Frequently Asked Questions

It’s generally a good time to refinance when mortgage rates are 2% lower than your current loan rate. However, refinancing can still be beneficial even if the interest rate difference is only 1% or less. Any reduction in the interest rate can lower your monthly mortgage payments.

Example Calculation

Consider a $150,000 loan at an 8% interest rate:

• Current Monthly Payment: About $1,100, excluding taxes and insurance.
• New Rate at 7%: If you refinance to a 7% rate, your new monthly payment would be approximately $1,000.
• Monthly Savings: This change saves you $100 per month.

Your savings depend on various factors such as your income, budget, loan amount, and changes in interest rates. It’s important to consult with your trusted lender to calculate your specific options and determine the best time to refinance.

Summary

Refinancing can help you save on your monthly mortgage payments and overall loan costs. Even a small reduction in the interest rate can make a significant difference. Always review your financial situation and consult with a professional to make an informed decision.

For more information give us a call.

Points are fees paid to the lender in exchange for a lower interest rate on your mortgage. Here’s a detailed look:

Definition of Points

A point is a percentage of the loan amount. Specifically, 1 point equals 1% of the loan. For example:

• Loan Amount: $200,000
• 1 Point: $2,000

Types of Points

• Discount Points: These are fees paid upfront to reduce the interest rate on your mortgage. Paying points can save you money over the life of the loan by lowering your monthly payments.

Example Calculation

If you take out a $200,000 loan and pay 1 point ($2,000), you could reduce your interest rate from 4.5% to 4.25%. This reduction in interest rate lowers your monthly mortgage payment, making it a cost-effective strategy if you plan to stay in your home for a long period.

Terminology

Lenders may also refer to points in terms of basis points. One hundred basis points equal 1 point or 1% of the loan amount.

Summary

Understanding points and how they impact your mortgage can help you make more informed financial decisions. Paying points can lower your interest rate and save you money over time, but it requires an upfront investment. Always consider your financial situation and long-term plans when deciding whether to pay points.

For more information, consult your financial advisor or give us a call.

​Paying points to lower your interest rate can be a smart financial move, but it depends on your situation. Here’s what you need to consider:

Benefits of Paying Points

• Long-Term Savings: If you plan to stay in the property for several years, paying points can significantly reduce your monthly payments and save you money over the life of the loan.
• Increased Affordability: Lowering your interest rate with points can make your monthly payments more affordable, potentially allowing you to qualify for a larger loan amount.

Example Scenario

Suppose you have a $300,000 loan at a 4% interest rate. By paying 2 points (which is $6,000), you could reduce your rate to 3.5%. This reduction would lower your monthly payment by approximately $85, saving you about $1,020 annually. Over five years, you would save $5,100, almost recouping the cost of the points.

Considerations for Short-Term Stay

• Short-Term Plans: If you plan to sell or refinance the property within a year or two, the monthly savings may not be enough to offset the upfront cost of the points. In this case, it might be better to keep the cash or invest it elsewhere.

Summary

Paying points to lower your interest rate can be beneficial if you intend to stay in your home for a longer period. It reduces your monthly payments and saves money over the loan’s term. However, if your stay is short-term, the initial cost might outweigh the benefits. Always assess your financial goals and future plans before making a decision.

For personalized advice, consult with your financial advisor to see if paying points is the right strategy for you or just give us a call.

The annual percentage rate (APR) reflects the cost of a mortgage as an annual rate. This rate is typically higher than the stated note rate or advertised rate on the mortgage because it includes points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan, measuring the “true cost of a loan.” This ensures a level playing field for lenders, preventing them from advertising a low rate while hiding fees.

How APR Works

The APR incorporates various fees charged by lenders, so it doesn’t affect your monthly payments, which are determined by the interest rate and the loan term. However, a loan with a lower APR isn’t necessarily a better deal. The best way to compare loans is by asking lenders for a good-faith estimate of their costs on the same type of program (e.g., 30-year fixed) at the same interest rate. Subtract fees independent of the loan, such as homeowners insurance, title fees, escrow fees, attorney fees, etc. The lender with lower loan-specific fees offers a cheaper loan.

Fees Included in the APR

• Points: Both discount points and origination points
• Pre-Paid Interest: Interest paid from the closing date to the end of the month
• Loan-Processing Fee
• Underwriting Fee
• Document-Preparation Fee
• Private Mortgage Insurance (PMI)
• Escrow Fee

Fees Not Included in the APR

• Title or Abstract Fee
• Borrower Attorney Fee
• Home-Inspection Fees
• Recording Fee
• Transfer Taxes
• Credit Report Fee
• Appraisal Fee

Summary

The APR is a comprehensive measure of the annual cost of a mortgage, including various fees, which helps borrowers compare loans more effectively. However, the APR alone doesn’t determine the best loan option. Comparing good-faith estimates and focusing on loan-specific fees can help identify the most cost-effective mortgage.

For more detailed information on APR and mortgage comparisons, visit resources like the Consumer Financial Protection Bureau (CFPB).

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​Mortgage rates can fluctuate between the time you apply for a loan and the day you close the transaction. If interest rates rise sharply during this period, your mortgage payment could increase unexpectedly. To protect against this, lenders offer the option to “lock-in” your interest rate. This lock guarantees the interest rate for a specified period, often 30-60 days, and sometimes involves a fee.

How Rate Locks Work

• Fixed Rate: By locking in your rate, you ensure that the interest rate will not change during the lock period, even if market rates fluctuate.
• Duration: Rate locks typically last between 30 to 60 days, but can vary based on the lender and loan program.
• Fees: Some lenders may charge a fee for locking the rate, which can vary depending on the length of the lock period and market conditions.

Benefits of Locking Your Rate

• Predictability: Locking your rate provides certainty about your interest rate and monthly payments, allowing you to budget more accurately.
• Protection: It shields you from potential rate increases that could raise your borrowing costs.

Considerations

• Market Trends: If you expect interest rates to drop, you might choose not to lock in the rate immediately.
• Extension Costs: If your loan doesn’t close within the lock period, you may need to pay for a rate lock extension or risk losing the locked rate.

For more information on rate locks and how they can benefit your mortgage process, visit resources like the Consumer Financial Protection Bureau (CFPB).

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When applying for a mortgage, you’ll need to provide various documents to verify your financial status and property details. While each situation is unique, here’s a general list of required documents. Being prepared with these will help expedite the application process.

Property Information

• Signed Sales Contract: Include all riders.
• Deposit Verification: Proof of the deposit placed on the home.
• Contact Information: Names, addresses, and phone numbers of all realtors, builders, insurance agents, and attorneys involved.
• Listing Sheet and Legal Description: If available. For condominiums, include the declaration, by-laws, and most recent budget.

Income Documentation

• Pay-Stubs: Copies for the most recent 30-day period and year-to-date.
• W-2 Forms: Copies for the past two years.
• Employment History: Names and addresses of all employers for the last two years.
• Employment Gaps: Letter explaining any gaps in employment over the past two years.
• Work Visa or Green Card: Copy both front and back.

For Self-Employed or Those Receiving Commissions, Bonuses, Interest/Dividends, or Rental Income:

• Tax Returns: Full tax returns for the last two years plus a year-to-date Profit and Loss statement. Include complete tax returns with attached schedules and statements. If an extension was filed, provide a copy of the extension.
• K-1 Forms: For all partnerships and S-Corporations for the last two years. Ensure they are attached to the 1040 return.
• Federal Partnership and Corporate Tax Returns: Completed and signed (Forms 1065 and 1120) including all schedules, statements, and addenda for the last two years, required if ownership is 25% or greater.

For Alimony or Child Support:

• Divorce Decree/Court Order: Stating the amount.
• Proof of Receipt: Documentation for the past year.

For Social Security, Disability, or VA Benefits:

• Award Letter: From the relevant agency or organization.

Source of Funds and Down Payment

• Sale of Existing Home: Copy of the signed sales contract and statement or listing agreement if unsold. At closing, provide a settlement/Closing Statement.
• Bank Statements: Copies for the last three months for savings, checking, or money market accounts.
• Stocks and Bonds: Copies of statements from your broker or copies of certificates.
• Gifts: Provide a Gift Affidavit and proof of receipt if part of the cash to close.

Debt and Obligations

• Current Debts: List all names, addresses, account numbers, balances, and monthly payments for current debts with copies of the last three monthly statements.
• Mortgage Holders/Landlords: Include all names, addresses, account numbers, balances, and monthly payments for the past two years.
• Alimony or Child Support Payments: Include a marital settlement/court order stating the terms.
• Application Fee: Check to cover the application fee(s).

Summary

Having these documents ready can streamline your mortgage application process. Every lender might require additional documentation based on your unique financial situation, so be prepared to provide any extra information requested promptly.

For more detailed information on mortgage application documentation, visit resources like the Consumer Financial Protection Bureau (CFPB) or consult with your lender directly.

We are here to help you through this process – just give us a call.

Lenders use credit scoring systems to determine your creditworthiness and decide whether to extend credit. Credit scoring evaluates various aspects of your credit history, such as bill payment patterns, account types, late payments, collection actions, outstanding debt, and the age of your accounts. This information is gathered from your credit application and credit report.

Credit Scoring System

Credit scoring systems, like the FICO score developed by Fair Isaac Company, Inc., assign points to each factor that predicts your likelihood of repaying a debt. The total points form your credit score, ranging from 350 (high risk) to 850 (low risk).

Key Factors

• Bill Payment History: Consistent, on-time payments boost your score.
• Account Types: A mix of credit types (credit cards, mortgages, etc.) can positively impact your score.
• Late Payments and Collections: Late payments and accounts sent to collections negatively affect your score.
• Outstanding Debt: High balances relative to credit limits can lower your score.
• Account Age: Older accounts with a long history of good behavior can enhance your score.

Importance of Credit Reports

Since your credit report significantly influences your credit score, ensuring its accuracy before submitting a credit application is crucial. Regularly review your credit report for errors and discrepancies.

How to Obtain Your Credit Report

You can get your credit report from the three major credit reporting agencies:

• Equifax: (800) 685-1111
• Experian (formerly TRW): (888) EXPERIAN (397-3742)
• Trans Union: (800) 916-8800

These agencies may charge a fee for your credit report. However, you are entitled to one free credit report every 12 months from each of the nationwide consumer credit reporting companies — Equifax, Experian, and TransUnion. You can request your free credit report at AnnualCreditReport.com.

Summary

Understanding how lenders judge your credit can help you manage your credit profile more effectively. Regularly reviewing your credit report and maintaining good credit habits can improve your credit score, making you a more attractive candidate for loans and other credit products. For more detailed information, visit the websites of the major credit reporting agencies.

Just call us and we can help.

Improving your credit score involves understanding the factors that influence it and taking strategic actions. Here’s a detailed guide on what you can do to boost your credit score:

Key Factors and Tips for Improvement

1. Payment History: This is typically the most significant factor in credit scoring models. Paying your bills on time is crucial. Late payments, accounts sent to collections, and bankruptcies negatively impact your score. To improve:
   • Pay On Time: Ensure all bills are paid by their due dates. Set up reminders or automatic payments to avoid missing deadlines.
   • Clear Past-Due Accounts: If you have overdue accounts, bring them current as soon as possible.
2. Outstanding Debt: The amount of debt you owe compared to your credit limits, also known as the credit utilization ratio, plays a significant role. High balances relative to your credit limits can lower your score. To improve:
   • Reduce Balances: Pay down your existing debt to lower your credit utilization ratio. Aim to keep your utilization below 30%.
   • Avoid New Debt: Resist the urge to open new accounts or take on additional debt.
3. Credit History Length: The length of time you’ve had credit accounts impacts your score. Longer histories generally benefit your score. To improve:
   • Maintain Older Accounts: Keep your oldest credit accounts open to preserve your credit history length.
   • Be Cautious with New Accounts: Opening new accounts can shorten your average account age, potentially lowering your score.
4. New Credit Applications: Frequent applications for new credit can hurt your score due to the resulting hard inquiries. Not all inquiries are counted equally; those for account monitoring or pre-approved offers are typically excluded. To improve:
   • Limit Applications: Only apply for new credit when necessary.
   • Group Inquiries: If shopping for a mortgage, auto loan, or student loan, try to group inquiries within a short period (typically 14-45 days) to minimize the impact on your score.
5. Credit Mix: Having a variety of credit types, such as credit cards, mortgages, and auto loans, can positively impact your score. However, having too many credit cards or loans from finance companies may hurt your score. To improve:
   • Diversify Credit Types: If possible, aim for a mix of credit accounts, but only if you can manage them responsibly.
   • Avoid Excessive Credit Cards: Limit the number of credit card accounts you open.

Additional Considerations

• Review Your Credit Report: Regularly check your credit report for accuracy. Dispute any errors you find with the credit bureaus.
• Financial Habits: Scoring models may also consider information from your credit application, such as your job, length of employment, and homeownership status. Good financial habits in these areas can contribute positively.

Summary

To improve your credit score, focus on timely payments, reducing debt, maintaining long-standing accounts, limiting new credit applications, and diversifying your credit mix. Improvement takes time, so be patient and consistent with your efforts.

For more detailed information and personalized advice, you can contact the three major credit reporting agencies or visit AnnualCreditReport.com to review your credit report.

We’ve helped many to better their credit score. Give us a call.

An appraisal is an estimate of a property’s fair market value conducted by a state-licensed professional known as an appraiser. Lenders typically require an appraisal before approving a mortgage to ensure the loan amount does not exceed the property’s value. The appraisal considers the property’s location, amenities, and physical condition to determine its worth.

Purpose of an Appraisal

The primary purpose of an appraisal is to protect the lender by confirming that the property is worth the loan amount. This helps prevent lending more money than the property is worth, which can mitigate the lender’s risk if the borrower defaults on the loan.

The Appraisal Process

1. Property Inspection: The appraiser conducts a thorough inspection of the property, examining its size, condition, improvements, and any unique features.
2. Comparable Sales: The appraiser compares the property to similar homes in the area that have recently sold, known as comparables or comps.
3. Valuation Methods: The appraiser uses one or more valuation methods, such as the sales comparison approach, cost approach, or income approach, to determine the property’s value.
4. Final Report: The appraiser compiles their findings into a detailed report, which includes the estimated market value, the methods used, and supporting data.

Importance of a State-Licensed Appraiser

A state-licensed appraiser is trained and certified to provide an unbiased, professional opinion on property values. This ensures that the appraisal is accurate and reliable, providing confidence to both lenders and borrowers.

Summary

An appraisal is a crucial step in the mortgage approval process, ensuring that the property’s value justifies the loan amount. Conducted by a state-licensed appraiser, it involves a detailed inspection and analysis of comparable properties to estimate the fair market value. This protects lenders from over-lending and helps borrowers understand the true value of the property they wish to purchase.

For more information on appraisals and their role in the mortgage process, you can visit resources like the Consumer Financial Protection Bureau (CFPB) or give us a call.

Private Mortgage Insurance (PMI) is a type of insurance required by lenders on conventional mortgages when the down payment is less than 20% of the home’s purchase price. PMI protects the lender in case the borrower defaults on the mortgage.

How PMI Works

When you make a down payment of less than 20%, lenders consider you a higher risk. To mitigate this risk, they require PMI, which can cost several hundred dollars and may need to be paid upfront at closing or monthly as part of your mortgage payment.

Example

For instance, if you purchase a home for $300,000 and make a 10% down payment ($30,000), the remaining loan amount is $270,000. The lender may require PMI to protect themselves against potential default.

How to Avoid PMI

• 20% Down Payment: The most straightforward way to avoid PMI is by making a down payment of at least 20%.
• Other Loan Programs: Explore other loan options such as FHA loans, which might offer different terms regarding mortgage insurance.
• Lender-Paid PMI: Some lenders offer lender-paid PMI, where they cover the insurance cost but may charge a higher interest rate.

Summary

PMI is necessary for conventional loans with down payments less than 20%, protecting lenders from defaults. To avoid PMI, aim for a 20% down payment or explore other loan programs that fit your financial situation.

For more detailed information, give us a call or visit resources like the Consumer Financial Protection Bureau (CFPB).

80-10-10 financing is a strategy that helps homebuyers avoid Private Mortgage Insurance (PMI) while purchasing a home. It is particularly beneficial for those who have high incomes but struggle to save a 20% down payment.

How 80-10-10 Financing Works

This financing method involves three components:

1. 80% First Mortgage: A traditional mortgage covering 80% of the home’s purchase price.
2. 10% Second Mortgage: A second loan covering 10% of the purchase price.
3. 10% Down Payment: A cash down payment covering the remaining 10%.

By structuring the financing this way, buyers can avoid PMI, which is typically required when the down payment is less than 20%.

Example

For a $400,000 home:

• 80% First Mortgage: $320,000
• 10% Second Mortgage: $40,000
• 10% Down Payment: $40,000

Advantages

• Avoid PMI: By using an 80-10-10 structure, buyers can bypass the need for PMI, reducing overall costs.
• Afford a Higher-Priced Home: This method allows buyers to afford more expensive homes without the immediate need for a large down payment.

Variations

• 80-15-5 Financing: If a buyer can only afford a 5% down payment, they can opt for this variation, where the first mortgage covers 80%, the second mortgage covers 15%, and the down payment is 5%. This higher loan-to-value ratio may result in higher interest rates and loan fees due to increased lender risk.

Summary

80-10-10 financing is an effective solution for homebuyers who can manage high incomes but have difficulty saving for a 20% down payment. By combining a first and second mortgage with a smaller down payment, buyers can avoid PMI and make homeownership more affordable. However, it’s essential to be prepared for potentially higher fees and interest rates, especially with lower down payments.

For more detailed information on financing options, give us a call or visit resources like the Consumer Financial Protection Bureau (CFPB).

At closing, the ownership of the property is officially transferred from the seller to you. This process, also known as “funding,” involves several parties and steps to ensure all legal and financial aspects are handled correctly.

Participants and Process

The closing process typically includes you (the buyer), the seller, real estate agents, your attorney, the lender’s attorney, title or escrow firm representatives, and other administrative staff. If you cannot attend the closing in person, you can appoint an attorney to represent you.

Duration

The length of the closing process can vary, taking anywhere from one hour to several hours. This depends on the complexity of the transaction, such as contingency clauses in the purchase offer or the need to set up escrow accounts.

Paperwork

Most of the paperwork involved in closing is handled by attorneys and real estate professionals. Depending on the arrangements made with your representatives, you may not need to be present for all activities.

Final Inspection

Before closing, you should conduct a final inspection or “walk-through” of the property. This ensures that any requested repairs have been completed and that all agreed-upon items, like drapes and lighting fixtures, are in place.

Settlement and Disbursement

In most states, the settlement is completed by a title or escrow firm. You will need to forward all necessary documents and information, along with the appropriate cashier’s checks. The title or escrow firm then makes the necessary disbursements, delivers the check to the seller, and provides you with the keys to your new home.

Summary

Closing is the final step in the home buying process where the property ownership transfers from the seller to the buyer. It involves several parties and steps, including final inspections, paperwork, and financial disbursements. Being well-prepared and understanding the process can help ensure a smooth closing experience.

For more detailed information, you can visit resources like the Consumer Financial Protection Bureau (CFPB) or consult with your real estate agent or attorney. Or even easier, give us a call and we’ll be glad to help you understand the process.