MortgagesUndressed

A funny video on the Federal Reserve Chairman.

I know I said no technical stuff, but this is worth it. Thanks to dabacon.org. it was through him that i found it.

Some that speak out, even some of the Feds, talk about rebates as if they were some deep dark sinful practice. Rebates are not necessarily bad.

The purpose of this article is to inform you. Understanding rebates will make the loan process make a lot more sense. It can also make you wise. Wise is good.

To keep it simple, I refer to all types of rebates as a rebate. There are other fancy names. You know what a rebate is, for this article, they are all rebates irregardless of their name. Both banks and mortgage companies have them in one or more forms.

On almost all loan programs your loan officer can select from 6 to 10 different rates for you. Usually by mid morning each lender announces their rates. In looking at a rate sheet for last week I find one National Bank quoted the lowest rate available at 6.125% for a 30 year fixed mortgage. That same bank would lock your rate at 6.75% for the same program.

Why two rates for the same program? Actually they offer six choices on this day. At 6.125% there are fees just to get that rate. At 6.75 % there is a rebate. As the rate goes higher the rebates go higher.

The benefits to you of the higher fee - higher rebate option, can be in what the loan costs you at closing. This is where the no cost loan comes from. Assume you will take 6.75% as your interest rate. If you were borrowing $300,000 on this day the loan officer would have $5667.00 towards your costs. I have seen other banks that quote a rate with rebates that would pay as much as $9,000.00 in rebate for a $300,000 loan.

This concept shoots down what I have heard from many people: “You shouldn’t refinance unless you save X% in interest. Baloney. If you are willing to go through the effort of a refinance, and can do it with enough of a rebate to have no fees and cut your payment down, do it. Saving 1/4 of a percent interest on this amount would cut the payment by $49.05 per month. (Of course it re-sets the 30 year time all over.)

The rebate can however lead to a FAT FEE LENDERS DELIGHT. If he made a 2 per cent rebate and took it for himself he adds $6,000 to his income pot. The way you best avoid this event is to use a lender that is referred by your real estate agent. If the loan officer gets greedy and is found out by the real estate agent that referred you, the loan officer stands to lose all future business from the agent. It is your best safeguard, second to being educated.

We will talk about this subject more in the future.

Larry Cragun

Yesterday I noted this expert advice. It iimplied rates may go up. Today I note this expert information as to why rates just went down. These reports were two days apart, the second tracking information from a week ago. What do you take as pertinent information to your situation? What do you do about locking your rate? My answer, lock at time of application, unless closing is more than 30 days out. If it is, lock about 25 days from closing. Don’t try and beat the experts, as they often don’t agree. Larry Cragun

I have found it difficult to predict the direction of rates. One client said it seems like going to Las Vegas, deciding when to lock. This attitude certainly has merit. My upcoming article on who is gambling with your rate lock will shed more light on this.

I don’t plan on making this a forum that predicts rate directions. However, when I note what I believe credible information in this area I will post it.

So it goes today. I note a post by Dan Green. I follow Dans blog daily. The net of it is to expect rates to rise in the near term.

It is my experience that home shoppers need to research financing at the same time they research homes. People are spending months researching homes before they purchase. Is that you? Are you looking at homes you qualify for, working to qualify for, or dreaming to have someday? There is no wrong answer to this question.

The wrong answer is to be researching homes without researching financing. You should know what you qualify for, what you almost qualify for, and what you can qualify for with some changes. (Example: Lower monthly debt payments.) The more you know the more you are likely to choose a good lender, buy the home you want, and have a good purchasing experience. The fact is the less you know the more likely it is to hurt you. Too often people get tied up with a low skilled lender, with a lender that is too busy, or inexperienced.

Returning often to this site, subscribing to our RSS feeds will assist you greatly. You can ask questions, we will lead you to the right information. Start researching now.

Today I center on one common practice, a disservice to many home buyers. It is usually found in a pre-approval letter or certificate. It has language such as Mr. and Mrs. Jones are approved to purchase a home priced at $400,000.00 with 5% down, etc. etc. etc. Why is this a disservice? You qualify today, what about tomorrow? If the rates changes upward will it be $390,000.00? If so, now what do we do, get a new letter? What if I don’t find what I want at $400,000.00, but do find one I want at $450,000.00? Now what do I do?

A listing agent wants to see acknowledgement the buyer is qualified. For this reason your letter or certificate should match the offer price. But too often this becomes the lenders way to tell you what you can buy. This is the disservice. The first solution is to have the lender tell you what payment you qualify for and under what scenario he came to that conclusion.

You should be told at approval how much home that might be. However the payment includes taxes and insurance, perhaps mortgage insurance. You need to have a way to consider the difference different homes have in taxes for example. A good agent and an attentive loan office can do this for you.An actual approval will have an underwriter approval. Almost as good is automated underwriting. This takes the facts you provide, reviews your credit, and makes a decision. When I had a client tell me they wanted to qualify for $400,000.00 I would go for that approval first, then raise the request to see the maximum I could get them approved for. Usually they bought what they qualified for, not the lower amount.

If you have good credit, good cash reserves, certain job history, make a larger down payment or a combination of these; the system will often let you buy beyond the standard approval guidelines.

Why don’t some loan officers do it this way? It takes extra time and effort. It also pushes them to a level of less safety in completing the loan. After all if you qualify for $450,000.00 and you are getting approval for $400,000.00the risk of failing to deliver the loan is minimized.
The solutions for you then are the following:

1- Know the maximum payment you qualify for. As interest rates change and the payment stays fixed, the amount of home you can buy goes up or down. Stay on top of that.
2- Deal with a lender that will take the effort to have you approved for the maximum either by underwriter review, or by automated underwriting.
3- When you are getting ready to buy, be more attentive to what the payment translates to in home price.
4- Look to ways to qualify for more if the home you really want seems a little out of reach.

We will be adding tools to the site that will assist you in this. I will be willing to accept your questions on line where either myself or the public can help you. Come here often, subscribe, ask us for help. We can do this for you. That’s the bare bones facts. Larry Cragun.

Visit the FraudBlog.

To Scene 1 of Ann’s story

To go back to part one click here. Ann was in a bit of a panic as she was sure she didn’t qualify. I noted this urgency placed her in a position to be overcharged when in fact her loan was easier to do than a standard conventional loan.

Here is why: Ann had 3 major strengths in her financial picture: a credit score of over 700, equity of over 33%, and more than 6 months cash reserve in the bank. Her new commission job left her with having to attain her loan in a program that doesn’t ask for any income information. The rate was about 1% higher than a fully documented loan.

So, in fact this loan was approved and closed with ease, with no verification of employment, proof of income amounts, no tax returns, no pay stubs, no w-2’s to submit.

Some loan officers feel that if they know a nitche program the borrower doesn’t, as in Ann’s story, it is an opportunity to make a fat fee. I call these “fat fee lenders.” Fat fee lenders won’t like this forum. How I want to undress fat fee lenders. Help me out here, world.

Larry Cragun

As you visit this site we hope you will find we are on a crusade for transparancy in the mortgage industry.

Only agree to a loan with a prepayment penalty at last resort. (Except FHA has a miniscule one to not worry about.) If you think you are in a situation that requires one, get a second opinion, even from those of us at MortgagesUndressed.com. Larry Cragun

I speak of second mortgage. It is also called a line, line of credit, etc.

If you already own the home. If possible, always get it from your current bank, a local bank, or a credit union. Why is easy. It’s cheaper. I have never seen an exception to this. Reasonable not great credit is needed at a bank or credit union. You will probably find the bank you have your accounts with very cooperative, as they have a history on you and will want to keep you as a satisfied customer.

If you are purchasing and doing a combination first and second to save mortgage insurance you should always use your loan officers resources. No exceptions should be made to this. Why? Your purchase has a deadline when you must close. Coordinating these two loans will be vital. Please follow my advice here, make no exceptions. If your local bank is enticing you with a better rate on the second, forget it.

There is nothing wrong with going back after closing and replacing the second, just make certain you can do that without a pre-payment penalty.

Larry Cragun