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WHAT CLIENTS ASK THE MOST

 

WHAT IS THE CLOSING COST?

Closing cost is the fee the borrower pays at the end of the buying process in addition to the down payment. Generally, it can be divided into two parts: the expense related to the transaction and the other is prepayments. The expense includes the fees charged by the lender, broker, title company, appraiser, surveyor, HOA, recording fee, HOA fee, and the others.  The prepaid portion consists of the interest that you pay to the lender in advance and a one-year insurance premium. If you have an escrow account,

the lender will collect a few months of reserves for the home insurance and the property tax.

 

WHAT DO ALL THESE WORDS AND ACRONYMS MEAN?

LTV(loan to value): This is the ratio of the loan amount to the value(or sales price) of the house.

For example, if the loan amount is $160,000 and the value(sales price) is $200,000, the LTV is 80%.

DTI(debt to income): This is the ratio of the debt to your gross income. For example, if the sum

of your monthly payments is $1000, and your gross income is $2000, your DTI is 50%. It is safe to have

a DTI lower than 45%, but with other compensating factors, you can go as high as 50% for the

conforming loans.

What's a fixed loan? The rate of a fixed rate loan doesn't change and fixed for the life of the loan.

What's an adjusted rate mortgage(ARM)? An adjusted rate loan has an initial fixed period depending

on the loan type. After the fixed period, the rate will change depending on the market. For example, if you have a 3 yr ARM, the rate is fixed for the first 3yrs only.

 

SHOULD I GET A FIXED RATE OR ADJUSTABLE RATE LOAN?

It all depends on your financial needs. A fixed rate doesn't change for the life of the loan. A fixed rate

is what most borrowers choose because of stability and the peace of mind the fixed rate gives. An adjustable rate loan is loans that have fixed initial rates and become adjustable after the initial fixed periods.  If you are thinking of moving out of the house or paying it off in a few years, an adjustable

rate loan might be better for you since it has a little lower initial rate than the fixed rate. However, if

you end up having the adjustable rate loan longer than you anticipated, there is a risk of the rate

going up after the initial fixed period.

 

WHEN SHOULD I REFINANCE?

Before refinancing, there are several things you should look into. Ask me for the amortization schedule

for the new loan and the old one.

It could be beneficial to refinance if the following are true:

  • Your rate is higher than the current market rate.

  • Your loan has mortgage insurance and your property has appreciated enough to get rid of it.

  • Your credit score was lower when you had the original loan.

  • You want to change the loan term.

  • You need some cash out of the house.

  • Your loan is an adjustable loan or balloon loan.​​​

 

WHAT IS AN ESCROW ACCOUNT?

Some states call title companies escrow companies which can lead to some borrowers thinking the

escrow account is related to the title company.
An escrow account actually is an account that the lender manages for your property tax and home insurance payments. Most lenders require you to have an escrow account if your down payment is less than 20%. If your down payment is 20% or more, most lenders allow you to waive the escrow account.

If you waive the escrow account, your monthly payment will be only the principal and the interest.

That means you are responsible for paying property taxes and home insurance premiums directly to

their respective entities when they are due each year. If you have an escrow account, your monthly payment is the sum of principal, interest, 1/12 of property tax, and insurance premiums. The lender will pay the property tax and home insurance to the entities when they are due. The lender usually requires an "escrow cushion" as allowed by state law, by collecting about 3 months of tax and insurance at the closing. If the collected amounts are higher than the actual tax and insurance and it results in a surplus in the escrow account, the Fed rules ask the lender to refund the amount which is over 2 monthly payments to the borrowers.

 

HOW CAN I KNOW THAT I AM GETTING A BETTER OFFER FROM YOU THAN SOMEONE ELSE?

You can ask me and other lenders for an estimated fees sheet in order to compare fees and rates. No matter who you use, 3rd party fees(title company, HOA, etc.) will stay the same regardless of what the fee sheets say. Once you have the estimates, you should compare lender related fees: rates, origination fees, admin fee, processing fees, discount fees, etc.

 

WOULDN'T IT BE BETTER FOR ME TO DO MY LOAN WITH THE BIG BANK?

We work with many wholesale lenders. That means we are not restricted to use one company's loan programs and rates. For prime mortgage loans, we compare lenders and find the best rates for our borrowers every day. For borrowers who don't meet the conforming guidelines, we search for the best loan programs and rates from the many wholesale lenders. Because of this, we can beat big banks'rates and get loans for borrowers who they would turn down.

 

WHAT DOES LOCKING A LOAN MEAN?

Locking a loan means that you accept the offered rate and ask for the rate to be guaranteed for the specific period of days.

The lenders let you lock for 15, 21, 30, 45, 60days or longer. Locking it for longer will cost you more.

If the loan doesn't close within the period, it needs to be extended by paying the extension fee of 0.015% - 0.03%(of the loan amount) per day.

 

CAN YOU FORECAST THE RATES?

Clients often ask for advice on when to lock the loan. Since there are so many things affect the direction of rates, it is hard to predict. The 30yrs fixed mortgage rates move in the same direction as the 10yr Treasury bond yield. You can find the current 10yr Treasury bond yield here, https://www.cnbc.com/quotes/?symbol=US10Y

 

WHAT HAPPENS AT THE CLOSING?

Closing (also referred to as settlement) is the final step in executing a real estate transaction. The closing date is set during the negotiation phase and is usually several weeks after the offer is

formally accepted. Closing usually happens at the title company or any place that you request.

You will bring a cashier's check or wire the fund to the title company and sign the closing documents. When the lender receives all required documents from the title company, the lender will wire the fund

to the title company. Now upon the funding of the loan, the process is finally over. For purchase, the ownership of the property is transferred to the buyer which means you will get the key to your new property. For refinance, you have a new loan with a new lender.

 

WHAT CAN DELAY THE CLOSING?

Closings can be delayed due to a lack of diligence and expertise from anyone involved in the transaction. Also, unseen title or property issues, delayed appraisal reports, or borrowers not providing required documents on time can cause delays. There are many things to watch out for and having a knowledgeable and diligent loan officer can minimize the delays.

 

WHAT IS PMI?

Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan. 

PMI is arranged by the lender and provided by private mortgage insurance companies. PMI is usually required when you have a conventional or government loan and make a down payment of less than 20 percent of the home’s purchase price. If you’re refinancing with a conventional loan and your equity is less than 20 percent of the value of your home, PMI is also usually required. 

If you have any other questions, feel free to email me.

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