Mortgage FAQs

A credit score is one of the pieces of information that we’ll use to evaluate your application.

Credit scores are based on information reported each month by your creditors to the credit bureaus. Credit scoring algorithms are used to compare your credit history with millions of other consumers. There are different models used depending on the type of loan applied for. This is why the credit score your mortgage lender uses may be different than the credit score obtained when applying for an auto loan.

Some of the things that affect your credit score includes your payment history, the length of the time you have had outstanding credit, the types of credit you use, the number of inquiries that have been made about your credit history in the recent past past and your credit utilization. Credit utilization considers the percent of available credit lines used in reference to the credit limit. Payments received 30 days or more after the due date may be reported as late to the credit bureaus.

Credit scores used for mortgage loan decisions range from approximately 300 to 900. Generally, the higher your credit score, the lower the risk that your payments won’t be paid as agreed.

Using credit scores allows us to quickly and objectively evaluate your credit history when reviewing your loan application. However, there are many other factors when making a loan decision and we never evaluate an application without looking at the total financial picture of a member.

An abundance of credit inquiries can sometimes affect your credit scores since it may indicate that your use of credit is increasing.

The data used to calculate your credit score doesn’t include any mortgage or auto loan credit inquiries that are made within the 30 days prior to the score being calculated. In addition, all mortgage inquiries made in any 14-day period are always considered one inquiry. Don’t limit your mortgage shopping for fear of the effect on your credit score.

Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy. Over time, inflation has the largest influence on the level of interest rates. A modest rate of inflation will almost always lead to low interest rates, while concerns about rising inflation normally cause interest rates to increase. Our nation’s central bank, the Federal Reserve, implements policies designed to keep inflation and interest rates relatively low and stable.

An Adjustable-Rate Mortgage, or an “ARM” as they are commonly called, is a loan type that offers a lower initial interest rate than most fixed rate loans. The tradeoff is that the interest rate can change periodically, usually in relation to an index, and the monthly payment will go up or down accordingly. Against the advantage of the lower payment at the beginning of the loan, you should weigh the risk that an increase in interest rates would lead to higher monthly payments in the future. It’s a trade-off. You get a lower rate with an ARM in exchange for assuming more risk. For many people in a variety of situations, an ARM is the right mortgage choice, particularly if your income is likely to increase in the future or if you only plan on being in the home for three to five years.

Here’s some detailed information explaining how ARM’s work:

Adjustment Period

With most ARMs, the interest rate and monthly payment are fixed for an initial time period such as one year, three years, five years, or seven years. After the initial fixed period, the interest rate can change every year. For example, one of our most popular adjustable rate mortgages is a five-year ARM. The interest rate will not change for the first five years (the initial adjustment period) but can change every year after the first five years.

Index

Our ARM interest rate changes are tied to changes in an index rate. Using an index to determine future rate adjustments provides you with assurance that rate adjustments will be based on actual market conditions at the time of the adjustment. The current value of most indices is published weekly in the Wall Street Journal. If the index rate moves up so does your mortgage interest rate, and you will probably have to make a higher monthly payment. On the other hand, if the index rate goes down your monthly payment may decrease.

Margin

To determine the interest rate on an ARM, we’ll add a pre-disclosed amount to the index called the “margin.” If you’re still shopping, comparing one lender’s margin to another’s can be more important than comparing the initial interest rate, since it will be used to calculate the interest rate you will pay in the future.

Interest-Rate Caps

An interest-rate cap places a limit on the amount your interest rate can increase or decrease.

There are two types of caps:

1. Periodic or adjustment caps, which limit the interest rate increase or decrease from one adjustment period to the next.
2. Overall or lifetime caps, which limit the interest rate increase over the life of the loan.

As you can imagine, interest rate caps are very important since no one knows what can happen in the future. All of the ARMs we offer have both adjustment and lifetime caps. Please see each product description for full details.

Negative Amortization

“Negative Amortization” occurs when your monthly payment changes to an amount less than the amount required to pay interest due. If a loan has negative amortization, you might end up owing more than you originally borrowed. None of the ARMs we offer allow for negative amortization.

Prepayment Penalties

Some lenders may require you to pay special fees or penalties if you pay off the ARM early. We never charge a penalty for prepayment. Contact a Loan Officer Selecting a mortgage may be the most important financial decision you will make and you are entitled to all the information you need to make the right decision. Don’t hesitate to contact a Loan Officer if you have questions about the features of our adjustable rate mortgages.

The interest rate market is subject to movements without advance notice. Locking in a rate protects you from the time that your lock is confirmed to the day that your lock period expires. A lock is an agreement by the borrower and the lender and specifies the number of days for which a loan’s interest rate and discount points are guaranteed. Should interest rates rise during that period, we are obligated to honor the committed rate. Should interest rates fall during that period, the borrower must honor the lock. Your loan officer will advise you when your loan is eligible to lock. We do not charge a fee for locking in your interest rate up to 60 days. Once we accept your lock, your loan is committed into a secondary market transaction. Therefore, we are not able to renegotiate lock commitments. In additional to traditional locks, TEG offers long term lock options for up to 9 months on conventional loans with a free float down option within 60 days of expiration. A lock deposit equal to .5% of your loan amount is required, which will be refunded at closing. Not all loan programs are eligible for long term locks. Contact your Mortgage Loan Officer for details.

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 unavoidables 

Fees that we consider to be taxes and other unavoidables 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.

If you’ve ever purchased a home before, you may already be familiar with the benefits and terms of title insurance. But if this is your first home loan or you are refinancing, you may be wondering why you need another insurance policy. The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and especially your mortgage lender, want to make sure the property is indeed yours: That no individual or government entity has any right, lien, claim, or encumbrance on your property. The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected. Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders, and others who have an interest in real estate transfer.

Title companies typically issue two types of title policies:
1) Owner’s Policy. This policy covers you, the homebuyer.
2) Lender’s Policy. This policy covers the lending institution over the life of the loan.

Both types of policies are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you probably already have an owner’s policy that was issued when you purchased the property, so we’ll only require that a lender’s policy be issued. Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in the company’s own title plant. After a thorough examination of the records, any title problems are usually found and can be cleared up prior to your purchase of the property. Once a title policy is issued, if any claim covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights. They are also responsible to cover losses arising from a valid claim. This protection remains in effect as long as you or your heirs own the property. The fact that title companies try to eliminate risks before they develop makes title insurance significantly different from other types of insurance. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen future event, say a fire, accident or theft.

On the other hand, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past. This risk elimination has benefits to both the homebuyer and the title company. It minimizes the chances that adverse claims might be raised, thereby reducing the number of claims that have to be defended or satisfied. This keeps costs down for the title company and the premiums low for the homebuyer. Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed.

This is what our personal service is all about… helping you make the best loan choice for your specific needs. Our mortgage officers are experienced professionals with knowledge covering a wide range of home loan programs. Each consultant is able to explain the advantages of appropriate loan programs, considering the specific financial goals of the member. Generally picking the right home loan is about selecting the length of time the applicant believes they will stay in the home, coupled with their ability to support larger payments in years to come.

Equity is the difference between the amount for which a home can be sold and the amount still owed on the mortgage. This important difference represents the homeowner’s financial interest in the property. A homeowner can borrow against the equity in his/her home with a home loan and use the funds for virtually any purpose… from debt consolidation to major purchases to home improvements. Because the loan is mortgage-based, interest on the home loan may also be tax deductible. Consult your tax advisor to see whether this advantage applies to you.

Since the value and marketability of condominium properties is dependent on items that don’t apply to single-family homes, there are some additional steps that must be taken to determine if condominiums meet our guidelines. One of the most important factors is determining if the project that the condominium is located in is complete. In many cases, it will be necessary for the project, or at least the phase that your unit is located in, to be complete before we can provide financing. The main reason for this is, until the project is complete, we can’t be certain that the remaining units will be of the same quality as the existing units. This could affect the marketability of your home. In addition, we’ll consider the ratio of non-owner occupied units to owner-occupied units. This could also affect future marketability since many people would prefer to live in a project that is occupied by owners rather than renters. We’ll also carefully review the appraisal to ensure that it includes comparable sales of properties within the project, as well as some from outside the project. Our experience has found that using comparable sales from both the same project as well as other projects gives us a better idea of the condominium project’s marketability. Depending on the percentage of the property’s value you’d like to finance, other items may also need to be reviewed.

Federal Law requires all lenders to investigate whether or not each home they finance is in a special flood hazard area as defined by FEMA, the Federal Emergency Management Agency. The law can’t stop floods. Floods happen anytime, anywhere. But the Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 help to ensure that you will be protected from financial losses caused by flooding. We use a third party company who specializes in the reviewing of flood maps prepared by FEMA to determine if your home is located in a flood area. If it is, then flood insurance coverage will be required, since standard homeowner’s insurance doesn’t protect you against damages from flooding.

We define manufactured housing as housing units that are factory built with a steel undercarriage that remains as a structural component and limits the structure to a single story. These types of manufactured homes are sometimes known as mobile homes. We do not consider other factory-built housing (not built on a permanent chassis), such as modular, prefabricated, panelized, or sectional housing, to be manufactured housing. If your home is one of these types, please complete the application indicating that your home is a single family home. In order to qualify for our loan programs a manufactured home must meet the following requirements:

• • A manufactured home is any dwelling built on a permanent chassis and attached to a permanent foundation system. Be a one-family dwelling that is legally classified as real property.

• • The towing hitch, wheels, and axles must have been removed and the home must be permanently attached to a foundation system that meets state and local codes as well as the manufacturer’s requirements.

• • Foundation system must be appropriate for the soil conditions for the site and meet local and state codes. The land on which the manufactured home is situated must be owned by you. We do not provide financing for manufactured homes located on rented or leased land.

• • Must have been built in compliance with the Federal Manufactured Home Construction and Safety Standards that were established June 15, 1976. Generally, compliance with these standards will be evidenced by the presence of a HUD Data Plate that is affixed near the main electrical panel of the home or in another readily accessible and visible location. Must be at least double-width, 24 feet wide, and have a minimum 600 square feet of gross living area. Must be acceptable to typical purchasers in the market area.

TEG Federal Credit Union has a wide range of loan programs that are competitively priced. Using the latest technology, we have made the borrowing process simple and convenient. As a direct lender, we can offer you a competitive rate and eliminate fees associated with a loan arranged through a broker. Our commitment is to provide top quality service.

Whether you’re purchasing or refinancing, we’re certain you’ll find our service amazing!

If you’ll be purchasing but haven’t found the perfect home yet, complete our application and we’ll issue an approval for a mortgage loan now with no obligation!

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