by James Standford on August 1, 2010
At some point, every homeowner decides it might be time to think about refinancing. Before you jump out into the world and begin shopping for a mortgage, knowing a few things about the industry will benefit you greatly. Here are some pitfalls to avoid when shopping for a mortgage lender.
Some factors that will affect your decision are your own personal financial goals and habits, your goals in refinancing, and your other, non-mortgage financial situation. Some people refinance to consolidate bills, even though they won’t be getting a better interest rate on their new mortgage. However, they do get rid of other, possibly higher-interest payments, and have fewer bills to worry about each month. Others refinance to pull some cash out of the equity in their home in order to have the cash for other projects or investments.
The old rule of not refinancing your mortgage unless you can lower your rate by two percent or more is largely useless in the new economy we find ourselves in these days.
Disclosure of fees is required of mortgage brokers; what isn’t as strictly required is a plain-language explanation of each term or phrase. That’s why they can couch junk fees into innocuous-sounding terms and get away with it.
Since there are a number of fees and costs directly related to refinancing, you should take these into account, balanced with the lower monthly cost of the mortgage, when calculating whether this move will pay off in the long run. It’s a simple mathematical procedure: Divide your total out-of-pocket costs by the total amount you’ll save overall with your lower payment, and this number will let you know whether refinancing will be in your best interest at this time. If this figure is something you can live with, even over the life of the new loan, there you go. You can begin the process of finding a lender.
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by Kathleen Chiras on July 27, 2010
A term many people are not familiar with until they start to think about buying a home is “closing costs.” Closing costs are essentially more money that you have to scrounge up in order to buy a home, on top of the down payment. This term will come up when you are looking for a loan or making an offer on a home. There are several decisions you can make regarding how you pay your closing costs, and when you pay.
What is included in buyer closing costs?
Different fees and charges are included in buyer closing costs. The fees are all listed on your Buyers/Borrowers Closing Statement, although you may need the help of a professional to interpret them. There are many documents to sign and discuss. There is nothing wrong with going through them line by line with your buyer’s agent before the meeting. Here’s what to look for with regards to costs associated with new loans:
Costs of the Appraisal
Fee for the Credit Report
Interest on loan
Home Owner’s insurance (1 year up front)
Property Taxes (1 year up front)
Closing Fee to Title Company
Title Charges (owner and lenders policy)
Water Transfer Fees
Your exclusive buyer’s agent will be able to give you a rough estimate of the closing costs before you make an offer on the home. That way, you can budget appropriately.
Most of these fees and charges cannot be reduced. However, you can shop around for home insurance. This can make a big difference in you closing costs.
When are buyer closing costs paid?
They are paid at the closing. They will be included as a lump sum along with your down payment, which is typically paid with a cashier’s check or by wiring the funds.
There are various ways to pay your closing costs.
You can pay your own closing costs. Or, the seller to pay them. You will make this decision when you make an offer on a home.
If you ask the seller to pay closing costs it generally increases the sale price of the home by the same amount. For example, you could offer $215,000 on a home and pay your own closing costs of approximately $5,000. Or, you can offer $220,000 on the same home, and ask the seller to pay your closing costs.
What are the pros and cons of each option?
Pros to the seller paying: you will not have to have the cash for these fees at your closing meeting. Cons to financing closing costs: You will be paying interest on your closing costs.
A positive is that when you pay in “cash”, you will have these costs over & done with. A negative is that you will need to budget for these costs along with costs to move, any repairs that need to be made to the home before moving in, and down payment.
You may wish to discuss the ins and outs of your situation with your agent to decide the best course of action. In the end, many people decide to look for homes in a price range that allows them to pay their own closing costs.
Learn more about buyer closing costs. Stop by Kathleen Chiras’s site where you can find out all about how a buyer’s agent can help you with closing costs.
by Adam Wesley on July 25, 2010
The most important consideration, when refinancing your home, even more than lowering your interest rate, is knowing when you’ve gotten to the point where you are starting to save the money that you were expecting to save when refinancing. This is also known as your “break-even point.” The greater the gap between your old rate and your new rate, the shorter the break-even point will be.
– Yield Spread Premium… wait, what? Isn’t “spread” for football games and the like? Well, yes. But, the Yield Spread Premium is simply a fancy term for commission paid to the person arranging your loan; it’s really more like a bonus for overcharging you. Most people have never even heard of this term.
Origination fees (or points in some markets) have been around forever; these are the fees you pay to the bank or mortgage broker for writing the mortgage. These fees could be as much as three to four percent of the mortgage.
Mortgage loan origination is a very lucrative –and very competitive — business, and nowhere is this more evident than on the internet. The lead generation sites that you probably see advertised everywhere have large advertising budgets; have you ever thought about exactly where they get this money for all those ads? Yes, from you. If you arrange a loan through one of these sites, they will end up charging you upwards of $1200 for what is called a computerized loan origination fee. In simple English, they charge you this for taking your name and information and passing it on to a real mortgage company who in turn writes your mortgage (and charges you another loan origination fee).
Calculating your break-even point in this way only works if you are lowering your interest rate when refinancing; but there are many legitimate reasons to refinance at a higher rate. It is appropriate to take a higher rate when shortening your loan term, for example; or when taking cash out, and also when switching from an adjustable rate to a fixed rate loan. However, in each case if you are taking a higher rate, be sure to run the numbers and make sure you are really saving money over the long term.
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by Mike Rockwood on July 22, 2010
Thousands of homeowners apply for a HAMP mortgage modifications every day. With those applications, for thousands of honest and hard-working Americans go their best hopes of keeping their homes. So, shall we say this is just a little bit important? Yet the vast majority of applicants who review their application with me prior to submittal make errors in the Income Section of the application. That’s right, they get their own income wrong! Since my advice is to not submit an application with even a zip code error, this one really “gets my goat” (you know that’s a racehorse term, right?). Here’s my advice about the income section of your mortgage modification application:
1. Include the right household income. That is, you must include the income from the parties signed on the loan. Any other household income need only be included at your discretion. So, even if your spouse, partner, significant other or adult children or parents contribute income, you need only include their income if you decide to.
2. Calculate your income correctly. You may laugh at this but MANY people miscalculate their own income! Common errors are using net instead of gross income, confusing bi-weekly with semi-monthly paydays and using last tax year’s income instead of the most recent past 90-days. Show your calculations right on the pay-proof. That is, show exactly how you extrapolated and calculated. That way, they understand and, hopefully, agree.
3. Document your Income beyond reasonably. Go beyond what is reasonable in this area. Do more than the bank requires. Imagine that your application is actually in front of an underwriter for final approval. You want it to be bullet-proof. I recommend that you notarize your self-employed P&L, include annual award letters as well as check copies for SSI and EDD earnings. Create and notarize Attestation Statements on bank statements when used as documentation of cash earnings, etc.
4. Augment household income, if you must. If there’s inadequate income to qualify for the mortgage modification then you have to augment your income. Don’t bother trying to apply if your ratios are not right. That’s wasting your own time. Some ways people are adding to their household income to qualify include: If self-employed, use your best period!! Renting out a room Renting the garage Getting a 2nd job Get adult Children to pay rent Get parents pay for room, driving, etc. Get a Contribution Letter from relative or friend
5. Diminish household income. That’s right, some folks fail to qualify because their mortgage payment is too small a percentage of household income. They mustdiminish income! Some ways my clients have reduced incomes to qualify are: Removing income from household members who are not signators on the loan Re-evaluating cash and other non-traceable income like tips Removing “at risk” income such as bonuses re-evaluating expense items on self-employed P&L
Get the Income section of your mortgage modification right and you have a solid base on which to build a winning application.
Need help actually getting Mortgage Modification? Visit Rockwood’s site about DIY Loan Modification at Home Loan Modification
