» What is a "good faith" estimate? » What is a cash-out option? » What is a housing-to-income ratio? » What is an appraisal and who completes it? » What is an impound/escrow account? » What is an income-to-debt ratio? » What is an owner's estimate of value (Stated Value)? » What is PITI? » What is PMI? » What is prequalification vs. preapproval? » What is meant by a no fees refinance? » What is the difference between an Equity Line of Credit and another type of second mortgage? » What are closing costs? » What are prepaid interest and impound/escrow funds? » What are rates, terms, and APR? » What is "locking in a rate"? » What is a mortgage? » What is amortization? » What is equity?   What is a "good faith" estimate? It is an estimate of the fees that you will pay to close your loan. Back to top »   What is a cash-out option? If your equity in your property qualifies, you can refinance with a loan amount greater than your current mortgage -- and keep the difference! Use it for home improvement, debt consolidation, or whatever you desire. If you need more , we have programs that will even work when you have little, or no equity. Back to top »   What is a housing-to-income ratio? This ratio is used to get a rough idea of how much of your gross monthly income is being used by your total housing expense. The first thing Lenders Direct will do is divide the monthly payment of your proposed loan by your gross monthly income. This provides your housing-to-income ratio. We use this number to find the best loan program to meet your individual goals. Since we are a full service bank we have many programs that will allows for a much higher than usual ratio. Lenders Direct can even offer loans that allow you to "state " your income. These loans are very helpful if your income is difficult to prove by traditional methods, like self-employed borrowers. Back to top »   What is an appraisal and who completes it? The appraisal determines the value of the property in question, which becomes a prime factor in determining the loan-to-value -- or LTV -- ratio (the amount of your loan divided by the value of your property). Your LTV is important because it determines your equity in the property. With the exception of leveraged equity and some second mortgages, Lenders Direct will arrange an appraisal of your property to verify its value. An appraiser is an authorized professional who estimates the value of the property and sends the information to Lenders Direct and to you. Back to top »   What is an impound/escrow account? An impound account or an escrow account (the terms are interchangeable; each is used in different states) is the name of the account in which a lender collects payments you make toward your property taxes and hazard/fire insurance. If you have an impound/escrow account, each of your monthly payments will contain a fraction of your annual property tax and insurance costs. Your lender keeps these funds in the impound/escrow account and then pays your taxes and insurance directly when they become due. An impound/escrow account can be a convenient and trouble-free manner of ensuring that your insurance and tax payments are made on time. Please note that impound/escrow accounts are mandatory for purchase or refinance Loans where the loan amount is 80.01 percent or more of the property value (loan-to-value ratios of 80.01 percent or more), unless otherwise restricted by laws in your property's state (in California, impound accounts are required for refinance loans, purchase loans with LTV of 90 percent or greater. Back to top »   What is an income-to-debt ratio? This ratio is very much like the housing ratio but we add in the remainder of your monthly payments. This is also called the total expense ratio. Lenders Direct will divide the monthly payment of your proposed loan plus all of your regular monthly payments by your gross monthly income. We use this number in conjunction with the housing ratio to find the best loan program to meet your individual goals. Since we are a full service bank we have many programs that will allows for a much higher than usual ratio. Lenders Direct can even offer loans that allow you to "state " your income. These loans are very helpful if your income is difficult to prove by traditional methods, like self-employed borrowers. Back to top »   What is an owner's estimate of value (Stated Value)? For the 125% Zero Equity product, Lenders Direct may rely on your estimate of the value of your property. You can estimate the value by reviewing neighborhood comparable properties (comps). A good way to do this is to simply visit open house events in your neighborhood. This may give you an indication of what prices are being asked for various properties. Back to top »   What is PITI? PITI is the acronym that stands for "Principal, Interest, Taxes and Insurance" That is, each month your payment to your lender will consist of: Funds to be applied to the principal -- to repay the actual money you borrowed Funds to be applied to the interest -- to repay the interest you're being charged on the loan, over the life of the loan. Funds being collected in an impound/escrow account to pay your property taxes when they become due. Funds being collected in an impound/escrow account to pay your hazard/fire Insurance when it comes due. Back to top »   What is PMI? Private Mortgage Insurance (PMI) is usually mandatory for loans when the loan on the subject property is greater than 80 percent of the value. Another way to say it is, if you have less than 20% equity you will need to have Private Mortgage Insurance. You can think of equity as the part of your property you actually own. If you sold your property (for its appraised value), equity is the amount of cash you'd have left after you repay your loan balance in full. Common wisdom holds that the more equity a borrower has in a property, the lower the risk of defaulting on the loan. Private Mortgage Insurance (PMI) must be paid to safeguard the lender from possible loan defaults. Lenders Direct has loan programs that will allow you to have much less than the normal 20% equity and still not have PMI. Another method is to split the amount you owe into two loans, a 1st and a 2nd and avoid the PMI requirements. Back to top »   What is prequalification vs. preapproval? Lenders Direct can give a prequalification or a preapproval based upon the amount of information you provide in the online application. Because this is based on information provided to Lenders Direct verbally and as set forth on the application, it is considered conditional loan approval. The conditional approval is subject to the verification and/or receipt of additional information. Once all closing conditions and lender requirements are satisfied, the loan will receive final approval. Back to top »   What is meant by a "No-Fees" refinance? A No-Fees loan is especially attractive when refinancing. By having a No-Fees loan, you incur no expenses, thus you have no "payback period." The payback period is the time required to recoup the cost of your new loan through the monthly savings you get from the difference between your new lower payments and your old ones. For example, if your new loan's payments are $100 a month less than your old one, but you had to pay $2,200 to refinance, you'd have a payback period of 22 months before you'd actually start saving. By getting a No-Fees refinance, your actual savings begin immediately. This is particularly appropriate if you're planning to sell or refinance again in a few years because, in this case, it doesn't really matter that your rate is a little higher as long as you enjoy savings right now. Back to top »   What is the difference between an Equity Line of Credit and another type of second mortgage? An Equity Line of Credit is money in an account that can be used as you need it. You can use any portion of it at any time and pay it back at any time. The interest rate is usually variable and is tied to the prime rate. Other types of second mortgages, such as the Home Equity Loan and 125% Zero Equity Loans are simple interest products. You borrow a lump sum and pay it back over a period of years with interest. The interest rate for these products is usually fixed. Back to top »   What are closing costs? Closing costs are sometimes also called settlement costs. These are the costs a lender charges for funding and completing your loan and are generally charged at the time of closing (or settlement). They often include discount points, which are fees paid to lower your interest rate. Settlement costs/closing costs vary greatly depending on your state, county, and/or metropolitan area. They also vary from one lender to another, so it pays to shop around. Keep in mind that when you are comparing costs, it can pay to know whom you are dealing with. Lenders Direct has been in business since 1969, and since all banks (not brokers) are lending their own money they are all quite close in rate and fees. Some times that deal the is just to good to be true, is just that... too good to be true. Back to top »   What are prepaid interest and impound/escrow funds? Prepaid interest and impound/escrow funds are costs generally associated with a mortgage. At the time of closing your loan, a lender will often require you to provide the funds to establish your impound/escrow accounts (so your taxes and insurance can be paid on time) and to pay the interest for the time period between the loan closing date and the end of the closing month. In a refinance, this can be include in the new loan amount, in a purchase this money is brought in at the closing. Back to top »   What are rates, terms, and APR? All mortgages have an interest rate, a term, and an annual percentage rate (APR). For example, a mortgage might be defined as a 30-year fixed-rate loan at 7.625 percent, with an APR of 7.800 percent. In this example, the mortgage term is 30 years. As the borrower, you will pay back the loan in installments over the course of 30 years. The interest rate in this example is 7.625 percent. This means you must pay interest on the money you've borrowed at a rate of 7.625 percent per year. That is, in addition to paying back the loan, you will pay your lender an additional 7.625 percent of the current loan balance every year. This interest is basically the fee your lender charges you in return for lending you the money. The annual percentage rate (APR) is a measure of the cost of credit, expressed as a yearly rate. Because APR includes points and other costs such as origination fees, it's usually higher than the advertised rate. The APR allows you to compare different mortgages based on actual annual costs. Back to top »   What is "locking in a rate"? You can decide at any time to keep the current rate of interest. That is called "locking the rate." Lenders Direct will lock your rate ten days ahead of funding for no additional charge. If you're concerned about market volatility (rates going up), the interest rate can be locked for periods longer than 10 days, but there is an upfront fee associated with doing so. This fee is credited to the closing costs of the loan at funding and will show as a rate lock credit. Back to top »   What is a mortgage? A mortgage is a loan you acquire in order to purchase property, but you can also get cash for other purposes using the property as equity. In return for the loan, you pledge real property (land and/or a building) as security in case you fail to live up to your obligation. When you borrow money against property, you commit to two financial documents: The NOTE that is a personal obligation to repay the loan on a timely basis The MORTGAGE DEED OF TRUST that is the pledge of the property as security; the mortgage deed of trust defines your obligations to your lender, as well as your rights and those of the lender. You are pledged to repay the mortgage loan, along with an additional charge for the lender's service of lending you the money. The cost of borrowing the money is the interest rate specified in your note. The amount of time you have to pay back the loan is the note's term. Back to top »   What is amortization? Amortization means paying down your principal. You repay your loan in monthly installments. If you have a fixed mortgage (that is, an interest rate that remains fixed for the entire term of the loan), your payments will always be the same amount. Part of the payment goes toward the payment of the interest, and part toward the repayment of the money you've borrowed (the principal). The balance of the principal (what you still owe at any given time) is reduced with each payment. As a result, your monthly payment will pay the principal in increasing amounts over time. With a fixed-interest rate, the amount of interest you owe will decrease as your principal balance decreases. You can create an amortization schedule for fixed loans when they are originated. This schedule will show how much of each payment will go toward interest and how much will go toward principal over the life of the loan. As your principal decreases, your equity in the mortgaged property increases. Equity is a very important factor in mortgage financing. Back to top »   What is equity? Equity is a crucial aspect of home loans. Equity is simply the value of a homeowner's unencumbered interest on real estate. Equity is computed by subtracting the total of the unpaid mortgage balance and any outstanding liens or other debts against the property from the property's fair market value. A homeowner's equity increases as he or she pays off his or her mortgage or as the property appreciates in value. When a mortgage and all other debts against the property are paid in full, the homeowner has 100 percent equity in his or her property. Another way to think of equity is as the amount that you'll receive when you sell the property and pay back the remaining loan balance. A $100,000 house bought with an $80,000 loan and sold for $100,000, you would get $20,000 in cash back -- or 20 percent of the home's value. Back to top »

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