Now that interest rates are on the rise, many folks are hastening to refinance their existing loans, or to buy a property before it becomes more expensive to obtain and pay for a mortgage loan. Analysts are suggesting that we will soon see the last of historically low rates because of the US economy and global events. Those who have been waiting to jump on the refinance bandwagon, or make the move to a new property are realizing that the time has come to move ahead.
When searching for the best value on a mortgage, it is important to consider several factors. What is the interest rate? How many discount points will be collected? Will the lender complete the transaction in time to meet the deadline of a rate lock? What are the fees and charges? With most experts forecasting rates to go up 1.5% by year end, it is important to determine the answers to these questions, and act quickly.
If refinancing, it pays to check out the terms and conditions of your existing loan. Find out the exact balance, interest rate and remaining term. If there is a pre-payment penalty, it may not pay to refinance. If you have been paying on your existing loan for 10 years, you may not want to start over with a new 30 year loan. Also beware of paying high upfront costs to obtain a lower payment. Ask your mortgage lender to calculate how many months it will take before you start to "break even" and start realizing benefits.
When comparing lenders, ask about additional charges. Many fees exist now that create additional profit to the lender. Years ago we were quoted a rate, plus an origination fee, plus discount points. We paid for the credit report, an appraisal and the title charges. Nowadays we have document preparation, underwriting, application, tax service, processing, and other miscellaneous fees. When shopping for a mortgage loan, take these charges into consideration. Your lender is required by law to provide you with a Good Faith Estimate within 3 days of applying for a loan. Review it carefully to see if there are charges that were not disclosed during your original interview with the lender.
If a disreputable lender does not disclose everything that will be charged at closing, you may not be getting the best value. You can ask family, friends or your Realtor to recommend lenders they trust. This will help assure that you are dealing with a reputable company that will provide good service.
Mortgages: You are probably familiar with the types of mortgages that are available in Puerto Rico, since they are the same as the United States:
Conventional: This is the loan to get if you have 20% available for a down payment, because their will be no mortgage insurance involved. Even with 10% down, mortgage insurance requirements will be less than other mortgages. Rates can be fixed or adjustable.
FHA: Insured by the Federal government. This loan is popular if you have very little available for a down payment, moderate income, or a less than perfect credit history. These loans are assumable when you sell, as long as the new buyer qualifies to take it over.
VA: Guaranteed by the Federal Government. This loan is great for those who are serving, or have served in the US Armed forces. Widows of veterans also qualify, if they have never remarried. A buyer using a VA loan can literally buy with $0 down, but typically there are some costs involved. These loans can be assumed in the future, if a release of liability is obtained.
Second Mortgage/Equity Line of Credit: This is a “junior” mortgage that can be placed on real estate, and is subordinate to a first mortgage.
Seller Carry-Back: In rare cases, a seller will offer a mortgage on the home. This does not happen very often, and usually because the buyer does not have enough down payment. Lower rates, and reduced closing costs are common.
Items you may need to get a mortgage
You will be happy to know that financing for residential properties is easily available, and at terms and conditions that are very favorable. If you are not a citizen of the United States of America, long term, fixed rate financing is also available for your purchase.
Following we are providing you with a list of items that you may be required at time of loan application.
Addresses where you and the co-borrower have lived for two full years. Renters need to bring name and address of landlords. Owners need to bring name, address and account number of the mortgage company.
Names and address of all employees for the past two years. Current pay stubs showing earnings year to date. W2's for the previous year or past year tax returns.
Self-employed persons must bring the most recent two years tax returns, a current years Profit and Loss Statement to date, plus a personal financial statement. If the self-employed business is incorporated, you must bring the above items on the corporation. All tax returns must be signed by the borrower.
Social Security numbers on all borrowers.
Names and addresses of all banks, savings and loans, credit unions, etc... where you have funds on deposit and their account numbers, plus copies of most current statements
Names, addresses and account numbers of all current monthly payment accounts. This includes banks, mortgage companies, finance companies, credit unions, etc... Please have the amount of payments and the approximate balance (plus copies of most current statements, if possible).
Names, addresses and account numbers of all credit cards, except gasoline cards (plus most current statement on each card, if possible).
You may need a copy of your divorce decree if you have ever been divorced.
Bring a copy of the complete bankruptcy proceedings and discharge filed and a list of creditors, if applicable.
If you have sold your current home, you will need a copy of the Sales Contract. Make sure that all additions to the standard contract are legible. (Addresses, legal descriptions, amount, contains all necessary signatures, initials, etc...)
For FHA mortgages - copies of your Social Security cards and Driver's license and child care expenses, if any.
If you are receiving gift funds, the lender will require that the funds be verified in the donor's account. Consult your agent for a gift letter form. If you are applying for a conventional mortgage, you will need to show at least 5% of your own funds.
**Please note that if you have all the above information on your first trip to town and if you decide on a home to buy then you will be able to do your loan application before you go back home.