Robert Bram's Mortgage FAQ

Robert Bram Reporting

Q: What are points?
A: Points are, in the true sense of the meaning, pre-paid interest. They allow the consumer to “buy down” their rate from the prevailing base interest rate on a zero point loan. In the mortgage world, one point is equal to one percent of the loan amount. Typically each point paid will reduce the interest rate by .25%

Q: Does it make sense to pay points on a loan?
A: To determine if paying points make sense for your particular situation, consider the following:

• Do you have the funds needed to pay up front points, in addition to your down payment and closing costs? Are there other expenses that you might need to use those funds toward once you move into the home, such as repairs or furnishings?
• Points are tax deductible. Based on your tax bracket, would you be able to take advantage of any tax benefit involved with paying points? Consult your accountant for details.
• How long do you plan to be in the home? When you pay a point to reduce the interest rate, the monthly savings are sometimes nominal but they add up over time. The break-even rate is usually about 5 years.

Q: What is PMI?
A: PMI is an insurance policy that lenders require when a consumer purchases property with a down payment of less than 20%. It assures the bank that in the case of a default, the insurance company will issue a check for the bank’s loss. With conventional loans, PMI must be paid until the equity in the home reaches 20%.

Q: What documentation do I need to provide and why?
A: You should be prepared to provide tax returns and W-2s for the past two years, your most recent month of consecutive pay stubs, checking and savings account statements for the past three months (all pages), and most recent investment account statements (all pages). Lenders need this information to verify that you have sufficient income to support your monthly mortgage payments and sufficient savings to support your down payment, closing costs and reserve funds.

Q: What are closing costs?
A: Closing costs are the fees that must be paid to the vendors associated with your mortgage transaction. They include appraisal fees, bank charges (underwriting and processing fees), application fees, title charges, UCC and lien search fees (for co-ops), escrows for taxes and insurance (for condos or 1-4 family homes), plus mortgage tax and per diem interest.

Q: How long does the loan process take?
A: Provided that all required documentation is provided up front, and any conditions of the loan commitment are satisfied in a timely manner, the loan process for application to closing takes approximately 45-60 days. For co-ops, this process takes approximately 60-90 days because you have to factor in time for board approval. Note that times also may vary based on the lender.

For more information contact Robert Bram at rbram@pemc.com, 631.547.5151 or online at www.robertbramthemortgageman.com