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FAQ
1. Understanding Loan Types. Answer
2. The Loan Process. Answer
3. Fixed Rate Mortgage. Answer
4. Adjustable Rate Mortgage. Answer
5. Your Credit Score - What it is - What it means. Answer
6. What documents will I need to provide to close my loan? Answer
7. Refinancing - The Right Choice? Answer
8. First Time Homebuyers - It's Easier Than Ever Before! Answer
9. Definitions: Answer

Q : Understanding Loan Types.
A : The subjects below explain the main loan categories that the many loan programs fall under.  These are major types of loans, not to be confused with the individual loan programs themselves (such as Fixed Rate Loans or Adjustable Rate Mortgages).

Click on a subject below:

  1. Conventional Loans
  2. Conforming Loans
  3. Non-Conforming Loans
  4. Government Loans
  5. In-House or Portfolio Loans
  6. Commercial Loans

CONVENTIONAL LOANS:

Conventional loans are loans that are not insured or guaranteed by a government agency (see FHA and VA for information on government loans).  They can be conforming  or non-conforming loans.  Most of the conventional loans that have been made in the last several years have three basic attributes in common: 1) They have been for long terms, 2) They have been loans with fixed interest rates, and 3) they have been fully amortized (see Fixed Rate Loans and Adjustable Rate Loans.

CONFORMING LOANS:

Conforming loans can be resold in the secondary market due to the fact that they meet nationally accepted underwriting criteria established by national secondary market investors, primarily Fannie Mae (FNMA) and Freddie Mac (FHLMC).  This criteria includes down payment amounts, maximum loan amounts, property specifications, borrower income requirements and credit guidelines.  Due to the importance of being able to liquidate real estate investments (loans) in the event of a financial problem, the trend for lenders is to obtain loans that meet secondary market standards.

The conforming loan limit in California for a single family home is $240,000, for two family homes - $307,000, for three family homes - $371,200, and for four family homes - $461,350.  For five or more residential dwellings, see COMMERCIAL LOANS.


NON-CONFORMING LOANS:

Non-conforming loans are loans that do not conform to the guidelines set forth by Fannie Mae or Freddie Mac.  Non-conforming loans consist of Jumbo loans (exceeding the conforming loan limit), inadequate credit history or derogatory credit, not enough income, home equity or home improvement loans, credit lines, and second mortgages to name a few.


GOVERNMENT LOANS:

Government loans consist of loans that are in some way guaranteed or purchased by government owned corporations or organizations.  For instance, GNMA (Government National Mortgage Association) assists in the financing of urban renewal and housing projects by providing below-market rates to low income families.  GNMA guarantees the payment of principal and interest on FHA and VA mortgages through its mortgage-backed securities program.  It operates under the Department of Housing and Urban Development (HUD).


IN-HOUSE or PORTFOLIO LOANS:

Portfolio loans are loans that banks or other lending institutions may keep "in-house", or sell to the secondary market (FNMA or FHLMC).  The qualifying guidelines for these types of loans may be more flexible than the requirements set forth by secondary market investors.


COMMERCIAL LOANS:

Commercial loans are generally made by commercial banks who normally supply capital for business ventures and construction activities on a comparatively short-term basis.  Although in recent years, large commercial banks have increased their participation in home mortgage lending.  They usually make loans on residential properties with five or more units (apartment complexes), warehouses, office buildings, etc.
 
Q : The Loan Process.
A :

The loan process changes in different parts of the United States. The explanation of the loan process below is a general sequence of events that takes place during the processing of your loan. Different lenders in different states have their own requirements. The descriptions below are meant to give you a general idea of what is required to go from applying for a loan to closing the loan.

Choose a topic below:

  1. The first step - the loan application:
  2. Do I have to meet in your office?
  3. After I fill out the application, what happens next?
  4. What does it mean when my loan is approved "with conditions?"
  5. What does "Close Escrow" mean?
  6. What is a "Right of Rescission?"

 

The first step - the loan application:

As might be expected, the first step in obtaining home loan financing is to fill out the loan application (also called a "Fannie Mae 1003", or "Uniform Residential Loan Application").  Our experienced loan officers will be happy to assist you in filling out the loan application if you should have any questions. We will make an appointment to meet with you at your convenience if you desire.  Whether you choose to meet with us or fill in our online application, you will eventually need to provide us with some personal and financial information (click here for a list of what you need to provide).  If you are unable to provide some of the required documents, you can provide them to us at a later date before your final approval.

Do I have to meet in your office?

No! It is possible to complete the loan process without attending a meeting in our office.  This can be done by filling out our online application form, printing and filling out the blank Fannie Mae 1003 on our site, we will fill it out for you by telephone, you can fax your application to us, or you can mail your application to us if you wish.

When we do talk to you, we will discuss different possible loan programs available to you that might best meet your needs, the interest rates available, and your financial and property qualifications for the loan program you've chosen.

After I fill out the application, what happens next?

Once you have chosen a loan program and interest rate, the application has been filled out and you have provided us with the necessary information, we will then send out verification forms to verify your employment history and bank account information, obtain your credit report, order your preliminary title report from the title company and order your appraisal.  Once this information is returned to us, we will compile your loan documents and submit them to the underwriter for final approval.

What does it mean when my loan is approved "with conditions?"

Your loan may be approved as submitted, approved with conditions, or a counter offer may be made for your consideration.  If there are conditions on the loan in order for it to be approved as submitted, we will work with you to satisfy these conditions.  Conditions might include an explanation letter of some sort, copies of investment documents, copies of divorce papers, or any number of things that may help clarify your qualifications for the loan.

After the loan conditions are met (if any) and the loan is approved, the necessary documents are prepared for closing.  The lender will draw up the necessary documents along with any (prior-to-funding) conditions that have yet to be met, and in most cases send them to a title or escrow company near to where you live or your attorney to be signed by you.  Your escrow officer or attorney will arrange for an appointment with you when the loan papers are ready to be signed.

What does "Close Escrow" mean?

The task of closing the loan is normally the responsibility of the escrow officer, attorney, or lender.  This person or company is responsible for gathering together all of the necessary documents (deed of trust, promissory note, etc.) and making sure all documents are signed.  Following the lenders instructions, the escrow officer, attorney or lender then calculates the various prorations, charges and adjustments (interest on your old loan, interest on your new loan, money for impound accounts for taxes and insurance, etc.), makes sure all of the funds are deposited (if any) and provides you with a settlement statement showing all of the costs involved in the loan. Whoever handles the escrow responsibilities also makes sure that all of the parties involved in the loan process are paid after the loan funds. Your loan will then "close escrow" and your new loan will be recorded.

What is a "Right of Rescission?"

After you sign the loan papers, they are sent to the lenders funding department where they do a final check to see that everything is in order.  On a refinance, there is a 3-day right of rescission period.  This means that you have 3 days from the day you sign the papers to change your mind about following through with the loan.  If you have not exercised your right to rescind during the 3-day right of rescission period, the funds are released.  The loan funds are then distributed to the proper parties and the documents are recorded at the county recorders office.  The loan is done! NOTE: There is no right of rescission on a purchase.
  

What Documents will I need to provide to close my loan?

Depending on the type of loan you are applying for, you may need to bring in additional documentation in order for your your loan to close. Below we've listed some of the documents required to close a "FULL DOC" loan. You will only need to provide those documents which pertain to your individual situation. Keep in mind this is a general list only, and you may be required to provide additional documentation before your loan can fund, and you may not need some of the items listed below.

You will only need to provide items from the list below that pertain to your specific situation:

If self-employed you will also need:

  • A year-to-date profit and loss statement
  • K-1 forms (if applicable)
  • Partnership and/or corporate tax returns (if applicable)

 
Q : Fixed Rate Mortgage.
A :
FIXED RATE LOANS

A long-term, fixed-rate real estate loan is repaid over a 15 to 30 year term at an unchanging monthly payment and interest rate.

Before the late 1970's, the majority of all real estate loans involved long-term, fixed-rate repayment plans.  In fact, it has been the loan program of choice since the Great Depression.  However, it is not favored by real estate lenders during times of high or volatile interest rates due to its slow payback of the principle amount of the loan and its inability to keep pace with inflation.

A fixed-rate loan having an 8% interest will yield an 8% return throughout its term (up to 30 years) regardless of what happens to the cost of money during those 30 years.  While interest rates are volatile and subject to a significant change over the short term, lenders feel the need to protect themselves by committing their loan funds for shorter terms (such as a 10 or 15 year loan).  Another solution would be for the lenders to offer Adjustable Rate Mortgages (ARM's).

A long-term fully amortized loan has distinct advantages for the borrower.  The equal payments are spread out over a long period of time keeping the payments manageable and there is no balloon payment required at the end of the loan term.  This type of loan is the most popular with borrowers mostly because this is the type of loan program that they are most familiar with.

ADVANTAGES OF A 15-YEAR FIXED-RATE LOAN:

The 15-year, fixed-rate loan is becoming increasingly more popular every year.  They often have a lower interest rate, ownership in half the time of a 30-year fixed loan, and fantastic savings over the life of the loan.

DISADVANTAGES OF A 15-YEAR FIXED-RATE LOAN:

The two major disadvantages of a 15-year fixed-rate loan are larger monthly payments, and smaller tax deductions.
The advantages and disadvantages of a 30-year fixed-rate loan are the opposite of the explanations for a 15-year fixed-rate loan.

Generally, a 15 or 30-year fixed-rate fully amortized loan is what most homeowners shoot for until the rates rise to around 8%-9%.  At this point the advantages dim in the light of other popular programs such as 2 to 1 buydowns, and Adjustable Rate Mortgages (Arm's).
 
Q : Adjustable Rate Mortgage.
A :
Adjustable-Rate Mortgage

Possibly one of the most popular, yet misunderstood forms of alternate financing is the adjustable-rate mortgage.  Usually referred to as an ARM, its popularity with borrowers is due to a lower interest rate than a fixed-rate loan.  It is popular with the lenders because the ARM shifts the risk of interest rate fluctuations to the borrower.

Although borrowers would rather have the security of a fixed-rate loan provided the rate is not too high, the ARM has maintained its popularity in the market despite competitively priced mortgage loan rates.

An ARM is a loan that allows the lender to adjust the interest rate so it reflects fluctuations in the cost of money more accurately.  However, with an ARM, the borrower is the one who is affected by interest rate movements, not the lender.  If interest rates rise, the borrowers payments also go up - if the rates fall, the borrowers monthly payments will drop along with the declining rates.
 

HOW AN ARM WORKS

The borrower's interest rate is determined by the cost of money at the time the loan is made.  Then the rate is tied to a recognized index your lender is currently using for this loan.  Your future interest adjustments are then based on the upward or downward movements of this index.  An index is a reliable statistical report that reflects the approximate change in the cost of money.   Some examples of this would be the monthly average yield on three year treasury securities, or the national average mortgage contract rate for purchases on previously occupied homes.  The rise and fall of your payments will fluctuate with the index preferred by the lender for this loan program when your loan was made.

To insure that the expenses of administration and profit are included in the payments to the lender, it is necessary for the lender to add a margin to the index.  Different lenders use different margins which explains the variation in  interest rates offered for the same loan program.  Margins range from 2% to 4% and are added to the index to come up with the interest rate you pay (margin + index = interest rate).  It's the fluctuation of the index rate that causes the borrowers interest rate to increase or decrease.

ELEMENTS OF AN ARM

INDEX:

Lenders generally use an index that will be responsive to fluctuations in our economy - usually a one-year Treasury security or the cost-of-funds index (COFI).  The cost-of-funds index is more stable than the Treasury index because it doesn't rise or fall as sharply over the long term as the Treasury index.

MARGIN:

The margin is the difference between the index rate and the interest charged to the borrower.  The margin doesn't change throughout the loan term.

"TEASER RATES"

A "teaser rate" is a reduced, first-year introductory interest rate designed to attract borrowers to ARM's.  In the past, lenders were losing money on fixed-rate mortgages because these loans were yielding less than the prevailing cost of money.  Offering the adjustable-rate mortgage allowed lenders to insulate themselves from these losses and increase earnings by passing the risk of interest rate fluctuations on to the borrower.  To make the ARM attractive to borrowers, a low beginning interest rate was offered and through time these introductory rates became known as "teaser rates".  The interest rate would then rise at each rate adjustment period until the rate equaled the index rate + the margin.  For example, let's say that the introductory rate ("teaser rate") for your adjustable-rate loan started at 4.5% interest and would adjust upward 1.0% every six months.  If your index for this loan was 5.0% and the lenders margin was 3.0%, then the interest on your loan for the first six months would be 4.5%.  Six months later, it would increase to 5.5% and so on until the fully-indexed rate was reached.  To find the fully-indexed rate, you would add the index to the margin (5.0% + 3.0%).  After the fully-indexed rate was reached, your loan would then fluctuate with the index on your loan.  If the index goes up or down, your payment would increase or decrease with the rise or fall of the index on your adjustment period change date.

RATE ADJUSTMENT PERIOD:

The borrowers interest rates on an adjustable-rate mortgage are allowed to be adjusted at certain intervals during the loan term.  Depending on the type of adjustable loan you have, this interval could be six months, one year, three years or more.

INTEREST RATE CAP:

There are limits on just how much your payments can go up if you have an ARM.  Usually these caps are in the form of interest rate caps and/or payment caps.  An interest rate cap determines the maximum number of percentage points your interest can increase over the life of the loan.

MORTGAGE PAYMENT ADJUSTMENT PERIOD:

The mortgage payment adjustment period is the agreed upon intervals at which the payments of principal and interest are changed.  The lender can either adjust the rate periodically and adjust the mortgage payment to reflect the change, or the lender can adjust the rate more frequently than the mortgage payment is adjusted.  For example, the loan agreement may call for the interest to be adjusted every six months, but the payment to be adjusted every three years.  This scenario could be a problem.  If in the interim between payment periods (3 years), interest rates have gone up or down too much, there will have been too much or too little interest paid on the loan by the borrower over that period of time, and the difference will be added to or subtracted from the loan balance.  When unpaid interest is added to the loan balance, it is called negative amortization.

MORTGAGE PAYMENT CAP:

A mortgage payment cap is the maximum allowable interest rate the lender can charge on your loan regardless of what happens in the market.  Depending on your particular loan program, this is a percentage (usually 5% to 7.5% annually) that can be added to your fully indexed rate if the market warrants moving that high.  For example, if your fully indexed rate is 8% and your annual cap is 6%, your loans life cap would be 14%.

Mortgage payment caps were designed to limit unrestricted increases by lenders and keep the borrowers payments at a manageable level.  Some lenders impose payment caps, some impose interest rate caps and some lenders use both.

NEGATIVE AMORTIZATION CAP:

A negative amortization cap limits the amount of negative amortization that can be reached on a loan.  When the cap is reached, the loan is re-amortized to a level sufficient to pay off the loan over the remaining term of the loan.

CONVERSION OPTION:

A conversion option on an adjustable rate mortgage is called a Convertible ARM.  A conversion option gives the borrower the option to convert their adjustable-rate mortgage to a fixed-rate loan.  Convertible Arm's normally have a higher initial interest rate (even the converted fixed rate will usually be higher).  You will usually have a time frame in which to convert the loan to a fixed rate.  For example, you might have to make your decision to convert the loan sometime after the first year and before the fifth year ends.  In most cases, there is also a conversion fee imposed on the borrower (for instance 1% of the total loan amount).


There are many different ARM programs to choose from with many available options.  If you are considering an adjustable-rate mortgage, we will be happy to explain your options to you and make sure you have the right program to meet your needs.

 
Q : Your Credit Score - What it is - What it means.
A :

About Credit Scores

Your Credit Score. What it is. What it means.

You may have heard of credit scores and wonder what they are.  How do they affect your ability to get it a loan?  How do they affect the interest rate and the points you have to pay?  You may wonder whether your credit score is accurate.  Here  we will explain credit scores and how you can improve your score. 

Choose a topic below:

 

What Is A Credit Score?

When lenders evaluate your loan application, they use a process called underwriting - they try to evaluate your ability and willingness to repay your loan.  They  judge your ability to repay by looking at the amount of your income and how stable your past earnings have been.  This helps them to determine if you can afford the loan payments.  They judge your willingness to repay by looking at your past credit history.  Generally speaking, someone who has made payments on time in the past will probably do so in the future. 

Lenders want their evaluation to be as accurate, objective and consistent as possible.  In an effort to achieve these goals, mortgage lenders recently began using credit scores to help in the underwriting process.  Credit scores are numerical values that rank individual's according to their credit history at a given point in time.  Your score is based on your past payment history, the amount of credit you have outstanding, the amount of credit you have available, and other factors.  According to Fannie Mae and Freddie Mac, two of the largest purchasers of home loans from lenders, credit scores have proven to be very good predictors of whether a borrower will repay his or her loan. 

Many lenders use credit scores to help evaluate loan applications.  However, a credit score is just one of many factors considered in the underwriting process.  Lenders look at the entire picture.  Even when a credit score is low, lenders try to find other factors that could overcome the negative credit issues and satisfy their underwriting criteria.  The decision to approve or deny a loan may be made based on sound, flexible underwriting guidelines.

What Is A FICO Score? 

"FICO" scores are a type of credit score developed by a Fair Isaac & Company.  FICO scores use credit bureau information to obtain a score which indicates how likely someone is to make their loan payments on time.  Millions of consumers' credit bureau records were used to develop the scorecards, and all of the consumer data - not just negative information - was included to develop the system.   FICO scores  range from approximately 350 to 900.  The higher the score the more likely someone is to make their payments.  Similarly, the lower the score the more likely someone is not to make their payments.

How Can Credit Scores Affect The Price Of A Loan? 

Just as credit scores are one factor in determining if you qualify for a loan, they may also be a factor in determining the price of your loan.  The price of a loan means the interest rate and the points charged by the lender and/or a mortgage broker.  The price charged for a loan will be higher or lower depending on various factors. 

Credit scores are used in determining the price of a loan because they are believed to be good predictors of the borrowers ability and willingness to repay a loan.  Many mortgage loans are sold to investors, and investors will pay a more favorable price for loans they feel have a low risk of default.  Fannie Mae and Freddie Mac use credit scores as their analysis when pricing loans they buy from lenders because of this very reason.  Thus, applicants with lower credit scores may pay higher prices for their loans because of the higher risk of default and loss. 

There are many other factors relating to an individual borrowers situation that may also affect the price of a loan, often even more so than credit scores.  These include: the type of property securing the loan (detached single family residence, duplex, etc.); the amount of the borrower's equity in the property; the lenders costs to make the loan; and the type of loan selected.  For example, a loan secured by a single family residence may have a lower price than a loan secured by a duplex because duplexes are more difficult to sell than single family residences.  Similarly, the price of a loan where the borrower has made a 20% down payment may be less than a loan where the borrower has made a 5% down payment because the first borrower has more equity in the property and, thus, the greater incentive to make the payments on the loan. 
 

How To Improve Your Credit Score:

Because each borrower's credit score is a reflection of his or her unique credit profile, it is not possible to quantify in advance exactly how each item in your credit history numerically impacts upon your ultimate credit score.  No one can tell you, for example, how much your credit score will be affected if you pay off a
delinquent account or cancel a credit card.  We do know, however, that there are things you can do to improve your credit profile.  Some of the factors which may impact your credit scores include:
 

  • Making timely payments:  Making your payments on time is the best way to increase your score.  Delinquency, foreclosures, bankruptcies and judgments will decrease your score. 
  • Limit the number of trade lines:  The number of credit cards, lines of credit and other types of credit (" trade lines ") you have available will affect your score.  If you have a lot of trade lines, this may decrease your score because of the risk that you might not be able to pay off all of your accounts, and this may affect your ability to pay off your mortgage loan.  You may wish to consider canceling credit cards you do not use regularly or choosing 2 to 4 cards to use and canceling the rest.  If you close or cancel an account voluntarily, it will not have a negative effect on your credit score.  You may wish to reconsider accepting "pre-approved" offers for your credit cards, or if you accept an offer, perhaps you should cancel another credit card.  On the other hand, if you have no trade lines, this will likely decrease your score.  Lenders generally want to see that you have some available credit and that you can handle your credit wisely.
  • Avoid unnecessarily high credit limits:  Lenders also consider the amount of credit available to you (your credit limit) compared to your income when making underwriting decisions.  Having credit limits that are too high relative to your income can affect your score just like having too many trade lines.
  • How you use credit:  The amount outstanding on each of your credit cards will also affect your score.  In general, the lower the amount outstanding, the more likely it is that your score will be higher.
  • Do  not apply for credit you do not need:  Whenever you apply for credit, the creditor will obtain a credit report from one or more of the three credit bureaus.  Each such credit inquiry will stay on your record and  will affect your credit score.  Even if you are turned down for credit or change your mind and withdraw your application, your credit score will be affected.  This is because each inquiry suggests that you are increasing the amount of credit available to you.  Before you give your Social Security number to anyone, make certain you know how they are going to use it.  A Social Security number is almost always required to run a credit report.  But don't let the fear of inquiries stop you from shopping for the best deal when you need auto or home financing.  Recently, the credit bureaus have recognized that borrowers may apply for credit at more than one place for the same transaction.  Generally, the credit scoring companies will consider all auto or mortgage loan inquiries received it in a 14 day period as one inquiry so the additional inquiries will not affect your credit score.  And remember, if you order a copy of your credit report to make sure it is accurate, this will not show up as an inquiry on your record. 

How To Correct Mistakes On Your Credit Report: 

Because credit scores are based upon your credit record, it is very important that you obtained a copy of your credit report from time to time to make certain the information is accurate.  If the information is not accurate (for example, someone else with the same name as yours may have their credit mixed up with yours), you should immediately take steps to get it corrected.  No one can do this but you. 

Lenders, credit card issuers and other credit providers send regular reports about their accounts to the major credit bureaus.  This is where the information on your credit report comes from.  There are three major credit bureaus; you should contact each one because not all credit providers report to each bureau.  Also, if you have a joint credit (for example, if you are married and have joint accounts with your spouse), it is a good idea to get the credit report for each of you because there may be information on one report that does not appear on the other.  If you ask for a copy of your credit report to check your credit history, it will not affect your credit score.  You can reach the 3 credit bureaus at the following phone numbers:
 

Equifax: 800-685-1111
TransUnion: 610-690-4949
Experian  (TRW): 800-682-7654

In most cases, there is a small charge to obtain a copy of your credit report.  If you find errors on your credit report, follow the directions included with your credit report regarding disputes or errors.  Generally, you must write the credit bureau and advise them of the error or dispute.  You may need to provide proof that the bill was paid or other information about the claim or dispute.  The credit bureau will then contact the provider of credit who reported the information, and the provider will have 30 days to respond.  If the provider of credit agrees that there is an error, it will instruct the credit bureau to delete the item from your credit report. 
 

You should allow at least 30 days after you have notified a credit bureau of an error in your credit report for that error to be investigated and resolved.  It may take longer depending upon the nature of the error and the investigation to be done.

 
Q : What documents will I need to provide to close my loan?
A :

What Documents will I need to provide to close my loan?

Depending on the type of loan you are applying for, you may need to bring in additional documentation in order for your your loan to close. Below we've listed some of the documents required to close a "FULL DOC" loan. You will only need to provide those documents which pertain to your individual situation. Keep in mind this is a general list only, and you may be required to provide additional documentation before your loan can fund, and you may not need some of the items listed below.

You will only need to provide items from the list below that pertain to your specific situation:

  • Most recent pay stubs on all employment for the last 30 days
  • The last two (2) years complete tax returns
  • The last two (2) years W-2 and 1099 forms
  • Award letters for social security or disability income (if applicable)
  • Award letters from pension or retirement income (if applicable)
  • Mortgage statements on all open real estate loans (including rentals)
  • Rental agreements (if you currently have tenants renting from you)
  • Checking/Savings accounts and other assets including bank addresses, account numbers, and if available 3 months most recent bank statements.
  • Complete bankruptcy papers (if applicable) Copy of petition and discharge, handwritten explanation of reason for bankruptcy, evidence of excellent credit since the bankruptcy 
  • Complete divorce papers or separation agreements (if applicable)
  • Name and address of current landlord (if applicable - purchases only)
  • Letter of explanation for any derogatory credit
  • Cash out letter (if you are obtaining a loan with extra cash out, explain what you intend to use the cash for)
  • Gift letter and evidence of funds (purchases only)
  • If you are NOT a US citizen, we will need a copy of your green card (front & back)
  • If you are NOT a permanent resident of the US, we will need a copy of your H-1 or L-1 visa.
If self-employed you will also need:
  • A year-to-date profit and loss statement
  • K-1 forms (if applicable)
  • Partnership and/or corporate tax returns (if applicable)
 
Q : Refinancing - The Right Choice?
A :

Refinance Loans

Choose a topic from the list below:

  1. Refinancing . . . The Right Choice?
  2. Should I refinance my existing loan now?
  3. Will a "no cost" or "low cost" loan work for me?
  4. How will I know how long it will take to recoup the cost of my loan?

 

Refinancing...The right choice?

For most people today, refinancing often makes good sense.  Why?  For many people, today's mortgage rates are much lower than the rates they're currently paying.  If this is your situation, you may be able to save a substantial amount of money by refinancing your home loan.

There are other good reasons to refinance.  If you have a home equity loan or line of credit, there's a good chance you're paying a higher percentage (maybe 9% to 10% or more).  If you have large credit card debts, you could possibly be paying up to 23%.  And, you're not able to deduct the credit card interest from your income taxes!

If this sounds like your situation, refinancing your home may be a perfect solution to help reduce your monthly payments.  You could literally save hundreds of dollars every month by consolidating your bills into one easy monthly payment. 

Another great reason you might want to refinance has to do with you and your family's future.  Refinancing your existing loan can give you the cash you need to take advantage of the ever-growing upswing in the stock market, start your retirement portfolio or take stock of other investment programs where your money can work for you.

Should I refinance my existing loan now?

Many factors come into play when making the decision to refinance your existing mortgage.  You need to ask some important questions: How much lower should my interest rate be for refinancing to make sense?; Can I qualify for a lower rate?, How long will it take for me to recoup the costs of the loan?; and, What type of loan program is right for me?  The following questions and answers were designed to help you make an informed decision, and more importantly, to help you know just which questions to ask your loan officer.

In the past, the decision to refinance was usually based on balancing the cost of refinancing with the possible savings in the form of a lower monthly payment.  Now, lenders offer "no cost" or "low cost" loan packages that sound good on the surface, but you end up paying for it in the form of a higher interest rate.  These programs were designed to eliminate or lower the out-of-pocket expenses previously associated with refinancing your home loan.

Will a "no cost" or "low cost" loan work for me?

That depends on how long you plan to stay in your home.  If you decide to move in a few years, the monthly savings you might obtain by refinancing may never add up to the costs you may have to pay to refinance your home.  On the other hand, a "no cost" or "low cost" loan might save you money in the long run.

The longer you plan to stay in your home, the more sense a "no cost" or "low cost" loan will make.  Compare different loan programs to determine which will benefit you most. If you don't think you will stay for many years in the home you live in now, but you would like to consolidate your bills or lower your interest rate, you might take a look at the advantages of an Adjustable Rate Mortgage (ARM). 
 

How will I know how long it will take to recoup the cost of my loan?

Your loan officer will have the current interest rates available for the loan program you've chosen.  These rates, and the term (how many months) of your loan will determine your new monthly payments.  Subtract the new monthly payment from your old monthly payment.  For example, $980.00 (your old payment) minus $720.00 (your new payment) = $260.00 per month savings.  Now, let's say it costs you $2,500.00 for all of your loan costs and fees.  Divide $2,500.00 by $260.00 to find out how many months it will take you to recoup the costs of your loan.  In this case, you will have your new loan for a little over 9 1/2 months before you will break even.

The good news is that from then on, you will save $3,120.00 every year.  And if you have a 30 year loan and stay in your home for all of the 30 years, you will have saved $93,600.00 on the price of your home.
 

 
 
Q : First Time Homebuyers - It's Easier Than Ever Before!
A :
First-Time Homebuyers

During the last decade, home sales in most parts of the United States took an unprecedented downturn.  With a backlog of inventory on the market, along with the need to keep the economy moving in a positive direction, many new financing programs and creative methods of purchasing homes have been created.  As a result, it is now easier than ever to purchase a home, and first-time homebuyers are comprising a larger percentage of these purchases than ever before.

A great number of government programs have been created to assist the first-time homebuyer in financing their first home.  Some of the programs provide tax incentives, while others help the first-time homebuyer by lowering income or down payment requirements.  These programs may vary from one region to another and it's sometimes hard to determine which ones you are eligible for and which ones will be most advantageous to you.  Give us a call and we will help you find the right program for your situation.

Lending institutions have also made strides in recent years to benefit new home buyers.  For instance, they may now allow higher debt-to-income ratios and be able to assist in ways to work around less than perfect credit.  Lenders may also allow gift funds from a relative, or even the seller to be used toward the down payment of your first home.  The amount required for a down payment has also been reduced for many loan programs.

So, as you can see, there are a wide variety of first-time homebuyer loan programs available today.  However, only one program may be the right one for you.  Contact us and you can be on your way to owning your own home sooner than you ever thought possible!


 

 
Q : Definitions:
A :
  • Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with movements in the index. ARMs are also referred to as AML,s (adjustable mortgage loans) or VRMs (variable rate mortgages).
  • Adjustment Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.
  • Amortization: Repayment of a loan in equal installments of principal and interest, rather than interest-only payments.
  • Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.
  • Assumption of Mortgage: A buyers agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.
  • Balloon Payment: A lump-sum pnncipal payment due at the end of some mortgages or other long- term loans.
  • Beneficiary: The lender on the security of a note and deed of trust
  • Binder: Sometimes known as an offer to purchase or an earnest money request. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.
  • Buydown: An interest rate that is bought down to a lower rate.
  • Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.
  • CC&R's- Covenants, Conditions and Restrictions. A document that controls the use, requirements and restrictions of a property.
  • Certificate of Reasonable Value (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.
  • Amortization: Repayment of a loan in equal installments of principal and interest, rather than interest-only payments.
  • Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.
  • Assumption of Mortgage: A buyers agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.
  • Balloon Payment: A lump-sum pnncipal payment due at the end of some mortgages or other long- term loans.
  • Beneficiary: The lender on the security of a note and deed of trust
  • Binder: Sometimes known as an offer to purchase or an earnest money request. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.
  • Buydown: An interest rate that is bought down to a lower rate.
  • Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.
  • CC&R's- Covenants, Conditions and Restrictions. A document that controls the use, requirements and restrictions of a property.
  • Certificate of Reasonable Value (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.
  • Joint Tenancy: An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent's interest in the property.
  • Lien: A legal hold or claim on property as security for a debt or charge.
  • Loan Commitment: A written promise to make a loan for a specified amount on specified terms.
  • Loan to value Ratio: The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.
  • Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.
  • Mortgage: An instrument by which property is hypothecated to secure the payment of a debt or obligation.
  • Mortgage Insurance Premium (MIP): Money paid by the borrower in an FHA loan and used to insure the loan.
  • Mortgage Life insurance: A type of term life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.
  • Mortgagor: The borrower giving the lender a lien on property as security for the repayment of a loan.
  • Mortgagee: The lender that holds the lien on property as security for the repayment of a loan.
  • Negative Amortization: Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn't covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in minthly payments that aren't high enough to cover the interest.
  • Planned Unit Development (PUD): A project consisting of individually owned parcels of land together with a common area and facilities owned by an association of which all the owners of the parcels are members.
  • Prepayment Penalty: A fee paid to a lender for payoff of the loan prior to the scheduled maturity.
  • Private Mortgage Insurance (PMI): Insurance paid for by the borrower to insure the lender against default in conventional loans.
  • Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract. earnest money contract, or agreement for sale.
  • Regulation Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.
  • Tenancy in Common: A type of joint ownership of property by two or more persons with no right of survivorship.
  • Title Insurance Policy: A policy that protects the purchaser, mortgagee or other party against losses.
  • Trustee: One who holds property in trust for another to secure the performance of an obligation.
  • VA Loan: A loan that is partially guaranteed by the Veterans Administration and made by a private lender.
 


Advanced Mortgage Services, Real Estate Broker, CA. Dept.of Real Estate

Ph: 615 Frist St, Benicia CA 94510 | 707-746-4920 | CA DRE Lic. #01157766 | NMLS #239117
Fax: 707-746-8140