To finalize the sale of the home a neutral, third party (the escrow holder) is engaged to assure the transaction will close properly and on time. The escrow holder insures that all terms and conditions of the seller’s and buyer’s agreement are met prior to the sale being finalized, including receiving funds and documents, completing required forms, and obtaining the release documents for any loans or liens that have been paid off with the transaction, ensuring a clear title to your property before the purchase price is fully paid.
Upon completion of all instructions of the escrow, closing can take place. All outstanding payments and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to the buyer and appropriate title insurance is issued as outlined in the escrow instructions.
A mortgage escrow account is established to pay on-going expenses while there is a loan on the house. These expenses include property taxes, home insurance, mortgage insurance, and other escrow items. Generally, the escrow account is partially funded at closing and the home buyer makes on-going contributions through their monthly mortgage payment.
When you refinance, you might be able to lower your interest rate and monthly payment, sometimes significantly. You might also be able to “cash out” some of the built-up equity in your home, which you can use to consolidate debt or improve your home, among other options. With lower rates, you might also be able to build up home equity faster with a shorter-term new mortgage.
However, these benefits will come at a cost. When you refinance, you’re paying for most of the same fees you paid for when you obtained your original mortgage. These might include settlement costs and other fees, an appraisal, lender’s title insurance, underwriting fees, and so on.
Ultimately, for most people the amount of up-front costs to refinance are made up very quickly in monthly savings. We’ll work with you to determine what program is best for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your taxes.
Using credit scores to evaluate your willingness to repay debt allows us to quickly and objectively evaluate your credit history when reviewing your loan application. While your credit score will play a role in the approval of your loan request, there are many other factors which are considered to establish your overall financial capacity.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. Your FICO score is between 350 (high risk) and 850 (low risk). Credit scores only consider the information contained in your credit profile. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status.
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
An adjustable rate mortgage, or an “ARM” as they are commonly called, is a loan type that offers a lower initial interest rate than most fixed rate loans. The tradeoff is that the interest rate can change periodically, usually in relation to an index, and the monthly payment will go up or down accordingly.
Against the advantage of the lower payment at the beginning of the loan, you must consider the risk that an increase in interest rates would lead to a higher monthly payment in the future. That is the trade-off; you get a lower rate with an ARM in exchange for assuming more risk.
For many people, particularly if your income is likely to increase in the future or if you only plan to hold a property for less than five years, an ARM is the right mortgage solution.
For additional information on Adjustable Rate Mortgages contact one of our experienced Loan Officers.
Private mortgage insurance makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with high leverage lending. Mortgages with low down payments are sometimes the best and only option for borrowers to purchase a home. By purchasing private mortgage insurance, lenders are protected against the inherent risk and will be comfortable with down payments as low as 3% – 5% of the home’s value. This also allows borrowers the ability to purchase a more expensive home than might be possible if a 20% down payment were required.
The mortgage insurance premium is based on loan to value ratio, type of loan, and amount of coverage required by the lender. Usually, the premium is included in your monthly payment and one to two months of the premium is collected as a required advance at closing.
It may be possible to cancel private mortgage insurance when your loan balance is reduced below 75% to 80% of the appraised property value. Recent Federal Legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance has been amortized down to 78% of the original property value.
The Annual Percentage Rate (APR) is not the mortgage note rate. The APR reflects, as a percentage, the total cost of the loan, not just the interest charged. Some of the other costs included in the APR are:
- Private Mortgage Insurance
- FHA mortgage insurance premium (when applicable)
- Prepaid finance charges
- Finance charges
The APR is calculated by spreading those charges over the life of the loan. The result is that the APR is higher than just the interest rate shown on your Mortgage Note. If the interest were the only finance charge, then the interest rate and the annual percentage rate would be the same.
Prepaid finance charges are a class of costs charged in connection with the loan which must be paid upon the close of the loan. These charges are defined by the Federal Reserve Board in the Regulation Z. Those charges must be paid by the borrower. Some examples of non-inclusive prepaid finance charges are:
- Loan origination fee
- Discount fee (points)
- Private mortgage insurance or FHA mortgage insurance
- Tax service fees
- Some loan charges are specifically excluded from the prepaid finance charge list – appraisal fees and credit report fees are two examples of costs that are not prepaid finance charges.
The finance charge is the interest, prepaid finance charges and certain insurance premiums (if applicable) which the borrower will be expected to pay over the life of the loan.
The amount financed is the loan amount that has been applied for, minus the prepaid finance charges. Prepaid finance charges can be found on the Good Faith Estimate and the Settlement Statement (HUD-1 or HUD-1A). The Annual Percentage Rate is based on the amount financed.