Financing Your Purchase

The following information was provided by:

Anthony T. Geruso,

Business Development Coordinator

Eastern Bank

Phone: 508-824-5720  Toll Free: 800-333-8000

E-mail: A.Geruso@easternbk.com

Most Commonly Asked Mortgage Questions and Their Answers:

• Where do mortgage interest rates come from?

Interest rates are based on the sale of mortgage backed securities sold as bonds on Wall Street.  They fluctuate frequently just like stocks and bonds do.  The movement of pricing generally follows the 10-year Treasury or ‘T-Bill’.  Bonds are considered a safe haven for money so when the economy is strong, rates are up yet when the economy is in a recession rates decrease because prices of bonds increase.

• What are points and why should I consider paying them?

One point equals one percent of the loan amount.  Buying points up front allows you to get a lower interest rate.  Points are usually worthwhile if you intend to be in the home for at least 3 years.  The savings in your monthly payment will become more valuable over time.  Mortgage rates are available in everything from zero point to 2-point options and everything in-between, depending on the market.

• What is the difference between a pre-qualification, a pre-approval and a mortgage commitment?

A mortgage pre-qualification can be done instantly and over the telephone.  The loan officer will ask questions concerning your income, debt, assets, etc.  Your credit will be pulled and a “pre-qual” letter can be mailed or faxed to you or the realtor representing you.  Should you provide supporting documents for the information as stated, such as a pay stub and a W-2 for income plus bank statements, for example, the loan will be sent to the bank’s underwriting department and a “pre-approval” letter is available.  A full “mortgage commitment” is provided when the bank obtains a purchase and sale agreement for the subject property and an appraisal is received.

• How do banks consider applicants when they apply?

There are no secrets to qualifying a mortgage applicant.  Most underwriting these days is electronic.  The lender submits information from the borrower electronically to FNMA or some final source for the funding and a determination is based on credit, available assets, debt ratios and loan-to-value (equity or down payment amount.)  There are numerous products available for borrowers with credit issues: Gift down payment source, no income verification, etc.  The electronic underwriting engine will access the credit risk based on the product the borrower is applying for.  Your loan expert should be able to tell you which product would suit your individual needs most effectively.

• Why do rates vary so much when I look in the newspaper?

Most rate quotes in a newspaper are due in at least three days prior to printing.  Since rates could change several times per day it is best to call your lender frequently for interest rate updates.  Some lenders roll in points or other fees when they quote rates.  You should request a “Good Faith Estimate” from the lenders so that you can equitably compare each “loan package.”  Is a 6% with 2 points better than a 6.5% loan with no points?  This can be discussed with your lender to see which product fits your individual needs before you lock in your rate.

• What is a “rate-lock?”

A “rate-lock” is an actual business transaction, which takes place between the borrower, lender and mortgage provider.  The mortgage provider guarantees an exact rate and loan amount attached to a specific property.  The lender promises to hold that rate and the lender secures the note with a pool of similar notes that will be sold and delivered to Wall Street for sale.  The mortgage company may still hold the “servicing rights” (meaning you would make your payment to them but the investors of that pool of funds will provide the actual money for your closing.)

• What is the difference between an “appraisal” and a “home inspection?”

An “appraisal” is required by the lender but a “home inspection” is not.  The appraisal provides an estimate of the true market value of the property at that time and in that specific area.  (This is not necessarily related to the “town Valuation”.)  The home inspection is obtained privately by the borrower.  This service provides, for instance, the life expectancy of the roof and water heater and searches for insect damage leaks potential electrical problems, etc.

• Can a self-employed person or a person with some credit glitches get a mortgage?

There are mortgage products available for nearly every possible scenario.  Generally, interest rate premiums will be charges for borrowers with poor credit, no income that can be verified, little or no down payment, etc.  There are land loans, jumbo (+$300,700) loans and construction loans on the market, to name just a few.

• What is the difference between a fixed or variable loan?

There exist several “hybrid” loan products.  These represent loans that are different than the standard 30-year fixed mortgage note.  Fixed rate loans do not adjust for the life of the loan.  The principle and interest payments on a 15-year mortgage, for instance, remain the same over the life of the loan.  Hybrid adjustable loans like a 5/1 ARM is fixed for the first 5 years but then adjust annually after that.  Variable rate mortgages usually carry lower initial interest rates.  If you intend to live in your home for a 3-5 year period a variable rate mortgage would allow you to take advantage of the lower initial payments.  Some borrowers choose adjustable mortgages to keep initial payments lower or in anticipation of lower future rates.  There exists everything from 1 year ARMs to 3/3 or 10/1 ARMs.  Consult your mortgage professional to review all options before selecting.

• What is a “credit report?”

A “credit report” would probably be obtained whenever you apply for any type of financing.  Generally, a credit score in the 680 and above range is considered good.  Any score over 720 is considered excellent.  Your credit score is based on a number of variables and risk factors.  Payments made to creditors 30 days beyond the due date will lower your credit score.  If your credit card balances are at or near the pre-set credit limits your credit will be negatively affected.  Fixed payment loans such as auto loans or car payments seem to play a major role in your scores and delinquent payments on those will reduce your scores significantly.  Also, if you have applied several lines of credit within a short period of time your credit may be impacted.  If your credit is impaired you can take action to repair it.  Paying off delinquent loans or opening new lines of clean credit will help significantly.  Consult your loan expert for assistance in this matter.

• How much can I afford?

This question was much easier to answer about 3 years ago.  Manual underwritings limited most borrowers to “debt ratios” of 33/38.  This means that 33% of your gross monthly income would represent your total mortgage payment and 38% represented your mortgage payment plus all other monthly debt that was listed on your credit report.  These debt ratios have expanded greatly since electronic underwriting considers the complete credit risk.  This includes down payment size, credit scores, reserves, etc.  For example, if a borrower has excellent credit, a large 401K and 30% to put down, that borrower could carry much higher debt ratios since the underwriting engine would not consider that loan risky.  The opposite would apply to a borrower who had lower credit scores and was putting a minimal deposit down.

• Does it really matter where I get a loan?

Ask yourself this; “Does it really matter what dentist, lawyer or auto repairman I use?”  Of coarse it does.  There exist a wide variety of business professionals in every field of work.  There also exists wide variety of skill levels and experience.  Would you trust a realtor who simply offers you the lowest fees to list your house?  Would you choose the dentist with the cheapest fee schedule?   A mortgage professional is like any other service related business practitioner and it is best to research the company, experience of the individual and trustworthiness of the estimates and quotes you receive.  If you are purchasing a new home or refinancing your current property it most likely represents your largest family investment.  You should demand accurate and honest quotes, useful information and expert mortgage servicing.  The best purchase or refinance closings are those with no surprises or unexpected rates or fees.

• Why consider Plymouth Savings Bank for your mortgage?

Plymouth Savings Bank (www.plymouthsavings.com) is a 155-year-old institution based in Plymouth, MA. We are a billion-dollar bank with a large mortgage-servicing department. We service over 2 billion dollars in mortgage loans throughout MA, RI, CT, and NH. We are best known for our state of the art technology, industry knowledge, customer service, speed and wide array of pilot programs, mortgage products and low rates and fees.

For additional information on mortgage loans or for a confidential interview please contact me directly at:

Anthony T. Geruso,

Business Development Coordinator

Eastern Bank

Phone: 508-824-5720  Toll Free: 800-333-8000

E-mail: A.Geruso@easternbk.com