Brokers versus Bankers - Product Selection
Brokers versus Bankers - Service
Why was I referred to you?
Understanding the Application Process
The Approval Process
The Lock Process
Should I use a realtor?
Why and how do Interest rates change?
What happens once I am preapproved?
When should I consider refinancing?
What is an origination fee?
What is title insurance?
What is mortgage insurance?
Home Equity Line (HELOC) Versus Home Equity Loan (Fixed Second Mortgage)?
What is prime rate?
Do I need a down payment?
What are the loan rates?
What is an adjustable rate mortgage (ARM)?
When should I choose an ARM?
What does index and margin mean?
What are caps?
What does "No Points and No Closing Cost" mean?
How are you able to offer such a low rate and provide a "no points, no closing cost" Progr
How does Allied Home Mortgage Capital Corporation make money?
What is the advantage of using Allied Home Mortgage?
Why should I use a mortgage broker like Allied Home Mortgage and not a bank?
Will getting my mortgage be a smooth process?
What are points and when do they make sense?
What are closing costs and pre-paid escrows?
Why is an appraisal necessary?
What is a good faith estimate?
Why is the annual percentage rate (APR) different from the interest rate?
When should I start the mortgage process and how do I know what I can afford?

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Brokers versus Bankers - Product Selection

Some mortgage sources are direct lenders such as banks and mortgage bankers with retail establishments. Usually banks or mortgage banks will be competitive in one or several products, and will encourage their sales agents to sell these products to the consumer. Many times banks will not even necessarily try to be competitive in rate, but will instead try to fill a niche, such as quick approvals or flexible underwriting (easier approval) of loans. Going directly to the bank or source was probably the way that your parents obtained their home loan, but the trend is clearly away from such direct establishments towards the brokerage or "multi-lender platform" as brokers are now being called on the Web.

Brokers or multi-lender platforms represent a number of lenders and offer these lender's products through a wholesale arrangement. The lender will then compensate the broker when they deliver a loan to them and this compensation is invisible to the borrower. Many banks that offer retail or wholesale loans will allow the broker to charge up to 1% of the loan amount for their compensation. By reducing this 1% fee, a broker can in fact be more competitive than the retail side of the same bank. This is happening more and more as brokers are moving their services to the Internet and reducing their costs of distributing loans to the consumer.

Multi-lender brokers on the Internet can be the most competitive source for mortgage loans available. However, be wary of multi-lender sites that limit their choice of lenders to less than 10 sources. Many such sites are charging the bank to participate and cannot offer unbiased selection, as they are captive to their lending sources.

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Brokers versus Bankers - Service

Direct lenders are captive to their own products. That is, they will not provide unbiased advice or selection, since by doing so they will possibly risk losing your loan to the company whose product truly provides you the most value. Brokers on the other hand can sell a variety of products, from multiple sources, and can be objective in their recommendations. The compensation provided from one lender is equal to that from another lender; therefore the outcome of the recommendation doesn't matter. What does matter is giving you the best loan for your needs.

If you walk into your local bank, S&L, or retail mortgage bank they'll usually take your application there, perhaps underwrite your loan there, and lend their own money. If your loan is declined for whatever reason, you will need to begin the process again with another source.

With a multi lender source, you have another chance if one lender doesn't approve your loan. For simplicity's sake, we'll describe the overall process that is common to all loan applications regardless of the source of funds.

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Why was I referred to you?

You were referred to us because of our Reputation and Commitment to Service. We believe that our keys to success as professional mortgage brokers are honestly and clarity, we are trusted advisers' not just professional mortgage Advisors. Anyone can quote you are rate, but what are you really getting. Many homeowners can tell you a horror story about a time they purchased or refinanced their home. They probably ended up with big surprises at the closing table, or worse, no closing taking place at all! The number one reason for this happening is choosing the wrong person or mortgage company to handle your transaction. A good friend will refer you to a relationship they have established with a trusted individual who has proven themselves time and time again. They know you will be given the excellent service that you deserve. As a mortgage professional, we rely strongly on our current and past relationships for referrals, so think about the extra motivation we have in making sure you are a satisfied customer!

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Understanding the Application Process

Whether you walk into a bank, you apply for your loan on the Internet, or a mortgage officer meets you in your home, all lenders require an actual application. The form is standardized and known as the ··1003' which is the Fannie Mae designation for this form.

The lender will want to verify certain information about the borrower's) and will require additional information on the property. Borrower information will include verification of income and employment, assets, and credit history of the applicants. Some of this information will be provided by you, the applicant, as part of your application process. For example, you will be requested to provide copies of W-2 forms for 2 years, pay stubs, and bank statements for asset verification. Other information, such as your credit history, will be obtained directly from the credit bureaus even if you have a current credit report on hand. The lenders will always verify this information independently.

For the property itself, the lender will order an appraisal and a legal description of the property, such as a title report. Certain lenders will work with certain appraisal companies, so if you have an old appraisal it may not necessarily be accepted by the new lender. Even if the loan is to be made with a relatively large down payment, the lender still wants the property appraised. In the case of a purchase, other inspections may also be done, but are separate from the appraisal for the loan.

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The Approval Process

During the "processing" and/or "underwriting" period, your credit, assets, income and other determinants are checked and compiled. At the end, your loan is either approved with conditions or approved without conditions or declined. Sometimes a loan is labeled suspended which while sounding harsh, is simply another way of saying that the lender requires more information to decide. Don't be alarmed if your loan is suspended, this is not necessarily a step towards being declined. Usually you can submit additional documents and turn a suspension into an approval.

Conditions are further documentation or checks that the lender needs to finalize your loan before funds can be dispersed. Many borrowers become frustrated by conditions that surface at the end of a loan transaction and can't understand why they are being raised so late. This is because the loan may go through several review processes prior to actual funding, and the final conditions are added on sometimes as late as after the loan documents have been signed. Just work with the lender and remember, the process is not perfect and the lender is simply trying to meet conditions imposed by other sources on them. Since most loans these days are sold and serviced by other parties, the lender must verify that the loan will be salable upon close. Whether or not your original mortgage lender services you or a different party shouldn't matter, your payment will simply be made to the new institution. No other terms of your loan can be changed after you have signed your final loan documents.

When all conditions are met, your loan documents are drawn up and forwarded to the place of settlement or closing. You sign everything and in some states the lender reviews the package one last time.

TIP: Do not make any adverse changes to your financial "picture" during this delicate time between approval and when funds are dispersed. Believing the "approval" is the final stage or that the lender won't find out about the change in debt or income or other factors can lead to real headaches. Innocent mistakes range from applying for a new department store credit card to purchasing a refrigerator for the new house, to buying two new Mercedes Benz sedans, to quitting a job to go full time into a new business. These changes will at least force an explanation to be given and at worst may cause your loan not to fund and the approval to be withdrawn. Often a lender obtains another credit report and calls your employer one last time before funding the loan. Simultaneous to funds being dispersed, an instrument is recorded at the county recorders office to give the lender security to your property. This last step varies from state to state.

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The Lock Process

Sometime before your loan documents are drawn, you will ··lock in' a rate for your loan with the mortgage source. The purpose of the lock is to allow you a loan at the ··locked-in' rate if the loan closes before the lock period expires, even if rates are higher at the time of funding. This could be offered at the application, upon approval, or anywhere in between. Most multi-lender sources give you the choice of when to lock. Typically the shorter the time period between your lock and the actual closing; the cheaper the interest rate or points.

To summarize, there are many ways to approach your home financing process beginning with the source that you choose to borrow from. The advantages of working with a broker or multi-lender platform on the Web are substantial and account for the shift away from banks and direct lenders. Understanding the loan process can minimize the likelihood of frustration during the loan transaction. Remember to work with a source that has established itself as a company, one with integrity that cares for the borrower throughout the experience.

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Should I use a realtor?

You need an experienced professional working on your behalf. The realtor's commission is not paid by the buyer, but by the seller of the home being purchased, and it is in each party's best interest to have professional representation. As a seller, profits are generally maximized by having an experienced realtor market and sell your home, rather than deal with the headaches of trying to do it all on your own.

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Why and how do Interest rates change?

Many people are surprised to learn that rates change on a daily and sometimes hourly basis. Interest rates fluctuate in response to changes in the financial markets. The bond market is generally a good indicator of the general trend of interest rates.

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What happens once I am preapproved?

You are ready to buy a home! Remember that it is very important to inform us of any changes in the financial information that was provided at the time of approval, as it may make a change in the amount or type of loan for which you can qualify.

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When should I consider refinancing?

The old rule of thumb was at least 2%, but this is no longer the case. Many different individual factors need to be analyzed to determine if refinancing is right for you, such as the length of time you intend to stay in your home, or the type of loan you currently hold. We are always happy to provide a recommendation to you for your particular circumstances. With our No Points & No Closing Cost your savings is instant!

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What is an origination fee?

Typically, it is 1% of your loan amount, and works exactly like a discount point. You can avoid all or part of this fee by paying a higher interest rate. In most states, rates are typically quoted assuming this 1 to 2% origination fee.

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What is title insurance?

It is a policy provided by the title company guaranteeing the accuracy of the title work done on your home at the time of purchase. As a buyer, you are required to purchase a lenders policy of title insurance as part of your standard closing costs, which only protects the mortgage company. You may also choose to purchase an owners policy, which would protect you against any loss in the event of any legal issues relating to the title of your home.

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What is mortgage insurance?

Private Mortgage Insurance or PMI is generally required in one form or another when the down payment is less than 20%, and protects the lender in the event of loan default. It is evident that this is a benefit to the lender. However, PMI affords you the opportunity to purchase a more expensive home with less money down. Since you put less money down you can get into a home sooner, so you can start building equity sooner. PMI does not necessarily have to be permanent. The lower the down payment, the higher the risk for the lender; thus the higher the monthly premium. Depending on your particulars, there are ways in which mortgage insurance can sometimes be avoided at purchase, or dropped altogether at some point in the future.

You have the right to request cancellation of your PMI coverage as soon as your mortgage balance is less than 80% of your home's original value. In most cases you will have to contact your lender and make them aware of this. In order to qualify for either type of MI cancellation, your mortgage payments must be current, there can be no secondary liens and there must be no decline in the value of your property. The lower the down payment, the higher the risk for the lender, thus the higher the monthly premium. Depending on your particulars, there are ways in which mortgage insurance can sometimes be avoided at purchase, or dropped altogether at some point in the future.

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Home Equity Line (HELOC) Versus Home Equity Loan (Fixed Second Mortgage)?

Both Home Equity Lines of Credit and Home Equity Loans are secured lines of credit using the available equity in the borrower's residence as collateral.

Home Equity Line:
A Home Equity Line (Commonly referred to as a HELOC) works like a line of credit. The rate is usually an adjustable rate based on the prime rate and change when prime rate changes. When you get a home equity line, you obtain the right to draw money, whenever you want, over a certain period of time. You only pay interest on the amount you borrow for a certain period of time (pay back differs from lender to lender). You may borrow, pay off and borrow again against the line of credit. You typically access the line with a check or credit card. With equity lines borrowers can borrow a portion of there line of credit or their whole line amount. HELOC is most convenient when your cash needs are stretched out over time.

Second Mortgage (Home Equity Loan):
Second Mortgages are almost always for a fixed dollar amount paid out at one time, much like a first mortgage; these loans usually have a fixed rate and are paid back over a fixed period of time. Fixed-dollar seconds are best when you need all the money at one time. Many home purchasers take out such seconds to avoid mortgage insurance on the first mortgage.
While most of these loans are second mortgages, some are first mortgages. If you own your house free and clear and you want a line of credit secured by a mortgage, that loan is a HELOC, even though it is a first mortgage. Similarly, if you use a HELOC to refinance your first mortgage, the HELOC becomes a first mortgage.
When taking a fixed-dollar second, borrowers can select between fixed and adjustable rates, as they prefer. When taking a HELOC, they take an adjustable, and if they want a fixed they refinance into a fixed-dollar second after they have drawn as much as they intend to borrow on the line.

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What is prime rate?

Prime rate is an important index used by banks to set rates on many consumer loan products, such as credit cards or auto loans, and Equity Lines. Prime rate is almost always the same among all major banks. Adjustments to the prime rate are made by banks at the same time; although, the prime rate does not adjust on any regular basis. Most Banks use the WSJ Prime Rate. The initials stand for the Wall Street Journal, which surveys large banks and publishes the consensus prime rate. The Journal surveys the 30 largest banks, and when three-quarters of them (23) change, the Journal changes its rate, effective on the day the Journal publishes the new rate. It's the most widely quoted measure of the prime rate, which is the rate at which banks will lend money to their most-favored customers. The prime rate will move up or down in lock step with changes by the Federal Reserve Board.

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Do I need a down payment?

The minimum down payment required depends on the program you select. We offer mortgages with various down payment options, including Zero Down and low down payment programs.

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What are the loan rates?

Rates vary with each lender and may fluctuate daily. However, rest assured that by filling out our quick application form you will be offered the best rates for your specific situation.

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What is an adjustable rate mortgage (ARM)?

An adjustable rate mortgage, commonly called an ARM, is a mortgage in which the interest rate is fixed for an initial period of 1 year, 3 years, 5 years, 7 years, or 10 years. Once the initial period expires, the interest rate will adjust, usually on an annual basis. The new interest rate is determined by adding the index (usually based upon Treasury Securities) to the margin (usually 2.5% to 3.5%). Interest rate caps, usually of 2% annually and 6% over the life of the loan protect the borrower against excessive upward interest rate movement

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When should I choose an ARM?

When does an ARM make sense for you, there are a few fundamental questions you need to address. How long do you plan on owning this property? If you are going to be there less than five years, you should consider a One, Three or Five Year. If you intend to occupy the property for between five and ten years and fixed rates are high, you may want to consider you should consider a Five, Seven or Ten Year ARM. Most Americans either sell or refinance their homes within five to seven years. Other things to consider are: Do you need a lower qualifying rate; can I qualify for a larger mortgage with an ARM? Also ARM’s are always carry a much lower than fixed rates. You maybe able to access cash out of your current mortgage and have a larger loan amount, but smaller or equal payment.

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What does index and margin mean?

The index is the financial core of any ARM. It allows the interest rate to adjust up or down by tracking current credit market conditions. Yields on U.S. Treasury Securities are used for this purpose. The margin is a premium, which is solely determined by the lender and which is added to the index in order to compute the new interest rate, at each anniversary or change date.

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What are caps?

Annual adjustment caps, as well as life time caps ultimately determine what the new interest rate will be. Essentially, they limit the amount of increase in the interest rate at each change date. The rate of interest will never exceed certain pre-determined limits.

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What does "No Points and No Closing Cost" mean?

"No points and no closing cost" means you have a free transaction. Allied Home Mortgage Capital pays for all of the one-time cost associated with obtaining a new mortgage; including attorney fees, title insurance, appraisal, credit report, plot plans, and lender fees. Our Closing Costs are no rolled into your loan amount. Please keep in mind you will need money at closing, the money will go towards setting up escrows & simple interest, these are called prepaid items.

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How are you able to offer such a low rate and provide a "no points, no closing cost" Progr

As a mortgage broker, we represent as many as 350 investors in the secondary market and work to provide you with the lowest Adjustable & Fixed Rate Mortgage. We do not fold the points and closing costs into the loan amount. As a result, you get a very attractive low rate, along with the benefit of instantly saving money without having to pay points and closing cost.

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How does Allied Home Mortgage Capital Corporation make money?

When Allied Home Mortgage places the loan into the secondary market, we receive a commission on the transaction, which is utilized to pay your one-time closing, cost as well as provide Allied Home Mortgage with income.

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What is the advantage of using Allied Home Mortgage?

Allied Home Mortgage specializes in negotiating volume-based transactions with secondary market investors. Obtaining your new mortgage through Allied Home Mortgage is basically hiring a mortgage expert to negotiate the best possible rate and program on your behalf.

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Why should I use a mortgage broker like Allied Home Mortgage and not a bank?

As one of the most respected mortgage brokers, we at Allied Home Mortgage have many excellent relationships with many investors. We have the flexibility to search the entire country for the lowest rate mortgage money available. Most banks, however, have only one source for that money. And because of their underwriting, pricing and approval procedures, they lack flexibility. Unlike a bank, we would like to refinance your mortgage again if the rates come down.

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Will getting my mortgage be a smooth process?

You can apply right over the phone, or online. A mortgage professional will assist you so that completing the application takes very little of your time. By hiring only the best mortgage professionals in the business, Allied Home Mortgage makes the process easy. You will work with Allied Home Mortgage employees who are experts in every aspect of the process from data entry to loan closing.

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What are points and when do they make sense?

A point is one percent of the mortgage amount, i.e., one point of a $100,000 mortgage loan is $1,000. Points are used to buy the interest rate down. Paying up to three points will generally buy the rate down three-quarters of one per cent. If you do not intend to occupy the property for more than five years, or your funds to close are tight, it is not in your best interest to pay points. But, if the opposite is true, points often make a lot of sense. The break even point is generally five years. That is the approximate amount of time it takes to recoup the points you paid at closing for a lower rate. From that point forward, the annual savings is money in your pocket.

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What are closing costs and pre-paid escrows?

Closing costs: All settlement charges that apply to all purchase money and refinance first mortgage closings are on your Good Faith Estimate. Most common charges are:

Attorney or Closing Agent: The attorney or closing agent is hired to have all closing documentation signed they generally charge a fee.

Discount Points:

Origination Fee:

Survey: Surveys generally run $350 on purchases and on a refinance usually run about $100.

Title Search: Whether purchasing or refinancing a Title Agency will have to do a Title Search and charge approximately $135 to $200 for it.

Title Insurance: The cost of Title Insurance is based on many factors predominantly upon the loan amount borrowed, whether it is for a purchase, or refinance and can therefore run between $2.00 - $4.00 per thousand depending on state and purpose.

Recording Fees: These fees can run from $50.00 to $400.00 or more depending upon the county and state in which the mortgage and deed are recorded.

Attorney Review: Most lenders that close their own loans employ an in house attorney to review the entire closing package. The review is designed to detect and correct errors, and ultimately protects both the lender and the borrower. The fee for this service usually runs from $100 to $250.

Appraisal and Credit Report Fees: Although these fees are more accurately associated with loan underwriting, rather than settlement, they are most often paid at closing. These fees are actual fees, not estimates. Single family appraisals generally run between $275 & $350, while credit reports normally go for between $15.25 and $60.

Pre-Paid Escrows: Pre-paid escrows allow borrowers the convenience of making one monthly payment that covers the principal and interest due, but also real estate taxes and homeowners insurance. Escrows are regulated by Federal and State law.

Tax Escrow: The lender collects a 2-3 month buffer, plus months that have passed, in order to have enough collected to pay your quarterly or semi annual tax bill, as it relates to your closing date. Escrows held by current lender are refunded to borrower within 2-3 weeks upon receiving their pay off.

Hazard Escrow: Generally, the same formula for tax escrow collection is followed for hazard or homeowners insurance. However, all lenders require that the first year's annual premium be fully paid and the policy in place at the time of closing. Please remember escrow amounts held by current lender are refunded to borrower within 2-3 weeks upon receiving their pay off.

Please remember when calculating the total funds necessary to close to include an estimate of the tax and insurance escrows, along with the remaining interest for the month in which you are closing. Many homebuyers fail to do this and are unpleasantly surprised when they receive their Settlement Statement at closing. If your down payment is 20% or more, and you would prefer to pay your property tax and homeowners insurance directly, most lenders will generally allow a waiver of the escrows for a quarter of a point fee, also payable at closing.

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Why is an appraisal necessary?

An appraisal is an expert opinion on the value of a property. Appraisals compare your home to other homes in your area that have recently sold. An appraisal is necessary for the lender to justify the mortgage amount being requested, as required by secondary investors. You should not rely on the appraisal for assurance about the condition of your home.

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What is a good faith estimate?

A Good Faith Estimate, commonly referred to as a GFE, discloses estimated closing costs associated with your mortgage transaction. The GFE, by Federal law, estimates the lender's charges along with the local closing agent's charges and fees. The GFE also includes estimated amounts for real estate and property taxes and homeowner's insurance as well as other estimated prepaid items.

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Why is the annual percentage rate (APR) different from the interest rate?

The annual percentage rate is a rate that reflects the total cost of your mortgage loan expressed in terms of an annual interest rate. The APR reflects factors, including the interest rate on your mortgage loan, the term of the loan and the other applicable costs of financing, such as points, fees and certain closing costs. Your monthly payment is calculated based on the mortgage note rate, not the APR. The APR will be higher than your interest rate, especially if you are paying any points.

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When should I start the mortgage process and how do I know what I can afford?

The best time to look for a mortgage is before you look for a house. This enables you to determine the amount of money you can borrow and how much house you can afford. You have the opportunity to get pre-approved for a mortgage today. A pre-approval will take into consideration your personal information, such as income, debt and credit history. If you receive a pre-approval, we will use this information to determine your maximum mortgage amount. You will also receive a letter that you can take with you as you shop for your home. If you click our EZ Application link you can obtain a pre-approval. If you are pre-approved, you will receive a letter that you can take with you as you shop for your home.

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