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Liberty Home Loans offers a wide range of loan programs
to satisfy the needs of our customers. What follows is a comprehensive
list of questions about finding the right loan for you, and
a description of different loan programs that are available.
How do I choose the best loan program for
me?
Your personal situation will determine the best kind of loan
for you. By asking yourself a few questions, you can help
narrow your search among the many options available and discover
which loan suits you best:
- Do you expect your finances to change over the next few
years?
- Are you planning to live in this home for a long period
of time?
- Are you comfortable with the idea of a changing mortgage
payment amount?
- Do you wish to be free of mortgage debt as your children
approach college age or as you prepare for retirement?
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What is the best way to compare loan terms
between lenders?
First, devise a checklist for the information from each lending
institution. You should include the company's name and basic
information, the type of mortgage, minimum down payment required,
interest rate and points, closing costs, loan processing time
and whether prepayment is allowed.
Speak with companies by phone or in person. Since interest
rates can fluctuate daily, call each lender on the list on
the same day. Additionally, your real estate agent may have
access to a database of lender and mortgage options. Though
your agent may primarily be affiliated with a particular lending
institution, he or she may also be able to suggest a variety
of different lender options to you.
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Are there any costs or fees associated
with the loan origination process?
No. When you turn in your application, you will not be required
to pay a loan application fee to cover the costs of underwriting
the loan. You may be required to pay for your appraisal and
credit report. These fees are generally non-refundable.
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What is RESPA?
RESPA stands for Real Estate Settlement Procedures Act. It
requires lenders to disclose information to potential customers
throughout the mortgage process. It protects borrowers from
abuses by lending institutions by mandating that lenders fully
inform borrowers about all closing costs, lender servicing
and escrow account practices, and business relationships between
closing service providers and other parties to the transaction.
For more information on RESPA, or call 1-800-217-6970 for
a local counseling referral.
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What is a good faith estimate, and how
does it help me?
A Good Faith Estimate is an estimate that lists all fees paid
before closing, all closing costs, and any escrow costs you
will encounter when purchasing a home. The lender must supply
it within three days of your application so that you can make
accurate judgments when shopping for a loan.
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Does the lender have any responsibilities
other than RESPA?
Lenders are not allowed to discriminate in any way against
potential borrowers. If you believe a lender is refusing to
provide his or her services to you on the basis of race, color,
nationality, religion, sex, familial status, or disability,
contact HUD's Office of Fair Housing at 1-800-669-9777 (or
1-800-927-9275 for the hearing impaired).
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What responsibilities do I have during
the lending process?
To ensure you won't fall victim to loan fraud, be sure to
follow all of these steps as you apply for a loan:
- Be sure to read and understand everything before you sign.
- Refuse to sign any blank documents.
- Do not buy property for someone else.
- Do not overstate your income.
- Do not overstate how long you have been employed.
- Do not overstate your assets.
- Accurately report your debts.
- Do not change your income tax returns for any reason.
Tell the whole truth about gifts. Do not list fake co-borrowers
on your loan application.
- Be truthful about your credit problems, past and present.
- Be honest about your intention to occupy the house.
- Do not provide false supporting documents.
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Fixed Rate Loans:
Fixed Rate Loans are offered in varying lengths, including
10, 15, 20, 25 and 30-year periods. A fixed rate loan offers
equal payments throughout the life of the loan.
- Purchases: Standard purchases usually require a 3-5% down
payment.
- Refinances: Refinances usually require a minimum of 5-10%
equity in the subject property.
- Types of Financing: Fixed rate programs are available
for primary, secondary and investment properties. This includes
conventional, FHA, VA and Less-than-Perfect Credit programs.
- Assumability: Conventional fixed rate loans are not assumable
to someone buying your home. However, FHA and VA allow assumable
loans with the purchaser qualifying for the mortgage.
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7-Year and 5-Year Balloons:
Balloons have a fixed payment for the first 5 or 7 years of
the loan, with payments based on a 30-year amortization. At
the end of the initial time period the balance and unpaid
interest must be paid off. Most lenders offer a conditional
right to refinance the loan at the end of the term with a
small fee. The lender will notify the borrower 60 days prior
to the note’s due date. A balloon must be paid off or
refinanced when it comes due.
Conditional Right to Refinance:
Standard conditions are (1) you must still own and occupy
the property, (2) you cannot have made any late payments on
the mortgage in the last 12 months, (3) no other liens against
the property other than the first mortgage exist, (4) the
new note rate cannot exceed 5 percentage points above the
original note rate, (6) the is usually a $250 conversion fee
charged by the lender.
Requalification of the Borrower:
Most lenders do not require that you requalify for the modified
rate note.
Purchases:
7-Year Balloon – 5% to 10% down payment
5-Year Balloon – 5% to 10% down payment
Applicable Types of Refinancing:
Conventional loan balloons typically apply to all types of
loans.
Assumability:
Balloons are not assumable.
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Adjustable Rate Loans (ARMs):
Typical types of ARMs are 10/1, 7/1, 5/1, 3/1, 3/6, 2/1, 1/1.
ARMs are normally amortized over a 30-year period. The first
number listed is the term the rate is fixed and the second
number is the index to which it is tied. The index will explain
how often the rate can adjust after the fixed period.
For example, a 10/1 arm is fixed for a period of ten years
and then converts to the one-year treasury bill. The rate
then will adjust every 12 months after the fixed period. (This
is represented by the 1 – meaning 1 year).
How Your Interest Rate and Payment is Determined:
Adjustable Rate Mortgages consist of an index and margin.
Typically the index is tied to a constant maturity of a one-year
treasury index (which can be found in the Wall Street Journal
or financial publications). The index fluctuates based on
interest rates. The margin is a fixed amount throughout the
life of the loan. After the ARM’s fixed period, the
loan is based on the current index plus the margin.
EX: Your current rate of 6% at the end of your fixed period,
the index is 4.801 and the margin is 2.75% = a new rate of
7.551 rounded up to the nearest eight (0.125), giving you
a new adjusted rate of 7.625%.
Your payment will be based on the interest rate, loan balance
and term.
The ARM will have caps of 2/6, 5/2/5, 1/5 or other possible
caps. Examples: The 2/6 caps are a 2% maximum rate change
per year and a life cap of 6%. 5/2/5, the first maximum adjustment
is 5% over the start rate, every other adjustment is 2% annually
and a life cap of 5% over the start rate.
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Less-Than-Perfect Credit Financing:
If you have less than perfect credit, there are loans for
you. These programs are called subprime loan/B/C credit loans.
They are rated based on your mortgage and other credit obligation
payment history.
Purchases/Refinances:
A–Credit requires a minimum of 10% down payment.
B–Credit requires a minimum of 15-20% down payment.
C–Credit requires a minimum of 20-25% down payment.
D–Credit requires a minimum of 30% down payment.
Types of Financing:
Financing is available for primary homes, secondary homes
and investment properties. Conventional loans and private
party financing are available for less than perfect credit
lending.
Assumability:
Most loans are not assumable.
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Private Party Financing:
Private Party financing is available to nearly everyone. This
type of loan is based on loan-to-value, or LTV.
- Most private investors lend a maximum of 70% LTV.
- Some loans do not require income or credit.
- All loans require standard loan fees and borrowers pay
loan origination/discount fees totaling on average 4-8%
(this is variable depending upon borrower’s strengths
or weaknesses).
- Most loans have a balloon in one to two years and tend
to have higher rates.
- Many loans have an interest only option that helps to
keep the payment amounts reasonable
Purchases/Refinances:
30% down payment or equity in property (minimum requirement)
35-40% down payment or equity in investment properties.
Types of Properties for Which Financing is Available:
Primary residences, second homes and investment properties.
Assumability:
Not common, but it depends upon private party financing of
the loan and the strength of the new borrower.
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FHA Adjustable Rate Program:
This program, called the 251 program, is the adjustable Rate
Mortgage (ARM) that the FHA began offering in 1991. It can
be used to purchase new or existing, 1 to 4 family owner-occupied
primary homes. It also is available for refinancing homes.
All types of FHA loans have loan limitations based on the
county the property is in.
This type of loan is subject to a yearly rate adjustment,
indexed to the rate of US Treasury Securities. However, there
are limits (Caps) on how much the rate can change annually
(1.00%) and over the life of the loan (5.00%). The 1% annual
cap is an excellent feature compared to conventional ARM loans
that typically adjust 1% each six months or 2% annually. The
FHA ARM is fully amortized over 30 years.
FHA will be offering 3/1 and 5/1 adjustable rate loans in
2004.
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FHA Fixed Rate Program:
This program, called the 203b program, is the popular FHA
fixed rate loan. Its term is 30 years and is a fully amortized
loan. It can be used to purchase new or existing, 1 to 4 family
owner-occupied primary homes. Streamline refinances are also
available without re-qualifying.
The interest rate of a FHA fixed rate loan can be lowered
for the life of the loan by paying discount points to the
lender. This is referred to as a “permanent” (life
of loan) buydown. The rate can also be bought down on a temporary
basis. A popular temporary buydown is the 2-1, which means
the rate is 2% lower than the note rate for the first year,
1% below the note rate for the second year and at the note
rate thereafter.
This 203b program is limited to single family, attached,
detached, condos, townhomes, Planned Unit Development (PUD)
homes, including manufactured homes meeting certain eligibility
requirements. All property types must be qualified for eligibility.
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VA Fixed Rate Program:
This program is for active and discharged veterans in good
standing with the Veteran Administration. Offered on fixed
rates for 30, 15 years and a 2/1 buydown on a fixed rate and
3/1 and 5/1 Adjustable rate mortgages for no money down purchases
or refinances.
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Interest Only Loans:
The program is offered on a variety of Adjustable Rate Mortgages
and Fixed Rates. Example: 3/1, 5/1, 7/1 ARMs. For a fixed
period of time, the borrower can opt to pay only the interest
of each scheduled mortgage payment.
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No Income Verification Loans (NIV):
This loan program varies but can be intended for salaried,
commissioned or self-employed borrowers. Income is stated
but not verified on the application (it must make sense for
the occupation and provided assets in most cases). The rate
is based on credit scores, LTV, and assets available.
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No Income/No Asset Verification Loans
(NINA):
This program again varies but can be used by salaried, commissioned,
or self employed borrowers. Employment information is provided,
but no income or asset information is required.
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No Document Loans:
This program is based on down payment – normally 20%
down – and credit scores. No information about employment,
income, or assets is required.
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