Top 10 Misconceptions about Real Estate Loans
Real Estate Loans are confusing at times, and many buyers out there have Misconceptions About Loans. The average person will buy a home every 5-7 years, then forget about it until it’s time to buy another one. So, it doesn’t hurt to check, because there might be changes that you weren’t aware of.
With an increase in Real Estate activity for the San Francisco bay area, and Low Financing terms, we’ve put together a short list of Misconceptions that should help clear things up.
1: If you are Upside Down in your Mortgage, no Lenders will look at you.
After the Real Estate Market fell, it left millions of homeowners “Upside Down” in their mortgages…meaning the borrower owed more than what the house was worth.
Here are a few government programs: 1. Home Affordable Refinance Program (HARP) is available to those whom already have a loan with Fannie or Freddie. 2. FHA Streamline Refinance to help homeowners with loans backed by the FHA.
2: You can only refinance your home loan once every 12 months
If you have a conforming loan from Fannie or Freddie, you can refinance as many times as you’d like as long as you do not take cash out in the process. The main purpose is to lower your interest rate, and thus your monthly payments. The easiest way to figure out how long to wait is to decide how much money you could be saving at your current rate versus the desired rate, and how long you plan on living there. Calculate the amount saved for 2 years, and if it covers the cost of the refinance, then that’s when you should move forward.
3: If you went through a Short Sale or Foreclosure, you must wait 7 years before getting another mortgage.
If you’ve gone through a Short Sale, 2-4 years is usually good enough. Foreclosures will make you wait 3-7 years before getting a new loan. Part of the reason it takes longer for a Foreclosure is due to the negative impact it has on your Credit. It usually takes a minimum of a few years to recover and rebuild your credit. Some lenders are more lenient than others, so it doesn’t hurt to check around.
4: I have to do my loan through the same lender because I was pre-approved with them.
Many times Borrowers will receive Pre-Approval letters from their Lenders, about a new loan or refinancing. Pre-Approvals are conditional, and subject to further qualifications. This is your Lenders attempt at keeping your business, and sometimes they are willing to offer you special terms if they really want to keep you. It’s your decision on whether you stay with them or not, but if you decide to shop around…you might save a good amount of money on your new mortgage, which is what your current Lender hopes you don’t find.
5: You cannot get a mortgage for less than a 5 percent down payment.
Home buyers think they have to first save a huge chunk of money to pay for the down payment on a house. Many believe they have to save at least 10%, 15%, 20% before even thinking about buying a new home. Well, that’s not entirely true, you can get a loan from the FHA for as little as 3.5% down and relaxed qualifications. FHA also has a First Time Home Buyer program along with many others to help you get into your first home. FHA is great in that sense, but not for everyone…some Buyers won’t qualify, or there are restrictions to the size of your loan, etc. Other mortgages including VA & USDA, also offer low down payments and flexible credit terms.
6: When applying for loan as a couple, Lenders will look at both credit reports equally when determining the interest rate.
When a couple applies jointly for a Mortgage, the Lender will usually pull a Tri-Merge Credit Report based on the Top 3 Credit Reporting agencies (Equifax, Experian and Transunion) for each Borrower. Lenders will use the Best Middle FICO Scores for all 3 reports and use the 2 lowest scores to decide your interest rate for each borrower. Which is how you will decide who will be the Primary Borrower…the person who has better qualifications for the loan. Lenders will look at both credit reports, and base the costs and qualifications of the loan on the person with the better FICO. This will cut your monthly payments substantially, and overall cut the cost of the loan.
7: You will get the best Mortgage Rates at the bank where you have a checking account.
Most Banks offer discounts and rebates for customers, but it’s doubtful that your bank will offer you the lowest interest rate on a new home loan just because you have a checking account there. Shop the various lenders online and ask for quotes, then narrow it down to one or two and pick the best.
8: All Lenders by law must charge the same fees for appraisals and credit reports.
There is no law forcing Lenders to charge the same fee for services purchased for the Borrower or Seller, which include Appraisals, Credit Reports, Records, etc. Many times Lenders will remove these extra fees to make the loan more marketable, or to meet underwriting guidelines. Other lenders may pad these fees, which will increase the overall cost of your loan. Research 10 Lenders based on your needs, and narrow it down from there
9: The Interest Rate for your Mortgage reflects the true cost of your loan.
Your annual percentage rate (APR) is the value that represents the true COST of your Mortgage. It is inclusive of your interest rate, points, mortgage insurance (when applicable) and other fees like origination and underwriting fees. Not included is the cost of your homeowner’s insurance policy. The APR is usually higher than your interest rate, because it combines the rate and the fees. Basing your loan on the APR instead of the interest rate will give you a better sense of the total cost over the life of the loan
10: Mortgage Rates are only released once per day.
Mortgages rates for every type of loan you can think of are constantly changing in price, based on the market activity. Which is why your interest rate won’t be “locked in”, until your lender locks it for you. If your interest rate is not locked in, then you could get a higher or lower rate, which could mean a few hundred dollars difference in your monthly payments. So, when you’re ready to move forward, have your lender lock in your rate before it moves higher! We also suggest getting multiple quotes and shopping around, because lenders adjust their rates at different times of the day…this will give you a good idea on who is offering the best terms.
If you are a Buyer looking for a New Home in the SF Bay Area, please contact SF Bay Homes at (650)597-1821, and we’ll be happy to help you with your questions, and offer you the most current listings available. We can help you navigate the pitfalls of buying, which will save you time and frustration. Feel free to email cliff@sfbayhomes.com for any questions you may have.
