Do not be swayed by slick TV and radio ads. Some may be from legitimate lenders, but many are from companies which act as nothing more than middlemen who charge lenders for sending them "leads." These middlemen frequently get huge fees for sending the borrower to the most expensive lenders, with the net result being, you end up paying more money.  Do not sign any papers in which the blanks are not completely filled in or crossed out. And don't be talked into fibbing on your loan application by someone who says "everybody does it." It is illegal to falsify loan documents.  Don't go with the builder's in-house lender just because it is convenient to do so. Compare what the builder is offering to the rates and fees other lenders charge. His may or may not be the best deal, and sometimes the builder will sweeten the pot to gain control over the entire transaction.  But remember, builders who also act as lenders are earning the same fees -- or maybe higher fees -- that other lenders charge. Experts who have reviewed thousands of transactions on behalf of borrowers, say some of the highest charges seen come from builders acting as mortgage brokers.  Homeowners facing default on their mortgage too often take the head-in-the-sand approach and leave their No. 1 asset exposed to foreclosure.  Homeownership requires proactive financial management even when the payments are on time, but even after the mortgage lender calls delinquent homeowners about late payments, too many of them too often turn to denial and procrastination -- death knells for home ownership.  Contacting the lender at the first sign of trouble is a rule of thumb for delinquent mortgage holders. Unfortunately, in more than half of all foreclosure cases, the borrower never contacts the lender and loses the home without a whimper.  Do not be fooled by offers that sound too good to be true. If it sounds too good to be true, it usually  isn't true at all.  Do your own homework! Today's Current Mortgage Rates Check California Interest Rates Check Local Interest Rates and Loan Information The following are the different types of mortgages in the market today.  Fixed Rate Mortgage (FRM) are loans paid off in equal payments over the term of the loan. These loans are also called level payment mortgages. The rate for this type of mortgage is at a constant level throughout the term.  Adjustable Rate Mortgage (ARM) are loans that change interest rates with a predetermined market index. There are a variety of market indexes used, and the index will be set when the loan is made. The Variable Adjusted Rate (VAR) is defined by a number 10, 7, 5, 3 or 1 which is the fixed years of the loan and the number after the '/' is how often the rate adjusts as 3/1 is fixed for 3 years and becomes adjustable once every year after that. Graduated Payment Mortgages (GPM) are loans in which payments gradually increase by a certain percentage over the first several years of the mortgage, then become fixed for the remaining term.  Growing Equity Mortgages (GEM) are loans in which payments increase significantly each year according to a set or a pre-selected index.  A Balloon mortgage is a loan that has a series of monthly payments with the remaining balance due in a lump sum at the end of the contract. Some balloon mortgages may contain provisions for refinancing at the end of the balloon period.  Which program is best for me?  -------------------------------------------------------------------------------- Years you plan to stay in the house Recommended Program  10 or more                 30 or 15 year Fixed 7 - 10                         10/1 ARM, 30 or 15 year Fixed 5 - 7                            7/1 ARM 3 - 5                            5/1 ARM 1 - 3                            3/1 ARM, 1 year ARM or 6 month ARM Loan Programs Fixed Rate Mortgages  30 year Fixed  15 year Fixed  Advantages       (1) Fixed monthly payments over the life of the loan     (2) Interest rate doesn't change     (3) Protected if rates go up     (4) Can refinance if rates go down Disadvantages     (1) Higher interest rates    (2) Higher mortgage payment    (3) Rate doesn't drop if interest rates improve  Adjustable Rate Mortgage  10/1 ARM 7/1 ARM 5/1 ARM 3/1 ARM 1 year ARM 6 month ARM 1 month ARM Advantages    (1) Lower initial monthly payment   (2) Lower payment over a shorter period of time   (3) Rates and payments may go down if rates improve   (4) May qualify for higher loan amounts Disadvantages    (1) More risk   (2) Payments may change over time   (3) Potential for high payments if rates go up Balloon Mortgages  5 year 7 year   Advantages    (1) Lower initial monthly payment   (2) Lower payment over a shorter period of time   (3) Many balloon mortgages offer the option to convert to a new loan after   the initial term  Disadvantages    (1) Risk of higher rates at the end of the initial fixed period   (2) Risk of foreclosure if you cannot make balloon payments, refinance or exercise the conversion option  First Time Buyer Programs  Advantages    (1) Lower down payment   (2) Easier to qualify   (3) Sometimes you may get lower rates  Disadvantages    (1) May be subject to income and property value limitations   (2) Some programs which government subsidies may have a recapture tax if you sell the house too early  Stated Income Programs  Advantages    (1) Do not need to verify income   (2) Faster approval  Disadvantages    (1) Higher rates   (2) Higher down payment  No Point, No Fee Programs (Rule: Higher the cost, lower the rate - - Lower the cost, higher the rate) Advantages     (1) No closing costs    (2) Less money required to close Disadvantages    (1) Higher rates   (2) Higher payments  Imperfect Credit Programs Advantages     (1) Potential for reestablishing credit if you pay your mortgage on time   (2) When used for debt consolidation, you may be able to reduce your monthly debt payment  Disadvantages    (1) Higher rates   (2) Terms may not be as favorable   (3) Harder to get long term fixed loans   (4) Loans may have pre-payment penalties Need more information? Closing Costs Defined  When you apply for a mortgage, the lender is required to provide you with a "Good Faith Estimate". Always check this document to see if additional charges were added to the loan amount. When the term "no out of pocket" or "no closing cost" is used, it means that some of, if not all of the closing costs were added to the loan amount. This document explains the estimated costs due at closing. Some of those costs often called "3rd party" which may be charged by the lender in most cases are defined below:  Application Fee: Charged by lender to cover fixed costs associated with mortgage loan processing.  Appraisal Fee: Charged by lender to have a licensed professional appraiser certify the value of the property being purchased.  Closing Fee: Charged by title company to prepare all the closing papers, settlement sheets, warranty deed, and pro-ration of taxes.  Commission: Normally charged to Seller. This is the real estate sales commission which is split between the seller's and buyer's agents.  Credit Report Fee: Charged by lender to receive a detailed copy of your credit history. The lender may only require one credit reporting agency, or all three.  Discount Points: Each point is equal to 1% of the mortgage and used by the lender to adjust the yield on the mortgage. The borrower can secure a lower mortgage interest rate by paying more points.  Homeowner's Insurance: At the Closing, a one year premium must be paid in advance.  Loan Closing Fee: Charged by lender to finalize the mortgage.  Loan Origination Fee: Usually 1% of the loan.  Private Mortgage Insurance (PMI): When the down payment is less than 20% of the purchase price, the lender often requires this insurance.  Recording Fee: Charged by the County Recorder's Office to officially record the deed and mortgage, and to transfer taxes.  Survey Fee: Charged for verifying the boundaries of the property being purchased.  Title Insurance: Charged for insurance that protects the lender by guaranteeing that the property's title is without legal defects. Lender Payoff: This is normally the monthly mortgage payment in arrears for the old lender. Return to Home Page