Frequently Asked Questions About Loans

These are some of the most-common questions we get. We know that loans are complex and sometimes challenging to understand. We're here to help dispel confusion and fear about loans.

What is the difference between a Fixed rate loan and an Adjustable Rate Mortgage (ARM)?
A fixed rate loan is a loan in which the interest rate stays the same throughout the loan term. It does not fluctuate during the period of the loan and allows you, the borrower, to accurately predict future payments. ARM loans are loans with interest rates that may fluctuate periodically throughout the term. The benefit of the ARM rate is that, typically these rates are lower than fixed. The percentage is based on the increase or decrease of the index it is tied to. ARM rates may fluctuate through the loan period based on the “Index” but will never increase or decrease more than your “Margin.” The “Index” can be the Wall Street Prime or Government Security such as the 3-year Treasury. Generally, with an ARM rate, the loan will have a fixed rate for the first few years, and adjust periodically following the term adjustment. The common misconception with ARM rates is that your rate may increase to significantly over night. This isn’t true. When processing your loan, we set limits to your interest rate. It will never increase more than the ceiling plus your current rate and never by more than your margin at a given change.
How can your payment change with an Adjustable Rate Mortgage?
Your monthly payment can increase or decrease based on annual changes in the interest rate. Dependent of your loan terms, determines when changes begin. Once maturity is reached, payments may be adjusted annually.
Do I have to live in Tucumcari, NM to finance through Tucumcari Federal Savings and Loan?
No, Tucumcari Federal Savings and Loan services all of Quay County, northeastern New Mexico including: Colfax, Curry, De Baca, Guadalupe, Harding, Mora, Roosevelt, San Miguel, Santa Fe, Taos, and Union counties, and the western Panhandle of Texas.
Do I have to be prequalified to buy a house?
No, not necessarily. A prequalification is good to have if you are working with a realtor and searching for a house. This way you know exactly what your budget is and how much you can finance.
How long will it take to close my loan?
Typically, from the time you turn in a complete application to the funding of your loan is 45-days.
Can I use my own Title Company, pest inspection company and Appraiser?
Yes and no. Let us explain. You may use your desired title company and pest inspector. However, you must use one of our approved appraisers. At the time of your initial disclosures, we will provide you a list of providers in your area. You may use one of these, or one of your own choosing. We ask that you provide us their contact information so that we can review the pest inspection and invoice prior to closing.
What are closing costs?
Closing costs are fees you pay in order to get a loan. The costs include the appraisal, pest inspection, prepayment of insurance and taxes for the year, title fees, and the bank's fees to finance the property. You will receive a Loan Estimate within three days of submitting a complete application. It will break out your estimated closing costs for your loan. It will also give you an estimated monthly payment that will include principle, interest, taxes, and insurance.
What can I expect my closing costs to be?
Closing costs can differ from loan to loan and from bank to bank. At Tucumcari Federal, our goal is to keep your cost low as possible. That is why our closing costs are the lowest in Tucumcari. We do have some constant fees such as the appraisal and pest inspection. But your remaining fees will depend on the loan amount, your insurance premium, and taxes due.
When is the payment for my mortgage due?
Payments are due on the first of every month. If you select to have an automatic withdrawal for your monthly payment, you can select the day of withdrawal from the first of the month to the 15th. But keep in mind, if we do not receive the payment by the 15th, it will be considered late and you will incur a late fee.
How does an Escrow Account work?
An Escrow account is set up on your behalf through Tucumcari Federal Savings and Loan. It is designed to collect money at each monthly payment and set it aside for your annual insurance and taxes payments. Insurance is paid out in a year interval at your mortgage anniversary. Taxes are paid annually in November to the county in which your property is located. If you escrow, we will pay your insurance and tax bills for you.
What do you do to protect my financial information from theft?
After September 11, all financial institutions are required to more carefully verify the identity of our account owners, loan applicants, trusts, and individuals who purchase investment products. At Tucumcari Federal Savings and Loan, we take your identity very seriously. When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying document. When you bank with us, you can sleep well knowing that our staff is dedicated to knowing all of our customers and we will do our best to protect your financial information. In addition to collecting identifying information, we monitor your account for any unusual activity and verify your information every time you walk in our doors. We may compare your information against public databases of information to verify that it is current and accurate. Any information we obtain is safeguarded according to our Privacy Policy and information-sharing practices. Please help us keep you safe by letting us know if you receive open mail, stop receiving your statements, or have any concerns regarding your account. We are more than happy to help and be able to better protect you.
What is the difference between Pre-Qualification & Pre-Approval?
Pre-Qualification means that the bank has done a quick check on you and based on limited information believes that you should qualify for a loan. Your credit report and score are normally reviewed as part of the Pre-Qualification process. This doesn’t NOT mean you are approved for a loan. Pre-Approval does mean that you are approved for a loan. The bank has completely underwritten the loan request and is ready to finalize your loan.
What documents are required to get a loan?
Pre-Qualification means that the bank has done a quick check on you and based on limited information believes that you should qualify for a loan. Your credit report and score are normally reviewed as part of the Pre-Qualification process. This doesn’t NOT mean you are approved for a loan. Pre-Approval does mean that you are approved for a loan. The bank has completely underwritten the loan request and is ready to finalize your loan.
What's the difference between interest rate and APR?
Interest rate is the actual interest on your loan and is used to calculate the amount of interest that you pay each month. APR is the cost of the loan expressed as a percentage. It is calculated by adding the total interest you pay plus some of the fees that you had to pay for the loan.
What are points?
Points are a payment to reduce the interest rate on the loan. It is expressed as one percentage point of the loan amount. Hence the name points. By paying an upfront fee at closing the bank will reduce the interest rate on the loan. By having a lower interest rate, you save money each year on your loan. For this to be effective you need to keep the loan long enough for the reduction in interest cost to offset the upfront fee you paid for the reduced rate.
How much money do I actually need to buy a home?
You will normally need at least 10 to 20 percent of the purchase price plus enough money to pay the closing cost.
What is a down payment?
The difference between the purchase price of real estate and the loan amount. The borrower is responsible for providing the funds for the down payment.
What is an origination fee?
An origination fee is a fee that the bank charges up front for doing the loan. It is normally a percentage of the loan amount.
What's a credit score, really? How do I make it better?
Your credit score is a three-digit number that relates to how likely you are to repay debt. Banks and lenders use it to decide whether they’ll approve you for a credit card or loan. Your scores are typically based on things like how often you make payments on time and how many accounts you have in good standing. Checking your reports regularly can help you see what’s impacting your score so you know where you could improve.
What are the front-end ratio and the back-end ratio?
The front-end debt-to-income ratio is a variation of the debt-to-income ratio that calculates how much of a person’s gross income is going toward housing cost. If a homeowner has a mortgage, the front-end ratio is usually calculated as housing payment divided by gross income. The back-end ratio, also known as the debt -to-income ratio, is a ratio that indicates what portion of a person’s income is going toward paying monthly debt payments, such as mortgage payments, credit card payments, child support, and or other loans.
What should I avoid concerning my credit when purchasing a home?
Do not make any purchases during the home buying process that would require you to finance anything. New accounts on your credit can affect your credit score and may cause the bank to deny the loan to purchase the home.
What's the difference between mortgage insurance and homeowners/hazard insurance?
Mortgage insurance protects the loan that the lender provides you when you bought the house with less than 20% down payment. If you default on paying for the loan, the insurance will pay for the amount that you still must pay the lender. But, of course, this does not mean that you can get away with not paying for your mortgage. Your house will still be foreclosed, and you will have a bad mark on your credit rating. Homeowner's insurance (also called hazard insurance) protects your home against possible hazards that may cause physical damage to your home or may result in the loss of the things that are inside your home. In short, it provides insurance protection for your house, in case something happens to it. The hazards covered will include natural disasters such as flood, earthquake, hurricanes or storms, as well as fire, acts of vandalism and damage caused by riots and acts of terrorism.
What's an escrow account, and what does it do?
An escrow account is an easy way to manage property taxes and insurance premiums for your home. You don’t have to save for them separately because you make one monthly payment where part of the money goes toward your mortgage to pay your principle and interest. The rest of the payment goes into your escrow account for property taxes and insurance premiums. When those bills are due, the bank uses those funds to pay the property tax and insurance premiums.
How does an appraisal work?
A home appraisal is an unbiased estimate of the fair market value of what a home is worth. Most lenders order an appraisal during the mortgage loan process so that there is an objective way to assess the home’s market value and ensure that the amount of money requested by the borrower is appropriate. The appraisal can include recent sales information for similar properties, the current condition of the property, and the location of the property, i.e., insight as to how the neighborhood impacts the property’s value.
What does the underwriter do?
The mortgage underwriters’ job is to access risk. All your documents are reviewed. W2’s, tax returns, pay stubs, credit report, home appraisal, etc. They look at your Debt to Income (DTI) ratio, verify borrower income, and much more. Your credit history is heavily investigated for any potential red flags. If you have a late payment or a collection account, the underwriter will require additional information. Based on the mortgage lender rules, the underwriter may require a letter of explanation for any negative accounts or require you to pay off certain collection accounts before you get a clear to close. Credit is one of the more common reasons an underwriter kicks back a mortgage application.
What does a Pest inspector do? What if they find something?
Pest inspection includes detailed and careful visual examination inside and outside your home by a trained pest inspector looking for evidence of termites, borers, wood decay, fungi and mold. The pest inspector will be looking for evidence of past pest activity as well as conditions that increase the risk of future pest problems. A pest inspection includes scrutiny and evaluation of the following:
• every room of your home
• sub floor
• roof voids
• outbuildings such as sheds
• fences
• stumps
• retaining walls
Your pest inspector will make detailed notes used in their report. If the inspector does find evidence of pest, he/she can determine if the damage is from past presence of pests or if there is an active pest in the property. The next step would be to find a license pest control to treat the property.
What does a Home inspector do? What if they find something?
A home inspector will do a visual examination of the physical structure and systems of a house, from the roof to the foundation. The report that the inspector covers the condition of the home’s heating system, central ac system, interior plumbing, electrical systems, the roof, attic and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement and structural components. Once the home inspector is done, he/she can determine if any work needs to be done to the property. If so, it is best to contact licensed workers to fix the “problems” that the inspector found and have everything be up-to-date.
How long does it take to get a mortgage?
It normally takes between 45 and 60 days from the time you start the application process for a mortgage.