Enterprise Bank & Trust | Mortgage

What kind of loan is best for me?

The first step is to pull together information about your current situation, including your income, debts, assets and credit. Once you have this information, you’ll need to consider the following:

The type of mortgage will largely be determined based on which program(s) you qualify for. A few rules of thumb can guide you. If you have not-so-great credit, high debt vs. income, limited funds or some combination of all three, a government-backed loan (such as FHA, VA or USDA) may suit your needs best. Conventional loans usually come with lower rates and fees, but they also typically require better credit, lower debt vs. income and a larger down payment than government-insured loan programs.
The interest rate of your loan drives your monthly payments and the total amount that must be paid back. In addition, the type of rate - fixed or adjustable - is also an important consideration. Your plans for the future should be central to your decision on whether to opt for the stability of a fixed rate vs. the initial rate advantage of an adjustable rate mortgage. Be sure to ask about fees. While fees may not impact the interest rate, they may be financed into the loan and, therefore, included in your monthly payment. If this is the case, you might be better off choosing a loan with a slightly higher interest rate instead of paying a large amount in monthly or upfront fees.
The term of your loan will also impact your monthly payment and how quickly you will build equity in your home. Mortgage loans have varying terms, usually between 15 and 30 years (although there are also terms available that are less than 15 years and more than 30 years). The shorter the loan's term, the higher the monthly payment and the quicker you build equity. Conversely, a longer term results in lower monthly payments, but slower equity buildup.
The size of your loan can also have an impact on what type of program you choose. Loans at or below the Federal Housing Finance Agency conforming loan limit usually offer a lower interest rate and lower fees. Loans above the conforming loan limit, known as “jumbo” loans, have an entirely different pricing structure.

Your loan officer can assist you with the analysis and determine the best solution for your specific solution.

How should I decide whether to use a fixed rate or an adjustable rate mortgage?

The main advantage of using a fixed rate mortgage is that your payment will never change; therefore, you will not be subject to rising market interest rates. In most cases, an adjustable rate mortgage (ARM) will have a low fixed-interest rate during the introductory period, which could be as few as three years or as many as 10. This introductory rate is generally lower than the fixed rate. Following the initial introductory period, the rate will adjust to the current market rate. If current rates are lower, your rate and mortgage payment may decrease. But if current rates are higher than the initial rate, your rate and mortgage payment may increase.

Borrowers who plan to sell the property or otherwise pay off the loan in four to five years commonly use an ARM. In those cases, a 5/1 ARM with an interest rate lower than a 30-year fixed rate may make sense. However, if the home is not sold or the loan is not paid off, the loan payments could end up higher than if a fixed rate loan was used.

ARMs are also frequently used for large (“jumbo”) loans. Even a small interest rate advantage can amount to many thousands of dollars, which means a jumbo loan borrower has more incentive to use an ARM as a way to reduce their costs of homeownership. At the end of the initial period, if rates have gone up substantially, the borrower may be able to refinance into another ARM to “beat” the current market fixed rate. If rates have gone down, the borrower can either let the loan adjust (to a better, lower rate) or may be able to refinance to a lower fixed rate.

Bottom line and only you can answer this question: How comfortable are you with taking an interest rate risk in the future to save money now and possibly for some period in the future?

What is a rate lock?

A mortgage rate lock is an offer by a lender to guarantee the interest rate of your loan for a specified period of time, and you may have to pay a fee for it. The lock period (such as 30, 45 or 60 days) usually extends from the initial loan approval, through processing and underwriting, to loan closing. Your loan will close at the locked rate (barring any changes to your application details) even if market rates increase while your loan is in process. If a delay occurs and you are unable to close your loan before the lock expiration date, you may need to pay an extension fee to retain that rate guarantee.

If you choose to “float,” your interest rate is not guaranteed. In this case, you are accepting the risk that rates may go up or down while the loan is being processed. You can lock your rate at any time during the process, up to seven days prior to the loan closing.

The decision of whether to (and when) to lock should be discussed with your Loan Officer. While they can inform you about current market conditions, ultimately, the lock/float decision is yours based on your assessment of the interest rate environment. An interest rate lock isn’t about getting the best loan deal, it’s about protecting your homebuying power.

What information is required during the loan process?

Your Social Security number
Current pay stubs or, if self-employed, your tax returns for the past two years
Bank statements for the past two months
Investment account statements for the past two months
Life insurance policy
Retirement account statements for the past two months
Make and model of vehicles you own and their resale value
Credit card account information
Auto loan account information
Personal loan account information

If you currently own real estate:

Mortgage account information
Home insurance policy information
Home equity account information (if applicable)