Documents are the papers a lender needs to underwrite a loan, such as proof of income (paycheck stubs and tax returns), bank statements, brokerage reports, etc. For many self-employed people with sporadic income, or for those who simply value their privacy, “stated income” loans, where the borrower declares their income but is not required to prove it, are available. These loans are usually credit-driven, meaning a high credit score is needed to qualify. Full-doc: the mortgage company verifies income and assets for the lender; best interest rate Lo-doc: income verified but accepts stated income (must be self-employed for two years); interest rate slightly higher No-doc: neither income nor assets verified but high credit score is needed; higher interest rate (typically 1%).
When you refinance, you are actually paying off your existing mortgage loan and taking out a new one. The process is very similar to the original purchase of your home. Lenders must cover their overhead, underwriting, and closing costs, and title companies must charge to conduct new research.
You can refinance as often as you like, as often as it makes financial sense. Typically, closing costs are paid within the first two years of a new loan and there are substantial breaks from mortgage and title companies on repeat business, up to 50% on some fees. Also, if you only qualified for a sub-prime rate but your credit improves, you will need to refinance. A Dimond Mortgage professional can help you explore the refinance question in more detail, based on your situation.
The rate should be at least 1% to 1 1/2% lower to make up the costs of refinancing. Many people go from a fixed to an adjustable rate for a five-year period and save thousands of dollars.
If no property or title issues arise during the title search, you can expect to close within four weeks. If your home is still under construction, remember it must be able to be fully financed (having working water/plumbing, electricity, and heat) before closing, and sometimes inspection issues arise.
If you can financially manage a 15-year loan, this might be better for you, although you should remember that tax advantages for mortgage interest disappear after your home is paid off. A 30-year loan will have lower payments, and you can always accelerate your pay-off by adding to the principal each month, with no pre-payment penalty. A Dimond Mortgage representative can discuss your situation in more detail.
LTV is the ratio of the loan amount divided by the appraised value of the property, and is used to determine the borrower’s equity position in the property.
Your credit rating is based on many factors, including your past payment record, how much you currently owe, how long you have had credit, and what types of accounts you have. Your “score” is based on a point system where such elements as late or missed payments, bankruptcies and foreclosures, balances too high for your income, and other red flags can lower your score. To qualify for a conforming loan (a loan that meets government requirements, such as Fannie Mae, Freddie Mac or Ginnie Mae), you must have a score of 620 or above. Dimond Mortgage has found ways to help people with scores as low as the 500s. Of course, the better your score, the better the rates available to you.
Private mortgage insurance, or PMI, protects the lender in case the borrower cannot pay. PMI is responsible for allowing lower down payments or zero down payments on mortgages. Without it, people with less than 20% to put down could not buy a home. Even so, there are programs with low down payments that do not require PMI, such as some “blended mortgages.” Your Dimond Mortgage representative will be happy to explain these options to you.
Title insurance protects the buyer from any unrecorded liens, mechanic’s liens (legal claims on the property for payment by someone who performed work on it), or outstanding claims to the property. In some cases, title insurance can save on legal fees, such as when a neighbor places a fence on property you suspect is yours, or you find access unavailable.
Mortgage companies and banks charge “origination points” that cover their costs to make a loan. Some borrowers pay “discount points” up front to reduce the loan’s interest rate. A point equals 1% of the loan, and no-point loans are readily available, although there can be tax advantages (points are tax-deductible) in using them.
There are two meanings of the word “escrow.” The most common usage is when part of your monthly premium is held by the lender for payment of recurring items like property taxes and homeowners insurance. You are not required to have an escrow account but lenders prefer it, since failure to pay taxes can result in foreclosure. The second meaning is an account in which a neutral third party holds the documents and money in a real-estate transfer until all conditions of a sale are met.
This answer depends on your circumstances. If you plan to stay in the property as your long-term residence, it makes sense to lock in a fixed-rate, keeping your monthly payments steady. If you intend to sell the house or convert it to an investment (rental) property, an adjustable-rate mortgage (ARM) might make sense. ARMs typically have an initial fixed rate (typically lower than a comparable fixed-rate mortgage) followed by adjustment intervals. For example, a “5/1 ARM” is fixed at an initial low rate for the first 5 years, and then adjusts every year based on an index.