It's generally a good time to refinance when mortgage rates are 1% lower than the current rate on your loan, but it is highly dependent on your loan amount and how long you plan to stay in the home in addition to other factors. Contact me and I can help you with options.
A point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms; 1% of the loan amount is considered standard or what some call Par. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount. Lenders may use the terms interchangeably.
I can help you with options but generally speaking you will only buy down the rate if you need to (for example if it helps you afford the home or the payment). In a higher interest market, it might be better to wait for rates to come down and refinance. Paying discount points to lower the loan's interest rate is a good way to lower your required monthly loan payment. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front. On a separate topic: We have strategies for seller's that can reduce the rate to the buyer significantly; and this works very well in some scenarios.
The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows home-buyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan.
Because APR calculations are affected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. You can then delete the fees that are independent of the loan such as homeowners' insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.
The following fees are generally included in the APR:
The following fees are normally not included in the APR:
Mortgage rates can change from the day you apply for a loan to the day you close the transaction. If interest rates rise sharply during the application process it can increase the borrower's mortgage payment unexpectedly. Therefore, a lender can allow the borrower to "lock-in" the loan's interest rate guaranteeing that rate for a specified time period, often 30-60 days, sometimes for a fee. Much longer extended locks are available and used for unique scenarios or new construction loans. Nobody can predict rates, but I have an award-winning service that allows me to help you with the most recent predictions.
Below is a GENERAL list of documents that are required when you apply for a mortgage. However, every situation is unique, and you may be required to provide additional documentation. So, if you are asked for more information, be cooperative and provide the information requested as soon as possible. It will help speed up the application process. With an application, I will request documents specific to your file. The list below is way more than any one individual will need (I will get you a much shorter individual list):
Your Property
Your Income
If self-employed or receive commission or bonus, interest/dividends, or rental income:
If you will use Alimony or Child Support to qualify:
If you receive Social Security income, Disability or VA benefits:
Source of Funds and Down Payment
Debt or Obligation: your normal loans and credit cards will be on your credit report.
Credit scoring is system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due. AUTOMATED UNDERWRITING WILL READ YOUR CREDIT REPORT TO DETERMINE THE LIKELIHOOD OF BEING APPROVED.
The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).
Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:
Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report.
You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion. This free credit report may not contain your credit score and can be requested through the following website: https://www.annualcreditreport.com
If your credit scores are not too bad, I can sometimes run a report that will help me improve your credit scores to either help you qualify for a better program or better rate. In some cases, you might need professional help and I do have a Credit Repair firm that has a lawyer (very important) that can help you for around $1,500 and normally about 4-6 months of time. To get a quote and activate this service I will need your permission to submit your credit report to them.
Additional Information:
Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.
Nevertheless, scoring models generally evaluate the following types of information in your credit report:
Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.
To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.
An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions. This needs to be ordered by us to be official and valid.
On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. The is also a one-time option and a split option but these rarely can be justified due to costs.
Surprising as it may seem, some folks with hefty incomes find that it's mighty tough for them to save enough money to make a 20% cash down payment on their dream homes. Using conventional financing, such buyers must purchase Private Mortgage Insurance (PMI) which increases the cost of home ownership and, ironically, makes it even more difficult to qualify for the mortgage. However, if you're a dues-paying member of the cash-challenged class, don't despair. Given that your income is sufficiently high, it's eminently possible to avoid getting stuck with PMI. That is why 80-10-10 financing was invented. It is called 80-10-10 because a savings and loan association, bank, or other institutional lender provides a traditional 80% first mortgage, you get a 10% second mortgage and make a cash down payment equal to 10% of the home's purchase price. By using this method, you are no longer obligated to take out PMI on your property. This rarely makes sense because the costs of the first mortgage go up and in today's market the second mortgage is more expensive. I will figure out the best options for you.
What happens at closing?
The lender and title company will have final numbers and will have communicated this to you prior to the closing. You will normally bring your cashier's check for the exact amount on the bottom of the first page of the final closing disclosure. This check will be written out to the title company. In addition, you will need your driver's license or federal ID and in rare cases the title company may ask you for additional items. In rare scenarios where the final number is wrong/changed; you can either get money back or write a personal check for under $2,000.
The property is officially transferred from the seller to you at "Closing" or "Funding".
At closing, the ownership of the property is officially transferred from the seller to you. This may involve you, the seller, real estate agents, your attorney, the lender's attorney (rare in MN), title or escrow firm representatives. You will need a Power of Attorney document signed ahead of the closing if you can't attend the closing.
You will sign some of the paperwork ahead of closing in most cases and then sign a few documents at the title company in-person.
Prior to closing you should have a final inspection, or "walk-through" to insure the home is in approximately the same condition as when you bought it.
In most states the settlement is completed by a title or escrow firm. Your representative will deliver the check to the seller and then give the keys to you! You are a homeowner!