About Home Loans & Mortgages

What Are Lender's Fees?

Lenders used to charge a flat fee for their services, but as interest rates have fallen most lenders instead charge separately for several different services that used to fall under the flat rate. Some mortgage experts charge that lenders are trying to make up for lost revenue through such schemes.
Federal law requires that lenders provide a written, good-faith estimate of the closing costs, but it´s still a good idea to shop around for the best value, negotiate any questionable fees, and ask for a full explanation for every one.
Here´s a list of fees you may expect lenders to charge you (although different lenders may use different names):

Loan service fees the lender´s points is also called a "service fee." It´s the largest fee paid to the lender and usually runs between 1 and 3 percent of the loan amount.
Loan application fee it´s usually not refundable, so you´d better make sure you´ll get the loan before applying. Between $0-$350.
Lender´s credit report the lender may pull two reports on you: one after the application, and one just before closing. You only pay once, however, usually between $40 and $60.
Lender´s processing fee here the lender is charging you for the cost of processing the loan. It´s usually between $75 and $125.
Lender´s document preparation fee the cost of preparing loan documents for the closing. Between $0-$200.
Lender´s appraisal fee lenders are supposed to charge no more than their cost for having a house appraised. Between $225-$350.
Lender´s tax escrow service fee a one-time charge to set up and service your real estate property tax escrow. Between $120-$300.
Title insurance cost for the lender´s policy most times, this will be a flat fee. If you want a title insurance policy that´ll pay you if there´s a problem, however, that´ll cost more. Between $120-$300.
Special endorsements to title if the lender requires extra title endorsements (such as for a condo, an environmental lien, etc.), the buyer must pay for them. They usually cost from $15-$50 each.
Pre-paid interest on the loan ? the per-day interestcharge on the loan from the day of the closing until the last day of the month in which you close. This is paid at closing because the lender has to calculate it by hand. After that, you skip a month and begin paying a regular monthly balance because the loan is paid in arrears. The cost depends on the size of the loan and the interest rate.

*The above charges only include the lender´s fees. There are other closing costs that can be expected as well. >>return to index

What Is Private Mortgage Insurance?

PMI is additional insurance designed to protect the lender from people who default on their loans and have less than 20% equity in their property.
About 30% of home buyers can´t afford a 20% down payment. PMI, however, allows them buy a house years before they´d normally be able to afford it.
Mortgage brokers say that home buyers who make small down payments are likelier to default than those who put down the traditional 20%. Therefore, lenders require those buyers to purchase PMI to insure the lender against the extra risk ? and ensuing cost ? of foreclosure.

PMI allows you to buy a home with a small down payment, and helps the lender re-sell your mortgage on the secondary market to an institutional investor.
Most states have regulations prohibiting lenders from making a loan in excess of 80% of the purchase price without PMI.
PMI is paid in monthly installments, a year in advance; a year´s reserve is paid in full at closing. The premium depends upon the price of the home and the type of mortgage.
You don´t necessarily have to pay PMI premiums for the life of the loan. After you´ve accumulated 20% equity in your house, you can usually cancel your PMI premiums (whereupon you´ll get your year´s reserve back). Always make sure, however, that you get a cancellation policy in writing.
The company that purchased your mortgage on the secondary market will be the one who decides if and when PMI can be cancelled, and they usually provide a specific set of rules.
Most lenders will look at the following:

An appraisal ? the lender will want to see that the home´s value has appreciated enough to give you the 20% equity you need to cancel PMI.
Payment history ? lenders will want to see a clean payment record for the previous year or two.
Length of ownership ? most lenders will make you wait at least two years before you can cancel PMI, to develop a track record of on-time payments.

Many buyers ask their lenders for a document stating that their PMI payments will stop automatically when their equity reaches 20%. The most important thing for you to know is that it´s up to you to contact the lender and make sure any agreement is clearly spelled out.
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How Do I Choose the Right Kind of Mortgage?

There are almost two hundred different mortgage options available, but once you examine them you´ll find that there are really only six or seven basic types. It´s just that in today´s personalized banking world, lenders try to offer products that are tailored for everybody´s specific financial concerns.
Choosing the right mortgage depends on several different factors, including your current monthly income, your future expected income, current assets, and liabilities. Other factors might include whether you´d like to pay points up front, or over the life of the loan?
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Do you want to gamble that interest rates will stay low and get an adjustable-rate mortgage (ARM), or would you feel more comfortable paying the same amount every month?

If you plan to live in your house for only 3-5 years, you might consider a 5/25 or a 7/23 mortgage, or a one-year adjustable rather than fixed-rate mortgage.

Here´s a list of some of the basic mortgages that are offered:

Fixed-rate mortgage the oldest and most popular variety, a fixed-rate is constant through the life of the loan, and can be taken out in 10, 15, 20, and the most popular 30-year lengths.
Adjustable-rate mortgages (ARM) have interest rates that fluctuate and are pegged to one-year Treasury bills or another specific index. The initial rate is low, but grows each year. There´s usually an initial yearly cap of two points, and also a lifetime ceiling cap of around six points. The rate can also drop.
Two-step mortgages usually called 5/25s and 7/23s, come in two varieties: convertible (which converts the loan to a fixed loan for the remaining 25 or 23 years) and nonconvertible (which converts the loan to an ARM). Both are 30-year loans with fixed interest rates for the first 5 or 7 years, then change in to convertible or nonconvertible loans for the remainder. Both loans can be amortized over the 30 years. They´re considered riskier than fixed-rates, but less risky than ARMs during the first 5 or 7 years.
FHA mortgage have pre-set spending limits. The amounts are set by the median prices of different cities within a particular area. The best part is that only a 5% down payment is required (sometimes only 3%). However, a steep mortgage insurance premium and other upfront costs are required.
VA loans are designed to help military vets buy homes with no down payment. Also, veterans aren´t allowed to pay points, although they are responsible for some fees. Sometimes that´s a problem because the seller usually has to pay the extra money.
Balloon mortgages these can be any length. Some you pay principal and interest, others only interest. In any case, the loan must be paid in full when it´s due in one of two ways: amortized over 30 or 50 years, and you pay the first 5 or 10 years before paying it off or refinancing; or you only pay the interest until the loan is due.
Graduated payment mortgages (GPM) - were originally designed for first-time buyers so they could pay reduced mortgages early on, but it´s recently been phased out in favor of 5/25s and 7/23s (because they´re simpler to package).
Shared-appreciation mortgages here the lender offers you a below-market rate in exchange for a share of the profits when the home is sold. You get all the tax benefits, and the lender doesn´t make money unless you do. On the other hand, if your home increases greatly in value, you could lose a lot of that profit to the lender. These types of mortgages are most common among first-time buyers working with non-profit groups that help low to moderate income families.
Biweekly mortgage as the name implies, you pay half the amount of a monthly, and it´s paid 26 times a year (instead of 12 times for a monthly), which will ultimately cut down the amount of interest you´ll pay over the life of the loan. Its main drawback is that paying so often can be a hassle. >>return to index

Secrets Lender's Don't Want You to Know

The right or wrong decision when signing your home mortgage can mean thousands of dollars difference in interest paid. There are very important considerations to evaluate before you commit to a 15 or 30 year note. For many of us our mortgage payment is the most important financial decision we´ll ever make. Doesn´t it make sense to know as much as possible about the financing of our home? Take the time to thoroughly investigate all of your options!

Unbelievably, many of us sign the first mortgage placed in front of us. Typically the excitement of the new home purchase reduces the mortgage to not much more than an afterthought. What you read here could save you hundreds or even thousands of dollars. Your real estate professional has established relationships with the top lenders in your area. By aligning yourself with a professional agent you ensure that all the financial steps are taken care of properly and economically.

Utilize a Lender With Established Ties to an Agent - Lenders are much more flexible with the real estate agents who have done business with them previously. This relationship then establishes them as a team. The lender and agent work effectively together, referring each other business. That´s why a good agent can make substantial difference in setting up the most economical financing. And the right financing can, literally, save you tens of thousands of dollars over the life of your loan!

Don´t Attempt Paperwork Alone - All the paperwork required to complete the purchase of a home can be quite intimidating and frustrating for a home buyer. Make sure you have your lenders help you with all the paperwork. Get help from your team, your lender and agent. Their expertise will help alleviate the stress and it will prove to be invaluable before you sign your mortgage.

Look at All Your Options - Make sure you see at least 5 loan programs for your mortgage. Lenders have at least 10 programs and should work with you and your agent on deciding what is best for your circumstances. Evaluate all your options. After all it´s your money you´re spending - not theirs!

Demand Service - There is little difference between a bank, savings and loan, or a mortgage broker when it comes to the competitiveness of their loan rates. The difference is in the service they provide. It is their job to serve you! You want to get the loan approved and move into your new home as quickly as possible, but don´t overlook the fact that you are the one spending the money and they are the ones who should cater to your needs. Don´t let the process become so intimidating that you lose that understanding.

Stay in Complete Touch - You should receive a written report from your lender about every step. This will ensure that no details are overlooked and there will be no surprises.

Negotiate a Flexible Loan - Don´t just accept the terms they lay down in front of you. Lenders are in the business of loaning money and they want your business. Make sure you examine every option available to you. If you negotiate a variable rate loan, many lenders have the ability to move you into a fixed loan if rates start going up. Make sure that you understand whether or not that is an option in the package you are looking at.

Don´t Give Up on the First No - Initial decisions are not always final decisions. Going to a higher authority can sometimes get you the loan, but do so with the assistance and compliance of your lender and agent. Many times special circumstances when explained properly to the person in charge, will win you the loan.

Don´t Wait for the Bottom of the Market - The odds of you hitting the bottom of your market are about like the odds of you hitting your state lotto! You will almost never hit the bottom of a market. And trying to time it exactly right is often costly. It usually causes a person or family to miss out on the opportunity to purchase a very nice property. You´re better off simply negotiating the best rate and terms you can at the time you find a property. If interest rates go down, you can refinance. This is a much better approach because you won´t miss out on the property you´ve spent so much time locating.

Be Honest With Your Lender - Your lender wants to help you with your loan. The only time they get paid is when you get approved. The more information (good or bad) you provide your lender, the easier it will be for them to get an approval. It helps them present the loan in the best light. This in turn helps the loan get the highest approval rating.

Become Completely Educated - Pick your lender´s brain. Lenders will teach you all about your various options, even if you haven´t found the right property yet. They will be very patient with you while you are looking, especially if you have aligned yourself with the right agent. They understand all the up-front work will pay off in future business. Your agent will then continue to refer people to the courteous and service-minded lender on down the line.

Get Prequalified - Lenders will provide you with a certificate of pre-qualification. By getting prequalified you know exactly what financial parameters to stay within. Your agent and lender will consult with you and help you get qualified for the loan that best fits your needs. Many times they are able to get you a larger loan than you may have thought possible. >>return to index

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