HOME LOAN

                                                                           Helpful Hints

When Considering Refinancing:

During the Loan Application Process :

For Closing:

For other thoughts on closing, be sure to check out the FAQ's and the Closing sections.

                                                                    Avoidable Mistakes

When refinancing:

When Buying a Home:

Make sure to read up on what questions to ask the seller when considering a New Home Purchase, and how to make the most of your home's equity with a Home Equity Loan.

                                                                            FAQ's Cont'd

Mortgage insurance is a safety precaution lenders use to insure against default. Normally, you need only worry about this type of insurance if your down payment is less than 20% of the value of your home. If the borrower cannot pay back the loan amount then the lender has the option to foreclose and then file a claim with the insurance company to recoup its losses. It should not be confused with mortgage life or hazard insurance.


Private mortgage insurance, or PMI as it is often called, is paid by the customer in annual installments or monthly or single premiums. The customer chooses the PMI company with information either supplied by the lender or by independent research, with the first insurance premium is collected upon closing.

The benefits are: increased buying power, less money down, and a shorter time wait for perhaps a more expensive house. NOTE: please be careful when buying PMI. Some of the agents selling this type of insurance are inexperienced or just plain unknowledgeable when it comes to finding out if you qualify for the plan. Some plans have very specific stipulations attached- just make sure you are aware of all of them.

The best way to accomplish this would be to have your home sold before you buy your new one, but to arrange the closing dates so that your closing date on your old home is after the closing date of the new home. This gives you a place to stay during proceedings.

Your new lender will want to see your Sale of Purchase for your old home- this is the guarantee that the old mortgage will be paid off. For some more great advice, visit our Helpful Hints page or our Helpful Information page.

                                                                             FAQ ’ s

A home equity loan, often called a second mortgage, is borrowing against the equity in your home with a new loan, on top of the mortgage loan you already have. Refinancing is when you renegotiate the term or type of mortgage plan you currently have by trading in your old loan for a new one. You can also refinance your first and second mortgages in order to combine your monthly payments.

Refinancing is useful if interest rates have dropped below your current rate and if you plan on staying in your house for longer than 3-5 years. If you switch the loan term, from say a 30 year to a 15 year, you would save thousands of dollars in interest, and would build the equity in your home faster. Home Equity loans on the other hand, are a good choice if you only plan on being in the home for less than three years, or you are trying to finance a home improvement project and need a large amount of cash for it.

During closing you should expect to pay processing fees, a loan origination fee, underwriting, property taxes, insurance (title, hazard, and/or mortgage), prepaid interest or discount points, an escrow account deposit, and administration costs (recording fees, notary fees, etc.). The average range of closing cost fees can run anywhere from $800-$3,000. One trick is to look for the plans that come with the fees bundled together. Not many companies offer this option, but some realize that it is a great selling point.

Your protection under RESPA, or the Real Estate Settlement Procedures Act, requires the lender to provide you with an itemized statement of all closing costs. So you should be prepared for every cost, no matter how small, before the closing date. And you in turn should receive: a mortgage note, deed of trust, a truth-in-lending statement, a settlement statement, and a binding sales contract reviewed in advance by your lawyer (if buying a new home).

                                                                 MORE FAQ'S

Closing - Whether refinancing a current loan or obtaining a new loan, there are a substantial amount of fees involved, including: processing fees, attorney fees, appraisal fees, title and closing costs, and certain kinds of taxes. One thing the borrower should definitely be aware of is that most closing fees are negotiable in some manner. The most important tips to avoid paying these costs are: question every fee and pay attention to your Good Faith Estimate.

For example, most mortgage lenders charge some type of application fee. This is typically to cover cost of the appraisal and to obtain a mortgage credit report. Remember that, by law, you are entitled to copies of both. Make sure that your application fee is being applied towards these two costs, and question anything else, especially if it seems excessive.

Fees to refuse paying for:

Underwriting fees, wire transfer fees, funding fees, or processing fees are all types of fees that you should consider not paying. These represent costs for the lender masquerading as closing costs for the borrower. Be especially careful with Mortgage Brokers and don't let them pass their overhead fees off onto you.

Points:

There is another way to avoid paying an exceeding amount upon closing, and that has to do with points. Points are a fee equal to 1% of the total borrowed amount. Points can be added or subtracted to your loan, so if you decide you do not want to pay any closing fees, you can have the closing costs attached to your new loan in the way of points. This is called a limited cash out mortgage. If you have reduced your interest rate, reduced your loan amount, and shortened your loan term, than you could choose this option and still come out ahead.

On the other hand, you could choose to pay discount points in order to lower the overall amount of the loan, and in doing so, lower the monthly payment. Discount points are actually pre-paid payments, with each point reducing your interest rate. For example, a 30 year loan would be reduced by 0.125% by each discount point. This option works well if you have some extra cash upon closing. Points are also tax deductible.

Your Escrow Account:

Your escrow account is in place to ensure payment for such things as insurance and taxes, and your lender will normally require a deposit during closing. Most escrow accounts should have a "cushion" or an amount of money over the amount that is really needed, but according to HUD, it should never exceed two months worth of payments at the account's lowest point during the year. In order to figure this out, know your taxes and insurance premium payments. This way, you'll know as well if there have been any erroneous transactions (late payments, overcharging, etc.)

To find out exactly what costs are included in closing, visit our FAQ's page.

Credit - Your lender uses many tactics to assess credit: your credit report, credit score, credit grade, credit inquiries, credit profile, and other factors such as savings account balances, or monthly debt compared to your combined monthly income.

Credit Report: This is a detailed report of your credit history that is designed to provide potential lenders with information, helping you to use checks, obtain debit and credit cards, and to secure loans. There are many credit reporting agencies across the country, and personal inquiries are usually free. And by the Fair Credit Reporting Act, if you are turned down for a loan, you are entitled to a free copy. Added protection is afforded the borrower under the Equal Credit Opportunity Act, which says that a lender cannot discriminate by matter of sex, race, nationality, or gender. In cases of a rejection, they must provide a detailed account of the reason or reasons.

Credit Inquiries: Keep in mind that every time you or potential lenders make an inquiry into your credit history, it is recorded on your credit report and can possibly make it harder to obtain a loan or credit in the future.

Credit Score: Creditors score your credit based upon a complex scoring model that varies from lender to lender. By far the most popular is the FICO system, developed by Fair, Isaac and Co. This credit evaluating system was created to give uniformity to the evaluations of creditors, and has been accepted by the Federal Trade Commission. It considers numerous factors when evaluating a potential borrower ’ s credit: the length of established credit, the amount and frequency of late payments, history of employment, negative credit (bankruptcy, collections, etc.), length of residence, and the amount of credit used versus the amount of credit available. There are scores assigned to the different bits of information, which when inputted into mathematical tables, allow the creditor to analyze the inherent credit risk involved. The average FICO score is usually between 620 and 660.

Credit Profile: A detailed compilation of all the creditors that have extended credit to you, it records when and how long your accounts were opened, tracks your late payments, and inquiries to obtain new credit. It is a basic record of how you have handled your financial responsibilities and whether you have paid back other loans in a timely fashion.

Credit Grade: Lenders grade potential borrowers based on a number of specific factors. Credit is obviously a big factor and it is divided into three sections: consumer credit, mortgage credit, and public record. Consumer credit has to do with bills and credit cards, while mortgage credit weighs your past and current mortgage payments. Serious credit problems such as foreclosures or bankruptcy fall under the public record section; with every serious credit problem, the credit grade drops accordingly. Next, they consider debt ratio, which is computed by dividing the total monthly debts by the monthly income. The credit grade will be higher if the debt ratio is low.

Next, they look at the loan-to-value ratio, or the LTV. This is the ratio of the borrowed amount compared to the market value of the home. Generally speaking, the higher the credit grade, the less stringent lenders are about the LTV ratio, which is how much you can borrow compared with how much your house is worth. Finally, the credit score (such as the FICO score) is factored in, and then the customer is given a grade. The highest grades (A or A+) are given the best interest rates.

In order to find out exactly what documentation you need for the loan application, please visit the Loan Process page.