Should I refinance my home?

How much house can I afford?

What is the prequalification process?

What are settlement/closing costs?

How does credit history work?



Q. Should I refinance my home? back to top
A. Refinancing can be worthwhile, but it does not make good financial sense for everyone. A general rule of thumb is that refinancing becomes worth your while if the current interest rate on your mortgage is at least 2 percentage points higher than the prevailing market rate. This figure is generally accepted as the safe margin when balancing the costs of refinancing a mortgage against the savings.

There are other considerations, too, such as how long you plan to stay in the house. Most sources say that it takes at least three years to fully realize the savings from a lower interest rate, given the costs of the refinancing. (Depending on your loan amount and the particular circumstances, however, you may choose to refinance a loan that is only 1.5 percent higher than the current rates. You may even find you could recoup the refinancing costs in a shorter time.)

Refinancing can be a good idea for homeowners who:

  • want to get out of a high interest rate loan to take advantage of lower rates. This is a good idea only if they intend to stay in the house long enough to make the additional fees worthwhile.
  • have an adjustable-rate mortgage (ARM) and want a fixed-rate loan to have the certainty of knowing exactly what the mortgage payment will be for the life of the loan.
  • want to convert to an ARM with a lower interest rate or more protective features (such as a better rate and payment caps) than the ARM they currently have.
  • want to build up equity more quickly by converting to a loan with a shorter term.
  • want to draw on the equity built up in their house to get cash for a major purchase or for their children's education.

If you decide you want to go ahead and refinance your mortgage or would just like more information, Click Here for loan application options!

Q. How much house can I afford? back to top
A. There are simply too many variables--credit history, income, debt, special mortgage programs and variations in qualifying guidelines between mortgage loan types--to answer that question. The only sure way of getting the question answered is through prequalification. The mortgage prequalification step is a relatively simple one, but is an important one. It formally begins the process of applying for a home loan and gives you a clear sense of direction of where you should be headed.

By knowing what your financial parameters are, your real estate agent can spend more time looking for houses that match your qualifications and less time pursuing dead ends. Your agent can also use your prequalification to strengthen your bargaining position when making an offer on a house

Q. What is the prequalification process? back to top
A. First, you will need to provide us with some basic information so we can analyze it. You can do this by filling out and sending us one of the home loan application forms, calling, faxing, or e-mailing us, whatever you are comfortable with.

I will get back to you with suggestions based on the information you have given me. I may have additional questions that will help me to identify additional options for you.

To start this process, you can view the loan application options which can also be used to prequalify you. This will also make it easy to convert your prequal application into a full loan application when you are ready without any more effort on your part.

Q. What are settlement/closing costs? back to top
A. The following information is designed to help you understand the costs involved in the settlement/closing of your real estate transaction and/or the financing of your home. A settlement may involve several people, and a variety of documents and fees. Depending upon where the property you are financing is located, the cost for items such as transfer taxes, recording fees and other title related services will vary.

The following is a list of the most common settlement/closing costs; however, many of the fees described below may not necessarily apply to your type of mortgage loan.

Lender Fees

Appraisal Fee: This fee is paid to the lender so that they can hire an appraiser to objectively appraise the property for it's fair market value. This will ensure that the house is worth at least as much as the amount you are paying for it.

Credit Report Fee: This fee covers the cost of the credit report, which the lender uses to determine your credit worthiness. You most likely paid this fee upfront when you applied for the mortgage loan.

Flood Certification Fee: This fee is paid for a flood certification which states whether or not the property is located in a flood zone. If so, the lender will require you to purchase flood insurance.

Loan Discount Points: Loan discount points are the dollar amount paid to the lender for making the loan. Each point equals 1 percent of the mortgage loan amount. For example, if your loan amount is $100,000, one point equals $1,000. the more points you pay at closing, the lower your interest rate should be.

Loan Origination Fee: This fee covers the administrative costs of processing the loan. It may be expressed as a percentage of the loan (i.e. 1% of the loan amount).

Processing Fee: The processing fee covers the cost to package the file, submit it to the lender, and help coordinate the closing of your loan.

Tax Service Fee: This fee is charged for researching county tax records records to confirm that the taxes are paid in full and up to date.

Underwriting Fee: The underwriting fee is paid to the lender for evaluating your application to determine your ability to pay back your loan.

Wire Transfer Fee: When you purchase or refinance, funds will be wired to fund the transaction. the receiving account charges a nominal fee for the wire transfer.

Title Fees

Escrow Fee/Settlement or Closing Fee: This fee is paid to the title company for handling all financial transfers and payments associated with the transaction.

Title Insurance: Required by your lender, this insurance guarantees that your property has no other lien or claims against the property.

Recording Fee: This fee is paid to your county clerk's office to record the transfer of title.Prepaid Fees

Hazard Insurance and Property Taxes / Escrow: If you are going to be paying for you tax and insurance in your monthly mortgage payment (required on some loans), you may be required to pay for your 1st year insurance premium and 2 months of taxes and insurance into your escrow account at closing (will vary on refinances).

Interest: Prepaid interest is the fee you are charged for borrowing money from your lender. You will probably have to pay the interest on the mortgage from the date of settlement/closing to the beginning of the period covered by the first monthly mortgage payment. For example, suppose you settle on February 10. Your first monthly payment begins to accrue on March 1 and will be payable at the beginning of April. At closing you may be required to prepay the interest for the period from February 10 through the end of February. This means that if you settle later in the month, your closing costs will be less than if you settle early in the month.

Mortgage Insurance: Different loan types have different guidelines for mortgage insurance. The most typical guideline is that if your mortgage is for more than 80% of your purchase price/value of your home, mortgage insurance will be required. The rate and term of insurance is dependent on the type of loan, length of loan, and loan to value.

Q. How does credit history work? back to top
A. Generally speaking, it is believed that history tends to repeat itself. If your credit history reveals that you make late payments or fail to pay at all, then lenders will assume that your mortgage payments will follow the same pattern. Lenders place as much emphasis on your credit history as your employment status to predict your ability to repay your loan. Now is the time to clean up and repair any credit problems from the past.

Your credit history is evaluated on your past debts and your payment history. You’ll be asked to provide a detailed list of debts currently owed, the monthly payment amounts, and the time left on the loans. Be honest when developing your list because your credit report will verify the information you provide.

If this is the first time you have applied for a mortgage, it may be the first opportunity you have had to view your credit report and what it contains. Hopefully, you’ll be pleased with what you find, but here are some issues that may raise a red flag:

  • Consistent late payments - The credit report will show a pattern of late payments from any establishment with which you have credit including department store accounts, gas company cards, school loans, and car loans.
  • Declaration of bankruptcy - If you have declared bankruptcy, it will remain on your credit report for several years. Before now, obtaining a home loan with a bankruptcy filing could be difficult, but today there are several loan programs that address these special needs.
  • Foreclosure - A home foreclosure also remains on your credit report for several years. However, a foreclosure does not mean that you can never own a home again. A variety of loans are offered to accommodate the needs of those who had to foreclose in the past.
  • Outstanding loans and debts - If you have outstanding school and car loans and credit card balances, you might be carrying too much debt. A monthly mortgage payment can overtax an already stretched debt ratio.
  • Any of the above can result in a less than perfect credit rating, but this may not prevent a future successful home purchase. It is never too late to give your credit rating a boost. And the good news is that you will have more time to pay off your existing debt while saving money for the down payment. Give yourself time to enhance your rating and remember that your current equity, job stability and income, and available assets can help dramatically improve a derogatory credit report.

If you are unsure of what your next move should be to improve your credit and your chances to get a home loan, schedule an appointment with a credit counselor.

What if you pay cash for purchases, graduated from school with the benefit of grants and scholarships, and have been fortunate enough to pay cash for cars? The fact that you are extremely money-savvy is not rated on the credit report. Only loans and credit balances are addressed. If you fall into this category, documentation proving that your utility bills, insurance payments and rent are paid on time each month is acceptable.

Understanding Your Credit Report
Credit reports are similar to report cards because they score your performance on how well you manage your credit. Only now you have more than a good scolding from your parents to fear; your “grade” could keep you from obtaining your home loan. Before authorizing us to obtain a copy, you may wish to order one for yourself, evaluate your scores, verify the information is correct, and attempt to fix any items that could “get you in trouble”. Only businesses with “legitimate business need” and “permissible purpose” as dictated by federal law and those you legally authorize in writing can access to your report. Businesses that qualify include credit grantors, collection agencies, insurance companies, and employers. Contact any of the bureaus below for a copy. Credit report fees vary depending on which bureau you choose.

Equifax
PO Box 105873
Atlanta GA 30348
(800) 685-1111
www.equifax.com

National Consumer Assistance Center
PO Box 2002
Allen TX 75013

Experian
(888) EXPERIAN
(888) 397-3742
www.experian.com

Trans-Union
PO Box 390
Springfield PA 19064
(800) 916-8800
(800) 851-2674
www.transunion.com

A credit report contains information on your past credit experience. It includes identification information like your name, previous names used, employment, credit, public record information, and the names of those who have requested and received a copy of your credit report. Your credit report does not contain information regarding your race, religion, health, driving record, criminal record, political affiliation, or income.

Your credit report can be broken down into two components. The first is your actual credit history including every loan you have obtained and credit cards issued along with the balances and your payment history. It will also list any delinquencies that have been filed against you. Check this section very closely. Mistakes can be detrimental when figuring the second component - your credit score. We recommend you check your credit report often so that it’s accurate when you need it. People often learn that they are victims of identity theft and fraud only after ordering a copy of their credit report. The last thing you want to hear when applying for a home loan is that an imposter halfway across the country funded a vacation to Tahiti on your good credit. Carefully verify all information is correct and double check three important things.

  • The credit report contains your information only, and not information of someone with the same or similar name or social security number
  • If a delinquency was reported to the credit bureaus, make sure to resolve the issue and that the resolution appears on the report
  • If you disputed a claim or late payment pattern and submitted an explanation to be included in your report (and you should), your statement of dispute should be included as part of the report

Finding an error or negative information in your report is not the end of the world. There are actions you can take to correct the situation. You have a right to dispute the accuracy or implications in your report. When you submit a dispute directly to the credit bureau, the credit bureau is obligated to investigate the item in question and provide a resolution within a reasonable period of time, generally thirty days. Of course the disputed information must be verifiable. For example, the credit bureau may not delete a record of late payments if you fail to show that your payments were timely made. However, you can provide a written explanation of the cause and that statement should be included in all future inquiries. At your request, the credit bureau will send an amended report to any recipient (other than an employer) within the last six months. Any record that cannot be verified should be deleted, wrong information should be corrected, incomplete records should be completed, and accounts that were once past due but now current should state so.

As a consumer, your right to review and dispute credit report findings is protected by the Fair Credit Reporting Act (FCRA). This act also details who can access your report and how you are informed of requests made. Rights granted under the FCRA include:

  • Your right to receive a copy of your report containing all information included and available at the time of your request
  • Your right to know the names of the individuals or businesses that have received a copy of your report in the past year or two years if the inquirer was an employer. Any company that denies your application must provide the name of the bureau that provided the report
  • Your right to receive a free copy of your report if your application is denied due to credit report findings. Your request for the free report must be made within 60 days of the rejection.
  • Your right to add an explanation of any derogatory claims to your credit report to be included in all future reports
  • The second component of your credit report is your credit score. A statistical program analyzes your payment history, the number, type, and age of the accounts and loans you have, late payments, collections, and outstanding debt. Your information is compared to others and the probability that you will repay the loan is determined. The analysis results in your credit score. Scores are solely based on the data included in your credit report, therefore, your income, savings, and amount of down payment are not factors in computing your score.

FICO® is the most popular of these scores and is an acronym for and developed by Fair, Isaac & Company, Inc. Typically, FICO® scores are considered objective, consistent, accurate, and fast; however, their exact formula is an unknown industry secret. Any factor considered discriminatory is not included.

Q. What is HUD? back to top
A. HUD, short for the U.S. Department of Housing and Urban Development, insures mortgage loans to help people buy or refinance their current homes with a low down payment. HUD doesn’t give you the loan directly. You need to go to a local HUD approved lender. VA Desert Pacific Federal Credit Union provides home loan financing through the services of Laura Lee Brown at CU Partners, a HUD approved lender. Contact Laura Lee Brown at (866) 320-1018 to find out if one of HUD’s programs is right for you.

HUD’s FHA Loan
If you’re interested in buying a home and you meet certain credit qualifications, you may be eligible for a low down payment of 3 percent. On a $50,000 home, that’s a down payment of $1,500 - $10,000 for most conventional loans. You also can wrap your closing costs and fees into the mortgage. HUD-insured loans are available in urban and rural areas for single family homes and for 2-unit and 4-unit properties.

HUD-Insured Energy Efficient Loans
If you are buying or refinancing a home and you’d like to roll the cost of improvements to make the home more energy efficient into your mortgage, HUD’s Energy Efficient Mortgage Insurance Program may be for you. The cost of the energy efficient improvements that may be eligible for financing is the greater of 5 percent of the property’s value (not to exceed $8,000) or $4,000.

HUD-Insured Loans for Condominiums
HUD insures loans to buy or refinance a principal residence in a condominium development. Down payments can be as low as 3 percent, and closing costs can be wrapped into the mortgage

Q. How do I know I'm ready to buy a home? back to top
A. Juggling the demands of work and busy family schedules have become commonplace for many people. There is little time to step back and take a look at what you have achieved and what you still want to accomplish. Deciding to buy a home provides the opportunity to carefully weigh the advantages and disadvantages, analyze your employment stability, review your credit reports, and evaluate your financial status.

Renting vs. Owning
Does it seem a little strange that we would even urge you to consider remaining a renter? After all, we are in the business of lending and definitely want to gain your business. But more importantly, we want you to be completely happy and satisfied with your decision. Just like every thing else in life, there are two sides and there are advantages and disadvantages to both. Carefully evaluate your financial situation. Buying a home means it is time to put your goals in priority.

The Advantages of Ownership
Let’s face it - if there weren’t so many advantages to owning a home, would the idea be at the core of the American dream? We like to own things, make them ours and take pride in them. Along with the emotional perks owning your home brings, there are also several financial advantages. Leading financial experts agree that owning real estate is a solid investment strategy compared to options like stocks, bonds, etc.

Homeownership provides a welcome tax break. The government allows homeowners to deduct the amount of their property taxes and mortgage interest from their taxes. In California, voters passed Proposition 13 stating that homeowners will pay one per cent of the original sales price for their property tax bill. This cost is fixed, at least until the law changes. This is fortunate compared to most other states in the country where property tax amounts are based on property assessments taken every couple of years generally increasing the cost. Of course, laws and situations vary, so consult your tax advisor to determine your exact savings.

To a homeowner, there is no sweeter word than “EQUITY”. Equity is the financial investment or stake you have in your home. For example, let’s say you buy a home for $210,000 with no down payment. In a few years, your house may be worth $250,000 and you’re the proud owner of $40,000 in equity. Building equity is one of the best and smartest investments you can make to secure your future. As your equity grows, your personal wealth grows. When you have equity, you have the ability to obtain low cost loans borrowed against it. Think of the possibilities. Your equity can build over the years and may become a resource for college tuition, home improvement loans, and even your retirement. Equity can be a growing nest egg that could always be there for you.

Some buyers take the road to building equity at a faster pace with a little “home work”. Commonly known as “fixer uppers”, these homes can be purchased for a lower price simply because they need some work. If you have the resources to invest “sweat equity” in your home, then you can increase the value of your home rather quickly compared to buying a house that is in perfect move-in condition.

Although there are additional costs involved in homeownership compared to renting, for the most part those costs are going to be fixed or increase slightly during the term of the loan. These extra costs include:

  • Real estate taxes
  • Homeowners insurance
  • Condominium maintenance fees (depending on what type of house you buy)
  • Homeowners association dues (depending on your neighborhood choice)
  • All utilities - gas, electric, water, trash
  • Maintenance and repair

But if you think owning a home is expensive, consider the alternative. Your rent is subject to an increase each time you renew your lease.

If you’re current rent is $1,100/month, expect to be paying $1628 in ten years. If you have a mortgage payment of $1,100/month, expect to pay $1,100 in ten years with a fixed rate loan. Here’s the same scenario from a different viewpoint. Jump forward in time thirty years (the average mortgage length) and imagine you are living in that same apartment. For mathematical simplicity, your rent has remained $1,100 because you’re an excellent tenant and the landlord likes you. Over the thirty years, you’ve given the landlord a whopping $396,000 and you are left with nothing to show for it except a pile of cancelled checks. However, if you had purchased a home thirty years ago, it would now be paid off with you as the rightful owner. You would have built up substantial equity and you would have enjoyed years of tax benefits.

Q. What documents do I need? back to top
A. The documents you provide will help the lender determine whether your credit history reflects your willingness and ability to repay the loan and ultimately how much you can afford to spend on your home. The results have an effect on the loan amount you receive and the interest rate you obtain.

Following is a list of the basic items you will need to provide:
  • Pay stubs covering the most recent 1-month period and showing year-to-date earnings and deductions (computer-generated).
  • W-2s for the most recent 2 years
  • Declaration page of home owner’s insurance
  • Bank statements covering the most recent 2 month period - checking, savings, investment, retirement, stocks, etc.

Self-employed or paid by commission applicants will need:
  • Federal income tax returns with all schedules for previous 2 years
  • Corporate tax returns and all schedules, if applicable

Applicants who filed a bankruptcy within the past 7 years will need:
  • A copy of petition, schedule of creditors, and discharge papers
  • A handwritten explanation of the reason for bankruptcy
  • If you have any questions about what is needed, just contact your Mortgage Advisor to quickly clear up any confusion

Q. What is the step by step loan process?
A.  Step 1: Loan application
Your mortgage loan application can be taken over the telephone, via fax or online.

Step 2: Loan processing
After the application is received, it will be reviewed to make sure the information is complete and consistent. The information is verified and the presence of all essential documents is confirmed. An appraisal is ordered to ensure the property is worth the loan amount. Your credit report is ordered.

Step 3: Underwriting
Once all documents are gathered, your loan package will be submitted to an underwriter who will evaluate your loan information as well as your ability to make the monthly loan payments.

Step 4: Loan approval
You will be asked to provide any additional information needed by the underwriter and notified of the conditions which must be met in order for your loan to close and fund.

Step 5: Draw closing documents
The legal documents that are to be signed in escrow will be ordered.

Step 6: Closing
A title agent reviews the settlement statement with you. This document includes all the final costs for the purchase. You will sign all documents such as the mortgage or deed of trust, note, Truth in-Lending Disclosure and other miscellaneous closing documents. You will give the closing agent a certified or cashier’s check for the down payment and closing costs. (purchase)The seller will sign a deed and other miscellaneous closing documents.

Step 7: Loan documents return to lender
The lender receives the signed documents and verifies all conditions have been met and that the figures are accurate.

Step 8: Loan records
The funds are disbursed and the transaction is recorded at the County Recorder ’s office. (purchase) The home is now officially and legally yours. You receive the keys to your new home

Q. How should I take title on my home? back to top
A. How you take title of your home is crucial. Title is the term for ownership and the names listed on the deed are the legal owners of the property. If you are single, then your choice is easier because in most cases you will take title as the sole owner. However, if you are married or buying the home with a partner, your choices multiply. Each option has certain legal, ownership, and tax advantages and disadvantages.

Sole Ownership
A sole owner owns 100% of the property and is the only name listed on the title/deed.

Joint Tenancy
Joint tenancy provides two or more people equal undivided interest in the property with rights of survivorship. All joint tenants must agree to a sale and sign the deed to sell the home. This is a common choice for married couples because when one joint tenant is deceased, his/her share transfers to the survivor regardless of what is stated in the deceased spouse’s will. Taking title as joint tenancy may prevent the home from entering probate proceedings in the event of death. Joint tenancy is not limited to married couples, but two or more people must co-own the property.

Community Property
A few states like California allow you to take title under community property. Community property claims are available only to married couples. Community property laws generally presume each spouse owns a 50 per cent interest in all property acquired during the marriage. Community property differs from joint tenancy because the property does not automatically pass to the surviving spouse upon death. You may will your community property to whomever you wish.

Tenancy In Common
Unrelated partners sometimes choose Tenancy In Common. Each partner owns a portion of the property and can be equal interest or not. Unless otherwise agreed, each partner has the right to sell his/her interests in any way at any time without consent of the other partners. Unlike joint tenancy, when a partner dies, that portion of the ownership becomes part of the deceased partner’s estate and is subject to the provisions of his/her will.

Serious consideration should be given to how you take title of your home. Unexpected situations can arise and you may want to be prepared to handle them beforehand. Your final agreement should stipulate each partners’ rights and obligations regarding, among other things, how to buy-out a co-owner if all owners do not wish to sell, distribute maintenance and repair costs among owners with an unequal share in the property, resolve disputes regarding the property like painting, landscaping, etc., and the actions to be taken if a co-owner does not contribute his/her share of the mortgage payments, taxes, insurance, and other costs. As with any agreement that may have legal consequences, this type of agreement should be drafted or reviewed by a legal professional.
Mortgage Frequently Asked Questions