Frequently Asked Questions About Home Loans:

By: Shannon Gray

1. Should I refinance?
2. Should I rent or buy?
3. What is a FICO score?
4. How can I increase my credit score?
5. What if there is an error on my credit report?
6. Why do interest rates change?
7. What is the difference between being pre-qualifed and pre-approved?
8. Can my loan be sold?
9. What is a rate lock?
10. What's the difference between a conventional loan and an FHA loan?
11. What documents will I need to have to secure a loan?
12. Should I pay points?
13. What is an Annual Percentage Rate (APR)?

First contact us to see if you can save money by refinancing your existing loan at today's current interest rate. Lowering your interest rate usually lowers your monthly payment and will save you on the total interest for the duration of the loan. Keep in mind when you refinance, sometimes there are closing cost and cost to pay points. Typically, if your monthly savings exceeds these closing costs then refinancing is a viable option. Refinancing is no easy decision, so please call us to see if makes sense for your current situation.

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This question is not always cut and dry. There are many factors when considering renting or buying a home. Factors like employment, family and friends, credit score, amount you have in savings, debts you may have, and the ability for you to pay back the loan. Typically, if an individual has 20% of the purchase price saved for their down payment, a 6-9 month emergency savings fund, credit score over 750, and steady employment and pay, then it makes sense to start thinking about purchasing their first home. Also, with all the things listed above, if your potential rent will be equal to or greater than a mortgage payment, then it makes sense to own the property as opposed to paying a landloard. Again, there are numerous factors and everyones situation is different, so please call us and we would be happy to discuss and/or give you our advice.

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A FICO score is a credit score developed by Fair Isaac & Co. The credit score is a measuring method that determines a borrowers likelihood that they will pay their bills on time. This method is used by lenders as a reliable means of evaluating a persons credibility.

Credit scores analyze a borrower's credit history considering numerous factors such as:

• Late payments
• The length of time credit has been established
• The amount of credit used versus the amount of credit available
• Length of time at present residence
• Negative credit information such as bankruptcies, charge-offs, collections, etc.

To obtain a copy of your credit report, contact any of these credit-reporting agencies:

• Experian, www.experian.com
• Trans Union LLC, www.transunion.com
• Equifax www.equifax.com

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You cannot game or trick the system into raising your score in a short period of time. The only way to see your score increase substantially is to do some of the tips below over a period of time. At the very least 2 full years of the following:

• Pay your bills on time. Late payments and collections can have a serious damaging effects on your credit score.
• Do not apply for credit frequently. Having a large number of inquiries on your credit report can lower your score.
• Reduce your credit-card balances. If you are "maxed" out or use almost your entire limit on your credit cards, this will lower your credit score.
• If you have limited credit, obtain additional credit. Not having enough of a credit history can lower your score.
• Pay off revolving debt if you can afford to. Some people will try very hard to pay off an installment loan, such as an auto loan, which is good, but paying off revolving debt like a large credit card balance can increase your score.

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To correct any errors on your credit report, you must contact the credit card company and explain the error. If the credit card company agrees that an error has occurred, the credit card company must report and correct the error to the 3 credit-reporting agency. You also have the right to contact the 3 credit agencies explaining the situation, such as identity theft.

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Interest rate fluctuations are based on supply and demand. If the demand for California home loans increases then so does interest rates. Now, if the demand for home loans reduces, then so does current interest rates.

Higher inflation is associated with a booming economy so when the economy grows too fast, the Federal Reserve increases interest rates to slow the economy down and reduce inflation.

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Pre-qualification is normally determined by a loan officer. After interviewing you, the loan officer determines the potential loan amount for which you may be approved. The loan officer does not issue loan approval; therefore, pre-qualification is not a commitment to lend.

After the loan officer determines that you pre-qualify, he/she then issues a pre-qualification letter. The pre-qualification letter is used when you make an offer on a property. The pre-qualification letter informs the seller that your financial situation has been reviewed by a professional, and you will likely be approved for a loan to purchase the home.

Getting Pre-approved is a step above pre-qualification. Pre-approval involves verifying your credit, down payment, employment history, etc. Your loan application is submitted to a lender's underwriter, and a decision is made regarding your loan application.

When your loan is pre-approved, you receive a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a home. Pre-approval can also help you negotiate a better price with the seller. Contact us and get pre-approved today!

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Your home loan can be sold at any time beacase there is a secondary mortgage market in which lenders frequently buy and sell pools of mortgages. This secondary mortgage market results in lower rates for consumers. A lender buying your loan assumes all terms and conditions of the original loan.

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A rate lock is a lender's promise to "lock" a specified interest rate and a specified number of points for you for a specified period of time while your loan application is processed.

During that time, interest rates may change. But if your interest rate and points are locked in, you should be protected against increases. Contact us today to lock in your rate!

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Loans where the borrowers' down payment is less than 20% often require mortgage insurance, which can be provided privately or publicly. Conventional loans requiring MI are insured by private mortgage insurance. FHA loans are those whose MI is provided by the Federal Housing Administration, a public, government program backed by taxpayers. To learn more about FHA loans check out our FHA Information page.

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We have made a list of all the documents needed to ensure a smooth loan transaction. Click here to view the list of things needed to obtain a loan.

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The best way to decide whether you should pay points or not is to perform a break-even analysis:

1. Calculate the cost of the points. Example: 2 points on a $100,000 loan is $2,000.
2. Calculate the monthly savings on the loan as a result of obtaining a lower interest rate. Example: $50 per month
3. Divide the cost of the points by the monthly savings to come up with the number of months to break even. In the above example, this number is 40 months. If you plan to keep the home for longer than the break-even number of months, then it makes sense to pay points, otherwise it does not.

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The Annual Percentage Rate is the actual cost of the mortgage, based on the mortgage interest rate and factoring in other costs, including points paid and 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.

The APR does not affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.

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