How can I compare the rates quoted by different lenders?
here are three considerations in determining the price of a loan. These considerations are the contract rate quoted, the amount of points and/or origination fees associated with that rate, and the length of time the lender will promise to deliver that price to you. For example, two lenders could quote to you a 30-year fixed rate at 8%. However, one lender will quote 1.5 points and guarantee that day’s rate for 30 days. The other lender will quote only 1 point but will not guarantee the rate at all. The rate could easily change before you have a chance to close the transaction. So which is the better price?

What are "points"?
A point is 1 percent of the loan amount. "Discount points" generally vary inversely with the rate quoted -- that is, the lower the rate quoted, the higher the amount of points charged. Discount points are used to adjust the yield on the loan to the institution providing the money. Origination points, such as is common for FHA and VA loans, are generally charged by the lender to offset the lender costs of administering the transaction.

Is a "no-cost loan" really no cost?
There is no free lunch, even in mortgages. Every real estate financing transaction has costs for processing the application, appraising the subject property, administering the transaction escrow, securing title insurance, etc. In a typical "no-cost loan" the lender agrees to pay all of the costs of the transaction for the borrower in exchange for the borrower paying a higher price for the loan. Depending on the individual borrower's circumstance, this may or may not be a "good deal."

What does a "rate lock" mean?
Many borrowers do not want to be surprised at the close of the transaction with a rate which is higher than what was quoted at the beginning of the process. Hence, many borrowers ask that the lender commit or "lock" the initial rate quoted for a period of time sufficient to close the transaction.

When a rate is "locked" the lender is being asked to guarantee the price of a commodity, the price of which changes daily. (Check out the daily changes in the bond market, which is a measure of the price of money on a daily basis.) The longer the lock period, the riskier the position of the lender, hence the higher the loan price (points) charged the borrower.

If I have had some credit problems in the past, can I still get a home loan?
Yes, many lenders specialize in financing for people who have had credit difficulty. Get a copy of your credit report and get negative entries removed by writing to the credit agency. They have 30 days to verify the information or remove it.

What does ‘cash to close’ mean?
Cash to close means the total amount of cash needed to complete a purchase transaction. This cash includes the down payment on the purchase price of the home, an amount of money sufficient to pay all of the transaction costs due from the borrower, and enough cash "left over" to make at least two or three month’s payments.

What is the difference between pre-qualification and pre-approval?
It just makes sense for the borrower to determine what house price they can afford before spending time looking for a new home. Loan officers help borrowers discover what is an affordable home price by asking the borrower a series of questions. These questions include the amount and source of the borrower’s income, the amount of other debt obligations, and the borrower’s history of paying those debts. Based on the borrower’s answers, the loan officer can offer an opinion as to whether the borrower would qualify for a given loan.

Pre-approval generally means that documentation of the borrower’s income, assets, and credit history has been secured and submitted to the lender’s underwriter. The underwriter is the individual responsible for making the lending decision on the loan. Pre-approval is considered a stronger indication of the borrower's ability to qualify and receive financing.

What paperwork does the lender need to process the application?
Generally the lender will require proof of employment and income in the form of paystubs and/or tax returns and proof of assets in the form of bank or brokerage statements. Usually, this documentation and a credit report is sufficient for the lender to determine whether the borrower can afford the requested loan amount. If a property is identified, then an appraisal, property condition report, and preliminary title report will be required along with a complete copy of the purchase contract.

How do I know when it is a good time to refinance?
The old rule of thumb on refinancing held that the interest rate would need to decline by at least 2% for the refinancing to be worthwhile. A more accurate measurement would be to consider the savings in monthly payment, the costs of the loan transaction, and the term of the new loan compared to the old term. The key is to determine whether the benefits of payment savings and/or term reduction exceeds the costs of the transaction.

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