There are many different loan programs available to suit the needs of all borrowers and their particular circumstances.
Most popular programs include the Conventional Program, the FHA Program, and the Jumbo Loan Program. Payments can be financed through either a Fixed Rate or ARM loan.
Conventional Programs are the standard loan programs provided by all lenders. Unlike the FHA Loan Program, there is no insurance premium, and rates are usually lower. However, this program typically requires a substantial down payment and a higher credit score.
FHA loans are government-insured loans to help buyers with a less-than-perfect credit score, low income, or limited cash available. The greatest benefit is that the down payment can be as low as 3.5%. However, the FHA Program has a one-time up-front insurance premium fee as well as a monthly insurance premium.
Jumbo loan programs are for borrowers with property values that exceed the conforming loan amount limit.
Fixed vs ARM Loans
Fixed Interest Rate Loan
Over the life of the loan, a fixed interest rate mortgage retains the same interest rate and principal payment. Essentially, the principal and interest portion of your monthly mortgage payment will stay the same.
Adjustable Rate Mortgage (ARM)
ARM loans have interest rates that remain fixed for a set period of time, after which they adjust periodically. These adjustments depend on the market conditions and the interest rate index to which the loan is linked.
The table below highlights the differences between fixed and adjustable rate mortgages.
|ARM Loans||Fixed Rate Loans|
|Monthly Payment||Monthly payments are fixed for a period of time, but after the set period can either go up or down||Monthly payments stay the same throughout the life of the loan|
|Interest Rate||Interest rate stays the same for a set period of time and afterwards can change periodically||Interest rate stays the same throughout the life of the loan|
|Biggest Benefit||Initial interest rate is typically lower than a fixed rate mortgage, which may lower the monthly payment for a set period of time||Monthly payment of principal and interest stays the same, which guarantees the rate throughout the life of the loan|
Closing Cost Breakdown
Closing costs can add up, especially if they are being paid all at once. Overall, you can expect them to be to about 3% of the sales price. Throughout the loan process and particularly at closing, there will probably be various fees and other charges. Some of these costs are negotiable with the seller. Your real estate agent can help you negotiate these in the sales contract. You can break down the cost into lender-related, third party, and pre-paid costs.
The cost of a loan is more than just rates and points. Prior to selecting a lender for a specific loan, you should ask what other fees there will be in addition to points. Within three days of application, you’ll be mailed what’s called a Good Faith Estimate of what the loan will cost. And this is just what the name says. It’s basically an estimate. And, in “good faith,” it’s as accurate as possible given the information available at the start of the loan process.You’ll receive an initial Truth-in-Lending disclosure which includes the APR and other financial terms within three days of application. A HUD-1 Settlement Statement will be issued to you shortly prior to closing which provides you with the full disclosure of closing costs. It establishes the total amount of funds you must bring to the closing meeting and itemizes how and to whom the funds are to be disbursed.
Third Party Fees
Third party fees are collected by your lender for services provided by outside parties, such as an appraiser. All lenders typically require these fees. Many of the services are regulated by various government organizations.
Appraisal Fee – Payment for an opinion or estimate of the value of a property. A report is prepared by a professional appraiser to explain the determination of the fair market value. This fee is often paid for at the time of application for a home loan.
Credit Report Fee – Covers the cost of the credit report used to help determine your credit scores. These reports are obtained from credit agencies and evaluate your capacity to pay debts or history of paying debts. This fee is often paid for at the time of application for a home loan.
Mortgage Insurance – Payment for an insurance policy that protects the lender against loss should you fail to make payments. This type of insurance is typically required on loans with a less than 20% down payment. These costs may be paid up-front, included in your monthly payment, or included in your interest rate.
Tax Service – Fee covering the cost of having a tax service agency monitor the payment of your property taxes. If you elect to pay your taxes yourself, the agency monitors the tax rolls for the life of the loan and informs the lender if the taxes ever become delinquent so the lender can take action to protect its lien position.
Flood Check Fee– Covers the Federal Emergency Management Agency’s (FEMA) review to determine if a home is located in a flood zone and whether flood insurance is required.
Closing / Escrow / Attorney Fee – Covers the services of the closing or escrow agent, or the attorney that handles all the financial transfers and payments associated with the closing of your refinance loan.
Title Search – Payment for a written history of the title transactions involving the parcel of land where a home is located, including everything recorded in the public record. The search checks for liens, unpaid claims, restrictions or other problems.
Title Insurance – The premium for title insurance, which protects you, as well as the lender, in case of an unresolved claim affecting the marketable title to the property. There are two policies issued: an owner’s policy for you and a lender’s policy for the lender. Special title binders and endorsements may also be included in this charge.
Homeowner / Hazard Insurance – The premium for a form of insurance policy required to protect against certain risks, such as fires or storms. A regular payment for this insurance can be included in your monthly home loan payment through an escrow or impound account. The cost of the first year’s policy is generally paid at closing.
City / County / State Tax / Stamp – Some states have taxes related to the real estate transaction. These taxes range from a few dollars to 1.75% of the loan amount depending on the jurisdiction. Current states charging mortgage tax include Alabama, Florida, Georgia, Hawaii, Kansas, Maryland, Minnesota, New York, Oklahoma, Tennessee, and Virginia.
Recording Fees and Transfer Taxes – Recording fees and transfer taxes are charged by most states and localities for recording the purchase documents and any liens in the public record and for transferring ownership of the property.
Survey Fee – A fee for the certification of the location of the property, its dimensions, its boundaries, its contour, and the location and dimensions of any improvements. In some cases, the lender can use the original survey done for the purchase of the property.
Inspection Fees – Charges for the various inspections that may be required for the sale, such as property, pest and septic tank inspections.
When you purchase a home, there will be some necessary charges to cover certain costs, such as the interest on your loan, until your first payment is due. These are called “pre-paids” and included the following items.
Pre-paid Interest – When you buy a home, you typically don’t make the first payment until the beginning of the second full month after your loan closes. For example, if you close on January 28, your first payment may not be due until March 1. However, you would pay at closing for the interest on your new loan from the day of closing until February 1.
Escrow Accounts – Escrow or “impound” accounts (also called reserves) are required if your lender will be paying your homeowner’s insurance and property taxes. Your lender sets up the escrow account by collecting 2 to 4 months worth of the annual cost of your homeowner’s insurance and 2 to 4 months worth of your yearly property taxes and any other items covered by your escrow account. At closing, you’ll be required to pay these amounts to fund the account.
Property Taxes – Property taxes for real estate must be paid quarterly, semi-annually, or annually to the local government. Property taxes are the most common expense pro-rated (shared or split) between the buyer and seller. Typically, your closing agent will determine your portion of the taxes from the date of closing. This varies by state
Rates, Points & APR
Interest rates, points, APR… it can all seem confusing. But, it is really all about making the monthly payment fit you and your lifestyle. So let’s look at how you can customize a rate to fit your needs.
Know how interest rates affect your payment The interest rate on a loan is used to calculate your monthly payment. The higher the interest rate, the higher your monthly payment. The lower the interest rate, the lower your monthly payment.
Lower your rate and payment with points Points are fees paid to the lender at closing. Each “point” is equal to 1% of the loan amount. For a $100,000 loan, a point equals $1,000. Two points would be $2,000.With many loans, you can lower the rate by paying more points. If you have the cash, it is a good way to save money on interest over the life of your loan. If you’re low on up-front cash, then go for fewer points.Use the annual percentage rate (APR).
To Compare Loans
Home loans are more than interest rates and points. They also involve other costs. The APR expresses the annual cost of a loan as a percentage, factoring in not only its rate, but the points and other charges over the life of the loan.The Truth-in-Lending law requires all advertisements for home loan credit terms to include the APR. The APR is intended to enable you to compare the terms of loan products of different lenders.To make an accurate comparison, compare loans with the same terms, interest rates and points, and then look at the APR. The loan with the lower APR is the less expensive loan.
Home Loan Process
- Apply: Complete and submit online or phone application, providing information about your home and finances. Our checklist will tell you what you will need to have handy.
- Review: We will review your application and call you with a quick decision, often within 15 minutes.
- Approve: If your application is approved, we will calculate the loan amount to suit your needs and prepare a product comparison so you can select the best loan for you. Initial disclosures for the loan will also be sent at this time.
- Verify: We will then assign you an advisor who is accessible by email or phone. The advisor will contact you to answer any questions. You must provide us with written verification of the information you submitted in your application. We will then order an appraisal of your home and prepare your loan for closing
- Close: Depending on the loan type and state regulations, we will send the closing package to the assigned closing attorney. The closing documents are returned to us by the closer so we can disburse your funds.
Our home loan process is fast, easy and convenient.