The general rule of thumb is to refinance when mortgage rates are 1% lower than your current rate. Yet, how long you plan on being in the home, how much you owe, and where you're at in your existing loan amortization are all factors that we use to help you decide if refinancing makes financial sense. It's true, a rate reduction can lower your monthly mortgage payments, for 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, a savings of $70 per month! As your trusted lender, we will help you calculate your savings and evaluate your options.
A point is a another way to say percentage and it's expressed as both a percentage and a dollar amount. For example: 1 point = 1% of the loan. Hence 1 point on a $100,000 loan is $1,000. Lenders may refer to points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount. Points are costs that are a part of total closing costs for mortgage financing. Discount points are used to lower the interest rate on a mortgage loan by paying some of this interest up-front. As your trusted lender, we will present financing options with and without points.
Yes, if you plan to stay in the property for a least a few years. 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.
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 some closing 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" and provide you a tool to compare lenders rates and fees side-by-side. It also 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, the amount borrowed, and the term 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 conventional loan) at the same interest rate.
Fees included in the APR:
Fees not included in the APR:
Mortgage rates change daily or even hourly 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 mortgage payment. Therefore, a lender will help you "lock-in" the loan's interest rate guaranteeing that rate for a specified time period, often 30-60 days, to give you time to close on the loan.
Required documents can vary considerably based upon your specific situation and the loan program. Below is a list of general documents that maybe required but more or less documentation could be needed. Your prompt attention will help speed up the approval process.
Information about your credit experience, 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 report. The credit agency then runs that information through a credit model to provide a credit score. What can be confusing is scoring models vary based upon the type of loan. For example, an auto loan versus a mortgage loan will be a different score using the same credit bureau data.
Mortgage lenders use the FICO score but we use a credit model that is specific for the mortgage industry. The FICO score was developed by Fair Isaac Company, Inc and your mortgage FICO score will fall between 350 (high risk) and 850 (low risk).
When we work with our clients, we will review your score with you. Should we need, we also offer several credit tools which can help you improve your score to be qualified for a mortgage.
In general, if you wish to obtain copies of your credit report, you can contact the three major credit reporting agencies:
Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies. This free credit report typically does not contain your credit score but it can be requested through the following website: https://www.annualcreditreport.com
There are a number of different credit scoring models but improvement in your score generally depends on similar things.
Have you paid your bills on time? Payment history typically is a significant factor.
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. Remember, when it comes to credit, we can help you improve your score, regardless of your situation.
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" who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.
On a conventional mortgage, when your down payment is less than 20% of the purchase price, mortgage lenders may require 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. On an FHA loan, Mortgage Insurance is always required irrespective of down payment.
The property is officially transferred from the seller to you at "Closing" or "Funding".
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. Closing generally takes around a 1-hour.
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.