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- Why should I
use a mortgage company?
- Why do interest
rates go up and down all the time?
- What are points?
- What is an
IRS 4506?
- What documents
will I need?
- What is a FICO
Score?
- What about downpayment?
- Do I need Private
Mortgage Insurance?
- What is prequalifying?
- What is preapproval?
- What is a Rate
Lock?
- Is my loan going
to get sold?
8 reasons why it pays to do business
with Rainier Mortgage and Investment Corp. a mortgage company!
- At Rainier Mortgage we track the
most current rates every day. If rates drop, you know about it.
We keep our customers informed. You deal with the same loan specialist
throughout the entire process who keeps you informed of any dramatic
movements in rates.
- At Rainier Mortgage it costs no
more than with a bank..
- At Rainier Mortgage we do the
shopping for you from an approval list of over 100 qualified investors.
- Because of the diversity, the
opportunities for loan applicants to qualify are greatly improved.
- At Rainier Mortgage we have access
to the most competitive adjustable and fixed-rate loans, including
Easy Qualifiers (limited documentation) and Jumbo's ( larger home
loans).
- At Rainier Mortgage our only business
is to provide the lowest cost home financing on the market today
for the consumer.
- Because Rainier Mortgage is approved
with many investors we are not forced to recommend one set of
loan programs but can go to several investors to find the best
loan for your situation. A savings and loan, credit union or bank
does not do this.
- At Rainier Mortgage we do our
best to make your loan closing fast and hassle free; however if
your loan needs extra work we are there to make sure we arrange
a loan for you. If the loan does not close we do not get paid!
What Are Points?
Points allow you to lower your interest
rate. They are essentially prepaid interest, with each point equaling
1% of the total loan amount.
Generally, for each point paid on
a 30-year mortgage, the interest rate is reduced by 1/8
(or .125) of a percentage point. When shopping for loans, ask investors
for an interest rate with 0 points and then see how much the rate
decreases with each point paid.
Points are smart if you plan to stay
in a home for some time since they can lower the monthly loan payment.
Points are tax deductible when you purchase a home and you may be
able to negotiate for the seller to pay for some of them.
IRS Forms 4506
IRS 4506 is a form which allows the
lender to receive an electronic abstract of your tax returns.
It this day of scanners, laser printers,
and tax preparation software it is easy to prepare a set of "phony"
tax returns to submit to the lender. This form's purpose is to keep
everyone honest. If you give us tax returns they better be the same
one's you sent IRS. You will not get a loan if you're unwilling
to sign this form. This is not open for discussion.
Please understand that this does
not mean that any information is being provided to IRS. The
information comes from IRS.
Necessary documentation.
We always attempt to do "alternate documentation".
For Salaried Borrowers:
- last 2 year's W2's
- paystubs for past 1 month
- statements for all significant
asset accounts for the past 2 months
- complete Federal tax returns for
past 2 years if: you own rental, property or if more than 10%
of your income is from commissions.
For Self-employed Borrowers:
- Complete Federal tax returns for
past 2 years (this must include all pages) Be sure to include
all K1's (partnerships) even if you did not include it with your
return.
- Year-to-date Profit and loss statement
- last 3months statements for all
significant asset accounts.
In either case if you own other residential
real estate which you rent you may need to present lease agreements
and we always need your 1040's for the past 2 years. If you tax returns
are "on extension" we need a copy of the request for extension.
If this is a purchase transaction
we need a fully executed copy (signed by both parties) of the sales
contract.
What is a FICO Score?
FICO scores are numeric representations
of your credit profile. The higher the FICO score the better credit
risk you are.
FICO is a product of Fair, Isaac
Company. These have been around for several years but started to
be used in the mortgage lending business in 1995 for the purpose
of keeping down the expense associated with Home Equity loans. You
needed a certain minimum score to get such a loan.
FMLMC and FNMA both insist on a FICO
score on your credit report. Presumably, you can be denied a mortgage
loan if your score is too low. People will be unhappy as a result
and our elected officials will find a new cause to protect us from.
We can say the following about these scores:
- They are based on years of computer
modeling aimed at predicting who might be a credit risk.
- Their purpose is to reduce the
cost of examining a credit report and speed mortgage approvals.
- When your FICO is computed the
program tells the credit bureau what the 4 most important factors
were in determining the score.
- Fair, Isaac and the credit bureaus
do not want to reveal how these scores are computed. The Federal
Trade Commission has ruled this to be OK.
- The important negative factors
are: bankruptcies, delinquencies, credit latest, collections,
too many "tapped out" credit lines, "too much" credit, "too
little" credit history.
- The score is only as good as the
data. The amount of credit data history is so large that there
are problems with it. The most common problem is with relatives
with the same name who live at the same address (father and son).
- Borrowers often dispute the data
but it is very accurate.
- It is more important than ever
to keep a good or perfect credit history.
- Even the very act of getting a
credit inquiry is said to lower the FICO score, so it is important
to not authorize someone to obtain your credit report unless it
is necessary.
You can get a home with
as little as 5% downpayment (there are special cases which do 3% down).
If your downpayment is less than 20% of the purchase price, or 20%
of the appraisal for a refinance you will need
Private Insurance
(PMI).
The downpayment must be well-documented.
That is, you must show, for example, bank statements proving that
you have had the money for at least 2 months. If the source of the
downpayment is a gift from a relative you will need:
- a "gift letter"
- statements from the accounts of
the gift-giver showing that they have had it for at least 2 months.
- a copy of the check from them
to you and a copy of the deposit slip showing it going into your
account.
The purpose of all this is to make sure
that the downpayment is not a loan and most especially not coming
from the seller. The seller may be allowed to pay a certain % of closing
costs if it is part of the purchase agreement.
Because lenders pool loans into securities
and then sell them in "the secondary market" they are competing with
the entire pool of world-wide investment opportunities. Any inflationary
news translates into smaller values for fixed-rate securities and
necessitates a rise in mortgage interest rates.
Thus, negative economic news translates
into little or no inflation and low mortgage interest rates.
Private Mortgage Insurance
Private Mortgage Insurance (PMI) is
needed on all loans where the loan-to-value (the loan amount divided
by the value of the property) exceeds 80%. (There are some examples
of "self-insured" loans where the rate is increased and there is no
formal PMI but you pay one way or another.)
The mortgage insurance premium depends
on the loan-to-value ratio. It is 3-tiered: 80.01%-85.00%, 85.01%
to 90.00% and 90.01% to 95.00% each step costing more. The mortgage
insurance also depends on the loan amount and the type of loan.
Adjustable rate loans have higher
premiums than fixed rate loans. At the present time you can choose
between monthly and annual premiums.
The PMI is given by a different party
than the lender. Your lender will send a copy of your loan application
package to the MI company for their approval. Among the loan documents
you will sign at closing is a PMI agreement. Your lender will "impound"
the PMI payment along with your principle and interest.
It is usual that when your loan-to-value
equals or exceeds 90% your property tax is also impounded.
PMI policies usually have "escape"
clauses describing under what conditions you can stop paying PMI.
It is necessary that you read the PMI policy to determine this.
Make no assumptions.
Prequalifying
Prequalifying is a process whereby a
loan officer takes information about you, either over the telephone
or face-to-face and indicates how big a loan of a particular type
you will qualify for. The mortgage company would then give you a "prequalifying
letter" which is of considerable value in dealing with a Realtor or
a potential seller. Realtors and sellers are interested in dealing
with people whom they know to be able to get the loan necessary to
close the transaction.
We prefer to get the income and asset
information from you, get a loan application and prequalifying credit
report and then write the letter. We are willing to make exceptions
if time is critical.
Preapproval
Preapproval is a step beyond prequalifying.
In a preapproval we send the credit part of the loan package to the
lender and get you approved for a certain type of loan with
a particular lender before you have found or made an offer on a property.
With a preapproval you can close
the loan faster and often will find your offer more acceptable to
the seller. Sometimes sellers are anxious and will take somewhat
less in price from someone who can close quickly.
The rates you see on this web site are
always quoted (unless otherwise noted) for 21 day rate locks. The
interest rate on your loan is not set until we fax a "Rate Lock" form
to the lender and receive confirmation that they have received it.
The loan must fund before the "lock expiration" date or you can lose
your rate lock. When we are locking your rate and discussing the lock
expiration date it is important that both borrowers be available to
sign the documents. You must tell us of your vacation and travel plans.
If one borrower will be out of town we can have a "specific power
of attorney" prepared so that the other person may sign for both.
You can lock your rate before your
loan is approved, you can even lock your rate before your loan is
submitted. In general, we can get you a 45 day rate lock for an
extra 0.125 in rate or 0.5 points in cost. It must be noted that
the cost for extended locks can vary significantly with the volatility
of the market. When rates are volatile long term locks are more
expensive.
Long-term locks
You can lock rates in (on purchases)
for a long period. Here is an example of long term lock costs
- 120 day extra 0.875 points cost
- 150 day extra 1.375 points cost
- 210 day extra 1.625 points cost
with 0.625 points up-front fee (included in cost)
- 270 day extra 2.25 points cost
with 0.875 points up-front fee (included in cost)
You should assume that your loan will
be sold. The good thing about this is that the marketability of pools
of loans as "Mortgage Backed Securities" has led to lower rates. This
is an inconvenience, but it is, we feel, an inconvenience that we
all put up with for the sake of lower rates.
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