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Have questions about property loans? We have the answers to frequently asked questions from our clients. Understanding property loans doesn't have to be difficult. Start here for straightforward, honest information.
Refinancing is typically advantageous when mortgage rates are at least 2% lower than your current loan rate. However, even a smaller difference, such as 1% or less, can still make refinancing worthwhile by reducing your monthly payments. For instance, on a $100,000 loan at 8.5%, your payment would be approximately $770, excluding taxes and insurance. If the rate drops to 7.5%, your payment would decrease to $700, saving you $70 monthly. The exact savings depend on factors like your income, budget, loan amount, and interest rate fluctuations. Consult with your lender to explore your refinancing options.
For more information read our article Refinance
A point represents a percentage of the loan amount, specifically 1 point equals 1% of the loan. For instance, on a $100,000 loan, one point would be $1,000. Points are fees paid to the lender to secure mortgage financing under certain conditions. Discount points are used to reduce the interest rate on a mortgage by paying some interest upfront. Lenders might describe costs in terms of basis points, where 100 basis points equal 1 point or 1% of the loan amount.
Yes, if you intend to remain in the property for several years. Paying discount points to lower the loan's interest rate can effectively reduce your monthly loan payment and potentially increase the loan amount you can afford.
The annual percentage rate (APR) is an interest rate that reflects the cost of a mortgage as a yearly rate. This rate is usually higher than the stated note rate or advertised mortgage rate 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 of each loan.
The APR is designed to measure the “true cost of a loan”. It creates a level playing field for lenders and prevents them from advertising a low rate while hiding fees.
The APR does not affect your monthly payments. Your monthly payments are determined strictly by the interest rate and the length of the loan.
Because APR calculations are affected by the various fees charged by lenders, a loan with a lower APR is not necessarily a better deal. The best way to compare loans is to ask lenders to provide you with a good-faith estimate of their costs for the same type of program (e.g., 30-year fixed) at the same interest rate. You can then exclude fees that are independent of the loan, such as homeowners insurance, title fees, escrow fees, and attorney fees. Add up all the remaining loan fees. The lender with lower loan fees offers a cheaper loan than the lender with higher 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 period—often 30 to 60 days—sometimes for a fee.
Credit scoring is a system used by creditors to help determine whether to extend credit to you. Information about you and your credit history—such as your bill-paying habits, the number and types of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts—is gathered from your credit application and credit report.
Creditors utilize a statistical model to evaluate your credit information against the credit performance of other consumers with similar profiles. This credit scoring system assigns points to various factors that help predict your likelihood of repaying a debt. The sum of these points, known as your credit score, indicates your creditworthiness and the probability of repaying a loan on time.
The most commonly recognized credit scores are FICO scores, created by Fair Isaac Corporation. These scores generally range from 350, indicating high risk, to 850, indicating low risk.
Since your credit report plays a crucial role in many credit scoring systems, it's essential to verify its accuracy before applying for credit. To obtain your credit report, you can reach out to the three major credit reporting agencies:
These agencies may charge for a credit report.
You are eligible to receive one complimentary credit report every 12 months from each of the major consumer credit reporting agencies—Equifax, Experian, and TransUnion. This free report may not include your credit score, and it can be requested through the official website:
For tips on how to improve your credit score read our article Boost your credit score before applying for a home loan
Improving your credit score takes time, but with consistent effort, it can be done.
Credit scoring models are complex and vary among lenders and the type of credit being evaluated. A change in one element can affect your score, but improvement depends on how that element interacts with others in the model. Only the lender can explain what might improve your score under the specific model used for your credit application.
Most scoring models assess various types of information from your credit report.
Your payment history plays a vital role in determining your credit score. If your report includes late payments, collections, or bankruptcies, it may lower your score.
Many scoring models evaluate the debt you carry in relation to your credit limits. If your debt is near the limit, it could negatively impact your score.
Credit scoring models typically consider the duration of your credit history. While a shorter credit history might affect your score, it can be balanced by other positive factors like regular, timely payments and maintaining low balances.
Credit scoring models often take into account recent credit applications by examining 'inquiries' on your credit report. Applying for numerous new accounts in a short period can potentially lower your score. However, not all inquiries are considered—those made by creditors for account monitoring or for 'prescreened' offers are usually excluded.
While having established credit accounts is generally advantageous, possessing too many credit card accounts might lower your score. Additionally, some models evaluate the types of accounts you maintain. For instance, loans from finance companies could negatively affect your score in certain models.
In addition to your credit report, scoring models might also consider details from your credit application. This can include factors like your job, how long you've been employed, or whether you own a home.
An appraisal is a professional assessment of a property's market value. Lenders often require it before approving a loan to confirm that the mortgage amount aligns with the property's worth.
A licensed appraiser, who is a trained professional, conducts the appraisal. They offer an expert and unbiased opinion by evaluating the property's location, features, condition, and comparable sales in the vicinity.
For a conventional mortgage, if your down payment is below 20% of the home's purchase price, lenders typically require you to obtain Private Mortgage Insurance (PMI). PMI serves as a safeguard for the lender if you fail to repay the loan.
In certain situations, you could be required to pay up to a year's worth of PMI premiums at closing, potentially costing several hundred dollars.
To avoid this additional cost, consider making a 20% down payment or inquire with your lender about loan options that do not require PMI.
It might seem surprising, but even individuals with high incomes often find it difficult to save enough for a 20% cash down payment on their dream homes. Under conventional financing, these buyers are generally required to purchase Private Mortgage Insurance (PMI), an extra cost that can ironically make it even harder to qualify for a mortgage.
If you're struggling to save for a down payment despite having a good income, don't worry—there are options to bypass PMI. One such option is 80-10-10 financing.
Named for its structure, the 80-10-10 financing strategy involves a traditional lender, like a bank or savings and loan institution, offering an 80% first mortgage. You secure a 10% second mortgage and make a 10% cash down payment. This setup helps you bypass the PMI threshold, eliminating the need for private mortgage insurance.
If your down payment is only 5%, you can consider the 80-15-5 financing option. This involves securing an 80% first mortgage, a 15% second mortgage, and making a 5% down payment. Keep in mind that this option might result in higher loan fees and interest rates due to the greater risk for lenders compared to the 80-10-10 financing.
Ownership of the property is officially passed to you at closing or funding. This process typically involves you, the seller, real estate agents, your attorney, the lender’s attorney, and representatives from the title or escrow company. Additionally, clerks, secretaries, and other staff may also participate.
If you are unable to attend the closing in person, such as when you are out of state, you can appoint an attorney to represent you.
Closing can last from one hour to several hours, influenced by factors like contingency clauses in the purchase agreement or the necessity to set up escrow accounts. Most of the paperwork during this phase, referred to as 'settlement,' is handled by attorneys and real estate professionals. Your direct involvement in each step may differ depending on the professionals assisting you.
Prior to closing, it's important to conduct a final inspection or“walk-through” to verify that all requested repairs have been completed and that items agreed to remain, such as drapes, lighting fixtures, and appliances, are still present.
In most states, a title or escrow company manages the settlement. You will need to send all necessary documents and funds, usually via a cashier's check, to enable the company to distribute the funds appropriately. Your representative will then hand over the payment to the seller and provide you with the keys to your new home.
COMPANY NMLS #1632012
www.nmlsconsumeraccess.org
Licensed by the NJ Department of Banking and Insurance.
Disclaimer: This information is provided solely for informational purposes. This does not constitute a commitment to lend or extend credit. Information and dates may change without prior notice. Every loan is contingent upon credit approval. EZ Access Mortgage LLC does not make any direct mortgage loan commitments or fund any mortgage loans under the advertised programs. EZ Access Mortgage LLC partners with third-party providers to arrange loans.
