First let me show you how to burn you:
1. Believe in the ads you see, hear and read. Especially the “no closing costs” ads or the ads “is a scandal, is it a scam” or “no one else can do what we do”.
2. Let someone else, like a real estate agent or builder, set up the loan for you or offer some “special incentive” for using “your lender.”
3. Refuse or don’t educate yourself like most people.
Now let me show you how to compare mortgages to your advantage: 1. Know what you want as the bottom line. It must be one of the following:
A. Reduce your monthly payment?
B. Get cash to reinvest or pay for unexpected expenses?
C. Buy a new property?
D. Renovate an existing property?
2. Know your own credit score. You can check your score at any number of locations, including credit reporting agencies (CRAs) directly. A huge misunderstanding about credit scores can be heard even among loan officers who don’t really know what they are talking about and especially among real estate agents who use the term “FICO score.” Each CRA has its own independent score. FICO is unique to Experian (I just looked up FICO in a search engine and even a mortgage company misused the term and defined it incorrectly). TransUnion uses the Empirical score and Equifax uses the Beacon. Lenders using scores almost exclusively look at the median score regardless of whether it is Empirica, Beacon, or FICO. You now know more than many loan officers and real estate agents!
3. Know the terms used (words and phrases). For example, ARM loans have been misused for the past few years and that’s a shame. My first home purchase was an adjustable rate mortgage from Freddy Mac and I bought the rate at 3-2-1 so I could afford not only to buy the house, but also to fill it with the furniture I needed. If that loan hadn’t been available, he could still have paid me the house, but as FTHB I could have DTI on that LTV without the 3-2-1 3/27 ARM. See what I mean?
4. Know your rights under applicable law. We may be on the verge of having a National Fair Lending Act (FLA) (currently HR 3915) that will remove some confusion between states. We already have the RESPA (Real Estate Procedures and Liquidation Law). Each law has several different parts, some of which will affect your application and transaction and some of which will not. Some transactions are not covered by the FLA or RESPA, such as the purchase or refinance of a commercial-use property.
5. Know what you are looking for and what you are looking for when you refer to a Good Faith Estimate (GFE) and Truth in Lending (TIL) document. It’s easy enough to listen to some radio talk show host with absolutely no financial training, education, or experience giving disinformation that is blindly accepted by the largest audience. You, however, are a smart and caring borrower; I know this from the fact that you have read so much to get to this point. It really is better to calculate your closing costs and monthly payments and forget about what some may call a “junk fee.” What difference does it make if a business has a $ 500 “office dog pet sitting fee” if its overall closing costs are lower than the competition? Some companies choose to group the fees together and call them an administrative fee. So you get a company like Novation Mortgage, whose line items cost and some may call “junk fees,” but the bottom line is still less than national competitors who only have a huge admin fee.
6. For God’s sake, ask for a GUARANTEED PRICE! Believe it or not, some loan officers do not accurately complete the GFE / TIL. Wow, what a surprise.
A. If you have not submitted correct and verifiable information to the loan officer and the loan officer has not verified your credit, it is unlikely that your GFE is correct.
B. When you get your GFE, look for these fees. Chances are, your GFE doesn’t necessarily have all of these fee lines included, but ask about them anyway. I’ve seen too many GFE forms from competitors who have omitted some or most of these fees and didn’t bundle them together:
to. Loan origination fee
B. Processing fee
vs. Administration fees
D. Subscription fee
me. Credit report fee
F. Handling, postage, courier, bank transfer or other shipping costs.
g, title fee
h. Attorney’s fee
I. Appraisal fee
j. Prepaid interest
k. Flood certification fee
l. State transfer taxes
Mister. State recording fee
not. Private mortgage insurance fee
or. Pre-paid property taxes (trusts)
P. Prepaid Homeowners Insurance (Trusts)
q. Mortgage broker commission
r. Ask about any other fees inadvertently or otherwise omitted.
C. When you receive your TIL (Novation NEVER ships a GFE without a TIL) look for the following:
to. Interest rate
B. Loan conditions (maturity in months)
vs. Loan type (fixed rate, adjustable rate)
D. Duration of the fixed period before the adjustment period, if applicable
me. Is this an interest only loan?
F. Is there a prepayment penalty?
gram. How and when are late fees applied to your late payment?
h. What is the annual percentage rate (APR)?
I. Are you required to purchase a life insurance policy?
j. Ask about any other lines that you don’t understand.
7. To avoid confusion in the TIL, look at the APR and the GFE look at the total estimated funds needed to close. When you find the lowest guaranteed total funds and annual percentage rate (APR), you just need to compare the terms to see which is the best loan.
8. Understand the Yield Spread Premium (YSP) and what it does. His government comprises YSP, but many powerful elected officials who are heavily influenced by enormously wealthy banking associations and lobbyists are siding with the big banks in an effort to steal it from him. YSP probably should never have been shown because it is just a tool for confusion and has nothing to do with looking for interest rates or closing costs. Comparing the APR is more important than worrying about the YSP. Banks make a large amount of profit “on the back” of each loan. Mortgage brokers make a small profit “on the back” on a loan. Banks never show the consumer how much profit they make, but it can be up to five times what a mortgage broker makes. Mortgage brokers are required by federal law to fully disclose every penny of their earnings on each covered loan. Banks are not. So honestly, forget about the confusing YSP problem or worry about the service release premium that banks and domestic direct lenders get because they both affect your interest rate equally.
9. Documentation required of you to qualify for the loan. Many states have tried or are trying to ban reported income even for self-employed borrowers. Now there is a good move designed to penalize all small business owners. But I digress, declared income loans have definitely been abused over the past few years in many, if not most, markets. Still, if you have an interest rate at one listed lender of 8% and another lender of 6%, I would recommend looking at what type of documentation each requires.
10. Amount of down payment required from you. When someone calls my office and says “Your loan officer quoted a rate of 6.875% but Polly Wants A Cracker Borrowing Down the Street quoted me 6.250%” my first question is, “How much down payment is required at PWAC?” A 90% loan will be slightly more expensive than an 80% loan.
11. Be honest with yourself about your purchasing power. Some people may qualify for rates and terms for which others do not. Just because your neighbor qualifies for a 6.5% 30-year fixed mortgage does not mean that you will qualify even with the same lender.
12. Know that some costs are associated with the type of property, type of loan (terms), your credit, income and assets, the condition of the property, your intended use of the property, and other factors. The GFE and TIL are as honest as you and the loan officer who prepares the documents. NO LOAN OFFICER MAY SUBMIT AN ACCURATE GFE / TIL UNTIL YOUR QUALIFICATIONS AND OWNERSHIP QUALIFICATIONS HAVE BEEN EXAMINED. Until then it’s just an ESTIMATE.
In summary
Examine the total estimated funds required to close in the GFE Examine the APR and terms in the TIL Request clarification on terms you do not understand Compare and demand a price guarantee on the relevant closing costs. Try creating your own spreadsheet or other type of chart to compare apples to apples.
Unfortunately, I cannot tell you what to expect to pay in fees because I may be accused of setting prices. Suffice it to say, if you use the information in this article, you will be a better informed borrower and much more likely to get a better mortgage for your needs.
