Q: What is a credit report?

A: A credit report is a file that contains information on how you pay your bills, where you live and work, and any information that is on public record, i.e., bankruptcy, judgments, tax liens and lawsuits. Your permission is required in order for a lender to order a copy of your credit report-they will request your name, address and social security number.

Q: What are credit scores?

A: Many lenders rely on FICO (Fair Isaac Company) scores to determine the credit-worthiness of a potential borrower. These scores appear on your credit report. The FICO score is based on a mathematical model and is calculated by the credit reporting agencies based on amount of current and historical credit, payment history, late payments, etc. An average of the scores reported by the different agencies is most frequently used by lenders.

Q: How long can negative information remain on my credit report?

A: Most derogatory credit comments remain on credit reports for seven years. Exceptions are bankruptcies, which can appear for 10 years, as well as some lawsuits, which can remain on the credit report until the statute of limitations runs out.

Q: What is the Annual Percentage Rate?

A: The Annual Percentage Rate (APR) is the cost of your credit expressed as an annual rate. Because you may be paying loan discount points and the prepaid finance charges at closing, the APR disclosed is often higher than the interest rate on your loan. This APR can be compared to the APR on other loan programs to give you a consistent means of comparing rates and programs.

Q: What is the difference between a fixed-rate loan and an adjustable-rate loan?

A: With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change. There are advantages and disadvantages to each type of mortgage, and the best way to select a loan product is by talking to your broker.

Q: Why is the APR different from the interest rate for which I applied?

A: The APR is computed from the amount financed and based on what your proposed payments will be on the actual loan amount credited to you at settlement, In a $50,000 loan with $2,000 prepaid finance charges, a 30 year term and a fixed interest rate of 12%, the payments would be $514.31 (principal and interest). Since the APR is based on the amount financed ($48,000), while the payment is based on the actual loan amount given ($50,000), the APR (12.533%) is higher than the interest rate.

Q: How is an index and margin used in an ARM?

A: An index is an economic indicator that lenders use to set the interest rate for an ARM. Generally the interest rate that you pay is a combination of the index rate and a pre-specified margin. Three commonly used indices are the One-Year Treasury Bill, the Cost of Funds of the 11th District Federal Home Loan Bank (COFI), and the London InterBank Offering Rate (LIBOR).

Q: What is the amount financed?

A: The amount financed is the loan amount applied for, minus the prepaid finance charges. Prepaid finance charges include items paid at or before settlement, such as loan origination, commitment or discount fees (points): adjusted interest, and initial mortgage insurance premium . The amount financed is over lower than the amount you applied for because it represents a NET figure. If you applied for $50,000 and the prepaid finance charge total $2,000, the amount financed would be $48,000.

Q: What is the total of payments?

A: The figure represents the total amount you will have paid if you make the minimum required payments for the entire term of the loan. This includes principal,. Interest and mortgage insurance premiums, but does not include payments for real estate taxes or property insurance premiums.

Q: How do I know which type of mortgage is best for me?

A: 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. Unified Financial Group can help you evaluate your choices and help you make the most appropriate decision.

Q: What does my mortgage payment include?

A: For most homeowners, the monthly mortgage payments include three separate parts:

Principal: Repayment on the amount borrowed

Interest: Payment to the lender for the amount borrowed

Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company.