Here are some answers to some commonly asked questions.  If you have any questions that aren’t listed, just click “Contact Us” on the left.  You can also contact DMS by calling 336-243-7880.  You can email us at dmshomeloans@lexcominc.net

Click on any of the following questions for more information:

What is the difference between pre-approval and pre-qualification?
When does it make sense to refinance?
What is a rate lock?
What’s the difference between a mortgage broker and a lender?
Will I save money going directly to a mortgage lender?
What if I can’t afford 20% to put down on a house?
What is private mortgage insurance (PMI)?
What is the difference between an Equity Line of Credit and another type of mortgage?
When would an “interest only’ loan make sense for me?
How do I know which type of mortgage is best for me?
How much loan do I qualify for?
What is a FICO score?

What is the difference between pre-approval and pre-qualification?
The pre-approval process is much more complete than pre-qualification. For pre-qualification, the loan officer asks you a few questions and provides you with pre-qualification letter. Pre-approval includes most of the steps of a full approval, except for the appraisal and title search. Pre-approval can put you in a better negotiating position, much like a cash buyer. 

When does it make sense to refinance?
Usually people refinance to save money, either by obtaining a lower interest rate or by reducing the term of the loan. Refinancing is also a way to convert an adjustable loan to a fixed loan or to consolidate debts. The decision to refinance can be difficult, since there are several reasons to refinance. 

Consult your DMS mortgage professional to discuss your specific benefit for refinancing.

What is a rate lock?
A rate lock is a contractual agreement between the lender and borrower. There are four components to a rate lock: loan program, interest rate, points, and the length of the lock. Rate locks typically range from 15 days up to one year.

What’s the difference between a mortgage broker and a lender?
A mortgage broker counsels you on the loans available from different wholesalers, takes your application, and usually processes the loan which involves putting together the complete file of information about your transaction including the credit report, appraisal, verification of your employment and assets, and so on.  When the file is complete, but sometimes sooner, the lender “underwrites” the loan which means deciding whether or not you are an acceptable risk.

Will I save money going directly to a mortgage lender?
Not necessarily.  In fact, if you are a reasonably astute shopper, you will probably do better dealing with a mortgage broker.  Mortgage brokers do not add any net cost to the lending process because they perform functions that would otherwise have to be done by employees of the lender. Furthermore, because mortgage brokers deal with multiple lenders – in a typical case, 10 to 20, sometimes more – they can shop for the best terms available on any given day. In addition, they can find the lenders who specialize in various market niches that many other lenders avoid, such as loans to applicants with poor credit ratings, loans to borrowers who do not intend to occupy the property, loans with minimal or no down payments and so on.

What if I can’t afford 20% to put down on a house?
Assuming you can qualify for higher monthly mortgage payments and have an excellent credit history, you should be able to find a 0-15% down payment loan.  However, you may pay a higher interest rate and loan fees than someone making a larger down payment.

What is private mortgage insurance (PMI)?
Private mortgage insurance (PMI) policies are designed to reimburse a mortgage lender up to a certain amount if you default on your loan.  Most lenders require PMI on loans where the borrower makes a down payment less than 20%.  Premiums are usually paid monthly or can be financed with the exception of some government and older loans.  You may be able to drop the mortgage insurance once your equity in the house reaches 22% and you’ve made timely mortgage payments.  The Servicing Lender will have the requirements for canceling the mortgage insurance.

Many of our lenders now offer 80/20, 80/15/5 or 80/10/10 piggyback loans to avoid PMI.  These loans consist of a 1st mortgage for 80% of the purchase price and a 2nd mortgage of up to 20% at a higher rate.

Lender paid PMI is also available for qualified borrowers where the lender pays your PMI in exchange for a slightly higher interest rate.  Your Davidson Mortgage professional can help direct you to the plan that will best suit your needs.

What is the difference between an Equity Line of Credit and another type of mortgage?
An Equity Line of Credit is money in an account that can be used as you need it.  You can use any portion of it at any time and pay it back with monthly payments.  The interest rate is usually variable and is tied to the prime rate.  Other types of second mortgages, such as a fixed Equity Loan are simple interest products.  You borrow a lump sum and pay it back over a period of years with interest.  The interest rate for these products is fixed.

When would an “interest only’ loan make sense for me?
A standard mortgage payment is designed to pay the interest accrued and to pay down the loan balance/principal.  Because an interest only loan payment only includes the interest accrued – it provides families with a lower monthly mortgage payment, subsequently increasing their monthly cash flow.  The lower monthly payment also allows a family to purchase more house on their maximum monthly mortgage budget.  

Most interest only programs have rates that are fixed for a specific period and allow you to pay interest only for that time, usually 1-10 years. The balance must then be re-amortized (or refinanced) for the remaining years.

Interest only loans can be complicated and not always the best program for everyone. Be sure you consult your DMS mortgage professional before choosing this type of loan.

How do I know which type of mortgage is best for me?
There is no simple formula to determine the type of mortgage that is best for you. This choice depends on a number of factors, including your current financial picture and how long you intend to keep your house. Davidson Mortgage Services will help you evaluate your choices and help you make the most appropriate decision.

How much loan do I qualify for?
With so many mortgage products available today, the most important item you need to decide is the maximum amount of payment you are comfortable with. The standard debt ratio guideline is your total monthly payments (car payment, loans, minimum on credit card and new house payment) should not be more than 36% of your total gross monthly income. Depending on your credit, down payment and other factors, many lenders today will expand these allowances substantially more than 36%.

What is a FICO score?

A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring and is a method of determining the likelihood that credit users will pay their bills. Fair Isaac began its pioneering work with credit scoring in the late 1950’s and since then scoring has become widely accepted by lenders as a reliable means of credit evaluation. A credit score attempts to condense a borrowers credit history into a single number.  

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions of people have used credit. Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit bureau reports.

How your credit score is determined:

• Payment History:  Approximately 35% of your score.
• Amounts Owed:  About 30% of your score.
• Length of Credit History:  About 15% of your score
• Pattern of Credit Use:  About 10% of your score
• Types of Credit in Use:  About 10% of your score
• Negative credit information such as bankruptcies, charge-offs, collections, etc.

There are really three FICO scores computed by data provided by each of the three credit bureaus-Experian,Trans Union and Equifax.  Some lenders use one of these three scores, while other lenders may use the middle score.

How can I increase my score?

While it is difficult to increase your score over the short term, here are some tips to increase your score over a period of time.

• Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score.
• If you have missed payments, get current and stay current.  The longer you pay your bills on time, the better your score.
• Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.
• Keep balances low on credit cards and other “revolving credit.” High outstanding debt can affect a score.
• Pay off debt rather than moving it around. The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
• Don’t close unused credit cards as a short-term strategy to raise your score.
• Don’t open a number of new credit cards that you don’t need, just to increase your available credit.  This approach could backfire and actually lower your score.
• If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.
• Do your rate shopping for a given loan within a focused period of time. FICO scores distinguish between a search for a single loan and a search many new credit lines, in part by the length of time over which inquiries occur.
• Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your score in the long term.
• Note that it’s OK to request and check your own credit report. This won’t affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.
• Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix – it probably won’t raise your score.
• Note that closing an account doesn’t make it go away. A closed account will still show up on your credit report, and may be considered by the score.

FICO Score:  700 and UP

• A score of 700 and above is generally considered excellent.
• Most lenders would give these scores an A rating. These scores will give the consumer access to the best interest rates because this consumer has probably not been late with any of their loan payments.
• 60 percent of the US population has a score of 700 or above.
• Average delinquency rate = 8 percent.

FICO Score:  620 to 699

• A score in the range of 620 to 699 typically means the consumer has good credit.
• Most lenders would give these scores a B rating, which means the consumer may have been a few days late with a payment or have a slim credit history. They may still have access to good interest rates, but might not qualify for the very lowest rates.
• 27% percent of the US population has a score between 620 and 699.

FICO Score:  580 to 619

• A score in the range of 580 to 619 tells a lender that the consumer may have paid unsecured debts more than 60 days late or has been late with mortgage payments. One or more accounts may be in collection.
• Most lenders would give these scores a C rating, which means the consumer would probably have to pay at least two percentage points or more than consumers with excellent credit.
• 12 percent of the US population has a score between 580 and 619.
• Average delinquency rate = 60 percent.

FICO Score:  579 or Below

• A score below 580 tells a lender that the consumer may have liens against their property, a lender may have sued the consumer for missed payments and/or they have had property repossessed or foreclosed.  The report may show unpaid collections or charge offs and multiple late payments. 
• It is possible that the consumer is still eligible for a loan, but the interest rate could be three points or more than consumers with excellent credit.

What if there is an error on my credit report?

If you see an error on your report, report it to the credit bureau. The three major bureaus in the United States, Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) all have procedures for correcting information promptly. Alternatively, your mortgage company may help you correct this problem as well.