Questions Relating to Financing Real Estate Transaction
1. What is the optimum loan for you?
Every good lender will want to have a good understanding of your credit history, income and/or related items that relate to your ability to qualify for a loan. You want to work with a lender who asks sufficient questions so they will know what type of a loan package to put together for you.
Common types of loans include:
Adjustable Rate Loans: A mortgage or financial instrument of some type that incorporates periodic changes in the interest rate that is charged over a fixed period of time. This loan is set up so that the interest rate can increase or decrease based on the fluctuations in the index and margin that have been agreed upon.
Fixed Rate Loan: A typical fixed rate loan is set up so that it will be repaid at a specific fixed interest that does not change during the term of the loan. The majority of fixed rate loans are set up so that the loan is “amortized;” i.e. liquidating or paying off a loan via installment payments over a specific period of time – interest payments and principal are included as part of the total loan.
Interest Only Loan: This type of loan addresses only the interest portion of the loan and does not include any payments that go against the “principal;” i.e. the baseline cost of the real estate being purchased.
Negative Amortization Loan: This means that you are accruing negative debt as part of your real estate loan – negative amortization happens when the total of the monthly payment is less than the full interest and doesn’t address any payment towards the principal.
2. How are all costs factored into a loan and what are they?
Total costs of a real estate loan typically include not only fees that are paid to the lender but also include fees that are related to third parties that are involved in the transaction; these can include: Credit Report, Pest Inspection, Appraisal, Escrow, Various Recording or Filing fees and Taxes.
3. What does an APR or Annual Percentage Rate mean?
They APR or Annual Percentage Rate is usually a very complex financial calculation that incorporates the interest rate and all other associated fees that are divided into equal parts during the term of the loan. There are some variables to consider: first, some lenders don’t always comply with the APR properly, second, an APR does not take into an account an early payoff of your loan, third, you can accurately compute an APR structure for an adjustable loan.
4. I’ve heard about Discount Points and Origination Fees but don’t know what these terms mean?
Typically each point is usually equal to 1% of the total loan amount but there are also variables that impact how many points you are paying: points reduce or buy down the interest rate you are paying – the more points you pay in most cases the lower your interest rate.
5. What is a “GFE” and how does it apply to my loan process?
“GFE” stands for “good faith estimate” and is a term used by lenders that will give you an overview of your total costs for a specific real estate transaction – it is typically provided within three days after you have formally applied for a loan. However, it should be pointed out that this document is not legally binding, although there is a great deal of pressure that is brought to bare on lenders to provide a GFE and stand behind it.
6. What is a prepayment penalty and how is it applied to my loan?
A prepayment penalty occurs when you pay off your loan early and it is typically assessed by adding more interest to your real estate loan. There are “hard” and “soft” prepayment penalties; a “hard” prepayment penalty means that it will be assessed regardless of the reason a “soft” prepayment penalty means that the penalty will not be assessed if the home is sold.
7. What determines when/if I can lock in a specific loan rate?
Interest rates can and do fluctuate a great deal, based on changes in the overall economy and if you anticipate that loan rates may be rising it may be to your advantage to lock in to a specific loan rate. You may be charged points for this privilege by some lenders.
8. Can you approve my loan in-house within you organization?
Some lenders can and do handle their own “underwriting;” making their own loans in-house without going out to the VA or FHA for approval due to their meeting stringent government requirements to be their own underwriters.
9. How long will it take to get my loan funded?
The actual time to get a loan funded can very tremendously based upon a number of factors. However, a loan will typically be funded within a 21-45 day period in the state of Nevada. You will want to identify a closing date for your real estate transaction with your lender and ensure that your final approval for the loan will occur in the allotted time period that you have to complete your transaction.
10. Should I check my credit rating prior to applying for a mortgage?
You should have some tangible idea of what your credit rating is as your start your purchasing process. Your credit score is based on a combined score generated in most cases via three major credit bureaus that look at your credit history, amount of credit available and recent inquiries, to determine what is labeled as your FICO score. You can typically get your credit score by contacting the bank that you have a relationship with or one of our strategic partners will help you to ascertain this as we start your real estate transaction process.
11. What are closing costs and how do they related to my loan?
Closing costs are all costs other than the purchase price that a buyer pays to complete a real estate transaction. For a seller, closing costs are all the fees, except for any liens or encumbrances that are typically deducted from the purchase price. Fees typically encompass those paid to title, escrow or lawyers, documentary transfer tax, city or count transfer or property taxes, credit reports, appraisal fees, any recording or notary fees, real estate commissions, inspections, loan fees such as points and/or prepaid interest.
12. How is a home’s value determined?
There are a number of ways that a home’s value is determined, with an appraisal being the most common method. An appraisal is done typically by an accepted specialist or firm that does nothing but appraisals on homes or property; the formal appraisal price is usually based on recent sales of comparable properties in the area, location of the home or property, square footage and/or construction costs. The actual appraisal service varies in formal costs and is typically based on the price of the home; but, on average, an appraisal usually costs $300-750. for house in the Las Vegas area.
A comparative market analysis is an informal estimate of market value that is performed by Re/MAX Central that is based solely on similar sales of comparable homes and attributes of the house.
