You would refinance for the following two reasons:
1. To save money. You would do this by refinancing into a new, lower rate and dropping your payments, or look at additional options. By reducing the term on your mortgage, you would save significant amounts of interest by paying your loan for fewer years. By switching from a 27 year to a 15 year term, you might be increasing your payment, but you'd be maximizing your savings by doing so.
2. To cash out funds for other uses. You might want to cash out a higher amount than your current loan for several reasons. You could consolidate debt, finance home improvements, or cash out for other investments. In all cases, you would have to disclose the purpose of the cash-out funds.
]]>In addition to mortgage insurance for conforming conventional loans, there are two other types of mortgage insurance – required MI for FHA and VA loans.
PMI, short for Private Mortgage Insurance, is the type of insurance found on conforming conventional loans. Typically private companies will provide the MI. They will individually set their own product guidelines, pricing, and make approval decisions.
MIP, short for Mortgage Insurance Premium, is the type of insurance required for FHA (Federal Housing Administration) loans. No matter the down payment other than 15 year fixed rate in some cases, MIP is required. For most loan terms and down payments, MIP is paid in both an upfront premium and an annual premium. This annual premium is actually paid monthly by the borrower.
The Funding Fee is for all VA loans. Unless the veteran is exempt from the fee (usually if disabled while on duty or if it’s a surviving spouse from a veteran who is KIA), the fee is typically financed into the loan amount. For the funding fee, there is no monthly payment. A first-time use veteran with 0% down will pay a 2.15% funding fee. Subsequent use, or if the veteran is part of the reserves rather than active duty, will increase the funding fee.
]]>You are required to pay the annual mortgage insurance premium for at least five years. After five years, whenever your loan reaches 78% of the original sales price or appraised value, whichever is lower, the mortgage insurance is canceled.
On a conventional loan:
Annual Premiums: Annual premiums must be paid for a minimum of two years no matter what. After two years, there are two ways to cancel mortgage insurance by contacting your servicer (they are the ones who instruct the MI companies to cancel the policies).
When the borrower’s loan amount reaches 78% based on the original sales price or appraisal, whichever is lower, by law the mortgage insurance must be canceled.
When you believe your loan is 80% or less due to an increase in value in their home, you may order an appraisal at your own expense and appeal to your lender for mortgage insurance removal. The lender may deny the request for cancelation if:
-You have a second mortgage.
-The property has declined in value and does not have 20% equity.
-You had a payment late by 30 days or more within the year preceding the cancellation date, or late by 60 days or more within the previous two years.
Source: http://www.mtgprofessor.com/a%20-%20pmi/how_do_i_cancel_pmi_(ii).htm
]]>And any additional questions that you would have.
2. Pre-approval: A pre-approval is something that you will typically need to put an offer on a property. A seller, before they take their home off the market, will want to know that you are already approved for financing. This will require enough information to run credit, and documents that prove your income and assets.
3. Contract: Shop for a home and write an accepted offer: Once you have an accepted offer (a ratified contract) with all terms agreed to, at that point you can lock in your rate. You'll need to sign a series of documents that we are required to disclose to you.
4. Appraisal: In addition to reviewing your creditworthiness, we have to do an appraisal to make sure the property is worth the price you are paying for it.
5. Underwriting: After receiving the appraisal, we underwrite your loan.
6. Closing: Following underwriting approval, we prepare the documents you'll sign to borrow from us as well as purchase the property from the seller. Congratulations!
]]>
Here is the most common type of calculation for adjustable rates:
In order to calculate your new ARM rate, you must add the margin plus the index. The margin is the bank's profit, and the index we tie our ARM rates to is the 1-year libor. The 1-year libor (London interbank offered rate) is today at 1.07. Our margin is 2.25. If your adjustable rate adjusted today, the new rate would be:
2.25 (Margin) + 1.07 (Index) = 3.375% (rounded to nearest .125%)
One more calculation you need to look at, though, is the initial adjustment cap and the lifetime adjustment cap. For the first adjustment, the initial adjustment cap will govern how much your rate can increase or decrease. For all subsequent adjustments, only the lifetime adjustment cap will apply.
The initial adjustment cap will vary and you should look at your terms of your loan in your note, but most lifetime adjustment caps are 5%. So if your start rate is 4%, and the lifetime cap is 5%, then the ceiling of your rate is 9%.
I'm happy to answer any questions about the calculation of your own adjustable rates. Most of you will find if you have a rate adjusting nowadays, you'll see your rate go down because the 1-year LIBOR is very low.
]]>
Your homeowner's insurance will adjust whenever your insurance provider changes their rates. You can also choose to add or remove coverage, whether it's dwelling, personal property, or liability coverage. Every few years it's worth your time to see whether or not your homeowner's insurance is still competitive.
Your mortgage insurance, if you have it, will decrease as you pay down your loan.
Your condo fee or homeowner's association dues will change as your board makes budgeting decisions that affect all homeowners. You'll usually get advance notice of any changes. Attend your board meetings!
]]>
We the lender will be responsible for holding your property tax and insurance money and will make the payments of these bills for you. When you make your monthly mortgage payment, not only will you pay your mortgage, but also 1/12 of your tax bill and 1/12 of your insurance bill. You'll also owe some money up front. So when you purchase, you'll need to fund your escrow account with a few months of each. How much depends on in which jurisdiction you purchase.
]]>1. Whatever you do, the most important thing is to make sure you don't get any collections. Setup automatic payments for utilities if you can, and make sure your checking balance will continually cover your recurring bills. Anytime you go to the doctor or get a ticket, pay it right away. Overdue library books? Return them. All of these are common collections that we see on credit reports.
2. Make your payments on time. A late payment can drop your score by a couple dozen points. For your loans and credit card payments, setup automatic payments if you can and keep track of your checking balance.
3. Keep your credit card balances to a minimum. If possible, keep it under 15%, then 30%, then 50%. These are breaking points for scoring, and the lower the balance the better you are off. Pay them off monthly to avoid interest.
4. Open up more debt if you need to. If you don't have three active accounts (tradelines), then you probably don't have enough debt. In order to improve your credit score you need to show that you reliably pay off your debt. Don't have any debt? Get some. And then pay it.
]]>
There are many things we consider when determining whether to lend to a potential home buyer. What you read in the newspaper regarding requirements is not necessarily true. What one loan officer tells you is their policy, is not necessarily the universal policy for all lenders. It's important to find out what the true story really is.
2. Not keeping good records.
When you apply for a loan, we need to document your income and assets. If you are moving money around, keep transfer confirmations. Store your tax returns and W2s in one place so that you know where all your historical information is.
3. Applying for more debt before you close.
Until you actually purchase your home and you have your keys, you can't apply for anything else. That means no financing furniture, or applying for a Home Depot credit card. This is because when you applied for your mortgage you disclosed your debts, and that list of your liabilities cannot change until after the loan is already made.
]]>Here are the sites for local jurisdictions with instructions on appeals which should be very helpful:
Maryland (Assessments are done by the state every three years)
If you need assistance with documentation or evidence, a local appraiser or real estate agent are your best sources of information. Your sales price, if recent, is also a great source. Hope this helps!
]]>