Although the decision to refinance is solely yours, some key determinants will help guide your decision to refinance. Ask yourself why you have decided to refinance. Chances are you are looking to lower your interest rate, save on your monthly payments, change the term of the mortgage loan, switch from an adjustable rate mortgage or a fixed rate mortgage, or consolidate your debt. If the market looks attractive in meeting these needs, then it is time to begin the refinance application. Borrowers should keep in mind that applicable application fees and closing costs may apply.

To know whether to pay points or not, a borrower must first understand what discount points are. A discount point is prepaid interest, and each point is equal to one percent of the loan amount. Points can be paid at closing to the lender. By paying points towards your mortgage loan, you are in essence buying down your interest rate. To determine if you should pay discount points, determine how long you plan to remain in the mortgage property. The longer the borrower will be staying at the property, the more savings the rate "buy down" bestows.

The FICO score, also known as the credit score, is determined by five factors: types of credit in use, payment history, amounts owed, length of credit history, and new credit.

Types of Credit in Use: In general, a person’s credit score will be higher with a more diverse mix of credit in their credit history but this is not always the case.

Payment History: If a person has an overall good payment history, then this will positively impact his credit, or FICO, score. Perfect payment history is not necessary.

Amounts Owed: The lower a person’s balances are generally kept, the better this determinant will affect his FICO score since higher balances may indicate that a person is overextended in credit.

Length of Credit History: More established credit users tend to have a more favorable credit score than do newer credit users.

New Credit: The credit user opening too many new credit accounts in a short period of time is seen as more of a risk due to the multiple credit requirements he is incurring in this same period of time.

Mortgage rates normally change along with the level of demand for mortgage-backed securities. Specifically, when demand is high, mortgage interest rates are high. When demand is low, mortgage interest rates are low. Mortgage rates tend to move in the same direction as interest rates. There is also a link between mortgage rates and the supply and demand in the mortgage market itself. Low demand in the mortgage market negatively impacts mortgage rates, while high demand in the mortgage market positively impacts mortgage rates.

A pre-qualification is issued by your loan officer detailing the dollar amount for which a loan can be approved for that individual. The loan officer will supply a letter which acts as a qualification for the individual to make the purchase at a certain amount. The borrower should keep in mind that pre-qualification is not a commitment to lend the amount, merely a suggestion as to how much should be lent to the individual.
 
Pre-approval is when the lender verifies the individual’s credit, down payment, employment history and other relevant information. The pre-approval is then passed along to an underwriter who will make the final decision on the loan application. Pre-approvals act to expedite the loan process, moving the closing along as well as allowing the individual applying for a loan to possibly negotiate a better price on the property.

A rate lock is the lender’s guarantee that the interest rate on the mortgage loan will not change for a specified amount of time. The specified amount of time is either thirty, forty-five, sixty or ninety days. A rate lock beyond 90 days is available as well. The rate lock puts the borrower at ease that his or her rate will remain at the quoted percentage during that specified time period. Once you’ve locked your rate, the interest rate cannot increase if the market worsens or decrease if the market improves.

Yes, a borrower’s loan may be sold in the secondary mortgage market. The one change borrower will notice is that he will be sending his payment to a new address. If your loan is sold, your existing lender will contact you to give you the altered information. Should you receive something in the mail from a new lender, always verify this new information with your current lender.

Private mortgage insurance, or PMI, is insurance against a loss by the lender resulting from the default of the borrower. This type of insurance, as denoted in its name, is issued by a private insurance agency and not the government as is FHA and VA insurance. The insurance premium is paid by the borrower and is included in his monthly mortgage payment. Private mortgage insurance is required on conforming loans when borrowing more than 80% of the home’s value on a first mortgage.

Annual percentage rate, or APR, is essentially the cost of credit. It is the yearly amount the consumer must pay for acquiring a loan or credit. Lenders and lending agencies are required to fully disclose the APR they are offering to potential borrowers. Under this requirement, borrowers are able to compare loans and determine which are the least costly.

Many homebuyers with less than perfect credit histories worry if they will be able to obtain a mortgage. When applying for a mortgage, lenders are typically interested in your most recent bill paying habits. Those who continue to pay bills in a consistent manner will be looked upon more favorably by the lender. As an individual with less than perfect credit history, you may be asked to provide some additional documentation at the time of your loan or considered a higher risk borrower obtaining a loan at a higher interest rate. In fact, there are programs in place to aid those who may otherwise not be able to obtain a mortgage. You may be surprised that you are able to secure a mortgage much more easily than you would think. Moreover, obtaining a mortgage and making regular mortgage payments will help boost your credit score year after year!

Generally speaking, potential borrowers must meet minimum requirements that are created by the individual lending agency or lender. These requirements are listed directly on the application. In addition, some general issues that will keep a potential borrower from getting a loan include:
 
- Credit score is too low
- No credit history
- The potential borrower does not live in the United States
- There is poor repayment history

If you notice there is a mistake in your credit file, it is your responsibility to correct this discrepancy quickly. One tactic would be to notify the credit bureau of the mistake and to provide as much backup to the contrary as possible. The bureau will then take the information and begin an investigation to correct or delete the erroneous information. Other options include contacting your creditors with questions or making a written statement to be kept in your credit file.

Each credit grantor has its own established criteria for making credit decisions. Since the decision to grant credit is based on the creditor’s own criteria, it is best to contact the creditor to inquire about how your credit will be reviewed.

Credit bureaus collect and compile information about consumer creditworthiness from banks and other creditors and from public record sources such as lawsuits, tax liens and legal judgments. However, consumers rarely check their credit records, leaving much room for error.
 
Just think about how often your mail has a misspelling of your name or a mistake in your street address. Then, imagine the possibility for error in a report that contains much more information about you.
 
Consumers should check their credit records periodically to guarantee the information contained in the reports is correct. When reviewing your credit report, ensure that all information is correct and up-to-date. If you find a discrepancy, such as an outdated employment history, notify the credit bureau in writing of the mistake. The individual should be precise about what the mistake is and explain how to correct the incorrect information.

The credit score is actually not a part of the credit file. Instead, it is a number which is calculated based on the information contained in your credit file. In line with changes that occur in the file components, the credit score also can adjust.

A lender primarily focuses on four areas when an individual applies for a mortgage: income and debt, assets, credit and property. An individual’s income in relation to his debt lets the lender know if the individual can afford to take on any additional debt. If the ratio of debt to income is too high, the lender may fear that the individual will not be able to make his monthly mortgage payments. By surveying a person’s assets, the lender can better understand the ability of the potential borrower to cover the costs of buying a home. Additionally, a lender will investigate an individual’s credit history to determine if the individual has met other financial obligations in the past. This history acts as proof of character for the applicant. Finally, the property itself involved in the mortgage must be valuable enough to serve as collateral in the loan.

When an individual decides to refinance, he is typically trying to pay off the existing mortgage with a new loan. This new loan will incur the same type of costs that the individual dealt with when obtaining the original mortgage, including settlement costs, possible prepayment penalties and other similar costs. The total cost to refinance ultimately depends on the interest rate of the new mortgage loan as well as the number of points, if any, are involved.

In home ownership, equity is the difference between how much a home is worth and how much you owe on a mortgage. This difference becomes important when a homeowner wants to take out a loan and utilize the equity built up in his residence to qualify for the loan.

Both a home equity loan and a home equity line of credit provide the homeowner with the opportunity to turn the equity built up in his home into cash. Beyond that similarity, the home equity loan and home equity line of credit are vastly different. The home equity loan is a one-time lump sum which is paid off over a set period of time. Equal monthly payments are set according to a fixed interest rate over the life of the home equity loan. Once the funds are obtained from this loan, no further money can be drawn from the loan. On the other hand, the home equity line of credit is more like a credit card since it involves a revolving balance. The line of credit allows a borrower to borrow up to a certain amount over the life of the loan and the borrower can withdraw money as it is needed. As the principal is paid off, the credit can be used again, much like with a credit card. Home equity lines of credit respond to variable interest rates which affect the monthly payment.

To increase your credit rating, there are four major guidelines to follow:
- Pay bills on time.
- Do not apply for credit frequently.
- Decrease credit card balances.
- If you have limited credit, obtain additional credit.

An individual who has worked hard to obtain a good credit rating wants to maintain the good standing he has attained. One can easily protect his credit rating by maintaining complete and accurate credit records in three ways:

1. Questioning negative information: If a company refuses you credit, you have the right to investigate this refusal and have the credit bureau aid you in the interpretation of the information held within your credit file. If questioning a refusal made in the past 60 days, this information comes at no cost to the consumer.
2. Deleting old information: Some information in your credit file can become outdated and therefore give the wrong idea about your current financial situation. There is a limit to how long information such as bankruptcies, suits, judgments paid, and tax liens can still be reported after they have occurred.
3. Billing mistakes: Mistakes contained in bills can also do harm to your credit. Therefore, you must ensure that any wrong information contained in your bills is corrected and that the corrections are also reflected in your credit file.

A good faith estimate is an estimate of fees, including settlement costs such as title insurance and taxes, which are due at closing. This statement must be given to the potential borrower by the mortgage lender within three days of completing a mortgage loan application. Good faith estimates are used to compare against other quotes from different lenders. Potential borrowers must keep in mind the good faith estimate is merely an estimate and not a statement of actual costs which in reality may be very different from the good faith estimate values.

An origination fee is the amount paid to the company originating the loan and covers the costs associated with creating, processing and closing a mortgage. The origination fee is normally 1% of the loan amount and can be rolled into the loan amount in many cases.

As a first time home-buyer, it is not abnormal to feel unprepared when venturing out to buy your first home. Remember that you are in control. Take your time and evaluate all options before making any commitment to a property or to a loan. Go into the house hunting experience knowing how much you want to spend and how much you can afford. Ensure that you, your realtor and the lending agent know whether you can obtain financing. Likewise, you should be aware of all available financing and special programs such as FHA loans and VA loans. Finally, you need to know about all the costs associated with the purchase of the property.

An individual looking to purchase a home in the near future should be prepared to adjust his current credit habits in preparation for this major purchase. The more debt a person has may significantly impact his ability to obtain additional credit and, therefore, keep him from acquiring a mortgage loan. Any time an individual has difficulty paying bills on time, he should contact his creditor immediately. The creditor should be able to guide the person to the right plan of action. Finally, an individual looking to purchase a home should begin putting money into a savings account. This money may become very practical in case of emergency, such as unforeseen illness or household repair.

Here are some tips to those who are purchasing their first home:

1. Determine the benefits of owning your own home and decide if ownership is right for you. A person shouldn’t be buying a house simply because others are telling you that you should.
2. Define your search parameters for your home before heading out onto the streets.
3. Bring your camera to take shots of the homes you visit. Also, take notes about each of the homes you visit, including notes on the home’s colors, design, surroundings, and location. Rate the home as soon as you leave the property while the home is still fresh in your mind.
4. View your top choices a second time and look for items you may have missed the first time you visited the properties.

Generally, the best time to refinance is while mortgage rates are comparatively low. When a homeowner is looking to refinance, however, rates are not the only item that need to be explored. The decision to refinance should also be based on how much longer the individual plans on staying in the residence, whether numerous fees must be paid to refinance, how far along the individual is in paying the current mortgage, and how a refinance will impact your monthly cash flow (i.e., debt consolidation). Relatively speaking, if the person is planning to stay an additional five years in the residence, has low fees to refinance, or is not very far along in the original mortgage payoff, refinancing is a good option for him.

1. Addresses, where you have resided to establish a 2-year history
2. Name, address and phone number for employer
3. Gross monthly salary, YTD pay stubs as well as last two W-2s
4. Checking and savings, retirement accounts – last 3 months statements
5. Debt – name, address, account numbers, balance and monthly payments on all outstanding loans and credit cards
6. Loan information including the market value and addresses of all real estate owned
7. If self-employed, tax returns for the last two years
8. If commission, interest or bonus income received, the tax returns for the past two years
9. Completed, signed sales contract
10. Up front fee for appraisal
11. Veterans – DD214 and Certificate of Eligibility
12. FHA – Picture ID and Social Security Card