How are interest rates determined?

Interest rates are influenced by current economic conditions and activity and they often adjust a couple of times a day. These changes can be attributed to the current demand for credit.  As the demand for credit increase, rates do as well.  Another way to gauge rate fluctuations is by watching the stock market.  A good, but basic, rule of thumb is that if the stock market is doing well and going up, then there is a good chance rates are going up as well.  Put simply, if people are putting their money into the market, then rates will rise to try attract investors out of the market and back into mortgage securities.


Will homeowners insurance be required at closing?

Yes, proof of homeowners insurance will be required before you can close your loan. Whether a refinance or purchase transaction, proof of insurance in required.  The insurance premium is most often paid at closing for purchases.  Refinances can be different as individual’s premiums are due at different times of the year. This can easily be identified during the initial stages of the loan process.


 What is PMI? And will I have it on my loan?

PMI or Private Mortgage Insurance is an insurance policy taken out by the lender on your particular loan that is designed to protect the lender in case you default on your loan and the lender cannot recover what is owed to them.  If any one loan against your property exceeds 80% of the value of that property then you will have mortgage insurance.  Mortgage insurance protects the lender, not you, and the cost can vary depending on loan to value, type of transaction, credit score, debt ratio, etc.  I always like to discuss all options regarding this with clients, because depending on certain criteria, there are ways to reduce the amount you have to pay and there are ways to avoid it entirely.  You’re welcome to contact me if you would like more information.


 How much are typical closing costs?

Closing costs can vary depending on the lender you choose to work with, the loan program you settle on, the amount you intend to put down on the home, the monthly maintenance costs of the home (i.e. property taxes and homeowners insurance), etc.  For instance if you work with a lender that typically charges origination points vs. one who does not, then all else being equal you pay more in closing costs if you go with the one charging points.  There can be other fees that influence the final number as well; the best way to get an idea for total costs is to contact me with the basic information and I would be happy to give you an estimate.


 Do I need to sell my current house before I buy a new one?

This is definitely not a “one size fits all” question.  The main factor that influences this answer is what is called the debt to income ratio.  If you have found your dream home, but have yet to get your existing house sold, then logically you are going to have two house payments, two insurance payments, and two property tax bills. The question here is: Is the amount of outgoing cash monthly for two houses too high for the income I have coming in?  Not hard to find out, feel free to contact me with the basics and I’ll crunch those numbers for you.


How much money do I need to buy a home, how much down payment do I need?

A common misconception is that nowadays you have to have a suit case full of money to bring to closing or there are no loans available to you; this is certainly not the case.  With qualifying credit scores and other criteria there are conventional loans that offer as low as 3% down and FHA loans that offer only 3.5% down.  It can be easy to look at a homes sales price and simply multiply that by 3% or 3.5%, but there are some big differences between the two loan programs. For that reason I suggest getting pre-qualified before you go home shopping.  That way you have an accurate idea of what it will actually take in dollars to get you into a particular home.  Together we can figure out what is the best possible option for you, not only short term, but long term as well. Feel free to contact me and we can have some solid numbers in no time.


How do I know if it “makes sense” to refinance?

If you talk to 10 lenders, you’ll probably get 13 different answers to this question. At the end of the day, it might make sense for one person to refinance, while it might not for another.  One of the many ways to look at it is simply; does it help my financial situation? If refinancing can allow you to lower your monthly payment and relieve some stress, or reduce your interest rate to a point where the benefit outweighs the cost, or if there are other debts at higher interest rates that could be included then maybe it makes sense. The best way to determine if it’s in your best interest to refinance is to contact me and I would be happy to help.  Many of my referred clients have come from those who didn’t refinance.  That is because I will look at your situation with you and go over all the short and long term benefits and costs and together we can assess if it’s really in your best interest to refinance.


Can a parent, friend or relative help me out with the down payment?

Short answer, yes, but it is contingent upon other qualifying factors and the particular loan program you choose to go with.  Traditionally, if gift funds are to be used for down payment then the loan program would fall into FHA, but depending on how much you will be gifted there are options to do a conventional loan as well.


How can I increase my credit Score?

By sitting down with a qualified individual, myself as an example, you can identify what exactly is hurting your credit or keeping it from getting it to the level you want it to be.  Below are some basic factors, which most people know, that do affect your score.  Although, keep in mind that there are details within each persons report that is specific to their situation so if you contact me we can discuss what specifically you can do as the below factors do not encompass all elements of a credit score.

  •  Pay your bills on time: Granted this one is a little obvious, but late payments and collections can have a serious impact on your score and there tends to be a lasting impact while that late payment is still on the report.
  •  Do not apply for credit frequently:  The thought process here, in my opinion, is that if you are applying for every credit card being offered to you when you buy something at the mall then you may be looking for ways to supplement your income. This, as you can imagine, is frowned upon by the otherwise happy-go-lucky credit bureaus.
  • Reduce your credit-card balances:  The term to focus on here is “credit utilization”.   If you are maxed out on your credit cards or even carry a high balance month after month the assumption is that you are living beyond your means.  The goal should be to keep your balance less than 30% of the credit limit extended to you.  Ideally, if you can pay it off each month it will be beneficial to your credit score.  So all of you frequent flyer card users, do not fret, just pay it off monthly and you’ll get a credit boost and build up those miles.


What are points and should I pay points on my mortgage?

Points are essentially our industry’s way of saying percentage points. For instance 1 point represents 1% of a loan amount. So if you have a loan for $100,000 and you are being charged 2 points, you are being charged 2% of $100,000 or $2,000.  The best way to analyze whether it is worth it to pay points is to perform a break-even analysis.  Let’s use the numbers we from above:

Scenario:  Paying 2 points on a $100,000 loan gets you the rate you want, so you are paying $2,000.

Step 1: Calculate how much monthly it will save you to lower the rate; let’s say it saves $50 per month.

Step 2:  Divide the cost of the points by the monthly savings to come up with the number of months to break even.

Step 3:  In this case $2000/$50 = 40 months. So if you plan to keep the home for longer than 40 months, then there is a valid argument for paying points.


Should I refinance now or wait?

Rates, by and large, are at historic low levels.  Could they go up? Of course, so if you have a higher rate of interest than what is available it might be time to pull the trigger.  Although, it is important for us to discuss what actual savings you will receive opposed to the cost of refinancing as it doesn’t always make sense.  Another reason to do it now may be that you currently have mortgage insurance and the value of your home is to a point where your loan balance is near the 80% loan to value mark.  Refinancing now would be a great way to eliminate that hefty mortgage insurance payment.  Every situation is different and if you work with a lender with your best, long term interest in mind it can be easy to determine if now is the time.  Feel free to contact me  with some basic information and I would be happy to discuss with you if it’s the right time to make the move.


Can I pay off other debt by refinancing?

Certainly. A cash-out refinance can offer numerous benefits that other loans types cannot.  Mortgage interest is tax deductible, unlike credit cards, auto loans, etc.  By rolling this debt into your home it allows you to write that interest off your taxes.  Usually, most other types of financing come with a higher interest rate, so in addition to the tax write off you may be able to significantly reduce the interest rate.


Do I always need an appraisal and who pays for it?

Yes, in most cases you will need an appraisal. However, depending on the loan program you are going with there are a select number of programs that do not require an appraisal.  These programs are designed for specific properties or individuals who have specific loan programs already in place.  The FHA Streamline is a good example of a loan program that, if you fit the criteria, you will not need an app


What things do I need to apply for a mortgage loan?

Having basic information such as social security number, date of birth, address history, and employment information handy is a good start.  Income documentation is usually determined by the type of work you are in.  Below is a list of items that will allows us to get the ball rolling, but feel free to contact me if you are curious which specific income items will pertain to you.

  • Pay stubs for the last two months
  • W-2 forms for the past two years
  • Bank statements for the past two months
  • Two years of federal tax returns