Questions and Answers

Q. We are a young couple just starting to look for a new home. Our real estate agent asked us to get qualified for a loan. What questions should we ask to find a good lender?

A. Often it's not the questions that you ask but the questions asked of you that will point you in the direction of a competent and ethical professional. As you shop for a loan, the lender should ask you many questions that will develop a picture of your background and also your goals. The lender should ask questions regarding job history, income and credit profile among others to determine the type of loan for which you may qualify.

The lender should ask questions about the property you may be thinking about buying. Will this property be a springboard to another in a two or three years? What is your career path? Will a job transfer or job change will in your future that will require a move? What type of financial temperament do you have? How will you respond to the offer of different loan choices that are available . . . fixed, adjustable and/or a combination of both? Are you at an income and credit level that would allow to opt for a no downpayment loan allowing you to generate a return on your money greater than home appreciation?

Hopefully, the questions asked of someone shopping for a loan generates more questions from the potential borrower. Rate and points are important considerations but finding a competent lender to walk you through the process will help you overcome some very emotional hurdles.

Q. I received a tax form from one of my lenders reporting the interest I paid for 1997. I got a loan that was 125% of the value of my home to consolidate credit card balances and an automobile loan. The advertisements for these loans say that real estate loan interest is tax deductible. Is this interest tax deductible?

A. Home mortgage interest deduction has its limit and the limit is interest applied to 100% of the market value of home. Many lenders today are offering high loan to value loans with no appraisals. If you have gotten a loan with no appraisal or with a stated appraisal figure, check with your tax preparer for the maximum interest deduction for which you may be eligible.

Q. I refinanced my home about six months ago. The lender called me and said that I can save another $30.00 per month on my monthly payment and not pay any fees. Is this a good deal and why are there no fees? I did pay loan fees the last time I refinanced.

A. You asked a very good question. You heard the saying, "There is no free lunch." In the lending profession, there is no free money. What you do not pay upfront will by paid over the life of the loan. All usual and customary fees to get a loan will be incorporated into the interest rate.

With a higher rate the originating party (the entity processing your loan) will receive a "rebate" from the lender making the loan. This rebate will be such that the originator can pay many if not all the costs to obtain the loan. It can cover the credit report, appraisal, points, processing, underwriting and any other charges associated with the escrow and underwriting process. You do pay all the fees but over a span of years.

If your lender says he can save you $30.00 with no costs, this is what is being done. Determine that the savings you get is worth the additional time that the loan will be in existence. Every time you refinance, with certain exceptions, you will be extending your loan term. There are people in this industry who make a living by refinancing people on an ongoing basis (this process is called flipping).

If you continually refinance your loan with limited payment reductions, you may never see an appreciable reduction in principal due to the extended loan term. Put the numbers on paper to decide the best course of action for your financial future.