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Lending FAQ’s

What is an Annual Percentage Rate (APR)?

The annual percentage rate (APR) is a rate that is commonly used to compare loan products from different lenders. Federal regulations require mortgage companies to disclose the APR when they advertise a loan rate.

The APR is designed to measure the “true cost of a loan,” and to prevent lenders from advertising a low rate and hiding fees and other charges. Use the APR as a way to compare loans, but do not rely on it. A borrower should always ask for a good-faith estimate of your loan costs and payments from each lender you are considering. This is the best way to compare.

What is a FICO score?

A FICO score is a credit score used to determine the likelihood that a borrower will pay their bills. Developed by Fair Isaac & Company in the late 1950s, the FICO score has become almost universally accepted by lenders as a reliable means of evaluating a borrower’s credit worthiness.

A credit score condenses a borrowers credit history into a single number, which is calculated using scoring models and mathematical tables that assign points for different pieces of information that help best predict future credit performance. Specific factors that are evaluated include:

  • Amount of time credit has been established
  • Percentage of available credit used
  • Late payment history
  • Length of time at current residence
  • Negative credit information such as bankruptcies, defaults, collections, etc.

What does it mean to get pre-qualified?

Pre-qualifying is a preliminary assessment by a lender, usually a loan officer, to determine the dollar value of loan a borrower can be approved for. Once pre-qualified, the borrower should expect to receive a pre-qualification letter, which may generally be used to indicate to a seller that the borrower is pre-qualified to purchase the house they are making an offer on. However, pre-qualification is not a commitment to lend.

What is PMI?

PMI is Private Mortgage Insurance. It is provided by private mortgage insurance companies and helps protect lenders against the costs of foreclosure. PMI is generally required when a borrower buys a house with less than 20% down. It enables lenders to accept lower down payments than they normally would. In most cases, the lender will allow a borrower to cancel mortgage insurance when the loan is paid down to 80% of the original property value. If you are current on your loan payments, mortgage insurance will automatically terminate when the loan is first scheduled to reach 78% of the original property value, if the loan is secured by your principal residence.

Can I make my payments at a Severn branch?

Yes, you can make your payments at any Severn branch. Our branch associates will be glad to help you with this.

What items are included in my monthly mortgage payment?

Your monthly mortgage payment includes items commonly referred to as PITI (principal, interest, taxes and insurance). So, each payment will include the following: a payment to the principal balance of your loan, the related interest payment and your escrow payment, which are monthly payments collected to pay for items like your hazard insurance, mortgage insurance and property taxes.

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