It's generally a good time to refinance when mortgage rates are 1-2% lower than the current rate on your loan. Any reduction can trim your monthly mortgage payments. Outside of lowering your monthly payment, there are many other reasons why you may consider refinancing including: "cash out" for home renovations and repairs, "cash out" for college expenses or other investments, lower term to pay your mortgage off sooner, or to consolidate other debts to create monthly cash flow.
A discount point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.
Yes, if you absolutely know you are not going to refinance your mortgage or sell your home for a very long period of time. Otherwise, the answer is typically no because it usually takes too many years to recoup the amount of money that you pay up front. If you don't stay in that mortgage for that entire time, paying the discount point(s) was a waste of money.
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 effected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask lenders to provide you with a "Loan Estimate" detailing 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 lower 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:
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 will allow the borrower to "lock-in" the loan’s interest rate guaranteeing that rate for a specified time period, often 30-60 days.
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.
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.
An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.
On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. Conventional loan programs are available up to as high as 97% Loan to Value (only a 3% down payment required) as long as one of the borrowers is a first time home buyer. There are also programs available at 5%, 10% and 15% down but any loan above 80% Loan to Value will require some form of PMI. You can take the lowest rate available with the additional monthly PMI or you can elect to take a higher rate and have LPMI (Lender Paid Mortgage Insurance), which means you have eliminated the monthly PMI by taking a higher rate and in many cases results in a lower monthly payment. Ask your loan officer to detail the monthly PMI versus LPMI so you can decide which option is best for your scenario.
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 will involve you, the seller, real estate agents, your attorney, the lender’s attorney, title or escrow firm representatives, clerks, secretaries, and other staff. Closing usually takes 1 hour to complete.
Most paperwork at closing or settlement is handled by the title company's staff and real estate professionals. For purchase transactions, if you have closing costs/down payment funds to bring to settlement, you will be typically be informed to wire those funds from your bank account to the title company's bank account 2 days before settlement.
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. Your real estate agent will coordinate the "walk-through".
Settlements for purchase transactions are completed at the title company's office or at one of the real estate agent's office. For refinance transactions, settlements typically take place in your home for your convenience.