Shopping For Your Loan

A mortgage is purchasing the use of money. Like shopping for any other items, you should consider the cost of purchasing the use of this money.

For most people, the acquisition of a home involves getting a mortgage. Prospective borrowers check the interest rate on the loan, but they often fail to check all the details of the loan.

Part of your inquiry should include considering how many points you will be paying on your loan and any other charges associated with the loan. A point is 1% of the amount you are borrowing. For example, if you are borrowing $300,000 one point is equal to $3,000. Different lenders may charge different points. To effectively compare interests and charges from different lenders, you should ask for the annual percentage rate (APR) of your loan. This is one means by which you can compare the cost of borrowing money from different lenders. The APR includes not only the interest you will pay, but also any lender's fees which may be charged as part of the cost of the loan.

You should ask the lender to provide a written HUD1 form. This will give you a good faith estimate of the closing costs and along with the APR and also allows you to compare charges on the cost for your loan.

A prepayment penalty is an additional charge if you pay the loan off early. A prepayment penalty is typically not charged these days, but prepayment penalties are still a possibility, especially if you are assuming an older loan from someone else. You should check for any prepayment penalty, because it can be significant and may affect whether you can afford to sell your home. The prepayment penalty is not part of the APR.

The cost of your loan is roughly related to the amount of money that you borrow to purchase your property. The more money you borrow typically, the higher your cost of borrowing. If you put less money down, you may be required to pay private mortgage insurance until the amount of your equity reaches a specific level. Equity is the market value of the property less all amounts owed against the property.

In applying for a loan, your credit risk will be evaluated. Before applying for a loan, you may wish to consider requesting a copy of your credit report. Recent laws provide that you are now able to secure one free copy of your credit report each year. If there are credit problems or errors, you should correct those problems before applying for a loan. This will enhance your prospects of securing the loan, enhance your credit score and ultimately lower the cost of your loan.

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VA Loan Limits Raised

In 2005, the VA loan limits are being raised from $240,000 to $539,475 for Hawaii . The VA raised the maximum limits of their loan to match the maximum loan limits of Fannie Mae and Freddie Mac. This was in recognition of Hawaii 's high cost of housing. The reason for the excitement is that VA mortgage can be used to finance up to 100% of the purchase price for qualified borrowers. Married military personnel can also include their spouse's income for purposes of loan qualification.

Short term adjustable rate mortgages (ARM) are also being introduced in 2005. These mortgages are for short term ownership and typically have lower rates. The ARMS are useful for buyers who cannot presently qualify for a fixed rate mortgage. They are attractive to buyers who know their income will significantly increase or know that the value of the home will increase significantly and they plan to resell the house in a short period of time.

If you are a veteran and you are interested, you should contact your lender or contact the VA website at www.homeloans.va.gov.

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A TV Program About Homeowner's Problems

I will be appearing on "You and the Law" live Friday, April 8, 2005 from 6:30 p.m to 8:00 p.m. The program appears on channel 55. There will be a taped rebroadcast of this program on Saturday, April 9, 2005 from 7:30 p.m. to 9:00 p.m. and on Sunday, April 10, 2005 from 7:30 p.m. to 9:00 p.m.

The panelists will include several local real estate attorneys discussing a variety problems encountered by homeowners. The panelists include Steve Elisha, Jeff Grad, Joyce Neeley and myself.

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An Interview With Executive Loan Officer Sandy Young

Q. Sandy , what do lenders look at in approving a mortgage loan to borrowers?

A. Borrower credit, collateral and cash is the simplified answer to this question. Lenders look into many aspects in making a decision to lend to a borrower (strong credit, consistent savings history, reserves, income and potential income growth). For the sake of providing an overview, I am simplifying many of the processes.

Q. Is there anything else?

A. The borrower's application, employment history, income level, and occupancy are also important considerations.

Q. What does the lender look for in the credit report?

A. A Mortgage Credit Report reflect tri-merged credit information. This means that a credit report is ordered and the credit information is pulled from 3 credit sources. Borrowers Credit History and FICO Credit Score are both looked at by the Lender. Lenders will be able to determine your credit risk level from your credit score. To obtain more information on credit scoring go to www.myfico.com or call 1-877-322-8228.

Q. Why is an appraisal of the property required?

A. The lender is interested in the collateral which is the property you are purchasing or refinancing. Lenders evaluate the collateral by ordering an appraisal on the property. The type of appraisal ordered varies by transaction and strength of the borrower. Types of appraisals are exterior only, interior/exterior appraisals and a complete appraisal. A complete appraisal is a Universal Residential Appraisal Report (URAR).

Q. How important is the downpayment?

A. The down payment and reserves that a borrower will bring to the purchase transaction factors in the borrowing equation. The minimum down payment is 5 % on a purchase. Lenders look at strong credit and potential income growth. Lenders review the big picture of borrower, credit, collateral and cash. There have been approvals on 103% financing (no down payment required). Much of the decision making on approvals is agency automated. This reflects systems that are standardized, impartial and timely.

Q. Do you recommend buyers pre-qualify?

A. If you are interested in purchasing property a little planning goes a long way. Pre-qualification will direct you to the property price in your range and to the financing program that fits your needs. Call a lender and get pre-qualified.

•  Sandy , if an owner puts less than 20% down payment when they purchased their real property, how can they get rid of the mortgage insurance?

A. Your monthly payment on your mortgage includes monthly mortgage insurance premiums until your equity passes the 20% threshold. You can rid yourself of mortgage insurance when your equity is 20% or greater. This is a good time to check on the equity of your home while you are gathering the paperwork for income taxes. Your mortgage interest statement, tax assessment notice, and your Realtor are sources to provide you information on current equity and value of your property. Once you have an idea of your equity you may be able to remove private mortgage insurance (PMI) and reduce your monthly mortgage payment.

Q. What do I need to do to remove the mortgage insurance?

A. You can contact your lender or you can look in your closing paperwork for the PMI. Disclosure Form which outlines how the borrower can request cancellation of PMI. Be prepared to provide the following in requesting to remove private mortgage insurance:

1. A good mortgage history and an owner occupant in the subject property.

2. Evidence (at your expense) that the value of the property has not declined below its original value and certification that there are not subordinate liens on the property. 

3. If you have subordinate liens (second mortgage or equity line) discuss your options with the lender.

Q. Is removal of the mortgage insurance automatic when the loan reach 80% of its original mortgage balance?

A. Your lender and the mortgage insurance company must agree that the requirements have been met to cancel PMI. Some lenders have the following requirements which may prevent cancellation of mortgage insurance.

1. A specific period of time (say 12/24 months) prior to removal of PMI.

2. Evidence of improvements made on the property to remove PMI. (i.e. an appraisal at your expense or receipts showing the cost of an addition to the existing dwelling.)

3. If the equity is borderline on 80%, check with your loan officer and ask about a "piggy back" type loan. A 1st mortgage at 80% and a 2 nd mortgage for the amount above 80% may just be the type of loan that fits your need. Your new payment on the "piggy back" may still be lower than your current payment with PMI.

Communicating with your lender works best for you. That call may mean monthly savings to your pocketbook and BIG savings on your overall mortgage.

Sandy , thanks for taking the time to provide some insight to our readers.

Sandy Young is an executive loan officer with Territorial Savings. She can be contacted at (w) 961-1287, (cell) 387-7885.

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From the Desk of Harold Chu

We have had historically low interest rates now for a few years. The interest rates for mortgages is now slowly rising. In this newsletter, there are articles that may be of interest for those interested in securing financing. In this newsletter, we also have an article on comparing the cost of loans.

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Qualified buyers can fund 100% of the purchase price from a VA loan. Unfortunately, in Hawaii , the cost of a typical house exceeded the loan limits for VA loans. The VA recently raised its loan limits to $539,479.

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We are pleased and fortunate to have an interview with Sandy Young. Sandy is an executive loan officer with Territorial Savings and Loan. She has extensive experience with real estate mortgages. Clients we have referred to Sandy often comment favorably on her knowledge and service oriented approach.

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On Friday, April 8, 2005, from 6:30 to 8:00 p.m., I will be appearing on "You and the Law". A panel of experienced real estate attorneys will address problems that homeowners may encounter. There will be a taped rebroadcast of this program on Saturday, April 9, 2005 and on Sunday, April 10, 2005 from 7:30 to 9:00 p.m.

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That Check Better Be Good

Due to problems experienced because of 9/11, Check 21 Act was passed. This Act allows banks to transfer funds using electronic facsimile of checks. As of October 28, 2004, banks can transfer funds instantly between the account on which the check is drawn and the account in which the check is to be deposited without the original paper check ever changing hands. This eliminates the A float factor @ that paper checks have traditionally enjoyed. Once a check is deposited, those funds will be available in a matter of hours. Therefore, when you write your check, there should be sufficient funds in your account.

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Humor

A man was being tailgated by a stressed-out woman on a busy boulevard. Suddenly, the light turned yellow, just in front of him. He did the right thing, stopping at the crosswalk, even though he could have beaten the red light by accelerating through the intersection.

The tailgating woman hit the roof, and the horn, screaming in frustration as she missed her chance to get through the intersection with him. As she was still in mid-rant, she heard a tap on her window and looked up into the face of a very serious police officer. The officer ordered her to exit her car with her hands up. He took her to the police station where she was searched, fingerprinted, photographed, and placed in a cell.

After a couple of hours, a policeman approached the cell and opened the door. She was escorted back to the booking desk where the arresting officer was waiting with her personal effects.

He said, "I'm very sorry for this mistake. You see, I pulled up behind your car while you were blowing your horn, flipping the guy off in front of you, and cussing a blue streak at him. I noticed the 'Choose Life' license plate holder, the 'What Would Jesus Do' bumper sticker, the Follow Me to Sunday School' bumper sticker and the chrome-plated Christian fish emblem on the trunk. Naturally, I assumed you had stolen the car."