There are many very good reasons to refinance your mortgage.  A few example include, lowering your interest rate, shortening the term of your loan, dropping PMI or consolidating debt.   Refinancing may be a viable option even if the interest rate difference is small.  Whether or not you should refinance generally comes down to the importance of meeting your goals, monthly savings, the cost assoicated with refinancing. The experienced team at Scout Mortgage can help you wade through the variables and calculate your options.

What are points?

Points, in a nutshell, are the prepayment of interest to the mortgage lender.  Exchange for the prepayment of interest, the Lender reduces the rate on your mortgage over the life of the loan.  Consumers often refer to paying points as "Buying Down the Rate."

A point is expressed as a percentage of the loan amount.  One point = 1% of the loan.  One point on a $100,000 loan is $1,000. 

Like so many other financial decisions .... It depends. Many factors go into the decision of whether or not to pay Points.  Conditions in the Mortgage Market play a part in determining the economic benfit of paying points.  The time you anticipate living in your house comes into play.  The general direction of interst rates is also a factor that should be considered.  The team of mortgage experts at Scout can help you weight the different factors surrounding the payment of Points and help you make the best choice. 

APR stands for Annual Percentage Rate.  The APR is an interest rate calculation created by Federal Mortgage Laws and Regulations.  The purpose of the APR is to help consumers compare different mortgage offers they receive from different lenders.

It is important to understand that the APR is different form the Note Rate on your mortgage.

The Note Rate is used to calculate your payment and is the rate used to calculate your daily interest expense.

The APR is a tool used to compare different mortgage loan offers.

At Scout Mortgage, our experience has been that the APR is not a useful tool for comparing mortgage loan offers.  Among the primary reason for this are, a general lack of understanding by the consumer of how APR is calculated, inconsistency among lenders in calculating the APR and poor assumptions used when calculating the APR. 

In our opionin, a consumer is much better off making a direct comparison of interest rates, closing costs, principal & interest payments, loan balances, and the terms of the loan. 

What are Closing Costs?

Closing Costs are the costs associated with obtaining your mortgage loan.  Closing Costs are broken down into three Categories

1. LOAN COSTS:  These are the hard cost of obtaining your mortgage such as Origination Fees, Appraisal Fee, Title & Escrow Fees, etc.
2. OTHER COSTS:  Other costs are costs associated with administration of your loan.  They include things like initial deposit into an escrow/impound account, payment of Propety Taxes and Home Owner's Insuranc Permiums, etc.
3. LENDER CREDITS:  Depending on the structure of your loan, the lender may give you a credit.  The Lender Credit is used to off set Loan Cost and Other Costs.  Generally Speaking, the Lender Credit cannon exceed the total of the Loan Cost and Other Costs.

When you purchase a house, the Closing Costs are paid out-of-pocket.  They are not financed into the balance of the new mortgage loan.

When you refinance a mortgage, the Closing Costs can be financed or rolled into the balance of the new mortgage.  On a refinance, the closing costs can also be paid out-of-pocket in full or in part. 

Mortgage rates can change from the day you apply for a loan to the day you close the transaction. 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 time period, often 30-60 days, sometimes for a fee.

Below is a list of documents that are required when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation. So, if you are asked for more information, be cooperative and provide the information requested as soon as possible. It will help speed up the application process.

Your Property

• Copy of signed sales contract including all riders
• Verification of the deposit you placed on the home
• Names, addresses and telephone numbers of all realtors, builders, insurance agents and attorneys involved
• Copy of Listing Sheet and legal description if available (if the property is a condominium please provide condominium declaration, by-laws and most recent budget)

Your Income

• Two most recent pay-stubs.
• Two nist recent W-2 forms.
• Names of all employers for the last 2 years
• Letter explaining any gaps in employment in the past 2 years.

If self-employed or receive commission or bonus, interest/dividends, or rental income:

• Personal Federal Tax Returns for the last 2 years (all pages). If you have filed an extension, please supply a copy of the extension.
• K-1's for all partnerships and S-Corporations for the last 2 years.
• If Appicable, Business Federal Tax Returns for last 2 years. (Required only if your ownership position is 25% or greater.)

If you will use Alimony or Child Support to qualify:

• Provide divorce decree/court order stating amount, as well as, proof of receipt of funds for last year

If you receive Social Security income, Disability or VA benefits:

• Provide award letter from agency or organization

Source of Funds and Down Payment

• Sale of your existing home - provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement)
• Savings, checking or money market funds - provide copies of bank statements for the last 3 months
• Stocks and bonds - provide copies of your statement from your broker or copies of certificates
• Gifts - If part of your cash to close, provide Gift Affidavit and proof of receipt of funds
• Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation

How is my credit judged by lenders?

Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).

Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:

Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report.

You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion. This free credit report may not contain your credit score and can be requested through the following website: https://www.annualcreditreport.com

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

• Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
• What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
• How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
• Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
• How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.

An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) 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, its location, amenities, and physical conditions.

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-year's worth of PMI premiums at closing which can 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.

Surprising as it may seem, some folks with hefty incomes find that it’s mighty tough for them to save enough money to make a 20% cash down payment on their dream homes. Using conventional financing, such buyers must purchase Private Mortgage Insurance (PMI) which increases the cost of home ownership and, ironically, makes it even more difficult to qualify for the mortgage. However, if you’re a dues-paying member of the cash-challenged class, don’t despair. Given that your income is sufficiently high, it’s eminently possible to avoid getting stuck with PMI. That is why 80-10-10 financing was invented. It is called 80-10-10 because 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, because a smaller cash down payment increases the lender’s risk of default, do not be surprised when you are asked to pay higher loan fees and a higher mortgage interest rate for 80-15-5 than you pay for 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 the seller to you. This may involve you, 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 you can't attend the closing meeting, i.e., if you’re out-of-state. 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 paperwork in closing or settlement is done by attorneys and real estate professionals. You may or may not be involved in some of the closing activities; it depends on who you are working with.

Prior to closing you should have a final inspection, or "walk-through" to insure requested repairs were performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.

In most states the settlement is completed by a title or escrow firm in which you forward all materials and information plus the appropriate cashier's checks so the firm can make the necessary disbursement. Your representative will deliver the check to the seller, and then give the keys to you.