Mortgage Info

Published On: April 19, 2009

Here's some information on mortgages. Enjoy!

Your Savings and Down Payment
Your First Step Toward Buying a Home
When preparing to buy a home, the first thing many Homebuyers do is look at
"homes for sale" ads in newspapers, magazines and listings on the internet. Some
potential buyers read "how-to" articles like this one. The next thing you should do -
before you call on an ad, before you talk to a Realtor, before you shop for interest
rates - is look at your savings.

Why?
Because determining how much money you have available for down payment and
closing costs affects almost every aspect of buying a home - including how you
write your purchase offer, the loan programs you qualify for, and shopping for
interest rates.

Mortgage Programs
If you only have enough available for a minimum down payment, your choices of
loan program will be limited to only a few types of mortgages. If someone is giving
you a gift for all or part of the down payment, your options are also limited. If you
have enough for the down payment, but need the lender or seller to cover all or
part of your closing costs, this further limits your options. If you borrow all or a
portion of the down payment from your 401K or retirement plan, different loan
programs have different rules on how you qualify.

Of course, if you have enough for a large down payment, then you have lots of
choices.

Your loan choices include such varied programs as conventional fixed rate loans,
adjustable rate mortgages, buydowns, VA, FHA, graduated payment mortgages
and all the varieties of each.

Shopping Rates
A very important reason you need to have at least some idea of your down
payment is for shopping interest rates. Some loan programs charge a slightly
higher interest rate for minimal down payments. Plus, the interest rates for different
loan programs are not the same. For example, conventional, VA, and FHA all offer
fixed rate loans. However, the rates vary from one program to another.
 
If you shop lenders by phone, the loan officer will be able to tell which programs fit
and quote you rates accordingly. However, if you are shopping on the internet, you
have to have some idea of your loan program on your own.

See how it works?
In addition to the cost noted on the rate sheet above, lenders have certain other
fees they like to collect, too. These can include document fees, processing fees,
underwriting fees, warehouse fees, flood certification fees, wire transfer fees, tax
service fees, and so on. Usually, you will not be charged all of these fees, it is just
that different lenders call them different things. Some of them are legitimate costs to the lender and some of them are simply fees designed to generate additional
income to the mortgage company. They are customary in today's mortgage market
and can vary from around $600 to $1300. In addition, there will usually be an
appraisal fee and a credit report fee. Appraisals and credit reports are usually
contracted out to independent companies even though these are considered to be
lender fees.

Note that it is common for companies who charge higher fees to have a slightly
lower interest rate and companies that charge lower fees will usually have a
slightly higher interest rate. So if you shop entirely based on fees, you may actually
spend more money in the long run because your interest rate may be higher.
The point is that if you want a "no points - no lender fees" loan, then on our rate
sheet above, you may get an interest rate of 7.125%. That is because the loan
officer has to bump the interest rate even further than on a "no points" loan in order
to cover his own company's fees.

If you want a "no cost" loan, then the loan officer has to bump your interest rate
even further. That is because all of the costs on your purchase or refinance do not
come from the lender. The escrow or settlement company involved in your
transaction will charge a fee which must be paid. The lender will require title
insurance and the title insurance company charges a fee for providing this
insurance. If your new lender requires information from your homeowner's
association (if you have one) then the homeowner's association will most likely
charge a fee for providing those documents. If you are refinancing, your current
lender will usually charge at least two fees: a "demand" fee, and a "reconveyance"
fee. The demand fee is charged simply for providing payoff information. The
reconveyance fee is charged because your current lender prepares a document
which releases your property as collateral for their outstanding loan. This document
is called a reconveyance.