1. What should I know when purchasing a home?
2. What should I know when refinancing a home?
3. Should I refinance?
4. Should I pay points? Does a 0 point/0 fee loan really exist?
5. What is a FICO score?
6. Why do mortgage rates change?
7. What is the difference between pre-qualifying and pre-approval?
8. What is a rate lock?
9. Can my loan be sold? What happens if my lender goes out of business?
10. What is PMI? Can I get rid of the PMI on my loan?
11. What is an APR?

Review or regional resources in Colorado, Utah, and Wyoming for more information.

1. The strongest position to be in when purchasing a home is to be Pre-Approved. As a potential buyer competing for a property, you'll have a better chance of getting your offer accepted by being as prepared as possible. Consider the following levels of home buyers:
   • Neither pre-qualified nor pre-approved
   • Pre-qualified
   • Pre-approved
   The benefits available at each level can be easily understood when viewed from the seller's perspective. Imagine you're a seller in receipt of multiple offers to purchase your property. A complete stranger (buyer) is asking you to take your property off the market for at least the next two to three weeks while they apply for a loan. As the seller, let’s consider the type of buyer you'd prefer to deal with.

   Neither pre-qualified nor pre-approved
   This buyer provides no evidence that they can afford to purchase your property. You may wonder how serious they are since they're not at least pre-qualified.

   Pre-qualified
   This buyer has met with a mortgage broker (or lender) and discussed their situation. The buyer has informed the broker regarding their income, expenses, assets and liabilities. The buyer provided you with the broker’s opinion of what the buyer can afford.

   Pre-approved
   This buyer has provided a broker written evidence of income, expenses, assets, liabilities and credit. As a result, much of the paperwork for this buyer's loan has been completed. This buyer will probably be able to close quickly. They provide you with a letter (pre-approval certificate) from the broker. You're as certain as possible that this buyer can close.

   As a potential buyer, you can see that being pre-approved will give you the best chance of getting your offer accepted. This is critical in a competitive situation and puts you in a much stronger position when negotiating price.

2. Be sure to compare the total cost, not just rate, when comparing loans. While the rate is important, consider the total cost of your loan including the APR, title fees, origination points, etc. keeping in mind the amount of time you plan to keep the loan or house. A professional broker should be able to provide you with a complete analysis taking all of these important factors into consideration. This will allow you to see several loan programs side by side; providing just the information you need to make an informed decision.
3. Make sure you receive a Good Faith Estimate and Truth in Lending. This is a written statement of fees associated with the transaction and the law states that you must receive a Good Faith Estimate and Truth in Lending from any Lender or Broker. Keep in mind APR’s and Good Faith Estimates can be calculated differently across lenders or brokers; therefore, this does not eliminate the need for a total cost analysis.
4. Get the rate lock in writing. When you have locked your interest rate, be sure to get in writing the details of the lock.
5. When buying a home get a professional inspection. Unless you're buying a new home with warranties on most equipment, it's highly recommended that you get property, roof and termite inspections. This way you'll know what you are buying. Inspection reports are great negotiating tools when asking the seller to make needed repairs. When a professional inspector recommends that certain repairs be done, the seller is more likely to agree to do them. If the seller agrees to make repairs, have your inspector verify that they are done prior to close of escrow.
6. Be sure to shop for home insurance before you are ready to close. Start shopping for insurance as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and do not have time to shop around.
7. Allow for a few extra days in the transaction. While most real estate transactions close on time, there are times when transactions are delayed. A professional broker will work closely with you defining the timeline and keeping you informed throughout the process. By allowing yourself a few extra days and working with a broker that keeps all parties informed, you will help ensure a smooth closing.
8. Consult with your broker before making any major purchases during the loan process. Remember that your loan approval is based on your total debt compared to your total income. Adding any debt during the loan process can impact this and also may adversely affect your credit, putting your loan at risk.

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1. Get a break-even analysis. A professional broker should be able to provide you with a complete analysis taking all of the important factors into consideration, and clearly defining the break-even point, providing just the information you need to make an informed decision. For a rough and very simplified break-even analysis, do the following: Determine the total cost of the transaction, and then calculate how much you will save every month. Divide the total cost by the monthly savings to find the number of months you will have to stay in the property to break even. Example: if your transaction costs $2000 and you save $50/month, you break even in 2000/50 = 40 months. In this case you'd refinance if you planned to stay in your home for at least 40 months.
2. Make sure you receive a Good Faith Estimate. This is a written statement of fees associated with the transaction and the law states that you must receive a Good Faith Estimate and Truth in Lending from any Lender or Broker. Keep in mind APR’s and Good Faith Estimates can be calculated differently across lenders or brokers; therefore, this does not eliminate the need for a total cost analysis.
3. Get an idea of your homes value before paying for an appraisal. If you suspect that your home value may be too low for the loan, your mortgage broker should be able to arrange for a comparable search by an appraiser. This will provide you with a range of possible values. Don’t waste your money on a full appraisal if you are doubtful about the value of your home.
4. Provide your documents as quickly as possible. To assist in meeting your closing date and staying within your rate lock period, provide any required documents to your broker as quickly as possible.
5. Get the rate lock in writing. When you have locked your interest rate, be sure to get in writing the details of the lock.
6. Consult with your broker before making any major purchases during the loan process. Remember that your loan approval is based on your total debt compared to your total income. Adding any debt during the loan process can impact this and also may adversely affect your credit, putting your loan at risk.

1. By obtaining a lower interest rate that causes one's monthly mortgage payment to be reduced.
2. By reducing the term of the loan, thus saving money over the life of the loan. For example, refinancing from a 30-year loan to a 15-year loan might result in higher monthly payments, but the total of the payments made during the life of the loan can be reduced significantly.

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1. Calculate the cost of the points. Example: 2 points on a $100,000 loan is $2,000.
2. Calculate the monthly savings on the loan as a result of obtaining a lower interest rate. Example: $50 per month
3. Divide the cost of the points by the monthly savings to come up with the number of months to break even. In the above example, this number is 40 months. If you plan to keep the house for longer than the break-even number of months, then it makes sense to pay points; otherwise it does not.
4. The above calculation does not take into account the tax advantages of points. When you are buying a house the points you pay are tax-deductible, so you realize some savings immediately. On the other hand, when you get a lower payment, your tax deduction reduces! This makes it a little difficult to calculate the break-even time taking taxes into account. In the case of a purchase, taxes definitely reduce the break-even time. However, in the case of a refinance, the points are NOT tax-deductible, but have to be amortized over the life of the loan. This results in few tax benefits or none at all, so there is little or no effect on the time to break even.

• 8.0% with 2 points or
• 8.25% with 1 point or
• 8.5% with 0 points or
• 8.75% with -1 point or
• 9% with -2 points

What are the benefits of a zero-point/zero-fee loan?
The main benefit is that you have no out-of-pocket costs. As a result, if the rates drop in the future, you could refinance again even for a small drop in rates. So if you refinanced on the zero-point/zero-fee loan to get a rate of 8.75% and if the rates drop 1/2%, you can refinance again to 8.25%. On the other hand, if you refinanced by paying 1 point and got a rate of 8.25%, it may not make sense to refinance again. Now, if the rates drop another 1/2%, a zero-point/zero-fee loan can drop your rate to 7.75%, whereas if you paid points, you may have to do a break-even analysis to decide if refinancing will save you money. The zero-point/zero-fee loan eliminates the need to do a break-even analysis since there is no up-front expense that needs to be recovered. It also is a great way to take advantage of falling rates. Some consumers have used zero-point/zero-fee loans on adjustable loans to refinance their adjustables every year and pay a very low teaser rate. What are the disadvantages of a zero-point/zero-fee loan?

The main disadvantage is that you are paying a higher rate than you would be paying if you had paid points and closing costs. If you keep the loan for long enough, you will pay more––since you have higher mortgage payments. In the scenario where you plan to stay in the house for more than 5 years, and if rates never drop for you to refinance, you could wind up paying more money. If, on the other hand, you plan to stay at a property for just 2-3 years, there really is no disadvantage of a zero-point/zero-fee loan.

Whose money is it?
Since you are being paid "cash" up-front in exchange for a higher rate, it really is your own money that will be paid in the future through higher payments. Investors who fund these loans hope that you will keep the loans for long enough to recoup their up-front investment. If you refinance the loans early, both the servicer and the investor could lose money. To summarize, zero-point/zero-fee loans in many cases are good deals. Make sure, however, that the lender pays for your closing costs from rebate points and NOT by increasing your loan amount. So if your old loan amount was $150,000, your new loan amount should also be $150,000. You may have to come up with some money at closing for recurring costs (taxes, insurance, and interest), but you would have to pay for these whether you refinanced or not. Zero-point/zero-fee loans are especially attractive when rates are declining or when you plan to sell your house in less than 2-3 years. Zero-point/zero-fee loans may not be around forever. Lenders have discussed adding a pre-payment penalty to such loans, however few lenders have taken steps to implement such a measure.

• Late payments
• The amount of time credit has been established
• The amount of credit used versus the amount of credit available
• Length of time at present residence
• Employment history
• Negative credit information such as bankruptcies, charge-offs, collections, etc.

• Pay your bills on time. Late payments and collections can have a serious impact on your score.
• Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.
• Reduce your credit-card balances. If you are "maxed" out on your credit cards, this will affect your credit score negatively.
• If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score.

• Prime rate: The rate offered to a bank's best customers.
• Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).
• Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.
• Treasury Bonds: Long-debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.
• Federal Funds Rate: Rates banks charge each other for overnight loans.
• Federal Discount Rate: Rate New York Fed charges to member banks.
• Libor: London Interbank Offered Rates. Average London Eurodollar rates.
• 6 month CD rate: The average rate that you get when you invest in a 6-month CD.
• 11th District Cost of Funds: Rate determined by averaging a composite of other rates.
• Fannie Mae-Backed Security rates: Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae-backed securities. The rates on these securities influence mortgage rates very strongly.
• Ginnie Mae-Backed Security rates: Ginnie Mae pools large quantities of mortgages, secures them and sells them as Ginnie Mae-backed securities. The rates on these securities influence mortgage rates on FHA and VA loans.

• Bad news (i.e. a slowing economy) is good news for interest rates (i.e. lower rates).
• Good news (i.e. a growing economy) is bad news for interest rates (i.e. higher rates).

Economic Event	Effect on Interest Rates	Significance of event
Consumer Price Index (CPI) Rises		Indicates rising inflation.
Dollar Rises		Imports cost less; indicates falling inflation.
Durable Goods Orders Increase		Indicates expanding economy
Gross National Product Increases		Indicates strong economy
Home Sales Increase		Indicates strong economy
Housing Starts Rise		Indicates strong economy
Industrial Production Rises		Indicates strong economy
Business Inventories Rise		Indicates weak economy
Leading Indicators (LEI) Increase		Indicates strong economy
Personal Income Rises		Indicates rising inflation
Personal Spending Rises		Indicates rising inflation
Producer Price Index Rises		Indicates rising inflation
Retail Sales Increase		Indicates strong economy
Treasury Auction Has High Demand		High demand leads to lower rates
Unemployment Rises		Indicates weak economy

1. Loan program.
2. Interest rate.
3. Points.
4. Length of the lock.

• 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. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30!
• Loan-processing fee
• Underwriting fee
• Document-preparation fee
• Private mortgage-insurance The following fees are SOMETIMES included in the APR:
• Loan-application fee
• Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death) The following fees are normally NOT included in the APR:
• Title or abstract fee
• Escrow fee
• Attorney fee
• Notary fee
• Document preparation (charged by the closing agent)
• Home-inspection fees
• Recording fee
• Transfer taxes
• Credit report
• Appraisal fee