Frequently Asked Questions
Why should I use New Horizons Home Finance to help me finance my property?
We're glad you asked! There's a ton of great reasons to let us help you find the right financing option, but here are some of our favorites:
- We have decades of experience in home finance. Most people will only go through the mortgage process a handful of times in their lifetime. The multitude of options available can be confusing and stressful. When you Go NHHF, we help you narrow down the choices to those that are most applicable to your specific situation.
- As a mortgage expert, all we do is home finance. When you deal with a bank or credit union, the person taking your loan application is likely the same person you'd talk to about an auto loan, credit card, or opening a checking account. Most large lenders "dumb down" the products offered to make it less confusing for their own employees. You will never be offered many of the products available in the marketplace because it can be overwhelming for someone who's sole focus is not on keeping up with mortgage products being brought to market every day.
- Similarly, most large lenders "simplify" their mortgage pricing because a lot of factors go into what rate and fees apply for any given home financing scenario. When they simplify their pricing, they are generally not eliminating the highest priced scenarios from the offered programs, so if you would qualify for a lower rate/fee option for your circumstance you will never be offered it - because the big lender representative doesn't even know it exists!
- We work for you, our client, and our interest is in finding the best mortgage product available among our various lenders that suits your needs. As an independent mortgage broker competing with some of the biggest financial institutions in the country, our competitive advantage is that we always put our client's interests first. We have multiple lenders to choose from and are therefore able to offer the best pricing and products available in the marketplace. For most people, their mortgage is the largest financial obligation they'll ever take on - shouldn't you have an independent expert on your side?
When should I refinance?
It's generally a good time to refinance when mortgage rates are 2% lower than the current rate on your loan. It may be a viable option even if the interest rate difference is only 1% or less. Any reduction can trim your monthly mortgage payments. Example: Your payment, excluding taxes and insurance, would be about $770 on a $100,000 loan at 8.5%; if the rate were lowered to 7.5%, your payment would then be $700, now you're saving $70 per month. Your savings depends on your income, budget, loan amount, and interest rate changes. When you Go NHHF, we can help you calculate your options.
What are points?
A point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.
Should I pay points to lower my interest rate?
Possibly, if you plan to stay in the property for a least a few years. Paying discount points to lower the loan's interest rate can be a good way to lower your required monthly loan payment, and/or increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front. The overall interest rate environment and expectations for future rates can have a tremendous impact on whether paying points for a lower rate is the right move. As an example, if interest rates move down over the next few years, paying points may not make sense regardless of how long you plan to keep the property (since you could refinance to a lower rate). Take advantage of our years of lending experience to help you make an informed decision.
What is an APR?
The annual percentage rate (APR) is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs. The APR allows homebuyers to compare different types of mortgages based on the annual cost for each loan. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.
The APR does not affect your monthly payments. Your monthly payments are strictly a function of the interest rate and the length of the loan.
Because APR calculations are effected by the various different fees charged by lenders, a loan with a lower APR is not necessarily a better rate. The best way to compare loans is to ask lenders to provide you with an initial loan estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. You can then delete the fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.
The following fees are generally included in the APR:
- Points - both discount points and origination points
- Pre-paid interest. The interest paid from the date the loan closes to the end of the month.
- Loan-processing fee
- Underwriting fee
- Document-preparation fee
- Private mortgage-insurance
- Escrow fee
The following fees are normally not included in the APR:
- Title or abstract fee
- Borrower Attorney fee
- Home-inspection fees
- Recording fee
- Transfer taxes
- Credit report
- Appraisal fee
What does it mean to lock the interest rate?
Mortgage rates can change from the day you apply for a loan to the day you close the transaction. Interest rates and loan pricing move based on trading that occurs in the U.S. bond market on a daily basis. When you indicate you want to lock your interest rate, New Horizons Home Finance enters into an agreement with a lender to freeze the pricing on your loan for a period of time (generally 30-45 days) at that day's prices. If interest rates move up, you will still have the pricing in effect on the day you "locked in" your loan price. However, if interest rates move down, you will be obligated to close the loan at the (higher) pricing you locked in. Keep in mind that you may still change programs, rates, terms, etc. after you lock - and certain changes in loan terms may change your individual loan pricing. As long as you close and fund your loan by the expiration of the lock agreement, you are guaranteed to get the pricing in effect on the day the lock was entered into. Your NHHF mortgage broker can answer questions and help you decide whether locking-in your pricing is the right option for you.
What documents do I need to prepare for my loan application?
Below is a list of documents that are generally required when you apply for a mortgage. However, every situation is unique and you may be required to provide additional documentation. At New Horizons Home Finance, we take great pride in partnering with lenders who offer programs and options with reduced documentation requirements. While the below documents are required at most other mortgage lenders, when you Go NHHF many of these may not be needed!
- Copy of signed sales contract including all riders
- Verification of the deposit you placed on the home
- Names, addresses and telephone numbers of all realtors, builders, insurance agents and attorneys involved
- Copy of Listing Sheet and legal description if available (if the property is a condominium please provide condominium declaration, by-laws and most recent budget)
- Copies of your pay-stubs for the most recent 30-day period (including year-to-date earnings)
- Copies of your W-2 forms for the past two years
- Names and addresses of all employers for the last two years
- Letter explaining any gaps in employment in the past 2 years
- Work visa or green card (copy front & back)
If self-employed or receive commission or bonus, interest/dividends, or rental income:
- Provide full tax returns for the last two years PLUS year-to-date Profit and Loss statement (please provide complete tax return including attached schedules and statements. If you have filed an extension, please supply a copy of the extension.)
- K-1's for all partnerships and S-Corporations for the last two years (please double-check your return. Most K-1's are not attached to the 1040.)
- Completed and signed Federal Partnership (1065) and/or Corporate Income Tax Returns (1120) including all schedules, statements and addenda for the last two years. (Required only if your ownership position is 25% or greater.)
If you will use Alimony or Child Support to qualify:
- Provide divorce decree/court order stating amount, as well as, proof of receipt of funds for the last 12 months
If you receive Social Security income, Disability or VA benefits:
- Provide award letter from agency or organization
Source of Funds and Down Payment
- Sale of your existing home - provide a copy of the signed sales contract on your current residence and statement or listing agreement if unsold (at closing, you must also provide a settlement/Closing Statement)
- Savings, checking or money market funds - provide copies of bank statements for the last 3 months
- Stocks and bonds - provide copies of your statement from your broker or copies of certificates
- Gifts - If part of your cash to close, provide Gift Affidavit and proof of receipt of funds
- Based on information appearing on your application and/or your credit report, you may be required to submit additional documentation
Debt or Obligations
- Prepare a list of all names, addresses, account numbers, balances, and monthly payments for all current debts with copies of the last three monthly statements
- Include all names, addresses, account numbers, balances, and monthly payments for mortgage holders and/or landlords for the last two years
- If you are paying alimony or child support, include marital settlement/court order stating the terms of the obligation
- Check to cover Application Fee(s)
How is my credit judged by lenders?
Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.
The most widely use credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).
Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:
Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report.
You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies – Equifax, Experian and TransUnion. This free credit report may not contain your credit score and can be requested through the following website: https://www.annualcreditreport.com
What can I do to improve my credit score?
Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.
Nevertheless, scoring models generally evaluate the following types of information in your credit report:
- Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
- What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
- How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
- Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
- How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.
Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.
To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.
What is an appraisal?
An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.
What is PMI (Private Mortgage Insurance)?
On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. Sometimes you may need to pay up to 1-year's worth of PMI premiums at closing which can cost several hundred dollars. The best way to avoid this extra expense is to make a 20% down payment, or ask about other loan program options.
What is 80-10-10 financing?
An alternative loan structure that can be used when your down payment is less than 20% of the purchase price of the home. Using conventional financing, such buyers must purchase Private Mortgage Insurance (PMI) which increases the cost of home ownership and, ironically, makes it even more difficult to qualify for the mortgage. That is why 80-10-10 financing was invented. It is called 80-10-10 because a lender provides a traditional 80% first mortgage, you get a 10% second mortgage, and make a cash down payment equal to 10% of the home’s purchase price. By using this method, you are no longer obligated to obtain PMI as a condition of your financing.
The same principle applies if you can only afford to make a 5% down, 80-15-5 financing is also available. The experts at New Horizons Home Finance can help you determine if PMI or one of these alternative loan structures is right for you.
What happens at closing ?
The property is officially transferred from the seller to you at "Closing" or "Funding".
At closing, the ownership of the property is officially transferred from the seller to you. This may involve you, the seller, real estate agents, your attorney, the lender’s attorney, title or escrow firm representatives, clerks, secretaries, and other staff. You can have an attorney represent you if you can't attend the closing meeting, i.e., if you’re out-of-state. Closing can take anywhere from 1-hour to several depending on contingency clauses in the purchase offer, or any escrow accounts needing to be set up.
Most paperwork in closing or settlement is done by attorneys and real estate professionals.
Prior to closing you should have a final inspection, or "walk-through" to insure requested repairs were performed, and items agreed to remain with the house are there such as drapes, lighting fixtures, etc.
In most states the settlement is completed by a title or escrow firm in which you forward all materials and information plus the appropriate cashier's checks so the firm can make the necessary disbursement. Your representative will deliver the check to the seller, and then give the keys to you.
Our user-friendly calculator puts you in charge of estimating your mortgage payment.