Q: How Do I Get The Best Rate?
A: It is never about the best rate. It is about the best MATH, period. There is NO other answer than that. So why isn't the lowest rate the best deal? First, lower rates come with more points and fees. That is not the real issue, however. There is a break-even point to contend with when paying points and fees, tax deductions to figure out. In the case of a purchase loan, points are tax deductible in the year that you pay them. That is good, but then again, so is the interest you think you are saving. With refinances, the points are usually only deductible only over the full term of the loan. That could be 30 years, making the benefits and the break-even point years down the road. So why do lenders advertise really low rates with all of those points and fees? Because they know most consumers look at the rate, not the MATH. That advertising strategy works really well. We don't play that game. How about the lowest APR? Generally, the more points you pay, the lower the APR. True, but not the answer. We take apart each rate and fee quote to find out what the best MATH is, period. It only takes a few seconds for a professional to do it for you using a computer. After that, it's your decision.
Q: How much can I afford to spend on my home?
A: The mortgage industry generally recommends that your mortgage payment does not exceed 1/3 of your gross monthly income. Factors that affect your monthly payment are: the amount of your down payment (the larger the down payment the lower the monthly payment), your interest rate (a lower rate means a lower payment) and the length of your loan (a longer loan equals a lower payment.)
Q: How much do I need for a down payment?
A: This depends on the loan program you choose and your credit history. There are programs that allow a very low down payment or even no down payment at all. As a rule, a down payment will be between 5% and 20% of the home's value. Keep in mind, the size of your down payment greatly affects your monthly payment and the terms of your loan.
Q: Should I choose a Fixed-Rate or an Adjustable-Rate Mortgage Loan?
A: A fixed-rate loan keeps the same interest rate the entire term of your loan. Interest rates for this type of loan are higher than other mortgage options, but a fixed-rate loan provides the security of knowing your loan payment will not change regardless of interest fluctuations during the term of your loan. This is generally a good choice if you plan to stay in your home a long time. An adjustable-rate mortgage (ARM), has an interest rate that can change during the term of your loan. It may have an initial interest rate that is lower than a fixed-rate loan but it can change after a designated period of time and then adjusts to the current market interest rate. This type of loan may work well if you don't plan on staying in your home for a long period of time or you expect an increase in income in a reasonable time.
Q: What are a Good Faith Estimate and the Truth-in-Lending Disclosure Statement?
A: Within three days of receiving your loan application, the lender must provide you with the Good Faith Estimate -an estimate of the final closing costs to be paid at the time the loan is funded. The lender must also provide you with the Truth-in-Lending Disclosure Statement - your estimated monthly payment and the APR of your loan. It is important to carefully review these documents and compare them with the final loan documents on the day of closing before signing the final loan documents.
Q: What are Closing Costs?
A: Closing costs are all fees over and above your loan amount and down payment that are associated with processing your loan. These fees are due at the time the property transfers from the seller to the buyer, or at the Closing. Closing costs may include, but are not limited to, title search fee, title insurance premiums, appraisal fee, recording fees, credit report charges, attorney fees or escrow fees, and discount points. You should receive an estimate of your closing costs in what is called a Good Faith Estimate within 3 days of completing your loan application. It is a good idea to put aside money for these costs before the closing date. Many buyers know they must come up the down payment but are caught off guard when they see the amount of fees required at the closing. In a refinance transaction, most of the closing costs are not out of pocket.
Q: What are discount points and should I pay them?
A: Discount points are fees that lenders can charge to allow you to receive a lower interest rate. One point equals 1% of your loan amount. For example, on a $100,000 loan, one point would equal $1,000. The more points you pay, the greater the discount in your interest rate. Points are not required, but generally, if you plan to stay in your home longer than 5 years it's advantageous to pay 1 to 2 points. If you know you are staying in your home less than 5 years, you may want to choose not to pay points. Your specific situation depends on whether or not paying points makes sense.
Q: What are Pre-Payment Penalties and should I avoid them?
A: Some loans have pre-payment penalties. These are fees incurred if you pay off your loan before the final due date. These penalty fees can be very substantial amounts - as much as 3% of your unpaid balance. They can be charged if you refinance and or sell your home and therefore pay off the loan before the due date. Lenders will, however, in these cases, often waive these penalties. It is still advantageous to avoid them altogether and carefully examine your loan documents to make sure there are no pre-payment penalties. Over 98% of our programs DO NOT have pre-payment penalties.
Q: What is a FICO score and how important is it?
A: A FICO score is a credit score which predicts the probability that borrowers will pay their bills. A higher FICO score enables you to obtain a loan with good terms, lower interest and a lower monthly payment. This score is widely used by lenders and is therefore an important part of the loan qualification process. It is recommended that you check your credit rating and FICO score prior to obtaining a mortgage loan so that any disputed items, errors, etc., that you may encounter can be cleared up before the loan process begins. A letter written to the appropriate credit bureau can start this process.
Q: What is a rate lock?
A: A rate lock means that you have a written agreement with your lender to lock in a specified interest rate while your loan is being processed. This rate is guaranteed as long as your loan closes within a specific time period such as 30 or 45 days or even 60 days. This can be beneficial if rates increase during this time, but if rates decrease, there is no guarantee you will receive the lower rate.
Q: What is an FHA or VA loan?
A: A FHA (Federal Housing Administration) loan is available to qualified first-time home buyers. The FHA guarantees part of the loan which makes the loan easier to obtain. Down payments are low and qualifying ratios are typically more liberal than conventional loans. However, owner-occupation is required for an FHA loan. A VA (The Department of Veteran's Affairs) loan is available to qualified veterans or reservists who are first or second time homebuyers. The main advantage is that no down payment if required. Another advantage is that VA loans can be assumed by a future qualified buyer. David Herley Finance Home provides FHA and VA loans to our clients. There is absolutely No-Obligation. Call us today at 1-321-323-1888 for more information.
Q: What is APR (Annual Percentage Rate)?
A: APR is an annual percentage rate that represents the complete annual cost of your mortgage loan. This means that, in addition to the interest charged on the loan, all other costs such as, discount points, appraisal and credit report fees, processing and document fees, are calculated into your APR or Annual Percentage Rate. Having Annual Percentage Rates on loans makes it easier for the consumer to compare the complete cost of similar loans.
Q: What is escrow?
A: After you and the seller agree on a purchase price, there is a period in which important documents and money related to the sale of the home are held in an escrow account by an impartial third party escrow service. Your loan is said to be "in escrow" during this time. At the closing, when the closing fees have been paid, the loan has been funded, and the property is transferred to the new owner, escrow is said to have closed.
Q: What is LTV or Loan to Value?
A: The LTV or Loan to Value ratio, is the amount of your loan compared to the appraised value of your property. This ratio directly affects the loan programs and rates you will be eligible for. Lenders will offer better loan programs and rates to borrowers with lower LTV ratios.
Q: What is PITI?
A: PITI stands for Principal, Interest, Taxes and Insurance. Your monthly payment is principal and interest and often also taxes and insurance depending on whether or not the lender requires them to be paid with your loan payment.
Q: What is Private Mortgage Insurance (PMI)?
A: This is insurance that protects the lender in case the borrower defaults on the loan. It is generally required by a lender if the down payment is under 20% of the loan or the LTV is 80% or more.
Q: What is the difference between a conforming and non-conforming loan?
A: A conforming loan abides by the guidelines of the federal government. A non-conforming loan has no set guidelines. A conforming loan is a loan which follows all the guidelines and mortgage limits used by Fannie Mae (Federal National Mortgage Association) or FrDavid Mac (The Federal Home Loan Mortgage Corporation). These guidelines cover areas such as maximum loan amount, down payment, borrower credit, and borrower's income. Most of the loans in the U.S. are conforming loans. A non-conforming loan is one that does not follow the guidelines used by Fannie Mae or FrDavid Mac. Typically, the loan amount is either too large (Jumbo loans) or the loan does not meet other credit criteria. (Sub-prime loans). These loans may not be sold to Fannie Mae or FrDavid Mac but the conforming loans may be sold.
Q: What is the difference between pre-qualification and pre-approval?
A: To be pre-qualified for a mortgage loan means that your income, assets and debts have been informally analyzed to estimate how much you can afford to spend on your home. It is not a commitment from the lender but is useful in knowing the range of homes you can afford. To be pre-approved for a mortgage loan means your lender gives you a written commitment to package a loan for you. You have filled out most of the loan application and your income, expenses, assets, and liabilities have been verified. You then receive a pre-approval certificate. This may help you negotiate a better price with the seller and also allows you to close very quickly. It is strongly recommended that you obtain pre-approval before beginning your home search.
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