Refinancing and Home Equity Line of Credit Transactions
What you may pay out of pocket to obtain a loan:
- Paying out of pocket fees or costs to obtain a mortgage is rarely in a consumer’s best interest when completing a Refinance or Home Equity Line of Credit transaction. When completing a Refinance or Home Equity Line of Credit transaction, it is always in a consumer’s best interest to roll any Lender or Third Party Settlement Charges into the new loan taken out.
- The only out of pocket cost associated with this type of transaction should be the cost of an appraisal. When completing a loan, you want to make 100% sure you are working with a lender who is HVCC compliant. HVCC or the Home Valuation Code of Conduct was passed in 2009 to protect homeowners from Lenders who did not order appraisal at arm’s length. By paying for your appraisal out of pocket and having a National Appraisal Management company complete the transaction, you are protecting yourself from a lender influencing the valuation of your property and manipulating the type of loan program for which you are ultimately approved.
Banker, Lender or Broker
Often times, consumers become confused about the best way to obtain a new loan. If you are buying a new home, refinancing an existing mortgage, or taking out a home equity loan or line of credit, there are many ways you can obtain financing. Below are the typical distribution channels a consumer can utilize to obtain a new loan:
Most traditional consumer banks provide home financing. Consumer Banks typically offer the consumer the ability to Purchase a Home, Refinance a Mortgage, or obtain a Home Equity Loan or Line of Credit. Consumer Banks may or may not Service (accept payments) the mortgage loan after the loan is funded. Consumer Banks not only offer mortgage products, they often offer Depository services and other types of financing.
Calculating Your Interest Rate and When to Lock
Have you ever wondered what goes into assigning an interest rate to a loan program?
There are multiple reasons why interest rates change and multiple qualification points used to ultimately assign an interest rate to
a loan. As a general rule, here are the basic qualification points used to determine a clients interest rate:
- Loan to Value
a. The Loan Size divided by the Value of the property
b. Typically, the lower the Loan to Value, the better the Interest Rate
- Time it takes to process a loan, or Lock Duration
a. Lock Durations generally range from 10, 20, 30, 45, 60, 90, 120 days in processing
b. Typically, the shorter the time it takes to process a loan the better the Interest Rate
- Length of a Mortgage or Term
a. Mortgage Terms generally range from 10 Years to 30 Years
b. Typically, the shorter term, the better the Interest Rate
- Credit Score
a. Consumers Fico scores range from 350-850
b. Typically, the higher the fico score, the better the Interest Rate
- Property Type
a. Single Family, Condo, Modular, Townhome, 2-4 Unit
b. Every property type has its own risk grade and pricing structure
a. Owner Occupied/Primary Residence, Second Home, Non-owner Occupied/Investment
b. Every occupancy type has its own risk grade and pricing structure
- Product Type
a. Conventional, FHA, Fixed, Adjustable, Interest Only, Negative Amortization
b. Every product type has its own risk grade and pricing structure
WHEN SHOULD I LOCK MY INTEREST RATE?
At Royal United Mortgage LLC, we give our clients the ability to lock in their final Loan Structure and Interest Rate once an HVCC (Home Valuation Code of Conduct) compliant appraisal has been completed on their property. We observe this responsible practice so our clients are never misled as to what they truly qualify for and what their loan documents will look like upon closing. Because Home Value and Processing Time are critical factors in ultimately determining a client’s interest rate, it is always responsible to obtain an HVCC compliant appraisal on your property prior to making any decisions about a final loan amount, term, loan structure, or interest rate.
Reverse Mortgage Loan Options
A Reverse Mortgage consists of two parts.
Part ‘A” pays off your existing mortgages or property liens and provides you with a new FHA Guaranteed loan. The fees and costs associated with underwriting and making the loan are also included in this new mortgage loan. Part ‘B’ of the program, providing you have sufficient home equity to qualify, will provide you with a choice of three (3) Options:
- Lump-sum Payment Option
Calculated using rigid HUD- provided guidelines, this payment is provided after closing and is for your discretionary use, i.e. paying bills, savings, investments, home repairs, income supplement, etc. The amount distributed is added to and becomes a part of your new mortgage loan total. Interest rate for this Option is a Fixed Interest Rate at a guaranteed level for the life of your mortgage loan. Your Royal Mortgage Reverse Mortgage Adviser can provide you with the current rate being authorized by FHA.
- Line of Credit Option
Similar to a home equity line of credit, you are provided with a check book and a borrowing limit. If deferred, the amount available to you will increase annually by a set percentage. Structured as a part of your mortgage, the interest rate for your entire loan will be subject to a variable rate. Your Royal Reverse Mortgage Adviser can provide you with both the current rates, margins and maximum rates that can be charged.
CAUTION: Variable rates are subject to substantial increases, we strongly advise you to seek competent financial counsel to explain the risks associated with this type of loan and determine suitability for your needs.
- Tenured Monthly income Option.
A monthly distribution of a fixed payment that will continue to pay for as long as at least one of you survives and elects to live in your home. There is no limit as to the cumulative amount or duration of payment payable under this Option. All benefit payments are insured by FHA. This Option and the underlying mortgage are also subject to a variable rate of interest.
CAUTION: Borrowers to seek competent financial counsel when considering any loan or mortgage alternative that involves variable rates of interest.
Selling Your Home
Title to your home remains with you. The Reverse Mortgage process simply replaces your existing mortgage with a new FHA insured mortgage. You still own your home and retain all of the ownership rights associated with ownership. At any time, you can elect to sell your home, pay off your FHA mortgage, bequeath your home to your children or heirs or simply live out the remaining years of your life without having to make another mortgage payment. Before you make any changes, we strongly urge you to read and become familiar with all of the Terms, Restrictions and Conditions set forth in your mortgage loan agreement.
Streamlining Your Loan
If the value of your home increases, you may at some future date elect to modify your loan or sell your current home. You may elect to secure a Reverse Mortgage on your new home, or add an additional qualified Borrower to your home’s title. Reverse mortgage transfers or a home sale can provide you with unique transfer credits and, under some circumstances, a partial refund of FHA Insurance premiums. Options that are available to you for your specific situation and needs can be explained to you by your Royal United Reverse Mortgage Adviser.