Yes, if you plan to stay in the property for a least a few years. Paying discount points to reasonable the loan’s interest rate is a good way to reasonable your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. 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.
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 homebuyers 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 reasonable APR is not necessarily a better rate. The 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 reasonable 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:
Below is a 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.
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 Obligations
Credit scoring is a 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.
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
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.
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.
The same principle applies if you can only afford to make a 5% down, 80-15-5 financing is also available. However, because a smaller cash down payment increases the lender’s risk of default, do not be surprised when you are asked to pay higher loan fees and a higher mortgage interest rate for 80-15-5 than you pay for 80-10-10.
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, title or escrow firm representatives, clerks, secretaries, and other staff. You can have an attorney represent you if you can’t attend the closing meeting, i.e., if you’re out-of-state. Closing can take anywhere from 1-hour to several depending on contingency clauses in the purchase offer, or any escrow accounts needing to be set up.
Most paperwork in closing or settlement is done by attorneys and real estate professionals. You may or may not be involved in some of the closing activities; it depends on who you are working with.
Prior to closing you should have a final inspection, or “walk-through” to insure requested repairs were performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.
In most states the settlement is completed by a title or escrow firm in which you forward all materials and information plus the appropriate cashier’s checks so the firm can make the necessary disbursement. Your representative will deliver the check to the seller, and then give the keys to you.
A mortgage is a loan used to purchase real estate, typically a home, where the property itself serves as collateral for the loan. In other words, when you take out a mortgage, you are essentially borrowing money from a lender in order to pay for your home and then pledging your home as security for repayment of that loan.
Mortgages come with varying terms and conditions that define how much you borrow and how long it will take to repay the loan. Common features of mortgages include fixed rates or adjustable rates (which can change over time depending on interest rate fluctuations), fixed repayment periods (generally 15-30 years), or even interest-only loans with no principal component which are usually associated with adjustable than fixed). Additionally, some lenders may require private mortgage insurance if the equity of your down payment isn’t great enough so they can be sure they won’t lose their money in case of default.
A key factor to consider when taking out a mortgage is what kind of risk you’re willing to take on as an individual or family. Generally speaking, longer-term mortgages mean lower monthly payments but more overall interest paid by the borrower. Shorter-term mortgages could mean higher monthly payments but more equity in their homes sooner due to paying off debt faster while saving them on the total amount spent via interest. No matter what type of mortgage option you choose though, make sure it fits within your budget now and throughout its duration so that homeownership remains enjoyable rather than stressful!
Yes, you can use home equity to borrow money. Home equity is the difference between your house’s market value and the amount you owe on your mortgage. In simpler terms, it is essentially borrowing against an asset (your home) in order to access cash that can be used for a variety of purposes.
Many people use home equity for major purchases such as financing a college education, making renovations or repairs, medical expenses, investing in stocks and bonds, or even taking vacations. With a conventional loan, you are able to borrow up to 85% of your total available housing equity. On the other hand; with a line of credit (HELOC), there are no maximum limits when it comes to how much you can borrow against your property.
However; before deciding to take out a loan using your home’s equity as collateral – make sure that this kind of investment makes financial sense for you given your current circumstance and long-term goals. Taking out a large sum of money could put a strain on already existing debt payments – so be sure to consider all possibilities before moving forward with this type of plan. Additionally – bear in mind that although borrowing from existing housing equity does have perks such as tax deductions -in some cases – high-interest rates could outweigh these benefits if not managed carefully over time!