We have assembled these Frequently Asked Questions for your convenience. If you do not find what you are looking for or have additional questions, please contact us
At CDM Funding, we’re here to answer all your mortgage home loan and home refinancing questions. Below is a list of frequently asked questions and answers. If you have additional questions, please call us at 858-654-4066.
1. Do you provide real estate services?
2. Should I pay points and fees for my home loan?
3. Isn’t it cheaper to go directly to my bank for my loan?
4. Where are rates heading?
5. Are property values going to plunge?
6. Due to the market, should I wait to buy my new house?
7. The developer is giving me $10,000 if I use his lender. How can that not be a good deal?
8. What service should I expect during the home buying process?
9. Those TV advertisements and infomercials say I can buy an investment property with no money down. What’s the catch?
10. My Realtor thinks a property is a really good deal and is pressuring me to buy it before someone else does. I’m not sure, but she has a lot of experience and maybe she does know better than I? How do I decide?
11. What is the difference between a 30-year fixed and an ARM loan?
1. Do you provide real estate services?
In California, Realtors and Mortgage Brokers share the same licensing, but in our view they are two very different disciplines. Our job is to obtain the best home financing we can for you – home financing that suits your budget, your time frame and your specific requirements. We work with many outstanding Realtors and are pleased to refer our clients to them.
2. Should I pay points and fees for my home loan?
There are times when it will be to your benefit to pay points and fees, but there are also situations when it would be a waste of money. Paying points and fees should always provide you a better long term home finance package than selecting the lowest cost options. But there is a trade-off as in all things. To get a lower rate it does cost more money at closing. In short, if you are going to pay more at closing you should realize a significant benefit to your home financing. It usually doesn’t make sense to pay points for a home loan you expect to have for only a few years. But if your intention is to stay in California or to keep that condominium in San Diego as a rental when you buy your next home, then the long term home financing cost analysis will look different. If you obtain a loan at little or no cost, you will receive a higher rate of interest. At some future point in time, you will have paid more than you saved up front. The cheapest home loan can be the most expensive home financing. That no cost home loan might be anything but no cost, it can be lot of money out of your pocket. The cost over time analysis is one of many considerations that should be explored as you begin to look for your home loan in San Diego or anywhere else in California. The mortgage you obtain as a First Time Home Buyer when you purchase your first starter home in San Diego is incredibly important to your financial well-being. No less important is home financing on your retirement home in Palm Desert or Santa Barbara. Your loan consultant should understand your needs and work this out for you, fully explaining the pros and the cons of the different home loan options. Following this discussion, you will be better able to make an informed decision as to the best home financing option for you.
3. Isn’t it cheaper to go directly to my bank for my loan?
It could be, but it could also be much more expensive. Your bank will offer you the loan programs that it has available at the rates that it has at the time. It is possible that those rates will be the best available. What is more likely is that we will have better home loan rates available, since we can shop home loan rates from many different lenders.
4. Where are rates heading?
Rates have been moving up and down in a fairly narrow range – Low 4s to High 4s for 30 year conforming fixed. The next move will be up, but it will not occur until the Fed decides that it has kept rates down long enough. The daunting task of the Federal Reserve Board is to keep the economy moving along but not moving too fast. Inflation must be kept in check, but the same action that retards inflation can also promote recession. If the economic numbers begin to show that growth is speeding up again, the Fed will act to nudge the rates up. If you are waiting for better rates on mortgages to buy a new home – STOP! Rates are phenomenally low now.
5. Are property values going to plunge?
We don’t think so. From the market highs in 2005, home prices have come down dramatically. Anyone buying in late 2005 and 2006 has seen a big drop in value. Prices could come down some more, but we don’t see much more room on the down side.
6. Due to the market, should I wait to buy my new house?
The market is now offering better deals from sellers who need or want to get their houses sold, and banks are selling a lot of bank owned property. Prices might move lower, but remember this is your new home not the lottery. Determine what you can afford, and if you find the right house buy it. But don’t go crazy; the worst thing is to buy beyond your means and later get into trouble. Rates aren’t getting much lower. Housing prices are low. It is a good time to buy.
7. The developer is giving me $10,000 if I use his lender. How can that not be a good deal?
This may very well be a good deal, but often the deal is not as good as it appears. Be sure to check on the rates the developer’s lender is offering and compare them with an outside lender.
8. What service should I expect during the home buying process?
It is the Realtor’s job to assist you in locating a house that meets your requirements. It is our job, as lenders, to explain to you the process of obtaining a loan, the programs available, and the costs you can expect. As a consumer, you need to realize that it is up to you to make sure you are properly treated by the person providing you service. It’s not about being smooth; it’s not about being slick. It is about doing what is right for the customer.
9. Those TV advertisements and infomercials say I can buy an investment property with no money down. What’s the catch?
The only catch is that the property deal needs make sense. Every property has expenses, every property has a price, and every property has a rental value. If the rental value is less than the amount that it costs to maintain the property, you will have to pay the amount that the rent falls short of the monthly carrying cost. If you plan to buy the property at a discount and then sell for a profit, you need to account for the costs to buy and hold the property until you can sell it.
10. My Realtor thinks a property is a really good deal and is pressuring me to buy it before someone else does. I’m not sure, but she has a lot of experience and maybe she does know better than I? How do I decide?
If it’s that good of a deal, then your Realtor would buy it! It may be a good deal. It might even be a fantastic deal, but it must be the right deal for YOU, not your Realtor. There are many properties for sale in California. San Diego Real Estate, in particular, is more affordable that it has been for years and home loan rates are phenomenal! It is your decision and you will be the one to live with that decision long after the Realtor has deposited her commission check. If the property offers what you want, at a price that is within your means and you believe that it’s the right property for you, the Realtor will not need to pressure you to make an offer. You will want her to write the offer as soon as possible.
11. What is the difference between a 30-year fixed and an ARM loan?
This may very well be a good deal, but often the deal is not as good as it appears. Be sure to check on the rates the developer’s lender is offering and compare them with an outside lender.
30-year fixed rate mortgages: In any fully amortizing 30 year loan, the monthly required payment is the sum of the interest that has been charged and the amount of principal required to pay the loan off in thirty years. The first loan payment will pay the smallest amount of principal and each succeeding payment will pay a little more principal. Look at the example below.
Take a loan amount of $100,000 at a rate of 5%.
The monthly payment for this loan would be $536.82. In the first monthly payment that is $416.67 in interest and only $120.15 to the principal, leaving a balance owed of $99,879.85.
During the second month, the interest at 5% is charged against the remaining balance of $99,879.85 resulting in $416.17 in interest being paid and $120.65 in principal being paid. Fifteen cents more principal pay down and 15 cents less interest being collected. It doesn’t sound like much headway, but it gets better.
Let’s look at that loan some time later.
At the end of the 10th year, the balance of the loan would be about $81,350. The payment of $536.82 would break down to $339.96 in interest and $196.86 to the principal.
As you pay off a little more principal each month less interest is owed on the balance that remains. After that payment is made 360 times, and at the end of thirty years, the home loan will be paid off completely.
Adjustable Rate Mortgages (ARM).
An ARM works the same. The principal pay down each month must be the amount required to pay off the loan within 30 years. What is different in an ARM loan is that the interest being charged changes. If the rate increases 1%, the payment must increase by the amount necessary to pay the accrued interest at 6% and pay off the principal by the maturity date of the loan.
The lender cannot arbitrarily change the rate of an ARM. The rate on an ARM is determined by the interest rate index being utilized (1 Yr T-Bill, 6 Month LIBOR, Cost of Funds Index, etc.) and the margin of the loan, which is the fixed component of the ARM. This is typically two to three percent but can be higher. Add the two numbers together and round up to the nearest 1/8th of a point and that will be the rate for the next period. If the index being utilized is at 4.785% and the margin of the loan is 2.25% - the rate would be 7.125% (4.785% + 2.25% = 7.035 rounded up to the next 1/8th).
4550 Kearny Villa Road, Suite 215
San Diego, California 92123
858-654-4066
cdmason@fcfunding.com