Mortgage Escrow & Closing

The Cost of Your Mortgage Loan

The same care and consideration you give to finding the right house should be applied to your search for the right mortgage lender. For most home buyers a major determining factor in selecting a lender is the cost of the mortgage loan. But how do you determine the cost of a mortgage loan?

Shopping for a Mortgage Loan

While most buyers concentrate on interest rates, it is best to look at all the costs associated with a mortgage loan. Mortgage loans include the quoted interest rate, points and closing costs.

More than Just Interest

A number of fees are associated with the mortgage loan, including:

• Appraisal – A carefully documented opinion of value by a licensed, professional appraiser.
• Credit Report – A detailed report of your credit, employment and residence history prepared by a credit bureau.
• Principal – The amount owed on a mortgage which does not include interest or other fees.
• Document Fees, Loan Fees and Processing Fees – Miscellaneous fees charged by the lender.
• Discount Points – Points paid in addition to the loan origination fee to get a lower interest rate. (1 point = 1 percent of loan amount)
• Origination Points – the total number of points paid by the borrower at closing. (1 point = 1 percent of loan amount)
• Interest Rate – A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds.

Using the Annual Percentage Rate (APR) to Compare Mortgage Loans

The APR was designed to help borrowers understand the relative costs of a mortgage loan. The APR takes into account the various fees associated with the loan, which is why it is often higher than the interest rate. Understand that not all lenders calculate a loan’s APR in the same way. That is why this should be only one of the factors used in selecting the best mortgage for you.

Locking-in Interest Rates

Another factor to consider when selecting a lender is whether the lender will lock-in the mortgage’s interest rate and points.

Money Isn’t Everything

When considering lenders, factor in the level of service they will provide throughout the loan process. I’ll be glad to provide a list of lenders who have successfully helped clients in the past. I also suggest that you ask friends and family in the area for their recommendations.

Prepayment Penalty Mortgages (PPMs)

These loans restrict your right to prepay part or all of the principal in the loan’s early years. A prepayment fee is charged by the lender to the borrower who wishes to pay part or all of the loan ahead of the regular schedule. The advantage of a PPM is that they often have a lower interest rate than other mortgages.

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Applying For A Mortgage Loan

Are you financing your new home in Long Island?

Stressed out about applying for a mortgage? You don’t have to be. I have close business relationships with some reputable mortgage lenders in the Long Island area, and they’ve helped me recognize a few things that can make the loan application process much easier.

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Scoring Your FICO

The home buying process doesn’t start with getting pre-approved for a loan or with choosing a real estate agent. In reality, the home buying process begins and ends with your finances. Putting back your money for a down payment is a good idea, but if you don’t have a strong credit score to back it up, you could find yourself renting for another couple of years in Suffolk County until your score improves.

The Fair Isaac Company bases your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with the majority of people normally having a score of 600. In recent years, however, some borrowers have seen their score drop dramatically as a result of loss of employment, delinquent credit card accounts, or credit card accounts terminated because the card didn’t carry a high balance. Some of the pieces in calculating your FICO score include:

• Credit to Debt Ratio — How much do you owe versus your available credit?
• Credit Inquiries — Do you have too many open accounts?
• Types of Credit — Do you have a healthy mix of loans and credit cards?
• Payment History — How often do you make late payments?

When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn’t a problem. Your credit score gives lenders an insight into what type of borrower you’d be solely because of your credit history. You’ll need a score of at least 740 to get a satisfactory interest rate. You’ll still get approved for a loan with a lower score, but the interest accumulated over the life of the loan could be more than double the amount of an individual having a better FICO score.

You want a higher score, but how do you get it? Building your FICO score takes time. It can be hard to make a significant change in your credit score with small changes, but your score can improve in a year by monitoring your credit report and by wisely using credit. The best way to do this is to know your FICO score. You’ll improve your credit score by using these helpful hints:

Now that you know more about credit reporting, you’ll be able to successfully take the first step in owning a home, and that is improving your FICO score. Know that when it’s time to apply for a loan to purchase a house, you’ll want to keep your applications within a two-week window to avoid adverse effects on your credit score. With the help of Vine andSea Real Estate Associates, the loan process can be a stress-free experience so you, too, can achieve home ownership.

Get more information by visiting www.myFICO.com, Fair Isaac’s informational site and once per year, for free, you can review all three of your credit reports at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.

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Locking In Rates

When shopping for a mortgage, the lender may give you a quote for the mortgage interest rate and points (additional fees charged by the lender usually paid at closing by the borrower). These only represent terms available at the time of the quote. They may not be available by the closing date (which may be weeks or months in the future). To ensure the rate and points are the same at closing as they are when quoted, you’ll need to lock-in the interest rate (also known as a rate lock or rate commitment).

Floating the Rate

Buyers opt to “float the loan” when they believe interest rates will drop after their loan application date and prior to closing. The risk is that rather than dropping, interest rates rise, increasing the mortgage payment.

Obtain a Written Agreement

Most lenders will commit, in writing, to a mortgage interest rate for a specified time period while your loan application is processed – this is known as “locking-in” the rate.

If you elect to lock-in an interest rate, it is best to deal with a lender who provides a written lock-in agreement. Be sure to read this agreement carefully, some lock-in agreements become void due to actions beyond your control – such as a change in the maximum rate for VA-guaranteed loans.

Lock-in Options

The following lock-in options are common among lending institutions. Be sure to ask the mortgage lenders you are considering which lock-in options they offer.

• Lock-in interest rates and points.
  This will give you a clear understanding of how much your mortgage will cost. Neither your interest rate nor points increase during the lock-in period. This protects you against rising market conditions.
• Lock-in interest rates and floating points.
  Your interest rate is locked-in and will not change for the lock-in period, while your points may rise and fall with market conditions. With this option, your lender may allow you to lock-in the points at the current market condition some time between submitting the loan application and closing.
• Floating interest rates and floating points.
  This gives you the option to lock-in the interest rate at some time between submitting the loan application and closing. This puts you at risk if interest rates and points rise and may not be best for a homebuyer with a tight budget.

The Cost of Locking-in the Rate

It is not unusual for a lender to charge a fee for locking-in an interest rate and points. This fee may vary depending on the amount of time you want to lock-in the rate (the lock-in period).

The fee may be charged when you lock-in the rate (and is rarely refundable if you withdraw your application, if your credit is denied or if you do not close on the loan) or it may be included in your closing costs. The amount of the fee and when it is charged will vary among lenders.

The Lock-in Period

Most lenders will offer lock-in periods of 30-60 days. Some lenders may only have short lock-in periods. And still others may offer a longer lock-in period (expect higher fees for longer lock-in periods).

The lock-in period should be long enough for the loan approval process and to allow for any other contingencies that may delay closing.

The Lock-in Expiration Date

If unexpected circumstances prevent the loan from settling prior to the last day of the lock-in period (whether caused by you or others in the process – including the lender), you lose the interest rate and points that were locked. Prevailing interest rates and points are usually charged under these circumstances. Be sure to ask your lender before you lock-in what interest rates and points will be charged if the loan is not closed before the lock-in period expires.

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Understanding Closing Costs

Closing costs you should expect

There are certain standard costs linked to closing the sale of a house. These expenses are commonly divided between the buyer and seller, as dictated in the sales contract. Many are universal, but there are nuances to each, so you’ll want a real estate expert in New York to help guide you through your transaction.

Sellers: As we get through the details of your transaction, not only will I work to get the optimal sales price, but I’ll also advocate for limited closing costs. And once we’ve come to an agreement, I’ll describe in detail the closing costs so you know exactly what you’re paying for.

Buyers: If you are purchasing real estate in Suffolk County, you’ll be given a “Good Faith Estimate” (GFE) of closing costs within three days of submitting your loan application. The estimate is based on the loan officer’s previous experience and is required to be within an acceptable range so you’re not surprised when you get to the closing table. I’ll be happy to go through the GFE with you, answering your questions and highlighting any estimates that seem off.

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Understanding Escrow

Escrow: To complete the sale of a property, a neutral, third party (the escrow agent) is employed to assure the process will close correctly and on time. When money is held by a third party in a transaction between a buyer and a seller, it’s in escrow. An easy way to understand the concept of what an escrow company does is to think of how you might use PayPal for Internet purchases.

The escrow company makes sure that the terms and conditions of the agreement between the seller and buyer are reached prior to the sale being finalized.

Closing on the home takes place when the steps of the escrow are finished. At this time, all payments and dues for inspections, title insurance and real estate commissions are collected. The house’s title is given to you and title insurance begins per the steps of your individual escrow agreement.

At the close of escrow, fees are paid in an acceptable form to the escrow. I’ll keep you up-to-date on the procedure.

The Escrow Holder Will...

• Prepare escrow instructions
• Perform a title search
• Meet lender’s standards as noted in the escrow agreement
• Accept funds from the buyer
• Prorate tax, interest, insurance and other fees according to instructions
• Record deeds and other legal documents as instructed
• Request title insurance policy
• Close escrow when all instructions of seller and buyer have been met
• Disburse payments and finish instructions

The Escrow Holder Will Not...

• Tell you what’s best – the escrow company must stay at a fair, third-party status
• Dispense opinions about the outcome of your taxes

Mortgage Escrow Account

A Mortgage Escrow Account is started to pay rolling fees while there is a loan on the house. Usually, the home buyer makes a payment at closing and also makes regular deposits through their monthly mortgage payment to fund the Escrow Account.

Now you know more about being in escrow. And, you can be a more informed home buyer and future homeowner.