FAQ’s

When a homebuyer is pre-qualified, he or she has provided the lender with the basic information to determine which loan program the homebuyer may qualify for. Whereas, when a homebuyer is pre-approved, the lender has collected, verified and presented the information needed for underwriting and approval. Realtors find it more favorable to be pre-approved because a third party has verified the information.

Your interest rate is the monthly cost you pay on the unpaid balance of your home loan. An Annual Percentage Rate (APR) includes both your interest rate and any additional cost or prepaid finance charges such as the origination fee, points, private mortgage insurance, underwriting and processing fees (your actual fees may not include all of these items). While your interest rate is the rate at which you will make your monthly mortgage payments, the APR is a universal measurement that can assist you in comparing the cost of mortgage loans offered by different mortgage lenders. Many times you will here the words “No Cost Loan” this will help determine if you truly are getting a no cost loan.

Closing costs include items like appraisal fees, title insurance fees, attorney fees, pre-paid interest and documentation fees. These items are usually different for each customer due to differences in the type of mortgage, the property location and other factors. You will receive a loan estimate of your closing costs in advance of your closing date for your review. Prior to your loan closing you will also get a final revised “Closing Disclosure”. This document would need to be reviewed 3 days prior to closing.

If you have a fully amortizing mortgage, portions of your monthly mortgage payment go toward loan principal and interest. Interest-only mortgage payments include only the interest that is due on the outstanding principal balance. If your mortgage carries mortgage insurance, a portion of your monthly mortgage payment will pay this also, unless the lender has paid your mortgage insurance or you have paid your mortgage insurance upfront. If you have set up an escrow account for your mortgage, then portions also go toward your property taxes and homeowners insurance. Your mortgage statement will usually provide a good breakdown of where funds are being allocated to. As you continue to make mortgage payments you should begin to see a slight shift in payment distribution between how much of your money goes towards your principal and your interest (assuming you have a fully amortized loan).

Private Mortgage Insurance is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Private Mortgage Insurance is generally required for a loan with an initial loan to value (LTV) percentage in excess of 80%. In most cases, this will mean that you will have to pay Private Mortgage Insurance if your down payment is less than 20% of the value of the home you are purchasing or refinancing. The cost of the mortgage insurance is typically added to the monthly mortgage payment.

Absolutely! As a matter of fact we advice that you lock in your interest rate at the time of application. Locking your rate means that the lender is agreeing to provide you with your mortgage at that particular rate, and that it won’t go up (or down) between the time you lock it and the time that you close on your home. With the market being so volatile it is important that you focus on potential outcomes and take the safe route.

Rates are based on a variety of factors such as the loan purpose (rate and term, cash-out, purchase, etc.), your credit history and ability to repay (Debt to Income Ratio), the value of the collateral and the loan amount (Loan to Value Ratio). Typically speaking, the less of a risk the lender sees the client the better the rate will be.

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• Low down payment is required
• Your own personal savings are not required to pay down payment or closing costs. Gift funds may be used instead
• You can buy an existing home, or build a new one
• Some geographic limitations apply

There is no real right or wrong option here. It all depends on short term and long term goals and objectives. If you have a home and you plan on selling in the next few years, an ARM might be a good option. If you plan on never selling your “Forever Home”, then you might want to consider a long term fixed rate.

Advantages

• Feature lower rates and payments early on in the loan term. Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.
• Allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates — and their monthly payments — fall.
• Help borrowers save and invest more money. Someone who has a payment that’s $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.
• Offer a cheaper way for borrowers who don’t plan on living in one place for very long to buy a house.

Disadvantages

• Rates and payments can rise significantly over the life of the loan. A 4 percent ARM can end up at 9 percent in just three years if rates rise sharply.
• The first adjustment can be a doozy because some annual caps don’t apply to the initial change. Someone with a lifetime cap of 6 percent could theoretically see the rate shoot from 4 percent to 10 percent a year after closing if rates in the overall economy skyrocket.
• ARMs are difficult to understand. Lenders have much more flexibility when determining margins, caps, adjustment indexes and other things, so unsophisticated borrowers can easily get confused or trapped by shady mortgage companies.
• On certain ARMs, called negative amortization loans, borrowers can end up owing more money than they did at closing. That’s because the payments on these loans are set so low (to make the loans even more affordable) that they cover only part of the interest due. The remainder gets rolled into the principal balance.

Advantages

• Rates and payments remain constant, despite what happens in the broader economy.
• Stability makes budgeting easier. People can manage their money with more certainty because their housing payments don’t change.
• Simple to understand, so they’re good for first-time buyers who wouldn’t know a 7/1 ARM with 2/6 caps if it hit them over the head.

Disdvantages

• To take advantage of lower rates, fixed-rate mortgage holders have to refinance. That means a few thousand dollars in closing costs, another trip to the title company’s office and several hours spent digging up tax forms, bank statements, etc.
• Can be too expensive for some borrowers because there is no early-on payment and rate break.
• Are virtually identical from lender to lender. While lenders keep many ARMs on their books, most financial institutions sell their fixed-rate mortgages on the secondary market. As a result, ARMs can be customized for individual borrowers, while most fixed-rate mortgages can’t.

1. How long do you plan on staying in the home?
If you’re going to be living in the house only a few years, it would make sense to take the lower-rate ARM, especially since a  3/1 or 5/1 or 7/1 ARM will more than likely carry more aggressive rates than a fixed loan. Your payment and rate will be low, and you can build up savings for a bigger home down the road. Plus, you’ll never be exposed to huge rate adjustments because you’ll be moving before the adjustable rate period begins. Having a plan ahead of time will definitely help save you some money in the short and long run.

2. How frequently does the ARM adjust, and when is the adjustment made?
After the initial, fixed period, most ARMs adjust every year on the anniversary of the mortgage. The new rate is actually set about 45 days before the anniversary, based on the specified index. But some adjust as frequently as every month.

3. What’s the interest rate environment like?
When rates are relatively high, ARMs make sense because their lower initial rates allow borrowers to still reap the benefits of homeownership. When rates are falling, borrowers have a decent chance of getting lower payments even if they don’t refinance. When rates are relatively low, however, fixed-rate mortgages make more sense. As rates continue to increase, ARM loan are becoming more and more soughed after. The lower rate means lower payment, which in return will offer more purchase power.