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Mortgage FAQs

Home Loans

What is an escrow account?

This is an account set up to pay Real Estate taxes, Homeowners Insurance premiums, and/or Private Mortgage Insurance (PMI) premiums when they come due. The money is taken from the account and paid directly by the mortgage holder. These funds are collected from the homeowner each month in addition to the amount needed to pay principal and interest. The amount is usually 1/12 of what will be needed to pay these items; the lender is also allowed to collect up to a 2-month cushion to ensure that there will be sufficient funds when needed. If a loan is for more than 80% of the home’s value, the borrower will be required to pay PMI and will be required to escrow for PMI, taxes and homeowner’s insurance. If the loan is for no more than 80% of the value, the decision to escrow is usually left to the borrower. Currently, MCU does not charge a higher rate of interest to those who do not escrow.

What is PMI?

PMI is Private Mortgage Insurance. PMI is designed to protect the credit union against loss should a borrower default on their home loan. PMI is required for a loan that is for more than 80% of the sales price of the property. PMI also would be required on refinance loans which are more than 80% Loan-to-Value (LTV). Charges for the insurance are added to your loan payments. Under certain circumstances, federal law gives you the right to cancel PMI or requires that PMI automatically terminate. Cancellation or termination of PMI does not affect any obligation you may have to maintain other types of insurance.

You have the right to request that PMI be cancelled on or after either of these dates: (1) the date the principal balance of your loan is first scheduled to reach 80% of the original value of the property or (2) the date the principal balance actually reaches 80% of the original value of the property. To cancel PMI on these dates certain conditions must be met:

  1. you submit a written request for cancellation;
  2. you have a good payment history; and
  3. we receive, if requested and at your expense, evidence that the value of the property has not declined below its original value and certification that there are no subordinate liens on the property.

A "good payment history" means no payments 60 or more days past due within two years and no payment 30 days past due within one year of the cancellation date. "Original value" means the lesser of the contract sales price of the property or the appraised value of the property at the time the loan was closed.

If you are current on your loan payments, PMI will automatically terminate on the date the principal balance of your loan is first scheduled to reach 78% of the original value of the property. If you are not current on your loan payments as of that date, PMI will automatically terminate when the loan becomes current. PMI will not be required on your mortgage loan beyond the date that is the midpoint of the amortization period for the loan if the loan is current on the scheduled date.

To determine if you are eligible for cancellation of PMI on your loan, please contact us.

What is a discount point?

A discount point is a prepaid fee used to reduce the interest rate. One point equals 1% of the loan amount.

How long will it take for my loan to be approved?

If the necessary documentation has been provided, you can usually be approved within 24 hours.

What is a Good Faith Estimate?

The law requires the lender, within 3 business days from the date you apply, to give you an itemized estimate of closing costs. Keep in mind that this is an estimate based on the information available at the time. Your actual closing costs may vary somewhat depending on certain costs (i.e. how much the appraisal actually costs, the actual closing date, the amounts of your real estate taxes and homeowner’s insurance).

What is a Balloon loan?

An amortized fixed-rate loan with monthly payments for a certain period of time, usually 7 or 5 years, and one large payment for the remaining amount of the principal at a time specified in the contract or note.

Why do I need hazard insurance?

Hazard insurance protects you against losses sustained by natural causes such as weather and unnatural causes such as burglary. The lender requires insurance on the property used to secure your mortgage for at least the loan amount.

What is a flood zone?

The Federal Emergency Management Agency (FEMA) developed and mandated the use of flood maps to determine if a property is in a flood zone. These maps include areas that are within the 100-year flood boundary. (Note: This does not mean the land will flood every 100 years, but rather that there is a 1% greater chance that a flood level will be equal or exceeded in any given year.) The appraiser will make an initial determination of the property flood zone. However, the lender will order a report from a flood determination agency. If a property is in a flood zone, the lender will require the borrower to obtain flood insurance before closing.

What is title insurance?

Title insurance protects the borrower and the lender from title mistakes. A title search ensures the seller owns the property being financed and there are no hidden liens on the property.

Does money from a home equity loan have to be used for home improvements?

Absolutely not - you can use money from a home equity loan for anything. Buy a car, send your children to college, take a long awaited vacation, or just consolidate your bills.