| Q : |
Should I refinance? |
| A : |
The most common reason for refinancing is to save money. Saving money through refinancing can be achieved in four ways:
- Obtaining a lower interest rate that causes one's monthly mortgage payment to be reduced.
- Reducing the term of the loan, thus saving money over the life of the loan. For example, refinancing from a 30-year loan to a 15-year loan might result in higher monthly payments, but the total of the payments made during the life of the loan can be reduced significantly.
- Converting an adjustable loan to a fixed loan. The main reason behind this type of refinance is to obtain the stability and the security of a fixed loan. Fixed loans are very popular when interest rates are low, whereas adjustable loans tend to be more popular when rates are higher.
- Consolidating debts and/or receiving cash for the equity in your home.
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| Q : |
What is a FICO score? |
| A : |
A 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. A credit score attempts to condense a borrower’s 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 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.
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| Q : |
Why Do Mortgage Rates Change? |
| A : |
Mortgage rates tend to move in the same direction as interest rates. However, actual mortgage rates are also based on supply and demand for mortgages. The supply/demand equation for mortgage rates may be different from the supply/demand equation for interest rates. This might sometimes result in mortgage rates moving differently from other rates.
For example, one lender may be forced to close additional mortgages to meet a commitment they have made. This results in them offering lower rates even though interest rates may have moved up! |
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| Q : |
What is the difference between pre-qualifying and pre-approval? |
| A : |
A loan officer normally issues pre-qualification after he or she has interviewed you to determine the dollar value of a loan you can be approved for. However, loan officers do not make the final approval, so a pre-qualification is not a commitment to lend. After the loan officer determines that you pre-qualify, he/she then issues you a pre-qualification letter.
Pre-approval is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is submitted to an underwriter and a decision is made regarding your loan application. If your loan is pre-approved, you are then issued a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a house |
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| Q : |
What is a rate lock? |
| A : |
You cannot close a mortgage loan without locking in an interest rate. There are four components to a rate lock:
- Loan program.
- Interest rate.
- Points.
- Length of the lock. (The longer the length of the lock, the higher the points or the interest rate)
This is because the longer the lock, the greater the risk for the lender offering that lock.
After a lock expires, most lenders will let you re-lock at the higher of the original price and the originally locked price. In most cases you will not get a lower rate if rates drop.
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| Q : |
What do you do if the rates drop after you lock? |
| A : |
Most lenders will not budge unless the rates drop substantially (3/8% or more). This is because it is expensive for them to lock in interest rates. If lenders let the borrowers improve their rate every time the rates improved, they spend a lot of time relocking interest rates, since rates fluctuate daily. Also they would have to build this option into their rates and borrowers would wind up paying a higher rate.
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| Q : |
What are lock-and-shop programs? |
| A : |
Most lenders will let you lock in an interest rate only on a specific property. If you are shopping for a house, some lenders offer a lock-and-shop program that lets you lock in a rate before you find the house. This program is very useful when rates are rising. |
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| Q : |
What is PMI? Can I get rid of the PMI on my loan? |
| A : |
PMI or Private Mortgage Insurance is normally required when you buy a house with less than 20% down. Mortgage insurance is a type of guarantee that helps protect lenders against the costs of foreclosure. This insurance protection is provided by private mortgage-insurance companies. It enables lenders to accept lower down payments than they would normally accept.
The decision on when to cancel the private insurance coverage does not depend solely on the degree of your equity in the home. The final say on terminating a private mortgage-insurance policy is reserved jointly for the lender and any investor who may have purchased an interest in the mortgage. However, in most cases, the lender will allow cancellation of mortgage insurance when the loan is paid down to 80% of the original property value. To cancel the PMI on your loan, contact your lender. Another way of canceling the PMI on your loan is to refinance and to get a new loan without PMI |
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| Q : |
What is an Annual Percentage Rate (APR)? |
| A : |
The annual percentage rate (APR) is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders, and represents the cost to obtain the financing amortized over the term of the loan. The monthly mortgage interest charge to the borrower is based on the note rate. The Federal Truth in Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.
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| Q : |
How do I know how much house I can afford? |
| A : |
Generally speaking, you can purchase a home with a value of two or three times your annual household income. However, the amount that you can borrow will also depend upon your employment history, credit history, current savings and debts, and the amount of down payment you are willing to make. You may also be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value. Give us a call, and we can help you determine exactly how much you can afford. |
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| Q : |
What is the difference between a fixed-rate loan and an adjustable-rate loan? |
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With a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an adjustable-rate mortgage (ARM), the interest changes periodically, typically in relation to an index. While the monthly payments that you make with a fixed-rate mortgage are relatively stable, payments on an ARM loan will likely change. There are advantages and disadvantages to each type of mortgage, and the best way to select a loan product is by talking to us. |
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| Q : |
How is an index and margin used in an ARM? |
| A : |
An index is an economic indicator that lenders use to set the interest rate for an ARM. Generally the interest rate that you pay is a combination of the index rate and a pre-specified margin. Three commonly used indices are the One-Year Treasury Bill, the Cost of Funds of the 11th District Federal Home Loan Bank (COFI), and the London InterBank Offering Rate (LIBOR). |
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| Q : |
How do I know which type of mortgage is best for me? |
| A : |
There is no simple formula to determine the type of mortgage that is best for you. This choice depends on a number of factors, including your current financial picture and how long you intend to keep your house. Soutwest Funding Mortgage can help you evaluate your choices and help you make the most appropriate decision. |
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| Q : |
What does my mortgage payment include? |
| A : |
For most homeowners, the monthly mortgage payments include three separate parts:
Principal: Repayment on the amount borrowed
Interest: Payment to the lender for the amount borrowed
Taxes & Insurance: Monthly payments are normally made into a special escrow account for items like hazard insurance and property taxes. This feature is sometimes optional, in which case the fees will be paid by you directly to the County Tax Assessor and property insurance company. |
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| Q : |
How much cash will I need to purchase a home? |
| A : |
The amount of cash that is necessary depends on a number of items. Generally speaking, though, you will need to supply:
Earnest Money: The deposit that is supplied when you make an offer on the house
Down Payment: A percentage of the cost of the home that is due at settlement
Closing Costs: Costs associated with processing paperwork to purchase or refinance a house |
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