FAQ and Resources
Credit scores are based on information collected by credit bureaus and information reported each month by your creditors about the balances you owe and the timing of your payments. A credit score is a compilation of all this information converted into a number that helps a lender to determine the likelihood that you will repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender. Credit scores are calculated by comparing your credit history with millions of other consumers. They have proven to be a very effective way of determining credit worthiness.
Some of the things that affect your credit score include your payment history, your outstanding obligations, your balances on revolving debt versus the credit limit, the length of time you have had outstanding credit, the types of credit you use, and the number of inquiries that have been made about your credit history in the recent past.
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 to help evaluate your credit history 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 customer.
Credit Report Information
According to the Federal Trade Commission, consumers have access to one free annual credit report from each of the major credit reporting companies — Equifax, Experian and TransUnion. This is mandated by the 2003 Fair and Accurate Credit Transactions Act — and allows every consumer access to one free credit report each year.
To Order Your Free Credit Report:
Go to www.annualcreditreport.com or call 877-322-8228 to get free credit reports from the three major credit bureaus.
Consumers should stagger their requests to the three credit agencies to get “snapshots” of their credit profile over the course of the year.
Once you get your credit report, check for common credit report errors, including:
- Inaccurate personal information, such as name, middle initial, generational designation, Social Security number and address.
- Accounts incorrectly listed as open, delinquent or in collections.
- Accounts that do not belong to you.
- Bankruptcies, tax liens or other judgments that do not belong to you.
For more information visit www.ftv.gov/credit
You can borrow funds to use as your down payment. However, any loan that you take out must be fully secured by an asset that you own. If you own something of value that you could borrow funds against such as a car, boat or another home, it’s a perfectly acceptable source of funds. If you are planning on obtaining a loan, make sure to include the details of this loan in the Liabilities section of the application.
The income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two year period.
We’ll review and average the net income from self-employment that’s reported on your tax returns to determine the income that can be used to qualify. We won’t be able to consider any income that hasn’t been reported as such on your tax returns. Typically, we’ll need at least one, and sometimes a full two-year history of self-employment to verify that your self-employment income is stable.
Typically, in order for bonus, overtime, or commission income to be considered, you must have a 2 year history of receiving it and it must be likely to continue. If any of your income is received from commissions, copies of your most recent 2 years personal federal tax returns will be required.
Copies of a benefit awards letter along with a copy of your two most recent pension check stubs, or bank statement if your pension or retirement income is deposited directly in your bank account will be needed. We will also need 2 years copies of 1099’s.
Typically, only income that is reported on your tax return can be considered when applying for a mortgage. The exception to this would be if the income is legally tax-free and isn’t required to be reported.
If you own rental properties, we’ll ask for the 2 most recent year’s personal federal tax returns to verify your rental income. The Schedule E of the tax return will show your rental income and expenses. Copies of any leases will also be required.
Two years personal federal tax returns are required to verify the amount of your dividend and/or interest income. We will also need your most recent statement from your financial institution or investment company.
Typically, income from dividends and/or interest must be expected to continue for at least three years to be considered for repayment.
Information about child support, alimony, or separate maintenance income does not need to be provided unless you wish to have it considered as a source of income for repaying this mortgage loan.
Typically, income from a second job will be considered if a two year history of secondary employment can be verified.
Having changed employers frequently is typically not a hindrance to obtaining a new mortgage loan. This is particularly true if you made employment changes without having periods of time in between without employment. We’ll also look at your income advancements as you have changed employment.
If you’re paid on a commission basis, a recent job change may be an issue since we’ll have a difficult time of predicting your earnings without a history with your new employer.
If you are purchasing a home, we’ll have to use the lower of the appraised value or the purchase price to determine your down payment requirement.
Gifts may be an acceptable source of down payment, if the gift giver is related to you or your co-borrower. We’ll need the name, address, and phone number of the gift giver, as well as the donor’s relationship to you. The gift giver will be required to complete & sign a gift letter. Various loan programs have different requirements for borrower’s funds contribution.
If you’re selling your current home to purchase your new home, we’ll ask you to provide a copy of the purchase agreement on the home you’re selling at time of application. We’ll also need a copy of the Closing Disclosure you’ll receive at the closing to verify that your current mortgage has been paid in full and that you’ll have sufficient funds for our closing.
A co-signed debt is considered when determining your qualifications for a mortgage. If the co-signed debt affects your ability to obtain a new mortgage you can provide verification that the other person responsible for the debt has made the required payments, by obtaining copies of their cancelled checks for the last twelve months.
Any student loan that will go into repayment must be included in your debt to income ratio. Documentation of the payment(s) will be required.
If you’ve had a bankruptcy or foreclosure in the past, it may affect your ability to get a new mortgage. Generally, we will require that two to four years have passed since the bankruptcy or foreclosure. It is also important that you’ve re-established an acceptable credit history with new loans or credit cards.
An installment debt is a loan that you make payments on, such as an auto loan, a student loan or a debt consolidation loan.
Interest rates fluctuate based on a variety of factors, including inflation, the pace of economic growth, and Federal Reserve policy. Historically, 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.
Mortgage interest rate movements are as hard to predict as the stock market and no one can really know for certain whether they’ll go up or down.
If you have a hunch that rates are on an upward trend then you’ll want to consider locking the rate as soon as you are able. Before you decide to lock, make sure that your loan can close within the lock in period. If you’re purchasing a home, review your contract for the estimated closing date to help you choose the right rate lock period. If you are refinancing, in most cases, your loan could close within 45 days. However, if you have any secondary financing on the home that won’t be paid off, allow some extra time since we’ll need to contact that lender to get their permission.
Points are considered a form of interest. Each point is equal to a fee of one percent of the loan amount. You pay them, up front, at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing, however, you will have lower monthly payments over the term of your loan.
To determine whether it makes sense for you to pay points, you should compare the cost of the points to the monthly payments savings created by the lower interest rate. Divide the total cost of the points by the savings in each monthly payment. This calculation provides the number of payments you’ll make before you actually begin to save money by paying points. If the number of months it will take to recoup the points is longer than you plan on having this mortgage, you should consider the loan program option that doesn’t require points to be paid.
You have the option to lock in your interest rate at the time of application.
The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees in addition to the interest rate determine the estimated cost of financing over the full term of the loan. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up front costs over the entire loan term.
For adjustable rate mortgages, the APR can be confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.
You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that’s best for you. Look at total fees including appraisal and title insurance costs; and possible rate adjustments in the future if you’re comparing adjustable rate mortgages. Consider the length of time that you plan on having the mortgage.
Don’t forget that the APR is an effective interest rate, not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.
There are no prepayment penalties for any of Highpoint Community Bank’s mortgage or home equity loan programs. You can pay off your mortgage or home equity loan at anytime with no additional charges.
A mortgage with principal and interest payments due every two weeks. A bi-weekly mortgage, equivalent to 13 payments per year, has up to 26 payments annually. These extra payments significantly lower the interest payments paid over the life of the mortgage.
A balloon mortgage loan has a fixed interest rate with payments calculated (amortized) as if the loan will be repaid after a fixed number of years. The loan agreement specifies the loan becomes due and payable (balloons) in a shorter period of years.
Typically balloon mortgages are refinanced prior to the maturity of the loan or potentially paid off as the homeowner has sold the home.
There are some balloon mortgages that have a reset option. If the homeowner meets the predetermined qualifications the loan will reset to a fixed rate term loan. The interest rate is generally lower than a 30 year fixed rate loan.
An adjustable rate mortgage, or an “ARM” as they are commonly called, is a loan type that typically offers a lower initial interest rate than most fixed rate loans. The trade off is that the interest rate can change periodically, usually in relation to an index, and the monthly payment will go up or down accordingly.
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 a shorter time period.
Here’s some detailed information explaining how ARM’s work.
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.
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.
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.
An interest-rate cap places a limit on the amount your interest rate can increase or decrease. There are two types of caps:
- Periodic or adjustment caps, which limit the interest rate increase or decrease from one adjustment period to the next.
- 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.
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. The purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past.
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:
- Owner’s Policy – This policy covers you, the homebuyer.
- Lender’s Policy – This policy covers the lending institution over the life of the loan.
If the loan is a purchase, both types of policies are issued at the time of closing for a one-time premium. 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.
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 that is 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.
Private mortgage insurance (PMI) or mortgage insurance protection (MIP) makes it possible to purchase a home with less than a 20% down payment. It protects the lender against the additional risk associated with lower down payment loans.
The mortgage insurance premium is based on your credit score, the loan to value, type of loan and amount of coverage required by the lender. Typically, the premium is included as part of your monthly payment.
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 lender to lender. Any lender should be able to give you an estimate of their fees.
To assist you in evaluating our fees, we’ve grouped them as follows:
Third Party 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 is paid the title insurance fees.
Some fees that we consider third party fees for example are the appraisal, the credit report, the settlement or closing fee, the survey, title insurance fees, flood certification, and courier/mailing 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.
Taxes and other costs:
Fees that we consider to be taxes and other costs include: State and Local Taxes, transfer tax and recording fees. These fees will most likely have to be paid regardless of the lender you choose.
Fees such as points, underwriting and loan processing fees are retained by the lender and are used to provide you with the lowest rates possible.
Required Items Paid in Advance:
You may be required 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 “prepaid interest” or “interest due at closing”. All of our mortgages have due dates on the 1st of the month. If you close your loan on any day other than the first of the month, interest will be collected from the date of closing through the end of the month. For example, if the loan is closed on October 7, we’ll collect interest from October 7th through October 31st at closing. This also means that you won’t make your first mortgage payment until December 1st. This type of charge should not vary from lender to lender, and does not need to be considered when comparing lenders. Lenders will charge you interest beginning on the day the loan is closed.
If an escrow account is established, you will make an initial deposit into the escrow account at closing so that sufficient funds are available to pay your property taxes & homeowner’s and flood insurance (if applicable) when they become due.
If your loan is a purchase transaction, you’ll also need to pay for your first year’s homeowner’s insurance premium prior to closing.
To determine the value of the property you are purchasing or refinancing, an appraisal will be required. An appraisal report is a written report and estimate of the value of the property. National & State standards govern not only the format for the appraisal; they also specify the appraiser’s qualifications, licensing requirements and credentials.
After the appraiser inspects the property, they will compare the qualities of your home with other homes that have sold recently in the same neighborhood. These homes are called “comparables” and play a significant role in the appraisal process. Using industry guidelines, the appraiser will try to weigh the major components of these properties (i.e., design, style, square footage, number of rooms, lot size, age, etc.) to the components of your home to come up with an estimated value of your home. The appraiser adjusts the price of each comparable sale (up or down) depending on how it compares (better or worse) with your property.
As soon as we receive your appraisal, we’ll update your loan with the estimated value of the home. As a standard practice we will provide a copy of your appraisal prior to or at closing.
Licensed appraisers who are familiar with home values in your area perform appraisals. Generally, it takes 7-10 days before the written report is sent to us.
Federal Law requires all lenders to determine whether or not each home they finance is in a Special Flood Hazard Area (SFHA) as defined by the Federal Emergency Management Agency, FEMA. The Flood Disaster Protection Act of 1973 and the National Flood Insurance Reform Act of 1994 helps to ensure that you will be protected from financial losses caused by flooding.
A third party company who specializes in the reviewing of flood maps prepared by FEMA will determine if your home is located in a flood area. If it is, then flood insurance coverage will be required, as standard homeowner’s insurance doesn’t protect you against damages from flooding.