There are different options. I've worked with and around the biggest banks in the nation for many years now. I choose to be a broker because I consistently see this as the best way consumers get the best service and especially lowest rates and fees on their mortgage. I also pride myself on my comprehensive knowledge of the industry as well as presenting all sides of lending possibilities. So here is what I've seen...
First truth. Banks are in business to make money...
They employ loan officers, mortgage bankers, or what ever they are called in any given year to capture the most attractive market share to make the most money and please their investors.
Second truth. Banks will use every available channel to capture market share...
Folks, you can get a bank loan by going to a bank loan officer who will tell you that is the best way, or you can call in to their phone center for the latest mortgage special sent to you in the mail, or you can go through a broker who is being courted by their wholesale account representative who is assigned to sell me on why their wholesale division is the best around for brokers.
Yes, your loan will ultimately end up being serviced in the same place, but you will have many ways to get through the application and closing process. And they will all tell you their way is the best!
As I've said, from my first hand experience working for and with each of these different entities, I personally believe broker between banks is the best. And here is why...
Working with an experienced broker with a comprehensive knowledge of the industry provides you with insider insight (leverage) into which bank is aggressively seeking the type of loan you need. At different times during the year, banks get aggressive and conservative with their rates and underwriting conditions. Lower rates and more flexibility with approving your loan at different times depending on their business practices, time of fiscal year, whether they are building capital or building their loan portfolios. As well, certain banks go after niches that they want to build. If you go to one bank for your loan you lose this leverage.
Example: I often see different banks, and I'm talking about the biggest in the nation, each have more attractive rates on the 30 year, 15 year, and ARM products separately. Same goes for banks that specialize in large loans, construction loans, and financing different types of commercial property. Many of the bigs on the retail side will tell you they do it all, but they have different pricing (better than market or worse than market) on certain products depending on what kind of loans they want to attract that month.
Internet shopping employs the same idea of shopping banks that brokers employ, without the sometimes high pressure of meeting with a broker in person. I think that it why it is attractive to some. But, I've competed with the internet quite a bit with consumers who go there first and then come to me. I've found I can beat their rates and fees offered--EVERY TIME. Reason: Uniform price collusion. Time and time again when I or associates have priced the internet, I find their rates and fees to be higher than normal. But, by presenting a united front, they appear to have given the shopper a number of competing offers--but all at inflated rates.
Also, the biggest weak point that internet intake vehicles lack is local experts, flexibility, and a local office. What if you are unhappy, where do you go to look someone in the eye and seek remidiation? As well, lending rules and regulations differ from state to state. Not to mention title and taxes. Do you want some phone intake national loan officer making $50 an application steering through the confusing loan process? And if they are making $50 a loan are they really going to go the extra mile if there are ways they could save you money or help push your loan through if you are right on the border of qualifying for the best possible loan terms (or qualifying at all!)
Folks, I see my role as a consumer advocate. I use my experience and lender relationships to ensure your loan gets done. As well, I use my knowledge of who is aggressive with rates and niches to insure you get the lowest rates and fees on your loan. As always, I invite you to compare, you'll be glad you did.
There are a number of options to finance that new home--even if the market is slow and listing times are long...
First, get a team of experts on your side. Interview a few realtors and see which ones have the best strategy for selling your existing home. Ask them how long their personal listing times are, how they plan to market your home, and what exclusive listings techniques they employ to stand out in an overcrowded market. A good realtor will be straight forward with you about freshening up your homes interior and exterior, as well as what price you should list at and ultimately hope to get for your home.
Second, consider some form of refinancing of your existing home to put down money towards your new purchase. Traditionally, a bridge loan, not tied to your house, but to other collateral (credit, assets, banker relations) was common to use. But, increasingly, these have become outdated and are very expensive in terms of carrying high interest rates and fees. A better way is to do a cash out fixed rate or home equity line refinance on your existing property. You can often use the equity in your current home and the fact that it is your defacto primary residence to your advantage, often at little or no cost to you with much better interest rates than a bridge loan.
Finally, the key is to give your self enough time to do this! Add to your team of experts a good accountant and financial planner to make sure...
Remember, if you have to rush a new home purchase, you may lose leverage in bartering a good price for your new home, not adequately presenting your old one, and possibly making mistakes with your finances that could cost you money and leaving you feeling stressed when you should be elated that you have taken advantage of a down market.
Bottom line, get to mortgage broker first, and involve the other professionals on your team before you go house shopping. You will be glad you did.
Many people ask me about internet shopping for a loan. My problem with this has always been that...
1) those low rates are usually deceptively advertised "$200,000 loan with a monthly payment $399" Read--Option ARM
2)Their loan officers are $10 an hour employees with often little experience in the industry or with loans that don't fit into a neat box and
3)their offices are not local, where to you go for remediation if you are unhappy?
A client and good friend of mine needed to refinance his existing home. I invited him to go to an internet site, the one with tree in the name, and get four mortgage quotes. He did and emailed the results to me. The quotes we're semi-competitive until I read the fine print. The closing cost estimates didn't include title and the computer didn't catch that this was a cash out transaction. Translation--closing costs on any of the terms quoted on this $200k deal $6,300. I went shopping on the wholesale side and found that I could match any of the quoted rates. And get this, (and I was amazed myself), for $1,000 closing costs. Folks, I know the "when banks compete, you win" motto seems comforting, but I believe it is just another way to present a united front of costs and rates that are too high. If you need a loan, shop the internet, and then run the figures by me. You will be glad you did.
Reverse mortgages (also called home equity conversion loans) enable elderly homeowners to tap into their equity without selling their home. The lender pays you money based on the equity you've accrued in your home; you receive a lump sum, a monthly payment or a line of credit. Repayment is not necessary until the borrower sells the property, moves into a retirement community or passes away. When you sell your home or no longer use it as your primary residence, you or your estate must repay the cash you received from the reverse mortgage plus interest and other finance charges to the lender.
Most reverse mortgages require you be at least 62 years of age, have a low or zero balance owed against your home and maintain the property as your principal residence.
Reverse mortgages are ideal for homeowners who are retired or no longer working and need to supplement their income. Interest rates can be fixed or adjustable and the money is nontaxable and does not interfere with Social Security or Medicare benefits. Your lender cannot take property away if you outlive your loan nor can you be forced to sell your home to pay off your loan even if the loan balance grows to exceed property value.
The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.
If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter:
1. The first thing to do is get a copy of your credit report from each of the three major CRAs: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com.
2 In a written letter, tell the CRA what information you believe to be inaccurate. Include copies (not originals) of documents that support your position. Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction. Be sure to make copies of your dispute letter and enclosures.
3. Send your letter by certified mail, return receipt requested, so you can document what the CRA received.
4. The FCRA mandates that all CRAs reinvestigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the credit card company. After the credit card company receives notice of a dispute from the CRA, it must investigate, review all relevant information and report the results to the CRA.
5. If the disputed information is found to be inaccurate, the credit card company must notify all nationwide CRAs so they can correct this information in your file. Disputed information that cannot be verified must be deleted from your file.
6. When the reinvestigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the credit card company verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the credit card company.
7. In addition to the CRA, you should also write to the credit card company about the error. Again, include copies of documents that support your dispute. If you are correct — meaning the information you disputed is found inaccurate — the credit card company cannot use it again. Further, at your request, the CRA must send notices of corrections to anyone who received your report in the past six months.
After I put in an application for credit with a lender, including pulling his credit report, my client called me the next day and said that "Heather" left a message on his voicemail that said she was calling about his "loan details" and wanted to make sure he was getting the best possible deal. After calling him back and getting a little more info, we discovered that Heather 1) doesn't work for me nor the lender in question and 2) Heather was deceptively trying to sound like she was affiliated with my clients current loan request, get my client on the phone, get his information, and try to sell him something different. Uncool. I apoligized for the confusion and ultimately my industry. We did talk about how this current debate goes much deeper, including the credit reporting agencies who sell inquiry information to other mortgage lenders (telemarketing sweatshops) under the guise of consumers right to weigh different loan offers and the federal governments inability to stop this practice.
My clients come to me to shop around, knowing each one of their financial pictures are different, and trusting I will give them many practical and creative solutions at a fair price, with the best rates around. Getting a mortgage--read:uncovering your financials and credit--is stressful enough without trying to decipher whether the Heathers of the world are actually working with the lender and broker you know.
For more information about the Fair Credit Reporting Act, the law that spells out the terms under which companies can check credit reports, visit www.ftc.gov/credit.
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
Note--I was proud to have this article featured in the August 2007 Financial Planning Association of Minnesota newsletter... Some mortgage lenders and brokers are falling over each other to advertise No Fee Mortgages or No Closing Cost mortgages. I've even heard unscrupulous advertisements stating that "paying any closing costs" during a mortgage transaction is "too much." These ads, in effect, say lenders, appraisers, and title companies will work for free if you just ask them to. (Not to mention having the government waive their various real estate transactional taxes!)
This is, of course, just marketing designed to get the consumer in the door to get them emotionally tied to buying a new home or the cash out that can come from refinancing. To get to the bottom of this, let's examine three phrases which are commonly thrown around in mortgage advertising and often confuse the public:
These are all legitimate ways to structure the financing of a real estate transaction. The first is quite commonly done. The only drawback in doing so is that the consumer will be charged interest on those costs over the life of the loan. The second two involve having the lender increase the rate offered to the consumer to make the loan more profitable for sale on the secondary market. This profit then can pay for some or all of real estate transactional fees for the consumer. Which combination is best? Of course, the one that costs the consumer the least amount of money to secure the house and the loan!
First, let's break down the costs of a real estate transaction into costs that won't change and costs that are variable. The costs that won't change are appraisal, title fees, transactional taxes, and deposit of initial funds into the hazard insurance/property tax escrow account. These should be very similar with each bid you get. The two things that CAN vary significantly are the rate and here is the key to this--fees to the broker/lender. They are called a number of different things--application fee, broker fee, origination fee, discount points, etc. Sort out the third party fees and total the fees to the lender. These give you the cost of getting the rate.
Let's remember, rates and upfront lender fees on a real estate transaction have an inverse relationship. When one goes up, the other goes down. So, what you and your clients have to decide is which combination of rates and fees make sense to keep both the cost of the transaction and the cost of holding the loan as low as possible. This relates to timeline. How long will your or your client hold the loan.
And here lies the guessing game. How long are you or your clients going to hold this loan? Remember--life happens--divorce, job transfer, better schools district. The fact is, most consumers are moving more--about every 7 years. The average life of a loan is about half of that! However, each consumer's situation is different and the lender's profit is typically unaffected by each of these scenarios.
Take the transactional costs associated with each mortgage offer and divide it by the cost savings monthly of taking the lower rate. This will give you the number of months to break even in each case. If you or your client is planning to hold the loan longer than the break even point, they will be then saving money monthly after that point.
The other thing to consider her is products' availability and lender's risk. These tie to the fine print you see on the bottom of all mortgage ads. These ads again offer quite a low interest rate for consumers that fit neatly into a box with all positive lending criteria that decrease a lender's risk of doing a home loan. Positive lending criteria include low loan to (house) value, good credit/assets, measurable job history and income. If you or your clients don't fit neatly into that box, it helps to know a good mortgage consultant who can think ahead through the underwriting process and make sure the rate quoted at the start of the process matches the liability level of the overall file. This insures no surprises during the verification process and final rate offer from the lender. As well, a good mortgage consultant will always present you or your clients with the best way to structure their financing cost based upon the consumers various lending criteria (income/assets/credit/equity position) and estimated timeline for how long they plan to hold the loan.
Generally speaking, improvements that increase the market value of a property will increase the appraiser's estimated market value. The following are typical improvement that will increase the estimated value of your property:
New paint, professionally done neutral decor, and landscaping are often cited as ways to increase your listing price if you are selling. I've seen it happen. Although it may not effect the appraised price of your home, it doesn't hurt.
Remember, if you are remodeling or fixing up the house for resale, keep things neutral. This may insure that a greater number of people will like the new rooms, etc. If you plan on staying for awhile, go ahead and paint that bathroom red!
Some improvements don't necessarily add to your homes value. New water heater, roof, porches or steps, plumbing or electrical. Homes are supposed to have these in working order. Again, however, a combination of these all done at once can be attractive to a buyer and can improve the price you get for a home you are selling.
By guest Dian Hymer
Few homeowners cheer when home prices soften, but a soft market can actually benefit homeowners who have been waiting for a prime time to move up to a larger home or to a more expensive home in a better neighborhood.
Let's say home prices declined 10 percent in your area during the past year. This decline affected all price ranges equally. So, if you owned a house that was worth $600,000 last year, it would be worth only $540,000 today.
However, if the trade-up home you hoped to buy was out of reach financially at $1.5 million, you can now buy it at a discounted price of $1.35 million. Although you lost $60,000 in value on the home you want to sell, you'll pay $150,000 less on the home you want to buy. So your transaction costs will run $90,000 less than they would have a year ago.
This sounds great on paper. However, there are several variables to consider before forging ahead. In the first place, the depreciation rate may not be equal across all price ranges. In many areas the low end of the market has been disproportionately hurt by the recent subprime mortgage fallout.
Depending on where you live, you could find that your house has lost more than 10 percent in value, particularly if it's in a housing development with lots of unsold inventory and a high foreclosure rate. A trade-up home in the same area could have held its value better than your low-end house, making it more, not less, expensive to trade up this year.
Another factor is that the middle price ranges -- the prime move-up segment of the market -- has been plagued with financing difficulties since the credit crunch hit in August 2007. Jumbo loans -- for amounts over $417,000 -- generally have a higher interest rate and more stringent lending criteria.
According to DataQuick Information Services, approximately 57 percent of the home loans issued between January and July 2007 in Alameda County in the East San Francisco Bay Area were jumbo loans. In October 2007, the percentage of jumbo loans in Alameda County dropped to about 36 percent. Jumbo financing may become easier to obtain when investors regain confidence in the home mortgage business. Until then, trading up is fraught with difficulties in the current market.
HOUSE HUNTING TIP: For years, trade-up buyers have preferred to buy their new home before selling the old one. Today, it's easy to make an argument that the more prudent way to make a trade-up move is to sell your home first before buying a new one. In addition to more rigorous financing qualification, it's difficult to know in advance how long it will take to sell your home and for how much. The inconvenience of renting for awhile may be far less onerous than the financial misery you could experience if you buy first and discover you can't sell your old home.
Back in the soft market of the 1980s, some trade-up buyers who bought first ended up having to sell the trade-up home they'd just bought because they were unable to sell their old home. In one case, the trade-up buyer ended up moving back into the house that she'd hoped to sell, forfeiting the $50,000 she'd spent on buying the new home, which included the cost of interim financing.
THE CLOSING: There will be plenty of opportunities to buy good properties at fair prices in the current market. Just make sure that you don't jeopardize your financial security in doing so.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
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