Learn about shopping for a home, owning an investment or second home, and become familiarized with the home buying process.

Understanding APR, contract rate and points.

The terms annual percentage rate (APR), nominal APR, and effective APR (EAR) describe the interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage, credit card, etc. It is a finance charge expressed as an annual rate. Those terms have formal, legal definitions in some countries or legal jurisdictions, but in general:

The nominal APR is the simple-interest rate (for a year).

The effective APR is the fee+compound interest rate (calculated across a year).

The nominal APR is calculated as: the rate, for a payment period, multiplied by the number of payment periods in a year.[1] However, the exact legal definition of "effective APR", or EAR in short, can vary greatly in each jurisdiction, depending on the type of fees included, such as participation fees, loan origination fees, monthly service charges, or late fees. The effective APR has been called the "mathematically-true" interest rate for each year. The computation for the effective APR, as the fee+compound interest rate, can also vary depending on whether the up-front fees, such as origination or participation fees, are added to the entire amount, or treated as a short-term loan due in the first payment. When start-up fees are paid as first payment(s), the balance due might accrue more interest, as being delayed by the extra payment period(s).

In some areas, the annual percentage rate (APR) is the simplified counterpart to the effective interest rate that the borrower will pay on a loan. When not using the term "effective APR", the use of "APR" is an early term for nominal APR. In many countries and jurisdictions, lenders (such as banks) are required to disclose the "cost" of borrowing in some standardized way as a form of consumer protection. APR is intended to make it easier to compare lenders and loan options. The APR is likely to differ from the "note rate" or "headline rate" advertised by the lender, due to the addition of other fees that may need to be included in the APR. APRs can be found by asking the lender or by reading the appropriate section in the contract.

In the U.S. and the UK, lenders are required to disclose the APR before the loan (or credit application) is finalized (although the definition of "APR" is not the same in these two countries – see below). Credit card companies can advertise monthly interest rates, but they are required to clearly state the annual percentage rate before an agreement is signed. APR is a term used with regard to deposit accounts as well. However, when dealing with deposit accounts, the annual percentage yield (APY) or annual equivalent rate (AER) is quoted to consumers for comparison purposes.

Remember, the note rate (contract rate) is the rate used to calculate your monthly payment. The higher the interest rate, the higher your monthly payment. The lower the interest rate, the lower your monthly payment. The crux is just because your interest rate is higher does not mean that it's a more expensive loan if you're looking at your purchase or refinance as a short term solution. It all boils down to how much you have to pay to buy down your rate vs. how long you plan on keeping that mortgage.

Points are fees paid to the lender at the time of closing. I believe everyone is entitled to par pricing (0% origination / 0% discount points) - this is the contract rate you truly qualify for at the time of applying for a loan. This pricing is determined by your income, credit and equity (down payment) that you're bringing to the table. Your I.C.E (income, credit, down payment) earns you your rate and term. Think of your income, credit and equity as the report card you earned for all the hard work (or lack thereof!) when you were in school. The same applies in our adult lives. I've had several borrowers with below 740 credit scores demand they receive terms and conditions that someone that was putting down 30% and had a 780 FICO score would qualify for at that point in time. I am up front and honest with everyone and it's unfortunately these same people who storm out of my office because another loan officer offered them a no point loan find themselves between a rock and a hard place when the terms and conditions on their loan are completely different from what they were lead to believe.

When it comes to buying down your rate you can think of it like this. Would you refrain from paying for your childrens college education because they didn't earn a partial or full scholarship? Would you keep yourself from obtaining a higher education because you didn't have a 4.3GPA in high school? NO! Same applies to buying down your rate. Don't allow your income, credit and equity to get in the way from getting into the home of your dreams for something so trivial as a couple of points. With the tax incentives that are out there right now we can try and find something that will benefit you.

Should I Lock my rate or float it till I'm ready to close?

This is something that is up to you. If you believe rates are going to go up then I suggest you lock your loan in so you can protect your buying power. I have a tier when it comes to locking in a loan. I can get a loan signed and funded in < 5 business days if title and appraisal are already taken care of and you have all your docs ready to go. I've worked with several lenders in the past and have found a good rule of thumb is locking your rate for 45-60 days (depending on loan type) as sometimes things happen. People are people. Things happen. If you're not 100% sure of the home then a 45-60 day lock will ensure you have enough time to find another one and get a response from the seller or bank. I can lock a loan in for as little as 5-10 days (business and non-business days), but it's a double edge sword sometimes if there is a hiccup along the way. The difference between an extra week or so of lock in period is a few basis points - believe me, I've seen some people unable to afford a home because they decided to grab a short term lock in period and when they didn't close on time their rate jumped up to a point where they couldn't afford the home.

If you believe rates are going to drop while your loan is being processed and you're willing to take a risk and let it float vs. locking then its completely up to you. You can lock your rate in any day as you watch interest rates on a daily basis. Rates are volatile at best as they are difficult to predict. I always suggest you lock your loan in once you find the home you're looking for and we come to an agreement to a payment you're comfortable with maitaining during the course of homeownership.

When you lock your loan in you are getting something in writing that if your loan funds during that period of time you are guaranteed that rate based off final underwriting discretion. Nothing is a guarantee in life. Please be aware that when you lock your loan in you should also maintain your end of the deal by not trying to request that the lender lower the interest rate because rates dropped 00.000128%. I say this whether you take a loan from me or take a loan from someone else. How would you feel if we provided you with a lock in agreement of 6% and when you were about to sign the paperwork said 8.5%? You probably wouldn't be too happy would you?

There is a fee incurred when you want to reprice a loan because the broker or lender has a finite amount of funds and credit available to them and once locked - it removes that money from the available pool other people will be able to request during that month. Please note, if rates go down 1%-2% then it would probably benefit you to pay the relocking fee (usually 0.50%-0.75%) if it's going to save you a few bucks, otherwise, don't put everyone in that uncomfortable situation. There is a reason why some lenders do not provide locks on loans greater than 10 days. Their credit lines are extremely small and they cannot afford to have that money unavailable for an extended period of time.

The finance industry isn't what it used to be a few years ago. Things have changed to the point that people are dropping out of this industry at an alarming rate. Please note, I enjoy my job. I enjoy helping people. Part of that enjoyment comes from having an up front understanding with each borrower in regards to having everything move smoothly. It isn't just me that touches your paperwork. My loan processor, three seperate underwriters, my broker, your employers human resources, your creditors, your mortgagee, your landlord, a title agent, an escrow agent, a notary public, the lending institution that will purchase your note, their processor, their underwriter, their quality and compliance team, our quality and compliance team and guess what happens when you're done signing your loan docs... it goes through even more set of hands! Need I continue? There are a lot of people involved - in fact, I believe there are MORE people involved nowadays because each lender is scared to have something fund only to be required to purchase the loan back from the investor because they provided a loan to a person that didn't really qualify.

More information on Loan types.

Fixed Rate Home Loans

Some people enjoy having a loan that allows them a way to budget their income on a monthly basis without having to worry about unpredictable changes in their mortgage payments. A fixed rate note will have the same interest rate during the entire life of the loan (if you don't have it modified) and you have several terms to choose from.

30 Year Fixed Rate Home Loan
Lowest monthly payment of the fixed rate loan choices
Keeps home loan payments affordable by extending them over a long period of time
Provides maximum tax-deductible interest (ask your tax advisor)

20 Year Fixed Rate Home Loan
Helps you pay off your home faster and build equity quicker than 30 year home loan
Has a lower interest rate than a 30-year loan (but higher monthly payments)
Saves considerable money on total interest paid over the life of your loan

15 Year Fixed Rate Home Loan
Has higher payments than a 30 year or 20 year home loan, but a lower interest rate
Saves considerable money on total interest paid over the life of your loan
Builds equity in your home faster

Adjustable Rate Mortgages (ARMs)
Think of a sine wave. The interest rate (the rate that determines your payment) can variate and adjust with changing market on mortgage backed securities. So, if your adjustment date happens to land on a date when interest rates are at an all time high then you are more than likely going to see an increase in payment. The same applies if the interest goes down, except your payment will now be lower.

The payment is capped @ both extremities by something called a ceiling and a floor. ARM notes are usually written in a way to minimize the fluctuation in your loan by a few points going up or down. Your note is based on the performance (or lack) of a financial index. (T-Bill, COFI, LIBOR, etc.) If you're unfamiliar with how to read your note, please feel free to contact me and I can take the time to sit down with you and go through your loan paperwork in greater detail.

Adjustable Rate Notes are not bad loans. They serve a purpose especially if you're only planning on staying within a home for a maximum of 3-10 years and you're not looking at the loan as "the last loan I'll ever have!" You have to be realistic with your expectations and your habits. If you're the type of person who refinances every few years then you might consider an ARM if you have more than enough equity in the home to allow you to refinance into a fixed rate note in the future if the market deteriorates.

Government Loans
Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) offer government-insured loan products. They are usually easier to obtain based on lower down payment requirements and flexible lending guidelines. You can apply with a loan officer like myself who works for an approved FHA | VA lender. One of the main reasons underwriting guidelines are a bit more flexible with these loans is they're guaranteed by the federal government against default. This puts investors a bit more at ease as the investment they have made into providing the financing for your home is insured through the federal government vs. private mortgage insurance. Please note - there are certain restrictions. A VA loan has ZERO downpayment options for loans up to $417K and are more flexible than conventional loans.

Non-Conforming Jumbo Loans

Loans that exceed the county loan limits set by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) usually have different down payment requirements and a higher interest rate and closing costs associated with providing the loan.

Please call me so we can explore your options.

Get pre-approved or pre-qualified.

This is an important step in the right direction as it provides you, the realtor and myself with key information on what you're able to comfortably afford and tackle any obstacles we might see right up front. I've seen far too many potential homeowners become bitter with frustration because they were expecting to purchase a $500K home when they could only qualify for a $200K home. Getting pre-qualified also shows everyone involved that you're serious about what you're doing. Remember, we drive you around and work for free until you and the seller decide to concrete the purchase (or sign the loan paperwork if a refi). I've been the unfortunate witness of far too many real estate agents spending 3 - 4 weekends in a row driving people around showing them homes that were not in their price range once they were ready to submit an offer. Please don't misunderstand - showing interest in the possibility of purchasing a home is a great thing and we welcome any interested party with open arms if they're undecided, but if you decide to have someone spend valuable resources on you (time, time, time) then please... get pre-qualified. : ).

I'm sure you can tell by now that I'm a down to earth person. I try and keep everything light hearted and with enough good spirit to get to know you better and your family. A majority of my business has been return borrowers and referrals. I don't play games and ensure that if I get you pre-qualified it means something.

Anticipate total costs.
Lets put everything out in the open right here - right now. I make money by providing you with a loan. In case you didn't read me properly I'll repeat it one more time... I MAKE MONEY WHEN YOU GIVE ME THE PRIVILEGE OF PROVIDING YOU WITH A LOAN. Now that we have this clear lets move forward. My job is to give you a loan. I benefit and so does the realtor... but so do you. Please understand that there are costs incurred when you plan on buying a home or financing a home. Please understand - anyone that tells you they are not charging you anything to provide you with a loan is LYING. Why would anyone work for free? Would you go to work for 2-3 weeks in a row working 9am-9pm on a daily basis to work for free? Of course you wouldn't and neither would a loan officer or anyone providing you with a real estate loan. There is a reason why home loans and purchasing a home usually requires a 30-45 day escrow... there are a lot of people and a lot of processes involved in getting your loan from point A to point Z.

Fear not... there are a lot of great programs out there right now that can have you come in with minimal out of pocket expenses. Please call me and we can go over the programs available here in Riverside County that would benefit you tremendously.

Here are some of the items you will be looking @ paying.

Lender-related costs
Once again, the total cost of a loan is more than just the interest rate, origination fees and buydown points! Please note, I will provide you with an estimate thats as accurate as the preliminary information you provide. A GFE is just that... an estimate. I've seen so many people come in with GFE's with nothing other than a loan amount and a $30 credit check. They say thats all they had to pay and once I ask a bit more they divulge that they had to pay the appraiser when he did the appraisal and they had to pay for their credit report and they had to put some money down in good faith for the great deal they just received. Now, if you've paid for a credit report and an appraisal and they are not shown on the GFE then I'd run for the hills. I've seen many borrowers who were practically stolen from me by someone who over promised and underdelivered only to have them come back with their sad tale to see if I could get them qualified and signed that month, otherwise, they would lose the home and be liable to the seller as all contingencies were met. Remember, a contingency can be getting approved for a loan - this means that a seller can hold you to the contract if you can afford to make the payments on the loan thats brought to the table if you refuse to sign. I make it my business to call every borrower *BEFORE* signing and go over all terms and conditions so there are no surprises. I always have my borrowers grab a pen and piece of paper and write down everything I'm saying so they know what to expect when the notary arrives. Remember, my processors and myself are only human. If there is an error on one of the documents then I have provided you with all the information that should be on the loan paperwork. During my 6+ years of working in the mortgage industry I've had the bad luck of having two loans go out with incorrect information, but each time my borrower thanked me and praised me for going over everything on the phone and giving them a chance to catch anything before it was too late.

On to the costs:

Appraisal Fee
Credit Report Fee
Mortgage Insurance
Tax Service
Flood Check Fee
Closing | Escrow | Attorney Fee
Abstract or Title Search
Title Insurance
Homeowners / Hazard Insurance
City / County / State Tax / Stamp
Recording Fees and Transfer Taxes
Notary Fee
Survey Fee
Inspection Fee

5.) Understanding the loan process.

6.) Closing Escrow and Funding Loan.