- Should I refinance?
- Should I rent or buy?
- What is a FICO score?
- What are points?
- I’m unhappy with my credit score. What can I do to improve it?
- What if there’s an error on my credit report?
- Why do interest rates change?
- What is the difference between being pre-qualified and pre-approved?
- Can my loan be sold?
- What’s a rate lock?
- What documents will I need to secure my loan?
- How will my monthly payments be calculated?
- Should I pay points?
- What is an Annual Percentage Rate (APR)?
- What happens at closing?
Should I refinance?
A lower interest rate means lower monthly payments, but refinancing your home also means having to pay closing costs. American Lending Solutions can help you find out if your monthly savings will exceed these closing costs — if so, then refinancing is a good option.
Should I rent or buy?
Every story is different. We can help you decide which option is better for you based on your unique needs.
What is a FICO score?
A FICO score is a kind of credit score originally developed by Fair Isaac Corporation. It’s a method of determining the likelihood that a credit user will pay his or her bills based on factors such as:
• A history of on-time or late payments.
• The length of time his or her credit has been established.
• The amount of credit he or she has used versus the amount of credit available.
• The length of time at present residence.
• Negative credit information such as bankruptcies, charge-offs or collections.
You can easily obtain a copy of your credit report by contacting one of these agencies:
• Trans Union LLC
What are points?
A point is a percentage of the loan amount. One point is equal to 1% of the loan, so one point on a $100,000 loan is $1,000.
Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up front. Lenders may refer to costs in terms of basic points in hundredths of a percent (100 basic points = one point or 1% of the loan amount).
I’m unhappy with my credit score. What can I do to improve it?
The bad news is that increasing your credit score takes time. The good news is that it is possible if you follow these tips:
• Pay your bills on time. Late payments and collections negatively impact your credit score.
• Don’t apply for credit frequently. A large number of inquiries on your credit report will worsen your overall score.
• Reduce your credit card balances. Maxing out your credit cards hurts your credit.
• Be sure to always have sufficient credit. Obtain more if necessary.
What if there’s an error on my credit report?
If you think that there are errors on your credit report, contact your credit card company. Once they’ve confirmed that an error was made, they’ll report to the credit-reporting agency and make corrections.
Why do interest rates change?
Interest rates are determined by supply and demand. If there is a high demand for credit (and therefore more buyers in the market), interest rates increase. Conversely, if there is a decline in the demand for credit, buyers can command a lower price and rates decrease.
In general, you can expect interest rates to match general economic trends — if the economy is expanding or slowing, interest rates will do the same.
What is the difference between being pre-qualified and pre-approved?
Pre-qualification means you have met with a loan officer and he or she has determined the potential loan amount for which you may be approved. A pre-qualification certificate is not a commitment to lend, but certifies to sellers that your financial situation has been reviewed by a professional.
You can think of pre-approval as one step beyond pre-qualification. Pre-approval means your credit, down payment and employment history have been verified by a lender. Your pre-approval certificate will help you negotiate a better price with a seller and also help you close very quickly once you’ve found the right home.
Can my loan be sold?
Yes. Your loan can be sold at any time — in fact, there’s a secondary mortgage market in which lenders frequently buy and sell pools of mortgages, resulting in lower overall rates for consumers.
A lender buying your loan assumes all of its original terms and conditions. They will also inform you when your loan is sold. When that happens, you’ll send your payments to your new lender.
What’s a rate lock?
A rate lock is a promise from a lender to “lock” a specific interest rate and number of points for you for an agreed upon period of time while your loan application is processed.
Interest rates are prone to change and might very well do so while you wait for your application to be approved. If your interest rate and points are “locked,” however, you’re protected against rate increases.
A rate lock has four components:
• Loan program.
• Interest rate.
• Length of the lock period.
Longer lock periods usually mean higher rates or points because the lender’s risk is greater.
What documents will I need to secure my loan?
We understand that keeping track of paperwork as you prepare for your big move can be stressful, so we’ve created a checklist of all the important documents you’ll need to finish your application. Use this list to save yourself time and avoid potential headaches.
• Copy of Purchase Sales contract or Offer to Purchase and all addenda (signed by buyer and seller).
• Past two years’ tax returns and W-2s.
• Past two years’ employment history.
• Last three consecutive paycheck stubs (five if paid weekly).
• Name, address and phone number for past two years’ residence(s) and landlord(s) (if renting, evidence of 12 months’ rent payments).
• Last three months’ statements for savings, checking, CD, money market accounts, etc.
• Recent statement on retirement accounts (IRA, 401k, 403-B, Annuity, etc.).
• Monthly payments and balances on all open accounts.
• Proof of all additional income.
• Divorce decree (if applicable).
• Bankruptcy schedules/discharge papers (if applicable).
How will my monthly payments be calculated?
The short answer: it depends on how long you want to be paying your loan back. Most mortgages are either 30- or 15-year terms. Long-term loans offer a lower monthly payment; short-term loans require a higher monthly payment but are paid off quicker.
The long answer is that your monthly payment is based on four factors:
• Principal: This is the amount you originally borrowed to buy your home. A portion of each monthly payment goes toward paying that amount back. The amount of your payment that is used to repay the principal increases with time.
• Interest: Because lenders are taking a risk when they offer you a loan, they charge interest. The size of the interest rate directly impacts the amount that you pay each month.
• Taxes: Most mortgage payments include 1/12th of your expected income tax bill and collect that amount along with the principal and interest payment. It’s then placed in escrow until your tax bill is due.
• Insurance: Your payment will likely include property insurance and mortgage insurance. Mortgage insurance protects your lender in the event of default and is often required when borrowers have less than 20% equity in the home.
Should I pay points?
To decide whether or not paying points is a good option for you, you can perform a break-even analysis by following these steps:
• Calculate the cost of the points.
• Calculate the monthly savings on the loan as a result of obtaining a lower interest rate.
• Divide the cost of the points by the monthly savings to come up with the number of months it would take to break even.
If that number of months is longer than you plan to keep your home, then it makes sense to pay points.
What is an Annual Percentage Rate (APR)?
An Annual Percentage Rate is the actual cost of a mortgage. It’s based on the mortgage interest rate and other costs, such as points paid, underwriting and processing fees.
The Federal Truth-in-Lending law requires mortgage companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.
What happens at closing?
When you close, the property is officially transferred from the seller to you. This may involve a number of people including yourself, the seller, real estate agents, your attorney, the lender’s attorney, title or escrow firm representatives, clerks, secretaries and other staff. You can have an attorney represent you if, for some reason, you are unable to attend the closing. The process can take anywhere from one hour to several hours depending on contingency clauses in the purchase offer or escrow accounts that need to be set up.
Attorneys and real estate professionals will handle most of the paperwork involved in closing. The extent to which you are involved depends on who you’re working with. With American Lending Solutions, you will stay informed throughout the entire process.
Prior to closing, make sure you have a final inspection or “walk-through” of the house to ensure that any repairs you may have requested were performed and that the condition of the house meets the agreed-upon expectations.
In most states, a title or escrow firm (to whom you will forward all necessary materials, information and payments) completes the settlement. Finally, your American Lending Solutions representative will deliver the check to the seller and the keys to you!