Q: What is PMI?
A: PMI or Private Mortgage Insurance is normally required when you buy a home with less than a 20% down payment. Mortgage insurance is a type of guarantee that helps protect lenders against the costs of foreclosure. In the event you default on the loan, this insurance protection is provided by private mortgage-insurance companies. It enables lenders to accept lower down payments then 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: Can my loan be sold?
A: Your loan can be sold at any time. There is a secondary mortgage market, in which lenders frequently buy and sell pools of mortgages. This secondary mortgage market results in lower rates for consumers. A lender buying your loan assumes all terms and conditions of the original loan. As a result, the only thing that changes when a loan is sold is to whom you mail your payment. If your loan has been sold, your existing lender will notify you that your loan has been sold, who your new lender is, and where you should send your payments from now on.

Q: What is the difference between pre-qualifying and pre-approval?
A: A pre-qualification is normally issued by a Loan Specialist, who, after interviewing you, determines the dollar value of a loan you can be approved for based on information you have provided. The pre-qualifiaction letter indicates to the seller that you are qualified to purchase the house you are making an offer on subject to verification of certain information. Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. An actual loan application is submitted to an underwriter, and a decision is made regarding your loan application. If your loan is pre-approved, you are then issued a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a house. A pre-approval can help you negotiate a better price with the seller, since being pre-approved is very close to having cash in the bank to pay for the house!

Q: How will I know how much I can qualify for?
A: Loan Specialists can work with you to get you qualified before you look for a home. Based upon information you present to the Mortgage Consultants at the loan application, they will determine the approximate amount of money that you will be allowed to borrow. You can be "pre-qualified" for that loan amount.

Q: What are the income and debt ratios?
A: The Income Ratio is your total monthly housing expense divided by your gross monthly income (before taxes). The Debt Ratio is your total monthly housing expense plus any recurring debts (i.e. monthly credit card minimum payments, car payments, or other loan payments) divided by your income. Standard underwriting suggest a maximum guideline of 28% on the Income Ratio and 36% on the Debt Ration, but these ratios can vary based on the loan program, the financial strength of the borrower and the down payment.

Q: How much money do I need for a down payment and closing costs?
A: There are loan programs available that require down payments as low as 3%. For most loans, a minimum down payment of 5% is required plus money for closing costs, which average 3.5%, closing costs can vary signifigantly by lender. Some programs allow the down payment and/or closing costs to be a gift from a family member. A Loan Specialist can advise you about these different types of loans.

Q: What if I don't have any established credit?
A: If you do not have enough established credit, A Cambridgeport Bank Loan Specialist can work with you to document alternate credit information. If you have been renting, we can obtain a rental rating from your landlord as a way of verifying your payment history. Or, the borrower can provide copies of utility, insurance, or cable bills for an alternative credit payment review. Not all loan programs will accept alternative documentation on your credit. There are both government and conventional programs that will accept this type of payment history to establish credit qualifications.

Q: What if I had credit problems in the past, or have filed bankruptcy?
A: Your credit payment history lets the lender know your intentions to repay the loan. Therefore a good credit history is important, but a perfect credit history is not. First Time Home Buyers can also attend seminars that will go though the home purchasing process and requirements with you. Cambridgeport Bank can review your credit and determine what, if any, steps are needed to be taken to qualify for a loan.

Q: What does "loan to value" mean?
A: Loan to Value (LTV) is the loan amount divided by the lesser of the sales price or appraisal value. For example, if you are paying 15% of the total cost of the home as a down payment, you would only be borrowing 85% of the total sales price from the lender. Therefore your LTV would be 85%.

Q: What are closing costs?
A: Closing costs are those costs that include the loan origination fee, discount points, appraisal costs, and any other charges associated with the legal transfer of property. Typically, these costs will range between 2% and 3% of the mortgage amount. Closing costs can vary signifigantly between lenders.

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