» When does it make sense to refinance?
» What is a rate lock?
» What's the difference between a mortgage
broker and a lender?
» Will I save money going directly to
a mortgage lender?
» What is a full documented loan?
» What are the other types of loans?
» What is a good faith estimate?
» What are points?
» What is a pre-qualification?
» Why should I be pre-approved when
I am looking for a property?
» Why Do Mortgage Rates Change?
» Why choose an ARM program?
» How Do ARMS work?
» Can a Bank Change the Adjustment Period?
» What happens after to the fixed rate
period?
» How do I pick an ARM that is best for
me?
» What is a Credit Report?
» What is a Credit Score?
» How do I Increase my credit score?
» What are my Credit Rights?
» How do I fix errors on my Credit Report?
» How do I choose a good lender?
» How can I determine when I should
refinance?
» Why Choose an Interest Only Mortgage?
» What is a Home Equity Line of Credit?
» What are costs associated with buy
a property?
» Why use a Realtor?
» What to do when you have a bad experience
with a Realtor?
» What do I do first when I decide I am
ready to buy?
» How can I avoid taxes, maximize my
deductions & make money with real estate?
» Why should I choose Boulder Financial
as my Realtor or Mortgage Broker?
When
does it make sense to refinance?
Typically people refinance to save money, either by obtaining
a lower interest rate or by reducing the term of the loan.
Refinancing can be used as a way to convert an adjustable
loan to a fixed loan or to consolidate debts. The decision
to refinance can be difficult, since there are several reasons
to refinance.
However,
if you are looking to save money, try this calculation:
Calculate
the total cost of the refinance
Calculate the monthly savings
Divide the total cost of the refinance (#1) by the monthly
savings (#2).
This is the "break even" time. If you own the house
longer than this, you will save money by refinancing. Refinancing
is a complex topic and is best to consult a mortgage professional.
What is a rate lock?
A rate lock is a contractual agreement between the lender
and buyer. There are four components to a rate lock: loan
program, interest rate, points, and the length of the lock.
What's the difference between a mortgage broker and
a lender?
A mortgage broker counsels you on the loans available from
different wholesalers, takes your application, and usually
processes the loan which involves putting together the complete
file of information about your transaction including the credit
report, appraisal, verification of your employment and assets,
and so on. When the file is complete, the lender "underwrites"
the loan.
Will I save money going directly to a mortgage lender?
If you are a reasonably astute shopper, you will probably
do better dealing with a mortgage broker. Mortgage brokers
do not add any net cost to the lending process, because they
perform functions that would otherwise have to be done by
employees of the lender. Furthermore, because mortgage brokers
deal with multiple lenders -- in a typical case, 25 to 30,
sometimes more -- they can shop for the best terms available
on any given day. In addition, they can find the lenders who
specialize in various market niches that many other lenders
avoid, such as loans to applicants with poor credit ratings,
loans to borrowers who do not intend to occupy the property,
loans with minimal or no down payment, and so on.
What is a full documented loan?
Both income and assets are disclosed and verified, and income
is used in determining the applicant's ability to repay the
mortgage. Formal verification requires the borrower's employer
to verify employment and the borrower's bank to verify deposits.
Alternative documentation, designed to save time, accepts
copies of the borrower's original bank statements, W-2s and
paycheck stubs.
What are the other types of loans?
Stated income/verified assets: Income is disclosed and the
source of the income is verified, but the amount is not verified.
Assets are verified, and must meet an adequacy standard such
as, for example, 6 months of stated income and 2 months of
expected monthly housing expense.
Stated
income/stated assets: Both income and assets are
disclosed but not verified. However, the source of the borrower's
income is verified.
No
ratio: Income is disclosed and verified but not used
in qualifying the borrower. The standard rule that the borrower's
housing expense cannot exceed some specified percent of income,
is ignored. Assets are disclosed and verified.
No
income: Income is not disclosed, but assets are disclosed
and verified, and must meet an adequacy standard.
Stated
Assets or No asset verification: Assets are disclosed
but not verified, income is disclosed, verified and used to
qualify the applicant.
No
asset: Assets are not disclosed, but income is disclosed,
verified and used to qualify the applicant. No income/no assets:
Neither income nor assets are disclosed.
What is a good faith estimate?
It is the list of settlement charges that the lender is obliged
to provide the borrower within three business days of receiving
the loan application.
What are points?
It is an upfront cash payment required by the lender as part
of the charge for the loan, expressed as a percent of the
loan amount; e.g., "2 points" means a charge equal
to 2% of the loan balance. Understand that a trade-off exists
between interest rates and points. Most borrowers pay at least
one point on the front and one point on the back when they
close on a mortgage loan. One point is equal to 1% of the
loan amount. Lenders are usually willing to let you "buy
down" the interest rate if you pay more points upfront.
What is a pre-qualification?
This is the process of determining whether a customer has
enough cash and sufficient income to meet the qualification
requirements set by the lender on a requested loan. A pre-qualification
is subject to verification of the information provided by
the applicant. A pre-qualification is short of approval because
it does not take account of the credit history of the borrower.
Why should I be pre-approved when I am looking for
a property?
Do not confuse a pre-approval with a pre-qualification. During
the pre-qualification process, a loan officer asks you a few
questions and hands you a pre-qual letter. The pre-approval
process is much more complete.
During a pre-approval, the mortgage
company does all the work of a full-approval, except for the
appraisal and title search. When you are pre-approved, you
become like a CASH BUYER and have more negotiating clout with
the seller. In some cases (especially in multiple-offer situations),
having a pre-approval can make the difference between buying
a home and not buying a home. In other instances, home buyers
have been able to save thousands of dollars as a result of
being in a better negotiating situation.
Many mortgage companies will
pre-approve you at little or no cost. They typically will
need to check your credit and verify your income and assets.
Why Do Mortgage Rates Change?
We must first ask the more general question, "Why do
interest rates change?" It is important to understand
that there is not one interest rate, but many interest rates.
Prime
rate: The rate offered to a bank's best customers.
Treasury
bill rates: Treasury bills are short-term debt instruments
used by the U.S. Government to finance their debt. Commonly
called T-bills they come in denominations of 3 months, 6 months
and 1 year. Each treasury bill has a corresponding interest
rate (i.e. 3-month T-bill rate, 1-year T-bill rate)
Treasury Notes: Intermediate-term debt instruments used by
the U.S. Government to finance their debt. They come in denominations
of 2 years, 5 years and 10 years.
Treasury
Bonds: Long-debt instruments used by the U.S. Government
to finance its debt. Treasury bonds comes in 30-year denominations.
Federal
Funds Rate: Rates banks charge each other for overnight
loans.
Federal
Discount Rate: Rate New York Fed charges to member
banks.
Libor:
London Interbank Offered Rates. Average London Eurodollar
rates.
6
month CD rate: The average rate that you get when
you invest in a 6-month CD.
11th
District Cost of Funds: Rate determined by averaging
a composite of other rates.
Fannie
Mae-Backed Security rates: Fannie Mae pools large
quantities of mortgages, creates securities with them, and
sells them as Fannie Mae-backed securities. The rates on these
securities influence mortgage rates very strongly.
Ginnie
Mae-Backed Security rates: Ginnie Mae pools large
quantities of mortgages, secures them and sells them as Ginnie
Mae-backed securities. The rates on these securities influence
mortgage rates on FHA and VA loans.
Interest-rate movements are based on the simple concept of
supply and demand. If the demand for credit (loans) increases,
so do interest rates. This is because there are more buyers,
so sellers can command a better price, i.e. higher rates.
If the demand for credit reduces, then so do interest rates.
This is because there are more sellers than buyers, so buyers
can command a lower better price, i.e. lower rates. When the
economy is expanding there is a higher demand for credit,
so rates move higher, whereas when the economy is slowing
the demand for credit decreases and so do interest rates.
This leads to a fundamental
concept:
Bad news (i.e. a slowing economy)
is good news for interest rates (i.e. lower rates).
Good news (i.e. a growing economy)
is bad news for interest rates (i.e. higher rates).
A major factor driving interest
rates is inflation. Higher inflation is associated with a
growing economy. When the economy grows too strongly, the
Federal Reserve increases interest rates to slow the economy
down and reduce inflation. Inflation results from prices of
goods and services increasing. When the economy is strong,
there is more demand for goods and services, so the producers
of those goods and services can increase prices. A strong
economy therefore results in higher real-estate prices, higher
rents on apartments and higher mortgage rates.
Mortgage
rates tend to move in the same direction as interest rates.
However, actual mortgage rates are also based on supply and
demand for mortgages. The supply/demand equation for mortgage
rates may be different from the supply/demand equation for
interest rates. This might sometimes result in mortgage rates
moving differently from other rates. For example, one lender
may be forced to close additional mortgages to meet a commitment
they have made. This results in them offering lower rates
even though interest rates may have moved up!
Why choose an ARM program?
The average American gets a new mortgage once every seven
years. Maybe you're buying a starter home or you transfer
a lot with your job or you plan to pay your mortgage down
significantly over the next 5 to 10 years. For whatever reason,
you probably won't need a mortgage for 30 years. Even if you're
not sure how long you will own your home, if you don't think
you'll be there 30 years you probably don't need a 30-year
fixed rate mortgage. That's because when you move, you'll
need to get another mortgage. And when you do, your mortgage
rate will be whatever rates are at that time.
"30-year fixed rates are
at historic lows." and so are rates on ARM’s. ARM
rates can be almost 2 percentage points cheaper than 30-year
rates. Reality is that 30-year fixed mortgages are some of
the most expensive mortgages available. Instead of paying
the same high rate for 30 years, pay a lower rate for a mortgage
that has a fixed rate for a shorter time. Ideally, you want
to fix your rate for the amount of time you will actually
live in your house or plan to pay off your mortgage.
If you pay extra for a 30-year
fixed term when you don't need a term anywhere near that long,
the extra interest you pay every month is wasted. So, how
can you minimize the amount of interest you pay on your current
mortgage?! To see how much you can save try our calculators.
How
Do ARMS work?
Adjustable Rate Mortgages have a fixed rate for a specified
period of time, usually between 1 and 10 years. After the
fixed period, the rate can adjust. For example, if you see
a mortgage that's a 5/1 ARM, the first number, 5, is the number
of years the initial rate stays fixed. The second number,
1, is how often the rate can adjust after the 5th year, in
this case, annually. (So a 3/3 has a fixed rate for 3 years
then adjusts every 3 years after that.) Just like with a fixed-rate
mortgage, you can still plan to pay the mortgage off over
a long time, up to 30 years, but the rate is initially fixed
at a lower rate for a shorter period and then it adjusts annually
after that.
Can a Bank Change the Adjustment Period?
Banks can't just change the rate after the initial fixed rate
period to whatever rate they like. The rate adjusts based
on a financial index. Banks then add a margin that is specified
upfront and stays constant. So if the 1-year Treasury Bill
at the end of year 5 of a 5/1 ARM is 1.75% and the bank's
margin is 2.50%, your rate for year 6 would be 4.25%. The
rate can be higher, lower or the same depending on where the
Treasury Bill is. Every year after that, the mortgage automatically
adjusts at the Treasury Bill plus the margin.
What happens after to the fixed rate period?
It sounds like rates can still change a lot once the initial
fixed period ends but there are usually both annual and lifetime
maximums, or "caps", on how much the rate can change.
With the 3/1 Orange Mortgage, the rate can adjust - up or
down - a maximum of 2% annually after the fixed term ends,
and 6% over the life of the loan. On our 5/1 or 7/1 Orange
Mortgage the initial rate can adjust - up or down - a maximum
of 5% in the first year after the fixed term ends, and then
2% annually with a maximum, or cap, of 6% over the life of
the loan. The important thing to remember is that your rate
can go up, down or stay the same. It can change annually after
the fixed period only if the 1-year Treasury Bill changes.
How do I pick an ARM that is best for me?
A great way to save money is to pick a term for the ARM that
is close to the time you'll need the mortgage. Let's say you
expect to be in your house less than 7 years or plan to have
your mortgage paid down significantly within that time. Rather
than wasting money paying a higher rate for a 30 or even 15-year
fixed mortgage, choose a 5/1 ARM, where your rate is set for
5 years - and then adjusts automatically each year based on
the Treasury Bill rate after that. If you move, you can shop
around for the very best.
What is a Credit Report?
Each of the three major credit reporting agencies -- Equifax,
Experian, and TransUnion -- maintains information about you
and your credit history. Lenders, employers, landlords, and
service providers buy that information in the form of a credit
report to help them decide whether to approve your application
for a loan, job, or housing.
What is a Credit Score?
A credit score is a rating used by a lender to estimate the
risk a company incurs by lending you money or providing you
with a service. The higher the score, the less risk you represent.
Many lenders consider your credit score in conjunction with
other factors, such as your annual income and how long you've
held your current job. Many different formulas are used to
calculate credit scores, but most are based on the following
factors, which each lender weighs differently:
Payment
history: A record of late payments on your current
and past credit accounts will lower your score.
Public
records: Matters of public record such as bankruptcies,
judgments, and collection items may lower your score.
Amount
owed: Owing too much will lower your score, especially
if you're approaching your total credit limit.
Length
of credit history: In general, a longer credit history
is better.
New
accounts: Opening multiple new accounts in a short
period of time may lower your score.
Inquiries:
Whenever someone else gets your full credit report for example
-- an inquiry is recorded on your credit report. A large number
of recent inquiries may lower your score.
Accounts
in use: Too many open accounts can lower your score,
whether you're using the accounts or not.
How do I Increase my credit score?
Keep in mind that raising your score is just like shedding
those extra pounds: It requires time and patience and there
is no quick fix. The best approach to restoring your credit
is to manage it responsibly over time. If there are errors
on your credit report it is possible to use a rapid rescoring
method.
Here are useful steps you can
take, but be patient if your score needs real improvement.
Obtain a copy of your credit
report and review it for mistakes. Scores range from 300 to
850, with 720 being the number to shoot for.
Pay your bills on time. But
if there's a late notice on your credit report, ask the lender
to remove it as a goodwill gesture. If you dispute an inaccuracy,
it will stay on your report until it's resolved but not factor
into your score.
Use less of your available credit.
Even if you pay off your balance every month, try to avoid
using more than 50 percent of your limit on any one credit
card.
Pay off debt rather than moving
it around. The best way to improve your score is by paying
down your revolving credit. In fact, owing the same amount
but having fewer open accounts may lower your score.
Credit
cards can have a positive impact on your score if you manage
them responsibly. If you make your credit card payments on
time, it will help raise your score and establish your credit
history.
What are my Credit Rights?
The Fair Credit Reporting Act (FCRA) is a federal law that
regulates how credit reporting agencies use your information.
Under the FCRA, credit reporting agencies are required to
give you your credit report upon request. A report may cost
up to $9, but you're entitled to one free report every 12
months if you've been denied credit in the past 60 days, if
you're unemployed or on welfare, or if you're a resident of
Colorado, Maryland, Massachusetts, New Jersey, or Vermont.
Georgia residents can get two free reports each year.
How do I fix errors on my Credit Report?
Many credit reports contain errors. If you find one, take
the steps listed below to fix it as soon as possible.
Step 1: Contact the creditor
regarding the problem
Step 2: Contact credit reporting
agencies
Step 3: Ensure that the error
is fixed
Step
4: Write a statement if you cannot resolve a disputed item.
You have the right to attach a 100-word statement, free of
charge, explaining the nature of your disagreement. Your statement
will become part of your credit file, and will be included
each time your credit file is accessed.
How do I choose a good lender?
While rate is important, you have to look at the overall cost
of your loan. This includes looking at the APR, the loan fees,
as well as the discount and origination points. Some lenders
add origination points into their quoted points while other
lenders add an origination point in addition to their quoted
points. So when one lenders says 2 points they mean 2 points,
whereas another lender means 2 points plus 1 origination point.
The cost of the mortgage, however,
cannot be your only criterion You must also feel comfortable
that the loan officer you are dealing with is committed to
your best interests and will deliver what they promise. Often,
the company that has the absolute lowest quoted rate may not
be the best company for your mortgage business.
How can I determine when I should refinance?
If you decide to refinance, it helps to estimate the break-even
point it takes for the refinancing decision to pay off. The
break-even point is the number of months you need to live
in your home after refinancing in order to recover the costs.
For example, if you pay $2,000
in closing costs to refinance and you lower your monthly payments
by $100, it would take 20 months to reach the break-even point
if you were to calculate it on a straight-line basis ($2,000/$100).
Say you bought your house five
years ago. You borrowed $125,000 at a 10% fixed rate for 30
years. Your monthly payments for P+I are $1,097. You're thinking
of refinancing your loan balance of $120,718 at today's lower
rates. In either case, you want a 25-year loan, since you
plan to be retired and living on less then.
The table below shows you can
cut your monthly P+I payments to $1,013 if you can refinance
at 9%. This is a monthly savings of $84 ($1,097-$1,013). If
you face $2,000 in closing costs, you will break even if you
live in your home an additional 24 months on a straight-line
basis.
Let's
look at another example. Say you decide halfway through your
loan term to refinance. With an 8% interest rate, your monthly
P+I payments on a refinanced loan balance of $102,083 are
$976. This saves you $121 a month. Now your break-even point
is nearer since you can allocate the same closing costs over
fewer months. On a straight-line basis, you can now break
even after 17 months.
In reality, a break-even analysis
is more complicated. But a straight-line calculation gives
you a reasonable estimate. One common rule of thumb is the
2-percent rule, which says that refinancing is a good deal
if you can lower your mortgage interest rate by at least 2
percentage points. But other factors ultimately affect your
decision, such as how long you continue to live in the home.
And as mortgage rates go lower, this rule of thumb is less
and less meaningful.
Why Choose an Interest Only Mortgage?
An interest only mortgage may not seem to make much sense
at first. After all, on an interest only mortgage, you only
pay the interest for a specific amount of time - up to several
years. That means that for the first several years, you are
not paying off the base sum of your mortgage. If you have
an interest only mortgage of $100 000 that has an interest
only term of five years, for example, at the end of five years
you will still owe $100 000. That initial sum will remain
untouched by your interest payments. After the no interest
term, you will be expected to start paying larger sums each
month in order to pay off both the interest and the loan sum.
With an interest only mortgage, you are still responsible
for the entire borrowed amount - only the payment terms are
slightly different than with a traditional mortgage. Many
homeowners find this very intimidating, since they feel they
should be paying off their mortgages as quickly as possible.
A interest only mortgage, however, can save you money in the
long run and can be an excellent financial decision - when
used properly.
Of course, if you spend the
money you save on monthly payments on an interest only mortgage
as disposable income, you really will be behind. However,
if you use the lower monthly payments you can get with an
interest only mortgage to invest or pay off debts, you may
end up ahead. The truth is, an interest only loan offers lower
monthly payments for a specific term - while you are paying
interest only. If you buy a home that needs repairs or work,
you can use this extra money to make repairs which will raise
your home equity value anyway. You can also invest the savings,
building up a nest egg against loss of employment or other
problems that may affect your ability to repay your loan.
Some people use an interest only loan to start up a house
- after all, the buying of a house often creates all sorts
of expenses that must be seen to. Some homeowners even use
the money they initially save on an interest only loan to
pay off debts. If you have many high-interest debts such as
credit card debts, this can make a great deal of sense, since
over time high interest debts will cost you more in interest
than an interest only mortgage.
What is a Home Equity Line of Credit?
If you need to borrow money, home equity lines may be one
useful source of credit. Initially at least, they may provide
you with large amounts of cash at relatively low interest
rates and they may provide you with certain tax advantages
unavailable with other kinds of loans.
What are costs associated with buy a property?
Closing costs. Your closing costs include
points. The IRS also calls these mortgage points, discount
points or origination fees. Lenders that specialize in refinancing
typically charge 1 or more points, with 1 point equal to 1%
of the loan amount. Points are usually the largest closing
cost. You should also expect to pay for other expenses directly
related to processing and approving your application. These
costs may include fees for a credit report, title search,
title insurance, appraisal and recording a new mortgage lien.
Application
costs. Some lenders may charge an application fee
to refinance. Paying a loan application fee is something only
the most desperate of loan applicants should face. If you
have a good credit history, you should be able to avoid paying
a loan application fee.
Escrows.
The title company and lender will usually ask that you pay
one year home insurance in advance. You can often request
less if that is more desireable for you. Addtionally, since
taxes are paid in arrears, you will also pay some taxes in
advance for your escrow and taxes from the beginning of the
year until your date of closing. Additionally, the seller
of the transaction will also be required to pay their prorated
amount of taxes due. It seems like a lot of extra payments.
However, it provides the lender
with a comfortable escrow to initiate you account with and
buyers are often refunded the unused amount at the first year’s
escrow analysis if the amount retained does not match the
amount due. Less frequently, when the escrow is short, you
will be requested to pay the difference or your monthly rate
will be adjusted up to make payments on the amount required
to provide one years taxes and insurance in accordance with
your escrow agreement.
Why use a Realtor?
Buyer services are always free and 95% of the buyers come
from Realtors for that reason alone. Although we pride ourselves
as a full service brokerage and can provide a menu of services
depending on your needs, it is essential that you market your
property wisely, take advantage of the first two weeks on
the market, insure your property gets the highest price, close
the property legally and avoid the common pitfalls of a contract.
For buyers, Realtor representation often results in lower
prices through skilled negotiation, a simpler process and
professional representation for your exclusive interests...and
at no cost to you! By being a full service brokerage, we prequalify
buyers and avoid the #1 pitfall to any contract- buyer incompetence.
For sale by owner (FSBO's) and buyers engaging in those transactions
all expect a reduction in price equivalent to an agent so
why not have someone representing your best interest if you
are a seller or buyer? Additionally, Realtors want to know
if they are going to spend the time driving a client around
that they will be compensated for their time, just like everyone
else who works. When you property goes on the MLS, Realtors
know their commission is protected. Without that, they will
go out of their way NOT to show FSBO's so their time remains
valuable and their commitment to selling or buying a home
is matched by their client’s commitment to them. Using
a Realtor provides you the competitive edge, timely information
and representation in a transaction which more often than
not pays for itself many times over.
What to do when you have a bad experience with a Realtor?
We at Boulder Financial abide by and strive to perform under
the highest of ethical standards. We understand that at times
there are clients of ours that have had bad experiences with
past Realtors. First and foremost, we are committed to changing
your perception and strive to exceed your expectations and
commitment. It is important to talk to your new Realtor about
what your problems were so we can together avoid them in the
future. In worst-case scenarios, the real estate commission
and mediation is available to assist you and all Realtor’s
code of ethics dictates mediation and accountability, so you
can count on our industry to be accountable. We are licensed
and insured and that is your assurance.
What do I do first when I decide I am ready to buy?
Get prequalified! A prequalification letter is simple and
takes only a few minutes. However, in a competitive market,
a prequalification letter with your offer is mandatory. If
you plan way in advance you can even get qualified, which
is a lengthier process up front versus during the contractual
process. Work on your credit and fine tune it so you get the
highest FICO score and the best rate possible. Even the best
of one’s credit can improve…learn how and make
it happen. (Everything is great.)
How can I avoid taxes, maximize my deductions and
make money with real estate?
You can make money and save money investing in real estate
in several ways. Call us for your free 30 min. consultation
and we will be glad to apply your scenario to a long term
plan and provide a current analysis so you know where you
are coming from and where you are going. Although we are not
tax accountants or an attorney, we partner with professionals
including 1031 qualified Exchange Intermediaries to insure
you maximize your gain and trust us without question and enough
to come back over the years. We love referrals and specialize
in creative finance so whatever your goals are, we can accomplish
them. Whether you are buying under market, being a landlord,
improving your property, strategizing with taxes, counting
on market gain, or performing repairs or applying your expertise,
we can structure the path to your real estate goals so you
succeed and your real estate serves as your retirement.
Why should I choose Boulder Financial as my Realtor
or Mortgage Broker?
Boulder Financial clients choose and refer us because we are
committed to their goals and always work in there best interest.
With over a decade of experience, reputation and results,
we engage in technology that streamlines our process and provides
a greater degree of success. Although you do not need to employ
all of our services to use one of our services, we work closely
in the office so your deal is smooth, painless and lucrative.
As a full service brokerage, we consider your whole picture
and advise how you can maximize your gain. We are knowledgeable
of all facets of real estate and have the testimonials to
share with you upon request. Due to our high retention of
clients, we know we are doing something right and are eager
to share our knowledge and expertise with you to exceed your
personal goals with your next real estate transaction. When
you succeed, we succeed!
|
