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Experience
the joy of
owning your very own
home.
Shopping for a loan is an important step
in the process. Before you go any further
check out our Mortgage Calculators to see how much you can afford and how much
a monthly mortgage payment will be.
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Mortgage F.A.Q.'s
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What is the difference between pre-qualifying
and pre-approval?
 A pre-qualification for a specific loan dollar amount is based
on a review of basic financial information
you supply to us. No verification of this
information is performed. The pre-qualification
means that if the information you supplied
to us is accurate, subject to verification
of credit, appraisal of the property, and
the lenders underwriting criteria for the
loan amount, you should be able to receive
a loan as described in the pre-qualification
letter or document. This is not a final approval. A pre-qualification is
not a commitment to lend. However, a pre-qualification
letter indicates to you and the seller that
in the opinion of the loan officer you are
qualified to purchase the house you are making
an offer on.
Pre-approval
is a step above pre-qualification. Pre-approval
involves verifying your credit, down payment,
employment history, etc. Your loan application
is submitted to an underwriter and a decision
is made regarding your loan application.
If your loan is pre-approved, the lender
will loan you money on the basis that you
requested subject to: a satisfactory appraisal
(both as to value and type of product); your
financial condition remains as stated on
your application and satisfying any underwriting
conditions from the lender.
Getting your loan pre-approved allows you
to close very quickly when you do find a
house. A pre-approval can help you negotiate
a better price with the seller, since being
pre-approved is very close to having cash
in the bank to pay for the house!
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What are credit scores?
A credit score (such as FICO - developed
by Fair Isaac & Co and used by Experian,
or BECON – developed and used by Equifax
or EMPIRICA – developed and used by Trans
Union) or credit scoring is a method of determining
the likelihood that a credit user (you) will
pay their bills. Fair Isaac began its pioneering
work with credit scoring in the late 1950’s.
Since then scoring has become widely accepted
by lenders as a reliable means of credit
evaluation. A credit score attempts to condense
a borrowers credit history into a single
number. Fair, Isaac & Co. and the credit
bureaus do not reveal how these scores are
computed. The Federal Trade Commission has
ruled this practice to be acceptable.
Credit scores are calculated by using scoring
models and mathematical tables that assign
points for different pieces of information
that best predict future credit performance.
Developing these models involves studying
how thousands, even millions, of people that
have used credit. Score-model developers
find predictive factors in the data that
have proven to indicate future credit performance.
Models can be developed from different sources
of data. Credit-bureau models are developed
from information in consumer credit-bureau
reports.
Credit scores analyze a borrower's credit
history considering many factors such as:
- Late payments
- The amount of time credit has been established
- The amount of credit used versus the amount
of credit available
- Length of time at present residence
- Employment history
- Negative credit information such as bankruptcies,
charge-off’s, collections, etc.
There are really three credit scores computed
by data provided by each of the three bureaus––Experian,
Trans Union and Equifax. Some lenders use
one of these three scores, while other lenders
may use the middle score and still others
may use all three.
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How can I increase my score?
While it is difficult to increase your score
over the short run, here are some tips to
increase your score over a period of time.
- Pay your bills on time. Late payments and
collections can have a serious impact on
your score.
- Do not apply for credit frequently. Having
a large number of inquiries on your credit
report can worsen your score.
- Reduce your credit card balances. If you
are "maxed" out on your credit
cards, this will affect your credit score
negatively.
- If you have limited credit, obtain additional
credit. Not having sufficient credit can
negatively impact your score. (Normally lenders
like to see you have at least five (5) lines
of credit not including utilities (such as
telephone, gas and electric companies) and
oil company credit cards.
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What if there is an error on my credit report?
If you see an error on your report, to rectify
it, you must contact the credit bureau. The
three major bureaus in the U.S., Equifax
(1-800-685-1111), Trans Union (1-800-916-8800)
and Experian (1-888-397-3742) all have procedures
for correcting information promptly. Alternatively,
we as your mortgage company may help you
correct this problem as well. Understand
this process takes time, must be done in
writing, and may require proof depending
on the nature of the error.
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Why are interest rates different from day
to day and one source to another?
To understand why mortgage rates change we
must first ask the more general question,
"Why do interest rates change?"
Interest rate movements are based on the
simple concept of supply and demand. If the
demand for credit (loans) increases, so do
interest rates. This is because there are
more buyers, so sellers (those who loan the
money) can command a better price, i.e. higher
rates. If the demand for credit reduces,
then so do interest rates. This is because
there are more sellers than buyers, so buyers
can command a lower better price, i.e. lower
rates. When the economy is expanding there
is a higher demand for credit, so rates move
higher, whereas when the economy is slowing
the demand for credit decreases and so do
interest rates.
This leads to a fundamental concept:
Bad news (i.e. a slowing economy) is good
news for interest rates (i.e. lower rates).
- Good news (i.e. a growing economy) is bad
news for interest rates (i.e. higher rates).
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| A major factor driving interest rates is
inflation. Higher inflation is associated
with a growing economy. When the economy
grows too strongly, the Federal Reserve increases
interest rates to slow the economy down and
reduce inflation. Inflation results from
prices of goods and services increasing.
When the economy is strong, there is more
demand for goods and services, so the producers
of those goods and services can increase
prices. A strong economy therefore results
in higher real estate prices, higher rents
on apartments and higher mortgage rates.
Mortgage rates tend to move in the same direction
as interest rates. However, actual mortgage
rates are also based on supply and demand
for mortgages. The supply/demand equation
for mortgage rates may be different from
the supply/demand equation for interest rates.
This might sometimes result in mortgage rates
moving differently from other rates. For
example, one lender may be forced to close
additional mortgages to meet a commitment
they have made. This results in them offering
lower rates even though interest rates may
have moved up!
There is an inverse relationship between
bond prices and bond rates. This can be confusing.
When bond prices move up, interest rates
move down and vice versa. This is because
bonds tend to have a fixed price at maturity––typically
$1000. If the price of the bond is currently
at $900 and there are 10 years left on the
bond and if interest rates start moving higher,
the price of the bond starts dropping. The
higher interest rates will cause increased
accumulation of interest over the next 10
years, such that a lower price (e.g. $880)
will result in the same maturity price, i.e.
$1000.
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Do I need flood Insurance?
Most lenders will not lend you money to buy
a home in a flood hazard area unless you
pay for flood insurance. Some government
loan programs will not allow you to purchase
a home that is located in a flood hazard
area. Your lender may charge you a fee to
check for flood hazards. You will be notified
if flood insurance is required. If a change
in flood insurance maps brings your home
within a flood hazard area after your loan
is made, your lender or service may require
you to buy flood insurance at that time.
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What are your rates?
The first question customers usually ask
when calling a mortgage company or lender
is "What are your rates?" Because of the number of mortgage programs
available and the various rate and point
combinations, most mortgage companies have
rate sheets that are 5-10 pages long.
Getting a rate quote is just a small part
of shopping for a mortgage and usually not
the best way to select a lender.
Customer service, professional staff, convenience,
and flexibility are some of the key attributes
to selecting the best lender for your needs.
In helping you assess a rate, you will need
to provide answers to a few basic questions
like:
- What is your purchase price?
- What loan amount are you looking for or what
loan amount do you want to finance?
- Do you prefer a fixed rate or an adjustable
rate mortgage?
- How long do you plan to live in the house?
- How many points are you willing to pay?
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| The purchase price or the value of your home
effects the rate because it effects the size
of the loan. For example, Jumbo Loans, currently
over $240,000, have a higher rate. Similarly,
smaller loans have a higher rate or cost
more because it cost the same and takes the
same effort to do $35,000 loan as it does
a $200,000 loan. Lenders and brokers need
to make or charge a certain minimum amount
of money to cover overhead, per loan (transaction)
cost and make a profit.
The type of loan, fixed or variable for example,
affect the rate because they affect the lenders
income & inflation risk. For example,
with a fixed rate loan, if rates go up the
lender could lend out money at a higher rate
than they are currently loaning it to you,
and therefore earn more money. With a variable
rate loan since the rate the lender can charge
you changes regularly their income remains
consistent with their current income opportunities.
Therefore with variable rate loans they give
you a better rate since they know that if
rates go up they can charge you more.
The length of time you will own a house affects
both the type of loan you may want and the
amount of points it may make sense to pay.
For example, if you are going to keep a house
for a short period of time (let’s say 3 years),
you may be better off with a variable rate
loan (e.g. a 3/1 ARM – fixed for 3 years
and varies once a year every year there-
after until the loan is paid off). Why? Because
typically the 3/1 ARM has a lower rate associated
with it than a 30 year fixed rate loan and
since you will sell the house in 3 years
you would not be affected by higher rates
which may exist at that time. On the other
hand, if you expect to live in the house
for 30 years you might be willing to pay
some points to receive a lower interest rate
now. The lower interest rate would save you
money every month over the life of the loan.
The total savings in this situation should
be greater than the cost of points, giving
consideration to the amount that the point
money could earn if invested (saved) after
taxes.
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What happens if my loan gets sold or my lender
goes out of business?
The simple answer is nothing. You will still
have to pay your mortgage. The terms of your
mortgage will not change nor will the requirement
for you to pay on time change. The only thing
that would change is to whom you make out
your check.
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Does zero points really mean zero points?
What about no closing costs loans?
The answer is maybe. Remember there are more
then one type of Points (Discount and Origination)
not to mention a Mortgage Broker fee which
is expressed as points. Remember that the
lender and broker needs to make a living.
Therefore the more lines on the closing statement
or good faith estimate that says zero the
more likely the rate you are paying is higher
than it otherwise would be. Also, it is often
unclear what a lender or broker means by
no closing costs or no point loans. Sometimes
the lender or broker will increase fees to
compensate for the lack of points or a more
favorable rate.
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Should I refinance?
Yes, if it saves you money or converts you
out of a mortgage type you don’t want. The
saving money is obvious but not necessarily
easy to calculate.
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Mortgage F.A.Q.
Find answers to frequently asked questions.
[Click Here] |
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Mortgage Tips
Get tips on how to choose your best service.
[Click Here] |
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Bad Credit Mortgages
