FAQs

Why am I charged a partial month of interest when my mortgage closes?

At the time your mortgage closes, the lender/bank collects interest from the date your mortgage closed until the end of the first month. (Example: you closed on the 16th of the month) This is because the initial mortgage payment will be due the first day of the month the second month after the mortgage closes. Because mortgage interest is charged in arrears (for the prior month), your first mortgage payment is for interest for the previous month.



Why am I charged a full month of interest when my refinancing closes?

When your mortgage closes, it can take up to 7-10 days for the transaction to be recorded. During that time interest will still be accruing on your old loan on the principal balance. One of the closings has occurred there is also a three-day waiting period called the “Right of Rescission” which gives you the right to change your mind and cancel the loan within that three-business-day window.



Why do I need owner’s title insurance?

Title insurance is needed to insure the homeowner and the lender that the title is free of title defects, whether known or unknown at the time of the sale or refinance. If a problem occurs the insurance protects you and provides legal protection from the title company if there your home ownership is challenged.



I am selling my home, why do I need to purchase title insurance for the buyer?

Title insurance is needed to protect the buyer when purchasing a home. The decision as to whether or not the seller or buyer pays for the title insurance is negotiable.



What is MERS and why am I charged a MERS fee?

MERS is short for Mortgage Electronic Registration Systems. MERS is an electronic national database that tracks changes with registered mortgages. It serves as a common link between the lender and the homeowner. The system receives service of process, legal notices and other mail regarding the mortgaged property. It tracks servicing rights and ownership of mortgages. The MERS fee is typically considered to be one of the costs associated with the sale of the home.



Why am I being charged a flood certificate fee when the home I am taking a mortgage out on is not located on a floodplain?

The determination is based on the structure’s physical address and may not reflect how your property is shown on the effective Flood Insurance Rate Map (FIRM). Lenders are required to check whether a home is in a floodplain. If there has been updates to the FIRM a home that was not considered to be in a floodplain may now show that it is.



Why does the lender charge an underwriting fee?

This covers the application processing your home loan. It usually includes the cost of credit checks, and administrative expenses.



What is mortgage underwriting?

This is the process where your level or risk is determined to find out if the terms of the loan will be acceptable. The underwriter also verifies your documentation and finances in order to insure that you will be able to meet the loan repayment requirements. Many look at capacity (do you have the means to pay off the debt), credit (do you have a solid credit and repayment history), and collateral (what is the home worth).



What does “loss payee clause” mean?

It means that in case there is a loss the insurance that is paid out goes to the lender that currently holds the title.



What are front end and back end debt-to-income ratios for a mortgage?

The front-end ratio is a ratio that indicates which portion of the buyer’s income is going to be used to make the monthly mortgage payments. This is usually calculated by the cost of the monthly housing expenses divided by the monthly gross income. The back-end ratio, also known as the debt-to-income ratio, is the ratio that indicates how much of the buyer’s monthly income goes towards paying debts such as; credit card payments, car loans, student loans, child support and other monthly debts.



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