Answer: The Annual Percentage Rate (A.P.R.) is the cost of your credit expressed as an annual rate. Because you may be paying loan discount “points” and other “prepaid” finance charges at closing, the A. P. R. disclosed is often higher than the interest rate on your loan. This A.P.R. can be compared to the A.P.R. on other loan programs to give you a consistent means of comparing rates and programs.

Q. Why is the Annual Percentage Rate different from the interest rate for which I applied?
Answer: The A.P.R. is computed from the Amount Financed and is based on what your proposed payments will be on the actual loan amount credited to you at settlement. In a $50,000 loan with $2,000 Prepaid Finance Charges, a 30 years term and a fixed interest rate of 12%, the payments would be$514.31 (principal and interest). Since the A.P.R. is based on the amount financed ($48,000), while the payment is based on the actual loan amount given ($50,000), the A.P.R. (12.553%) is higher than the interest rate.

Q. What is the finance charge?
 

Answer: The finance charge is the cost of credit expressed in dollars. It is the total amount of interest calculated at the interest rate over the life of the loan, plus prepaid finance charges and the total amount of any required mortgage insurance charged over the life of the loan.

Q. What is the Amount Financed?
 

Answer: The amount Financed is the loan amount applied for, minus the prepaid finance charges include items paid at or before settlement, such as loan origination, commitment or discount fees (“points”), adjusted interest, and initial mortgage insurance premium. The Amount Financed is lower than the amount you applied for because it represents a NET figure. If you applied for $50,000and the prepaid finance charges total 2,000, the amount financed would be $48,000.

Q. Does this mean I will get a smaller loan than I applied for?
Answer: No. if your loan is approved in the amount requested, you will receive credit toward your home purchase or refinance for the full amount for which you applied. In the example above, you would therefore receive a $50,000, not a $48,000 loan.

Q. What is the Total of Payment?
 

Answer: This figure represents the total amount you will have paid if you make the minimum required payments for the entire term of the loan. This includes principal, interest and mortgage insurance premiums but does not include payments for real estate taxes or property insurance premiums. This figure is estimated on the disclosure statement and is estimated in any adjustable rate transaction.

Q. My Disclosure says that if I pay the loan off early, I will not be entitled to a refund of part of the finance charge. What does this mean?
Answer: This means that you will be charged interest for the period of time in which you used the money loaned to you. Your prepaid finance charges are generally not refundable, nor is any interest which has already been paid. If you pay the loan off early, you should have to pay the full amount of the “finance charges” shown on the disclosure.

Q. What is the Filing Fee?
Answer: The filing fee is an estimate of the cost of recording the legal documents (mortgage, deed of trust, deed, etc.) connected with your transaction. The fee will be charged at settlement; please do not send it now.

Q. What is a credit report?
Answer: credit report is a record of your credit activities. It lists any credit-card accounts or loans you may have, the balances, and how regularly you make your payments. It also shows if any action has been taken against you because of unpaid bills.

Q. Where do credit reports come from?
Answer: In most cases, from credit bureaus (also called credit-reporting companies), which collect information about our credit activities and store it in giant databases. The credit bureaus charge a fee for supplying the information. Today, there are three major credit bureaus that operate nation-wide, plus many smaller companies serving local markets.

Q. Who is allowed to see my credit repot?
Answer: Credit bureaus can provide information only to the following requestors:
1. Creditors who are considering granting or have granted you credit
2. Employers considering you for employment, promotion, reassignment, or retention
3. Insurers considering you for an insurance policy or reviewing an existing policy
4. Government agencies reviewing your financial status in connection with issuing you certain licenses or government benefits
5. Anyone else with a legitimate business reason for needing the information (such as a potential landlord). Credit bureaus also furnish reports if so required by court orders or federal jury subpoenas and they also issue your report to a third party if you give them written instructions to do so.

Q. What type of information is on my credit report?
Answer: There are usually four types of information:
1. Identifying Information: your name (including if you’re a Sr., Jr. or a III), nicknames, current and previous addresses, social security number, year of birth, current and previous employers, and, if applicable, your spouse’ s name.
2. Credit Information; the accounts you have with banks, retailers, credit-card issuers, and other lenders. The accounts are listed by type of loan (mortgage, student loan, revolving credit), the date you opened the account, your credit limit or the loan amount, any co-signers of the loan, and your payment pattern over the past two years.
3. Public Recording Information; state and county court records on bankruptcy, tax liens, or monetary judgments. (some credit-reporting companies list non-monetary judgments as well.)
4. Inquiries: the names of those who have obtained copies of your credit report within the last six months (two years for employment purposes).

Q. Where do the credit-reporting companies get their information?
Answer: From parties that have previously extended credit to you, such as the department store that issued you a credit card or the bank that issued you a personal loan.

Q. Do the credit-reporting companies make the decision whether to grant me the loan?
Answer: No. The credit-reporting companies only supply the information about your credit history. It is the lenders themselves who make the decision whether to grant you credit.

Q. Why should I obtain a copy of my credit report?
Answer: To avoid any surprises, it’s especially important to see a copy of your credit report before you apply for, say, a car loan, a mortgage, or a credit card. Errors in credit reports are not uncommon. Keep in mind, however, that they are not part of a conspiracy against you; they’re simply the result of human error.

Q. How do errors in reports happen?
Answer: Think about how often a misspelling of your name or mistake in your street address shows up on a piece of your mail. Then imagine the possibility for error in a report that contains many more points of information about you. Cases of mistaken identity, out-of-date information, and outright inaccuracies can easily occur.

Q. What I do if I find an error on my credit report?
Answer: Notify the credit-reporting company immediately. If the company cannot confirm the information under dispute, it will be removed from your file and a corrected report will be sent to those parties you specify who have received your report within the past six months (or within two years if the party requested your report for employment purposes)

Q. What if the credit-reporting company stands by its report?
Answer: You have the right to present your side of the story in a brief statement, which the credit bureau must attach to your credit file. Anyone requesting a copy of your credit report would also automatically receive your statement (or a summary or codification of it) unless the credit bureau deems it irrelevant or frivolous.

Q. What should I do if I am denied credit because of something in my credit report?
Answer: The lender denying you credit must give you the name and address of the credit bureau that provided the credit report. At that point, you have up to 30 days to request a free disclosure. Most consumer-reporting agencies provide consumers with copies of their reports. A few may make disclosure only in person or by telephone. The credit bureau is obligated to let you know the nature and substance of all information contained in your report. It must also tell you the sources of the information and the recipients of consumer reports for the previous six months (two years for reports furnished for employment purposes).

Q. How long does information stay on my credit report?
Answer: Generally the credit bureau must automatically delete information on adverse credit instances that are more than seven years old and any bankruptcies that are more than 10 years old. However, these rules do not apply to information provided for credit transactions involving a principal amount of $50,000 or more, underwriting of the insurance involving a principal amount of $50,000 or more, or employment of an individual at an annual salary of $20,000 or more.

Q. What is private mortgage insurance?
Answer: Mortgage insurance is a type of guaranty that helps protect lenders against the costs of foreclosure. This insurance protection is provided by private mortgage insurance companies enable lenders to accept lower down payments than they would normally accept. In effect, mortgage insurance provides what the equity of a higher down payment would provide to cover a lender’s losses in the unfortunate event of foreclosure. Therefore, without mortgage insurance, you might not be able to buy a home without a 20% down payment.

Q. If I have a good credit rating and can meet the required monthly mortgage payments, am I obligated to have private mortgage insurance?
Answer: Even when you have an excellent credit record and the capability to meet mortgage payments, most lenders require private mortgage insurance as a matter of policy for any loan with a small down payment. Mortgage insurance allows lenders to grant loans that they otherwise would not consider. In most cases, when you make less then a 20% down payment, the lender will require PMI (private mortgage insurance).

Q. Is private mortgage insurance different from other kinds of insurance associated with mortgages?
Answer: Private mortgage insurance protects the lender in the event of borrower default and subsequent foreclosure on the home. FHA and VA insurance also protect the lender against borrower default under a government program rather than through the private enterprise system. Credit life insurance (something called mortgage insurance) is life insurance coverage that pays off the mortgage in the event a borrower dies, becomes disabled, or incurs loss of health, according to the terms of the insurance policy. Fire, liability, and theft insurance cover the homeowner and lender from losses, according to the terms and conditions of their respective insurance policies.

Q. What is Title Insurance?
Answer: Title insurance is perhaps one of the most misunderstood of all types of insurance. While property and casualty types of insurance (homeowners, auto, life) insure you for things that may happen in the future, title insurance insures you of things that may have happened in the past. Title insurance guarantees the policy holder (you, the individual, or the lender who holds a mortgage on property) marketable title. In other words, if you have a title insurance, you are insured that your property can be conveyed to another without defects or encumbrances.

Q. What is FHA Mortgage Insurance?
Answer: FHA requires a mortgage insurance premium (MIP) for its home buying programs. An up-front premium of 1.50% of the loan amount is paid at closing and can be financed into the mortgage amount. In addition, there is a monthly MIP amount included in the PITI of 0.50%. Condos do not require up front MIP - only monthly MIP.

Q. What is Streamline Refinance?
Answer: FHA has permitted streamline refinances on existing FHA mortgage. The streamline refers only to the amount of documentation and underwriting that needs to be performed by the mortgage company. The basic requirements of a streamline refinance are: