Refinancing at a longer repayment term may lower your mortgage payment, but may also increase the total interest paid over the life of the loan. Refinancing at a shorter repayment term may increase your mortgage payment, but may lower the total interest paid over the life of the loan. Contact us to discuss the option that best meets your needs.
Financial Basics for Home Lending
Get to know a few key elements involved in buying a home, or refinancing.
Buying a home is likely one of the biggest purchases of a lifetime, and Refinancing can be a useful tool for existing homeowners to consider. As expected, there are many factors involved in both processes. Let’s take a closer look at some of the basics of what’s involved:
Credit Score Basics
Your score could have a big impact on your financial future.
When you buy or refinance, your credit score is one of the first things a lender looks at. It helps them determine if you qualify for a loan, and what interest rate they can offer you.
Your credit score reflects how reliable you are as a borrower, and is determined by your track record of borrowing and repaying banks, credit card companies and other lenders. Factors include:
- Length of Credit History – The longer you’ve been borrowing, the better.
- Amounts Owed – Having too much outstanding debt could adversely impact your score.
- Payment History – Lenders want to see that you pay regularly and pay on time. Even one missed or late payment could affect your score.
- New Credit – If you’ve recently opened new credit card accounts, lines or loans, it may have a negative effect on your credit score.
- Types of Credit Used – Lenders want to know what kind of credit you’re already using—standard credit cards, store credit cards, student and car loans, etc.
Keep track of your score.
To get a handle on your credit history and score, you can order one free credit report per year from annualcreditreport.com. You may also purchase a copy of your FICO score from MyFICO.com. A FICO score above 680 is considered good.
Find areas of improvement.
If your credit score isn’t what you’d like it to be, there may be ways to improve it. Look at the itemized report that comes with your credit score and if there are any negatives, start correcting them as soon as possible.
- If there are any misreported items in your report, gather supporting documents and dispute them.
- Contact creditors and negotiate payment plans for any past due accounts.
- Pay down balances when possible and avoid new charges
- Pay all of your bills on time. Pay at least the monthly minimum, because a late payment for a credit card or bill gets reported to credit agencies.
- Carefully balance your checking account to avoid bouncing checks.
The bottom line.
You should do what you can to improve your credit score before you apply for a mortgage or refinance. Even a small increase in FICO score could translate into a lower rate and big savings over the life of your loan.
Factors That Determine Your Rate
Getting a lower mortgage rate could save you thousands or tens of thousands of dollars over the life of your loan.
When you begin considering a home purchase or refinance, start keeping an eye on rates. They tend to fluctuate based on federal interest rates, bond prices, and what’s going on in the housing market.
Different loan types and terms have different rates, so be sure to investigate all your options. Shorter loan terms typically mean lower rates. And you may be able to pay points in order to get a lower interest rate.
If you’re considering a purchase or a refinance, make sure you’re in a financial position to get the best possible rate. Lenders look at your risk profile (among other factors) to determine the exact rate they will offer you. While having a higher credit score may help improve the rate you are offered, you still may qualify for a competitive rate option with a credit score starting at 620.
To learn more about the options and find out what rates you may qualify for, contact a PNC Mortgage loan officer.
Home Buying:
Lenders start with the par rate, then look at your risk profile to determine what rate they will offer you, which is usually based on a combination of the following factors:
- Credit score – Lenders look at your risk profile (among other factors) to determine the exact rate they will offer you. While having a higher credit score may help improve the rate you are offered, you still may qualify for a competitive rate option with a credit score starting at 620.
- Down Payment – The more money you have to put down, the less risk a lender will associate with approving a loan for you, which could qualify you for a lower rate.
- Loan terms – In general, a shorter loan term will let you secure a lower interest rate.
- Loan to Value Ratio (LTV) – This is the difference between the loan amount you are requesting and the appraised value of the home you’re purchasing. The higher the LTV, the higher the rate.
- Points – Lenders allow you to pay points in order to get a lower interest rate. Typically, each point represents 1% of the loan amount.
Refinancing:
Just like when you purchased your home, lenders look at your risk profile to determine the exact refinancing rate they will offer you—usually based on a combination of the following factors:
- Credit score – Lenders look at your risk profile (among other factors) to determine the exact rate they will offer you. While having a higher credit score may help improve the rate you are offered, you still may qualify for a competitive rate option with a credit score starting at 620.
- Loan to Value Ratio (LTV) – This is the difference between the loan amount you are requesting and the appraised value of your home. The higher the LTV, the higher the rate.
- Points – You may be able to pay points in order to get a lower interest rate. A point represents 1% of the loan amount.
Escrow Basics
Escrow Account
An Escrow Account on your loan allows PNC Mortgage to make payments for certain bills related to your property, such as real estate property taxes, homeowners insurance, flood and other property related insurance, mortgage insurance and lease payments. Homeowners are generally required to have an escrow account until a certain loan to value ratio is met.
Escrow Payment
That portion of a mortgagor's monthly payments held by a lender or servicer in an account to pay taxes, homeowners insurance, mortgage insurance, lease payments, and other property related items as they become due. Also called impounds or reserves in some states.
Escrow Analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.
Your annual Escrow Analysis Statement contains all the information you need to understand your previous and projected mortgage payments.
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Important Notice to Servicemembers and Their Dependents. If you are currently eligible for benefits provided by Servicemembers Civil Relief Act (SCRA), refinancing current debt may not be beneficial.
PNC is a registered service mark of The PNC Financial Services Group, Inc. (“PNC”). All loans are provided by PNC Bank, National Association, a subsidiary of PNC, and are subject to credit approval and property appraisal.
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