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Will
I be charged points?
Sometimes a loan is only available if
you pay points. Points are relative to
your interest rate and how long you plan
on owning the property. In addition, how
much you have in funds for closing is
another variable. We'll let you know up
front if it makes sense for you to pay
points or not.
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What
items must be prepaid?
Various items, prepaid interest, property
taxes and homeowner's insurance must be
paid in advance. These are determined
by your situation and the particular investor.
These are disclosed to you at closing.
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How
long will I be guaranteed the quoted interest
rate?
Typically your rate is locked 30 to 60
days to allow for meeting closing conditions.
In some instances you may lock a rate
for a longer period of time for a fee.
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How
long will the approval take?
This varies depending on the complexity
of your loan file, the length of time
an appraiser may take and several other
factors. This is also determined by current
economic market conditions. When you apply
we will give you our best estimate of
your approval period.
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What
application fees are charged and what do
they cover?
Typically, lenders charge an application
fee which covers the cost of a credit
report, an appraisal to determine the
value of the property, and a determination
as to whether your property is located
within an area prone to flooding. This
may vary due to state laws and requirementsSome
lenders may not charge an application
fee, but may increase the loan rate or
other costs to cover these charges. It's
important to have a clear understanding
of the services covered by the fee and
how they may be paid.
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How
much documentation will I need to supply
to verify the information I provided on
my application?
Every situation is different. Once you
submit your loan application you'll receive
a customized list of the oducments you'll
need to provide. If you apply over the
phone, you'll receive this list within
three business days or go to our section
on the website, "What
Do I Need to Apply?" and print
out our checklist.
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What
if I can't supply the standard documentation
necessary to get a loan?
We offer special loan programs that include
low documentation or even no documentation.
You can indicate how much documentation
you'll be able to provide in your initial
application, or you can call your loan
officer for more details.
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Should
I Pay Points?
If someone asks you what's the better
deal when purchasing a home-a 30-year
fixed rate mortgage at 9.5 percent interest
plus three points, or one at 10.25 percent
interest plus one point-what would you
say? Just as in choosing the right mortgage
product, the answer depends on how long
you expect to stay in the property. Comparing
prices of different mortgages can, however,
be complicated. In addition to the interest
rate, lenders may charge for discount
points, origination fees, the appraisal,
title and credit reports, and other miscellaneous
items.
Discount points and origination fees
(also referred to as points) are usually
the largest fees lenders charge, so they
make the most difference in determining
which scenario is better. For this comparison,
don't worry about the other miscellaneous
fees, such as the appraisal, title and
credit reports. These charges are much
less significant than points. Each point
paid equals 1 percent of the loan amount,
so if $100,000 is borrowed and you have
to pay three points, you are actually
getting $97,000. However, you have to
repay $100,000, and have to pay interest
on $100,000. The reason lenders charge
discount points is to change the interest
rate that is paid. The more points, the
lower the rate, and vice versa. It can
make sense to pay points. Here's why:
Points and Fees, Interest Rates and
APR
The real interest rate may also be called
the effective interest rate but it is
most often referred to as the annual percentage
rate (APR). The APR is the rate for loans
that are paid over a full term. For a
30-year loan at 9.5 percent plus the three
points paid over a full 30-year term,
the effective interest rate, or APR is
9.875 percent. After applying for a loan
to purchase your home, the federal truth-in-lending
law requires lenders to disclose the loan's
APR within three business days for such
purchases. The problem is the APR calculation
assumes that a loan will be kept for its
full term. Most people sell or refinance
their home within 6 to 12 years.
Example: If the $100,000 loan
is repaid in 6 years rather than 30 years,
its APR would be 10.25 percent, and not
9.875 percent. You need a computer or
financial function calculator to determine
the APR precisely, but the following formula
is a fairly accurate way of estimating
it for comparison shopping:
The Number of Points divided by 6 + the
Quoted Rate = APR
When keeping a loan for more than 12
years, divide the points by 8 instead
of 6, and for 4 to 6 years, divide by
the number of years. Now getting back
to the question, which is better? Using
the formula above, you'll see the first
choice is better.
#1: 3 points divided by 6 + 9.5 percent
= 10.000 APR
#2: 1 point divided by 6 + 10.25 percent
= 10.42 APR
It may not seem like a big difference
in percentage, but it can add up to a
substantial amount you will pay over the
life of your loan. With this simple formula,
now you can feel more comfortable in determining
which mortgage pricing is best for you.
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