Articles & Information Resources Loan Attributes:
The following factors influence the cost of your mortgage to some extent. Familiarize yourself with them. Consult your lender for details:
1. Loan Amount
2. Credit score
3. Down payment
4. Income
5. Loan term - 15 yr, 30 yr.
6. Lock in period - Lenders may charge a fee for higher lock in periods.
7. Type of property: Single family, condominium, co-op etc.
8. Purpose of loan - purchase, refinance, investment
9. Type of documentation - standard vs. non standard (no income verification, no
docs, quick docs)
docs, quick docs)
Choosing a loan:
Conventional wisdom will suggest that you should wait until you muster a 20% downpayment on your house. That is true even today, because it can often get you a better interest rate and save you the expense of private mortgage insurance (PMI). However, today, several loan programs are available and first time home-buyers with steady job and good credit score can buy a house with as little as 3% down. If you do not want to pay PMI, you may opt for a piggybacked loan. Different lenders provide different combinations but typical combinations are 80-10-10 i.e. first mortgage is 80% of the house price, second mortgage is 10% of the house price and you make a 10% downpayment. A piggybacked loan is more expensive than a traditional mortgage, however, if you have to pay PMI, compare the two loans i.e the traditional mortgage with PMI and the piggybacked loan to determine the difference in costs.
Lenders can offer various combinations of interest rates, points, traditional mortgages and piggybacked loans. Tip: Make sure that you compare all lenders on the same attributes i.e. loan type, term, interest rate, points, fees and then compare the costs. Do so on the same day, because interest rates change and if you conduct this exercise over say 1-2 weeks, you will not be comparing them equally.
Online websites like bankrate.com provide a listing of different lenders by state. You can sort the listing based on various criteria including interest rate. If you are applying online, check the privacy policy of the website. Often it is difficult to completely comprehend the 'fine print' on your mortgage application. Review the online application in detail and prepare a list of questions. Request the lender to send you a mortgage application after he has answered all your questions to your satisfaction.
Try mortgage bankers first. They are the lenders. They typically do not write a lot of adjustable rate mortgages but offer aggressive fixed rates.
- Midsize banks and thrifts may be your best bets for adjustable rate mortgages.
- Large banks are best bets for jumbo loans. Check first with your own bank if they offer mortgage products. Being a customer, you may be able to negotiate a better rate than elsewhere.
Read ‘Types of Mortgages’ in this section for an overview on popular loan programs.
Other Areas of Focus about the lender:
Don't focus on the interest rate alone. When you shop for a loan with different lenders, pay attention to the following:
- Is the lender professional? Documentation? Disclosures? Does he meet his time commitments? Are you comfortable working with him?
- Once you have applied for a loan the lender is required to disclose the APR or the annual percentage rate on the loan within three business days. Has he done that?
- Obtain a 'rate lock' confirmation in writing.
- Request a good faith estimate before choosing a loan. Compare your good faith estimate to final closing costs and discuss differences if any with the lender.
- If you are unsure about the lender's credentials, contact the better business bureau to get a brief background about the lender. Website: www.bbb.org
- You may also request for some recent customer references.
- Ensure that you have the lender's commitment to meeting your 'close' and
'escrow' obligations. Delayed closures can be a nightmare for the homebuyer. - Define in writing how exactly the price will be determined at close.
Points:
Lenders may offer you the option to 'buydown' the rate by paying 'points' upfront. Points are fees expressed as % of the loan amount that the lender may charge you. For e.g. a 0.5% point for a $ 100,000 loan is $ 500. By paying points, you will be able to reduce the interest rate on your loan and consequently lower your monthly payments and save on the interest expense you will incur over the life of the loan. However, consider the following trade-offs: If you are cash strapped at closing, you may elect a loan option without points and pay off the mortgage as early as you can to save on interest expense or incur the upfront expenditure of paying points as a part of your close. The trade-off depends on your individual situation. Also consider the opportunity cost of investing the amount you may pay towards points i.e. investing the cash elsewhere towards other uses.
We recommend that you do not look at ‘points’ in isolation but in combination with the other attributes of the loan.
Private Mortgage Insurance:
Lenders can charge you PMI or private mortgage insurance if your downpayment is less than 20% of the appraised value or sale price of the property you intend to buy. This allows you to obtain a mortgage with a lower down payment and protects the lender from default. PMI depends on the size of the loan, amount of downpayment and credit score of the borrower. You can avoid PMI by considering: piggybacked loans. The anawise.com service automatically helps you create a piggybacked loan structure if your downpayment is less than 20%.
