What is the difference between fixed rate and variable rate mortgages?
	What are the steps involved in the loan process?
	How can I improve my credit score?
	How does a lender determine the maximum mortgage I can afford?
	What are points, and what's the point in paying them?
	How do adjustable rate mortgages work?
	What are escrow accounts and how much do I need in my escrow account?

What is the difference between fixed rate and variable rate mortgages?

A fixed rate mortgage is a loan where the principal and interest payment never change during the life of the loan.

A variable rate mortgage is a loan where the interest rate can change periodically. The changes in the interest rate are tied into the market rates that exist at the time the rate is subject to change. They usually offer lower interest rates to start than fixed rate mortgages, but can adjust upwards if interest rates go up. There are predefined caps which limit how high or low the interest rate can adjust.

Fixed rate mortgages are beneficial to those who are on a fixed income and to those who prefer fixed payment schedules.

Adjustable rate mortgages are advantageous for those who do not plan to stay in their home for a long time, for those borrowers who do not qualify at higher fixed interest rates, and for those who can financially handle fluctuating payments.

What are the steps involved in the loan process?

The lender will require information regarding your income, assets and monthly bills, including all names, addresses, account numbers, etc. The contract of sale on a purchase or a copy of the deed on a refinance will be necessary to determine the location and description of the property. We will verify your employment and assets, run a credit check and have an appraisal of the property completed by a bank approved appraiser. Once this information is collected and reviewed and the loan processor determines that it meets the guidelines set forth by the lender, the loan is then submitted to the lender for underwriting and a decision is usually reached within a few days. The entire process takes about two to three weeks.

How can I improve my credit score?

Credit scores (or FICO scores) were developed to assess the risk of default of a borrower based upon historical credit data. Scores range from 350 to 900. You can help keep your credit score high by paying all bills on time and avoiding collection accounts and bankruptcies. If your score is already low here are a few things you can do to improve it:
- Pay down any credit card balance to below 50% of the high credit
- Pay all collection accounts
- Write a dispute letter to the credit repositories on any account that may not be accurate
- Close all but two or three revolving accounts
- Close all accounts that have ever been late

How does a lender determine the maximum mortgage I can afford?

The three primary areas lenders examine in determining the size of mortgage you can handle include your monthly income, non-housing expenses, and cash available for down payment and closing costs. The percentage method is used by the majority of lenders. Most lenders feel a family should spend no more than 33% of its gross monthly income on housing costs, including mortgage principal and interest, real estate taxes, homeowners insurance and private mortgage insurance (if needed). These housing costs plus your long-term debt (car loan, charge cards, auto leases…) shouldn’t exceed 38% of your gross monthly income.

If your downpayment is less than 10% some lenders will tighten their restrictions even further. Our mortgage professionals will be able to assist you with determining which guidelines apply to your specific situation.

What are points, and what's the point in paying them?

In real estate, the term “point” refers to 1% of the total mortgage amount. Borrowers often pay lenders a supplemental fee, calculated in points, to get a better interest rate on a particular mortgage.

For instance, a lender may offer you a choice of two 30-year mortgages: the first at 8.00% with no points and the second at 7.50% with 2 points. If the loan amount is $100,000 those 2 points will cost $2,000.00 up front but you’ll get a payback of significantly lower payments ($699.21 vs. $733.76) for the lifetime of the loan.

Many lenders will advise you to pay the points for the better rate if you can afford it, especially if you plan on keeping the home for more than a few years. Like interest, the money you pay for points may be tax-deductible, and the investment may pay for itself through savings generated by lower monthly payments. We suggest you call your tax preparer.

How do adjustable rate mortgages work?

There are many types of adjustable rate mortgages, but all have some common features.

One common feature of adjustable rate mortgages is an interest rate change that occurs after a stipulated number of payments have been made. The interest rate can increase or decrease depending on how the new interest rate is calculated. Typically, the interest rate change is based upon a predetermined index value and a margin. If a borrower currently has an interest rate that is pending adjustment, the new rate would be calculated by adding the margin to the current index rate. For example, if the borrower’s current interest rate was 6.00% with a 2.00% margin, the new rate would be determined by adding the margin to the current index rate (5.00% as an example). In this example the new interest rate would be 7.00%.

The maximum amount the interest rate can change during any adjustment period is usually fixed. This maximum adjustment is called the cap. Adjustable rate mortgages also have a lifetime cap, preventing the interest rate from exceeding a predetermined maximum rate.

What are escrow accounts and how much do I need in my escrow account?

Escrows are payments made by a borrower to a lender for the purpose of paying the borrower’s taxes, insurance, and other payments associated with home ownership. The lender is responsible for the timely disbursement of escrow funds to pay the borrower’s bills as they come due.

Usually, a lender collects funds for placement into the borrower’s escrow account with the borrower’s periodic payment for principal and interest. An escrow account has sufficient funds if there is enough to pay all bills when they come due.

It is common practice for lenders to hold an escrow cushion for a borrower. The cushion is kept by the lender to assure that if the cost of any escrowed item were to increase in the future, there would be sufficient funds to pay all bills as they come due.