Mortgage FAQs

Building Your Healthy Credit History

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Having a credit history may not only be beneficial to your investment planning, but also necessary. In order to purchase any high priced item, such as a house, with anything but cash most people need to obtain a home mortgage. One of the items that banks, credit unions and the Small Business Administration review in the loan approval process is your credit history and your credit score. With a poor credit score, you will usually have to make a much larger down payment on the property.

By building a good credit history and establishing a good to very good credit score, you have position yourself better to not only get a loan, but get a loan at a an attractive interest rate.

The three major credit bureaus, TransUnion, Equifax and Experian, create and maintain your credit history and then derive your credit score from that history. When applying for a mortgage, the lender looks at your credit score that is the average of the three scores issued by these credit bureaus.

The first step is to establish a level of financial stability by opening a checking and, if possible, a savings account. Another reason to begin building a savings account is that lenders like to see at least several months worth of a mortgage payments in your combination checking and savings account.

Start Building Credit History

Another easy way to start building a credit history is to get a “guaranteed” credit card. Essentially it is a debit card that begins to act like a credit card. When investigating the cards, make sure the fees are reasonable. If the card is opened with a $300 balance, make sure that at the end of the 6 month period of establishing a good payment history the fees are not structured so as to eat up your balance.

These credit history building cards work by the card holder initially depositing money in an account. The cardholder than makes purchases with the card, sends monthly payments on the account and after six months of timely payments gets their balance (less any fees) credited to their account. After that process, the card holder can request that the credit limit be increased to $1000 to get it to the level that helps your credit score.

For homeowners, a equity-building route is to purchase an item (that you need), such as an appliance, on an installment loan and make regular, on-time payments. Beware of installment loans that call for payments that are mostly interest payments or have prepayment penalties. If you are on a payment plan whose payments mostly go towards interest, set your own minimum payment level that is higher so that most of your payment goes to paying down the loans principal.

Gas station credit cards are usually easier to get than a regular credit card and usually carry lower limits. The best discipline with a gas credit card is to use it an pay it off at the end of the month, or only leave an outstanding balance of under 30%.

Building your credit is easy, but takes financial discipline in order for these steps not to back-fire and hurt your credit history. Financial discipline is, after all, the main underpinning of any credit building exercise and strategy.

Credit Issues – FAQ on Qualifying for a Mortgage

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Q. I have had credit issues in the past. Will this affect my ability to obtain a mortgage loan?

A. In evaluating an application for a mortgage loan, an applicant’s credit history will be considered as one element in determining the applicant’s qualification for the requested loan. Negative credit histories or a lack of previous credit experience can adversely affect an applicant’s ability to obtain a requested loan. More recent credit information will be weighed more heavily than older information. Also, some types of credit histories may be given greater weight than others. Generally, the applicant’s previous payment history on a mortgage loan is given the greatest weight, followed by major installment accounts (such as auto loans), followed then by major credit card accounts (such as MasterCard and VISA accounts), and finally followed by minor revolving charge accounts such as departments stores and finance companies.

Q. My credit problems occurred more than three years ago. Will this affect my ability to obtain a mortgage loan?

A. In evaluating a loan application, we will look closely at information occurring in the past two years. Generally, a few late payments occurring on installment loans or credit-card accounts more than two years ago will not affect an applicant’s ability to obtain maximum financing (with minimum equity or downpayment) as long as the late payments were isolated and an adequate statement has been provided explaining why the credit problems occurred.

Credit Issues with Bankruptcy and Late Payments

Q. I recently filed bankruptcy. Will this affect my ability to obtain a mortgage loan?

A. An applicant may be able to qualify for maximum financing with a previous bankruptcy provided that the discharge date is more than two years ago, the applicant has re-established and maintained a positive credit history on at least three accounts since the date of the bankruptcy discharge, and the applicant provides an acceptable explanation for the reason the bankruptcy was filed. Chapter 13 bankruptcy plans (which provide for a restructuring of debt and repayment of all or a portion of the debt over a 3 to 5 year period) must have been fully completed for a two year period to obtain maximum financing at the best available interest rates. However, we offer special loan programs at higher interest rates which allow more recent bankruptcies. These special programs typically require higher downpayments or equity positions than our conventional loans (between 10% to 35%) depending on how recent the bankruptcy.

Q. I have very recent late payments on a prior mortgage. Will this affect my ability to obtain a mortgage loan?

A. As previously stated, mortgage payment histories are given greater weight than other types of credit information. Thus, late payments occurring on a mortgage within the past two years will typically preclude an applicant from obtaining maximum financing at the best interest rates. However, we offer special loan programs at higher interest rates which allow recent late payments on mortgages. These special programs typically require higher downpayments or equity positions than our conventional loans (between 10% to 35%) depending on how recent the late payments occurred. We even have loan programs for applicants which are currently in default on a mortgage loan or which have experienced foreclosures; however, these programs typically require higher equity positions of between 20% and 35% and have interest rates which are much higher than those offered on other loan programs.

Q. How is the amount of the downpayment I will be required to pay determined on these special loan programs allowing derogatory credit?

A. The amount of the downpayment required for an applicant with recent derogatory credit is determined on a case-by-case basis. Generally, the more negative and more recent the derogatory information, the higher the downpayment or equity position that will be required. For example, we offer a program which allows a 5% downpayment which permits late payments on a mortgage occurring more than 12 months prior to the application date, and up to three 30-day late payments on other types of accounts during the preceding 24 months. With 10% down, several late payments on a mortgage occurring within the preceding 12 months and a few 30-day and 60-day late payments on other types of accounts will be permitted on these special programs with higher interest rates. Most of these programs also allow higher debt ratios than those programs at more favorable interest rates.

Click here to Contact Us or Apply Online for a Loan.

Owner Builder Spec Home Loans & Mortgages

Our Glossary of Mortgage Terminology

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Our Mortgage Glossary of Common Terms and definitions listed from A to Z.

A B C D E F G H I J K L M
N O P Q R S T U V W X Y Z

Adjustable Rate Mortgage (ARM)
A mortgage in which the interest rate is adjusted periodically based on an index. Also called a variable rate mortgage.

Adjustment Interval
For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.

Amortization
Literally to “kill off” (root: mort) the outstanding balance of a loan by making equal payments on a regular schedule (usually monthly). The payments are structured so that the borrower pays both interest and principal with each equal payment.

Annual Percentage Rate (APR)
The interest rate which reflects the cost of a mortgage as a yearly rate. This rate is usually higher than the stated loan rate for the mortgage, because it takes into account points and other charges.

Application Fee
The fee charged by the lender to the borrower for applying for a loan. Payment of this fee does not guarantee that a loan will be approved. Some lenders may apply the cost of the application fee to certain closing costs.

Appraisal
The determination of property value based on recent sales information of similar properties.

Assumable Loan
These loans may be passed on from a seller of a home to the buyer. The buyer “assumes” all outstanding payments.

Balloon Mortgage
Behaves like a fixed-rate mortgage for a set number of years (usually five or seven) and then must be paid off in full in a single “balloon” payment. Balloon loans are popular with those expecting to sell or refinance their property within a definite period of time.

Broker
An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Caps
A set percentage amount by which an adjustable rate mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime.

Loans like the 3/1 and 5/1 adjustable which have an initial fixed period are quoted with 3 numbers as in 2/6/3 which would mean that the first adjustment may be as much as 3%, subsequent adjustments are capped at 2% each, and the lifetime cap is 6%.

Two-Step loans are quoted with a single cap, which is the amount by which the loan may adjust at its single adjustment date.

Closing Costs
Fees paid by the borrower when property is purchased or refinanced. These typically include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges.

Commitment
A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.

Construction Loan
A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.

Conventional Loan
A mortgage neither insured by the FHA nor guaranteed by the VA.

Conversion
The right of a borrower to convert an adjustable or balloon loan into a fixed loan. The Conversion Option column on Microsurf balloon tables indicates the right of a borrower to convert this balloon loan.

Credit Rating
Borrowers are rated by lenders according to the borrower’s credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower’s payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower’s credit, and different lenders may assign different grades to the same borrower.

Credit Report
A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.

Deed
A legal document which affects the transfer of ownership of real estate from the seller to the buyer.

Default
The failure to make payments on a loan.

Down Payment
Money paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.

Equity
The difference between the current market value of a property and the principal balance of all outstanding loans.

Finance Charge
The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.

Fixed-Rate Mortgage
A mortgage where the interest rate does not change for the life of the loan.

Float
Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float. Floating is essentially choosing not to lock the interest rate. Since it is the borrower’s responsibility to lock his or her rate before (or at) closing, choosing to float is considered risky and may result in a higher interest rate. Request information from your lender regarding lock procedures.

Foreclosure
A legal procedure in which real estate is sold by the lender to pay a defaulting borrower’s debt .

Good Faith Estimate
An estimate of charges which a borrower is likely to incur in connection with a loan closing.

Gross Monthly Income
The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Hazard Insurance
A form of insurance in which the insurance company protects the insured from certain losses such as: fire, vandalism, storms and certain other natural causes.

Housing Ratio
The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.

Index
A published interest rate not controlled by the lender to which the interest rate on an Adjustable Rate Mortgage (ARM) is tied. The index and the interest rate linked to it may increase or decrease.

Interest Rate
The percentage of an amount of money which is paid for its use for a specified time.

Jumbo Loan
A loan above $322,700. These limits are set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Lender
The bank, mortgage company, or mortgage broker offering the loan. Many institutions only “originate” loans and then resell the obligation to third parties.

Life of Loan Cap
The maximum interest rate that can be charged during the life of the loan. Also called Lifetime Cap. This value is often expressed as an increment above the initial loan rate. For example, an adjustable rate loan with an initial rate of 7.25% and a 6% lifetime cap will never adjust above a rate of 13.25% (7.25+6.0).

Loan-To-Value Ratio
The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. A LTV ratio of 90 means that a borrower is borrowing 90% of the value of the property and paying 10% as a down payment. For purchases, the value of the property is assumed to be the purchase price, for refinances the value is determined by an assessment.

Lock noun
The period, expressed in days, during which a lender will guarantee a rate. Some lenders will lock rates at the time of application while others will allow the borrower to lock the rate after the application is taken. Request information from your lender regarding lock procedures.

Lock verb
The act of committing to a mortgage rate. This action, taken by a borrower some time between the application and the closing dates, is sometimes accompanied by a payment by the borrower to the lender. Opposite of float

Margin
The amount a lender adds to the quoted index rate for an adjustable rate loan to determine the new interest rate.

Minimum Credit
This field on the Microsurf tables refers to the minimum credit rating a borrower must have in order to qualify for the listed loan.

Monthly Housing Expense
Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.

Mortgagee
The lender.

Mortgagor
The borrower.

Net Effective Income
Gross income less federal income tax.

Origination Fee
The fee imposed by a lender to cover certain processing expenses in connection with making a loan. Usually 1% of the amount loaned. Please refer to the Points definition.

Points
Prepaid interest paid by the borrower to the lender at closing. A point is equal to 1 percent of the loan amount (e.g. 1.5 points on a $100,000 mortgage would cost the borrower $1,500). Generally, by paying more points at closing, the borrower reduces the interest rate of his loan and thus future monthly payments.

Prepaids
Expenses such as taxes, insurance and assessments which are paid in advance of their due date and which must be paid by the buyer on a prorated basis at closing.

Prepayment
The ability to pay off the remaining balance of a loan.

Prepayment Penalty
Lenders who impose prepayment penalties will charge borrowers a fee if they wish to repay part or all of their loan in advance of the regular schedule.

Principal
The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI)
Paid by a borrower to protect the lender in case of default. PMI is typically charged to the borrower when the Loan-to-Value Ratio is greater than 80%.

Qualifying Ratio
The ratio of the borrower’s fixed monthly expenses to his gross monthly income. Ratios are expressed as two numbers like 28/36 where 28 would be the Front-End Ratio and 36 would be the Back-End Ratio.

The Front-End Ratio is the percentage of a borrower’s gross monthly income (before income taxes) that would cover the cost of PITI (Mortgage Principal Payment + Mortgage Interest Payment + Property Taxes + Homeowners Insurance). In the case of a 28% Front-End Ratio a borrower could qualify if the proposed monthly PITI payments were 28% or less than the borrower’s gross monthly income.

The Back-End Ratio is the percentage of a borrower’s gross monthly income that would cover the cost of PITI plus any other monthly debt payments like car or personal loans and credit card debt.

Please note that qualifying ratios are only a rough guideline in determining a potential borrower’s credit-worthiness. Many factors such as excellent or poor credit history, amount of down payment, and size of loan will influence the decision to approve or disapprove a particular loan.

Settlement Costs
See Closing Costs.

Tax Lien
A claim against real estate for the amount of its unpaid taxes.

Title
A document that gives evidence of an individual’s ownership of property.

Title Insurance
Insurance against loss resulting from defects of title to a specifically described parcel of real estate.

Title Search
An examination of city, town, or county records to determine the legal ownership of real estate.

Total Debt Ratio
Monthly debt and housing payments divided by gross monthly income. Also known as Back-End Ratio.

Variable Rate Mortgage
See Adjustable Rate Mortgage.

Mortgage GlossaryWe offer Colorado Conventional Construction Loans and mortgage lending for new construction, renovation and Pre-built homes.

We earn your trust by taking the stress out of the buying/building process with our vast experience we can intelligently discuss with you the client the various options available and advise our client in the direction they should follow.

Taylor Mortgage Group is a mortgage broker that offers a variety of loan products and rates with some of the largest and best investors. A pre-approval process can be helpful in structuring your final goal. One of the most important steps in purchasing a home is to be pre-qualified or pre-approved. An accurate credit report is a useful tool in assessing your lending options. We are there to advise and assist with any challenges. Verifying correct and up to date credit information helps us provide clients an option for debt consolidation in order to help them qualify for the price range they are interested in for their loan.

Call or email Janie today with your home, land, construction, and HECM lending questions.

Colorado Home Loan Programs

Colorado Loan Programs

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Taylor Mortgage Group lends statewide in Colorado and here is a list of some of our loan program options:

  1. Fixed Rate Mortgages
  2. Adjustable Rate Mortgages
  3. Conventional Loans
  4. First Time Home buyers
  5. FHA
  6. VA
  7. USDA
  8. Land Loans
  9. Construction Loans
  10. One-Time Close Construction Loan
  11. Construction to Permanent Loan
  12. Consolidation Loans
  13. Investment And Second Home Loans
  14. Jumbo Loans
  15. Sub Prime Loans
  16. DSCR Loans
  17. Self-Employed
  18. Horse Properties And Farm Loans
  19. Modular Home Loans
  20. 2nd Mortgages
  21. Refinances
  22. Owner Builder Loans
  23. Renovation Loans
  24. Reverse Mortgages
  25. Agricultural Zoning Loan
  26. Small business loans
  27. Home Equity Loans
  28. Stand Alone HELOC (Home Equity Line Of Credit)
  29. Commercial Loans
  30. Hard Money Loans

One of the most important steps in getting the loan process started is getting pre-qualified. This step can eliminate wasted time in the purchase transaction. A prequalification process can also be helpful in structuring your final goal. You may find something showing up on your credit report that is incorrect, or may need to do some debt consolidation in order to qualify for the price range you were interested in. We are there to assist and advise with any challenges that may come up.

A pre-qualification can be handled by telephone. This is followed up by an email with a link to our loan application, and a secure link to upload the documents to. A letter with a list of items that will be needed to complete the transaction ” Needs List” once you are under contract. More complicated packages may require a few days. In any event, we strive meet our deadlines and commitments without any undue stress for anyone involved.

For additional information on your financing needs please feel free to call Taylor Mortgage Group at 303-339-5950 or Janie Taylor directly at (303) 884-9393!

Apply Online Now

Our Colorado Home Buyer Quiz

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A Quiz to Test the Knowledge of Colorado Home Buyers

Are you a Colorado Home Buyer? Please use this short quiz to test your knowledge of the Home Buying process. Should I refinance? Is now a good time to buy a house? What is an ARM?

Take the Home Buyer’s Quiz and learn about terms and concepts you will encounter as you search for the mortgage that is right for you.

Question One:

According to most mortgage lenders, you can qualify for a mortgage amount of about four times your gross annual salary. TRUE or FALSE?

This is false. Most lenders agree that you can afford a home that is 2 to 2 1/2 times your gross salary.

Question Two:

What is the maximum mortgage amount homeowners may deduct from their federal income tax for mortgage interest paid for first and second homes, and any improvements made to those homes?

The answer is 1 million dollars. (By the way, if you are currently in this situation, please give us a call for some special Jumbo rates. We’d love to hear from you!)

Question Three:

A 15-year fixed-rate mortgage saves you nearly 60 percent of the total interest costs over the life of a loan when compared to a 30-year mortgage. TRUE or FALSE?

True. You may also shorten the life of a 30-year loan (and thus save interest costs) by making additional principal payments on your loan along with your normal payments. These are known as curtailments.

Question Four:

Why do mortgage lenders refer to a homeowner’s monthly payment as “PITI”?

  1. Homeowner’s should be “pitied” because of their monthly payments. It includes principal, interest, taxes and insurance.
  2. “Piti” is the French word for “mortgage payments”.
  3. PITI is short for “Pay It on Time In full.

The answer is a: It includes Principal, Interest, Taxes and Insurance.

Question Five:

What is a “jumbo” loan?

  1. A mortgage that is really too big for you to afford.
  2. A loan that you pay monthly for a time and then pay one “jumbo” payment on the remaining principal.
  3. A mortgage that is larger (more than $322,700) than the limits set by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).
  4. A loan to buy a house with more than four bedrooms.

The answer is c: A jumbo loan is any mortgage larger than the limit set by FNMA and FHLMC, commonly known as “Fannie Mae” and “Freddie Mac”, respectively. This amount changes nearly every year due to inflation and current economic trends.

Question Six:

What does a “buy-down” refer to?

  1. A discount on the home price so you can afford it.
  2. A discount on the loan’s interest rate during the first years of the loan to make financing easier to qualify for.
  3. Money you pay the lender to give you a lower interest rate.
  4. Buying a cheaper house than you live in now; also called a “trade-down”.

The answer is b: A “buy-down” is a temporary reduction in the rate of a mortgage, usually for the first two or three years. One common example is a 3/2/1 buy-down. On a 9% fixed-rate loan this would make the first year’s interest 6%, the second 7%, the third 8% and the fourth through the last 9%. However, you would qualify at the 6% rate. This is a very attractive option for buyers with some extra cash who would like to qualify for a more expensive home.

Question Seven:

Typical closing costs can range from:

  1. 10 to 15 percent of the loan amount.
  2. 3 to 8 percent of the loan amount.
  3. 8 to 10 percent of the loan amount.
  4. 1 to 3 percent of the loan amount.

The answer is b: You can count on your closing costs being anywhere from 3 to 8 percent of the total loan amount. Where you fall in this range depends on the type of loan (VA or Conventional), whether or not you’ve financed some of the closing costs (like first-year insurance), etc. A good rule of thumb is to stick with 8% as an estimate and you’ll be safe.

Question Eight:

Making an extra mortgage payment each year shortens the life of a 30-year loan by:

  1. Approximately 7-8 years.
  2. About 5 years.
  3. About 15 years.
  4. It doesn’t shorten the life of the loan, it just decreases interest costs.

The answer is a: Amazing, but true.

Question Nine:

A “convertible” mortgage is one which:

  1. Allows you to buy a car with the house.
  2. Allows the homeowner to decrease the loan’s interest rate without refinancing the mortgage.
  3. Can be used like a giant credit card.
  4. Allows you to make an adjustable rate mortgage (ARM) into a fixed-rate mortgage when interest rates are low.

The answer is b and d: The “convertible” means that you can convert an ARM into a fixed-rate mortgage (usually during certain periods) for a nominal fee, without refinancing the loan or changing the terms. This is especially attractive if the new fixed rate is lower than your previous ARM rates (i.e. interest rates are falling).

Question Ten:

Lenders normally recommend refinancing a mortgage if:

  1. The market rate is one or more percentage points below the rate on the loan.
  2. The homeowner has no equity in the property.
  3. The homeowner doesn’t want to pay any taxes.
  4. The homeowner has a “convertible” mortgage.

The answer is a: It does not usually pay to refinance your home if the spread between your current rate and the rates you can get on a new loan are less than one percent apart.

Question Eleven:

Mortgages backed by the Housing Administration require what size down payment?

  1. About 3 to 4 percent of the loan amount.
  2. About 10 to 20 percent of the loan amount.
  3. Nothing down.
  4. More than 20 percent of the loan amount.

The answer is a: FHA loans are often very popular because of the low down payment they require.

Question Twelve:

When discussing “points”, your lender means:

  1. The things you really like about your new house.
  2. Prepaid interest. Each point equals 1 percent of the loan amount.
  3. A rating system used by lenders to qualify applicants.
  4. The number of traffic violations that show up on your credit report.

The answer is b: By paying points up front (at the time of closing), you may lower your overall interest rate. For example, on a $100,000 loan, you may have an interest rate of 10%. By paying one point ($1,000) extra at closing, you may be able to lower your interest rate to 9.75%. Make sure your lender explains the points and interest rates available to you for the loan you choose.

Question Thirteen:

What is a deed of trust?

  1. Money you have received before you have actually qualified for the loan.
  2. A special document waiving your right of rescission.
  3. A document used in place of a mortgage in some states.
  4. A special mortgage you can get if the lender knows you.

The answer is c: Every state has their own rules, regulations and terms concerning the borrowing of money for a house.

Question Fourteen:

A VA loan is:

  1. A long-term, low or no-down payment loan guaranteed by the Veterans Administration, which is restricted to individuals qualified by military service or other entitlements.
  2. A loan on a home sold at a discount because it is “Vacant and Abandoned”.
  3. A loan on which the home buyer pays a premium of up to 1 percent.
  4. A loan for an animal hospital funded by the Veterinarians of America.

The answer is a and c: VA loans are popular because they offer a very low or no-down payment, but are restricted to a certain group of people who qualify. Contact your lender to see if you are a qualified candidate for a VA loan.

Question Fifteen:

A title search:

  1. Examines the homebuyer’s background to see if he or she is descended from royalty.
  2. Examines local public land records to determine the legal ownership of a property.
  3. Looks for books in the public library that tell about home financing.
  4. Verifies the property’s past owners.

The answer is b: The title company is responsible for making sure that you are the new free-and-clear owner of the property you are buying. In addition, their insurance fee will cover you in the case where they have made a mistake and someone else claims a lien or right to your property.

So, how did you do?

For more information on mortgages and what to do when buying a home, contact our office. We hope this quiz helped you in your search for a home and mortgage.