• Your loan will fund significantly faster if you are pre-approved because a large portion of your paperwork will already be complete.
• Have your inspections complete as soon as possible so any problems can be cleared up before the escrow period is over.
• Pay your deposit with a cashier’s check – not all lenders will accept personal checks.
• Don’t make your moving plans until the end of the escrow period in case there is a delay!

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Why use a Mortgage Broker

It's simple, we do the rate shopping for you. With the increasingly wide variety of loan programs and interest rates available, it just doesn’t make sense to be limited by the constraints of a single mortgage company. A mortgage broker works with several lenders to get the best rate available for their customers’ situation and is not limited to the strict in-house criteria of many larger institutions which many times limit the financing programs they can offer.

Additionally, mortgage brokers have access to financing options that are not available to the general public or to some other lending institutions. Most loans today are sold in the secondary market to government agencies such as the Federal National Home Mortgage Association or the Federal Home Loan Mortgage Corporation. These programs have more flexible underwriting criteria, particularly for borrowers with less than perfect credit.

Does it cost more to use a mortgage broker? Not at all – and it might even cost less than working with other lending institutions. Some of our loans are arranged wholesale directly through the banks, which cuts out the "middle man" expenses, and we have no point/no fee options available on many loan programs. In addition, Pacific Financial does not have the large overhead expenses that are typically passed down to the customer. As an independent broker our business interests are aligned with yours - not with an overseeing parent company.

Creating more options for you. One of the greatest assets of using a mortgage broker is the number of financing options they can provide. A turndown from one lending source does not necessarily deny a loan to our customer – we can apply to other sources that have very different qualification criteria. Your financing situation will probably fluctuate from the time you buy your first home, and a mortgage broker has the freedom to work with a number of lenders to find the right finance program for you.

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Is Now the Time to Refinance?

If you’re thinking about refinancing your mortgage loan, there are a few factors you should consider, such as how much longer you plan on staying in your house, if your house has the needed equity, what other debts you currently carry, and whether interest rates are rising or falling.

Re-financing to lower payments. You can lower your monthly payments either by obtaining a lower interest rate or by shortening the term of the loan. How much longer you plan on staying in your house will determine what rate is beneficial for you.

A good rule of thumb is to calculate the total cost of the refinancing (with closing costs and other fees) and then estimate what your monthly savings will be with the new interest rate. You then divide the cost of refinancing by the monthly savings to determine how much longer you should stay in your house to make the refinancing pay off. For example, if it will cost $2,000 to refinance your mortgage, but your new interest rate will save you $100 month – 2000/100 = 20 months that you should plan on staying in your house.

If you are shortening the term of your loan, such as from a 30-year to a 15-year mortgage, compare the amortizations (which you should get from your lender) to determine how much you are saving in interest.

Re-financing to convert to a fixed loan rate. If you’re planning on converting your adjustable rate mortgage (ARM) to a fixed rate loan, the same rule of thumb can apply. How much will it cost you to refinance, and what will your monthly savings be? And does it look like interest rates are going up or down? If they’re going down, it might be better to wait to refinance so you can lock in at a lower rate. Or if your ARM converts to a fixed rate after a certain number of years, how much longer did you plan to stay in your house? Using the "general rule of thumb" will the refinancing pay off by then? Taking a hard look at all the factors involved will ensure that your refinancing will save you money.

Re-financing to consolidate debt Some people also refinance to help them pay off or consolidate debt or to fund educational expenses. In many cases the interest rate on your home loan is lower than credit card or personal loan rates, and by consolidating all your debt into one loan, you have the convenience of making one payment for all of your outstanding loans. In addition, the interest on a home loan is many times tax deductible. (You should check with your tax advisor for more details on this option.)

Re-financing to fund home improvements. Home improvement costs can add up pretty quickly, and a home equity loan/line of credit can help fund those projects at a rate typically lower than a bank loan. In addition, many times your loan interest may be tax deductible. Check with your tax advisor for more details.

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Home Equity Loan vs. Home Equity Line of Credit

What is the difference between a home equity loan and a home equity line of credit? A home equity loan is a fixed loan amount that uses the equity in your house as collateral. A home equity loan typically has a lower interest rate than a bank loan or credit cards, which is why many people use it to pay off credit card debt, finance an education or purchase automobiles. In most cases the interest on a home equity loan can be used as a tax write-off, much like your mortgage interest.

A home equity line of credit is an open line of credit for you to borrow against. It has the same lower interest rate and potential tax write-off benefits of a home equity loan, except it is not for a fixed amount. Many borrowers use this option for remodeling or other cases when they do not know the exact amount of financing they will need for a project.

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What is private mortgage insurance? (PMI)

Private mortgage insurance, or PMI, is normally required by your lender when you buy a house with less than a 20% down payment. This insurance helps protect lenders against the cost of foreclosures, and enables them to accept lower down payments from potential home buyers. The PMI cost makes up the difference in equity that the lender would have received with a 20% down payment. Therefore, the lower your down payment, the higher your PMI will be. Your PMI costs are usually automatically added into your monthly mortgage payment.

Although the final decision remains with your lender, you can usually request the cancellation of your PMI once you have paid your loan down to 80% of the original property value. Some lenders may have stipulations that you pay PMI for one or two years before you apply for cancellation. Usually you will have to pay for an appraisal to determine the value of your property, but you should discuss procedures with your individual lender.

PMI can also be cancelled by refinancing and getting a new loan without the private mortgage insurance.

You can avoid PMI altogether by putting a 20% or more down payment on your home, or if you qualify for certain loan programs that do not require it.

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Title Insurance Questions?

Why do I need to purchase a new title insurance policy on a refinanced loan? To the lender, a refinance loan is no different than any other home loan. So, your lender will want to insure that their new loan is protected by title insurance, just as the original lender required. Therefore, when you refinance you are buying a title policy to protect your lender.

Why does a Lender need title insurance? Most lenders generate loans and then immediately sell those to secondary market investors, such as FannieMae, in order to protect its security interests in the loan, requires title insurance coverage. Even those lenders who keep original loans in their portfolio are wise to get a lenders policy to protect their investment against title related defects.

When I purchased my home, didn't I also buy a lender's policy? Perhaps. Who pays for the lender's policy on a purchase loan varies regionally and by the terms of individual contracts. However, even if you did buy a lender's policy when you purchased your home, the lender's policy remains in force only during the life of the loan that was insured. If you refinance, the old loan is paid off (the "life" of the loan expires) and a new loan is issued for which the lender will require a new title insurance policy.

What about my original title insurance policy? When you bought your home, you purchased a homeowners title policy. The homeowners' policy stays in force as long as you or your heirs own the home. When you refinance, your lender will often require that you purchase a new lender's policy to protect their new security interest in the property. Thus, you are buying a policy to protect your lender, not a new homeowner's policy.

What could possibly have happened since I purchased my home which warrants a new lender's policy? Since the time that the original loan was made, you may have taken out a second trust deed on the house or had mechanic's liens, child support liens or legal judgments recorded against you - events that could result in serious financial losses to an unprotected lender. Even if it has been 6 months or less since you purchased or refinanced your home, a myriad of title defects could have occurred. While you may not have any title defects, many homeowners do. The only way for a lender to adequately protect itself is to get a new lender's policy each time you purchase or refinance your home.

Are there any discounts available for title insurance on a refinance transaction? Yes. Title companies offer a refinance transaction discount or a short-term rate. Discounts may also be available if you use the same lender for you refinance loan and your original loan. Be sure to ask your title company how they can save you money.

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Understanding supplemental taxes.

How will Supplemental Property Taxes affect me? If you plan on buying a new property or undertaking new construction then you will be required to pay a supplemental property tax which will become a lien against your property as of the date of ownership change or the date of completion of new construction.

When did this tax come into effect? The Supplemental Real Property Tax Law was signed by the Governor in July of 1983.

When and how will I be billed? "When" is not easy to predict. You could be billed in as few as three weeks, or it could take over six months. "When" will depend on the individual county and the workload of the County Assessor, the County Controller / Auditor and the County Tax Collector. The assessor will appraise your property and advise you of the new supplemental assessment amount. At that time you will have the opportunity to discuss your valuation, apply for a Homeowner's Exemption and be informed of your right to file an Assessment Appeal. The County will then calculate the amount of the supplemental tax and the tax collector will mail you a supplemental tax bill. The supplemental tax bill will identify, among other things, the following information: the amount of the supplemental tax and the date on which the taxes will become delinquent.

Can I pay my Supplemental Tax Bill in installments? All supplemental taxes on the secured roll are payable in two equal installments. The taxes are due on the date the bill is mailed and are delinquent on specified dates depending on the month the bill is mailed as follows:

1. If the bill is mailed within the months of July through October, the first installment shall become delinquent on December 10 of the same year. The second installment shall become delinquent on April 10 of the following year.
2. If the bill is mailed within the months of November through June, the first installment shall become delinquent on the last day of the month following the month in which the bill is mailed. The second installment shall become delinquent on the last day of the fourth calendar month following the date the first installment is delinquent.

How will the amount of my bill be determined? There is a formula used to determine your tax bill. The total supplemental assessment will be prorated based on the number of months remaining until the end of the tax year, June 30.

Can you give me an idea of how the proration factor works? The supplemental tax becomes effective on the first day of the month following the month in which the change of ownership or completion of new construction actually occurred. If the effective date is July 1, then there will be no supplemental assessment on the current tax roll and the entire supplemental assessment will be made to the tax roll being prepared which will then reflect the full cash value. In the event the effective date is not on July 1, then the table of factors represented on the following panel is used to compute the supplemental assessment on the current tax roll.

If the effective date is:	The proration factor is:
August 1	.92
September 1	.83
October 1	.75
November 1	.67
December 1	.58
January 1	.50
February 1	.42
March 1	.33
April 1	.25
May 1	.17
June 1	.08

EXAMPLE: The County Auditor finds that the supplemental property taxes on your new home would be $1000 for a full year. The change of ownership took place on September 15 with the effective date being October 1: the supplemental property taxes would, therefore, be subject to a proration factor of .75 and your supplemental tax would be $750.

Will my taxes be prorated in escrow? No. Unlike your ordinary annual taxes, the supplemental tax is a one time tax which dates from the date you take ownership of your property or complete the construction until the end of the tax year on June 30. The obligation for this tax is entirely that of the property owner.

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Understanding Preliminary Costs

What is a preliminary report? A preliminary report is a report prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land, together with the liens and encumbrances thereon which will not be covered under a subsequent title insurance policy.

What role does a Preliminary Report play in the real estate process? A preliminary report contains the conditions under which the title company will issue a particular type of title insurance policy.

The preliminary report lists, in advance of purchase, title defects, liens and encumbrances which would be excluded from coverage if the requested title insurance policy were to be issued as of the date of the preliminary report. The report may then be reviewed and discussed by the parties to a real estate transaction and their agents.

Thus, a preliminary report provides the opportunity to seek the removal of items referenced in the report which are objectionable to the buyer prior to purchase.

When and how is the Preliminary Report produced? Shortly after escrow is opened, an order will be placed with the title company which will then begin the process involved in producing the report.

This process calls for the assembly and review of certain recorded matters relative to both the property and the parties to the transaction. Examples of recorded matters include a deed of trust recorded against the property or a lien recorded against the buyer or seller for an unpaid court award or unpaid taxes.

These recorded matters are listed numerically as "exceptions" in the preliminary report. They will remain exceptions from title insurance coverage unless eliminated or released prior to the transfer of title.

What should I look for when reading my Preliminary Report? You will be interested, primarily, in the extent of your ownership rights. This means you will want to review the ownership interests in the property you will be buying as well as any claims, restrictions or interests of other people involving the property.

The report will note in a statement of vesting the degree, quantity, nature and extent of the owner's interest in the real property. The most common form of interest is "fee simple" or "fee" which is the highest type of interest an owner can have in land.

Liens, restrictions and interests of others which are being excluded from coverage will be listed numerically as "exceptions" in the preliminary report. These may be claims by creditors who have liens or liens for payment of taxes or assessments. There may also be recorded restrictions which have been placed in a prior deed or contained in what are termed CC&Rs--covenants, conditions and restrictions. Finally, interests of third parties are not uncommon and may include easements given by a prior owner which limit your use of the property. When you buy property you may not wish to have these claims or restrictions on your property. Instead, you may want to clear the unwanted items prior to purchase.

In addition to the limitations noted above, a printed list of standard exceptions and exclusions listing items not covered by your title insurance policy may be attached as an exhibit item to your report. Unlike the numbered exclusions, which are specific to the property you are buying, these are standard exceptions and exclusions appearing in title insurance policies. The review of this section is important, as it sets forth matters which will not be covered under your title insurance policy, but which you may wish to investigate, such as governmental laws or regulations governing building and zoning.

Will the Preliminary Report disclose the complete condition of the title to a property? No. It is important to note that the preliminary report is not a written representation as to the condition of title and may not list all liens, defects, and encumbrances affecting title to the land, but merely report the current ownership and matters that the title company will exclude from coverage if a title insurance policy should later be issued.

Is a Preliminary Report the same thing as title insurance? Definitely not. A preliminary report is an offer to insure, it is not a report of a complete history of recorded documents relating to the property. A preliminary report is a statement of terms and conditions of the offer to issue a title insurance policy, not a representation as to the condition of title.

These distinctions are important for the following reasons: first, no contract or liability exists until the title insurance policy is issued; second, the title insurance policy is issued to a particular insured person and others cannot claim the benefit of the policy.

Can I be protected against title risks prior to the close of the real estate transaction? Yes, you can. Title companies can protect your interest through the issuance of "binders" and "commitments."

A binder is an agreement to issue insurance giving temporary coverage until such time as formal policy is issued. A commitment is a title insurer's contractual obligation to insure title to real property once its stated requirements have been met. Discuss with your title insurer the best means to protect your interest.

How do I go about clearing unwanted liens and encumbrances? You will wish to carefully review the preliminary report. Should the title to the property be clouded, you and your agents will work with the seller and the seller's agents to clear the unwanted liens and encumbrances prior to taking title.

Who can I turn to for further information regarding Preliminary Reports?Your real estate agent and your attorney, should you choose to use one, will help explain the preliminary report to you. Your escrow and title company can also be helpful sources.

CONCLUSION: In a business which is directed at risk elimination, the efforts leading to the production of the preliminary report, which is designed to facilitate the issuance of a policy of title insurance, is perhaps the most important function undertaken.

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What About Closing Costs?

What services will I be paying for when I pay closing costs? You will usually be paying for such things as real estate commissions, appraisal fees, escrow charges, advance payments such as property taxes and homeowner's insurance, title insurance premiums, pest inspections etc.

How much should I expect to pay in closing costs? The amount you pay for closing costs will vary. However, when buying your home and obtaining a new loan, an estimate of your closing costs will be provided to you pursuant to the Real Estate Settlement Procedures Act after you submit your loan application. This disclosure provides you with a good faith estimate of what your closing costs will be in the real estate process. An itemized list of charges will be prepared when you close your transaction and take title to your new property.

Can I pay for my closing cost in installments? No, and it is easy to understand why. Many different parties will have fulfilled their responsibilities and will await payment upon closing. The title or escrow company will disburse monies to those parties, pursuant to the escrow instructions, when funds are available.

Will I be allowed to write a personal check to cover my closing costs? Your closing funds should be in the form of a cashier's check, issued by an institution in the state you are doing the transaction, made payable to the title company or escrow office in the amount requested. A personal check may delay the closing or may be unacceptable to the title or escrow company. An out-of-state check could also cause a delay in the closing due to possible delays in clearing the check.

Who can I look to for straight answers on closing and closing costs? Title or escrow company personnel are available to review and explain your title policy and your closing statement. Remember, the title or escrow officer cannot give you legal or tax advice. It is their responsibility to give impartial service to all customers.

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Bankruptcy

Bankruptcy is broken down in three categories:

Chapter 7
Known as "straight personal bankruptcy", Chapter 7 is used by consumers to wipe out their unsecured debts. Businesses also file under Chapter 7 as a means of liquidation.

Chapter 11
Typically a business bankruptcy that allows companies temporary protection from creditors while they reorganize. Common in a recession for companies short of cash and good management.

Chapter 13
A personal financial reorganization by which consumers pay back their creditors under the supervision of a court-appointed trustee; payback period typically lasts three to five years. Most often used by homeowners facing foreclosure, it is used by people with less than $250,000 in unsecured debts and $750,000 in secured debts.

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Bankruptcy terms:

Dischargeable Debts: Bills wiped clean by bankruptcy-typically, but not limited to, credit-card debts, medical bills, and unsecured bank liens of credit.

Non-Dischargeable Debts: Debts that must be repaid even after bankruptcy including income taxes, child support, criminal fines, and student loans.

Automatic Stay: Court-orders that kick-in once the bankruptcy petition is filed and automatically halts other legal actions, such as foreclosures and wage attachments.

Credit Impact: Agencies such as TRW may list bankruptcies on personal credit records for up to ten years.

Repeat Filings: Once debts are discharged, consumer may not file under Chapter 7 again for six years. If the bankruptcy petition is dismissed for any reason, it usually may be filed at any time.

Exemptions: California law allows bankrupt homeowners in Chapter 7 to keep up to $75,000 in equity if they are married, $50,000 if unmarried, and $100,000 if over 65 or disabled. There is a $2,400 equity exemption for automobiles.

US Trustee: The arm of the U.S. Justice Department that administers the bankruptcy system and acts as a watchdog against fraud and abuse.

Private Trustee: Court-appointed lawyers, accountants, and personal finance specialists who supervise bankruptcy filing.

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Understanding APR

Example: 30-year fixed 5% 1 point 5.107% APR

The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.

The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the "true cost of a loan." It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.

If life were easy, then all you would have to do is compare APRs from the lenders/brokers you are working with, pick the easiest one, and you would have the right loan. Right? Wrong!

Unfortunately, different lenders calculate APRs differently! So a loan with a lower APR is not necessarily a better rate. The best way to compare loans in the author's opinion is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. Then, delete all fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.

The reason why APRs are confusing is that the rules to compute APR are not clearly defined.

What fees are included in the APR?

The following fees ARE generally included in the APR:

The following fees are SOMETIMES included in the APR:

The following fees are normally NOT included in the APR:

An APR does not tell you how long your rate is locked for. A lender who offers you a 10-day rate lock may have a lower APR than a lender who offers you a 60-day rate lock!

Calculating APRs on adjustable and balloon loans is even more complex, because the future rates are unknown. The result is even more confusing about how lenders calculate APRs.

Do not attempt to compare a 30-year loan with a 15-year loan using their respective APRs. A 15-year loan may have a lower interest rate, but could have a higher APR, since the loan fees are amortized over a shorter period of time.

Finally, many lenders do not even know what they include in their APR because they use software programs to compute their APRs. It is quite possible that the same lender with the same fees using two different software programs may arrive at two different APRs!

Conclusion:
Use the APR as a starting point to compare loans. The APR is a result of a complex calculation and not clearly defined. There is no substitute to getting a good-faith estimate from each lender to compare costs. Remember to exclude those costs that are independent of the loan.

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