Frequently Asked Questions

Can Merit Funding, Inc refinance my current mortgage loan?

YES!

Merit Funding, Inc's experienced staff is available to discuss your refinance needs 7 days a week. You may telephone our sales department, toll free 1-800-608-1288. You may also complete our quick-application and forward it by e-mail.

How can a 2nd. mortgage benefit me?
Second mortgages are most often used for consolidating debt or doing home-improvements. Often it is not practical or possible to refinance your current first mortgage, yet you still need cash for one reason or another. A second mortgage comes in handy for just that - cash! Second mortgages are a great way to consolidate high interest credit card debt as the payments are usually lower - as much as 70% - and the interest can be tax deductible.

Is the interest on my loan tax deductible?
Yes, in most instances the interest you pay on home financing is tax deductible. Some restrictions apply to investment properties and high-loan-to-value transactions. We recommend that you consult with your tax professional for specific advice.

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I really want to own my own home, but I'm not sure I can afford it. Where do I start?
Lots of people don't even consider buying a home because they're afraid they can't afford it. But for most people, home ownership is within reach - especially with some of the special programs for first-time home buyers. In fact, for many, home ownership is as affordable as renting - in some cases even more affordable. Today there are unique loan programs that allow the purchase of a home with no money down!
It's best to start with a mortgage company to determine how much loan you can qualify for, thus determining how much house you can buy. Our team of licensed professionals can help give you the tools you need to make the right choice.

What happens after I've applied - and how long will it take?
Your lender will begin the work of verifying all the information you've provided. This process can take anywhere from one to six weeks, depending on the type of mortgage your choose. Typically, you will find that easy document or stated income programs are the fastest, followed by cashout second mortgages, followed by purchase money loans, followed by fully documented first mortgages. Within 3 days of your application information will be sent to you defining, in detail, expected terms of your loan. The following days are called the "processing" period where your loan application is documented. A fully documented loan application typically includes 2 years of income documentation, written verifications of employment, verifications of assets, title policies, escrow information and a property appraisal. For many applicants this waiting period seems unreasonable and full of formality. Nonetheless it is essential to the lender. It's important that during this period you keep in touch with your lender and be helpful and responsive in providing information requested. Be assured that the information you provide is confidential and will be used exclusively for developing your loan application.

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Do they really need to know everything about me for the application?
Since most customers are considered for the best possible rates which often require the most comprehensive loan application, many questions will be asked of you to determine your qualifications. Yes, everything asked of you on an application is necessary; however, our short form application asks only the most important information, such as income, social security number for credit, property data and employment history. Although there are many attributes that ultimately determine loan approval, it is safe to determine information in three main categorizes these are: Income, Equity, and Credit. Our short-form application asks specifically for this information so that we can return to you with a number of options.

What is the difference between locking or floating my interest rate?
Both options require that the interest rate be locked, only floating allows the rate to be locked until the last possible moment. A loan rate must be locked before final loan papers may be drafted. You as a consumer, may wish to lock an interest rate prior to drafting final loan papers. Advance locks may be processed as soon as the initial application is taken guaranteeing a rate of interest that won't change during the processing period. Although advance locks offer a level of security, the down side is if interest rates fall, the borrower is locked in at a rate above current market rates. When floating the interest rate for any amount of time, the borrower takes the risk of interest rates increasing during the period from application to the time of lock-in. The downside to this, of course, is if interest rates increase during this time, the borrower is subject to the then current higher interest rates. The benefit would then be if interest rates went down, the borrower would have the option of a lower interest rate than if locked in previously. Ultimately the decision when to lock is the consumers, but professional input may often be provided by the loan agent to assist in making an intelligent decision.

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How do I choose a mortgage lender? When most people think about choosing a mortgage lender, they think about finding the lowest rate - period.

Of course, financial considerations are important to every home buyer or homeowner, and you certainly should consider the different rates lenders in your area offer on comparable loans. But you also want a lender you can trust, and someone you can work with effectively, and a company that has the ability to make the loan you need. So don't let rates be your only criterion. Here's the process we recommend:

Build a list of lenders. Talk to people you know who have bought or refinanced a home recently. Check the newspaper's real estate or business section. Call your chamber of commerce, or better yet the better business bureau to ensure the integrity of the company you are considering.
Talk to a loan officer, the call is free and there is never any obligation. Get the information you need. Visit the lenders on your list, see how they operate. Are they customer service oriented. Get a feel for what it will be like to work with them, and how they approach your needs. If you're still uncertain, ask for references - recently satisfied customers and potential homeowners like yourself - and talk to them. Chances are they had or have many of the same concerns you do.
Compare rates for similar loans. Among the things you'll want to discuss with prospective lenders are the rates they offer on mortgages. But when comparing rates between lenders, be sure the rates are for comparable loans - and remember to include fees and other costs so you're really comparing apples to apples.

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How much will my credit history affect my ability to get a mortgage?
There are three main factors that determine loan eligibility: Credit, Income, and Equity. Typically if you are strong in two factors the third may be offset, but not always. Credit is the most important of the three factors, without a doubt; however, good equity in the property will often allow many finance options, even for poor credit borrowers or borrowers with little or no equity. Good or poor credit though is a relative term. What may seem poor to you may be acceptable to a lender, so it's always best to discuss your credit profile with a loan specialist before discounting yourself for a mortgage.

Are my loan fees tax deductible?
Certain restrictions apply and it is best to consult your tax advisor for details; however, a general rule of thumb is that if you finance your loan fees, that is allow an increase in loan amount to absorb the fees, the fees are not tax deductible. On the other hand, if you finance the fees with your own money (paid outside of escrow) much of the fees and points you pay may be tax deductible. Again, we recommend that you consult your tax professional for specific advice.

Who dictates the cost of the residential loan?
Although your mortgage provider is responsible for coordinating the loan transaction, not all of the fees are within their control. Third parties like escrow companies, title companies, credit reporting companies and county recorders, all of whom play a role in consumating a mortgage finance transaction, each have their own fees associated with their service. Often these fees are not negotiable yet they tend to be consistent from company to company. Your mortgage provider will likely charge a flat processing and a funding fee to complete your loan transaction. In addition loan origination fees (points) will be charged by the mortgage provider. Although not an arbitrary fee, lender points are often negotiable reflecting the type of financing, the strength of the loan applicant, the ease of execution, and the corresponding interest rate.

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Does Merit Funding, Inc hold a real estate license?
Merit Funding, Inc headquarters are in the State of California. We are licensed as a real estate brokerage company under the laws of the California Department of Real Estate license #01519828. Make sure you inquire about a mortgage company's licensing before engaging in business. In California all sales agents are required to hold individual licenses. Licensing requirements are demanding, requiring continuing education and the passing of state sanctioned examinations.

What does Prepaid Interest mean?
Prepaid interest is common when financing your new loan. You will notice this charge itemized on the summary expense schedule of your loan papers. It's not a fee though. Prepaid interest allows the lender to charge upfront for interest that will not be collected in the first month's mortgage payment. Most mortgage payments are due on the 1st. of the month, collecting for interest accrued the previous month (called billing in arrears). Most loans do not fund conveniently on the 1st. of the month so there is likely to be a partial month's worth of interest that is not billed for in the 1st mortgage installment; therefore it is paid "upfront", through the loan. This is called prepaid interest. For instance, if you have a loan that funds on the 20th. of June, there are 10 days remaining in the month of June for which interest is due. Your first payment of August 1st. bills in arrears for July interest, but not June. So the June interest (10 days worth) is calculated when your loan closes and will be paid from the proceeds of your loan.

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Why is the Annual Percentage Rate (APR) on the Truth in Lending Disclosure higher than the rate shown on my note, which is the rate I thought I chose?
Prepaid interest is common when financing your new loan. You will notice this charge itemized on the summary expense schedule of your loan papers. It's not a fee though. Prepaid interest allows the lender to charge upfront for interest that will not be collected in the first month's mortgage payment. Most mortgage payments are due on the 1st. of the month, collecting for interest accrued the previous month (called billing in arrears). Most loans do not fund conveniently on the 1st. of the month so there is likely to be a partial month's worth of interest that is not billed for in the first mortgage installment; therefore it is paid "upfront", through the loan. This is called prepaid interest. For instance, if you have a loan that funds on the 20th. of June, there are 10 days remaining in the month of June for which interest is due. Your first payment of August 1st. bills in arrears for July interest, but not June. So the June interest (10 days worth) is calculated when your loan closes and will be paid from the proceeds of your loan.

Why do I have to obtain a new loan when all I want to do is lower my interest rate?
The mortgage you currently have is a contractual arrangement, which in most cases does not provide for a reduction or change of interest rate. Unless you have built in conversion features into the agreement of your mortgage, you must acquire a new mortgage, at a lower rate, to pay off the old mortgage. Most fixed rate mortgage instruments today are like this since the majority of these mortgages are used to create mortgage-backed bonds (called either MBS's, PC's or GNMA mortgage-backed securities). If all you wish to do is lower your rate you may find that some lenders offer a "streamlined" refinance program. A streamlined refinance is quick and cost effective. Inquiry with Merit Funding, Inc about our "streamlined" and easy doc programs.

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Should discount points be paid to lower (buy down) an interest rate?
The mortgage you currently have is a contractual arrangement, which in most cases does not provide for a reduction or change of interest rate. Unless you have built in conversion features into the agreement of your mortgage, you must acquire a new mortgage, at a lower rate, to pay off the old mortgage. Most fixed rate mortgage instruments today are like this since the majority of these mortgages are used to create mortgage-backed bonds (called either MBS's, PC's or GNMA mortgage-backed securities). If all you wish to do is lower your rate you may find that some lenders offer a "streamlined" refinance program. A streamlined refinance is quick and cost effective. Inquiry with Merit Funding, Inc about our "streamlined" and easy doc programs.

What is an escrow account?
When borrowers make their monthly mortgage payments, they generally also pay one-twelfth of the anticipated annual amount needed to pay taxes and insurance premiums. These additional funds are deposited into an escrow account (also known as an impound account), until the lender pays the taxes and insurance premiums as they come due. The borrower benefits for budgeting reasons because costs are spread through the year rather than as a lump sum. This method allows the lender greater control in avoiding tax delinquencies or lapses of hazard insurance coverage on the property. Mortgage documents often stipulate lenders establish an escrow account.

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Can I pay my own taxes and insurance?
When a loan is originated, the mortgage documents specify the escrow conditions. With conventional loans you typically have the option to establish an impound account or make property taxes on your own. Merit Funding, Inc will present you with options at the time of financing. Choosing an impound account is often a convenient way to budget for property taxes and insurance.

What is an ARM loan?
An ARM loan is an Adjustable Rate Mortgage (ARM). The interest rate on an ARM loan is adjusted periodically based on the terms of the mortgage documents. The most common periods are 6 months or 1 year; however, some ARM's, most often with banks, may adjust your rate as often as monthly. The interest rate is typically based on a common index published in newspapers and adjusted by a margin. The margin is in percentage points and rides above the index rate. For instance a loan tied to the T-Bill Index at let's say 6% and a margin of 2% would yield a rate of interest at 8%. ARMs, as opposed to fixed rates, reflect current market conditions. Given the condition of the economy this could be good or bad, and will always be unpredictable.

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What benefits do I receive from mortgage insurance (MI)?
Prior to the existence of mortgage insurance, individuals typically could not purchase a home unless they had a down payment of at least 20% of the purchase price. Mortgage insurance benefits the mortgage lender directly by reducing the costs associated with borrower default. It also benefits consumers by lowering down payments, thereby allowing more people to achieve home ownership.

I'm buying: When should I talk to a mortgage broker or lender?
The short answer: when you start thinking about buying a home and before you've engaged yourself with realtors or buyers. Be educated, know what your limits are, your budget is and stay within them. You may start your loan process prior to committing to buying a house. A good loan consultant will give you the information you need to make an intelligent offer on a house. You are likely to find that with new first-time home buyer programs financing for your new home is a lot easier than you think. Fact is, there is currently a lot of money available to people who want to become homeowners.

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Aren't there just two types of mortgages: fixed rate and adjustable rate?

You could say that, because all mortgages fall into one of these two categories - that is, the interest rate you pay is either the same (fixed) for the life of the mortgage, or it can change (adjust) over the life of the mortgage. However, within these two broad categories there are variations. Such as:

Balloon Note Mortgages:
This type of fixed rate has a call feature, that is, your mortgage payments may be amortized over a longer period like 30 years, yet the loan is due and payable long before the 30 years is up. The principal balance of the loan must be paid off or refinanced. This is common when lenders wish not to commit funds for a long period of time. Typically the consumer realizes improved interest rates by accepting a balloon note mortgage, and also has short term needs.
Reset Mortgages:
This type of fixed rate allows for a reset of the interest rate at a specified date. Consumers will realize lower than market interest rates when accepting this type of loan. Reset terms typically are set at 5 or 7 years. Lenders classify these as the 5/25 or 7/23 loan. That is, the payments are amortized over 30 years yet they reset to prevailing market rates upon the 61st. or the 85th. payment. Again, consumers geared for short term and seeking the best rates may consider this financing option.
Fixed then ARMS:
This type of fixed rate allows a consumer to secure a fixed rate for a specified term before it roles into an adjustable rate mortgage. This type of 30 year loan may offer a fixed rate, below current market rates, for 3, 5, 7 or 10 years, but then becomes an adjustable rate, at pre-determined terms, for the remaining life of the loan. Lenders commonly refer to these as "3/1 ARMs, 7/1 ARMS" etc. A consumer may prefer this type of mortgage when they are short-term oriented and want better rates, yet prefer the reassurance that if they keep the loan longer than they expect they will not be burdened with the down-side of a balloon note mortgage, also preferred by short-term mortgage shoppers.
Pre Payment Mortgages:
This type of fixed rate has a penalty if you pay it off early. Typically, prepayment mortgages will restrict you from paying off early from 1 to 5 years. The terms of prepayment will be in defined in your note. The amount of penalty may be calculated using the formula defined in the Note. The most common formula is 6 months interest of 80% of the original principal balance. For instance if you were to pay off a $100,000 mortgage @ 10% interest within the prepayment time frame you're penalty would be calculated as follows: $100,000 x 80% x 10% x 0.5 = $4,000 penalty. It is recommended that prepayment penalties should be avoided if possible unless you are certain that the loan will not be refinanced or paid-off within the prepayment period. Again, a consumer can expect preferred loan terms by accepting a loan with a prepay penalty versus a loan without one.
Potentially Negatively Amortized Mortgages:
This type of Adjustable Rate Mortgage has built-in features allowing optional payments. Typically this loan will offer 1-4 payment options.

Options are usually classified as:
1. a minimum payment option or
2. interest only option or
3. fully amortizing option for 30 year payoff or
4. fully amortizing option for 15 year payoff.
The term "negative amortization" refers to loans that defer interest and thus can increase in principal balance rather than decrease. Option 1 allowing a minimum payment is calculated per the predetermined terms of the note and may allow for deferred interest. The minimum payment option is a function of your initial payment, increasing slightly every year, and it does this independently of the adjustable interest rate associated with the loan. The market may dictate an interest rate, based on your index plus margin, that yields interest at a dollar figure well above your scheduled monthly payment. For instance, a $100,000 loan with an interest rate of 8% will accrue interest of $666 a month, yet if you have a minimum payment option allowing only a $500 payment then the difference of $166 will be the deferred interest and is added to your principal balance. The following month your balance is not $100,000 but $100,166. Negatively amortized loans have pros and cons, so be sure you consult with your loan professional before selecting this type of mortgage option.

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Fixed-Rate Mortgages:
With this type of mortgage your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.

Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "bi-weekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.)

Adjustable-Rate Mortgages (ARMS):
These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage. This is called a "start" rate or "teaser" rate. The flip side is that the interest rate changes at specified intervals (for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also. Lenders and consumers alike prefer these types of loans since they safely reflect the prevailing market rates. A Lender hedges an increasing interest rate market with adjustables while a consumer hedges against a decreasing interest rate market. In a sense they are both betting on the loan to go in different directions.

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How do I know which type of mortgage is best for me?
There isn't a single, simple answer to this question. The right type of mortgage for you depends on many different factors:

Your current financial picture (is your income subject to fluctuations).
How much payment can you afford.
Is building equity or saving on monthly cash flow your priority.
Do you need cash, or are you simply trying to lower your payment
How long you intend to keep your mortgage.
And how comfortable you are with your mortgage payment changing from time to time.

The best way to find the "right" answer is to explore your options. To do so you must find a mortgage specialist that has all the options and can convey them to you in a simple, easy to understand format.

How much will I need for the down payment?
It's probably less than you think. Many first-time buyers are surprised to learn there's no set answer to this question. Generally, though, your down payment can be anywhere from three to twenty percent of the home's value. Recently we've added a "piggyback" loan option that requires zero down payment.

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What does my mortgage payment include?
For most homeowners, the monthly mortgage payment includes three separate parts: a payment on the principal of the loan (that is, the amount borrowed); a payment on the interest; and payments into a special account (called an escrow account) that your lender maintains to pay for things like hazard insurance and property taxes. These elements are called P.I.T.I. (Principal-Interest-Taxes-Insurance). Taxes and Insurance (T.I.) are usually optional and most homeowners find the payment of them through the mortgage a matter of convenience.

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Is it tax deductible?
In most instances the interest accrued on your primary residence is tax deductible. There are exceptions though which commonly surround lines of credit and high-loan-to-value 1st and 2nd mortgages. It's best to consult your tax advisor for details.

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When I consolidate credit cards do I have to close accounts?
In most instances, you are not required to close your credit accounts. Simply paying them to zero is satisfaction enough for the lender.

If I pay credit cards off through the loan, how will they be paid?
Typically, checks for payoff are drawn jointly in your name and the creditor's name. The checks are sent to you for endorsement and then you are expected to send them to your creditor for final pay-off. Some refinance loans allow a lot cash paid directly to the homeowner thus allowing the homeowner flexibility and convenience.

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