| 1. |
How will I know how much I can qualify for? Answer |
| 2. |
How do I know what type of mortgage is best for me? Answer |
| 3. |
What is Pre-Qualification? Answer |
| 4. |
What is Pre-Approval? Answer |
| 5. |
What are income and debt ratios? Answer |
| 6. |
What are “Cash Reserves”? Answer |
| 7. |
How much money do I need for a down payment and closing costs? Answer |
| 8. |
What is a Credit Score? Answer |
| 9. |
What is IRS Form 4506-T? Answer |
| 10. |
What is Mortgage Insurance? Answer |
| 11. |
Who pays for private mortgage insurance? Answer |
| 12. |
Is there an application fee? If so, how much? Answer |
| 13. |
What is a buy-down (discount point)? Answer |
| 14. |
What is an origination fee? Answer |
| 15. |
What are closing costs? Answer |
| 16. |
What is PITI? Answer |
| 17. |
What is an escrow account – or – an impound account? Answer |
| 18. |
I want to pay my own taxes and insurance. Can I do that? Answer |
| 19. |
What is the APR? Answer |
| 20. |
What is amortization? Answer |
| 21. |
Lock-in A Rate, what is that? Answer |
| 22. |
When can I lock-in the interest rate? Answer |
| 23. |
How long are lock-ins valid? Answer |
| 24. |
What are points? Answer |
| 25. |
How long will the loan process take? Answer |
| 26. |
What is a conventional or conforming loan? Answer |
| 27. |
Can I qualify for a VA loan? Answer |
| 28. |
What is a JUMBO loan? Answer |
| 29. |
What is hazard insurance? Answer |
| 30. |
Will my loan be sold? Answer |
| 31. |
I want to pay my loan off early; can I make extra payments each month? Answer |
| 32. |
What does LTV stand for? Answer |
| 33. |
What is the difference between a fixed-rate and an adjustable-rate mortgage? Answer |
| 34. |
What is an 80/10/10 and an 80/15/5? Answer |
| 35. |
Should I do a no point, no fee loan? Answer |
| 36. |
Why do interest rates go up and down? Answer |
| 37. |
Can I change the loan amount or program after I’ve applied for a loan? Answer |
| 38. |
After I send my paperwork back, what happens? Answer |
| 39. |
Is my interest rate locked in as soon as I apply for a loan? Answer |
| 40. |
What about the appraisal? Answer |
| 41. |
Where do I go to sign up for my loan – close of escrow? Answer |
| 42. |
What do I need to bring to closing? Answer |
| 43. |
Anything else? Answer |
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Q
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How will I know how much I can qualify for? |
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A
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I will work with you to get you qualified BEFORE you look for a home. Based upon information you present to me at the loan application, I will determine the approximate amount of money that you will be allowed to borrow. You will be “pre-qualified” for that loan amount. By allowing me to run your credit report and verify your assets and income, your loan application can be submitted to the underwriter for a full credit approval. I can help you obtain a complete written credit approval (subject to an appraisal) before you make an offer on a home. |
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Q
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How do I know what type of mortgage is best for me? |
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A
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I can help you arrive at the “best” solution. Here are some items to consider in helping you address this question:
1. What is your current financial picture?
2. How long you intend to keep your home (one of the most important aspects of your decision making process. I can help you understand why).
3. Do you expect your finances to change?
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Q
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What is Pre-Qualification? |
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A
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A Pre-Qualification for a loan can occur over the phone, email or in person. Your income, assets and credit information are not verified, but it can give you a quick idea of how much you can borrow. |
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Q
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What is Pre-Approval? |
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A
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A Pre-Approval occurs after you have provided me with your income, asset and credit information which will be evaluated prior to informing you that you have been approved for a mortgage. It happens before a property is found or an appraisal is done, so you can shop for a new home with confidence or before any expense has been incurred. It is highly recommended that you get pre-approved before you start looking for a house. |
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Q
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What are income and debt ratios? |
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A
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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 payment, car payments, or other loan payments) divided by your income. |
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Q
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What are “Cash Reserves”? |
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Cash Reserves are the funds a borrower has remaining after their loan funds. The normal requirement could be monies equal to 2 months of the mortgage payment. The amount of Cash Reserves varies by loan program, but larger reserves are a strong compensation factor. |
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Q
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How much money do I need for a down payment and closing costs? |
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A
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For most borrowers, a minimum down payment of 3.5% is required plus money for closing costs. Some programs allow the down payment and/or closing costs to be a gift from a family member or a contribution from the seller, thus reducing the cash needed to purchase a home. I can advise you about these different types of loans. |
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Q
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What is a Credit Score? |
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Credit scores are numeric representations of our credit profile. The higher the score the better credit risk you are. You can be denied a mortgage loan if your score is too low.
These scores have been around for several years but started to be used in the mortgage lending business in 1995.
1. They are based on years of computer “modeling” aimed at predicting who might be a good or bad credit risk.
2. Their purpose is to reduce the cost of examining a credit report and speed mortgage approvals.
3. Important negative factors are; bankruptcies, delinquencies, credit lates, collections, “too much” credit, or too little credit history.
4. The score is only as good as the data. Make sure you review your credit from time to time to make sure your credit report looks as it should.
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Q
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What is IRS Form 4506-T? |
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A
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IRS 4506-T allows the lender to receive an electronic abstract of your tax returns allowing the lender to compare the returns you supply us with those at the IRS. |
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What is Mortgage Insurance? |
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Mortgage Insurance insures lenders in the event of a borrower’s foreclosure. It is paid for by the borrower and allows lenders to grant loans that they otherwise would not consider. Depending on credit scores and loan structure, mortgage insurance may be required when the down payment is less than 20%. |
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Q
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Who pays for private mortgage insurance? |
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Typically, mortgage insurance is paid by the borrower. Mortgage Insurance has a variety of ways it can be structured to best meet your goals. |
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Q
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Is there an application fee? If so, how much? |
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A
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Some lenders charge a fee to apply for a mortgage and the cost could range anywhere from $50 to $500. I do not charge an application fee. |
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Q
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What is a buy-down (discount point)? |
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A buy-down is a fee the buyer pays in return for the below market interest rate. |
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Q
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What is an origination fee? |
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A
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The amount charged, as a percentage of the loan amount, to guide you through the loan process and close a mortgage loan. |
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Q
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What are closing costs? |
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Closing costs are payable by both seller and buyer at the time of loan settlement (close of escrow), when the purchase or refinance of a property is finalized. They are one-time fees incurred to “buy” the loan. |
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What is PITI? |
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PITI is an abbreviation that reflects the different components of a mortgage payment. “P” – for principal – is the amount of the payment that reduces your loan balances. “I” – for interest – is the portion of your payment that pays for the accumulated interest. “T” – for taxes – is the portion of your payment collected in an escrow account that the lender will use to pay your property taxes when they are due. “I” – for insurance – is the portion of your payment collected in an escrow account that the lender will use to pay your homeowner’s insurance when it is due. |
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Q
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What is an escrow account – or – an impound account? |
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A
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An escrow, or impound, account is an account where the lender collects funds from the borrower and holds the monthly contribution towards the property taxes and homeowners insurance premiums (also known as the “T” and the “I” of the P.I.T.I). From this account, the lender pays the taxes and insurance on the borrower’s behalf. |
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Q
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I want to pay my own taxes and insurance. Can I do that? |
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The lender prefers to pay your taxes and insurance, through the escrow account, because if those items are not paid it will jeopardize their investment. Many lenders will allow you to pay your own taxes and insurance, known as “waiving escrows”, for a fee. In order to “waive escrows” your first mortgage must not exceed 80% of Home Value or purchase price. |
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What is the APR? |
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APR is an acronym for Annual Percentage Rate. It is the actual interest rate, paid by the borrower after all loan related costs are taken into account, for the projected life of a mortgage. Disclosure of the APR is required by the Truth-In-Lending Law and allows borrowers to compare the actual costs of different mortgage loans. |
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What is amortization? |
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Amortization is the reduction of a debt by regular, usually monthly, installments of principal and interest over a specified period of time. |
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Q
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Lock-in A Rate, what is that? |
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The guarantee of a specific interest rate for a specific period of time. An interest rate can be “locked in” for a set amount of time – the shorter length of time for the lock in, the lower the cost in points. I can help you determine the optimal amount of time based on your needs and goals. |
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Q
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When can I lock-in the interest rate? |
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A
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Generally, as soon as you complete your loan application. You should notify me if you would like to either lock or float. Remember, the shorter the time of the lock-in, the lower the points. |
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Q
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How long are lock-ins valid? |
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The lock-in should be long enough to allow for the loan to close escrow. Some examples of lock-in terms are for 10, 15, 30, or 45 days; locks are available for longer terms as well, but again, at a higher cost for the amount of time forward. |
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What are points? |
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Charges levied by the lender based on the loan amount. Each point is one percent of the mortgage loan amount; for example, one point of a $100,000 mortgage is $1,000. Points can include the origination fee or loan discount points, which are used to lower the interest rate. |
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Q
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How long will the loan process take? |
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Once you apply, I will begin to verify all the information you provided. The total can take anywhere from a week to longer. Other factors include whether the applicant is self-employed, title clearance, etc. Time delays can also occur if outside sources or you do not provide documents to the lender in a timely manner. Be sure to respond promptly to requests for information while processing is taking place. |
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Q
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What is a conventional or conforming loan? |
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A loan that conforms to Fannie Mae or Freddie Mac lending guidelines. A loan that is not insured, guaranteed, or funded by the Veteran Administration (VA), the Federal Housing Administration (FHA), or the Rural Economic Community Development (RECD) (formerly Farmers Home Administration). Loans guaranteed by the agencies listed above are referred to as “government loans". |
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Can I qualify for a VA loan? |
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VA loans, guaranteed by the Veteran’s Administration, are for veterans who meet a certain criteria. VA loans do not require any down payment and in some cases the seller may be willing to pay all or part of the closing costs. This allows the veteran to purchase a home with little or no money down. To find out if you qualify for a VA loan, ask your loan officer for an 1880 form for you to complete. After you have completed this form, take it and your discharge papers (orDD214) to your local VA office to determine your eligibility. Active military personnel may also be eligible for a VA Loan. |
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What is a JUMBO loan? |
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A loan that is larger than the conventional/conforming limits set by the Federal national Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. This also referred to as a non-conforming loan. |
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What is hazard insurance? |
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A form of insurance that protects the insured property against physical damage such as fire. Mortgage lenders often require a borrower to maintain an amount of hazard insurance on the property at is equal to at least the amount of the mortgage loan. |
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Will my loan be sold? |
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The “servicing” of the loan (e.g., the right to collect payments for a fee) is a marketable asset, which your lender can sell to other sources. As part of the loan documentation, you will sign a form that recognizes the fact that the servicing of your loan may be sold. Most fixed rate loans are in fact sold. |
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I want to pay my loan off early; can I make extra payments each month? |
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Generally, YES! In some cases, loans may have pre-payment penalties that restrict the type or amount of pre-payment you can make. For example, you may be able to sell your home, but not refinance. Or you may not be able to pay off more than 10% of the original loan balance. You should be clearly informed if the loan you are applying for contains a pre-payment penalty. If no pre-payment penalty exists, you can make additional principal payments at anytime during your loan term or pay off the loan in full. You can pay a set amount each month above the normal payment due or make lump sum payments periodically. |
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What does LTV stand for? |
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LTV is an acronym for Loan-to-Value. This is the relationship, expressed as a percentage, between the amount of a loan and a property’s value or sales price. For example, a $75,000 loan on a property appraised at $100,000 is a 75% LTV. |
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What is the difference between a fixed-rate and an adjustable-rate mortgage? |
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A fixed rate mortgage is a mortgage that has an interest rate that stays fixed for the life of the loan. On an adjustable rate mortgage the interest rate changes based upon a specific margin and financial index (such as Government Treasury Bill rates) and payments may go up or down based on the movement of that index. The margin never changes. |
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What is an 80/10/10 and an 80/15/5? |
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A
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An 80/10/10 is an 80% first lien, a 10% second lien and a 10% down payment. The 80/10/10 structure allows for 90% financing without mortgage insurance. When a borrower chooses to put less than 20% down for a down payment, he may either split the loan amount into two liens (80/10/10 for example)or he may opt to have one 90% lien and pay mortgage insurance. In the same manner, an 80/15/5 is an 80% first lien, a 15% second lien and a 5% down payment. |
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Q
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Should I do a no point, no fee loan? |
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These loans are an excellent idea if you are planning on moving in 4-6 years. If you plan on staying for a longer term, you will probably benefit by paying points, to ‘buy’ yourself a lower interest rate. |
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Q
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Why do interest rates go up and down? |
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Because lenders pool loans into securities and then sell them in “the secondary market” they are competing with the entire pool of worldwide investment opportunities like treasury bonds, stocks, etc. Any inflationary news can trigger investor moves that trigger smaller values for fixed-rate securities. This would cause a rise in mortgage interest rates. Many additional factors, too numerous to mention here, can also affect interest rates. Markets move on emotions, thus no one can really tell what will happen on a day to day basis. |
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Q
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Can I change the loan amount or program after I’ve applied for a loan? |
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Yes, of course! Please remember that any changes that you make may extend the time that it takes to close your loan, or may increase the cost of closing. |
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Q
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After I send my paperwork back, what happens? |
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Your loan will be reviewed or pre-underwritten. Once it’s submitted to the final lender, there may be additional needs. I will, of course, try to anticipate those and make the process easy for you. |
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Q
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Is my interest rate locked in as soon as I apply for a loan? |
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No, I have found that clients prefer watching the market before they commit to a specific rate. You can request a rate lock after you have returned your application and I have reviewed your documentation and credit information. |
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Q
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What about the appraisal? |
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When the appropriate time arrives, I’ll arrange for an appraisal of your property and will use your estimated value or sale price as a guideline. |
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Q
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Where do I go to sign up for my loan – close of escrow? |
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A
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This service is usually provided by a third party, such as a title/escrow company. Funds taken to escrow by the borrower usually need to be in the form of a cashier’s check. This can be discussed once the closing date has been established. Most lenders will handle all of the details for you. |
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Q
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What do I need to bring to closing? |
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The closing will take place at the title company. Each borrower will need to bring a valid driver’s license the day of closing. The funds due at closing must be in the form of either a cashier’s check made out to the title company or a wire transfer. |
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Q
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Anything else? |
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If you have any additional questions about the material above, or any questions that were not addressed, please don’t hesitate to give me a call. I sincerely want you to feel informed and comfortable with the loan process and all that is involved.
Best Regards,
Robb Severdia, CMPS
Certified Mortgage Planner
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