Frequently Asked Questions

Q: How Do I Get The Best Rate?

A: It is never about the best rate. It is about the best MATH, period. There is NO other answer than that. So why isn’t the lowest rate the best deal? First, lower rates come with more points and fees. That is not the real issue, however. There is a break-even point to contend with when paying points and fees, tax deductions to figure out. In the case of a purchase loan, points are tax deductible in the year that you pay them. That is good, but then again, so is the interest you think you are saving. With refinances, the points are usually only deductible only over the full term of the loan. That could be 30 years, making the benefits and the break-even point years down the road.

 

So why do lenders advertise really low rates with all of those points and fees? Because they know most consumers look at the rate, not the MATH. That advertising strategy works really well. We don’t play that game. How about the lowest APR? Generally, the more points you pay, the lower the APR. True, but not the answer. We take apart each rate and fee quote to find out what the best MATH is, period. It only takes a few seconds for a professional to do it for you using a computer. After that, it’s your decision.

Q: How much can I afford to spend on my home?

A: The mortgage industry generally recommends that your mortgage payment does not exceed 1/3 of your gross monthly income. Factors that affect your monthly payment are: the amount of your down payment (the larger the down payment the lower the monthly payment), your interest rate (a lower rate means a lower payment) and the length of your loan (a longer loan equals a lower payment.)

Q: How much do I need for a down payment?

A: This depends on the loan program you choose and your credit history. There are programs that allow a very low down payment or even no down payment at all. As a rule, a down payment will be between 5% and 20% of the home’s value. Keep in mind, the size of your down payment greatly affects your monthly payment and the terms of your loan.

Q: Should I choose a Fixed-Rate or an Adjustable-Rate Mortgage Loan?

A: A fixed-rate loan keeps the same interest rate the entire term of your loan. Interest rates for this type of loan are higher than other mortgage options, but a fixed-rate loan provides the security of knowing your loan payment will not change regardless of interest fluctuations during the term of your loan. This is generally a good choice if you plan to stay in your home a long time. An adjustable-rate mortgage (ARM), has an interest rate that can change during the term of your loan. It may have an initial interest rate that is lower than a fixed-rate loan but it can change after a designated period of time and then adjusts to the current market interest rate. This type of loan may work well if you don’t plan on staying in your home for a long period of time or you expect an increase in income in a reasonable time.

Q: What are a Good Faith Estimate and the Truth-in-Lending Disclosure Statement?

A: Within three days of receiving your loan application, the lender must provide you with the Good Faith Estimate -an estimate of the final closing costs to be paid at the time the loan is funded. The lender must also provide you with the Truth-in-Lending Disclosure Statement – your estimated monthly payment and the APR of your loan. It is important to carefully review these documents and compare them with the final loan documents on the day of closing before signing the final loan documents.

Q: What are Closing Costs?

A: Closing costs are all fees over and above your loan amount and down payment that are associated with processing your loan. These fees are due at the time the property transfers from the seller to the buyer, or at the Closing. Closing costs may include, but are not limited to, title search fee, title insurance premiums, appraisal fee, recording fees, credit report charges, attorney fees or escrow fees, and discount points. You should receive an estimate of your closing costs in what is called a Good Faith Estimate within 3 days of completing your loan application. It is a good idea to put aside money for these costs before the closing date. Many buyers know they must come up the down payment but are caught off guard when they see the amount of fees required at the closing. In a refinance transaction, most of the closing costs are not out of pocket.

Q: What are discount points and should I pay them?

A: Discount points are fees that lenders can charge to allow you to receive a lower interest rate. One point equals 1% of your loan amount. For example, on a $100,000 loan, one point would equal $1,000. The more points you pay, the greater the discount in your interest rate. Points are not required, but generally, if you plan to stay in your home longer than 5 years it’s advantageous to pay 1 to 2 points. If you know you are staying in your home less than 5 years, you may want to choose not to pay points. Your specific situation depends on whether or not paying points makes sense.

Q: What are Pre-Payment Penalties and should I avoid them?

A: Some loans have pre-payment penalties. These are fees incurred if you pay off your loan before the final due date. These penalty fees can be very substantial amounts – as much as 3% of your unpaid balance. They can be charged if you refinance and or sell your home and therefore pay off the loan before the due date. Lenders will, however, in these cases, often waive these penalties. It is still advantageous to avoid them altogether and carefully examine your loan documents to make sure there are no pre-payment penalties. Over 98% of our programs DO NOT have pre-payment penalties.