Lenders charge different fees

It is important to know the estimated cost of doing business upon completion of your mortgage.  No doubt that borrowing money today is a bit more difficult due to the increased guidelines lenders must adhere to, but when you get approved for a mortgage there is no better time than now to borrow money due to low mortgage rates.

Below are some questions to ask your lender but be prepared with questions of your own.  The right lender to choose will have great programs to offer but most importantly will take the time to listen and address all of your questions.

It is also important to know that different loan programs have different fees as well as the lender you choose.  Here are some good questions to ask when approaching a lender about mortgage programs:

1. Do you charge application fees, and if so, what happens with them?
1. Application fees are gathered mostly because of the increased amount of costs the lender faces to maintain and complete a compliant loan file.  Ocean Communities collects a $375 application fee for Single Family Residences, however this fee is credited towards closing costs as long as your loan closes with us.
2. How do you get compensated to do loans and will it be included in my costs to do business with you?
1. Mostly referring to commissioned based lenders such as Mortgage Brokers, they generally get paid by delivering loans to larger Banks by charging additional fees or receiving compensation directly from the end Bank.  This is also known as Yield Spread Premiums.  Yield Spread Premiums are not part of your loan, nor do borrowers pay this fee, it comes directly from the end Bank.
3. What risks do I face moving forward with my loan?
1. Simply put, issues can and do happen.  If appraisals for properties come in low it could prompt changes to the loan meaning a possible additional down payment, change of loan program, additional fees, etc.  It is important to know the risks you could face.  If you are already preapproved, generally the issues that you run into are with the home you are buying.  Be proactive and get a home inspection done of the property prior to your contractual commitment of a Purchase and Sale Agreement.
4. Do I pay for the fees out my own pocket or can they be included in the loan?
1. When buying a home very seldom do you have the ability to finance the closing costs.  A good negotiating tip would be to request the seller pay for some or even all of the closing costs, but keep in mind if the seller receives multiple offers on their property and you request costs to be paid and someone else doesn’t, well, who would you choose?

I hope you find this information helpful.  Happy Holidays!

Mortgage Loan Advisors...more than just a rate

Why has shopping for home financing become so difficult?

What’s the point of shopping for a great rate if the loan process is so cumbersome that it delays your closing?

Great questions, I am glad you asked!

The most important aspect of buying a new home is finding the right Mortgage Loan Advisor. In the complex, ever-changing mortgage world, it is important to find a Mortgage Loan Advisor that is up to date on lending guidelines and understands the importance of finding the right product for you. 

If so, how do you find the right Mortgage Loan Advisor?

Simply by asking questions… Asking how long someone has been in lending is not even remotely offensive. You want a knowledgeable Mortgage Loan Advisor that has access to the right resources in order to answer your questions in a timely manner. An experienced Mortgage Loan Advisor should clearly lay out the loan process in a detailed manner. You should have a rough idea of the timeframe of when you should be hearing from the Mortgage Loan Advisor. Also, be sure you always have their contact information available in case they fail to respond. I know that not every question can immediately be answered. Personally, when I have a question that my Mortgage Advisor cannot answer, I expect that they will respond in a timely fashion once they consult their resources. From the Mortgage Loan Advisor’s standpoint, there are certain aspects of the loan process that a time frame can only be estimated. However, a qualified Mortgage Loan Advisor should update you as soon as he/she receives any pertinent information.

Keep in mind that Mortgage Loan Advisors are not Underwriters- however, they should be able to identify the majority of risks you may face when applying for a mortgage loan. For instance, many people are confused about what can be used for income. A common mistake regarding income is including overtime income for your mortgage application; overtime income is not considered for your mortgage application unless you have been receiving overtime income for the past 2 years. Again, that is just one an example of the numerous potential risks, so be sure that your Mortgage Loan Advisor carefully reviews all potential risks during the application process.

Ocean Communities FCU takes pride in its knowledgeable staff.  Each Mortgage Loan Advisor has been through extensive training, and is constantly being updated on mortgage trends, and lending guideline changes.  Don’t get me wrong, rates are important too, but without having the right Mortgage Loan Advisor that rate is just a number. 

Foreclosed Home Buying Tips

Just like most things, the foreclosure market has its pros and cons. Therefore, the best way to approach it is to do your homework and research.

The most important step you can take in preparation for buying a foreclosed home is to become pre-approved for a mortgage-thus realizing your purchasing power. Becoming preapproved is a simple step; all you need to do is contact one of Ocean Communities knowledgeable loan officers with the following documents and licenses:

1. Drivers License
2. Most recent paystub(s)
3. Two years of personal tax returns including all w-2’s
4. Two years of business tax returns (if applicable)

Foreclosure sales are a great way for a buyer to get a home at a great price. However, there are some things one should know and look for when considering this option:

1. You should make sure to choose a Realtor that has worked with these types of sales before. An experienced Realtor will know what to look for when trying to negotiate the price of the home, along with setting realistic expectations throughout the process.
2. Foreclosed properties are sold in an “as is” condition. This is extremely important to know because most financing options will not allow you to close on your mortgage to buy the property unless the appraisal report reflects a flawless property. Appraisers have to ensure that everything is in working order and the property is “move in” ready. If the property needs to be worked on (examples: painting, trim, flooring repair, etc), it will need to be done prior to closing. Lets say you accept a contract in an “as is” condition and you need financing to buy the property. If the property ends up needing work, you risk losing your earnest money deposit or you will have to renegotiate with the selling bank to see if repairs can be made (which adds time to the process before you can close). 
3. If possible, find out who the selling institution is.  This is good to know because if a smaller bank is selling the property, less people are generally involved with the decision. Therefore, the response time to your contract negotiation and loan closing is much quicker. If the selling bank is a larger, recognizable bank, you should work with your realtor to understand realistic time frames for responses. This process can take anywhere between weeks and month, so it is recommended you consider smaller banking institutions.
4. Title costs for foreclosed homes can be extremely high. Most foreclosed homes require a Class D Survey that confirms that the property boundaries have not changed from what is listed on the Title. Improper right of ways or encroachments of structures by neighbors could alter these property boundaries. In addition, the Title has a record of all liens from past to present on the property. If the property has been vacant for some time, additional items may need to be cleared up by the Title Attorney.

Mortgage Rates: How low can they go?

It is official: mortgage rates have dropped to their lowest levels since 1951. This makes borrowing money to buy a home the cheapest it has been in the past 60 years. Whether you are buying your first home or upgrading to a home better suited for you, it is definitely the right time to buy.

By briefly looking at recent mortgage rates, potential borrowers can see that these rates really are extremely low. According to www.data360.org, the average 30 year fixed rate in September of 2006, just 5 years ago, was 6.40%. Let’s first look at a scenario using the mortgage rate from 2006:

Loan amount - $150,000

Loan Term – 30 years

Rate – September 2006 6.40%

*Repayable Amount - $337,773

Let’s look at the same scenario with TODAY’s 30 year fixed rate:

Loan amount - $150,000

Loan Term – 30 years

Rate – 4.125%

*Repayable Amount - $261,710

This scenario illustrates that a borrower would SAVE $76,063 when comparing today’s mortgage rate to the mortgage rate in 2006.

These rates will not be around forever, so if saving money is important to you, I suggest you stop by an Ocean Communities Branch near you.

*Repayable Amount – This figure assumes that a borrower will make their monthly payment on its due date each month for the entire loan term.

Low Mortgage Rates: Nothing Lasts Forever….



history of the national average interest rates since 1985



Mortgage rates continue to hover at extremely low levels. For instance, today’s 10 year fixed rate mortgage is 3.25% and today’s 30 year fixed rate mortgage is 4.50%. Borrowing money to refinance or purchase a home has rarely, if ever, been so cheap. HOWEVER . . . . . Don’t wait too long as history always proves, "nothing lasts forever."

On August 9^th, 2011, the FOMC (Federal Open Market Committee – the policy making branch of the Federal Reserve) will meet once again to discuss interest rates. The FOMC uses the Federal Funds Rate* as its primary tool to influence interest rates and manipulate the economy. If the FOMC decides to change this rate, it will most likely increase, meaning money will become increasingly expensive to borrow. Though it is unlikely that the increase in the Federal Funds Rate will be drastic, one can never be sure of anything. This Committee meets roughly every six weeks to discuss interest rates so don’t gamble too much longer!

Let us at Ocean Communities FCU help you see if homeownership is right for you and take advantage of great rates while you still can. If you currently own a home, it is a great time to restructure your balance and pay back less interest- who doesn’t like to save money?

*The Federal Funds Rate is the interest rate in which depository institutions lend balances to other institutions overnight or basically the rate in which depository institutions charge each other for loans.

　

　

What you need to know about rate locks

Generally, two key questions should come to mind when speaking with a Loan Officer about a rate lock:

1. When can I lock my rate?
2. Does it cost money to lock my rate?

Rates are still at historic lows, but have become increasingly volatile with the global market challenges affecting our own stock market. It is important to be comfortable with a payment and to lock in your rate when you are able to. Who wants the unpleasant surprise that rates have increased, leading to an increase in your monthly payments. A rate lock is a commitment between you and the lender that basically puts funds on hold until the loan officer has all the paperwork necessary to close on your loan. A conventional rate lock generally lasts for 45 days. If you are refinancing a current mortgage, access to lock you rate is usually given at the time of the initial application approval. Yet if you are buying a home, this access is not granted until you have fully executed a Purchase and Sale Agreement and have signed your Intent to Proceed Disclosure.

Costs to lock your rate will vary, so a great question to ask upfront is, "How much will it cost to lock my interest rate?". Rate locks do cost money, as this is a reservation of federal funds that guarantees your loan rate. Costs can either be fixed or a percentage of the loan amount. At Ocean Communities FCU, we absorb the cost to lock your rate as long as you close your loan with us. This benefit and savings is truly appreciated by our members. If , however, you lock your rate with Ocean, but then choose to do business with and lock your rate with a new lender, Ocean will pass along the fee that it was charged for reserving the federal funds at the time of the rate lock. This fee can vary, so it is good to ask before you act.

LOAN ALTERNATIVES FOR FHA

The Federal Housing Administration (FHA) has been around since 1934 as part of the National Housing Act, and has provided many people the opportunity to own a home with little down payment.  The minimum down payment required by FHA today is 3.5% of the sale price, a very affordable avenue to any borrower. 

Part of the expenses of receiving a loan from FHA is insurance to cover the loan amount (not homeowners insurance).  FHA insurance payments include two parts: an upfront mortgage insurance premium (UFMIP) or one-time payment and “annual mortgage insurance premium” which you pay every month.

On April 18^th 2011, FHA will be increasing its annual mortgage insurance premiums for new loans submitted on and after that date.  The Up Front Mortgage Insurance Premium (UFMIP) of 1% of the loan amount (collected at loan closing) will still remain unchanged.

Ocean Communities is very proud to be able to offer such a great program that has helped so many over the years, but to assist with the rising cost of funds, PLEASE, make sure you know about our CU Promise 97 Program.

CU Promise 97 has features truly designed to help Ocean Communities FCU borrowers save those hard earned pennies.  With CU Promise 97, we require just 3% down payment, and there is NO Up Front Mortgage Insurance Premium (UFMIP)!  The monthly or annual mortgage insurance premium (which is needed because you are financing over 80% of the value of the home) is stable.

To show you how much the CU Promise Program could save you compared to FHA let’s look at the following scenario:

Purchase Price of a home at $200,000:

FHA – 3.5% down Payment ($7,000) + UFMIP of 1% ($2000) = $9000

CU Promise 97 – 3% Down Payment = $6000

CU Promise 97 would save our borrower $3000.

(Keep in mind there are additional closing costs with both scenarios, however, I did want to compare the area where a lot of the down payment and costs are derived from between the two types of loans.)

How much is too much house?

With the amount of inventory still increasing, there are a lot of homes on the market to choose from.  Buying a home is very exciting, but don’t get caught up in the game of extra amenities that have a higher sale price.

Generally speaking, most home buyers secure a 30-year note when obtaining financing.  You have to agree, 30 years is a long time, so also visualize that there is enough time to add amenities as years go on and not get tied down with a large payment for amenities you “have to have now.”  Be patient.  Talk with one of Ocean Communities staff members to discuss a Savings Plan designed for your future needs.

A tip for your home buying experience would be to review what you feel you can afford.  Because you may be “preapproved” for a certain amount, doesn’t mean that is what is best for you – this is something you will need to decide after you take a close look at your budget.

Lenders will look at your housing ratio as a factor on whether or not a loan amount may or may not be right for you.  Your housing ratio is the ratio between your proposed housing payment (principal, interest, taxes, and insurance) and your gross monthly income.  (Example: $1500 housing payment / $5000 gross income = 30% housing ratio)  Generally this ratio is desired to be around 29%, but can be higher and still get approved.

Keep in mind that you don’t take home gross pay; you take home net pay, which is the pay after taxes are taken out.  So technically, the ratio is higher when you are comparing the actual money you take home each week versus the monthly housing payment that will be yours for the next 30 years.  Homeowners will also face utility bills, home maintenance, etc. to keep up with for the time you own your home.  A lender doesn’t calculate utilities, maintenance, or items like that when approving you for a loan, so it doesn’t hurt to complete your own analysis of what you can afford!

Safer mortgage process with the SAFE Act

Since 2007, mortgage lending has evolved with necessary regulatory changes to protect both consumers and lenders.  There is a new change in place that will require mortgage originators to have more training.  These changes balance the educational requirements for mortgage originators, which ensure the consumer is speaking with someone who understands loan programs, lending guidelines, and so on.

What is a Mortgage Loan Originator?

For the purposes of the SAFE Act (see below), a mortgage loan originator (MLO) is defined as:

An individual who takes a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan for compensation or gain. An individual real estate licensee acting within the meaning of Section 10131 (d) or Section 10131.1(b)(1)(c) of the Business and Professions Code (B&P) is a mortgage loan originator with respect to activities involving residential mortgage loans.

In a layperson’s terms, an MLO is the person or institution you work with to get your mortgage financing, such as a mortgage broker or a mortgage banker.

How is the consumer protected?

Consumer protection is a very important aspect to the mortgage originating process.  Ocean Communities FCU and its MLO provide adequate time to make sure you are educated about the products you might qualify for, and how each of them may impact you in their own way.  Generally speaking, most mortgage notes are for 30 years.  That is a long term commitment, so please take the time and ask questions, shy away from impulse decisions, and really think your options through.  Ocean Communities FCU wants what is right for you and your family.

The National Credit Union Administration (NCUA) regulates Credit Unions, and recently the NCUA has adopted the SAFE Act of 2008, which requires all MLOs to be registered with the National Mortgage Licensing System (NMLS).  This system tracks the performance of all registered MLOs and make sure each complies with the regulations set forth in the SAFE Act.  Every loan application taken by a MLO will have to include the MLO’s unique identification number for NMLS tracking purposes.  All MLOs across the country will need to be registered with the NMLS by July 29, 2011.

If you are shopping for a loan after that date, do not hesitate to ask to see this unique identification number to assure yourself you are talking with someone that has the expertise to answer your mortgage questions.  A common place where the unique identification number will be found is on the MLO’s business card.

What are the actual costs in closing costs?

If you have even started thinking about buying a home, there is a good chance you’ve heard the term “closing costs,” but I know that many people have questions about what they are and how they are calculated.

I talked about closings and closing costs in previous posts, but here I’ll talk about what actually makes up the closing costs.

The “closing” on a house is a meeting between the buyer, seller, and lender when the house and money legally change hands.  At your closing, both the buyer and seller may pay closing costs. The Real Estate Settlement Procedures Act (RESPA) of 2010 changed how closing costs are shown.  Therefore, even if you have bought a house and been through a closing before, it’s probably a little different now.  RESPA was passed so that people buying houses could more easily compare “apples to apples” when it came to mortgage brokers by requiring different language and the same definition of terms. 

Below is an explanation of all of the different types of fees and costs that make up your final closing costs and where that money goes.

·         Loan Origination Charge – In short, this is the money to cover everything that the lender does to make sure you close on time and get your mortgage.  This fee is where most of the RESPA changes were made.  Before RESPA, many items listed in this section were shown separately, but today they are clumped under “loan origination fee.”

• Loan origination fee– The origination fee is sometimes shown as a percent (%) of your loan.  It is a tax-deductible cost.  It is the amount of money that you are paying the lender to do all of the work involved in deciding, making, and then supporting a loan.  
• Application fee – This is a fee that you pay to have the lender consider loaning money to you. 
• Processing fees – The processing fees are charged by the lender as a way to cover some of the costs of the work that goes into making a loan.  Lenders may have to make long-distance phone calls to verify your employment and speak with you, create files using office supplies, and maintain these.
• Underwriting fee – Like insurance, mortgages have underwriters.  This fee covers the costs associated with underwriting the loan.
• Funding fee – Typical on VA loans, the funding fee covers administrative costs similar to the processing fee. 

·       
 Title Services Fee – Like the “Loan Origination Charges”, RESPA affected the way these fees are listed as well.  The Title Services Fee is a new way to bundle the following group of fees:  

•      Document preparation fees– When you close on your house you’ll see that you sign a lot of pages of paper!  Three sets of copies are made of these papers, along with other sheets of office notes that you do not have to sign.  The document processing fees cover the costs associated with copying and mailing all paperwork.
•     Title/Abstract search – The title search helps make sure there are no problems with the title (see my previous blog post about titles.
•     Title examination/Title insurance binder– This is insurance that will protect the lender (and owner, if an owner policy is purchased) if anyone brings a lawsuit against the title on the house. 
•      Settlement fee – This covers the cost of the services by the closing agent for the closing.
•      Lender’s and buyer’s attorney – A lawyer typically works behind the scenes on many house closings and mortgages to make sure that everything is following current real estate law.

·         Survey fee – This money pays for someone to come and make sure the land or property you are buying has not been built on or taken over by the neighbors accidentally or on purpose.  This makes sure you know exactly what is yours and what belongs to your neighbor. 

·         Legal and recording fees or transfer fees – This money is sent to the country clerk and state to change the name of the owner (and person who owes money for the taxes) and record the sale price of the home in the official record. 

·         Property taxes– Property taxes are pre-paid by the seller.  When you buy the house, part of the closing cost is a “tax adjustment”.  This basically means that you are paying the seller back the amount of taxes that he or she has pre-paid.      

·         Per Diem interest – At closing, you will need to pay the interest on your loan from the closing date to the date the first payment is due.

·         Flood certification – Before you buy a home, the lender will make sure the home you are buying is not in a flood zone. The flood certification charges cover the costs to have an expert review where the property is located.

Be prepared for closing - and make sure it is done on time!

Buying a home is one of the biggest purchases of your life.  It is exciting – but can also be stressful.  Mortgage Lending as a whole is one of the most regulated types of lending that one will endure.  Much of the regulation is to help protect you, the borrower.  When you get a loan, you will be asked to verify funds to close, and provide payroll information, etc. 

The process behind the scenes (with the lender) is an ongoing detailed process that is generally not finalized until 24 hours prior to closing.  Many professionals work together to make this happen for you: your Realtor, Loan Officer, Underwriter, Appraiser, Title Attorney, and Closing Agent.  Closing on time is one of the most important features Ocean Communities offers to its borrowers, so we are involved as a lender with all parties to do what it takes to get you into your home when you expect to be.

You can be prepared for what you might face at the end of your loan process if you do the following:

Keep your Good Faith Estimate (GFE) close by.

Your GFE is the summary of your estimated closing costs associated with your Mortgage Loan Application.  A GFE is not required to be presented to a borrower until a Purchase & Sale Agreement has been presented to the Lender.  Anytime your loan request changes (increased loan amount, loan program change, and rate change) a new GFE must be delivered to the borrower.  It is important to keep the GFE handy because the costs on this Estimate have to be within a specific range of the costs on HUD Settlement Statement.  (See below)

 “There are three categories in the Comparison Chart (page 3 of the HUD Settlement Statement) Charges that could not increase at settlement, changes that in total could not increase more than 10% and charges that could change.  Compare the charges listed in the GFE column with the charges in the HUD column.  If the charges that cannot increase have increased or the total of the charges that cannot increase more than 10% have exceeded the 10% increase limit, the lender must reimburse you at settlement or within 30 days after settlement.” - From the HUD Settlement Booklet

Understand your costs due at closing.

A HUD Settlement Statement is generally available to a borrower 24 hours prior to closing, which allows time to collect the certified funds check for the amount that is required at closing.  Because a Title Attorney or Closing Department has to prepare such a statement, it is normal not to have an exact amount due at closing until that time, but your Loan Officer should be able to provide you with a rough estimate.  Because Escrow Accounts are regulated by guidelines as well, this is the biggest reason for the Settlement Statements delay.  The one preparing this closing document has to know a date of closing and have collected tax bill, and homeowner’s insurance binder to ensure the Escrow Account has collected enough funds at closing and with the monthly payment to ensure future tax payments and insurance policy renewals get paid on time.

Work with a lender that has a track record for closing on time.

A delay in closing can mean a great deal of inconvenience and additional stress.  There are several credit unions in Maine, including Ocean Communities FCU, that offer a wonderful program called CU Promise.  CU Promise is backed by 3 guarantees that as a buyer should be looking for:

• Guaranteed Same-Day Decision
• Guaranteed Closing Date
• Guaranteed Local Servicing

All about titles

As a specialist in mortgage lending I often get asked by friends and family, “Do I really need to get a title search?”  While my answer varies based on the type of property being purchased, I’ve found that most people struggle with the legal language surrounding the title search and title insurance process.  I thought I’d try to explain some of these items in layperson terms in my post this week.  


What is a real estate title?

A title is like a deed on a car. The title for your house is simply the document that shows what the property and everything on it are and what you can and can’t do with it.  An important thing to know about titles is that the title holder is often the owner (but not always!).  

What is a title search?
A title search is a process that is performed primarily to determine the answer to three questions:

1.      Does the seller really own the house and is he or she able to sell it legally?

2.      What can the owner or other people (like neighbors) legally do with the land: can they have businesses? Build fences? Walk on it with their dog? Leave a snowmobile in the front yard? 

3.      Is any money owed on the property for past taxes, mortgages, or is the property part of a deal between a previous owner and someone else? 

A title search may uncover a number of possible problems such as:

Real covenants – a legal promise to do or not to do something with the land.  Examples are having a business on it or building a fence, etc. If a covenant is broken then the person who breaks it may owe the person they promised money.

 

Easements – meaning someone other than the owner of a piece of property is allowed to use it. 

Servitudes – this is when there are rules made by a homeowners’ association, subdivision developer, or community about what you can and can’t do with the land.

Liens – the property is acting as protection against someone not paying a loan.

What can I do if I’m nervous about a title?

Purchase title insurance.  Title insurance will protect and pay back the owner if anyone brings a lawsuit against the title on their house (if someone is owed money or use of your property by another owner and it is tied to your land or house). 

Flood insurance

In 1968, Congress created the National Flood Insurance Program (NFIP) in response to increased costs of tax payer funds for flood victims and increasing amount of damage by floods.  An administration under the Federal Emergency Management Agency (FEMA) manages the NFIP.

If you are looking to buy, build, or improve any dwelling / structure that is located in a flood zone (also known as Special Flood Hazard Areas) you will be required to purchase the appropriate flood insurance.

From a lender’s stand point your coverage will have to meet one of the following:

·       Coverage to the  maximum coverage amount ($250,000)

·       Coverage to the loan amount

·       Coverage to the value of the structure in the flood zone

A lender obtains flood certificates for every mortgage request.  The certificate is derived from mapping completed through FEMA of the property in question, and provides the answer of if the property is located in a flood zone or not.

Know Your Loan

When people are shopping for a mortgage, their first concern is usually the interest rate.  This interest rate is obviously a very important factor, but be sure to be aware of other aspects of a mortgage that can have an effect on the interest rate.  Below are some questions you should ask yourself before getting a loan - the answers may change your rate.


1. What is the loan term?  The “loan term” or “length of loan term” means the number of years you will have to repay the loan. Typically, mortgages are 10-, 15-, 20- or 30- year.  A shorter loan will often have a lower interest rate and can save you money over the long term, but your monthly payments will be higher.


2. Is it an ARM?  “ARM” stands for Adjustable Rate Mortgage, which means your interest rate will go up and down with the market rates.  Sometimes ARMs come with a “floor” – or low – and “ceiling” – or high rate pre-determined so you know how much your rate will change.  ARMs can also vary in the length of term, as fixed-rate mortgages do.  ARMs can be very appealing because the introductory interest rate will be so low, but you will want to carefully consider what will happen once the ARM term ends. If you will be able to pay off the mortgage before the ARM expires this may be a good option for you.  If you cannot, think about whether you will be prepared for what will likely be a significant jump in the interest rate.


3. Are there points? If you are buying any ‘points’ – or prepaid interest – this will make your interest rate lower.  One point is equal to 1% of the loan amount.  Pre-buying points can save you money but will require a little more money up front.   You will also want to think about how long you plan to be in the home you are buying as you want to be there long enough to realize the savings of the point(s) you purchased.

Before making a decision on a loan based on interest alone, make sure that you are comparing “apples to apples” with all of the loan terms.

The benefit of debt

I wanted to share a recent article by  Michelle Singletary.  Ms. Singletary offers some wonderful advice to future home buyers and I’d like to provide the lender’s perspective.  In this post, I’ll address the first reader’s question, in which Ms. Singletary advises a potential homebuyer with $12,000 in savings and $11,000 in debt from a consolidation loan to pay $5,000 toward the loan and accelerate remaining payments. 

As a lender, I would recommend leaving the $12,000 in savings.  I agree that there should be 3-month’s worth of reserves removed from the $12,000, so if it helps you to physically put this in a different savings account I would recommend doing so.  Paying down unsecured debt is a great goal, for the most important reason is that this kind of debt generally carries a higher interest rate then a loan with collateral.  Adding extra on the payment when able is a good habit with any kind of monthly obligation as this will allow you to pay the debt off sooner.  The potential home buyer in this example makes it sound as though this consolidation loan is their only debt.  If this loan was heavily paid down with the author’s suggestion, and then rapidly paid off, there would be no more monthly obligation.  This is great, however, credit scores are calculated on several factors, and the factor that carries the most weight in the calculation is Payment History.  If your payment history is no longer being reported because your debt is paid off, then there is no ability to calculate a credit score.  A lender needs a credit score and history, to weigh the risk of what type of borrower you are as of the day the credit report is pulled. 

What I read from the potential home buyer’s question is that they want to buy a home.  I would need to find out more information on how much they are paying to rent the current condo.  Their rent could be more then the cost of having a home of their own.  With the current real estate market, there is no better time than the present to find out how your current rental situation compares to owning a home.  Rates are low, and there are a lot of homes for sale right now.  I have programs available that are geared towards first-time home buyers, or current home owners looking to upgrade.  There is no cost to find out whether home ownership is right for you and no better time to do so.  

Why is becoming pre-approved for a mortgage so important?

In today’s market, with so many loan programs being offered and the increased amount of homes for sale, you will find being preapproved for your mortgage will save both you and your real estate agent a tremendous amount of time. 

A “preapproval” is a commitment from a lender for financing to a specific loan amount that was concluded from a review of your credit and income verification.

Becoming preapproved will allow your real estate agent to find homes that fit into your price range, based on the amount for which you have been preapproved to obtain financing.  By doing this, you can eliminate homes from the large available inventory that would simply waste your time.

Keep in mind that a preapproval doesn’t always mean that a home that matches your price range is a guarantee once you have negotiated and signed a Purchase & Sale Agreement.  The preapproval is a process to examine just the borrower(s) and although you may qualify to afford the home, the home itself also has to qualify to allow for financing.  The home is qualified by having a Satisfactory Title Search done as well as a Satisfactory Appraisal.  If the Title Attorney’s exam of previous deed changes and survey changes are acceptable, and a Licensed Appraiser can find value in comparable homes to support the purchase price, you are doing great. 

One final item to remember is that a preapproval is generally only good for 120 days.  After that time, a new credit report will be required along with updated income verification to allow for the continuance of the preapproval decision.  If your original loan application changes in any way, such as, loss of income, or assets, the original preapproval will be voided, and a new decision will be delivered based upon the current information.

The preapproval process is relatively simple, and can usually be completed within 24 hours.  Feel free to contact me with any questions about the preapproval process.