Faqs

Two common questions that surround a loan are – How does a lender determine my interest rate? And what can I do to ensure I get the best possible rate? To answer these questions, we must consider three criteria on which a lender bases their decision:

Credit Rating – The credit score is a major component of pricing in mortgage lending. Lenders will look at a score that is based on trends in the borrowers credit history which include late payments and utilization.

Ratios – Secondly, the borrower’s monthly obligations (this does not include utilities, phone, or items generally not reported on a credit report) are calculated and reviewed by lenders. Two ratios are determined, front-end and back-end. For example, a borrower has a gross monthly income of $4,000, a car payment of $350, a credit card payment of $55, and a new house payment of $1,000. The calculations are as follows:

•    $1,000/$4,000 = 25% Front-end Ratio
•    $1,405/$4,000 = 35% Back-end Ratio

Down Payment – Lastly, the lender factors in the amount of a borrower’s initial down payment. Many clients think they need 20% to purchase a home and get the best rate, but this simply is not true in today’s market. There are many programs that offer a better rate with a smaller down payment. We recommend you work with your Supreme Lending Loan Officer to determine the best Loan options for you.

After a lender has considered the three points described above, the borrower’s application must pass the specifications set by an underwriting department for the loan to be approved.

Discount points are a one time fee that are added to the closing cost at the close of escrow. They give the benefit of a lower rate for as long as the client holds the loan. 1 discount point equals 1 percent of the loan amount. Discount points may be tax deductible so please consult your tax advisor.

Your closing costs depend on the type of loan you decide is best for you. Depending on your home state, you normally pay the following amounts:

• Discount Points: Used to lower the interest rate (refer to Discount Points section above)
• Appraisal Fee: Dependent on the purchase price of the home. This fee is paid up front to the appraiser once you are in contract. 
• Credit Report Fee: Charge for pulling your credit report from the credit bureaus (Refer to Credit Report question in this FAQS section)
• Underwriting Fee: Payment to the end investor for services provided
• Processing Fee: Payment to the lender for services provided
• Flood Certification Fee: Certification that your property is not in the 100 yr. flood zone
• Title Charge: Payment to the title company for closing your loan
• Title Policy: Issued by the title company. A one time fee paid as part of your closing costs. You are insured that the property will transfer to you with clean title and no liens. 
• Recording Fee: A fee to the County to move the legal ownership to the buyers name at the close of escrow. 

Many of these costs are third party charges and cannot be negotiated by you or the lender.

There are many differences between conventional and FHA loans. In this portion we will outline some of the major differences for you.

For FHA loans, the minimum down payment is 3.5%. For a Conventional loan, the down payment can be as low as 3% based on if you are a first time homebuyer.

A FHA loan requires an upfront Mortgage Insurance payment that can be wrapped into the loan. A Conventional loan does not require upfront Mortgage Insurance. FHA has monthly Mortgage Insurance for as long as you have the loan. Mortgage Insurance on a Conventional loan is only required when less than 20% is put down. You can request to get rid of Mortgage Insurance once you are below 80% LTV.

The property taxes will be the same on either type of loan. A common mistake is that people believe is their taxes will vary depending on the loan they choose. Property taxes can vary, not only by State and County, but they can vary by City as well.

Homeowner’s insurance is shopped for by you as the future homeowner. You will consult a local insurance agent to determine the best coverage based on your situation and the property you are buying. There is no difference in coverage for either loan type.