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Frequently Asked Questions

When should I refinance?

When it's a tangible benefit to you. Do you need or want lower payments as opposed to a longer term to pay the loan off? What about pulling some cash out of your equity to pay off other debt that may lower your overall monthly payments, or weddings, vacations, or some improvements around the house. When the mortgage rates are less than what you currently have, especially if you don't have to pay loan fees out of pocket or have them added to your loan balance essentially keeping the same loan balance that you started with. If you want to pay the loan off quicker by paying less interest. 

What are points?

A point is a one percentage of the loan amount, or one point = 1% of the loan amount, one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front.

Should I pay points to lower my interest rate?

Maybe, if you plan to stay in the property for several years past the loan cost monthly savings "break even" point. Paying discount points to lower the loan's interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front.

What is an APR?

The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the "true cost of a loan."

The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan.

What does it mean to lock the interest rate?

Mortgage rates can change from the day you apply for a loan to the day you finish. If interest rates rise sharply during the application process it can increase the borrower’s mortgage payment unexpectedly. Therefore, a lender can allow the borrower to "lock-in" the loan’s interest rate guaranteeing that rate for a specified time period, often 30 to 60 days. If a loan is not locked, it is "floating" and waiting to be locked.

What documents do I need to prepare for my loan application?

Below is a list of documents that are required when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation. Provide the information requested as soon as possible. It will help speed up the application process.

Purchase Loan

  • Copy of signed sales contract and any counter offers
  • Plus all that apply below under Refinance Loan

Refinance Loan

  • Your pay-stubs for the most recent 30-day period with year-to-date totals
  • Your W-2 forms for the past year
  • Homeowner's insurance declaration page showing coverage and premium amount
  • Drivers license
  • HOA statement if in an association

If self-employed or receive commission or bonus, interest/dividends, or rental income or Corporation

  • Provide federal 1040 tax return for the last year filed, all pages
  • K-1's for all partnerships and S-Corporations (K-1's are usually not attached to the 1040.)
  • Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) including all schedules (ownership of 25% or greater.)

If you are receiving or paying Alimony or Child Support to qualify:

  • Provide divorce decree/court order stating amount, as well as, proof of receipt of funds for last year

If you receive Social Security, Pension, Disability, or VA benefits:

  • Provide award letter from agency or organization

Source of Funds and Down Payment

  • Sale of your existing home - provide a copy of the estimated Settlement/Closing Statement
  • Savings, checking or money market funds - Two months of statements
  • Stocks and bonds - provide copies of your statement from your broker or copies of certificates
  • Gifts - Provide Gift Letter from donor, source of the gift, and proof that you received the gift

How is my credit judged by lenders?

Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).

Your credit report is an important part of many credit scoring systems, you are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion. This free credit report may not contain your credit score and can be requested through the following website: https://www.annualcreditreport.com

What can I do to improve my credit score?

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

  • Have you paid your bills on time? Payment history typically is a significant factor. 
  • What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
  • How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
  • Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
  • How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. 

Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.

What is an appraisal?

An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.

What is PMI (Private Mortgage Insurance)?

On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. The best way to avoid this extra expense is to make a 20% down payment, or ask about other loan program options.

What is 80-10-10 financing?

Purchasing a home using your 10% down payment along with a 10% 2nd mortgage, or seller financing. Using conventional financing with less than 20% of a down payment, buyers must purchase Private Mortgage Insurance (PMI) which increases the cost of home ownership. Given that your income is sufficiently high, it’s eminently possible to avoid getting stuck with PMI. That is why 80-10-10 financing was invented. It is called 80-10-10 because a savings and loan association, bank, or other institutional lender provides a traditional 80% first mortgage, you get a 10% second mortgage, and make a cash down payment equal to 10% of the home’s purchase price. By using this method, you are no longer obligated to take out PMI on your property.

The same principle applies if you can only afford to make a 5% down payment, 80-15-5 financing may also be an option.

What happens at closing ?

The property is officially transferred from the seller to you at "Closing" or "Recording".

At closing, the ownership of the property is officially transferred from the seller to you. This may involve you, the seller, real estate agents, your attorney, the lender’s attorney, title or escrow firm representatives, clerks, secretaries, and other staff. You can have an attorney represent you if you can't attend the closing meeting, i.e., if you’re out-of-state. Closing can take anywhere from 1-hour to several depending on contingency clauses in the purchase offer, or any escrow accounts needing to be set up.

Most paperwork in closing or settlement is done by attorneys and real estate professionals. You may or may not be involved in some of the closing activities; it depends on who you are working with.

Prior to closing you should have a final inspection, or "walk-through" to insure requested repairs were performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.

In most states the settlement is completed by a title or escrow firm in which you forward all materials and information plus the appropriate cashier's checks so the firm can make the necessary disbursement. Your representative will deliver the check to the seller, and then give the keys to you.

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