What are points?
A point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basis points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.
Should I pay points to lower my interest rate?
Possibly, if you plan to stay in the property for a least a few years. Paying discount points to lower the loan's interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front.
What is an APR?
The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
The APR does not affect your monthly payments. Your monthly payments are strictly a function of the actual interest rate (Note Rate) on the loan and the length of the loan.
Because APR calculations are effected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask lenders to provide you with a breakdown of their costs, maybe in the form of a Fees Worksheet or a Good-Faith Estimate, on the same type of program (e.g. 30-year fixed) at the same interest rate. You can then delete the fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees. Compare the total fees and the actual interest rates.
The following fees are generally included in the APR:
· Points - both discount points and origination points or fees
· Prepaid interest. The interest paid from the date the loan closes to the end of the month.
· Loan Processing Fee
· Underwriting Fee
· Document Preparation Fee
· Private Mortgage Insurance
· Escrow Fee
The following fees are normally not included in the APR:
· Title or Abstract Fee
· Borrower Attorney Fee
· Home Inspection Fees
· Recording Fee
· Transfer Taxes
· Credit Report
· Appraisal Fee
What does it mean to lock the interest rate?
Mortgage rates can change from the day you apply for a loan to the day you close the transaction. If interest rates rise sharply during the application process it can increase the borrower’s mortgage payment unexpectedly. Therefore, a lender can allow the borrower to "lock-in" the loan’s interest rate guaranteeing that rate for a specified time period, often 30-60 days, oftentimes for a fee added into the total loan costs.
What documents do I need to prepare for my loan application?
Below is a standard list of documents that are required when applying for a mortgage. However, every situation is unique: you may or may not be required to provide any documentation up front, or you may be required to provide additional documentation at a later time. If you are asked for more information, be cooperative and provide it as soon as possible. It will help speed up your application process.
· Copies of your pay-stubs for the most recent 30-day period and year-to-date
· Copies of your W-2 forms for the past two years
· Names and addresses of all employers for the last two years
· Letter explaining any gaps in employment in the past 2 years
· Work visa or green card (copy front & back)
If self-employed or receive commission or bonus, interest/dividends, or rental income:
· Provide full tax returns for the last two years PLUS year-to-date Profit and Loss statement (provide complete tax return including attached schedules and statements. If you have filed an extension, please supply a copy of the extension.)
· K-1's for all partnerships and S-Corporations for the last two years (double-check your return. Most K-1's are not attached to the 1040.)
· Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) including all schedules, statements and addenda for the last two years. (Required only if your ownership position is 25% or greater.)
If you will use Alimony or Child Support to qualify:
· Provide divorce decree/court order stating amount, as well as, proof of receipt of funds for last year
If you receive Social Security income, Disability or VA benefits:
· Provide Award Letter from agency(ies) or organization(s)
Source of Funds and Down Payment
· Sale of your existing home - provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement)
· Savings, checking or money market funds - provide copies of bank statements for the last 2 months
· Stocks and bonds - provide copies of your statement from your broker or copies of certificates
· Gifts - If part of your cash to close, provide Gift Affidavit and proof of receipt of funds
· Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation
Debt or Obligations
· Provide a list of all names, addresses, account numbers, balances, and monthly payments for all current debts that do not show on your credit report
· Provide a copy of your most recent mortgage statement. If the payment does not include property taxes and/or homeowner’s insurance, provide statements for these.
· If you currently rent, provide your landlord’s contact information.
· If you are paying alimony or child support, include marital settlement/court order stating the terms of the obligation
· Payment to cover credit report fee
How is my credit judged by lenders?
Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due. The interest rate on your home loan is impacted, in part, by your credit history and your credit score.
The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).
Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:
Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report.
You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion. You may have to pay a fee to obtain your credit score with your report, which can be requested through https://www.annualcreditreport.com
What is an appraisal?
An appraisal is an estimate of a property's fair market value. A valuation of the subject property is generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.
How do I know how much house I can afford?
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.
How do I qualify for HECM (the Federal Housing Administration’s Home Equity Conversion Mortgage)?
The basic requirements to qualify for a reverse mortgage loan include: the youngest borrower on title must be at least 62 years old, live in the home as their primary residence, and have sufficient home equity. Borrowers must also meet financial eligibility criteria as established by HUD.
You must complete a required counseling session to ensure you understand the terms and obligations of a reverse mortgage, and you’ll complete a financial assessment to ensure you’re able to continue making payments for property taxes, homeowner’s insurance and maintaining your home.
How is the down payment determined?
Your down payment has a significant impact on the total cost of your home. For instance, the interest rate on your home loan is impacted, in part, by the amount of your down payment...the Loan-To-Value, which is calculated by taking the mortgage loan amount and dividing it by the appraised value of the house you're buying.
Down Payment Misnomer: It takes at least 10%, maybe even 20%, as a down payment”
In actuality, the below down payment percentages are currently allowed:
· 3% Down - Fannie Mae’s Home Possible 1st Time Homebuyer
· 3% Down - Freddie Mac’s Home Ready 1st Time Homebuyer
· 1% Down - Certain lenders (one of Viewpoint Financial’s!)
· 0% Down - VA
· 3.5% Down - FHA
· .5% Down - w/Payment Assistance Program
How much cash will I need to purchase a home?
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 the purchase or refinance a home such as an appraisal, home inspection, escrow, notary, title insurance, recording, processing, underwriting, etc.
What does my mortgage payment include?
For most homeowners, the monthly mortgage payments include three separate parts:
· Principal: Repayment on the amount borrowed
· Interest: Payment to the lender for the amount borrowed
· Property Taxes, Homeowners Insurance, and sometimes Mortgage Insurance: Monthly payments are normally made into a special escrow account for items like insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company.
What happens once I am pre-approved?
You are ready to buy a home! After you receive your pre-approval, it’s very important to inform us of any changes to your financial picture or credit history as this could impact the amount or type of loan for which you’ll qualify once your loan is fully underwritten.
What is mortgage insurance?
Mortgage insurance is generally required in one form or another when the down payment is less than 20%, and it protects the lender in the event of loan default. The lower the down payment, the higher the risk for the lender, and thus the higher the monthly mortgage insurance premium. Depending on your particular situation, there may be loan options available that either don’t require monthly mortgage insurance payments or allow your monthly mortgage insurance payments to be dropped at some point in the future.
(Disclaimer: *BPMI = Borrower Paid Mortgage Insurance; LPMI = Lender Paid Mortgage Insurance. LPMI may not be cancelled by the borrower; it terminates only when the loan is refinanced or paid off, and it usually results in a loan with a higher interest rate than BPMI unless discount points are added to lower the rate. BPMI may be cancelled or terminated when the loan reaches 80% of the value of the property.)
What is title insurance?
It is a policy provided by the title company guaranteeing the accuracy of the title work done on your home at the time of purchase. As a buyer, you are required to purchase a lender’s policy of title insurance as part of your standard closing costs, which only protects the mortgage company. You may also choose to purchase an owner’s policy, which would protect you against any loss in the event of any legal issues relating to the title of your home.
When should I consider refinancing?
Many different factors need to be analyzed to determine if refinancing is right for you, such as the length of time you intend to stay in your home, the type of loan you currently hold, or whether you’re currently paying monthly mortgage insurance. We are always happy to provide a recommendation for your particular circumstances.
What is the difference between a fixed-rate loan and an adjustable-rate loan?
With a fixed-rate mortgage (FRM), 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.
How do I know which type of mortgage is best for me?
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. Viewpoint Financial will help you evaluate your choices and help you make the most appropriate decision.