What Are Mortgage Points? Should You Pay Them?

(TNS)—When people want to find out how much their mortgages cost, lenders often give them quotes that include loan rates and points.

What Is a Mortgage Point?
A mortgage point is a fee equal to 1 percent of the loan amount. A 30-year, $150,000 mortgage might have a rate of 7 percent but come with a charge of one mortgage point, or $1,500.

A lender can charge one, two or more mortgage points. There are two kinds of points:

  1. Discount points
  2. Origination points

Discount Points
These are actually prepaid interest on the mortgage loan. The more points you pay, the lower the interest rate on the loan and vice versa. Borrowers typically can pay anywhere from zero to three or four points, depending on how much they want to lower their rates. This kind of point is tax-deductible.

Origination Points
This is charged by the lender to cover the costs of making the loan. The origination fee is tax-deductible if it was used to obtain the mortgage and not to pay other closing costs. The IRS specifically states that if the fee is for items that would normally be itemized on a settlement statement, such as notary fees, preparation costs and inspection fees, it is not deductible.

How do you decide whether to pay mortgage points, and how many? That depends on a number of factors, such as:

  • How much money you have available to put down at closing
  • How long you plan on staying in your house

Points as prepaid interest reduce the interest rate—an advantage if you plan to stay in your home for a while—but if you need the lowest possible closing costs, choose the zero-point option on your loan program.

By the Numbers…
A lender might offer you a 30-year fixed mortgage of $165,000 at 6 percent interest with no points. The monthly mortgage principal and interest payment would be $989. If you pay two points at closing (that’s $3,300) you might be able to drop the interest rate down to 5.5 percent, with a monthly payment of $937. The savings difference would be $52 per month, but it would take 64 months to earn back the $3,300 spent upfront via lower payments. If you’re sure you will own the house for more than five years, you save money by paying the points.

©2017 Bankrate.com

Distributed by Tribune Content Agency, LLC

This article is intended for informational purposes only and should not be construed as professional advice. The opinions expressed in this article are those of the author and do not necessarily reflect the position of RISMedia.

For the latest real estate news and trends, bookmark RISMedia.com.

The post What Are Mortgage Points? Should You Pay Them? appeared first on RISMedia.

(TNS)—You’re buying a home and you need a mortgage. How do you choose the right lender—one that will offer not only the best deal, but also good customer service?

You’ll find no shortage of banks, online lenders, mortgage brokers and other players eager to take your loan application. Here are five tips for selecting the best mortgage lender out of the bunch.

Compare Offers and Lenders
Start getting familiar with various lenders and the deals they’re offering by browsing through mortgage rates.

Lenders will “present price differently,” notes Robert Davis, an executive vice president at the American Bankers Association (ABA). “Some lower rates might include fees with it, so the annual percentage rate is different than what you might think.”

Also, understand that some lenders specialize. One might be a good choice if you’re financing a condo, while others might offer a better deal if you’re building your home from scratch. You’ll want to have a general idea of the type of property you’re interested in.

Check With Lenders and People You Know
You might find the right mortgage and the best lender without having to look very far. Go to the bank or credit union where you have a checking or savings account and ask about the types of mortgage deals that are available to current customers.

Compare any offer against what other lenders in your area and online and large national lenders will give you.

“Interest rates change as much as three or four times a day, so get quotes from three different (lenders) to increase your odds,” says Brian Koss, executive vice president of Mortgage Network.

Be sure to ask family members and friends for referrals to loan officers and mortgage brokers who gave them good, professional service and helped them find the most competitive loans.

Decide: DIY or Hire a Broker?
One important decision is whether to seek out a mortgage and lender completely on your own or use the services of a mortgage broker.

A broker can help with your comparison-shopping by gathering quotes from several lenders, but it’s important to understand that a broker isn’t obligated to find the deal that’s best for you.

If you decide to work with a mortgage broker, it’s wise to look at how the loan offers from the broker size up against those you find on your own.

Look at differences in rates, fees, mortgage insurance and down payments—and compare what your bottom-line costs will be.

Talk With Your Real Estate Agent
Be sure to ask your real estate agent for lender recommendations. Smart loan officers rely on that business and take good care of the clients sent their way by local real estate agents.

Keep in mind that agents might have relationships with certain lenders, so when your agent gives you a name, ask whether there is any affiliation.

While some real estate brokerages have their own favored in-house mortgage lending businesses, good agents will not limit their referrals to those particular lenders.

Be Ready for a Possible Hand-Off
Many lenders will end up selling your mortgage to the secondary market, which means you will likely have a different company servicing your loan than your original lender.

This transfer is often outside your control, but you can ask the lender whether it knows if your mortgage will end up being serviced by a different company. If you want a lender you can reach out to immediately if problems arise, finding one who will hold onto your mortgage might be the best option.

“If it’s important for you to have local contact with the lender, then you’ve got to go to a bank that keeps your mortgage,” says Davis.

©2017 Bankrate.com

Distributed by Tribune Content Agency, LLC

This article is intended for informational purposes only and should not be construed as professional advice. The opinions expressed in this article are those of the author and do not necessarily reflect the position of RISMedia.

For the latest real estate news and trends, bookmark RISMedia.com.

The post 5 Steps to Finding Your Best Mortgage Lender appeared first on RISMedia.

When you inquire about qualifying for a home loan, you’ll likely hear the term “conditionally approved,” but might not be sure what that means or how it differs from a preapproval. We’re here to explain so you can be in the know!

A conditionally approved loan is closer to closing than a preapproved one but comes with a few conditions, usually concerning documentation and income, that must be met before a client can be approved to close.

A conditional approval occurs once the client has provided the necessary documentation to get their loan set up, such as:

  • Employment and income verification
  • Pay stubs
  • Tax returns
  • Bank statements
  • Debt obligations (credit cards or loans)
  • Utility bills
  • Asset statements

This information is required before the loan is completely approved.

Conditional Approval vs. Preapproval
People often confuse conditional approval and preapproval when talking about mortgages.

Loans are preapproved by a Home Loan Expert who has reviewed your income and credit information. Your information must be verified and approved before a decision can be made.

“The preapproval is based on what the client tells the banker and their credit report information,” says Jennifer Davenport, product manager on the Quicken Loans Capital Markets team. “Conditional approval differs from preapproval in that the loan may not have been reviewed by an underwriter when preapproved.”

After your information is reviewed, you’ll receive a preapproval letter stating your eligibility for a loan up to a specified amount.

Conditional approval comes after preapproval and involves going a little deeper. An underwriter conducts a strict documentation review before your loan is conditionally approved.

“This documentation is reviewed by an underwriter, and provided the client’s information matches up with what was initially stated to the mortgage banker, they are conditionally approved,” explains Davenport. “This means that the loan is moving forward but there are or may be additional conditions that will need to be met in order to finalize and close the loan.”

If the conditions aren’t met, the client might not be able to close on the loan.

Conditions on a Conditional Approval
There are a few common conditions attached to a conditional home loan approval. Additional documentation, such as pay stubs, paperwork for business income, and tax documentation, is often required for final approval.

This might also include written verification of employment from your employer or additional asset statements, depending on what’s needed for your loan.

Conditional approval can also require purchase agreement addendums. Title verification, an appraisal, an inspection and homeowners insurance are usually needed to verify the market price of the home, the loan-to-value ratio and other details.

This can also include confirmation that there are no unexpected liens or judgments on the home.

Denial of a Conditionally Approved Loan
Clients with a conditional approval for a home loan are at risk for denial if they fail to meet any of the conditions laid out by the lender.

Here are a few reasons why a client might be denied:

  • The underwriter is unable to verify the data provided by the client.
  • The home the client is trying to purchase has an unexpected lien.
  • The client has a judgment on their record.
  • The home inspection or property appraisal came in with unexpected issues.
  • The client experienced a decrease in income.
  • The client had negative entries on their credit report.

According to Davenport, conditionally approved loans “may also get denied based on the additional information that comes in. For example, maybe the client does not actually earn as much income as they initially thought or loses their job, or there are not enough assets, or clients open up new debt during the process and now their DTI (debt-to-income ratio) exceeds the product guidelines.”

If you’re looking to get a mortgage, the first step you want to take is to talk with a Home Loan Expert. Fill out this form to have a Home Loan Expert call you or call 888-980-6716.

A version of this article originally appeared on Zing! by Quicken Loans.

For more information, please visit www.quickenloans.com.

For the latest real estate news and trends, bookmark RISMedia.com.

The post How Is Conditional Approval Different From Preapproval? appeared first on RISMedia.

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