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Answers to all of your mortgage questions

There is a lot of discussion regarding sub-prime mortgage lenders in the news, what types of loans do they offer?

Sub-prime lenders typically work with B and C grade credit borrowers who typically would not qualify for a traditional mortgage. Some of these lenders offer programs for individuals who are recently out of a bankruptcy, foreclosure or may have other serious credit blemishes. Its important to point out, not everyone who may have had a credit issue in the past will need to have a non conventional mortgage.

What requirements should I be aware of on a multi family home mortgage?

Investment properties generally are considered a higher risk loan by lenders and will have tougher underwriting guidelines and potentially higher interest rates and closing fees. The lender may require a larger down payment, higher level of income and will take into consideration how many total units (up to 4) for a conventional loan.

If my credit score is below a 670, will I be able to qualify for a debt consolidation refinance to 100% of my homes value?

There are other important variables that will ultimately decide your ability to qualify such as your mortgage payment history, debt to income ratios, assets and your employment history. Many lenders can do 100% financing with credit scores at 620 or higher.

How does the large drop in the stock market affect mortgage interest rates?

A large number of investors who have pulled money out of the market are investing in bonds. More investors choosing to invest in mortgage back securities should help lower mortgage rates in the short term.

I want to apply for a second mortgage but would like to have a fixed interest rate, is that possible?

Most of our lending partners offer fixed rate second mortgages, on a wide range of terms from five to thirty years. Many lenders also now offer a fixed interest rate home equity line of credit. Traditionally this has been a variable loan with an interest rate attached to prime.

We are trying to buy an investment property. Should we refinance our home to take cash out for a larger down payment?

There are a number of factors to consider with this scenario. Many lenders now offer 90% + financing options for investment properties. As a general rule, it is typically cheaper to borrow money against a primary residence versus an investment property. You need to closely examine your existing financing on your primary residence and do a side by side comparison with all of your options.

I bought a home late last year, how long before I can refinance this?

You can pursue a refinance at any time. There may be certain limitations on loan programs that you may, or may not be eligible for on a refinance due to seasoning requirements that loan programs may have. Seasoning requirements refer to utilizing a homes new appraised value versus its purchase price for a refinance during the first year of ownership.

I am applying for a jumbo loan mortgage, are interest rates much higher?

You will only need to apply for a jumbo loan if your mortgage amount will be over $417,000 in most states. Generally there is not a large difference, perhaps a quarter of a point, in mortgage rates on jumbo loans.

I am considering refinancing my home mortgage to consolidate my credit cards, should I look into an interest only mortgage?

Depending on your ability to qualify, there are many benefits to an interest only mortgage including; increased cash flow, payment flexibility and the option to always pay towards your principal balance. We would recommend comparing an interest only mortgage with a traditional mortgage and determine which loan will help you accomplish your financial goals.

I plan to retire in 10 years and want to pay off my house as soon as possible, should I refinance into a 15 year mortgage?

We would recommend you meet with a financial planner to review your entire financial picture. Refinancing into a 15 year mortgage may be an option, but you need to asses how this may impact your savings ability and cash flow.

I am shopping for a new mortgage as a first time home buyer, what does an 80-20 loan mean?

This is a common way for a mortgage to be structured if you have good credit and are hoping to finance 100% of the value of the home. This helps to keep you from paying mortgage insurance and structures a first loan at 80% of the homes value and a second mortgage for the remaining 20%.

Where are interest rates compared to last year?

Mortgage rates have trended back to the same level they were at in November. This is a great time to get into a fixed rate mortgage  as interest rates have settled into a lower trend following last weeks federal reserve announcement.

Is it true that discount points on a mortgage are tax deductible?

Generally discount points are treated as mortgage interest. You are able to write off different amounts on your taxes depending if your mortgage was a refinance or purchase. You should consult your tax advisor to review your specific situation.

I live in California, is there a difference in mortgage interest rates between states?

Mortgage interest rates and closing costs will vary from state to state and lender to lender. Different states may have different required fees associated with specific loan programs. The best way to insure you get a competitive mortgage quote on a California mortgage loan is to compare a few mortgage quotes from top lenders, of the same type of loan program.

Should I refinance out of my present adjustable rate mortgage, my interest rate is locked in until 2009?

This I often a situation that requires a number of follow up questions to best answer. You should analyze these points: How long are you planning to stay in your home, when you rate adjusts initially how much could it adjust up or down, how often will it adjust beyond that, do you presently have any inefficient debt (credit cards). We would also recommend pursuing a free mortgage quote to do an comparison to your present mortgage

The Federal Reserves just announced they would not change rates, does that mean my adjustable rate mortgage will stay at the same rate?

Almost all adjustable rate mortgage loans will adjust based on the terms spelled out in your mortgage note. The feds decision to leave the prime rate at 8.25 will indirectly effect your mortgage by influencing the index that your note is tied into.  It is important to understand that the federal reserve does not directly raise or lower mortgage interest rates when they change the fed funds rate. Changing the fed funds rate, effects how banks borrow money and ultimately is felt in many areas of the economy, but is not directly tied into mortgage interest rates. Mortgage rates are generally priced based on mortgage backed securities and mortgage bonds which can be impacted by the overall economy and factors such as job growth, GDP, housing starts, PPI, CPI and other world economic events.

I just received a mortgage quote and I think I have a pretty good offer for a new mortgage, when do I lock in the mortgage rate?

This is an item you should review with your lender. Every lender's policy is different for how they handle rate locks. Important factors will be how soon you will be ready to close and whether or not there are fees to lock the rate.

I am hoping to buy a new home this year, how do I shop for a mortgage quote?

This will depend on a number of items. Are you a first time home buyer, do you have a home to sell and are their any other contributing factors. Generally it is more advantageous to line up your financing and know that you can get approved for your desired loan amount. Keep in mind that the mortgage market is very fluid so an interest rate quote you received at time of application will possibly change by the time you find your dream home. We always suggest starting the pre-approval process 3-6 months prior to when you hope to move.

Where are interest rates compared to last year?

Mortgage rates have trended back to the same level they were at in November. This is a great time to get into a fixed rate mortgage  as interest rates have settled into a lower trend following last weeks federal reserve announcement.

Will mortgage rates go up or down in 2007?

This is a great question! There is no certain way to predict the future of mortgage rates. We saw mortgage rates drop in the fourth quarter of 2006 and the great news is that over the past 4 years mortgage rates have hovered mostly in the six percent range for thirty year fixed mortgages. Key factors that will impact mortgage rates in 2007 include the economy, inflation and other political world events. One important thing we would mention is there has never been a better time to purchase a home!

What is the benefit to a 40 year mortgage?

The major benefit with a mortgage that amortizes over a forty year term is that it provides a lower payment option than a traditional thirty year term mortgage. A borrower should consider this option if their primary goal is to free up cash flow. The other significant benefit is that this is typically a fixed rate mortgage with a principal and interest payment.

How does the Federal Reserves recent announcement effect interest rates?

The federal reserve elected to leave the current federal funds interest rate alone for a 2nd consecutive session. It is important to understand that the federal reserve does not directly raise or lower mortgage interest rates when they change the fed funds rate. Changing the fed funds rate, effects how banks borrow money and ultimately is felt in many areas of the economy, but is not directly tied into mortgage interest rates. Mortgage rates are generally priced based on mortgage backed securities and mortgage bonds which can be impacted by the overall economy and factors such as job growth, GDP, housing starts, PPI, CPI and other world economic events.

How do I get the best mortgage rate?

The best way to ensure you are getting a good deal on a mortgage is to not focus strictly on the mortgage rate. When you are shopping for a mortgage rate, you should start by comparing multiple mortgage quotes and examine not only the mortgage rate, but closing costs, prepay penalties, loan programs. Typically the best way to get the best mortgage for your individual situation is to compare a few mortgage quotes from reputable companies.

What is an Option Arm?    

This type of mortgage loan is also known as a pay option arm. The option arm typically provides up to 4 payment options for your mortgage payment. There are both 15 and 30 year principal and interest amortizing payment options, an interest only option as well as a minimum payment option. The minimum payment option could allow you to have a $200,000 loan with a payment as low as $643 per month. These loans may benefit you if you are looking for increased cash flow or debt consolidation.

I want to buy a home, but I don't have a large down payment, can I still qualify for an interest only loan?

Most of our lenders offer a variety of zero or minimal down payment loan programs.  You may qualify for an interest only loan or similar program depending on your specific situation.

How Market Conditions Affect Interest Rates

Ben Bernanke, Chairman of the Federal Reserve, lowers interest rates, so mortgage interest rates should go lower, too, right? Not necessarily. Here are a few reasons why mortgage rates typically RISE when the Federal Reserve lowers interest rates:

1. When Bernanke lowers ?rates,? he lowers the ?Federal Funds? rate. It's the interest rate at which large banks lend funds to one another and is a ?short-term? rate. Mortgage interest rates are long-term ? up to 30 years. Longer-term interest rates are sensitive to expectations about inflation. When short-term rates fall ? like the ones the Federal Reserve controls ? borrowing and spending usually increase, which can actually cause inflation. Longer-term rates, like mortgage interest rates, can rise when concerns about inflation increase.

2. Markets are often ahead of the Federal Reserve. Mortgage interest rates are determined every day in active public markets. If those markets believe the economy is slowing, interest rates may fall as markets anticipate that the Federal Reserve might lower short-term rates. This happened in the last half of 2000 when mortgage rates began steadily dropping, even though the Federal Reserve left their short-term rates unchanged. The opposite can happen as well. Mortgage rates can rise well ahead of the Federal Reserve increasing short-term interest rates.

It's almost impossible to accurately predict the future of something as complex as the U.S. economy. However, it is important that we, as mortgage consumers, understand some of these market dynamics. Sometimes, a lack of understanding can cost us a lot of money.

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Pre-Qualified vs. Pre-Approval: What's the difference?

What does it mean to be pre-qualified?

Getting pre-qualified for a loan gives you an idea of how much you might qualify to borrow. You have not actually applied for a loan and the mortgage banker has only your word on your income, assets and liabilities. None of your information has been verified, the loan amount is in no way guaranteed. You may be given a pre-qualification letter that merely states you are likely to be approved for a mortgage. Getting a pre-qualification is generally very fast and you can even pre-qualify for a mortgage online in only a few minutes.

What does it mean to be pre-approved?

Getting pre-approved means that not only have you given the mortgage banker information on your income, assets, and liabilities, but your information has been checked and verified. The mortgage banker may also have pulled your credit report to learn about your credit history and credit-worthiness.

Getting a pre-approval letter means that you are likely to be approved for a mortgage and also states the amount for which you may be approved. It carries a bit more weight than a pre-qualification letter.

However, getting pre-qualified or even pre-approved doesn?t necessarily guarantee that your loan will actually go through. Many things can happen during the process?some lenders may give out pre-approval letters without actually verifying your information or a borrower may not give completely accurate information about his situation.

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Key Questions In Considering Whether To Refinance

Q. Should I refinance?

Sometimes it makes sense to refinance. Sometimes it does not. It depends greatly on what your financial goals are. For instance, wanting to lower your interest rate and/or payment are good reasons to refinance, but there are other factors to consider. Here are a few things to think about:

  • How long do you expect to be in the home?
  • How much equity do you have in the home?
  • How much will your closing costs be?
  • To get that low rate, will you have to pay points?
  • Will your lower payments more than make up for the closing costs, fees and points if any?

 

Q. Should I refinance from an adjustable-rate to a fixed-rate mortgage?

It depends on your situation. Generally, it's a good idea to get the lowest fixed-rate possible. However, if you're in the first year of a five-year adjustable rate mortgage (ARM) and you plan on moving in three years, it may not make sense for you to refinance. However, if the rate on your ARM is about to adjust and you think the rate will go up, then it may make sense to get a fixed-rate mortgage.

 

Q. Are interest rates higher for a cash-out refinance?

The interest rate you pay on a cash-out refinance loan will generally be the same that you pay on a non-cash-out loan. There may be an incremental fee associated with a cash-out refinance loan depending on the specific loan program you choose and the loan-to-value ratio. Using the equity in your home to pay off other bills can be a smart thing. Consider taking some money out to pay off credit cards bills, auto loans and any debt that has interest that is not tax-deductible. You may be able to deduct the interest on the money you take out to pay off that debt. Please consult your tax advisor.

 

Q. When should I ?lock in? an interest rate?

Nobody can predict what interest rates will do. But historically, rates go up much faster than they come down. So if you're thinking about buying a home or refinancing your mortgage, get the good rate now?you can always refinance later if rates drop again. Any near-future drop in interest rates may not be drastic enough to impact your monthly mortgage payment. Of course, every situation is different, so it's important to consider all of your options.

 

Q. Should I pay points to get a lower rate?

If you're refinancing your mortgage, paying points may not be your best option. Points paid on a refinance can be deducted from your taxes only in small increments?1/30th a year for a 30-year mortgage. This means it could be several years before your lower rate makes up for the points you pay. However, if you're buying a home, points paid are a tax-deductible expense for that year. Please consult your tax advisor.

 

Q. Are there really loans with ?no closing costs??

There are few loans that truly have no closing costs. Sometimes lenders will not charge application fees and agree to pay the appraisal and title fees, but they may increase the interest rate. Lenders can also roll the costs into the amount of your loan. So, because you're not paying costs up front, it's called a "no closing cost" loan. While slightly increasing your mortgage might be acceptable to you, keep in mind that it's not really a cost-free loan.

 

Q. How long does it take to refinance?

With Quicken Loans, refinancing normally takes between two and four weeks, depending on a few things:

  • Do you have a recent home appraisal?
  • Are you in an area that appraisers can get to easily?
  • Are there plenty of comparables in your neighborhood?

 

Often times the home appraisal is what takes the longest to obtain. During refinancing booms, appraisers can be difficult to schedule. Also, being prepared helps tremendously to speed the process?have your paperwork ready.

 

Q. How much money will I need to bring to closing?

A general guideline is that you'll need two percent of the purchase price of the home for pre-paid interest to cover the time between the date you close and your first mortgage payment. Some states may also require pre-payment of property taxes. When refinancing however, your old mortgage will most likely have money in escrow that can cover there costs. Some borrowers get short-term loans while this escrow transfers back to them, but most pay the money at the closing knowing they'll get it back when their escrow is returned.

 

Q. How can I reduce my closing costs?

If you're refinancing, you may be able to eliminate some costs by talking to your lender. For instance, your lender might reuse your last home appraisal or your credit report if they're recent enough. Another option may be to have your mortgage lender re-certify some documents (appraisal, title, etc.) for less than the cost of getting new ones.

 

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How do I get the best mortgage rate?

The best way to ensure you are getting a good deal on a mortgage is to not focus strictly on the mortgage rate. When you are shopping for a mortgage rate, you should start by comparing multiple mortgage quotes and examine not only the mortgage rate, but closing costs, prepay penalties, loan programs. Typically the best way to get the best mortgage for your individual situation is to compare a few mortgage quotes from reputable companies.

I want to buy a home, but I don't have a large down payment, can I still qualify for an interest only loan?

Most of our lenders offer a variety of zero or minimal down payment loan programs.  You may qualify for an interest only loan or similar program depending on your specific situation. You can review a variety of loan options with a free mortgage quote.

Getting a Home Equity Line of Credit

Consider getting a home equity line of credit with your mortgage. Here's why:

Credit cards are a good thing, but a home equity line of credit is even better.

A credit card is a revolving line of credit that you use when you need it, and make payments only if you use it. But credit cards can come with a high price ? sky-high interest rates.

A home equity line of credit is also a revolving line of credit that you use when you need it, and make payments only if you use it. But, unlike most credit cards, the home equity line of credit comes with a low price ? rock-bottom interest rates.

And, unlike credit cards, the interest paid on a home equity line of credit is usually tax-deductible.*

Two for the Price of One

It can make sense to take out a home equity line of credit at the same time you get your mortgage, or when refinancing your current mortgage. It's easy to see why:

  • One simple closing for both mortgage and line of credit
  • Up to $100,000 line of credit
  • Low interest rate
  • Make payments only if you use the money
  • Revolving line of credit
  • Low closing costs**
  • Interest paid may be tax deductible*

* Consult your tax advisor.

** Some states require the payment of taxes based on the mortgage amount.

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