Straight answers to the questions we hear most. Still curious? Reach out, we're happy to help.
It's generally a good time to refinance when mortgage rates are about 2% lower than the current rate on your loan, though even a 1% reduction can be worthwhile. Any reduction can trim 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 be about $700, saving $70 per month. Your savings depend on your income, budget, loan amount, and rate change. We can help you calculate your options.
A point is a percentage of the loan amount, 1 point equals 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs paid to a lender to obtain financing under specified terms.
Discount points are fees used to lower the interest rate on a mortgage by paying some of that interest up front. Lenders may also refer to costs in basis points, where 100 basis points equals 1 point, or 1% of the loan amount.
Yes, if you plan to stay in the property for at least a few years. Paying discount points to lower the loan's interest rate is a good way to lower your monthly payment and possibly increase the loan amount you can afford.
However, if you plan to stay only a year or two, your monthly savings may not be enough to recoup the up-front cost of the points.
The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. It is usually higher than the stated note rate because it takes into account points and other credit costs. The APR lets you compare different mortgages based on annual cost, it measures the true cost of a loan and prevents lenders from advertising a low rate while hiding fees.
The APR does not affect your monthly payments, which are strictly a function of the interest rate and loan length. Because APR calculations are affected by different fees, a loan with a lower APR is not necessarily a better rate. The best way to compare is to ask lenders for a good-faith estimate on the same program at the same rate, then compare loan fees.
Fees generally included in the APR: discount and origination points, pre-paid interest, loan-processing fee, underwriting fee, document-preparation fee, private mortgage insurance, and escrow fee. Fees normally not included: title or abstract fee, attorney fee, home-inspection fees, recording fee, transfer taxes, credit report, and appraisal fee.
Mortgage rates can change between the day you apply and the day you close. If rates rise sharply during the application process it can unexpectedly increase your payment.
A lender can allow you to lock in the loan's interest rate, guaranteeing that rate for a specified period, often 30 to 60 days, sometimes for a fee.
Every situation is unique, but you'll generally need documents in four areas. Your Property: a signed sales contract with riders, verification of your deposit, and contact details for realtors, builders, insurance agents and attorneys (plus condo documents if applicable).
Your Income: pay stubs for the most recent 30 days and year-to-date, W-2 forms for the past two years, and names/addresses of all employers for the last two years. Self-employed or commission borrowers should provide two years of full tax returns plus a year-to-date profit and loss statement.
Source of Funds and Down Payment: bank statements for the last 3 months, statements for stocks and bonds, and a gift affidavit if part of your funds are gifted. Debts: a list of all account numbers, balances and monthly payments for current debts, with copies of recent statements.
Credit scoring is a system creditors use to help decide whether to extend credit. Information about your bill-paying history, the number and type of accounts you have, late payments, collections, outstanding debt and the age of your accounts is compared statistically to consumers with similar profiles.
The most widely used scores are FICO scores, which range from about 350 (high risk) to 850 (low risk). Because your credit report is central to scoring, make sure it's accurate before you apply. You're entitled to one free credit report every 12 months from each nationwide agency at annualcreditreport.com.
Scoring models are complex and vary by creditor, but they generally evaluate whether you pay bills on time, how much you owe relative to your credit limits, the length of your credit history, recent applications for new credit, and the number and types of accounts you hold.
To improve your score under most models, concentrate on paying bills on time, paying down outstanding balances, and not taking on new debt. Significant improvement typically takes some time.
An appraisal is an estimate of a property's fair market value. Depending on the loan program, a lender generally requires one before loan approval to ensure the mortgage amount is not more than the value of the property.
The appraisal is performed by a state-licensed appraiser trained to render expert opinions on property values, location, amenities, and physical condition.
On a conventional mortgage, when your down payment is less than 20% of the purchase price, lenders usually require Private Mortgage Insurance to protect them if you default. You may need to pay up to a year's worth of premiums at closing.
The best way to avoid this extra expense is to make a 20% down payment, or ask about other loan program options.
Some buyers with strong incomes still find it tough to save a 20% down payment. With conventional financing they'd have to buy PMI, which raises the cost of ownership. 80-10-10 financing avoids that: a lender provides a traditional 80% first mortgage, you take a 10% second mortgage, and you make a 10% cash down payment, so you're no longer obligated to carry PMI.
The same principle applies with less cash: 80-15-5 financing is also available. Because a smaller down payment increases the lender's risk, expect higher loan fees and a higher interest rate than 80-10-10.
At closing (also called funding), ownership of the property is officially transferred from the seller to you. This may involve you, the seller, real estate agents, attorneys, and title or escrow representatives. Closing can take anywhere from an hour to several depending on the purchase terms.
Prior to closing you should complete a final walk-through to confirm requested repairs were done and agreed-upon items remain. In most states a title or escrow firm completes settlement, disburses funds to the seller, and delivers the keys to you.
Talk to a licensed mortgage specialist who can walk through your specific scenario.