Shopping For A Loan

• What’s the fundamental difference between a bank and a mortgage company?

The fundamental difference between a bank and a mortgage company is that typically a bank offers a minimal number of program choices. Basically, their selection is limited to what they can offer, whereas a mortgage company can offer the products of several banks and even other mortgage companies.

• Does it matter where I get a mortgage?

It matters greatly where a client gets their mortgage because even more important than the rates or the loan itself, are the ethics, service, and reputation of the lender. It doesn’t matter if a lender quotes the lowest rate if that rate is unavailable when you go to close or if “mystery charges” appear on your settlement sheet, of if they are unable to close the loan at all!

• How much can I afford and how much should I put down?

Determining how much of a home you can afford is a complex process of analyzing income, assets, debt, credit history and property data. There are literally hundreds of mortgage programs available. Only a professional mortgage representative can properly evaluate this information and ultimately determine what down payment is appropriate.

• What’s the difference between being pre-qualified and being pre-approved?

There is a significant difference between being pre-qualified and pre-approved. A pre-qualification certificate states that you should be able to obtain financing for the amount requested subject to verifying all of the information as stated. There are so many disclaimers in a pre-qualification that the “certificate” is largely worthless. The only value is in giving you an opinion as to your financing capabilities. A pre-approval, on the other hand, is a formal commitment with only a minimal number of conditions. This commitment can often make the difference in getting your offer accepted in a competitive situation since most sellers won’t feel comfortable taking their property off the market for a client that might not get approved.

• Is my credit important?

There is no single factor more important than your credit report. Credit agencies are now using a numerical scoring method to determine whether or not you fit into the guidelines of the program. The score is based upon timeliness of payments, amount of lines of credit that are open, balances, and number of inquiries on your report. NOTE: applying for financing in several different places can lower your credit score!

• What type of loan should I get?

There are a broad range of program choices from conforming fixed to jumbo (greater than $252,700), Government loans (FHA/VA) and one, three, five, seven, and ten year ARM’s. There are programs that do not require any down payment. There are programs for those who have had credit issues. The process of determining which loan is the best involves analyzing all of the program features and matching them to your resources, needs and objectives.

• How long can I lock my rate?

Rate locks are typically for a period of 45-60 days. You can lock in at application or any time in the process up to a few days before closing. It is possible to lock in for 90, 120 days or more. However, there may be an additional cost for extended rate locks.

• What are points?

Points are prepaid interest. A point is 1% of the loan amount. Most loans have several rate/point options. On a fixed rate each point allows you to get the rate .25% lower (this may not necessarily be true of ARM’s). How long you anticipate staying in the property is the most important consideration in determining how many points you should pay.

• How much will I pay for closing costs?

Closing costs vary depending on the program and lender selected. Typically they run about 1% of the loan amount. On a refinance they can be added in to the loan amount. On a purchase there are some creative techniques to “finance in” the closing costs, and your loan officer should be able to explain this to you.

• What is PMI?

Private mortgage insurance (PMI) is a monthly insurance cost which protects the lender if you are unable to make your mortgage payment. Coverage is required when the down payment is less than 20%. There are some creative techniques involving blended and self -insured loans which may eliminate or minimize this cost.

• What is a property appraisal?

The property appraisal is a report by an independent source on the value of the property being financed. The property is evaluated on its individual merits as well as compared to three similar properties in the area. Location, condition, features, and the age of the property are all factors in determining the property’s value. Lenders will finance based upon the lesser of the sales price and the appraised price. NOTE: A property’s assessed value is the town estimate of value for tax purposes and does not necessarily reflect market value!

• How long does it take to get a mortgage commitment?

A mortgage commitment is the lenders approval of your mortgage. Typically the process takes about 1 month however, with proper documentation, the time can be shortened to within 1 week!