Welcome to the Frequently Asked Question page! You can browse the questions below to get answers to common questions about loans, mortgages, refinancing, and more!
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What loan programs are there? ^TOP^
Graduated Payment Method (GPM)
London InterBank Offered Rate (LIBOR)
How do I choose a mortgage program? ^TOP^
There is no silver bullet. The right type of mortgage for you depends on many different factors.
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Your current financial picture.
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How you expect your finances to change.
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How long you intend to keep your house.
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How comfortable you are with your mortgage payment changing.
For example, a 15-year fixed-rate mortgage can save you many thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage -- but your payments could get higher when the interest rate changes.
The best way to find the "right" answer is to discuss your finances, your plans and financial prospects, and your preferences frankly with a mortgage professional.
What does "appraisal" mean? ^TOP^
An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights he intends to appraise. The appraiser does not create value, the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. An appraiser may spend only a short time inspecting the property, however, this is only the beginning. Considerable research and collection of general and specific data must be accomplished before the appraiser can arrive at a final opinion of value. Due to the many types of value, such as Fair Market Value, Insurance Value, Tax Value and Value In Use, the need to precisely define the purpose of the appraisal is essential.
Why should appraisals be ordered? ^TOP^
To determine an offering or selling price:
The real estate agent will typically perform a comparative market analysis (CMA). The appraisal laws in most states allow real estate agents to perform CMAs without an appraiser's license or certification. A CMA is a necessary part of the agent's preparation for a listing and consists of examining sales of properties in the area to arrive at a listing price. The reliability of the CMA depends upon the agent's experience and the characteristics of the property. The agent will suggest a selling price to the seller based upon the analysis. However, neither the seller nor the agent are bound by the results of the analysis, and the agent is not required to follow any formal procedure in completing the CMA. If a seller wishes to list the property at a price higher than the price suggested by the agent, then the agent may be forced to accept the listing at that price or risk losing a commission.
Purchasers believe that they are getting a good deal if they make an offer lower than the listed price. But how far above the market value was the property listed? 10%, 15%, maybe even 20% above the fair market value? A negotiated price of 10% less than the listed price on a property that was listed at 20% above its value is not a bargain. The agent cannot tell the purchaser that the offered price is higher than the value, or even higher than their own CMA. In most states, they must submit the offer to the seller.
The seller of a property may want to order an appraisal before listing the property. Of course, the cost of the appraisal is always a deterrent, especially if the seller knows that a buyer will pay for it when applying for a loan. But the appraisal is often justified. The seller could lose a sale if the property appraised for less than the sale price when appraised by the appraiser.
To settle an estate:
Taxing authorities such as the IRS often require appraisals to establish the value of an estate when a death occurs. Generally, the survivors want a conservative value estimate that limits their tax liability as much as possible. Most estate appraisals are ordered by attorneys, not by the survivors.To establish the replacement cost for insurance:
Appraisals obtained for establishing the loss risk in case of fire are often limited to providing an estimate of the replacement or reproduction cost of the improvements. The insurable value may not be representative of market value and usually does not include the value of the land. Insurance agents may order appraisals when their standard cost service manuals are not adaptable to an atypical home or structure. Or property owners may order appraisals to contest the annual appreciation increases mandated by some insurance companies, especially when the increase in the insurance coverage results in an unrealistic Premium.To establish just compensation for condemnation:
The appraiser may represent either the landowner or the condemning authority. Usually, the government entity that needs the land for public use orders an appraisal and offers to purchase the land for the value indicated by the appraisal. If the landowner feels that the amount offered by the condemning authority is not enough, then the landowner may also order an appraisal. If the parties cannot agree on a price, then the matter will be settled in court with each appraiser testifying on behalf of their respective value estimates. The appraisers are not advocates for their client; they are expert witnesses trying to support their value estimates.
Often landowners do not consider ordering another appraisal from an appraiser of their choice. Usually, they try to settle with the authority by negotiation rather than incur the expense of an appraisal. It is obvious that the landowner's negotiating position would be enhanced if a supporting professional appraisal report were available.
To contest high property taxes:
If property owners feel that their property is assessed too high, then they may order an appraisal from a qualified appraiser to contest the assessment. In certain parts of the country this practice is common, but many property owners are not aware that this avenue of reducing their tax burden is available. The return on investment is easy to perceive when the cost of an appraisal is compared to several years of lower taxes. Sometimes these assignments include an appearance in front of the equalization board to argue the landowner's case. The appraiser, however, must be careful not to base the appraisal fee on the dollar amount of the appraised value, which could be a violation of the USPAP.What are some refinance considerations? ^TOP^
When you're making your decision, there are several things you should keep in mind.
1) Even a small rate cut can pay off quickly. That's because you can easily find mortgage companies willing to waive routine refinancing charges such as application, appraisal and legal fees (which can add up to $1,500 to $3,000). Of course, in exchange for low or no up-front costs, you'll have to be willing to accept a rate that's somewhat higher than the prevailing rock bottom.
2) If you are planning to stay in your home for at least three to five years, it may make sense to pay "points" (a point equals 1% of the loan amount) and closing costs to get the lowest available rate.
3) You can avoid laying out cash and still get a low rate by adding the points and closing costs to your new mortgage. Does that mean shouldering a lot of extra debt? Not necessarily. If you've had your current mortgage for at least three years, you've probably reduced your balance by several thousand dollars. So you may be able to tack your closing costs onto your new loan and still end up with a mortgage that's smaller than your original one -- plus, of course, a lower rate and lower monthly payment.
Should I refinance? ^TOP^
With traditional refinancing, the most common idea is that the interest rate for your new mortgage must be about 2 percentage points below the rate of your current mortgage for refinancing to make sense. With the newer low- and no-cost refinancing programs however, it can be worth your while to refinance to obtain a smaller reduction in interest rates.
How long you expect to stay in your home is also a factor to consider. If you'll be moving in a few years, the monthly savings may never add up to the costs that are involved in a refinancing.
Should I refinance multiple times? ^TOP^
To take advantage of a continued decline in rates, the Hamiltons refinanced again in February. Their new 30-year fixed mortgage is at 7.475%, lowering their monthly bill by another $75. Since the couple had chosen a no-cost refinancing each time, their total out-of-pocket expenses came to just $400 in appraisal fees. So by the time you read this, they will already have recouped their up front costs. "Now we can use the savings to help pay for our son's education," says Drew.
If you are considering a second refinancing, don't overlook this potential tax write-off: When you pay points to refinance, you must deduct the amount over the life of the loan, usually 30 years. When you refinance a second time, however, all of the points that have not yet been deducted from the first refinancing can be written off in a lump sum. If you refinanced to a 30-year mortgage in 1993 and paid $3,000 in points, by now, you would have written off roughly $500. If you refinance again this year, you could deduct the remaining $2,500 on your 1998 tax return. For a homeowner in the 28% tax bracket, that works out to a savings of $700 -- enough to offset some or all of your costs this time around.
What does "second mortgage" mean? ^TOP^
What should I do when considering a 2nd mortgage? ^TOP^
Be sure you understand how much your monthly payments will be and what they cover. Your mortgage company should be able to give you this information in advance. With some loans, you will be required to make monthly payments on the principal and interest. With other loans, you may be required to pay interest only on the borrowed amount. With these loans, your monthly payments will not reduce the principal amount of the loan. With such a loan, you will be required to pay back the entire borrowed amount at the end of the loan period. These loans are popularly known as "balloon loans." If your loan has a balloon payment, you should consider how you will arrange to repay the entire amount when it becomes due. If you want to take advantage of our online calculators, please click here.
On "home equity lines," the mortgage company does not have to give you the exact amount of the monthly payment, but must explain how it is figured. This is because the borrowed amount will vary and your outstanding balance will change if you use the line of credit. However, if your monthly payment term is 5% of the outstanding balance and your outstanding balance is $5,000, your minimum monthly payments would be $250.
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