Here are the most common questions I get asked when People are thinking about refinancing or purchasing a new home. Please keep in mind, “It depends on your particular circumstances.” If in doubt, call me! We’ll talk about your specific needs.
FAQS
What does it cost to refinance?
Generally, about the same as the loan you got in the first place. As a rule of thumb, the costs are about 2%-3.5% of your loan. The variable is the amount of your loan. The fixed costs are obviously a larger percentage of a small loan.
How long will it take to process my loan?
Once you have given us all necessary information, you can expect to have your loan processed in 2-3 weeks. FHA Loans, however, can take 30 to 45 days.
How much money do I need in hand to buy a house?
Usually, the purchase of a house requires a minimum down payment of 3% to 5%, plus the funds to cover closing costs, prepaids, escrow, and two payments in reserve. In the case of a FHA Loan, the down payment must be the borrower's own money. Closing costs, prepaids, and reserves can be a gift or loan from a relative.
What is “net effective rate”? How do I calculate it? Does it matter?
Simply, that is the rate you are paying on borrowed money such as mortgage, second mortgage, auto loan, credit cards, credit lines, etc. If you can consolidate them all into a new mortgage with deductible interest you can save on both interest and monthly payments. Maybe even taxes! Calculate it by finding the average interest rate you are paying on all loans. (That can be a rude awakening!) Then compare that rate with what is available on a new mortgage.
What will I lose if I miss the bottom and don’t lock in and miss re-financing?
The market is the market. If you are reducing either your note rate or your “net effective rate” by 1% or more, refinancing is worth considering.
When should I lock in my loan? What is the best rate I can expect? When will the rates hit bottom?
You can lock a rate anytime after we receive and review your signed loan application, and you have identified a property. The typical lock-in period is 15 to 45 days. This means that once you lock in the rate, you must close your loan within the lock in period. Once you lock, you cannot un-lock. If you think rates may fall, don't lock and instead float your rate. If you are unsure or adverse to risk, it might be better to lock your rate.
What is the actual rate on my loan? Is it my APR? Where do I look to find out my actual rate?
The APR is the rate disclosed at closing that includes closing costs and prepaid interest. The actual rate on your loan is stated clearly on your ”Note.”
What is PMI?
Private Mortgage Insurance. PMI is required if you put down less than 20% of the selling price (or if you have less than 20% equity in your house). PMI is insurance taken out by the lender to cover the expenses incurred should you default on your home loan.
What is an escrow account?
An account to set aside a part of your monthly loan payment, which is distributed throughout the year to cover your homeowner's insurance and property taxes. Borrowers usually have the option to pay their tax and insurance bills on their own each time they are due, but it is often a good idea to pay towards those expenses each month and let your mortgage company handle the paperwork.
What is included in my monthly house payment?
Your interest and principal balance will always be part of your monthly payment. In addition, depending on whether you have escrow accounts set up, the monthly amount will also go towards your property tax and homeowner's insurance costs for the year.
How will the interest rate affect my mortgage loan?
The interest rate will determine several things, such as how much total money you can borrow, how high your mortgage payments will be, and it could even affect how long your loan term will be.
What is RESPA?
Real Estate Settlement Procedures Act. It is an act which was initiated to protect consumers by requiring lenders to disclose certain information to the borrower. Under RESPA, lenders must inform the borrower of things such as all closing costs, interest rates, escrow accounts, and several other factors that are involved with your mortgage.
What are closing costs?
These are the expenses involved in the mortgage process, from the initial application all the way through the finalization of your loan. Closing costs are paid by the borrower and may include an application fee, appraisal costs, clerical expenses, and a variety of other things.
What role does a title company play in my mortgage?
Title companies are third party participants in the mortgage process. They often handle the processing of legal documents and the transfer of money between the home seller, the home buyer, and the lender.
What happens at the loan closing?
The finalization of the mortgage loan, the transfer of title to the property, and the payment for the property to the seller all take place at closing. All involved paperwork is explained, usually by a representative from the title company. All of the paperwork is then signed by the appropriate parties, and the transfers of property and funds are made.
What is a FICO score?
FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. Fair, Isaac began its pioneering work with credit scoring in the late 1950s and, 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 to be acceptable.
Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people 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 numerous 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-offs, 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.
Frequently Asked Questions (FAQs)
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.
What if there is an error on my credit report? If you see an error on your report, report it to 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, your mortgage company may help you correct this problem as well.