Jerry Mueller Real Estate
Jerry Mueller Real Estate
Jerry Mueller Real Estate
678 Halfmoon Drive
Bethany Beach, DE 19930
Office: 302-539-5872
Cell: 302-745-1418
Fax: 1-866-882-6333
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Mortgage Information

  • Mortgage Calculator
  • Common Mortgage Loan Types
  • Locking In Your Interest Rate
  • Refinancing - What You Should Know
  • Step By Step: The Loan Process
  • What Are Closing Costs & What to Expect

    • Mortgage Calculator

    Common Mortgage Loan Types

    Fixed Rates

    A conventional fixed-rate mortgage offers you a set rate and payments that do not change throughout the life or "term", of the loan. A conventional loan is fully paid off over a given number of years, usually 15, 20 or 30.

    A portion of each monthly payment goes towards paying back the money you borrowed, the "principal", and the rest is "interest". Any money paid into the value of the house, including your down payment, is known as "equity" in the home. For instance, if your house is worth $100,000 and you owe $65,000 on your mortgage, then you are said to have 35% equity in your house.

    Temporary Buy-Downs

    "Buydowns" usually refer to a borrower "buying down" the interest rate on a loan. This is the same concept as paying "points" on a loan, except that points buydown (or up) the rate of a loan over the entire term while a buydown is usually only a temporary reduction.

    A temporary buydown on a loan is achieved by lowering the rate for the first few years, starting out at a lesser amount and gradually rising to the original loan rate. Of course, because the loan rate is lower for the initial few years, so are the payments. To make up this loss of funds to the lender, the buydown usually consists of extra monies paid up front to the lender when the loan closes. In return, the lender will let the borrower "qualify", or meet the criteria for the loan, at the new, reduced rate.

    An example of a temporary buydown on a loan is a 2/1 Buydown. Assume we have a 30-year conventional loan with an interest rate of 9%. A 2/1 buydown would make the interest rate for the first year of the loan equal to 7%, the second year 8% and 9% from then on. The borrower could qualify for the loan (under some loan programs) as if it were a 7% loan.

    Balloon Loans

    This is a special type of conventional, fixed-rate mortgage with a much shorter term. In a balloon mortgage, the terms and payments are usually the same as their conventional loan counterpart, but the balance is due in full on the loan at the end of a specified, much shorter term.

    For example, a seven-year balloon mortgage would be calculated to have the same payments as a 30-year loan, with the borrower paying the same amount in interest and principal each month. However, at the end of seven years whatever balance is left on the loan is due. At this point, the borrower may either pay out the loan in full or refinance with a new loan.

    Balloons are often priced better than conventional, fixed-rate mortgages because of the certainty to the lender of the mortgage term.

    Adjustable Rate Loans (ARM's)

    An "ARM", or "Adjustable Rate Mortgage" has a fluctuating interest rate and the potential for changing payment amounts. In most ARM mortgages, the interest rate on a loan is fixed for a certain number of years and then allowed to fluctuate in sync with current economic factors.

    An ARM is of value to the lender because the risks of lending money in a changing economy are passed on to the borrower. In exchange, most lenders are able to offer a lower initial interest rate to the borrower in exchange for their assumption of this risk.

    Adjustment Period

    This is the predetermined period for which the rate of an ARM is adjusted. For instance, a 3/1 ARM has a fixed rate for the first three years of the loan and is then adjusted once every year through the term of the loan to reflect the current economic conditions.

    Caps

    This is a limit specified in the ARM loan for individual and cumulative interest rate adjustments. An example of this is a 2/6 cap, which allows the interest rate on your ARM loan to go up or down by no more than two percent every adjustment period, and has a total limit of six percent for cumulative changes. Therefore a 2/6 cap on a 5% ARM will allow a maximum rate of no more than 11%.

    Index

    The measurement, or basis, that lenders use to adjust the interest rate on an ARM. ARMs are usually quoted with a "teaser", or first-year rate, and then expressed as an index plus a margin. For instance, a 5/1 ARM may be advertised at 5% with a 2.5% margin over the U.S. 30-year bond index. This means that your first year's rate would be 5%. The second year, the rate would be 2.5% plus whatever the 30-year bond rate was, such as 6%, making your rate through year five equal to 8.5%. In year five, your rate is adjusted again, this time to 2.5% plus the current 30-year bond rate, now 7%, making your new rate equal to 9.5%.

    Negative Amortization

    This occurs when the combination of interest rates adjustments and payment caps result in a monthly payment that does not cover the interest portion of your loan. In this case, the difference would be added back to the total amount you owed on the loan, thus making a "negative amortization" to the mortgage.

    Convertible Adjustable Loans

    Convertible ARMs offer the borrower the option to convert the loan from an adjustable-rate to a fixed-rate at specified times during the term of the mortgage. This option is attractive to many buyers who may wish to take advantage of current low interest rates, but want the security of a fixed-rate loan in the future. Be aware of any costs associated with the conversion of the loan.

    Questions to Ask When Considering an Adjustable

    1. What would the interest rate be today if the rate were fully adjusted, based on the current value of the index?
    2. Is there a prepayment penalty?
    3. How long before the interest rate can adjust?
    4. By what amount can the rate adjust at that time? At the next adjustment period? Over the life of the loan?

    Locking In Your Interest Rate

    In most cases, the terms you are quoted when you shop among lenders represent the terms available at the time of the quote. Therefore, you should not rely on the terms quoted to you when shopping for a loan unless a lender is willing to offer a lock-in.

    Rate Lock-In is a lender's promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan application is processed. Depending upon the lender you may be able to lock in the interest rate and number of points when you file your application, during processing of the loan or when the loan is approved. A lock-in that is given when you apply for a loan may be useful because it's likely to take your lender several weeks or longer to prepare, document, and evaluate your loan application. During that time, the cost of mortgages may change. But if your interest rate and points are locked in, you should be protected against increases while your application is processed. This protection could affect whether you can afford the mortgage. However, a locked-in rate could also prevent you from taking advantage of rate decreases.

    It is important to recognize that a lock-in is not the same as a loan commitment. A loan commitment is the lender's promise to make you a loan in a specific amount at some future time. Generally, you will receive the lender's commitment only after your application has been approved. This commitment usually will state the loan terms that have been approved, how long the commitment is valid, and the lenders conditions for making the loan.

    Will You Be Charged for a Lock-In?

    Lenders may charge a fee for locking in the rate of interest and number of points for your mortgage. Some lenders may charge you a fee upfront, and may not refund it if you withdraw your application, if your credit is denied, or if you do not close the loan. Others might charge the fee at closing. The fee might be a flat fee, a percentage of the mortgage amount, or a fraction of a percentage point added to the rate you lock in.

    Lenders may offer different options in establishing the interest rate and points that you will be charged, such as:

    Locked-In Interest Rate-Locked-In Points

    Under this option, the lender lets you lock in both the interest rate and points quoted to you. This option may be considered to be a true lock-in because your mortgage terms should not increase above the interest rate and points that you've agreed upon even if market conditions change.

    Locked-In Interest Rate-Floating Points

    The lender lets you lock in the interest rate, while permitting or requiring the points to rise and fall (float) with changes in market conditions.

    Floating Interest Rate-Floating Points

    The lender lets you lock in the interest rate and the points at some time after application but before closing. If you think that rates will remain level or even go down, you may want to wait on locking in a particular rate and points. If rates go up, you should expect to be charged the higher rate.

    How Long Are Lock-Ins Valid?

    Usually the lender will promise to hold a certain interest rate and number of points for a given number of days, and to get these terms you must close the loan within that time period. Lock-ins of 30 to 60 days are common. But some lenders may offer a lock-in for only a short period of time (for example, 7 days after your loan is approved) while some others might offer longer lock-ins (up to 120 days). Lenders that charge a lock-in fee may charge a higher fee for the longer lock-in period. Usually, the longer the period, the greater the fee.

    The lock-in period should be long enough to allow for closing, and any other contingencies imposed by the lender. Before deciding on the length of the lock-in, you should find out the average time for processing loans. You'll also want to take into account any factors that might delay your settlement. These may require_once delays that you can anticipate in providing materials about your financial condition and, in case you are purchasing a new house, unanticipated construction delays, credit problems to be addressed, etc.

    What Happens if the Lock-In Period Expires?

    If you don't close within the lock-in period, you might lose the interest rate and the number of points you had locked in. This could happen if there are delays in processing whether they are caused by you, others involved in the settlement process, or the lender. For example, your loan approval could be delayed if the lender has to wait for any documents from you or from others such as employers, appraisers, termite inspectors, builders, and individuals selling the home. If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate and points. If market conditions have caused interest rates to rise, most lenders will charge you more for your loan.

    How Can You Speed the Approval of Your Loan?

    Much of the information required by your lender can be brought with you when you apply for a loan. This may help to get your application moving more quickly through the process. So when you first meet with your lender, be sure to have the asked for items, and respond promptly to your lender's requests for information.

    Refinancing - What You Should Know

    Refinancing

    If you are a homeowner who was lucky enough to buy when mortgage rates were low, you may have no interest in refinancing your present loan. But perhaps you bought your home when rates were higher. Or perhaps you have an adjustable rate loan and would like to obtain different terms.

    Should you refinance? This refinancing tip will answer some questions that may help you decide. If you do refinance, the process will remind you of what you went through in obtaining the original mortgage. That's because, in reality, refinancing a mortgage is simply taking out a new mortgage. You will encounter many of the same procedures-and the same types of costs-the second time around.

    Would Refinancing Be Worth It?

    Refinancing can be worthwhile, but it does not make good financial sense for everyone. A general rule is that refinancing becomes worth your while if the current interest rate on your mortgage is at least two percentage points higher than the prevailing market rate. This figure is generally accepted as the safe margin when balancing the costs of refinancing a mortgage against the savings.

    There are other considerations, too, such as how long you plan to stay in the house. Most sources say that it takes at least three years to realize fully the savings from a lower interest rate, given the costs of the refinancing. (Depending on your loan amount and the particular circumstances, however, you might choose to refinance a loan that is only 1.5 percentage points higher then the current rate. You may even find you could recoup the refinancing costs in a shorter time.)

    Refinancing can be a good idea for homeowners who: Want to get out of a high interest rate loan to take advantage of lower rates. This is a good idea only if you intend to stay in the house long enough to make the additional fees worthwhile. Have an adjustable rate mortgage (ARM) and want a fixed-rate loan to have the certainty of knowing exactly what the mortgage payment will be for the life of the loan. Want to convert to an ARM with a lower interest rate or more protective features (such as a better rate and payment caps) than the ARM they currently have. Want to build up equity more quickly by converting to a loan with a shorter term. Want to draw on the equity built up in their house to get cash for a major purchase or for their children's education.

    If you decide that a refinancing is not worth the costs, ask your lender whether you may be able to obtain all or some of the new terms you want by agreeing to a modification of your existing loan instead of a refinancing.

    Should You Refinance Your ARM (Adjustable Mortgage)?

    In deciding whether to refinance an ARM you should consider these questions:

    • Is the next interest rate adjustment on your existing loan likely to increase your monthly payments substantially?
    • Will the new interest rate be two or three percentage points higher than the prevailing rates being offered for either fixed-rate loans or other ARM's?
    • If the current mortgage sets a cap on your monthly payments, are those payments large enough to pay off your loan by the end of the original term?
    • Will refinancing a new ARM or a fixed-rate enable you to pay your loan in full by the end of the term?

    What Are The Costs of Refinancing?

    The fees described below are the charges that you most likely will encounter in a refinance.

    Application Fees

    This charge imposed by your lender covers the initial costs of processing you loan request and checking your credit report.

    Title Search and Title Insurance

    This charge will cover the cost of examining the public record to confirm ownership of the real estate. It also covers the cost of a policy, usually issued by a title insurance company that insures the policyholder in a specific amount for any loss caused by discrepancies in the title to the property. Be sure to ask the company carrying the present policy if it can re-issue your policy at a re-issue rate. You could save up to 70 percent of what it would cost you for a new policy.

    Lender's Attorney's Review Fees

    The lender will usually charge you for fees paid to the lawyer or company that conducts the closing for the lender. Settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers, and attorneys for the buyer and seller. In most situations, the person conducting the settlement is providing a service to the lender. You may want to retain your own attorney to represent you at all stages of the transaction, including settlement.

    Loan Origination Fees and Discount Points

    The origination fee is charged for the lender's work in evaluating and preparing your mortgage loan. Discount points are prepaid finance charges imposed by the lender at closing to increase the lender's yield beyond the stated interest rate on the mortgage note. One point equals one percent of the loan amount. For example, one point on a $75,000 loan would be $750. In some cases, adding them to the loan amount can finance the points you pay. The total number of points a lender charges will depend on market conditions and the interest rate to be charged.

    Appraisal Fee

    This fee pays for an appraisal that is a supportable and defensible estimate or opinion of the value of the property.

    Prepayment Penalty

    A prepayment penalty on your present mortgage could be the greatest determent to refinancing. The practice of charging money for an early pay-off of the existing mortgage loan varies by state, type of lender, and type of loan. Prepayment penalties are forbidden on various loan including loan from federally chartered credit unions, FHA and VA loans, and some other home-purchase loans. The mortgage documents for your existing loan will state if there is a penalty for prepayment. In some loans, you may be charged interest for the full month in which you prepay your loan.

    Miscellaneous

    Depending on the type of loan you have and other factors, another major expense you might face is the fee for a VA loan guarantee, FHA mortgage insurance, or private mortgage insurance. There are a few other closing costs in addition to these.

    In conclusion, a homeowner should plan on paying an average of 3 to 6 percent of the outstanding principal in refinancing costs, plus any prepayment penalties and the costs of paying off any second mortgages that may exist. One way of saving on some of these costs is to check first with the lender who holds your current mortgage. The lender may be willing to waive some of them, especially if the work relating to the mortgage closing is still current. This could require_once the fees for the title search, surveys, inspections, and so on.

    The information contained in this refinancing tip is intended to help you ask the right questions when considering refinancing your loan. It is not a replacement for professional advice. Talk with mortgage lenders, real estate agents, attorneys, and other advisors about lending practices, mortgage instruments, and your own interests before you commit to any specific loan.

    Step By Step: The Loan Process

    Pre-Qualification

    This occurs before the loan process actually begins, and is usually the first step after initial contact is made. The lender gathers information about the income and debts of the borrower and makes a financial determination about how much house the borrower may be able to afford. Different loan programs may lead to different values, depending on whether you are qualified for them, so be sure to get a pre-qualification for each type of program you are suited for.

    Application

    The application is actually the beginning of the loan process and usually occurs between days one and five of the loan. The buyer, now referred to as a "borrower", completes a mortgage application with the loan officer and supplies all of the required documentation for processing. Various fees and down payments are discussed at this time and the borrower will receive a Good Faith Estimate (GFE) and a Truth-In-Lending statement (TIL) within three days that itemizes the rates and associated costs for obtaining the loan.

    Processing

    Processing occurs between days 5 and 20 of the loan. The "processor" reviews the credit reports and verifies the borrower's debts and payment histories as the VODs and VOEs are returned. If there are unacceptable late payments, collections for judgment, etc., a written explanation is required from the borrower. The processor also reviews the appraisal and survey and checks for property issues that may require further discernment. The processor's job is to put together an entire package that may be underwritten by the lender.

    Underwriting

    Lender underwriting occurs between days 21 and 30 or sooner. The underwriter is responsible for determining whether the combined package passed over by the processor is deemed as an acceptable loan. If more information is needed, the loan is put into "suspense" and the borrower is contacted to supply more documentation.

    Mortgage Insurance

    Mortgage insurance underwriting occurs when the borrower has less than 20% of the loan amount to put towards a down payment. At this time, the loan is submitted to a private mortgage guaranty insurer, who provides extra insurance to the lender in case of default. As above, if more information is needed the loan goes into suspense. Otherwise it is usually returned back to the mortgage company within 48 hours.

    Pre-Closing

    Pre-Closing occurs between days 25 and 30. During this time the title insurance is ordered, all approval contingencies, if any, are met, and a closing time is scheduled for the loan.

    Closing

    Closing usually occurs between days 25 and 45 of the loan (depending upon the designated length of your escrow). At the closing, the lender "funds" the loan with a cashier's check, draft or wire to the selling party in exchange for the title to the property. This is the point at which the borrower finishes the loan process and actually buys the house.

    What Are Closing Costs & What to Expect

    Closing is a process that begin weeks before closing, and follows an outline set largely by a buyer's original offer to the seller of the house. That sales contract , once the seller signs it, covers the key elements of the settlement or closing.

    Types of Closing Costs

    1. Charges for Establishing and Transferring Ownership. These require_once title search, title insurance and related escrow fees.
    2. Amounts Paid to State and Local Governments. These require_once city, county and state transfer taxes, recordation fees, and prepaid property taxes.
    3. Costs of Getting a Mortgage. These require_once appraisal, credit checks, loan documentation fees, notary charges, loan origination, underwriting, commitment and processing fees, hazard insurance, interest prepayments, and lender's inspection fees.

    Title Insurance

    When it comes to houses, providing clear title is not simple. Moreover, your lending institution will not give you a mortgage loan on a house unless you can prove that the seller owns it. The proof comes in the title search.

    In many parts of the country, public records affecting real estate title are spread among several local government offices, including recorders of deeds, county courts, tax assessors, and surveyors. Records of deaths, divorces, court judgments, liens, and contests over wills (all of which can affect ownership rights) also must be examined. An escrow or title company, a lawyer, or other specialist may carry out the title search. In addition to a formal title search, your will require a title insurance policy. The policy guards the lender against an error by whoever searched the title. Let's say, for example, that a long-lost relative of the seller turns up with indisputable evidence that the relative - and not the seller - holds legal title to the property. Though it should have been found in the public records, the relative's claim was missed somehow. Errors are rare, but they do occur.

    The cost of the policy (a one-time premium) is usually based on the loan amount, and is often paid by the purchaser. There's nothing, however, to keep you from asking the seller, during your negotiations, to pay part or the entire premium. The title insurance required by the lender protects only the lender. To protect yourself against unforeseen title problems, you may also want to take out an owner's title insurance policy. Normally the additional premium cost is only a fraction of the lender's policy, but this can vary from area to area. Some final advice on keeping title insurance costs low: if the seller owned the house you are buying for only a few years, check with a title company. If you can obtain a re-issue rate, the premium is likely to be lower than the regular charge for a new policy.

    Government Imposed Costs

    While there is no way to avoid paying these taxes, you may be able to lessen your share of the bill. Try shifting some or all of the cost to the house. But remember, you must do this when you make your offer to purchase the property.

    Processing Fees

    Imposed by your lender, this charge covers the initial costs of processing your loan request.

    Appraisal Fee

    This fee pays for an independent appraisal of the home you want to purchase. The lender requires this opinion or estimate of the market value of the house for the loan.

    Origination Fees & Discount Points

    The origination fee is charged for the lender's work in evaluating and preparing your mortgage loan. Discount points are prepaid finance charges imposed by the lender at closing to increase the yield to the lender beyond the stated interest rate on the mortgage note. The greater the discount points paid, the lower the interest rate. One point equals one percent of the loan amount. For example, one point on a $100,000 loan would be $1,000. In some cases - especially with refinances - adding them to the loan amount can finance the points.

    Mortgage Insurance

    Buyers who make down payments less than 20 percent of the value of the house may be required by lenders, and by law in some states, to take out mortgage insurance. The policy covers the lender's risk in the event the buyer fails to make the loan payments. Premiums are typically paid annually from an escrow or reserve account, or in a lump sum at closing.

    Insurance: Homeowners & Hazard

    A form or protection against physical damage to the house by fire, wind, vandalism and other causes. Your lender will expect you to have a policy in effect at closing.

    Assumption Fee

    This is charged when you are taking over or assuming an existing mortgage on the house. The size of the fee will depend on the lender, but it may range from several hundred dollars to one percent of the loan amount.

    Home Inspection Fee

    An analysis of the structural condition of the property by an engineer or consultant, and for termite inspections.

    Various Expenses Between Buyer & Seller

    Some of the adjustments may involve large amounts. Local property taxes, annual condominium fees and other lump-sum service charges, for instance, may be split between you and the seller to cover your respective periods of ownership for the calendar year or tax period.

    How to Anticipate Closing Costs

    With such a long list of potential charges at settlement, it is important to know what to expect. Your mortgage lender is required to supply you with a Good Faith Estimate of all your closing costs within three business days of your application for a loan. In addition, a statement of your actual costs should be given to you at or before settlement. Within the same three days, the lender is required, under the Truth in Lending Act, to provide you with a disclosure estimating the costs of the loan you have applied for, including your total finance charge and the Annual Percentage Rate (APR). The APR expresses the cost of your loan as a yearly rate. This rate is likely to be higher than the stated interest rate on your mortgage because it takes into account discount points, mortgage insurance, and certain other fees that add to the cost of your loan.

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