailed. If you have not yet received a billing statement in time for your first loan payment, please use one of the temporary payment coupons that will be included with your closing documents. Be sure to make the payment when it is due.
Our goal is to provide the best service of any Mortgage Banker in the Southeast. Our business is totally based on referrals—we aim to make all of our clients “raving fans” who will recommend us to their friends, family and colleagues.
Closing FAQ’s
The closing (or settlement) is the meeting at which you sign the paperwork and pay all expenses to take ownership of your home. You will be required to sign certain documents and pay closing costs. You will also be advised as to how to make your payments.
How much will closing costs be?
Prior to the closing meeting, the Title Company, Escrow Company or attorney will provide a preliminary Closing Statement, or a HUD-1. This document provides the projected total for your closing costs. This total needs to be paid in the form of a cashier’s check or wired directly to the attorney’s or title company’s account.
What happens at closing?
The meeting usually takes about one hour and is held at the closing agent’s office. In that case, either an escrow, closing agent or attorney processes all the paperwork, arranges for all documents to be signed and collects and disburses the required funds.
The steps below explain what happens during and after closing:
- Closing agent reviews the settlement statement (also referred to as the HUD-1) with you. Both you and the seller sign the settlement sheet.
- Signatures are collected for loan documents, such as the mortgage note and Truth-in-Lending statement. Evidence of required insurance and inspections are presented.
- You submit a certified cashier’s check to cover your down payment and closing costs. Or, if you have wired the funds to the closing agent, it is drawn from an escrow account established for your home purchase.
- The lender provides funds covering the home loan amount to the closing agent.
- If your monthly payments are to include property taxes and insurance, a new escrow account (or reserve) is established.
- You receive the keys to your new home!
Closing documents you will receive:
- HUD-1 Settlement Statement
Itemizes the services and the charges to the buyer and the seller. Be sure to keep a copy of this closing statement together with your tax documents for your tax preparer. In this way, you will benefit from appropriate tax deductions.
- Truth-in-Lending (TIL) Disclosures
Outlines the costs of your loan and discloses the APR and other terms of the loan, including the finance charge, the amount financed, the payment amount and the total payments required. Because it is possible that the annual percentage rate (APR) calculated on your loan application will change a little before closing, your lender is required to give you the final version of your TIL disclosure at the closing.
- Deed of Trust or Mortgage (also called Security Deed)
Documents conveying a lien on your property as security for repayment of your home loan. (If you default on your loan, your lender has the right to foreclose on your ownership interest and take possession of the property).
The mortgage (or promissory) note represents your promise to pay the lender according to the agreed terms, including the dates on which your home loan payments must be made and the location to which payment must be sent.
