My Valentines Post on Commitment

February 14, 2008 by 3 Comments

Valentine

Just in time for Valentines Day, I thought I would revisit a word that used to horrify my husband before we married a couple years ago (on April Fools): commitment.   I’m thinking about this because I received this comment from a potential client, it’s a common one and I appreciate their honesty:

"I would like to go ahead with preapproval if it does not cost anything and does not bind me in any way to anything….How long can I shop after getting preapproved?"

There are many issues that this brings up.  My response to this home buyer in a chocolate covered nut-shell (you got to have chocolate on Valentines) is that I’m happy to provide a prequalification without obligation.  However, I will not do a preapproval at this stage in our relationship.   Here’s why:

  • A true preapproval involves more than just my efforts and time, which alone are valuable and limited.  With a preapproval, I may also be involving the time of my Processor and Underwriter. 
  • Back to my time:  I have to prioritize which clients I’m working with in any given day.  My first priority is to bona fide transactions.  I must take care of those who have committed to working with me first.  Especially in our current market.
  • Preapprovals also involve more costs.  There is a fee to underwriting and credit (minimal for credit).
  • Lenders are relying on our commitments as originators when we submit loans to them.  Having a higher "fall out" from clients who do not close a transaction jeopardizes our relationships with those lenders.  One lender I work with tracks "fall out" and charges a slight fee (0.05 bps) when our fall out ratio is too high.

Other Loan Originators may be perfectly happy to issue a preapproval letter to people who are not ready to commit to a Mortgage Professional.  The preapproval letter may or may not be legitimate.   

As a home buyer, would you rather work with a Loan Originator who is chasing ever rate shopper (which is a lot of work) or a Mortgage Professional who is committed to you, your transaction and sticking around for you after closing by continuing to keep you informed of news that may impact your mortgage?

Related Post:  When Are You Obligated to a Loan Originator?

My Favorite Valentine’s Post: There’s No Love for the Subprime Borrower

Filed Under: Refinance, Residential Purchase

Tomorrow Morning I’ll Either Look Like a Hero or a Zero

February 6, 2008 by 3 Comments

Hero

Just before 5 tonight I provided a Good Faith Estimate along with a Total Cost Analysis comparing four price points for a 30 year fixed rate purchase closing at the end of March.   You see most lenders are not allowing locks to take place “after hours”; you have to wait until the markets re-open in the morning.  This home buyer is still shopping rates with various lenders and so when she calls them tomorrow, my estimate is either going to look outstanding because rates have increased (and I won’t be able honor it since it’s not locked tonight) or I’m going to look like a mooch with higher rates because the market has improved.  Unless rates are unchanged, the rate on my good faith estimate is worthless.

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Filed Under: Interest Rates, Mortgage, Residential Purchase

New Mortgage Porter Feature: Weekly Tips

February 6, 2008 by Leave a Comment

Are you considering buying a home or refinancing in the future?  You can now sign up to receive weekly email tips on home buying, preparing to refinance and credit scoring.  Simply click on the links I’ve provided on the left side of Mortgage Porter under the green Mortgage Weekly box at Favorite Links. 

It’s simple, free and I won’t hound you (unless you want me to)!   

Filed Under: Credit Scores and Reporting, Refinance, Residential Purchase, Tech/Tools of the Trade

Property tax on new constuction homes

December 1, 2007 by 2 Comments

Yesterday I was following up with a home buyer who I wrote about previously at Mortgage Porter.  They wanted a second opinion on their Good Faith Estimate which I provided.  It’s really hard to beat "builder credits" for working with their preferred lender when the purchase and sale agreement is all ready written.   If you have not presented the offer, you can always have the offer presented with the same credit and using YOUR lender…especially these days!

I was truly pleased to hear that the home buyer did indeed close and receive the rate they were expecting.   Here is their response:

"…The lender was nice enough to waive the processing fees ($750) after I complain about the high fees, however they did charge me the discount point fee.   I guess it never hurts to compare and complain.  I was able to utilize all the $8000 toward closing.   

The only thing that shock me was the property tax.  All the time I was quoted the land value property tax only. I chose to pay the land plus home value property tax at closing because I had to utilize all of the $8000 closing credit.  It added up to be 1.27% of my purchase price of $455,000.  How is property tax calculated?"

I always say to focus on the total costs shown on Section 800 and compare that with the rates of others…but you do need to be aware of other "tricks" that may happen.   Loan Officers should not under estimate property taxes.   Unless you provide your LO with a property address and the home has been assessed (not new construction), the going estimate in our neck of the woods is 1.25% of the sales price.   

For example, if your buying a newly constructed home with a sales price of $500,000; the monthly taxes should be $520.83.  (500,000 x 1.25%/12 months).

If your estimate is lower; you may want to question the lender and/or real estate agent.  It’s possible that if the seller may be receiving a Senior Citizen tax exemption greatly reducing the amount they pay; unless you qualify for their exemption, you’ll have the full bill.

With new construction, it’s very important to make sure enough taxes are collected to cover what will be due once the Tax Assessor decides how much your lovely new home is worth.   If there is a difference in what was collected, you will be paying if it’s short (aka omit taxes) and you may receive a refund from your lender when your escrow/reserve account is reviewed or King County will refund overpaid taxes when more than the full year was paid.

When I provide a Good Faith Estimate I request the property address so that I can research what the property taxes are.  Most local counties have this information available on-line for consumers, too.

I’ll do a post in the future addressing how property taxes on existing homes are calculated.

By the way, I always welcome your questions.  If you’re wondering about a certain mortgage or home purchase issue, chances are someone else is too.   Your question may help someone else in your shoes. 

Filed Under: Residential Purchase

Why you should make sure your condo is on the FHA approved list

November 26, 2007 by 7 Comments

Approved

Editors Update: Loan limits are different than what’s reflected below from when this article was originally written.  Check with your local FHA approved Mortgage Originator to see what your loan limits are (or click on the link in the second paragraph).  

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Filed Under: Condos, FHA, Refinance, Residential Purchase Tagged With: , ,

Picking your next mortgage by rate shopping? You might as well be playing Liar’s Poker.

October 23, 2007 by 8 Comments

Poker_2

Rate shopping to select who will be assisting you with your next mortgage is similar to playing “liars poker”.  The Loan Originator who is the most successful at bluffing wins.  The fact is, unless you’re locking in the rate at the moment you’re shopping, you don’t have that rate.  It’s a rate quote–that’s all. Mortgage rates change throughout the day.  They are based on mortgage backed securities: bonds.   Some lenders I work with offer “live pricing” and others issue rate sheets; sometimes we can have several rate sheets offered by a lender during one day.

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Filed Under: Financial Planning, First Time Home Buyer, Interest Rates, Mortgage, Predatory Lending, Refinance, Residential Purchase

You don’t need 20% down to buy a house: 100% and 97% LTVs

October 17, 2007 by 2 Comments

In light of the tightening guidelines in the mortgage industry, I can understand how a consumer might think they need to save up a hefty down payment to purchase a home.   The fact is, there are many programs available that allow minimum down payments.   Here’s a small sample:

Conventional

Fannie Mae and Freddie Mac both offer 100% loan to value programs with either LPMI (lender paid mortgage insurance) or monthly private mortgage insurance.  Conforming loan limits do apply (currently $417,000 for a single family dwelling).   620 minimum credit score.   These programs may allow gifts from family as well.

FHA

The down payment for a FHA insured mortgage is approximately 3%.  Sellers can contribute up to 6% as long as the buyer is investing a minimum of 3% into the transaction.    Gifts from family are acceptable for the entire down payment and closing costs.   Loan limits do apply.   Very competitive interest rates with low monthly mortgage insurance (upfront mortgage insurance is financed into the loan).   FHA mortgages do not use credit scores (it does consider credit history) and do consider alternative credit for borrowers who have not established a credit history.

VA

The original zero down loan created for Veterans.   Sellers can pay all of the closing costs if negotiated in the purchase and sale agreement (also referred to as "double zero down").  Interest rates are very competitive with conforming rates.  There is an upfront VA funding fee that is typically financed into the mortgage.  There is no monthly mortgage insurance.   

To find out if you qualify for one of these programs, contact a qualified Mortgage Professional in your area.   Be wary of any lender who instantly steers you away from FHA or VA financing.  This could simply be a case of them not being an approved lender and therefore they’re not able to offer it.

Regardless of what the underwriting findings are on any of these loans, when you’re buying a home, I strongly recommend that you have a minimum of 3-6 months of savings available in your accounts after closing.   Life happens…even when you own a home and it’s best to have an emergency cushion in the event you need it.

Filed Under: FHA, Mortgage, Residential Purchase

Comparing Good Faith Estimates

October 12, 2007 by 5 Comments

Earlier a Mortgage Porter reader contacted me regarding working with their Builder’s Loan Originator.   They faxed their Good Faith Estimate to me to help review their closing cost fees associated with the rate.   You can click on either estimate for a larger view.   Here is the Builder’s preferred lender’s estimate 30 Year at 6.25% (APR 6.4246%):  Scan0002

Here is my estimate 30 Year Fixed at 6.25% (APR 6.442%):

Scan0001_4

When comparing good faith estimates:

  1. Make sure you’re obtaining the same lock periods (in this case, both estimates are for 60 Day Locks) and that you’re getting your estimates at the same time on the same day (I used a rate sheet from October 10, 2007).
  2. Add up all the costs shown in Section 800 of the Good Faith Estimate.   The total cost for the Builder’s GFE is $5200 and my GFE total cost is $4332.60.   This is a difference of $867.40 (my estimate has lower costs).
  3. Ask each LO if they will guarantee the closing costs shown in Section 800.   If they don’t, ask why not and listen hard.   There’s no reason a LO cannot back up the closing costs they promote on a GFE once a borrower is approved and the loan is locked. 

NOTE:  The Builder Lender’s APR is lower than what I’m quoting, yet my APR is higher even though my costs are lower for the same rate.   This is once again evidence why you DO NOT SHOP YOUR MORTGAGE BY APR.

I’m assuming the buyer has signed a purchase and sale agreement with the Builder who is offering a $5,000 closing costs credit if the buyer works with their lender.    They’re charging a 0.25% Discount Fee (shown on Line 802 of both estimates) where I would not.   The buyer should ask the builder’s lender why they’re charging a discount for that rate for 60 days when other lenders are not.   

When you’re receiving a credit from a builder, you certainly want to make sure that you are receiving the full benefit and that it’s not being absorbed by the lender.

Filed Under: Mortgage, Residential Purchase
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