First Heritage Mortgage, LLC

General Questions
1.	What is an origination fee?
2.	What is a discount point?
3.	What are lender fees?
4.	How are rates determined?
5.	What is the difference between my rate “floating” and “locked”?
6.	When can I lock in and how long does it last?
7.	How can I compare rates and fees when shopping for a mortgage?
8.	What is the difference between the Annual Percentage Rate (APR) and my interest rate?
9.	Why is the Annual Percentage Rate (APR) on the Truth-in-Lending disclosure higher than the rate shown on my mortgage note?
10.	What are the minimum down payments for conventional, FHA, and VA loans?
11.	What is the difference between a Conforming and Jumbo loan?
12.	What is Private Mortgage Insurance (PMI)?
13.	What is an 80/10/10 or an 80/15/5?
14.	What is Title Insurance?
15.	What is an escrow account?
16.	What is a Good Faith Estimate?
17.	What is a balloon mortgage?
18.	What are ratios, and how do they affect my ability to get a loan?
19.	What steps are taken to approve my loan?
20.	I am self-employed, can I get a loan?

1.	What is an origination fee? A fee the lender may charge for services provided to create the mortgage loan. The fee is usually stated as a percentage of the loan amount. Not all rates quoted will include this fee. The fee is usually no more than 1% of the loan amount.

2.	What is a discount point? Discount points are points paid in addition to the origination point; and actually constitute pre-paid interest on the loan. These points allow the lender to offer a lower rate because the borrower has “bought down” their rate by paying the interest upfront. Discount points are paid as a percentage of the loan amount and vary daily with the fluctuating interest rates offered by our investors.

3.	What are lender fees? Your lender may charge fees in order to cover the cost of preparing, processing and underwriting the loan application. These fees may vary from lender to lender. At FIRST HERITAGE MORTGAGE we only charge to cover the cost of services rendered and pride ourselves in providing first class service without charging our customers “junk fees” to increase our profit on the loan.

4.	How are rates determined? Mortgage interest rates fluctuate daily based on many market conditions. There is no clear correlation between a particular index such as the S&P 500 or another stock market indicator. Each mortgage company sets their interest rates daily based on a number of factors that they consider; including the 10 yr. and 30 yr. T-bills as well as other market data available. There is no industry standard for interest rates and thus they can vary from company to company. You will find that rates, points and fees vary by company.

5.	What is the difference between my rate “floating” and “locked”? You must actually notify your loan officer that you want to lock in your interest rate. Until you do so, you are actually playing with an interest rate that floats with the daily fluctuations in the market. Once you lock in your rate, you are guaranteed to receive that rate when you go to settlement.

6.	When can I lock in and how long does it last? In general, a rate lock lasts for 60 days. Therefore, you should make sure that your loan will close within 60 days from the date that you lock in your rate, otherwise the lock will expire and you will have to go back to the current prevailing rates. There are programs that allow you to “extend” a lock up to 260 days. These programs vary by investors, please consult your loan officer for program details and associated costs.

7.	How can I compare rates and fees when shopping for a mortgage? When comparison shopping for a loan, a smart borrower should look at points, fees and the Annual Percentage Rate (APR). The APR includes all of the fees included in your loan. These fees may sometimes be significant. The APR is a good way to compare lenders equally. Most importantly, you should feel comfortable with the products and services that your lender will provide throughout the loan process.

8.	What is the difference between the Annual Percentage Rate (APR) and my interest rate? The APR is the cost of the loan expressed as an annual rate. It includes interest, points and finance charges associated with the loan. The APR is helpful when comparing different types of mortgages. The interest rate is the actual rate at which you are borrowing your money and is used to calculate the interest payment on the loan.

9.	Why is the Annual Percentage Rate (APR) on the Truth-in-Lending disclosure higher than the rate shown on my mortgage note? The (APR) includes other costs associated with securing your loan. These costs include: interest, loan origination points, discount points, and other finance charges associated with your loan. This is expressed as a percentage to allow the borrower to compare different loans using a standardized method of comparison.

10.	What are the minimum down payments for conventional, FHA, and VA loans? Conventional loans come in many forms now. There are programs that require 20% down to as little as no money down. The most common conventional loans require between 5% and 10% down and still eliminate the need to pay Private Mortgage Insurance (PMI). An FHA loan requires a total of 3% down but does require mortgage insurance which is built into your closing costs and new loan payment. A VA loan requires no down payment but the borrower must be an eligible veteran. Ask your loan officer for details on any of these programs. (For information on PMI, see question #14 below)

11.	What is the difference between a Conforming and Jumbo loan? A Conforming loan conforms to Federal Guidelines that state that the loan amount cannot exceed the conforming loan limit which is set by the Federal Housing Finance Board. The current limit is now set at $333,700. This limit is reviewed annually and adjusted as necessary. A Jumbo loan is any loan that exceeds the conforming loan limit. These may also be referred to as “non-conforming” loans.

12.	What is Private Mortgage Insurance (PMI)? PMI is insurance issued by a private mortgage insurance company that protects the lender in case the borrower defaults on the loan. It is generally required if the borrower does not have 20% of their own money invested into the property. This requirement is now able to be avoided by utilizing a second trust, which allows the borrower to make a down payment of as little as 5%. Ask your loan officer for details.

13.	What is an 80/10/10 or an 80/15/5? These are terms which refer to loan programs that have and 80% first trust (mortgage) and a second trust (mortgage) of either 10% or 15% respectively. The remaining 10% or 5% is the borrowers down payment and, in most cases, must come from the borrowers own funds.

14.	What is Title Insurance? Title insurance provides the lender with coverage in case there are claims against the title of the property. The buyer may also purchase an owner's title insurance policy to protect their interest; however, this is not required. In cases where land and property have been bought and sold over time, there is always the possibility an error has occurred in one of the recording of one of these transactions. If an error has occurred, it may be that someone else may still hold title to or have an interest in the property. The title insurance protects the lender (and the owner, if they have an owner’s policy) against any possible claims that may result. If such a claim should take place and you do not have title insurance, you could lose your investment in your home. All lenders require "lender's coverage" to protect their interest. Owner's coverage is optional and provides separate coverage for the borrower.

15.	What is an escrow account? An escrow account is an account set up to put money aside each month to pay the real estate taxes and hazard insurance on the property. Every time a mortgage payment is made, a portion of that payment is put into an escrow account. When the taxes or insurance bills come due, the lender pays the bills with the money that has been set aside. The establishment on an escrow account is not always required but is often recommended so that the money is available to pay the taxes and insurance when the bills come due.

16.	What is a Good Faith Estimate? This is an estimate of fees that you will be required to pay at closing. This is an “estimate” prepared in “good faith” by the lender and may not be exactly correct. Although every attempt is made to give accurate figures to the borrower, the settlement attorney prepares the final settlement statement (HUD-1) and is ultimately responsible for the exact settlement figures.

17.	What is a balloon mortgage? A balloon mortgage is a loan that has equal monthly payments that last for a specified period. At the end of that period, the loan is not fully paid off and the remaining balance is due in one “balloon” payment. This is commonly used today with second trust mortgages which are called 30/15 balloons. This arrangement amortizes the loan over 30 years but sets a payment schedule for 15 years. At the end of the 15 years period the remaining balance comes due.

18.	What are ratios, and how do they affect my ability to get a loan? Qualifying ratios are usually referred to by names; “front ratio” and “back ratio”. The “front ratio” is calculated by dividing your monthly housing expense (PITI) by your gross monthly income. The result is expressed as a percentage, usually no more than 28%-33%. The “back ratio” is calculated by dividing the borrower’s total fixed monthly debt by their gross monthly income. The fixed monthly debt includes your PITI as well as car loans, student loans, credit card payments and installment loans. This ratio is expressed in a percentage that usually cannot exceed approximately 38%. These ratios give the lender a better picture of a borrower’s ability to afford a particular payment. Using today’s automatic underwriting guidelines, these ratios are somewhat flexible. Ask your loan officer for more details.

19.	What steps are taken to approve my loan? Loan approvals can happen much more quickly today than in the past. The ability to do more and more work utilizing computers and the internet has enabled the mortgage industry to expedite the processing of a loan. Even with new and improved systems and methods for loan processing and approval, the following steps must be completed: A. Formal loan application must be made with your loan officer. This is the beginning of a positive loan experience. The better prepared you are to give your loan officer all the necessary information required for the loan application; the smoother the loan processing will go. To make sure you understand what will be required of you during a formal loan application, please see the borrower checklist of “Items required for loan application” on our download forms page. B. Required documentation is collected or ordered by the loan processor. Your loan officer or the loan processor will order a credit report, appraisal, and other necessary documents required for your particular loan. These may include such things as VOE (Verification of Employment), VOD (Verification of Deposit), etc. Required documentation will depend on your particular situation and the loan program you and your loan officer choose for you. C. The processor submits the loan for underwriting review. This submission is usually handled through one of the automated underwriting programs now available to mortgage lenders. In most cases, the loan is approved in a matter of hours from the time of submission. After the loan has been approved and any conditions for the approval have been satisfied, the loan is reviewed once more by an underwriter who verifies that the electronic submission was accurate and that all conditions have been met. Once this is completed, the loan has reached final approval. D. Closing documents are prepared. The closing documents are prepared by our closing department in coordination with the settlement attorney. The settlement attorney prepares the final HUD-1 form which is a detailed accounting of the entire financial transaction. At this time, the borrower can be told how much money they will need to bring to closing. The HUD-1 form is signed at settlement along with a number of other papers. E. Settlement and funds disbursement. Both parties involved in the transaction must sign all the necessary documents to finalize the deal. Once this takes place, then the funds are dispersed to the selling party to satisfy the sale (except in the case of a refinance, where there is a 3 day right of rescission period before funds can be dispersed). F. Recordation of the transaction. The settlement attorney notifies all appropriate authorities that there has been a settlement on your property and that a note and deed have been executed. These documents serve as security for the lender for the mortgaged property. G. Payments are made. You will receive information from the lender either at settlement or shortly thereafter outlining the ways in which you may make payments on your loan. This can be via a payment coupon book, monthly billing statement, or through automatic withdrawal from your bank account.

20.	I am self-employed, can I get a loan? Yes. Self employed borrowers can get a loan by providing two years of tax returns that verify their annual earnings. There are also various programs available that do not verify income or assets that you may be able to use. Generally a two year verifiable job history in the same line of work will be required.