There are many reasons to refinance, but did you know that there are three different types of refinance mortgages. These include a Fixed-Rate Mortgage, an Adjustable-Rate Mortgage, and a Cash-Out Refinance. Texas mortgage refinance can provide you and your family with extra money and ease the tension that debt may be causing you.

Like shopping for a new home loan, it is also important to shop for a replicable refinance broker. It is imperative that you feel comfortable with the loan terms and your choice of what type of refinance mortgage to go with.

Refinancing can become expensive, but knowing why you are choosing to refinance and knowing the opportunities to be had for you, can at the end of the day, result in immense savings for you and your family.

Now let’s take a closer look at the three different types of refinance mortgages discussed in the paragraph above.

Fixed-Rate Mortgage:

Homeowners that plan on being in their home for an extended period of time or till the end-of-time should have or refinance to have a fixed-rate mortgage.

Refinancing your adjustable-rate mortgage to a fixed-rate mortgage might be the way to go for you. Adjustable-rate mortgage interest rates can slowly increase over time, leaving you with a massive house payment that you may not be able to afford. Refinancing this adjustable-rate to a fixed-rate mortgage, will assure you that your rate is steady and there will be no financial surprises from a striking increase in interest rates in the years to come.

If you currently already have a fixed-rate mortgage, you can refinance your existing loan for a shorter term. This will ultimately increase your mortgage payment, but in the end you are paying more of the principle loan amount and less towards interest. When doing this, you increase the equity you have in your home. This can be a great leverage to have someday.

Adjustable-Rate Mortgage:

ARM which stands for an adjustable-rate mortgage, can be very eye-catching to new homeowners looking for a lower interest rate and house payment. An ARM can fluctuate from time-to-time, increasing your mortgage payment. Unlike a fixed-rate mortgage, an ARM typically offers a lower interest rate for the risk involved in carrying this type of variable mortgage.

If you plan on living in your home for only a few years, if you plan on an increase in revenue, or if the fixed rate is soaring, this is a great option for you. It offers a lower mortgage payment for the time being.
Another advantage of going with an ARM is that it typically doesn’t charge prepayment penalties if you should decide to refinance later down the road.

These benefits sound outstanding, but they can go bad real fast, mortgage payments can increase dramatically due to interest rates, and you may become in jeopardy of loosing your home. It is important to understand the advantages and disadvantages of this type of variable-rate loan.

Cash-Out Refinance:

Cash-out refinance involves taking the equity that you have accumulated over the years out of your house. The process entails a new hefty mortgage, which will pay off the existing one, and places extra money on the table. The money can be used as you wish.

Let’s say your home is worth $100,000, and you owe $25,000. The homeowner might be able to get a new mortgage of $75,000. They would then need to pay off the existing $25,000 balance, which leaves them with $50,000.

Having a larger mortgage payment can cause problems if you are not prepared. The homeowner must carefully weigh the risks and they should talk to a mortgage broker that they can trust for advice.

Whatever your reason is to refinance, make certain that you are confident in your decision with the type of refinance you choose and its terms.

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A good faith estimate is extremely important when shopping lenders for your home loan. A good faith estimate is a piece of paper showing the buyer what can be expected for them to have to pay at closing. It is important to remember that this is only an estimate and does not hold up in closings. You will receive a HUD-1 prior to closing which should be a more accurate estimate of what your closing costs will be. The Real Estate Settlement Procedures Act (RESPA) requires a lender to supply you with a good faith estimate within three days of receiving your loan application. The RESPA has itemized the document into sets of codes to help the buyer understand the fees. This typical form is a projected way for you to shop texas mortgage brokers and compare the sets of codes provided from each lender. As a good judgment, when shopping around for mortgage lenders you should compare at least two different good faith estimates.

Shopping and comparing lenders can become very confusing. Good faith estimates usually look similar at a glance, but if you take a closer look, the lenders may not list the same fees the same way. One lender may charge a fee for something that another lender does not, or the fee may be excessive in comparison. If you see something like this, or if you see a fee that you do not understand, ask questions. You are entitled to understand this document; my advice is to keep asking questions until you get a response that you understand. Buying a home is a major decision in your life, the costs can add up quickly.

The chart below shows the itemized set of codes that the RESPA has created.  For further information on each fee, visit my related article on What you should know about Home Closing Costs at http://www.lonestarfinancing.com/blog/2007/11/13/what-you-should-know-about-home-closing-costs/. This article is  a breakdown of the individual fees involved in the closing of your home, what fees you should look out for, and which fees you might be able to negotiate.

Good Faith Itemized Codes

• 800 - ITEMS PAID IN CONNECTION WITH LOAN:
  • 801 - Origination Fee
  • 802 - Discount Fee
  • 803 - Appraisal Fee
  • 804 - Credit Report
  • 805 - Lender’s Inspection Fee
  • 806 - Mortgage Insurance Application Fee
  • 807 - Assumption Fee
  • 808 - Mortgage Broker Fee
  • 810 - Tax Related Service Fee
  • 811 - Application Fee
  • 812 - Commitment Fee
  • 813 - Lender’s Rate Lock-In Fee
  • 814 - Processing Fee
  • 815 - Underwriting Fee
  • 816 - Wire Transfer Fee
• 900 - ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE:
  • 901 - Interest for days
  • 902 - Mortgage Insurance Premium
  • 903 - Hazard Insurance Premium
  • 904 - County Property Taxes
  • 905 - Flood Insurance
• 1000 - RESERVES DEPOSITED WITH LENDER:
  • 1001 - Hazard Ins.
  • 1002 - Mortgage Ins.
  • 1004 - Tax & Assmt.
  • 1006 - Flood Insurance
• 1100 - TITLE CHARGES:
  • 1101 - Closing or Escrow Fee
  • 1102 - Abstract or Title Search
  • 1103 - Title Examination
  • 1105 - Document Preparation Fee
  • 1106 - Notary Fee
  • 1107 - Attorney’s Fee
  • 1108 - Title Insurance
• 1200 - GOVERNMENT RECORDING AND TRANSFER CHARGES:
  • 1201 - Recording Fee
  • 1202 - City/County Tax/Stamps
  • 1203 - State Tax/Stamps
  • 1204 - Intangible Tax
• 1300 - ADDITIONAL SETTLEMENT CHARGES:
  • 1301 - Survey
  • 1302 - Pest Inspection

For further information on each fee, visit my related article on What you should know about Home Closing Costs. This article is a breakdown of the individual fees involved in the closing of your home.

Rachel McGuire
Austin Mortgage Broker

© 2007 Lone Star Financing - Texas Mortgage Lenders

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Most people don’t realize the hidden costs of homeownership, nor do they even consider the hidden potential. Owning your own home can become quit expensive. There are hidden costs that you don’t think about when you are signing papers at your closing. These hidden costs can become intense, but your new home is an investment, if you realize it or not. In the example below we will look at a house that was bought in 2001 for $150,000 in the Austin, Texas area. Today the house is accessed by the state for around $169,000. The market value for this house is around $241,000.

These first two costs we are going to discuss are of taxes and insurance. No matter where you live you can expect to pay these two costs. These are inevitable and just come along with homeownership.

1. Taxes – Each year you are required by the state you live in to pay property taxes. The more expensive your home, the greater the property taxes. In the example from above, these homeowners pay about 2.1% of the accessed value of the home in taxes each year. This may seem like a lot of money, but being a homeowner has its advantages. You receive an income tax break each year for owning a home. The tax break is usually around the same amount that you pay in during the beginning of the loan as most of your payment goes towards interest. Thus, you get to offset your income by the amount of interest you pay on your mortgage. In our example, the total taxes paid for 2007 is about $3,500. Claiming a Homestead Exemption is also a nice benefit you can claim as long as you intend to live in the house you are buying.
2. Insurance – Insurance protects your property. Your bank or mortgage company may advise certain premiums that they feel you need to safeguard your investment. There is a replacement value set on each home stating what the insurance company thinks the house would be worth if they had to replace it. For the house above, the replacement value is about $210,000. The homeowners of this house pay about .7% of the replacement value in insurance premiums each year. Today, the total insurance premiums paid for 2007 is about $1,400.Now let’s talk about other possible costs associated with owning a home. These are the hidden cost mentioned above required for home upkeep. Homeowners can usually assume to pay about 1% of the purchase price for improvements each year. This is about $1,500 a year for the Austin, Texas home. Here is a list of where the main chunk of your money will be going.
3. Utilities – You can expect to now have to pay for utilities such as gas, water, electric, cable, and maybe even a land line.
4. Appliances – For the most part, homes usually come with a stove, microwave dish washer, but you may have to purchase a refrigerator and a washer and dryer. Don’t forget that these things do break down and it is your responsibility to replace them.
5. Repairs – This is the main upkeep of your home. Repairs are what keep your house afloat. There are usually cosmetic things, but if you don’t keep up with them, like a roof for example, you can then have major problems. A leaky roof can ruin your entire house.
6. Landscaping – This is a key element to this puzzle. Curb appeal is what brings a potential buyer into your home to take a further look. This is something you are constantly taking care of. Matured plants are always a plus.
7. Pest Control – This expense is something your house may not need, but before purchasing your home, you need to make sure to get a termite inspection.

Now let’s take a closer look at your new investment. On average you can assume that your home value will increase about 5% per year. For the Austin, Texas home, it has increased about 7% each year. The graph below depicts the profit of the example home over a seven year period. This can be higher or lower depending on your home, the area in which your home is located, and the upgrades you have done due to the hidden potential. As you can see, there is a substantial profit over just seven years. If you consider the taxes to be a wash due-in-part to an income tax break, the profit is even greater.

As you can see, owning your own home can be a great investment.  In the example I described above, the owner of this home has a cash flow benefit of approximately $84K over renting during the 7 year period we analyzed.  Now you are able to see why the hidden costs of homeownership can obviously mean potential. 

Rachel McGuire
LoneStar Financing

© 2007 Lone Star Financing - Austin Mortgage Brokers

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What you should know about Home Closing Costs

In the past year, Americans spent about $110 billion on purchasing homes.  Americans tend to pay astronomical amounts in closing cost.  There are many fees that you are required to pay in the closing of your home loan, and then there are fees thatt are just plain made-up.  These fees vary from state-to-state and are ironed out in the Good Faith Estimate, which your mortgage lender should provide for you.  It is important to remember that it is an estimate, not the actual cost.  You should compare at least three different good faith estimates to insure you are not getting ripped off.  Remember…protecting yourself is up to you.

Closing costs consist of four main categories of fees that you should recognize:

1. Origination Fees
2. Title and Closing
3. Government Fees
4. Prepaid Expenses

Here is a breakdown of the closing costs, what each fee means, and how much the average closing cost is in the United States.  This information was provided to me by John, a Houston Mortgage Broker at Lonestar Financing.  The information provided is based on a $200,000 home lone amount in the United States. This is just the average, and your closing cost may be higher or lower depending on a lot of factors; including your loan amount, bad credit, or even if you are a first time buyer.

Closing Costs

1. Origination Fees

• Points - points you pay to buy down your interest rate.  On average, for every point you buy in lowers interest rate by 0.25. (Average $715)
• Application fee - lender’s cost to process your loan application. (Average $420)
• Commitment fee - this guarantees a loan at a later date even though the credit is not being used at the time. (Average $560)
• Document preparation - document prepared by the lender for getting you a loan. (Average $180)
• Funding fee - money used to transfer your loan money.  This is not used in Houston, Texas example. (Average $30)
• Origination or lender fees - money charged by the lender for preparing your loan. (Average $1110)
• Processing - money charged by the lender for processing your loan. (Average $365)
• Tax service - money collected by your lender and placed in your escrow account and then it is put toward your property taxes. (Average $65)
• Administrative Fee - usually covers document preparation. (Average $400)
• Underwriting - fee charged for taking a risk with your home loan. (Average $245)
• Wire transfer - money used to transfer your loan money.  This is the same as funding fee in this example. (Average $30)

2. Title and Closing

• Appraisal - used to determine the market value of the home to be purchased.  It is also used by the bank to determine how much you can be approved for. (Average $325)
• Attorney, closing or settlement fee - money used for preparing and evaluating papers for your home loan closing. (Average $345)
• Credit report - money used by lenders to gather information about your credit history. (Average $12)
• Flood Certification - insuring the property does not lie within a flood zone. (Average $12)
• Pest, other inspection - money used for pest inspections and any other inspections necessary on the property. (Average $50)
• Postage/courier - money used by the title company to transfer your papers. (Average $30)
• Survey - used to determine the official boundaries of the property. (Average $175)
• Title insurance - protects the title company as well as the buyer from anything missed in the title search. (Average $750)
• Title work - money used to research the property at the courthouse. (Average $225)

3. Government Fees

• Recording fee - money used to pay the county clerk to record the purchase of the property. (Average $97)
• City/county/state tax stamps/intangible tax - tax charged to change ownership of the property. (Average $1365)

4. Prepaid/Escrow

• Prepaid - items prepaid before closing.  For example insurance premiums. (Average $1460)
• Escrow - money set up in an account to be used to pay real estate taxes. (Average $700)

The average closing cost in the United States is $2,736.  Texas ranked number 2 on the list of most expensive closing costs following New York.

The table below depicts a state-by-state average of closing costs for the United States:

Source: Bankrate

The total cost that you can expect to bring to the table at your closing is about 3% - 6% of the loan amount.  For the most part, buyers typically pay the closing cost.  Buyers can request that the sellers pay closing costs, but it may affect the purchase price. 

Be sure to do your homework and shop around. Miscellaneous fees could cost you hundreds, even thousands.  You should never be afraid to ask questions.  Not only is this quit possibly the biggest purchase of your life, it is also an investment.  So invest in a mortgage broker you can trust.

Rachel McGuire

Austin Mortgage Broker

© 2007 Lone Star Financing - Texas Mortgage Brokers

Filed under: Closing Costs, Home Mortgages | 1 Comment »

Depending on the type of home loan you are seeking, you could save yourself thousands of dollars by shopping various lenders for your home mortgage needs.  Therefore it is imperative that you know the difference between a mortgage broker and a bank lender.  The main differences among the two are that mortgage broker’s act as a liaison between the home buyer and the bank lender.  Where as banks derive the loan from their employer. 

Below are the Top 10 reasons why you should use a mortgage broker instead of a bank:

1. First of all Mortgage brokers specialize in home loans and are commission based, so it is in their best interest to get you the best rate possible, or they don’t get paid.
2. They have an exceptionally large network of lenders that they work with to get you the most favorable mortgage rates and terms.  Put it this way, the more lenders you have competing for your home loan, the more you save. 
3. Mortgage brokers are able to work one-on-one with each individual client, evaluate their specific needs and find a lender that suits them personally.  Next, the broker submits the request to one or more lenders and when the request is accepted the broker works closely with the lender until the home loan closes.  
4. They can often times find a lender who accepts home loans that the bank foregoes.  Mortgage brokers are also able to discuss a lower interest rate from lenders in trade for bringing in business.  
5. All-in-all mortgage brokers save you the groundwork of finding the best mortgage rate and terms for your specific needs.
6. Banks on the other hand deal with all types of loans and may not have the specialization in home loans that a mortgage broker has.  
7. Bank loan officers process mortgage loans originated by only their employer.  
8. Loan officers at a bank are often limited to certain home loan products, guiding principles and criteria that they must follow.  This can a lot of times limit the home loans available.  
9. Regardless if you choose to have your home loan with that particular loan officer or not, they are still getting paid a salary.  With this in mind they may not be looking out for the best interest of you.  
10. Banks do not have a network of lenders that they work with.  Every home loan application the bank receives is from one lending institution.

If you are ready to finally purchase your dream home, look to a mortgage professional to help you comparison shop.  I suggest you go online and search for mortgage brokers in your local area.  There are numerous sites that actually do the shopping for you which will end up saving you a lot of time and phone calls.  They can also help you find the lowest rates and fees for your home mortgage needs.  The right home loan is just one step out of the home buying process that you will not have to be concerned about.

Rachel McGuire

Houston Mortgage Broker

©2007 Lonestar Financing - Texas Mortgage Brokers

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