Basics


Basics

WHEN SHOULD I REFINANCE?

Refinancing your mortgage means paying off your existing loan and replacing with a new one. While refinancing may lower your interest rate, save thousands of dollars and cut years off of your mortgage, or convert from ARM to fixed mortgage rate, or cash out to go on a dream vacation, remember that these benefits can have advantages or can be a pitfall. At times refinancing can cost 3 to 6% of the loan's principal, similar to original mortgage, requires appraisal fee, title fees, application fees, etc, it's important for you to determine whether your reason to refinance is offering a true benefit.

WHAT IS ADJUSTABLE RATE MORTGAGE ?

A loan with Adjustable Rate Loan has a fluctuating interest rate( also known as variable-rate mortgage). The interest rate adjusts over time to reflect market conditions. Once the initial fixed period of the mortgage rate (which likely will be lower) is completed, a lender will apply a new rate based on the index plus a set margin amount, to calculate the new rate. This new rate may increase or decrease your monthly payments. However most ARMs have limits on how much the interest rate can be changed at the end of each adjustment period or over the life of the loan. ARMs come in many types, the most popular is a hybrid ARM, with popular option 5/1 ARM, followed by the 3/1, 7/1 and 10/1 ARM.

WHAT IS A FIXED INTEREST RATE LOAN?

The most common type of home loan is fixed rate mortgage, which means, the interest rate will not change for the life of loan.

HOW IS INTEREST RATE DIFFERENT FROM APR ?

Interest Rate refers to the annual cost of a loan to a borrower and is expressed as a percentage, whereas, APR is the annual cost of a loan to a borrower including fees (such as discount points, some closing cost, etc.), expressed as percentage.

WHAT IS AN ESCROW ACCOUNT ?

An escrow account is a separate account to guarantee the lender that the ongoing expenses of owning he property will be handled specifically taxes and insurance. The lender collects the funds to be deposited into the account each month along with your monthly payment and then pays the bills for you when they come due.

WHAT ARE CLOSING COSTS ?

Buying home can be confusing, especially for the first time buyers. One frequently misunderstood area is closing costs. These are the costs that are incurred to obtain your mortgage and are paid to the third parties for their services. Here is a list of some of the typical closing costs:

Origination fees: Fee charged by the lender for processing the application.

Inspection fees: Cost of the home inspection charged by a licensed inspector.

Appraisal fees: Fees charged by the appraiser in order to determine the value of the home.

Discount Points: Additional cost to you and are typically optional. In most instances, discount points lower your mortgage interest rate

Survey fees: This fees goes to a survey company to verify boundary lines for your property and to ensure there is no encroachment in the lot.

Title fees: When you purchase a home, you receive a document most often called a deed, which shows the seller transferred their legal ownership, or “title,” to the home to you. Title service fees are costs associated with issuing a title insurance policy for lender

Property taxes: This is the amount that is paid by buyer for the prorated portions of the tax year.

Attorney fees: Paid for the preparation and recording of official documents.

PMI (Private Mortgage Insurance): PMI is a form of insurance designed to protect mortage lenders against financial losses due to foreclosure Lenders will typically require this if the down payment is less than 20 percent.

Pro-rata HOA fees: Homeowners Association fees

Per Diem Interest: It is prorated amount of interest due for the days left in the month. Per diem interest charges may be incurred if a borrower receives their principal payment and begins the loan re-payment period on a day other than the first of the month.

WHAT DOCUMENTATION IS REQUIRED ?

Your lender may ask for many different items, but in general following will be required:

Income verification (Last 2 years tax returns, W-2s, 1099s, and your last 2 pay stubs)

Drivers' license and Social Security card

Bank statements

Proof of funds to close (and an explanation of where they came from, if it's not obvious)

If some or all of your down payment is coming from a gift, you will need gift letter from the source of the funds that confirm they are gift, not a loan.

If there are any debts, explanation of the credit report anomalies