Jan
25
FAQ: How do I save on closing costs?
Filed Under faq, mortgage | Leave a Comment
Q: How do I save on closing costs?
A: To save on closing costs, you need either strong negotiating skills or a lot of time on your hands to shop.
Strong negotiating skills: When dealing with a lender one on one, you need to realize that everything is negotiable. It’s a matter of who’s going to pay what. If you don’t want to pay for an appraisal, a credit report, a processing fee, etc. you can let the lender pay for them but you may get a higher rate. Some lenders pay for your appraisal especially if you’re a referral or a repeat customer. Some lenders charge an application fee on their good faith estimates only to waive it at closing. Have your lender explain each fee. If they have trouble explaining a fee or if they say “don’t worry about this fee” or you should choose another lender.
Lot of time on your hands to shop: Have lenders compete for your business. However, when lenders compete you have to remember that not every lender plays by the rules. One lender may give you the deal of a lifetime just to get your business and surprise you with a higher rate or costs at closing. Make sure you shop on the same day as well since rates change daily and make sure you only compare the lender portion of the good faith estimates (section 800) since some lenders may not include title and government fees.
The real answer is caveat emptor.
Sep
20
We liked you better, but….
Filed Under mortgage | Leave a Comment
One of the most disappointing experiences in my young career as a mortgage professional is when potential borrowers called me to let me know that they were going with the real estate agent’s lender. Their exact words were “We liked you better but we got a better deal.” The bad news came on the heels of me working til 12 AM the night before getting the loan documents ready to submit to underwriting the next day. It was a bitter pill to swallow.
Whether or not my potential borrowers did in fact get a “better deal” is highly unlikely. More often than not, borrowers end up with higher rates than what they were initially quoted. The stark reality of the mortgage business is that it’s super competitive. However, with competition comes deceit and fraud. When you swim with sharks, the sharks call it “salesmanship” or “doing whatever it takes to get the deal.”
When I meet with borrowers that I know are rate shopping, I challenge them to be more BS sensitive than RATE sensitive. I also tell my borrowers how to shop for a mortgage, following three simple rules:
- Shop on the same day. Rates change every day, sometimes during the day. So shopping on different days or different weeks is not very effective.
- Get a good faith estimate then compare only the 800 section. These fees are what lenders charge. The title fees, reserves, government recording fees, etc. are variable.
- Buy Tylenol or Advil. Shopping for a mortgage is a headache and if you choose poorly, expect your headache to get worse.
Last rule…. if a lender says “I can get you the best rate” or “I can beat my competitors rate”, you should seriously consider another lender. As lenders, we all lend money from the same pool, so there’s not much discrepancy in rate but a huge discrepancy in service. So shop wisely!
Jan
1
Why use a mortgage broker
Filed Under mortgage | Leave a Comment
Here are some reasons why you would use a mortgage broker:
There are many reasons that you should use a mortgage broker and many advantages to using a mortgage broker. One reason to use a mortgage broker is because a mortgage broker has access to all kinds of different home loan programs.
A mortgage broker’s job is to assess your situation and then shop your loan via 100 different lenders in order to find you the most beneficial loan for your situation. We have access to over 1200 different loan programs and are able to obtain wholesale rates which can save you $100,000 plus over the life of your loan.
Here’s something to keep in mind. As a mortgage broker, I’m completely independent. I’m not employed by or work for any bank or lending institution. I work for my clients. The bank is going to look out for its best interests, isn’t it nice to have someone working for you, the borrower, and looking out for your best interests?
Many mortgage brokers have expertise in certain types of loans, such a construction-to-permanent loans, poor credit loans, or reverse mortgages. If your situation has special obstacles a mortgage broker may be the best answer.
A mortgage broker is an individual or firm that acts as an independent agent for both the borrower and the lender of a mortgage loan. Mortgage brokers are the middle man between you and the lending institution, which can be a bank, trust company, credit union, mortgage corporation, finance company or even an individual private investor. A mortgage broker will analyze your financial situation to determine which lender is the best fit for your loan needs.
Mortgage brokers have the advantage of being able to access dozens of rates quickly for similar loan programs from different lenders. Although banks have similar programs, their rates can vary widely. Mortgage brokers, through experience and through searching rates, can find which lenders are offering the lowest rates at any given moment.
Mortgage brokers have more options than banks. For example. if you have poor credit and need a sub-prime loan, your bank may have access to one option. A mortgage broker would have access to dozens. Other situations where mortgage brokers would be able to provide you with more options than a bank include manufactured homes, rural properties, commercial properties, first time home buyers, and special credit situations, such as bankruptcies and foreclosures.
Working with a mortgage broker has many benefits. Just to name a few: we discuss and explain the programs that are available to you in your particular situation. We inform you in writing that you loan interest rate is locked and wont change. We explain all the documents in plain English so you understand what you are signing. We explain all the costs involved in closing the loan. We give you a time-line of the loan process. We provide you with a good faith estimate. We also coordinate the final closing of your loan.
Mortgage brokers have access to wholesale rates, where as your local bank only has access to the rates that they offer. This can save you money on your monthly payment, especially if you have a unique situation that your bank will not be able to handle.
Mortgage brokers are also familiar with the area in which they operate. Using someone local has big advantages. With so much mortgage information online, it’s hard to know who to choose. If something goes wrong along the way with your loan, it is easier to deal with if you have a loan officer you can meet with face to face rather than a website or 800 number.
A mortgage broker is also able to move your file to another lender should a better deal appear. Or if there is a problem with your file in underwriting your mortgage broker can switch lenders within minutes and ensure you meet your close date. Local banks cannot do this.
Jan
1
Understanding a Good Faith Estimate
Filed Under mortgage | Leave a Comment
A brief overview of how to make sense of a mortgage good faith estimate:
The GFE, short for Good Faith Estimate, shows the interest rate, term, loan amount, and all settlement costs on a particular loan. The items on the GFE can be divided into three major groups: Interest rate and points, fixed-dollar loan fees, and third-party charges. A dishonest loan provider can manipulate all of these figures. There is no legal liability for errors on the GFE.
On the GFE (Good Faith Estimate) you will notice some letters at the end of line 800: PFC, S, F, POC. PFC means Prepaid finance charge. These are the charges that are associated with calculating APR. S means Seller Paid. These are items that the seller will be paying at closing. The F means FHA allowable. These items are permitted by FHA. Lastly the POC stands for Paid Outside of Close. This means that these items will be paid for, generally, before close. Some common items that are paid outside of close would be appraisal fees, homeowner’s insurance premiums and homeowner’s association dues. On some GFE’s these letters may simply be filled in after the dollar amounts of each fee.
Have each mortgage professional go over the Good Faith Estimates with you. Compare the items line by line. If you notice the cost of any item on a GFE significantly higher or lower than that of the same item on other GFE’s, ask the loan officer to explain the difference. Some dishonest loan officers might “low ball” their settlement costs to gain your business.
Federal law requires lenders and brokers to provide a written good faith estimate within three days after taking an application from a borrower.
In California, the Good Faith Estimate is also called the MLDS or Mortgage Loan Disclosure Statement, when produced by a mortgage broker rather than the direct lender. The statement will itemize which costs are from the broker and which are from other parties.
It is important to keep a copy of the original GFE your are shown, to compare it to the final closing statement before you sign your loan documents.
Items checked as pre paid (PFC) finance charges will affect the final APR of your mortgage.
The 800 section of the GFE is what the lender, broker, appraisal fees are. These are the fees you will want to compare with different lenders and brokers. the 900, 1000, 1100, 1200, ampersand 1300 are all third party fees. The 1100 section are the fees charged by the title company.
Jan
1
Types of closing costs
Filed Under mortgage | Leave a Comment
Certain areas of the country may have added closing costs, but these are the general types of closing costs you might see at closing: Attorneys or escrow fees Property taxes Pre-Paid Interest Loan Origination fee Recording fees First premium of mortgage Insurance Title Insurance Loan discount points First payment to escrow account for future real estate taxes and insurance Paid receipt for homeowners insurance policy Underwriting fee Tax service fee Broker fee Appraisal Fee
Always take your Good Faith Estimate with you to compare to the fee’s on the final HUD statement. You want to make sure that there were no extra added fee’s.
Recording Fees are the costs to record any documents that needed to be recorded at the county clerk’s office. The most likely documents that are recorded are the mortgage agreement, the note, and the deed. Recording is often done by the title company.
The Settlement document containing the final closing costs or HUD may also be referred to as the HUD-1 or HUD-1A
Closing costs are fees associated with any real estate loan transaction. Federal law requires the lender to disclose all reasonable fees at the origination of the loan on a ‘good faith estimate’ within 3 days of application. All actual closing costs are then again disclosed on the closing documents , commonly called the HUD .
Property taxes may be credited to you if they are paid in the back or you may have to pay the property taxes if they are prepaid in that particular state.
Prepaid interest is the interest per day that the lender charges for using the money. For example if you close on the 10th of the month you will pay interest for approximately 20 days (in a 30 day month) for using their money for 20 days then on the first of the following month your interest will start to accrue daily for the full month. The purpose is so that when you make your first mortgage payment you are only paying the 30 days worth of interest and some to the principal compared to paying for 50 days worth of interest if you were not to pay the prepaid interest.
Jan
1
The Lending Process
Filed Under mortgage | Leave a Comment
The Lending process starts with interest from the borrower in either buying a home or refinancing. When thinking about buying a home many people start to look for houses first. The first step should always be to consult with a mortgage professional. When talking with a mortgage broker you will need to disclose information about credit, income employment, and housing history. These factors all contribute to the ability to qualify for a loan. The mortgage broker will often get a full approval before issuing you a pre-approval letter. This will need to be provided to any real estate agents involved with the purchase of a home. In either a refinance or a purchase the remainder of the process is relatively the same. Often as a borrower you will shop for the best rate once you have gotten pre-approved. The best way to do this is to get your credit scores from the first broker so you can provide it to subsequent brokers. This will help limit the number of inquiries on your credit. Make sure you are comparing apples to apples; get the type of loan, estimated payment (just principal and interest), the rate, the estimated closing costs, and the APR. Also be aware that interest rates vary much like any other financial market, rates can go up or down from day to day, so try and make all your calls on one day. Once you have chosen a broker you will be required to sign an application package. This will consist of the application, disclosures, good faith estimate and several other documents. At this point the broker will also require copies of documentation: pay stubs, W-2s or 1099s, bank statements, current mortgage statements, home owner’s insurance statements, sales contract, etc. The type of documentation requested will depend on the type of loan and if it is a purchase or a refinance. In the case of a refinance there is not much else for the borrower to do, in a purchase you will need to start to contact an insurance agent and work with your realtor for the home and pest inspections, etc. Now is when the mortgage broker starts to put your loan together for the lender. The broker orders the title work, and the appraisal, and starts to verify the information and documentation provided. The broker may need to contact your bank, employer, landlord, or other creditors to get written confirmation of the information you provided on the application. Once the title work and appraisal are complete, which may take a week or two, the broker compiles all the information and organizes it into the specific format for submission to the lender that has been chosen for your loan. The lender reviews the submission in a process called underwriting. Once the lender has verified all the information and documentation submitted they may ask for additional documentation or information. If they need anything else they will send the broker a list of conditions or stipulations. If nothing else is needed they will issue a clear to close and the broker will schedule the closing with the title company, borrower and the real estate agents and seller in the case of a purchase.
A Quick Summary of the Loan Process:-Find the mortgage that best fits your needs.-Fax, mail, or deliver the paper work that a loan officer has requested.-Sign and return the loan papers.-Get the home appraised.-Loan goes to underwriting and additional documents may be requested.-The loan is approved and closed.
The length of time that the lending process will take can vary. Factors that go into the amount of time it takes include who the lender is, how busy the lender’s underwriting department is at the time your file is submitted, availability of the appraiser and other things. Delays by the borrower in getting needed documents to the broker or lender can also cause the loan process to take longer.
You will also need to provide the name of your insurance agent so that your policy will reflect accurate mortgagee clause information.
The Lending process can be nerve racking to some borrowers. A competent loan officer will keep you informed so you know what stage the lending process is in. Borrowers should be prepared for bumps along the way. These bumps happen most often because everyone involved in the process has their own time schedule including the borrower. A good loan officer will explain this to you and minimizes these bumps in the process.
One of the most important features of being involved in the lending process is not delaying. There are so many moving parts in the process that any one person’s delay can cause the time to funding greatly prolonged.
Always be upfront with your loan officer and do not withhold information from him. Your loan officer will look out for your best interest, and the best way to do that is by having all the facts up front.
Part of the lending process is locking the interest rate. You can lock rate any time from the initial application to 3 days before closing. Depending on whether it is a purchase or refinance, most banks allow you to lock for 15, 30, 60, 90 days, or even longer. The longer an interest rate is lock for, the higher the interest will be. Therefore, you should always discuss with your loan officer about when and for how long should you lock your interest rate.
The documentation requested of you, during the loan process, from your mortgage professional will vary depending on the loan you are attempting to get. For example if you are doing a stated income/stated asset loan, then you will not be required to provide tax returns, bank statements, or other things of this nature.
It is a good idea to go over with your mortgage broker the steps that he/she will have in their personal lending process as the time schedules and procedures may change from lender to lender.
If you have any questions about what point you are at in the process, you can always call your loan officer and ask. They are there to help you, answer all your questions, and put your mind at ease.
Jan
1
Questions to ask your lender
Filed Under mortgage, rates | Leave a Comment
Before you sit down with any lender or broker there are some questions that you should ask them before you go any further in the loan process. First, you should ask what is the interest rate? Be sure to ask for the APR of the loans interest. Normally, the APR is higher than the original rate because of the fees involved in getting a loan. You should be aware of APRs founds in ads. These are often used to bait and switch customers just to get them in the door. Always ask for an itemized GFE (Good Faith Estimate).
If you are considering and FHA or VA mortgage be sure to ask up front if your preferred mortgage professional is HUD approved. You may find than many smaller mortgage companies are not HUD approved but will refer you to another company that is.
Discuss with your loan officer the type of mortgage program that fits your situation, Fixed or ARM, 30 years or 15, fully amortized or interest only, etc. Each type of mortgage is designed with a particular borrower in mind, and is not suitable for every home buyer.
It is a good idea to ask any questions that you may have about the loan and the loan process at the beginning. If you wait until the end, you may feel pressured to sign the papers, because of all the work that was put into them. You are the person that is responsible for making the payments, so you need to feel comfortable with your loan program.
Ask your mortgage professional to explain any programs he or she recommend. Make sure you completely understand your loan program, including fees, rate, possible future adjustments, any negative amortization, and pre-payment penalties before you sign at closing.
Jan
1
Purchasing a Home
Filed Under mortgage | Leave a Comment
I am interested in buying a home. What do I need to do to buy a home? How much of a home loan can I qualify for? Can I get a house with no money for a down payment? I want to buy my first home. These are a just few examples of the most common comments and questions made and asked every single day by thousands of people from all over the country. Buying a home can be a relatively scary task, especially for the first time homebuyer. However, working with a good mortgage consultant or mortgage broker can make this a very gratifying and pleasurable experience.
Before shopping for your dream home in your desired neighborhood, obtain a copy of your credit report and examine it for any negative or incorrect items. If so, contact the three major credit repositories and request to have the false items removed. Preparation will get a home buyer the best deal in both the house hunter process and the mortgage application.
Purchasing a home makes more sense than renting. People who purchase homes gain the tax advantages that comes with purchasing a home. Another benefit of purchasing a home is the appreciation you gain. When you consider the tax advantages and the appreciation, you’ll see that purchasing a home makes more sense than renting.
You will want to decide on a mortgage company to provide you with financing for your home. A mortgage broker is often the best option for your financing. You should pick a mortgage broker you are comfortable with and who will provide you with a Good Faith Estimate and a rate lock letter when a rate is quoted and locked.
Working with a broker can benefit you because brokers have access to the loan programs provided by hundreds of different lenders. In effect, they are shopping all of the different lenders for you to make sure that you get the right financing for your situation.
Once you are pre-approved by your mortgage professional, you will need to find a real estate agent that you can trust. Your local mortgage professional should be able to give you a couple of names of their trusted realtors. It’s important to find a real estate agent that you like, because you may be spending a lot of time with them.
Jan
1
Property Taxes Explained
Filed Under mortgage | Leave a Comment
There are many, many misunderstandings and misconceptions about property taxes. Very often, property taxes are the reason your actual closing statement look different than your Good Faith Estimate.
One thing to keep in mind is that when you refinance your home, the lender will normally require any property taxes that are due within 90 days of the funding of the loan to be paid. These taxes will normally be paid through the proceeds of the loan by the settlement agent at closing. If you want to pay them outside of the loan it is best to pay them to the settlement agent rather than paying the tax collector. Your mortgage professional can explain why this will help expedite the closing of your loan.
You want to make sure there are no back taxes due on a property when you are considering purchasing. This is especially important in states where there are options for no escrow.
Each state handles property taxes differently. In California for example there is proposition 13. This makes the homeowner responsible to pay taxes for the purchase price of the property. Regardless on how much the home appreciates they will only pay taxes on value at the time of purchase.
You may have the choice as to whether or not to escrow your property taxes. If you elect to pay the taxes yourself, your lender may charge you a slightly higher interest rate. The taxable value of real estate is the basis of secured property taxes. Property taxes are calculated by multiplying the property’s taxable value by the tax rate for the area where the property is located. Example: $300,000 (taxable property value or assessed value x 1.5% (tax rate for area) = $4,500.00 (property taxes)
Property Tax is prorated at the closing table between the home buyer and the home seller. If the seller has paid the full tax amount for the entire year, the buyer has to reimburse the seller for the remainder of the year. If the seller owes real estate tax in the year, then the seller reimburses the buyer for the period the seller has occupied the property.
Some lenders may not disclose the property taxes on their good faith estimates for various reasons. One reason is that escrows are typically not known until you settle on a closing date.
Jan
1
Prepaid Interest
Filed Under mortgage | Leave a Comment
Prepaid interest is collected by the lender, to pay for the interest charges for the remainder of the month during which the loan closes escrow.
Although you will pay prepaid interest at the time of the closing of a new loan, you will almost always skip one months mortgage payment as well.
During a refinance interest will also be charged by the preceding bank. Usually 30 days of interest is charged, above the actual principal balance, at the time the bank issues a payoff amount. This will need to be paid forward, and a reimbursement will be issued for the balance within 30 days.
If you close early in the month you can get an interest credit and pay no pre paid interest for that month. However your payments will not skip a month and your first payment will be due on the first day of the following month.
Prepaid interest must be disclosed on the Good Faith Estimate along with other closing costs. The amount expressed on the Good Faith Estimate will correspond with the estimated closing date indicated. The amount of prepaid interest that you will actually pay at closing will correspond to the actual closing date.
Closing later in the month will decrease the prepaid interest collected at closing. If you are seeking to minimize closing costs, this is something to consider.
Mortgage interests are paid in arrears, after they are earned by the banks. For instance, the interest portion of the June mortgage payment pays for interest accrued from May 1 to May 31. Prepaid Interest, on the other hand, is interest paid on the day of settlement, prior to being earned by the bank, hence the term “pre-paid”.
Prepaid interest is calculated by multiplying the per diem (per day) interest on the loan by all of the remaining days in the month (remaining days start on the day the loan funds). A refinance transaction generally funds 3 days after the closing date (Sundays and holidays excluded) and a purchase transaction generally funds on the closing date. Example: purchase transaction closes on 01/25/06 (funds same day) $25.50 is per diem interest on loan (interest per day) x 7 days left in the month = $178.50 prepaid interest on this mortgage transaction