Real Estate Finance Made Quick & Easy

Rate Watch for Friday, July 4th

30 Year Fixed: 6.425 APR%
15 Year Fixed: 6.125%
5/1 ARM Rate: 6.525 APR%

Mortgage F.A.Q.

Q: "I just had my house appraised with another bank. Can I use this appraisal with a new lender for my refi?"

Some banks, though certainly not all, will accept an appraisal done in the name of another lender. If you paid for the appraisal, and the order for the appraisal was executed by you, and not your original lender, you can instruct the appraiser to release the appraisal to whomever you wish. If however, your lender ordered the appraisal, they are under no obligation to instruct the appraiser to release the appraisal to any other lender-- even if you paid for it!

Your best bet is to ask a new lender right away if they can accept the appraisal.

Q: "Does paying points really save money?"

That's a great question, it really depends on several factors. Paying discount points will definitely lower your rate. However, you need to examine the total savings over the time in which you expect to have the loan.

Consider this example on a refinance loan:

You can get a $202,000.00 loan at 5.75 % with a monthly payment of: $1,178.82 with 1 point (or $2,000).

You can get a $200,000.00 loan at 6.125% with a montly payment of: $1,215.22 with no points.

Which loan is the better deal?

Well, if you plan on refinancing again or selling the house any time within the next 4.5 years, you actually would have LOST money by paying points on this mortgage loan.

Though the rate looked much more attractive, it only amounted to about $37 per month in savings.

At that rate, it would take you about 55 months just to break even on the $2000 you had to put up to get the lower rate on the loan.

Q: "What is an appraisal and who completes it?"

To determine the value of the property you are purchasing or refinancing, an appraisal will generally be required. An appraisal report is a written description and estimate of the value of the property.

National standards govern not only the format for the appraisal; they also specify the appraiser's qualifications and credentials. In addition, most states now have licensing requirements for appraisers evaluating properties located within their states.

The appraiser will create a written report for your lender and you'll be given a copy at your loan closing. If you'd like to review it earlier, your Loan Analyst would be happy to provide it to you.

Usually the appraiser will inspect both the interior and exterior of the home. However, in some cases, only an exterior inspection will be necessary. Generally, if you are just getting a rate and term refi, a drive by is all that is required. Exterior-only inspections usually save time and money, but if you're purchasing a new home, you should get both a full appraisal and a full inspection-- even if the lender does not require it.

After the appraiser inspects the property, they will compare the qualities of your home with other homes that have sold recently in the same area. Gernally, a 1 mile radius is used, unless the property is rural in nature.

These homes are called "comparables" and play a significant role in the appraisal process. Using industry guidelines, the appraiser will try to weigh the major components of these properties (i.e., design, square footage, number of rooms, lot size, age, etc.) to the components of your home to come up with an estimated value of your home. The appraiser adjusts the price of each comparable sale (up or down) depending on how it compares (better or worse) with your property.

As an additional check on the value of the property, the appraiser also estimates the replacement cost for the property. Replacement cost is determined by valuing an empty lot and estimating the cost to build a house of similar size and construction. Finally, the appraiser reduces this cost by an age factor to compensate for depreciation and deterioration.

If your home is for investment purposes, or is a multi-unit home, the appraiser will also consider the rental income that will be generated by the property to help determine the value.

Using these three different methods, an appraiser will frequently come up with slightly different values for the property. The appraiser uses judgment and experience to reconcile these differences and then assigns a final appraised value. The comparable sales approach is the most important valuation method in the appraisal because a property is worth only what a buyer is willing to pay and a seller is willing to accept.

It is not uncommon for the appraised value of a property to be exactly the same as the amount stated on your sales contract. This is not a coincidence, nor does it question the competence of the appraiser. Your purchase contract is the most valid sales transaction there is. It represents what a buyer is willing to offer for the property and what the seller is willing to accept. Only when the comparable sales differ greatly from your sales contract will the appraised value be very different.

For refinance loans, sometimes the lender will adjust or "cut back" the value of your property. In a real estate market where property values are stagnant or perhaps declining, underwriters tend to be more conservative. Just because your house appraised for a certain value does not guarantee that the lender will accept that value.

Q: "What is an Option Arm?"

An Option ARM mortgage is a form of adjustable rate mortgage loan. This type of loan can have a negative ammortization feature that can catch many homeowners off guard.

Q: "How Fast Can I Close My Loan?"

Some Lenders can close in less than a week. Though normally, the mortgage process can take between two and three weeks.

Q: "What About Bad Credit?"

Bad Credit does not mean that you can't get a great rate on a mortgage loan. Bad credit can inhibit a purchase mortgage loan more so than a refinance mortgage loan. We've partnered with mortgage lenders who will look at other "compensating factors" to get you a great rate. By more heavily weighting your collateral and your income in the underwriting decision, you can often get an execellent rate on a bad credit refinance!

Q: "How Do I Choose the Right Loan Program?"

There isn't a single or simple answer to this question. The right type of mortgage for you depends on many different factors:
• Your current financial picture
• How you expect your finances to change
• How long you intend to keep your house
• How comfortable you are with your mortgage payment changing

For example, a 15-year fixed rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed rate mortgage, but your payments could get higher when the interest rate changes.

The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage professional.

To learn more about loan programs, go to our Loan Programs page.

Q: "How Much Can I Afford?"

With increased foreclosures making the headlines, many homeowners are asking themselves that same question. Generally a mortgage loan payment, combined with your other monthly bills - excluding utilities, food, etc. should not exceed 40% of your GROSS income.

Most lenders have guidelines that allow for up to a 50% debt-to-income ratio. However, if you are at that level you are most likely living quite uncomfortably with little or no disposable income. And you certainly aren't saving any money for the future, let alone for emergencies.

Just because a lender has approved you does not mean you should take the loan. It's important that you are comfortable with the monthly payment and are able to budget for it without concern.

That said, if you're new to mortgage loans you may actually be able to afford more than you think! Mortgage interest, property taxes, and even PMI are usually tax deductible. That means that you can often get a substantially larger tax return every year-- thus increasing your real income.

Our calculator page has a good mortgage afforability calculator.

That's a great start, but to get a real idea of what you can afford you should speak with a professional.