06
Jan
By First Rate Financial Group
Mortgage

Understanding The Differences Between Conforming Loans And Jumbo Loans

Understanding The Differences Between Conforming Loans And Jumbo LoansPotential homeowners need to understand the different types of loans available. This is a major financial decision, and it is important to evaluate the benefits and drawbacks of each option. The majority of home loans fall into two categories. The first is called a conforming loan and the second is called a jumbo loan. There are a few significant differences between them.

How Is The Size Of A Home Loan Determined?

First, it is important to understand how the size of a home loan is determined. Homebuyers usually need to put money down before they will be granted a home loan. First-time homeowners may be able to qualify for a home loan with only 3.5 percent down, but most people will be asked to put 20 percent down. Otherwise, they could be asked to purchase private mortgage insurance. The remaining balance of the sale is the size of the loan financed by the lender. 

What Is A Conforming Loan?

A conforming loan is any loan that is beneath the federally set limit. Typically, a conforming loan comes with a lower interest rate than a jumbo loan. Therefore, home buyers who have a proposed loan amount at or near the federal limit, or those who have flexibility in the size of the down payment, are better off securing a conforming loan so they can save money. 

What Is A Jumbo Loan?

A jumbo loan is any loan that is above the federally set limit. While a jumbo loan can still allow homeowners to secure a house, it usually comes with higher interest rates. Before taking out a jumbo loan, potential homebuyers need to talk to the loan officer about their other options. There might be ways to avoid taking out a jumbo loan. 

Work With A Professional Loan Officer

Anyone interested in taking out a home loan has to work with a professional loan officer who can explain the different options available. In addition to deciding on a fixed-rate versus an adjustable-rate mortgage, applicants need to figure out if they qualify for a conforming loan or a jumbo loan. The differences between these two loans can equate to thousands of dollars over the life of the loan. 

 

04
Jan
By First Rate Financial Group
Mortgage

An Overview Of Mortgage Points

An Overview Of Mortgage PointsThere is a lot of terminologies involved in the mortgage application process, and one common term people come across is a mortgage point. What exactly is a mortgage point, and how might impact the price of the loan?

What Is A Point?

Points represent fees due at signing. Some lenders charge points while others do not. In some cases, applicants are given the option to pay points in exchange for a rate reduction. A single point is the equivalent of one percent of the loan’s value. If the home loan is $200,000, then a single point is $2,000.

Origination Points And Discount Points

There are two common types of mortgage points. The first is called an origination point. The second is called a discount point. An origination point is charged to cover the cost of creating the loan. Typically, origination points are directly tied to the compensation the loan officer receives for writing the loan. The other type of point, the discount point, is used to reduce the interest rate of the loan itself. While each lender has its own standards, one discount point paid usually translates to an interest rate reduction of 0.25 percent for a fixed-rate loan or 0.375 percent for an adjustable-rate loan.

Is One Point Better Than Another?

Applicants might save money on taxes if they pay discount points instead of origination points. Discount points could be claimed as a tax deduction on Schedule A, but it is important for any homeowner looking to save money on taxes to speak to a tax professional for clarification. Sadly, origination points are not deductible. Most lenders give homeowners options regarding discount points, so homeowners need to think carefully about whether it is in their best interests to claim discount points.

Should Homeowners Take Discount Point Offers?

Some homeowners might wonder whether it is better to keep the cash and pay no points or take discount points to buy down the rate. This is a personal decision, and homeowners need to think about the best way to use their money. It might be better for some homeowners to pay discount points in exchange for a lower interest rate. It could be better for other homeowners to keep their cash and use it pay off other loans.

29
Dec
By First Rate Financial Group
Home Buyer Tips

Do You Need Mortgage Insurance Even If It’s Not Required By Your Lender? Let’s Take A Look

Do You Need Mortgage Insurance Even if It's Not Required by Your Lender? Let's Take a LookFinding a proper mortgage loan and understanding the processing procedures behind the loan is the basis of good research. The down payment on a mortgage loan is typically significant when dealing with mortgage insurance.

Most loan applications with less than 20% down payment are required to include mortgage insurance with the loan. However, mortgage insurance may still be required even if it’s not typically required by your lender.

Underwriting Requirements

Most home mortgage applications undergo a strict set of standards for approval. These standards are known as underwriting and make up the bulk of time spent on a mortgage application. Unique situations in employment or credit history may require an additional down payment percentage to avoid PMI or private mortgage insurance.

Most underwriting requirements require adequate information on the borrower’s credit and employment history for complete application. Self-employed individuals or those with alternative forms of credit may need a few additional hoops to jump through when dealing with mortgage insurance requirements.

Lender-paid Mortgage Insurance

Lender-paid mortgage insurance is a popular option with potential homeowners that seek to avoid the cost of a PMI or FHA-backed insurance on a home loan. Most lenders incorporate payment of private mortgage insurance in exchange for a slightly higher interest rate.

This is one example of the points system on a mortgage application that eliminates the cost of PMI. The increase in interest rate may or may not warrant the need for a lender-paid mortgage insurance arrangement.

What’s Involved With Risk Assessment?

Strict lending requirements and banking policy now limit the number of mortgages with zero down payment options. Conventional mortgages and FHA both require private mortgage insurance if it is less than 20% down payment. However, FHA loans can be more flexible with the initial down payment requirements with adequate credit. FHA mortgage costs are now for the life of the loan. Lenders will look at mortgage insurance as risk protection.

The risk protection process may or may not require mortgage insurance in your home loan. For example, VA and USDA loans do not usually require mortgage insurance if the borrower’s credit and employment history are adequate.

Conventional loans have a reduction in risk once there is at least 20% equity in the home compared to the principal of the mortgage. Don’t hesitate to contact your trusted mortgage professional about potentially dropping mortgage insurance in the future to reduce overall loan costs.