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Top 3 Refinance Tips To Get That Loan

By BankAim · Comments (0)
Wednesday, September 14th, 2011

Mortgage rates have only been dipping lower and lower these past few weeks ever since the sudden economic dip last August. A month later, rates are still going down making this the perfect opportunity for home buyers and refinancers to avail of extremely low mortgage rates. Last week the benchmark 30-year fixed mortgage rate fell to a record low of 4.35%, allowing borrowers to pay off their loan in half the time they initially planned for.

Because of the continued low rates many home owners are now seeing the opportunity to refinance, causing a sudden increase of refinance applications. This increase in the volume of applications leave some lenders scrambling to keep up, processing loan requests longer than they usually do. Instead of taking 15-30 days, refinance loans are getting approved within a 45 to 60 day margin. Because of this, any lack of documentation on the borrower’s part could cause a major set back in the process potentially losing the opportunity of locking in those juicy rates. As a borrower in these times, it’s important to stay on top of the game by taking note of these 3 tips:

1. Prepare all Documents – When applying for a refinance loan, make sure you’ve got everything you need all in one go. This includes paystubs, W2s, bank statements (including all pages) and tax returns. Once you see a rate you’re comfortable with, immediately submit these documents to your lender within a day.

2. Keep Frequent Communications – It is possible for underwriters to ask for more documentation and it is best to keep in constant communication with your lender so you will know what to prepare without having to wait for their call. It is reasonable to check in with your application once or twice a week, doing so will remind your loan officer about your application, making sure its not left underneath a pile of other loans.

3. Establish Expectations - Before even beginning the refinance process, it is important to ask your lender just how long the documentation is expected to pull through. Borrowers should ask lenders the time frame in which they expect to close the loan and lock their rate. Usually borrowers lock rates for 30 days in the hopes the loan will close within this time. However, this time frame is no longer feasible and refinances usually takes at least 45 days. It is best to lock in a rate for at least 45 days to eliminate extra fees to extend the rate.

There really is no telling for how long these low rates will last. Instead of waiting for rock bottom, it is best to act quickly and apply for refinancing while its still early to do so.

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Why First Time Home Buyers Should Get A Real Estate Agent

By BankAim · Comments (0)
Wednesday, July 20th, 2011

First time home buyers don’t really know what they’re looking for. Sure they have an idea as to what they like (condition and appearance-wise), but they usually don’t really know about the other details that come with buying a house. Here’s why home buyers should consult with a real estate agent:

1. Helps In Seeing the True Value of Homes – Experienced real estate agents who know their market can tell you about the prices of comparable homes without having to bat an eyelash. They know which houses are being sold, and at what price, giving you an idea of how much the house you plan to buy should really be selling for.

2. Points Out Potential Resale Points – Most first time home buyers may not really settle in that house for the rest of their lives. That is why it would be wise to think about the resale price before even purchasing the home. Real estate agents can give an insight about what are the advantages or disadvantages of the home such as being placed on a busy street, or if there are any issues with the homeowners association.

3. Ability to Negotiate – Good real estate agents can help the buyer negotiate a better price with the seller. Since they know the facts and potential negotiation points, they can help get a better deal without just blurting out a price out of the blue.

4. Give Priceless Advice – Although real estate agents are not lawyers, appraisers, contractors or the like, they have much experience with home dealing that they already know each aspect of the home buying process. They can point you to the right direction, and give you the correct questions to ask.

Real estate agents may have a professional fee, but this can be offset by the amount of service that they can give and the advice they can offer. When dealing with a real estate agent, look for the most experienced ones, and those who are truly honest in their dealings. Look for referrals, and see which ones provide you with the real value you should be getting.

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ARM’s: The Beginner’s Guide

By BankAim · Comments (0)
Wednesday, July 13th, 2011

If you’re a first time home buyer, one of the things you need to do is shop for a good mortgage rate. Aside from looking for the best lender with the lower rates, it’s also good to know what types of mortgages there are available. One of those mortgages is the ARM or adjustable rate mortgage. This type of mortgage is harder to understand than the fixed rate one simply because your interest rate and monthly amortization could vary over time.

ARM’s may sound very juicy at first because of their low rates, but there’s always a word of caution about them. To understand how ARM’s work, there’s a few things you need to know.

1. Initial rate and payment – This is what usually catches the attention of home buyers. This rate is what you need to pay for the first few years. However, after the initial period, this rate is subject to change, depending on the ARM’s policy.

2. Adjustment Period – This is what you see before the acronym ARM. For example, is it a 1-year ARM, a 3-year ARM? The number means the number of months or years the bank can again change your rates. After each span of adjustment period, your rates could be different.

3. Index - Your interest rate is affected by two factors, the index and the margin. The index is the general measure of interest rates. The most common indexes are they 1-year constant maturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). Ask your bank which index they are using, how much it has fluctuated over the years, and where it is published. The more stable the index is, the less prone to hikes your interest rate will be. This information is also available in newspapers and online.

4. Margin - The margin is the extra amount the lender adds. This value is usually constant over the life of the loan. A fully indexed rate is equal to the margin plus the index. For example, if the index is 5%, then the margin is 3%, then the fully indexed rate is 8%. Some lenders base the margin on how good your credit score is, another reason to pay your debts on time.

5. Interest-rate caps - This is the limit of how high your interest rate can go. There are two types: the periodic cap and the lifetime cap. The periodic one limits the rates from period to period, while the lifetime has a fixed upper range for the life of the loan.

6. Payment cap – Aside from the interest cap, payment caps are also offered by some lenders. This is a rate where your succeeding payment cannot increase more than that range. For example, if your payment cap is 6%, then your next monthly payment cannot increase more than 6% of your previous amortization.

So these are the things you need to know about ARM’s. Once you’ve gotten yourself familiar with the terms, it’s easier to ask smart questions to your banker and really know what the whole deal is about. Take precaution when considering an ARM. You don’t want to end up paying more than you can afford.

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5 After Mortgage Don’ts That Can Save You Money

By BankAim · Comments (0)
Saturday, June 18th, 2011

Buying your first home can make you feel like you’re on top of the world. This feeling is even made more wonderful if you know that you got a good deal on the house, plus you were able to find the best mortgage rate in your state. However, the home buying process doesn’t stop until the loan is fully paid. Here are some “after mortgage don’ts” that you have to be aware of to keep your finances still in check:

1. Don’t run up your Credit Cards – You look around at your beautiful new home, and suddenly you see beautiful furniture, added interiors, and a lovely baby grand piano that would just go perfectly in the living room. You can’t wait to make your visions a reality, the only thing stopping you is the money. So you eagerly take out your credit cards and start charging for things you don’t really need at the moment. Running up your credit cards on home furnishings is one common reason why new homeowners amass a bigger credit card debt than usual. It’s just so tempting to beautify the home. But really, it’s all about discipline. You’ll be thankful you didn’t swipe that card when your first mortgage payment has to be made.

2. Don’t Make Late Payments – Sometimes paying electric bills or phone bills a little late may be acceptable, but think differently when it comes to your mortgage. After all, this is one of the largest expenses you can have every month and you wouldn’t want to end up spending your money on other things.

3. Don’t Slack Off On Work – Having just made the biggest purchase in your life, you may feel the urge to pat yourself on the back and relax. If you work 40 hours per week, keep on doing so. Any lack in income may cause you to default on payment, and you wouldn’t want that to happen.

4. Don’t Get New Credit Cards – The principle here is to keep your debt to equity ratio just about the same as the day you signed those papers. Before you even made the decision to buy the house, you may have already calculated that you can afford it. Don’t run the risk of getting deeper into debt by taking on a new credit card that you don’t really need.

5. Don’t Stop Communicating - You may think that since you’ve already gotten your loan and everything is signed that you no longer need to keep in touch with your loan officer. The thing is, keeping in touch will keep you informed of the latest news and happenings and anything you need to be aware of.

Remember, you will only triumph over your mortgage once you’ve paid off everything. It’s not enough to get a good mortgage rate. You must also have the discipline to make those payments and pay everything off either on or before time.

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6 Smart Tips To Get The Best Mortgage

By BankAim · Comments (0)
Monday, April 25th, 2011

Home mortgages can stick around for as long as 30 years. Don’t regret the mortgage you got yourself into because of lack of research. Here are six smart moves you can do before getting a mortgage. These steps just might save you thousands of dollars.

1. Scrutinize Your Credit Report

It’s common knowledge that a good credit score can lead to lower mortgage rates. So before applying for a loan, make sure your credit score is accurate. You can do this by scrutinizing credit reports from the three major credit-reporting bureaus and check the information that they have recorded. It is possible that some discrepancies could be present that can affect your credit score. Checking and verifying just might get you that lower rate.

2. Look for the best mortgage rate

Aside from getting your credit score ready, a big chunk of getting a good mortgage is from the rate that the lending institution can give. There are thousands of lenders and banks that can give you a loan, don’t be shy to look for the best rates. Start by checking online reports of the best mortgage rates available in your state.

3. Get Pre-approved

Getting yourself preapproved from your lending institution of choice can give you a clear idea of just how much you can borrow. The institution will evaluate your information and they will give you how much they can give you. Plus, getting preapproved can establish your credibility with sellers and real estate agents who will look at how you can get financing.

4. Find out how much you can afford

Most people can get drawn by beautiful houses they just cant afford. Be realistic when shopping for homes and be aware of external factors such as association fees and maintenance costs. This could greatly affect your monthly budget and there’s no way to cut down on these costs once you’ve got yourself into it.

5. Decide if buying down the interest rate is practical

One way to get the interest rate down is by paying discount points on the mortgage. What happens here is that you pay money up front in exchange for a lower interest rate for the rest of the loan term.

One point equals 1% of your loan. If you’re borrowing $200,000, then a point would cost you $2,000. Each point can take off one-eighth to one-quarter of a percentage point off your rate.

Buying down the rate is only useful if you plan to stay in that home for the long term. Also this is feasible if you do have the extra cash at hand.

6. Strike a deal with Sellers

Another way to bring down your interest rate is by negotiating with sellers to let them pay the points. Paying points can cost less for sellers than reducing the price of their home. This can be an effective way to solve negotiations on pricing. It’s both advantageous to the buyer and the seller as well.

Doing a little extra work can mean major savings. And for something as big as getting a home loan, taking that added measure should be well worth your time.

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What You Should Know About Adjustable Rate Mortgages

By BankAim · Comments (0)
Tuesday, March 22nd, 2011

Dying to move out of your apartment and into your first home? Getting a home loan can help you achieve your dream. However, when purchasing a house, it’s important to know about the ins and outs of the mortgage you’re planning to get.

One important factor that must be considered is the interest rate on the mortgage. Banks and mortgage companies usually have different payment schemes to entice buyers into getting a loan. Some of these loans might be structured in such a way where borrowers will pay only a little in the beginning, but will be obligated to pay more in the end. One such loan is the adjustable rate mortgage.

Adjustable rate mortgages or ARM’s are common in different banks and financial groups. This type of mortgage has interest rates that are based on an economic index. Common indexes are one, three or five-year Treasury securities. Aside from the index, the mortgage is also subject to the lender’s margin or markup. Lenders will place an additional amount to the index to profit from the loan that you’re getting.

An ARM has an adjustment period between potential interest rate adjustments. This period can differ in various ARM’s. You might notice ARMs being described as 1-1, 3-1, or 5-1. The first figure represents the period where your interest rate will stay the same as the first you got the loan. The second number represents how often an adjustment will be made after the initial period has ended. In the examples given, the second number means that rates will adjust annually.

Buyers who are not familiar with how an ARM works can be attracted by the initial rate of the mortgage which may seem very low compared to fixed rate mortgages. However, what they don’t know is that some indexes can be very volatile, resulting in frequent changes in interest rates after the adjustment period. This can subject buyers to having to pay higher interest rates than they are used to, getting them in a financial fix when it’s time to pay up.
Although ARM’s are not very advisable to the usual home owner, it does have its uses. ARMs are a good option for those who are planning to sell their home within the first few years. This could also be an option for those who are expecting an increase in salary or income in the near future. Real estate dealers who sell houses within months can also benefit from this type of loan.

If you’re determined to get an ARM, it’s important to check three things. The first is the index. Look for an index that has remained fairly stable in the past five years. This will give you an idea of what range your future interest rates will be. Second, check how much the margin is. Third, look for a lender that has excellent customer service and request for a full disclosure on the terms of the ARM. It’s always best to be informed before signing that contract.

Remember that although ARM’s might have juicy initial rates, these rates can (and will) go up as time passes. Get an ARM only if you’re certain that you can pay up on future rates.

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10 Sensible Tips To Save On Mortgage

By BankAim · Comments (0)
Monday, March 7th, 2011

It has always been part of the American dream to own a home. Once a young adult graduates and finds a secure job, the one thing that will always be on his mind is getting his first house.

Often, a person who purchases a home for the first time and with little investment experience, will find himself caught in the whirlwind of mortgage promotions, never realizing the real amount he is paying until he finds himself 10 years deep into the mortgage. Here are 10 useful tips to help you save on mortgage:

1. Pick a bank with the lowest interest rates – This is one of the most obvious things you can do to save on mortgage. It’s best to be aware that a difference of .1% could already mean a couple of thousand dollars in the long run. Don’t be caught by the bank with excellent customer service and a crisp smelling office. If it has high mortgage rates, go and look for another lender.

2. Choose a fixed rate mortgage over an adjustable rate mortgage – Adjustable rate mortgages may sound appealing due to the low interest rates you could be faced at the start. However, ARM’s are volatile and the interest rates could definitely go up depending on the index. This will put you at risk on having a monthly obligation which is bigger than what you normally have planned on.

3. Increase your equity – The bigger down payment you can afford, the better. Having a bigger equity will mean having to take on a lower loan. If you can afford to wait until you have more money to pay for a bigger downpayment, this could be ultimately better for you in the long run.

4. Shorten the loan term – Although 30 year loans and the small amount of monthly payment you have to dish out may make your eyes dance, what you don’t know is the amount of interest this long loan term piles up on you. The best way to distinguish just how much you’re paying is by using a mortgage calculator. You will then see the advantage of shortening the loan term.

5. Refinance – There will come a time when refinancing becomes a sensible thing for you to do. You could exchange your higher interest rates for lower ones, decreasing your monthly dues.
6. Waive some settlement fees – Ask your bank if you can have some settlement fees waived. There’s no harm in asking.

7. Be aware of bank promotions – Ask your customer representative to inform you of any bank promotions. Some banks might just have promos about cutting closing fees. Right now, Ever Bank in Florida can give as much as $500 off on closing costs.

8. Pay a little extra every month – This is one golden tip that could potentially save you thousands of dollars. For every month that you pay off your mortgage, add a little bit to pay for the principal. You could put in an extra $50 or $100. In a $100,000 mortgage at 6% and in 30 years, chipping in an extra $50 on the principal per month could mean a savings of $25,000. That’s a lot!

9. Beware of the interest only mortgage – An interest only mortgage may sound juicy, but the after effects once the interest only term expires could be devastating to your bank account.

10. Build rapport with your bank – If you have other transactions with your bank, discuss these with them and try to see if you can haggle for a lower interest rate.

Whatever your financial status is, it’s always best to save on mortgage as this could be a loan that stays with you for a relatively long time.

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What is DTI (Front and Back End Ratios for Mortgage)?

By BankAim · Comments (0)
Monday, November 15th, 2010

When you are in the middle of the mortgage application process you may hear the terms DTI or ‘front end ratio’ and ‘back end ratio’ being thrown around.

Your income plus monthly debt burden will help determine how much house you can afford.  The front end ratio and the back end ratio are the calculations that make this determination.

The Front End Ratio:

Front Ratio is determined by adding together your proposed principle and interest mortgage payment, taxes, insurance and any dues owed to a homeowners association or condominium complex.  This total is divided by your total gross income.

Example:

  • Principle and interest mortgage payment = $1,000
  • Taxes and insurance = $150
  • Homeowners Dues = $50
  • Total Payment = $1,200

With an income of $4,000 a month your front end ratio would be 30%.  Typically mortgage companies want to see a front ratio of under 28%.

[Related: What is YSP (Yield Spread Premium)?]

Back End Ratio:

This ratio is called your DTI (Debt to Income).

The back ratio is determined by adding together the total mortgage payment (including everything listed above) plus any other monthly financial obligation.  The monthly obligations can be credit card payments, auto loans, lines of credit, etc.  This total is then divided by your gross monthly income.  If you have no monthly payments besides your mortgage your front and back end ratios will be the same.

Example:

  • Total from above = $1,200
  • Car Payment = $200
  • Credit Card Payments = $80

Again with a $4,000 a month income your back end ratio would be 37%.  Mortgage companies want to see this below 36%.

Even though lenders like to see your DTI below 36% some lenders will give exceptions all the way up to 50% depending on the strength of your credit score and other factors in your loan.

Keeping a low Debt to Income ratio is important and can help you qualify for a mortgage with less hassle.

Check out todays mortgage rates.

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What is Private Mortgage Insurance (PMI)?

By BankAim · Comments (0)
Thursday, November 11th, 2010

A commonly misunderstood part of a mortgage is PMI or Private Mortgage Insurance.  In this article we will break down what PMI is, but first let me tell you what it is not.

What PMI is NOT.

Some people, often times first time home buyers, believe that Private Mortgage Insurance is a policy where if the borrower died the mortgage insurance would pay off the existing balance.  This is not true, and in fact completely opposite of what PMI really is.  PMI is built to protect the lender not you the borrower.

Others mistake PMI for Home Owners insurance, and believe it will protect them against damage or theft of their house.  This is not the case as Homeowners Insurance is completely separate requirement, can never be removed, and is in place for the benefit of you.

[Want more Mortgage Help?]

What PMI is.

Private Mortgage Insurance is a requirement for most, if not all, loans where the borrower has a mortgage more than 80% the value of the home.  If you are purchasing a home and put less than a 20% down payment PMI will be required.  Likewise if you are refinancing your home and the new loan amount exceeds 80% the appraised value PMI will be required.

PMI protects the lender on “risky” loans in case you as the borrower default.

So what is in it for me?

Good question.  The answer… not much other than the ability to borrow over 80% or have less than a 20% down payment.  Many people do not have enough money saved to put 20% down on a home; therefore PMI may be your only option.

How long will PMI last?

PMI is not good for the life of your loan.  Two factors that naturally occur help reduce the time you are required to pay mortgage insurance. These factors are making your monthly payments and appreciation of your home.  You can request your PMI be canceled when your mortgage equals 80% or less of the original purchase price or appraised value of your home at the time the loan was obtained, whichever value is less.

Good payment history for the previous 12 months is often required to drop PMI at 80% LTV (loan to value).  Once your LTV equals 78% your lender is required by law to automatically remove the PMI.  If you are delinquent during this time PMI will not be removed until your loan is current.

Finally, if neither option above is reached by the time the loan reaches the midpoint of its term PMI will be automatically canceled.  For example if you have a 30 year loan with 360 payments once the 180th payment is made PMI must be canceled, provided you are current on your payments.

Can I avoid PMI without a 20% down payment?

Some lenders offer 2nd mortgage plans to avoid PMI.  Commonly known as an 80-10-10 loan, in this scenario you borrow a first loan of 80% (no PMI because it is 80%), second loan of 10% and a 10% down payment.  Although you avoid private mortgage insurance you have the risk of a high interest rate 2nd mortgage.  2nd Mortgages are often times adjustable rate mortgages, or even have a balloon payment at some point in the loan.

In conclusion.

Ideally you would like to have 20% down payment so you can avoid PMI altogether.  If you do not have that large of a down payment you will be required to carry PMI for a portion of your loan.  Be sure to keep a close eye on the value of your home and the amount you have paid your mortgage down so you can cancel the mortgage insurance at any time.

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What is APR and How is APR Calculated?

By BankAim · Comments (0)
Wednesday, November 3rd, 2010

What is APR?When you hear mortgage ads, apply for a mortgage, see a mortgage rate advertised, you will always see the APR right next to the interest rate.  Why is that, and what is the APR?

APR stands for Annual Percentage Rate.  The APR is a calculation that determines what your interest rate would be if you removed the fees from your loan.  The higher the fees the further your APR will be away from your actual interest rate.  The lower the fees the closer your rate and APR will be.

The Annual Percentage Rate is more a measurement of Fees than it is rate.

TIL or the Truth in Lending Law requires that the APR must be displayed with any advertised rate. This is so companies cannot advertise extremely low rates and then tack on high amounts of fees you would then be required to pay to get that rate.

Go ahead and look.  You will never see an add or hear a radio commercial for a mortgage rate without also getting the APR.  Just like you will never see someone in a television commercial actually drinking beer (or any alcohol for that matter), they cannot show the consumption of alcohol.  I guess that is a different article for a different blog though.  Back to APR.

How is APR Calculated?

APR is calculated by first determining the payment of your loan then removing certain fees like points, application fee, closing cost, processing fee, title fee, etc, from the total loan amount and recalculating a new rate from the remaining balance and original payment.

Here is an example.

Let’s say your loan looks like this

  • $100,000 Loan Size
  • 4% Rate
  • 30 year term

In this scenario your mortgage payment would be $477.42.

The closing costs included in the $100,000 were $1,500.

APR would be determined by first removing the fees from the loan size.

  • 100,000 – 1,500 = $98,500

Now calculate a new rate (the APR) using

  • $98,500 Loan Size
  • $477.42 payment
  • 30 year term

The rate calculated here is 4.1257% which would be your APR.

So the whole scenario would be

  • Loan Size: $100,000
  • 30 Year Term
  • $477.42 payment
  • 4% rate with a 4.126% APR

This is how you can see the APR is more a measurement of fees than it is rate.

You can use this information to help determine what advertised loans are better than others.  If you see a 3.5% rate with a 4.5% APR compared to a 4% rate with a 4.2% apr you know which loan is going to be much cheaper and probably the better deal.  Even though option one may have had a lower rate.

Check out our other mortgage help information or mortgage news.

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