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When should I refinance?

It's generally a good time to refinance when mortgage rates are lower than the current rate on your loan. Any reduction in your interest rate can lower your monthly mortgage payments. Example: Your payment, excluding taxes and insurance, would be about $770 on a $100,000 loan at 8.5%; if the rate were lowered to 7.5%, your payment would then be $700, now you're saving $70 per month. Your savings depends on your income, budget, loan amount, and interest rate changes. Your trusted lender can help you calculate your options.

What are points?

A point is a percentage of the loan amount. For example 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount. Lender credits are also expressed in points and are used to your benefit to offset your closing costs. For example, if your closing costs are $5,500 and your loan amount is $200,000, a lender credit of 1 point (1% of $200,000 = $2,000) would lower your overall closing costs to $3,500. Large lender credits are often how no-cost loans are achieved. You will never have a loan that charges points to discount a rate, but also provides a lender credit to offset closing costs. You will have one or the other.

Should I pay points to lower my interest rate?

Discount points are not cheap, but 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. Eventually the amount you paid for the lower interest rate will be offset by the reduced monthly payment, although this may only happen after a few years in the loan. 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 and therefore a higher interest rate might be a better fit. If you want a lower interest rate, your loan officer would be able to give you specifics on what rate buydowns would look like.

What is an APR?

The annual percentage rate (APR) is an interest rate that includes the costs associated with getting 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." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees. 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. Because APR calculations are effected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. You can then delete the fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees. The following fees are generally included in the APR:

• Points - both discount points and origination points
• Pre-paid interest. The interest paid from the date the loan closes to the end of the month.
• Loan-processing fee
• Underwriting fee
• Document-preparation fee
• Private mortgage-insurance
• Escrow fee

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 close the transaction. 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 30-60 days. Even if you change your mind on the interest rate or program you want, locking an interest rate locks in the pricing for that day so even if interest rates are rising, you still are able to make changes to your loan as if you were making the changes on the day the loan was locked.

How is my credit judged by lenders?

Credit scoring is a system creditors use to help determine whether you will be approved for the amount and type of credit you are requesting. 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). Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact 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 you up to $9.00 for your credit report. 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 is typically a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
  
• 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. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

What is an appraisal?

An Appraisal is an estimate of a property's fair market value. It's a document generally required 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. If an appraisal is required for your transaction, it will need to be paid for upfront and is a non-refundable fee. Once the appraisal has been paid for, the appraiser will reachout to you or your agent to schedule a time to come visit the property so that they can gather the information about the property they need to be able to give a fair value.

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. For FHA insured mortgages, you will have Private Mortgage Insurance for the life of the loan regardless of your Loan to Value ratio.

What happens at closing?

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 ensure 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.

What is a pre-qualification?

A pre-qualification is a written approval (usually in the form of a letter) in which a loan officer certifies that you can purchase a home at or below a certain value. After reviewing your financial situation (income, credit, monthly expenses etc.), your loan officer will make an early decision as to whether or not he/she believes that you can comfortably purchase a home at the price you are wanting, or make a recommendation of a comfortable price range for you to shop within.

Why is it a good idea to pre-qualify?

Sellers and their realtors want to know that if they sign a sales contract for a property, the transaction has a high likelihood of closing, especially if they have other offers on the table. By being able to show that you had an expert review your financial situation and say with confidence that you can afford to buy the home, you are showing the sellers that you are serious and have taken the first steps towards purchasing a home before even meeting them. You are also potentially putting yourself at an advantage over other potential buyers who have not pre-qualified.

What information and documents do I need to apply for a mortgage?

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. So, if you are asked for more information, know that every client we work with is unique and we are doing our best to ensure we have a complete picture before helping you make a decision. Your New Property (Purchase Only)

• Copy of signed sales contract including all addendums
• Verification of the deposit you put down on the home
  • Copy of your Earnest Money Check
  • A bank statement showing the money exiting your account
• Names, addresses and telephone numbers of all realtors, builders, insurance agents and attorneys involved
• Copy of Listing Sheet and legal description if available
• If the property is a condominium please provide a name and contact number for the HOA