The ideal time to refinance is when the mortgage rates are typically 1- 2% lower than the current rate on your loan, resulting in lower monthly mortgage payments. Example: Your payment, excluding taxes and insurance, would be about $770 on a $100,000 loan at 8.5%; if the rates were lowered to 7.5%, your payment would then be $700, saving $70 per month. Your saving depends on your income, budget, loan amount, and interest rate change.

• A point is a percentage of the loan. For example: 1 point = 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 = 1 point or 1% of the loan amount.

Yes, if you plan to stay in the property for at least a few years. Paying discount points to lower the loan’s interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount point that you paid up- front.

The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage because it considers points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the “true cost of the loan”. This prevents lenders from advertising a low rate and hiding fees.

The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan.  The following fees are generally included in the APR:

• Points – both discount points and origination points
• Pre-paid interest or interest paid from the date the loan closes to the end of the month
• Loan processing fee
• Underwriting fee
• Document preparation fee
• Private mortgage insurance
• Escrow Fee

Mortgage rates are determined by several factors such as the circumstances of the lender’s mark, for example overall economic health, and personal aspects. In conclusion, the rate is constantly changing. If interest rates rise sharply during the application process it can increase the borrower’s mortgage payment unexpectedly. Therefore, a lender can allow the borrower to “lock-in” the loan’s interest rate guaranteeing that rate for a specified period, often 30-60 days. This may include an additional fee.

Credit scoring models are complex and often vary among creditors based on the type of credit. Based on your credit application, the creditor can see the factors that are affecting your score and will be able to evaluate the score to understand what needs to be done to improve your score. Nevertheless, scoring models generally evaluate the following types of information in your credit report:

• Paying bills on time
• Not having outstanding debt
• Only running credit score when needed. Running the score too many times will lower it
• Not having too many credited accounts

To improve your credit score under most models:

• Pay your bills on time
• Pay off outstanding balances
• Do not take on new debt

An appraisal is an estimate of a property’s fair market value. It’s a document generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The appraisal is performed by an “Appraiser” typically a state licensed professional who is trained to render expert opinions concerning property values, location, amenities, and physical condition.

On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. Sometimes you may need to pay up to 1 years’ worth of PMI premiums at closing, which may cost several hundred dollars. The best way to avoid this extra expense is to make a 20% down payment or ask about other loan program options.

A savings and loan association, bank, or other institutional lender provides a traditional 80% first mortgage, you get a 10% second mortgage, and make a cash down payment equal to 10% of the home’s purchase price. By using this method, you are no longer obligated to take out PMI on your property. The same principle applies if you can only afford to make a 5% down, 80-15-5 financing is also available. However, a small cash down payment increases the lender’s risk of default, do not be surprised when you are asked to pay higher loan fees and higher mortgage interest rates for 80-15-5 than 80-10-10.

The property is officially transferred from the seller to you at “closing” or “funding”. At closing, the ownership of the property is officially transferred from seller to buyer. They may involve the seller, buyer, real estate agents, attorneys, title or escrow firm representatives, clerks, secretaries, and other staff. You can have an attorney represent you if you cannot attend the closing meeting. Closing can take anywhere from 1 hour to several depending on contingency clauses in the purchase offer, or any escrow accounts needing to be set up.

Most of the paperwork at the closing or settlement is handled by attorneys or real estate professionals. Prior to closing a final inspection or “walk through” is needed to ensure requested repairs were performed, and items agreed to remain with the house are there.