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Rate
locks - Your interest rate can be locked before closing!
This guarantees your payment amount so there are no nasty surprises
at closing. ("I'm sorry, your payment is now $200 more per
month because rates have gone up 3% since you started your loan
application") Usually this can be done with no charge up to
30 days before the closing date. If you are buying new construction
which is not due to be completed for another 4 to 6 months there
is usually an option available for a cost through your lender to
lock your rate far in advance. This can be especially smart in inflationary
times when the Federal Reserve keeps raising rates to slow the economy.
Be sure to ask how much it would take to lock in your loan in advance.
You can then decide if it is worth it to lock in a potentially lower
rate. Back
to FAQs & Common Questions
Down
payments - The type of loan you get will determine the minimum
down payment you will be required to have. Conventional loans and
FHA loans can both go as low as 3% down, while VA loans can literally
be $1 down. Plus there are numerous types of "creative"
financing that provide seller assistance in lieu of the buyer's
down payment. These are usually in the form of a high interest,
short-term loan that the buyer must repay after a 5 year period.
To someone who has no other access to a down payment, but has plenty
of monthly income, this can be a very viable alternative. See no
money down loans. Back to FAQs & Common Questions
Closing costs - Closing costs consist of two distinct
types, recurring and non-recurring costs. Recurring costs are those
which happen every month (taxes, insurance, mortgage insurance and
interest ) during the life of the loan. Non-recurring costs are
those which are paid just one time, like points, loan origination
fees, lender's title insurance, loan processing fees, credit reports,
etc. Generally speaking a good rule of thumb is 3% of the loan amount.
(This does not include points used to buy down an interest rate.)
There are two ways to "get rid" of these closing costs.
One is for the seller to pay them on behalf of the buyer (which
usually results in a higher sales price to cover the cost). The
other is for the lender to raise the loan interest rate and "absorb"
the costs. This is particularly effective for someone who is not
going to stay in their home long or for someone who is going to
pay the loan off quickly. But you have to make sure there is no
pre-payment penalty on the loan before going this route. Back
to FAQs & Common Questions
Application
- Your lender will need your full name(s), social security number(s),
address(es) for the last five years, employer(s) for the last five
years, last two paycheck stubs with year-to-date earnings, last
two banks statements for ALL accounts that have money in them (including
401Ks, stocks, mutual funds, etc) and last two years of W-2s. If
you are self employed the lender will also need complete tax returns
for the past two years and a year-to-date profit and loss statement.
Additional information may also be requested, but with this much
up front most of the time the lender can accurately gauge how much
you will qualify for. Back
to FAQs & Common Questions
Mortgage
insurance - This is a fee you pay on a monthly basis (except
for VA loans) when you have less than a 20% equity position in the
property when you purchase it. In other words, if you put less than
20% down you will be required to pay a monthly mortgage insurance
fee. This is because the loan is considered a higher risk than one
where the buyer has put more money down. A private mortgage insurance
company collects this monthly premium, and if you default on the
loan they make up the difference to the mortgage lender. The rate
at which you are assessed this monthly mortgage insurance premium
does depend on how much you put down. On FHA loans there is also
an additional "up front" mortgage insurance premium (MIP)
equivalent to 2.25% of the loan amount. This amount in usually financed
into the loan, but an FHA buyer who puts down 3% and finances the
2.25% MIP has a net equity position of .75%. On VA loans the VA
buyer usually pays just a one-time up front VA funding fee (also
usually financed into the loan) and no monthly fee. It is equivalent
to 2% of the loan amount for a first time VA buyer or 3% for a repeat
VA buyer. *Note* on conventional loans once you have reached a higher
equity position, due to either normal appreciation or by paying
extra amounts on the principal, you can petition to have the monthly
mortgage insurance premium removed. Back
to FAQs & Common Questions
Points
- Points is an amount charged to the buyer to "buy down"
the interest rate, in other words the buyer pays money up front
to get a below market interest rate. A "par" rate is the
daily rate, for which there is no charge to get that particular
interest. Par rates change daily and sometimes even several times
during the day, depending on what the financial markets are doing!
Depending on how long you are going to own your home, paying points
to buy down the interest rate can be a smart move, saving you thousands
of dollars in interest payments over the years. We will be happy
to analyze your particular situation and let you know at what point
you would "break even" - in other words, make back your
points money, so that you can decide if this would be advantageous
to you! Back
to FAQs & Common Questions
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