Overview of Mortgages for Asheville Real Estate:
             Mortgage 101...

Obtaining information is easy. Mortgage information sources are as numerous as mortgage types. Web sites, topical newspaper articles, mortgage books, consumer seminars and workshops can help. Professionals, including financial planners, real estate agents, mortgage brokers and lenders, can also assist you.

Examine your finances

First, compare fixed-rate mortgages with adjustable rate mortgages to determine which type best fits your current financial lifestyle and, to some extent, your future obligations 15 to 30 years down the road. Learn how much of a mortgage you can afford. Lenders are apt to qualify you for as much as they are willing to lend, which can be more than you can really afford. It's up to you to take stock of your income and expenses, both current and projected, to determine what you can comfortably manage each month.

Along with your mortgage payment of interest and principle, remember to add related insurance costs, taxes, homeowner association dues and any other costs. Also, obtain copies of your credit reports from all credit reporting agencies. Obtaining your credit report in advance gives you time to challenge missing information, errors, or other discrepancies. If necessary, you can put a statement on your credit report to explain any blemishes you can't cure. Lenders likely will ask you to explain problem areas on your credit record anyway. Your attention will let the lender know you are conscientious about your finances.

Shopping for lenders and loans

When you are ready to shop for a loan you have two basic choices -- direct lenders and mortgage brokers. Direct lenders have money to lend. They make the final decision on your application. Lenders have a limited number of in-house loans available. Brokers are intermediaries who, like you, have many lenders from which to choose. If you have special financing needs and can't find a loan to suit them, an experienced broker may be able to ferret out the financing you need. Mortgage brokers, however, are paid with a slice of the amount you borrow, some more than others.

Along with shopping the source, you'll also have to shop loan costs, including the interest rate, broker fees, points (each point is one percent of the amount you borrow), prepayment penalties, the loan term, application fees, credit report fee, appraisal costs and a host of others.

Your application

Before you actually apply for a mortgage on or off line, gather documents necessary to prove claims you'll make on the application. The application will ask for information about your job tenure, employment stability, income, your assets (property, cars, bank accounts and investments) and your liabilities (auto loans, installment loans, mortgages, credit-card debt, household expenses and others).

The lender will run a credit check on you, but you'll have to supply supplemental documentation including paycheck stubs, bank account statements, tax returns, investment earnings reports, rental agreements, divorce decrees, proof of insurance, and other documentation. If the lender deems you creditworthy, it will likely hire a professional appraiser to make sure the value of the home you are about to buy is commensurate with your loan amount.

Lock it down

During your loan application, get a rate lock - an essential document in a rising mortgage rate market. On or offline, a rate lock -- in writing - guarantees you a certain interest rate and terms for a given period.

Lock in all the costs you can, the interest rate, and points.

Set the lock ''on application'' rather than ''on approval.'' On approval means you won't have a stab at rates until the loan application is approved. In a rising market, a lock on approval would cost you more in higher interest rate.

Along with shopping around for the best mortgage, shop around for both the terms of the lock contract and its cost. Both can vary.

Your lock-in period should be long enough to allow for settlement, contingencies imposed by the lender or the purchase contract and other factors that could delay the process. Consider all factors that could delay your settlement, including the time it will take you to provide requested materials about your financial condition, unanticipated construction delays on a new house and the like.

Most lock periods range from 15 to 60 days. Anything longer could be cost prohibitive. Ask your lender to estimate (in writing, if possible) the average time for processing loans. Once you lock-in a rate, you must make sure that your loan is approved and closed before the commitment expires. Follow up on your loan application to make sure you don't delay sending additional documents the lender requires.

Get preapproved

Finally, once the lender approves your loan, you've been prequalified for a certain amount, but that doesn't guarantee you the loan. Prequalification indicates you are creditworthy enough to obtain a loan and it lets you know how much the lender is willing to lend you based on your income and debts. Often, the lender has yet to pull your credit report. It's wise to take the next step and get preapproved for a specific amount the lender will actually lend you.

AA preapproval - in writing - is the amount the lender guarantees it will lend you, based on a thorough analysis of your application. The preapproval not only gives you the security of shopping for a home you can afford; it tells the seller you are a serious buyer ready with solid financing. That's a negotiating edge you want in any market.

Credit Problems?

You need a loan, but your credit won't allow you to get any of those great rates. You'll be glad to know there are alternatives. In fact, There's a whole segment of the mortgage industry that only lends to people who, for whatever reason, find themselves with less-than-perfect credit.

Called "B paper" in industry lingo, loans offered include 2/28 and 3/27 loans. The number before the slash refers to the number of years that the initial rate is fixed. After that, the rate changes on a predetermined schedule (usually every 6 months or 12 months) for the remainder of the life of the loan. The amount of the rate change (called an Adjustment) is determined by a mathematical formula based on the U.S. bond market (typically the yield on the 1 Year U.S. Treasury Bill). The 2/28 is usually the best place to start for two reasons, one of which impacts the other. These B paper loans usually have a two-year prepayment penalty, meaning you can't refinance for two years.

Most A paper lenders want to see 24 months of on-time mortgage payments in order to approve a loan. So, if you get that 2/28 loan with a two-year prepayment penalty, you can put up with a higher interest rate, rebuild your credit, and refinance into a better loan at the end of two years.

B paper is just as competitive as A paper, if not more so. There are plenty of lenders out there, so although you won't get the lowest possible rate, you also don't have to pay an exorbitant amount in points on top of the higher rate. (One point is one percent of your loan amount.)

Remember that you're not only getting a loan. You're also rebuilding your credit. Think how good your credit report will look two years from now when you have 24 on-time payments behind you. Then you can apply for an A paper loan with confidence.

What is the difference between Origination Points and Discount Points?

They differ in where they are applied. Origination points are charged to recover some costs of the loan origination process. Typically, your Loan Officer's compensation is based on the Origination point(s). Depending on the lending institution, the Origination Point(s) may be negotiable in whole or in part.

Discount Points are used to "buy" your interest rate lower. This is known as a rate "buydown." A general rule of thumb is that one full Discount Point will lower your fixed interest rate .250% or your adjustable rate .375%. These points lower the interest rate for the entire term of the loan. There is usually some flexibility by the lending institution in determining the actual buydown formula, but less than with Origination Point(s).

Is there an advantage to paying one type over the other?

Actually, there may be, depending on your tax situation. There is no advantage to paying an Origination Point instead of a Discount Point. However, the Discount Point(s) that you pay may be tax deductible. Unfortunately, Origination Points are not usually tax deductible. The Discount Points are usually deducted under Schedule "A" of your IRS 1040 tax return. If you do not itemize your deductions (by taking the Standard Deduction) for other tax-related reasons, you may not be able to deduct the cost of the points when filing your tax returns. Please consult your tax adviser to determine if you qualify for these deductions.

Why do some lenders charge points but others don't?

It is up to the individual lender whether or not they charge Origination Point(s). Almost every lender's pricing includes different levels of Discount Points. They may offer options with no points, 1 point, 2 points and maybe even more. The more points that you are willing to pay, the lower the interest rate the lender will offer you. It is common for each option to include fractions of points (for example, 1.25 points).

Most lenders advertise their 0 point interest rates while others list their lowest possible rate with several points attached. When comparison shopping, make sure that you know all fees that are being charged. A lender offering 7.000% + 1 Discount point but 0 Origination Points may be a better deal than the lender offering the same rate with 0 Discount Points but 1.500 Origination Points. Both types of points are calculated using the same formula. Before making a final decision, look over all details of the offer, not just the interest rate.

Online Mortgage Brokers

Mortgage Web sites have become a tremendous boon to mortgage shoppers, not because online loans are faster or necessarily cheaper - sometimes they are and sometimes they aren't - but because many mortgage Web sites provide an array of current, comparable information difficult to obtain offline.

Much like online automobile sticker-price information that tells you exactly what vehicles cost, detailed mortgage information can turn you into quite a negotiator. Information gleaned from Web sites can be used to leverage the best of both worlds - cheaper loans negotiated with online information and off line hand-holding from the mortgage broker who meets the price you find online. It's not quite as easy as it sounds. Some mortgage Web sites offer loans; some don't.

No-loan or "referral" sites don't broker or lend mortgage money but typically provide mortgage content, information and news as well as mortgage rates - educational information you can use. These sites also keep daily tabs on rates, indexes and market events that push costs up or down. You also can visit these sites to obtain the latest local rates on purchase and other mortgages. The sites also provide mortgage calculators, market trend analyses, forecasts and a host of other useful services. No-loan sites are also called "referral" sites because they introduce you to other mortgage Web sites that make loans. Sites that offer you access to loans come in three varieties: direct lenders, auction sites and multi-lender shopping sites.

Direct lenders:  Most mortgage Web sites are direct lender sites. They include mortgage lenders, all-purpose banks that also make mortgage loans, and others offering one, limited set of mortgage products. They are fine if, for whatever reason, you've decided to borrow from a particular lender. These sites typically don't provide useful loan pricing information.

Auction sites:  Some mortgage sites allow you to complete a loan application, which is sent to lenders who, in turn, compete or bid for your business. Some of the lenders are sub-prime lenders making these sites a possible choice for you if you are credit challenged. To compare more loans, you may have to repeat the process on a variety of these sites.

Shopping sites:  Shopping sites are a better fit if you demand details, as you should, especially if you are a first-time home buyer. Without completing an application you can "shop" for a mortgage, often using more variables than some brokers use. You can enter the loan amount, property details and other information for the latest rates, APR, points, even settlement costs for each loan. You can also sort the loans by a variety of factors and make apples-to-apples comparisons of the cost details, including interest rate adjustments, margins, life caps, year-by-year payment totals, interest costs and tax benefits.

If you choose to obtain your mortgage online, you should know that mortgage Web sites are best suited for those with top-notch credit. Also, most online lenders write more equity and refinance loans because they are a better fit for computerized automation systems than purchase loans.

Online shopping tips

If you do apply for a loan online, it's very important that you follow these tips.

• Choose an online broker licensed and regulated by your state. Regulatory agencies may not be able to handle complaints about outside lenders. Remember, the broker finds the loan, but the lender actually funds it. Make sure the lender is also regulated in your state.

• Don't double-dip. It's easy to complete an online application, but each application could trigger a credit check. That could send the wrong signal to lenders who reject applications that come with credit reports revealing numerous credit checks in a short period.

• Don't hit-and-run. Don't complete an online mortgage application, say at work, if you don't have Internet access at home or you'll defeat the purpose of the automated online mortgage process. Online brokers use e-mail to keep you abreast of your application's progress and some offer online application tracking.