FAQ
Frequently Asked Questions
We have collated most of the questions asked by our customers. While these questions might address most of your queries, our team is also readily available for providing the necessary clarifications.
There are many costs associated with taking out a mortgage. These include:
- The interest rate
- Points
- Fees
- Other charges
An annual percentage rate (APR) reflects the mortgage interest rate plus other charges.
- The interest rate is the cost you will pay each year to borrow the money, expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan.
- An annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. The APR reflects the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan. For that reason, your APR is usually higher than your interest rate.
Generally, points and lender credits let you make tradeoffs in how you pay for your mortgage and closing costs. Points, also known as discount points, lower your interest rate in exchange paying for an upfront fee. Lender credits lower your closing costs in exchange for accepting a higher interest rate.
Points are calculated in relation to the loan amount. Each point equals one percent of the loan amount. For example, one point on a $100,000 loan would be one percent of the loan amount, or $1,000. Two points would be two percent of the loan amount, or $2,000. Points don’t have to be round numbers – you can pay 1.375 points ($1,375), 0.5 points ($500) or even 0.125 points ($125). The points are paid at closing and increase your closing costs.
Lender credits work the same way as points, but in reverse. You pay a higher interest rate and the lender gives you money to offset your closing costs. When you receive lender credits, you pay less upfront, but you pay more over time with the higher interest rate.
Usually people refinance to save money, either by obtaining a lower interest rate or by reducing the term of the loan. Refinancing is also a way to convert an adjustable loan to a fixed loan or to consolidate debts. The decision to refinance can be difficult, since there are several reasons to refinance. However, if you are looking to save money, try this calculation: Calculate the total cost of the refinance Calculate the monthly savings Divide the total cost of the refinance (#1) by the monthly savings (#2). This is the “break even” time. We have Zero closing costs refinance loans, so it makes sense even if the rates go down by 0.25 percentage.
A rate lock is a contractual agreement between the lender and buyer. There are four components to a rate lock: loan program, interest rate, points, and the length of the lock.
With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change. There are advantages and disadvantages to each type of mortgage, and the best way to select a loan product is by talking to us.
Generally speaking, you can purchase a home with a value of two or three times your annual household income. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. You may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value. Give us a call, and we can help you determine exactly how much you can afford.
For most homeowners, the monthly mortgage payments include three separate parts: -Principal, Interest, Taxes & Insurance. Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This escrow feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company.
There is no simple formula to determine the type of mortgage that is best for you. This choice depends on a number of factors, including your current financial picture and how long you intend to keep your house. We can help you evaluate your choices and help you make the most appropriate decision.
The amount of cash that is necessary depends on a number of items. Generally speaking, though, you will need to supply: -Earnest Money: The deposit that is supplied when you make an offer on the house -Down Payment: A percentage of the cost of the home that is due at settlement -Closing Costs: Costs associated with processing paperwork to purchase or refinance a house
The pre-approval process is much more complete than pre-qualification. For pre-qualification, the loan officer asks you a few questions and provides you with a pre-qual letter. Pre-approval includes all the steps of a full approval, except for the appraisal and title search. Pre-approval can put you in a better negotiating position, much like a cash buyer.
Closing costs include Discount Points and Origination charges, third party costs such as Appraisal fees, Title, Insurance, and Escrow fees. Additional items that are included in Closing costs that are technically not ‘costs’ include prepaid items such as Taxes, Insurance, HOA dues etc. When you refinance your loan, the pre-paid items from your previous loan are refunded to you and hence these pre-paid items can often be a wash.
When you take a loan out for greater than 80% of the value of the home ( i.e. your down payment is less than 20%) you are required to purchase an insurance that protects the lender from losses if you were to default on the home. For conventional loans this is a requirement if the down payment is less than 20%, for FHA loans this is a mandatory requirement as the minimum down payment rate is as low as 3.5%. The PMI amount is determined by many different factors, similar to your interest rate—including FICO score, loan-to-value ratio, debt-to-income ratio, property type, and occupancy.The Conventional loan monthly insurance premium is call PMI or Private Mortgage Insurance, while the FHA equivalent is called MIP or Mortgage Insurance Premium. There is an additional UFMIP or Upfront MIP of 1.75% on the base loan amount that needs to be paid for FHA loans.
The difference between a fixed rate and an adjustable rate mortgage is that, for fixed rates the interest rate is set when you take out the loan and will not change. With an adjustable rate mortgage, the interest rate may go up or down. Adjustable Rate Mortgages(ARM’s) can be risky in a long term rising rate environment. If you are expecting rates to sharply rise in the next 5-10 years, you will be better off with a fixed rate mortgage. However, if you expect rates to be relatively flat and or plan to refinance or relocate every 5 odd years, an ARM may not be a bad choice, especially if you are looking for a super low rate to lock into for the next 3-10 years.
Mortgage Refinance can be for a Rate & Term purpose or for taking Cash Out from Equity in your home. Maximum cash out is constrained by the maximum LTV permissible on the Loan Type. For conventional loans maximum LTV for cash out is 80%, for FHA loans you can take cash out for a maximum of 85% LTV and for VA loans this can go up to 100% of the value of the home. Cash Out Refinancing is mostly done for debt consolidation purpose and home improvement projects, although there is no specific required reason for the cash out.
