Comparing Loan Offers

When you decide to purchase a home, one of the first tasks is to talk to a couple of lenders and choose which lender & loan is best for you. With all the loan variables, this is often easier said than done and it’s often quite difficult to compare one lender to another. If you’ve decided to work with a Realtor you’re in luck as he or she will be able to assist you in determining which loan represents the best option, and offers the best terms. Never the less, it won’t hurt to have an understanding of the process for yourself and thus in this post, we’ll go through each of the loan variables.

1. Down Payment:In general, the more you can put down, the better the interest rate you can get. However, there is a point at which it does not matter how much more you put down, and that point is usually either 20% or 30%, depending on the loan program. If you are looking for the best rate possible and have the ability to put down more, ask your lender if this would be advantageous.

2. Loan Life: The longer the term of the loan, the more total interest you will pay. In part, this is because you will have a better interest rate with the 15 year loan; for instance, today’s rate from a large bank is 6.125% for a 15 year and 6.375% for a 30 year.  The other reason you pay less interest over the life of the loan with a 15 year term is because you pay down your principle faster. An alternative option for those seeking to pay less interest on their loan is to simply pay more into your mortgage each month and thus pay the loan down quicker. For example, on a 30-year $240,000 loan at 6.5%, if you pay $272 more per month (above an beyond your actual bill), you can end up paying the loan off in 15 years instead of 30. For many this is a better alternative as they can pay down their loan sooner however, they are not tied into and required to make the higher payment.

3. Property Taxes:When comparing lenders, this number should not vary because your property taxes are paid to the city, county, and state, not the lender. So, this number should be constant across all lenders. But, when you look at estimated payments from different lenders, the estimated taxes will vary because it is their best guesses at what the tax bill will be at the end of the year. The easiest way to compare the lenders is to just compare the principal plus interest and add in the same number for taxes. Essentially, you are standardizing the estimated payments between the lenders so that you can compare the actual rates. Another way of doing this comparison is to ignore the estimated payments and rather concentrate on the actual interest rate they are quoting you.

4. Insurance Rate: Again, the insurance is an estimate that the lenders will make. They may estimate differently, so be sure to normalize this number across all the estimated payments.

5. Interest Rate:The interest rate is variable depending on your; credit score, income, and loan type. The higher the credit score, the better the rate. Lenders have cut-offs for what they consider to be above average, average, and low scores. Those who fall into the above-average group will get the best rates. Your income comes into play when they figure your debt-to-income ratio. This is basically a way to measure how much you are bringing in and how much you are spending. At some point, a lender will not allow you to create more debt for yourself than they think you can handle. That said, you know more about your spending habits and lifestyle than the lender does and thus you should consider what you want to handle and fell comfortable with. The loan type also has a heavy emphesis on your rate. A better rate is given to those who will owner occupy the property as opposed to those who plan to use it as a rental.

6. Points: Points are paid by the Borrower in order to buy down the interest rate. If you get some insanely low interest rate from one lender that seems completely out of whack from the other quotes, this might be because they are quoting you a rate with points. A point is equal to 1% of the loan amount, and you pay this point as part of your closing costs. So for example, with a loan for $240,000, one point would be $2,400 and that point might buy your interest rate of 6.5% down to 6.25%. Buying down your rate will lower your monthly payment but an analysis, considering ones intended length of ownership should, be performed to determine if the payment of points makes sense in your situation.

When comparing lenders, make sure they all quote you a rate with no points. This levels the playing field so that you can determine who has the best rate without having to do all kinds of crazy calculations.

7. Closing Costs:In addition to points, the Borrower pays 2-3% in loan-related closing costs. The majority of closing costs are lender fees.  The closing costs include application fee, pulling of credit report fee, loan origination fees, appraisal fee, lawyer fees, application fee, and document preperation fees.

These are the main components of the loan to sort through and compare. The toughest part is to compare lenders and weigh out all the closing costs and points paid along with the interest rates.  How do you compare one lender with a 6.5% interest rate with $5,000 in closing costs to another lender who has a 6.0% rate with $8,000 in closing costs? The rate is better but the closing costs are $3,000 higher, so which loan represents the best option? To compare this, the lender can provide you with the loan’s Annual Percentage Rate (APR), which is the interest rate calculated with closing costs wrapped into it. As long as you are comparing two loan with the same lifes and are putting the same amount down, the APR is the method for determining which lender is offering the better overall package.

For More Information Visit http://www.JasonOplandd.com

What to Look for in a Loan

When you decide to purchase a home, one of the first tasks is to talk to a couple of lenders and choose which lender & loan is best for you. With all the loan variables, this is often easier said than done and it’s often quite difficult to compare one lender to another. If you’ve decided to work with a Realtor you’re in luck as he or she will be able to assist you in determining which loan represents the best option, and offers the best terms. Never the less, it won’t hurt to have an understanding of the process for yourself and thus in this post, we’ll go through each of the loan variables.

1. Down Payment: In general, the more you can put down, the better the interest rate you can get. However, there is a point at which it does not matter how much more you put down, and that point is usually either 20% or 30%, depending on the loan program. If you are looking for the best rate possible and have the ability to put down more, ask your lender if this would be advantagous.

2. Loan Life: The longer the term of the loan, the more total interest you will pay. In part, this is because you will have a better interest rate with the 15 year loan; for instance, today’s rate from a large bank is 6.125% for a 15 year and 6.375% for a 30 year.  The other reason you pay less interest over the life of the loan with a 15 year term is because you pay down your principle faster. An alternative option for those seeking to pay less interest on their loan is to simply pay more into your mortgage each month and thus pay the loan down quicker. For example, on a 30-year $240,000 loan at 6.5%, if you pay $272 more per month (above an beyond your actual bill), you can end up paying the loan off in 15 years instead of 30. For many this is a better alternative as they can pay down their loan sooner however, they are not tied into and required to make the higher payment.

3. Property Taxes: When comparing lenders, this number should not vary because your property taxes are paid to the city, county, and state, not the lender. So, this number should be constant across all lenders. But, when you look at estimated payments from different lenders, the estimated taxes will vary because it is their best guesses at what the tax bill will be at the end of the year. The easiest way to compare the lenders is to just compare the principal plus interest and add in the same number for taxes. Essentially, you are standarizing the estimated payments between the lenders so that you can compare the actual rates. Another way of doing this comparison is to ignore the estimated payments and rather concentrate on the actual interest rate they are quoting you.

4. Insurance Rate: Again, the insurance is an estimate that the lenders will make. They may estimate differently, so be sure to normalize this number across all the estimated payments.

5. Interest Rate: The interest rate is variable depending on your; credit score, income, and loan type. The higher the credit score, the better the rate. Lenders have cut-offs for what they consider to be above average, average, and low scroes. Those who fall into the above-average group will get the best rates. Your income comes into play when they figure your debt-to-income ratio. This is basically a way to measure how much you are bringing in and how much you are spending. At some point, a lender will not allow you to create more debt for yourself than they think you can handle. That said, you know more about your spending habits and lifestyle than the lender does and thus you should consider what you want to handle and fell comfortable with. The loan type also has a heavy emphesis on your rate. A better rate is given to those who will owner occupy the property as opposed to those who plan to use it as a rental.

6. Points: Points are paid by the Borrower in order to buy down the interest rate. If you get some insanely low interest rate from one lender that seems completely out of whack from the other quotes, this might be because they are quoting you a rate with points. A point is equal to 1% of the loan amount, and you pay this point as part of your closing costs. So for example, with a loan for $240,000, one point would be $2,400 and that point might buy your interest rate of 6.5% down to 6.25%. Buying down your rate will lower your monthly payment but an analysis, considering ones intended length of ownership should, be performed to determine if the payment of points makes sense in your situation.

When comparing lenders, make sure they all quote you a rate with no points. This levels the playing field so that you can determine who has the best rate without having to do all kinds of crazy calculations.

7. Closing Costs: In addition to points, the Borrower pays 2-3% in loan-related closing costs. The majority of closing costs are lender fees.  The closing costs include application fee, pulling of credit report fee, loan origination fees, appraisal fee, lawyer fees, application fee, and document preperation fees.

These are the main components of the loan to sort through and compare. The toughest part is to compare lenders and weigh out all the closing costs and points paid along with the interest rates.  How do you compare one lender with a 6.5% interest rate with $5,000 in closing costs to another lender who has a 6.0% rate with $8,000 in closing costs? The rate is better but the closing costs are $3,000 higher, so which loan represents the best option? To compare this, the lender can provide you with the loan’s Annual Percentage Rate (APR), which is the interest rate calculated with closing costs wrapped into it. As long as you are comparing two loan with the same lifes and are putting the same amount down, the APR is the method for determining which lender is offering the better overall package.

Information You Will Need To Apply For A Loan

I can not stress enough to buyers just how important it is to get pre-qualified before getting to far into the home buyiung process.  Unless you are going to be paying cash for your new home, it is  extremely important that you speak with a lender to review your financial situation and discuss your financing options, as well as to dtermine just how much you can afford. Taking this first step makes things a lot easier on the lender, your Realtor and most importantly you! So, do everyone a favor – you especially - and get pre-qualified.  If you need some suggestions and the referral of a few lenders to contact, give us call at 614.332.6984 or send us an email.

Prior to meeting with any lenders you’ll need to gather some information and while this will vary slightly depending on your situation, most lenders will ask you for the following at the time of your loan application: 

1) Copy of Social Security Card and Driver’s License

 2) Name, Address & Phone Numbers of each employer – past 2 years. (If Self-Employed, Last 2 years Signed Tax Returns.)

3) Paycheck Stubs – Past 30 days

4) W2’s – past 2 years

5) Last 2 months Bank Statements for all Checking & Savings Accounts, IRA’s, CD’s, & Investment Accounts (all pages)

6) Check for Credit Report, Appraisal and Flood Certificate Fee;  

Do not assume this to be an exhaustive list as again your situation may require that you bring additional information. For example, if you are recently divorced you may be required to provide a divorce decree at the time of application. So be sure to ask your lender for a list of what they will need from you. If you gather this information before you call or go into see the lender it will expediate the process and make things much smoother. Good luck and we hope to hear from you when you’re ready to begin your Home Search!

Understanding Your Credit Scores

Home buyers who are seeking a loan find out early-on that their credit scores play an important part in the loan approval process and in determining the interest rate that a lender offers.

What is a credit score?
A credit score is a number that lenders use to estimate risk. Experience has shown them that borrowers with higher scores are less likely to default on a loan.

How are scores determined?
Scores are generated by plugging the data from your credit report into software that analyzes it and cranks out a number.

The three major credit reporting agencies don’t necessarily use the same scoring software, so don’t be surprised when you discover that the scores they generate for you are different.

Why are they sometimes called FICO scores?
Because the software used to calculate a vast number of reports was created by Fair Isaac Corporation (FICO).

Which parts of a credit history are most important?
Below you will find a breakdown of the approximate weight each aspect of your credit report brings to the calculation.

35% – Your Payment History
30% – Amounts You Owe
15% – Length of Your Credit History
10% – Types of Credit Used
10% – New Credit

Payment history considerations:
* Number of accounts paid as agreed
* Delinquent accounts:
Length of past-due status
Total number of past due items
How long it’s been since you had a past due payment
* Negative public records or collections

Amount you owe are considered:
* How much you owe on accounts and the types of accounts you carry balances on
* How much of your revolving credit lines you’ve used (looking for indications you are maxed-out)
* Amounts you owe on installment loan accounts vs. revolving

Credit history length considerations
* Total length of time tracked by your credit report
* Length of time since accounts were opened
* Time that’s passed since the last activity
* The longer your (good) history, the better your scores

The types of credit you use
* Total number of accounts and types of accounts (installment, revolving, mortgage, etc.)
* A mixture of account types usually generates better scores than reports with only numerous revolving accounts (credit cards)

Your new credit
* Number of accounts you’ve recently opened and the proportion of new accounts to total accounts
* Number of recent credit inquiries
* The time that’s passed since recent inquiries or newly-opened accounts
* If you’ve re-established a positive credit history after encountering payment problems
* In general, checking to make sure you aren’t out there opening up numerous new accounts

Credit scoring software only considers items your credit report, but lenders typically look at other factors that aren’t included in the report, such as income, specific employment history, and the type of credit you are seeking.

What’s a Good Score?
Credit scores range from 300 to 900. The higher your score, the less risk a lender believes you will be. As your score climbs, the interest rate you are offered will probably decline.

For Additional Information Visit http://www.JasonOpland.com

Sources for Your Downpayment

PMI
While PMI or Private Mortgage Insurance has pretty much made the traditional 20% downpayment a thing of the past, buyers who contribute more to their downpayment benefit in the form of better terms and lower rates. First an explanation on Private Mortgage Insurance, PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home’s value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment (and in many cases if your credit is good $0 down). This means that you can buy a home sooner without waiting years to accumulate a large down payment.

Downpayment Sources
While the obvious source of money for your down payment is either your savings or the proceeds from the sale of your existing home, there are alternatives. Here’s a look at some not-so-obvious sources for funding your new home:

Life Insurance
If you’ve built up a cash value on your life insurance policy over the years, you may be able to borrow money from the policy, up to the amount of the accumulated cash value. As an added bonus, your policy loan may offer a more favorable interest rate than other types of loans.

Stocks and Bonds
Cashing in your stocks and bonds is another option to consider. But even if you feel the market doesn’t favor selling right now, you may still be able to secure a bank loan using your portfolio as security.

Company Profit-Sharing or Savings Plan
If you participate in a profit-sharing or employer-sponsored savings plan, consider withdrawing from your account or borrowing against if you can.

Parent Power
Your parents may have a considerable amount of equity built up in their home; and, if they’re willing and able, they could perhaps give you the money by taking out a home equity loan. A 1981 federal tax law permits tax-free gifts from parents, so be sure to talk with your tax adviser first. Also, be aware that your lender may require a “gift letter” verifying that your parents don’t expect repayment.

Tax Strategies
Change the withholding taxes, if permitted, on your salary in anticipation of higher deductions when you get a mortgage. Your take-home pay will increase, giving you more funds to put toward a down payment.

Retirement Funds
Borrow against your retirement funds. In some cases, the rate on the loan may be as small as 2 percent. If you add too much to your debt burden, however, you may not be approved for a loan.

IRA
Withdraw money from your IRA. If you’re a first-time buyer you can pull out $10,000 penalty-free (though you must pay state and federal income tax on it) to put toward your home purchase. If you’re not a first-time buyer, pull out the very least amount you must. Otherwise, you will have to pay both the 10 percent penalty and income tax on an early withdrawal. Realize that this $10,000 would grow to approximately $300,000 over 30 years though and thus should be consider more as a last result.

Ask For Help
Ask for help from your church, synagogue or other nonprofit organization. Fannie Mae has a “3/2″ loan program that allows you to make a 3 percent down payment if a bona fide nonprofit puts down the other 2 percent.

Plus, you won’t want to forget to plan for these other out-of-pocket expenses:

Closing costs (can be factored into your loan)
Moving expenses,
Appliances and household setup,
Reserve for emergencies and miscellaneous items.
In other words, don’t put your last penny down at the closing table. Talk to your home mortgage consultant for more information or for help in planning the financing for your new home.

Adjustable Rate Mortgages Explained

Adjustable-rate mortgages, or ARMs, differ from fixed-rate mortgages in that the interest rate and monthly payment move up and down as market interest rates fluctuate.

Most have an initial fixed-rate period during which the borrower’s rate doesn’t change, followed by a much longer period during which the rate changes at preset intervals.

Adjustable rates start low Rates charged during the initial periods are generally lower than those on comparable fixed-rate mortgages. After all, lenders have to offer something to make it worth their while to assume the risk of higher rates in the future.

The initial fixed-rate period can be as short as a month or as long as 10 years. One-year ARMs, which have their first adjustment after one year, used to be the most popular adjustable, and were the benchmark. Recently the standard has become the 5/1 ARM, which has an initial fixed-rate period that lasts five years; the rate is adjusted annually thereafter. That type of mortgage, which mixes a lengthy fixed period with an even lengthier adjustable period, is known as a hybrid. Other popular hybrid ARMs are the 3/1, the 7/1 and the 10/1.

These hybrid ARMs — sometimes referred to as 3/1, 5/1, 7/1 or 10/1 loans — have fixed rates for the first three, five, seven or 10 years, followed by rates that adjust annually thereafter.

After the fixed-rate honeymoon, an ARM’s rate fluctuates at the same rate as an index spelled out in closing documents. The lender finds out what the index value is, adds a margin to that figure and recalculates the borrower’s new rate and payment. The process repeats each time an adjustment date rolls around.

Major Indexes Most ARM rates are tied to the performance of one of three major indexes:

1. Weekly constant maturity yield on one-year Treasury Bill    
The yield debt securities issued by the U.S. Treasury are paying, as tracked by the Federal Reserve Board.

2. 11th District Cost of Funds Index (COFI)    
The interest financial institutions in the western U.S. are paying on deposits they hold.

3. London Interbank Offered Rate (LIBOR)    
The rate most international banks are charging each other on large loans.

Sky’s not the limit
Borrowers have some protection from extreme changes because ARMs come with caps. These caps limit the amount by which ARM rates and payments can adjust.

Caps come in a couple of different forms. The most common are:

• Periodic rate cap: Limits how much the rate can change at any one time. These are usually annual caps, or caps that prevent the rate from rising more than a certain number of percentage points in any given year.

• Lifetime cap: Limits how much the interest rate can rise over the life of the loan.

• Payment cap: Offered on some ARMs. It limits the amount the monthly payment can rise over the life of the loan in dollars, rather than how much the rate can change in percentage points.

Interest-only ARMs
Around the turn of the 21st century, lenders began to market interest-only mortgages to middle-class borrowers. Formerly the preserve of what lenders called “affluent clients,” interest-only mortgages are usually adjustables. The borrower is required to pay only the interest for a specified period, often 10 years. After that, it adjusts to the going interest rate, as tracked by a specified index. After that, the loan amortizes at an accelerated rate. During the interest-only period, the borrower can choose to pay some principal, too. By providing flexibility in the size of monthly payments, interest-only mortgages often are a good match for people with fluctuating monthly incomes: salespeople who are paid by commission, for example.

Variety of flavors
Some ARMs come with a conversion feature that allows borrowers to convert their loans to fixed-rate mortgages for a fee. Others allow borrowers to make interest-only payments for a portion of their loan terms to keep their payments low. But no matter the exact terms, most ARMs are more difficult to understand than fixed-rate loans.

To keep your financial options open, make sure to ask the mortgage lender if the ARM is convertible to a fixed-rate mortgage. Also, ask if the ARM is assumable, which means when you sell your home the buyer may qualify to assume your existing mortgage. That could be desirable if mortgage interest rates are high.

4 Steps To Take Before Borrowing From Your Home’s Equity

If you think you’re ready to tap some of the equity in your home, do your homework first. The time you spend now could save you heartache (and plenty of money) in the future. Take these four steps before signing on the dotted line:

1. Consult your financial advisers.
Financial advisers know which questions to ask to understand your complete financial picture, including events on the horizon. Starting here can save both time and money while making the borrowing process less threatening. Any major financial decision should be weighed with consideration to its tax impact. Speaking with a tax professional can guide you to your smartest borrowing decision.

2. Comparison shop.
Shopping is an incredibly important but often overlooked step. At the very least, start with your primary lender. One easy way to find the best deal is to give us a call and allow us to refer you to one of our affiliates. Another is to use the Bankrate home equity loan rate tables to find rates specific to your area. One bankruptcy researcher draws a parallel between consumer willingness to “run around to Kmart or Target to save 50 cents,” while the stakes of taking out a home equity loan are much higher. With these numbers, rates even 0.1 percent to 0.6 percent higher than the prime rate add up to thousands of dollars worth of additional interest payments. Be sure to shop.

This audio clip explains what lenders look for.

3. Understand the terms.
Home equity loan terms may be unfamiliar to you. What you don’t know could cost you your home. Most home equity lines of credit, known as HELOCs, are variable rate loans. Generally, a HELOC starts with a low teaser rate, then increases after a set introductory period. Find out the floor and ceiling rates. The initial rate is almost always at floor, or the lowest allowable rate, and the only way to go is up. Make sure you do the math and determine whether you will be able to afford the rate increases.

Use the glossary of the most commonly used home equity terms to help you understand all the details of the deals offered.

4. Know your rights.
The Federal Reserve says you should receive information in writing about each mortgage or home equity loan program you are interested in before you pay any fees. Be sure to read all the loan details and ask the lender or broker to clarify index rates; margins; caps; other ARM features, such as negative amortization; or anything else you don’t understand. After applying for a loan, you will receive detailed loan information from the lender, including the APR, a payment schedule and whether the loan has a prepayment penalty. A provision of the Truth in Lending Act gives you the right to cancel certain real estate loans within three business days without penalty. It is called the right of rescission. In home equity loans, you can rescind only when using your principal residence — not a vacation or second home — as collateral.