What Are Points?                   

Points are often called Discount Points or Fees, or New Loan Fees, and sometimes Origination Fees. Points provide the necessary ingredient to allow the purchaser to select an interest rate best suited to their finances. Normally, under a fixed rate loan program the lower the rate, the higher the points, and vice versa.

Points are paid to Lending Institutions (Banks, Savings and Loans, Mortgage Companies, Investors, Insurance Companies, etc.) to allow the Lending Institution to make funds available to you the Borrower. You pay more for inexpensive funds and less for more expensive funds (higher interest rates). Depending on market conditions and the interest rate, points may not be advantageous to pay. Points vary daily, and may increase or decrease depending on the market conditions affect our local, national, and global economy. Points result in increasing the yield or rate of return to the Investors who loan the lenders the funds to loan you.

Originating fees are different than the conventional "Discount Points". The Originating Fees is the fee paid to the lending institution to process your loan. Normally the Originating Fee is one percent of your loan amount. Origination fees are determined by the Lender.

Depending on market conditions, Discount Points may be paid by either the purchaser or seller regardless if the loan is a Conventional, VA, or FHA. Originating fees may be paid by the seller.

To Lock or to Not Lock

Locking in your interest rate and the amount of discount points (if applicable) is one of the most important decisions you will make regarding your loan. Locking in a rate means that you have committed to closing your home loan at a specific interest rate, subject to loan approval. Only you can decide when you want to lock in your interest rate. Be aware that the rate you are quoted today may be the last time you will see that rate. Market rates may drop below the market rate you locked in today.

If your lock expires prior to closing, the new rate and discount points will never be less than the original lock-in. Check with the lender regarding this policy. This applies even if the rates have decreased subsequent to your lock-in. Floating your discount points, or not locking in your discount points, will be subject to change daily. Your loan will cease to float only when you have consented and agreed to lock in for a maximum of 60 days.

Types of Mortgages

Conventional Loans

Depending on the price range and your personal finances, the conventional loan is one of the most popular loans in our market place. Normally, with a conventional loan, you can avoid paying a mortgage insurance premium (discussed later) if your down payment is at least 20%.

No down payment conventional loans are available in any price range. The options vary depending on your credit score. We can confidentially discuss your options for now down Conventional financing if necessary.

Conventional loans are stricter on their qualification ratios versus other types of loans. The qualification ratio the lenders use is a percentage of your gross income (if salaried) times a given percentile as established by the lender to figure your maximum loan payment. For example, if gross monthly income is $7,000, and you are a salaried employee, then your gross monthly income times 28% will determine the maximum monthly payment for your future home or $1,960 per month. If you have monthly obligations or debt, such as car payments, credit cards, child care, etc., then your gross monthly income times 36% should establish your maximum monthly payments minus your current debt, or $2,520. Both ratios should be in line in order to qualify. Flexibility does occur but depends on the lender.

Mortgage Insurance

When purchasing a home through a lender with minimum down payment you are required to protect that lenders investment with Mortgage Insurance. Just as you purchase insurance to protect your home and automobile, Mortgage Insurance is needed on most Federally financed loans and on Conventional loans with less than a 20% down payment. A lender making an insured mortgage loan to a purchaser that defaults on the loan will be assured of protection against loss incurred from the loan invested on that home owner. The larger the down payment or security investment in the home, the less MIP expected to pay on any loan type. However, no MIP loans are available with less than 20% down payment.

Mortgage Insurance premium is not to be confused with life or disability mortgage insurance. Separate policies are available to purchase through your insurance agent. All loans require Hazard Insurance coverage in case of casualty or fire to the property

Types of Financing

1. Fixed Interest Rate Mortgage - Your principal and interest payments are fixed for the duration of the loan.

2. Graduated Payment Mortgage (GPM) - An instrument used to take advantage of the current market conditions or for qualifying purposes. The interest rate starts at a lower rate and may increase annually until reaching its maximum rate. Normally the maximum rate is higher than the fixed rate available when you acquired the loan. The duration depends on how you structure the loan. There are costs involved that may not be advantageous in certain market conditions.

3. Adjustable Interest Rate Mortgage (ARM) - Same as above except the interest rate is adjustable either monthly, quarterly, yearly, or every 2 to 7 years. Many variations of the ARM loan are available and they are tied to an Index which could vary from T-Bills to the Cost of Funds index.

4. No Down payment Loans-non governmental loan program allowing qualified purchaser to purchase with no cash except closing cost and related expenses. The loan is divided in two via a first deed of trust and second deed of trust. Occasionally one loan is issued but with higher rates.

Whatever your needs are in purchasing a home, we have the experience and resources to assist you with those needs. Please let us know how can be of service to you!

Roy Lopez-303-888-7800, roy@roylopez.com