Residential Purchase - The Mortgage Porter

What will mortgage interest rates be in October?

July 18, 2007 by Rhonda Porter Leave a Comment

Who knows…it could be a trick or a treat! This is a question asked earlier this week from one of my past clients. She has a friend who is buying a home that is new construction. The builder has "encouraged" her friend to use their preferred lender by offering $5,000 towards closing costs. The builder’s lender is refusing to quote rates, which unless they’re locking for 120 days or more…the rates they quote are useless. Technically, if the LO has taken a loan application, they are required to provide a Good Faith Estimate within 3 days.

Lenders do offer 120 day locks. There may be a non-refundable upfront fee and the rate is the higher (the longer the term of the lock, the higher the rate or cost for that rate will be). If rates are lower in October than they are today for a 120 day lock, you’ve lost your upfront fee. Even if you decide not to close on that property, that fee is gone. Not to mention, 9 times out of 10, builders take longer than they anticipate to complete construction of the home. At this point, they’re just pouring the foundation. The LO knows the buyer cannot or will not lock that rate yet.

I should add that this home buyer is well qualifed so being preapproved is not an issue. I don’t advise getting preapproved from a Mortgage Professional and then ditching them over 0.125% in interest rate. It’s very possible that the builder may require you to get preapproved from their lender even if you’re seeking financing elsewhere, in this case, I wouldn’t feel too badly about shopping them. It’s not your fault you’re being forced to provide your financial information to a lender who’s shacked up with a builder.

My advice to my past client’s friend is to:

Request a Good Faith Estimate based on a 30 day quote just to see for the heck of it what the LO would disclose for fees associated with the rate.
Compare other lenders using the same scenario to get an idea of what the builder’s lender fees are compared to other lenders offering the same rate.
When the construction is closer to 60 days out, obtain updated GFEs. At that point, you’re in a good position to lock in your rate.
It doesn’t hurt to ask! The $5,000 credit may be legit or built into the rate. It was probably all ready factored into the sales price of the home, however it’s too late to negotiate that once the purchase and sale agreement has been signed and some builders will not budge. Should you want to work with your lender vs. the builder’s lender, there is no reason why your agent cannot submit an offer asking for the same credit.

Filed Under: Interest Rates, Residential Purchase

How Returning an Overdue Library Book Declined a Mortgage Loan

July 10, 2007 by Rhonda Porter 5 Comments

Okay…it’s not just the overdue library book…we have a few other factors involved with this scenario. In February I began working with buyer who was contemplating buying his first home, a condo to be exact. We were able to offer a preapproval based on:

mid-credit score of 705
100% LTV Fannie Mae My Community with LPMI (Lender Paid Mortgage Insurance)
5 year fixed 10 year interest only payments (he qualified for fully amortized but opted to have flexibility with his payments)

The buyer, we’ll call him “Joe”, makes an offer on a condo that is in the process of going through a conversion. The builder also has a “preferred lender” and will only provide a seller credit to the buyer if the buyer uses their lender. Joe elects to stay with me because the builder’s lender cannot offer the same product and payment options, even though the seller credit was significant.

Here’s all the scoop:

Joe had an old collection on his credit report from a library book that was overdue. We had loan approval so I advised Joe to not pay it off until after closing. Paying off collections lowers your credit score: the credit scoring system recognizes it as new activity on a collection. Joe finds the book a few months into the transaction and returns it to the public library and paid his overdue collection. It’s a noble action and would have been perfectly fine…had he done it after closing.

Joe also wanted to make sure he was getting the best deal and decided to continue shopping lenders even though we were locked and approved with his mortgage. Shop, shop, shop…he did…and the lenders ran his credit report over and over again. 30 inquires over a couple of months HURTS your credit scores.

The condo conversion took months to complete (it was suppose to be done in early May and it won’t be finished until later this month)…so Joe’s credit report expired. Typically, credit reports are valid for 120 days. This is when we made the discovery that Joe’s credit score had dropped 40 points. Forty points may not sound like a lot to you, however…zero down financing is very sensative to credit scores. There is a tremendous difference between 660 and 700 with regards to your credit score…especially when you’re looking at 100% financing (zero down).

Joe is a great candidate for FHA financing, however the condo (being a conversion) is not. Zero down financing with a 660 mid score is not a pretty option.

Lessons (if you’re getting ready to buy or refinance a home…if you’re not, a different strategy may better suit you):

Don’t pay off collections prior to closing UNLESS it is required by the underwriter. (Pay them off after closing and be sure to get a documentation that they are paid).
To have the best credit score, try to have 3 established accounts that you use at least every 30 days. This could just be charging a tank of gas and then paying it off every month. When revolving accounts go “unactive” for a couple months, they are considered “closed” by the scoring system which does not help your score.
Keep your credit balances below 30% of the available credit line.
If you’re going to shop your Mortgage Professional, don’t let other LOs pull your credit. You all ready have your scores and that is all the information a LO needs for a rate quote.
Your documentation (such as credit reports, paystubs, etc.) are only valid for a certain time period. With longer transactions, be aware that your credit report may be re-pulled and/or employment may be re-verified.
Return your library books before they become overdue.

Filed Under: Credit Scores and Reporting, First Time Home Buyer, Mortgage, Residential Purchase Tagged With: collections, credit score

When will I know how much money I’ll need for closing?

July 2, 2007 by Rhonda Porter Leave a Comment

This is a common question from home buyers. The Good Faith Estimate, when done properly is a good indicator of what money is due at closing, however it typically just includes the fees associated with the mortgage. If there are other fees included with your transaction, such as an inspection or condo fees, they may not be reflected on the GFE. The escrow company prepares an Estimated HUD-1 Settlement Statement that you review at closing.

The HUD-1 Settlement Statement is essentially a balance sheet the Escrow Company prepares between both buyer and seller. They gather all the fees and credits between all parties (buyers, sellers, agents, mortgage, etc.) and creates the amount due from the buyer and amount to be credited towards the seller.

The lender fees on the Good Faith Estimate should ideally correlate with the Estimated HUD-1. For example, the fees shown on the GFE on line 801 (Origination) should be the same as line 801 on your Estimated HUD-1. If there is a significant difference from your last GFE to the HUD-1, you should contact your Loan Originator to discuss it.

When does the buyer receive this document containing so much information? Typically what happens is the escrow company waits until they receive the loan documents and escrow instructions from the mortgage company. Escrow Officers often times won’t even make an appointment for signing until they have this information (loan docs) from the lender (they’ve been burned too many times setting up tentative appointments). Sometimes, they will make exceptions if they know and trust the mortgage company. So unfortunately, it’s usually close to signing when this document is prepared. In most cases, someone from the escrow company will call you to schedule your appointment and will casually add, "you will need to bring a cashiers check in the amount of $$$".

Did you know you can request a copy of the Estimated HUD-1 Settlement Statement prior to your signing appointment? This is not standard practice, although it is totally acceptable. Your lender needs to be on the ball enough to have provided escrow enough time to do this for you. And you need to request it from the escrow company.

I like to review the estimated HUD-1 before my clients ever see it (unless I’m unaware an appointment has been made…which can happen when it’s an escrow company we don’t normally work with). Let’s face it, there can be errors made on the Estimated HUD-1 Settlement Statement…that’s why it’s called an estimate!

After closing, you will receive a Final HUD-1 Settlement Statement which has, much as sounds, the final figures relating to your transaction prorated down to the day of closing. You will want to hang on to this document for when you file your income taxes the following year.

Filed Under: Escrow and closing, Residential Purchase

My Community is now more expensive

June 28, 2007 by Rhonda Porter 2 Comments

Earlier this month, Fannie Mae changed the pricing on their My Community program across the board to all lenders by 1% increase to fee. If you’re using a My Community program and you’re transaction is not yet closed, you may want to check with your Loan Originator to make sure your lock is still valid.

Buying a house when you have a lot of debt

June 27, 2007 by Rhonda Porter Leave a Comment

A reader who recently moved to Seattle contacted with a question that I think many will relate to. He contacted me offering his story:

"One idea you may be interested in writing about are house buying options when you have good credit and income – but a lot of credit card debt. We’re paying off the credit card debt slowly — very slowly, and seeing housing prices rise 15% or more annually. It’s frustrating because as time goes by — the dream house only gets further out of reach. We will be able to buy a nice house — but not the dream house we could if not saddled with the credit card debt. The credit card debt also isn’t tax deductible!"

I work with many families who have visions of their "dream home" while they’re trying to manage monthly debts. And as if buying a home wasn’t stressful enough on it’s own, many home buyers seem to feel panicked over our local appreciation with home prices. It’s a definite balancing act of buying as much home you can afford without "betting the ranch". If you’re over burdened with credit cards AND you take on a hefty new mortgage payment, you could be setting yourself up for financial (and emotional) disaster.

I do not encourage using a mortgage such as an Option ARM for sole purposes of stretching into your dream home. If you make the minimum payments (which most will opt for) the deferred interest will reach it’s cap and you will be faced with a much higher mortgage payment. If you cannot afford the mortgage payment using a fixed period ARM or fixed rate product, you probably cannot afford the home.

It’s very possible that home buyers may need to redefine what their dream home is. Buying a home that needs a little TLC or is a little further out from the city may afford you more comfort when it comes to your monthly cash flow. Plus, you may receive a better return on this type of property should you decide to sell it in 5 or so years, using the net proceeds (profit) to purchase your "dream home".

For example, this 1800 sq. ft. completely remodeled rambler (now subject to inspection) was recently listed in Kent for $349,950. It’s on a corner lot, in a popular neighborhood with four bedrooms and 1.75 bathrooms. I’m not a Real Estate Agent, but I would bet that similar homes in Seattle would sell for closer to $500,000. Having the lower payment and more funds in the bank from a reduced down payment can translate into a higher quality of life. I know…I know…you do have to factor in commute times with our traffic. But once you’re home, you are HOME.

I will go into more details about this families information in future posts. They were gracious to share their information with me and their story is certainly not unique.

Filed Under: Debt Restructuring, Financial Planning, Residential Purchase