Congratulations! You have a mortgage commitment in your hands. Your mortgage lender/broker told you that you have a great deal, so, of course it must be true. Or MUST IT? If you don’t know the answers to these questions and others, it can cost you thousands of dollars!
• Do you know if the rate and terms are competitive?
• Do you know if your rate is locked and for how long?
• Do you know when and how the rate is locked?
• Should you lock the rate?
• What should you do if rates go up, and you have not locked in your rate?
• What should you do if rates go down, and you have not locked in your rate?
• What are the lenders extension policies?
• Will the bank escrow for taxes, and insurance?
• Is there an advantage?
• Does the mortgage have a prepayment penalty?
• What should you know if the mortgage you have selected has an adjustable rate that might save you thousands of dollars?
• If you are taking an adjustable rate mortgage: Do you know what index is used for adjustment, the frequency of the rate adjustment, the history, stability, and volatility of that index, what the margin is, and what the annual, monthly and lifetime caps are?
• Is your commitment subject to unrealistic conditions, which can prevent you from closing on time?
• If you are buying a cooperative or condominium unit, what should you know that might jeopardize your ability to obtain financing?
• Are there high up front costs required to be returned with your commitment?
• How can you renegotiate the rate and terms of your current offer?
• What should you do if your rate lock expired?
• Does the loan have recasting provisions?
• Can the loan be modified?
• Why is the rate in your commitment higher than when you started?
• What can you do about it?
• If you’re not satisfied with the rate and terms being offered, and have already signed the commitment, what strategy should you implement?
• What is a “Jumbo rate,” and how do you avoid paying it?
• How can you minimize your closing costs, and make sure your good faith estimate is accurate?
We’ll give you the answers to these and other questions and save you many thousands of dollars. As a smart consumer you know that it never pays to be penny wise and dollar foolish! Now, you have an opportunity to have your commitment reviewed to make sure that there are no financially detrimental surprises. One overlooked term or condition can cost you thousands upon thousands of dollars over the life of your mortgage, BUT just one of our suggestions can save you thousands of dollars over the life of your mortgage. Get an unbiased objective opinion from Mortgage Genius. Just remember, after you close, IT'S TOO LATE!
A loan estimate, as you may know by now, is an estimate of the costs incurred in obtaining a mortgage loan for a purchase, refinance or second mortgage transaction. It is usually prepared by the lender and the mortgage broker, and, by law, must be given to you within three days of application for a loan. Be aware that, the loan estimate is an estimate, as it states, NOT an accounting set in stone. There are many times when a loan estimate is received in good faith by you, the borrower, but, Lo’ and behold, is not prepared in good faith by the mortgage lender or broker, and the actual closing costs turn out to be thousands of dollars higher than the initial estimate received. If you’re lucky you find this out sooner than later, but, do you know when some people find out that their closing costs are thousands of dollars more than their original estimate? The answer is: at the CLOSING TABLE when its’ TOO LATE! In all fairness, there might be a very good reason as to why closing costs change, but you should know that reason before you go to the closing table. Good faith guesses, I mean estimates, CAN COST YOU THOUSANDS!
There are a multitude of mortgage products and options available today. One size does not fit all. The availability of choices to you will depend on your credit history, salary and earnings history, and ability to accumulate liquid assets. The more financial information you show, the more likely you are to get the most competitive rate and terms. The good news is – No matter how weak you are in any one area (credit, income, savings) there is still a lender out there willing to give you money. Using the latest mortgage products available, for purchase or refinance transactions, we will save you time, money, and frustration (which is priceless, so, your already getting a bargain!) by tailoring a mortgage to best meet your needs.
If you can’t answer the following question, than you need MortgageGenius.com to help you save thousands of dollars by structuring a mortgage to meet your short and long-term needs and goals.
• Should you take a 30 year fixed rate mortgage, 15 year fixed rate mortgage, 10 year fixed rate mortgage, or one of the over 25 types of adjustable rate mortgages available?
• Should you trade a prepayment penalty clause for a decrease in rate?
• Should you take a conforming loan or a non-conforming loan?
• Do you need private mortgage insurance?
• Should you take an equity line second mortgage on a purchase instead of taking Private mortgage insurance?
• What is the best mortgage for you, if you plan on prepaying large amounts of the mortgage?
• Do you qualify for a full income verification loan, no income verification loan with verification of liquid assets, or a No income no asset verification loan?
• Should you refinance your current mortgage?
• If the seller offers you financing, should you take it?
• What are your short and long term plans with your home?
• What is your cash flow strategy?
• If you already own a home or are buying a home, what is the difference in selecting a mortgage?
Our dedicated consumer oriented team at Mortgage Genius will carefully review the financial information that you provide to help you select from the best mortgage product alternatives.
How does it work?
Clients ask me: "If I can get a credit card by just signing my name, why is a home loan so much work?" My answer is: "If you are willing to pay 12% to 18% interest, I can get you a home loan ASAP."
Lenders reduce risk, and keep their rates low, by carefully screening borrowers. This reduces foreclosures, which reduces losses, which helps keep rates low. I have programs available where little, or no, verifications are needed. The are called "no doc," "low doc" or "stated income" programs. Because they carry a greater risk of foreclosure, they carry higher interest rates.
The steps to getting a mortgage are as follows:
For a more thorough understanding of credit, points, locks, closing costs and how to speed up the loan process, see additional documents listed on the "Buyers" screen.
TIP: Providing a lender with credit information is often time consuming. However it helps keep interest rates affordable.
Just because you make your payments on time does not mean you have a good credit score.
Virtually all credit reports now contain a computer generated credit score. A numerical grade, undisclosed to you, of your credit worthiness. The purpose is to speed up credit approvals and provide an objective, rather than subjective, credit analysis.
The problem is, one size does not fit all. Borrowers with good credit can be rejected. Lawrence Lindsey, a member of The Federal Reserve Board was turned down for credit. Not because he was unable to hold down a job, but because his credit report showed too many inquiries from lenders.
Requesting a copy of your credit report may not help for two reasons:
TIPS TO INCREASE YOUR CREDIT SCORE.
If you would like further information on credit scoring, try these online resources:
TIP: Consider a mortgage pre-approval. Credit questions can be answered before you find a home.
WHY SHOULD I GET A COPY OF MY CREDIT REPORT?Borrowers are often surprised at the errors on their credit report. It’s smart to be proactive and address credit issues before applying for a mortgage or any other consumer credit.
HOW MUCH WILL IT COST? You are entitled to a free credit report within 60 days of being denied credit, employment, insurance or rental housing based on information in your report. You are entitled to a free report once a year if you certify:
Otherwise you will need to pay a fee to obtain a copy of your report. The easiest way is to go directly to one of the three major credit reporting agencies. They are:
All three allow you to order a copy of your credit report online. The fee is generally under $10.
CAN I USE MY COPY FOR A MORTGAGE APPLICATION? Sorry no. A mortgage credit report is called a "3 bureau merged" and is pulled from all three bureaus in the name of the lender.
TIP: Each of the three credit reporting agencies have a great deal of free credit information on their website. You may want to visit them even if you do not intend to get a copy of your credit report. You may want to read Credit Scoring for information about your credit score.
What Are Discount Points? A one time fee paid to a lender. Generally points are paid to secure a below market interest rate.
How Much Is One Discount Point? One point = 1% of the mortgage amount. On a $100,000 mortgage, one point = $1,000.
Who Pays Discount Points? On the purchase of a home, points may be paid by the buyer or the seller. On a refinance, they are paid by the borrower.
Should I Pay Discount Points? A simple way to determine if it is worthwhile is to determine the "payback" period. To do this calculate your principle and interest payment w/o paying points. Let's say $900. Then calculate your principle and interest payment after paying points. Let's say $850. The monthly savings is $50 per month. Then divide the cost of the points by the monthly savings. For example, if the cost is $1,000 and the monthly saving is $50, the "payback" period is 20 months ($1,000/$50.) After the 20th month you are saving $50 per month.
Are Discount Points Tax Deductible? Consultant your accountant about your specific situation. Generally points paid on a purchase are considered prepaid interest and are tax deductible to the borrower in the year they are paid. This is true rather they are paid by the buyer or the seller. Points paid on a refinance are deductible over the life of the loan.
TIP: Paying discount points can be a smart investment. But it is important to be realistic about how long you will be in your home. If the payoff takes more than 60 months, consider your decision carefully.
What is a rate lock? A rate lock is a legally binding contract between a lender and a borrower binding both parties to a loan at a certain interest rate.
Must I sign a rate lock agreement? Yes. The concept of a signed contract goes back to 1987 when the Attorney Generals Office received hundreds of complaints that lenders were not honoring verbal rate lock agreements. The legislature changed the law and now requires a written contract binding on both parties.
May I sign a rate lock agreement with more than one lender? No. You may work with more than one lender until you decide to lock your rate. Upon signing, you and that lender are mutually bound to perform on that contract. If you do not understand the rate lock agreement, or are thinking of breaking that agreement, you should seek legal advice.
How long does a rate lock last? Generally sixty days, shorter and longer terms are available. The expiration date must be shown on your rate lock contract.
When must I lock my rate? You can generally "float" your rate until a few days before closing. However we recommend locking in your rate as soon as possible during volatile market conditions. Your mortgage must be written at a specific interest rate and you will need to lock your rate in order for the mortgage to be cleared to close.
TIP: Ask questions before signing a rate lock agreement. If you still have questions, consult your attorney.
What’s the difference and which is better?
Pre-Qualified: When a borrower is "pre-qualified" it means they have spoken with a loan officer. Based on the information given, the loan officer has told them how much they are qualified to buy. Some information may have been verified, but not always. In fact, the buyers may not have even filled out a loan application.
Pre-Approved: When a borrower is "pre-approved" it means they have completed almost all of the loan process. Income, assets and liabilities have been checked and verified. The loan package has been reviewed and approved by an underwriter. With a true "pre-approval," the only items missing from the loan package are the appraisal and title work.
Which Is Better? Sellers prefer "pre-approved" buyers. It gives them a comfort level that if they accept your offer, you have already been "pre-approved" for the loan. Many buyers get "pre-qualified" when making application for "pre-approval."
TIP: In a competitive real estate market, getting pre-approved gives you the edge when making an offer.
Tips to speed up your loan approval.
Nobody likes to wait. We get approved for credit cards and car loans while we wait. Mortgage loans take longer because lenders require more information. It takes time to mail verifications to the borrowers employer, bank, credit union, landlord etc. These verifications had to be completed and then mailed back. If a verification was misplaced, or someone was on vacation, additional time was needed.
Today, lenders can use "alternate documentation." Instead of mailing verifications, lenders can use documents provided by the borrower. For many borrowers, this means getting into their homes faster. "Alt. Doc" works best for borrowers with W-2 income. If you are self-employed or have commission income, other documents may be required.
Having the following documents ready when you meet with your loan officer will speed processing your approval.
TIPS: An underwriter will check your bank statements and pay stubs for more than basic information. Bounced checks, deposits that do not support stated income and withdrawals to pay undisclosed loans.
These tips can save you hundreds of dollars
I've been both self-employed and commissioned, I understand the complications of getting a mortgage. Perhaps I can share some tips to make it as painless as possible.
Documentation: Expect to provide: two years tax returns and a YTD P & L. If you own 25% or more of a business, expect to provide business returns also.
Income: Income is not your net income. It is Adjusted Gross Income from the first page of your tax return. Income is generally an average of the last two years. Some deductions, like depreciation, can be added back in. If necessary, I will do an analysis of your tax returns to determine how much income can be used to qualify.
Self-employment History: The rule of thumb is two years of self-employment is required. This can be shortened using compensating factors. For example: I did a mortgage for a computer consultant. He had been in the computer business for ten years. His consulting contracts were with the same customers he had been working with at his old employer. The underwriter reduced the amount of history required from two years to one year. Other compensating factors are: excellent credit, a large down payment and substantial savings.
"No Income Verification" loans: Self-employed borrowers ask about NIV loans. After all, who wants someone poking around in your financial dealings? The reality is that NIV loans pose a higher risk for lenders. Therefore they carry higher down payment requirements and higher interest rates. It may be worth it to you, or it may not.