First let me show you how to burn yourself:
1. Believe in the ads you see, hear and read. Especially the “no closing costs” ads or the “it’s a scam, it’s a scam” or “no one else can do what we do” ads.
2. Let someone else, like a real estate agent or builder, set up the loan for you or offer some “special incentive” to use “your lender.”
3. Refuse or fail to be polite like most people do.
Now let me show you how to compare mortgages in your favor: 1. Know what you want as a bottom line. Must be one of the following:
A. Reduce your monthly payment?
B. Get cash to reinvest or pay 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 the 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’re talking about and especially among real estate agents who use the term “FICO score.” Each CRA has its own independent score. FICO is exclusive 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 Empirica score and Equifax uses Beacon. Lenders that use scores almost exclusively look at the median score, regardless of whether it’s 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 completely misused in recent years and that’s a shame. My first home purchase was an adjustable rate mortgage from Freddy Mac and I bought the rate on a 3-2-1 basis so I could pay for not only the purchase of the house, but also to fill it with the furniture I needed. Had that loan not been available, I still could have paid off the house, but as FTHB I would have been able to DTI on that LTV without the 3-2-1 3/27 ARM. See what I mean?
4. Know your rights under applicable law. It may be that we are about to have a National Fair Lending Act (FLA) (currently HR 3915) that will eliminate some confusion from state to state. We already have the RESPA (Real Estate Settlement and Procedures 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 refinancing of property for commercial use.
5. Know what you are looking for and IN when looking at a Good Faith Estimate (GFE) and Truth in Lending (TIL) document. It is quite easy to overhear a radio talk show host with absolutely no financial training, education or experience giving false information that is blindly accepted by the majority of the audience. You, however, are a smart and caring borrower; I know this from the fact that you have read a lot to get to this point. It’s best to lower 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 their overall closing costs are lower than the competition? Some companies choose to bundle the fees and call them an administrative fee. So you get a company like Novation Mortgage whose line items cost and some may call them “junk fees” but the bottom line is still less than national competitors who have just one huge administrative fee.
6. For God’s sake, ask for a PRICE GUARANTEE! Believe it or not, some loan officers do not complete the GFE/TIL correctly. Wow, what a surprise.
A. If you have not submitted correct and verifiable information to the loan officer and the loan officer has not checked your credit, it is unlikely that your GFE is correct.
B. When you get your GFE, look for these rates. Chances are your GFE won’t necessarily have all of these itemized fees, but ask about them anyway. I have seen too many GFE forms from competitors that have omitted some or most of these fees and not bundled them:
has. Loan Origination Fee
b. processing fee
against management fees
d. subscription fee
me. credit report fee
F. Handling, postage, courier, wire transfer, or other shipping charges.
g, title rate
H. attorney’s fee
Yo. appraisal fee
d. prepaid interest
k. Flood Certificate Fee
ME. State Transfer Taxes
Mister. State registration fee
No. Private Mortgage Insurance Fee
Y. Prepaid property taxes (trusts)
p. Prepaid Home Insurance (Trusts)
q. Mortgage Broker Fee
A. Ask about any other inadvertently or omitted fees
C. When you receive your TIL (Novation NEVER sends a GFE without a TIL) look for the following:
has. Interest rate
b. Loan conditions (maturity in number of months)
against Type of loan (fixed rate, adjustable rate)
d. Length of fixed period before adjustment period, if applicable
me. Is this an interest only loan?
F. Is there a penalty for early payment?
gram. How and when are late fees calculated on your late payment?
H. What is the Annual Percentage Rate (APR)?
Yo. Are you required to purchase a life insurance policy?
d. Ask for any other lines you don’t understand.
7. To avoid confusion on the TIL, refer to the APR and on the GFE, refer to the Total Estimated Funds Needed to Close. When you find the lowest Total Guaranteed Funds AND APR, you just need to compare terms to see which loan is the best.
8. Understand Yield Spread Premium (YSP) and what it does. Your government understands YSP, but many powerful elected officials who are heavily influenced by massively wealthy banking associations and lobbyists are siding with the big banks in an effort to take it away from them. YSP probably should never have been shown because it’s just a tool for confusion and has nothing to do with looking up interest rates or closing costs. Comparing the APR is more important than worrying about the YSP. Banks make a lot of profit “on the back” of each loan. Mortgage brokers make a small profit “on the back” of a loan. Banks never show consumers how much they make, but it can be up to five times what a mortgage broker makes. Federal law requires mortgage brokers to fully disclose every penny of profit they earn on each covered loan. Banks are not. So honestly, forget about the very confusing topic of YSP or worry about the Service Release Premium earned by banks and direct national lenders because both equally affect your interest rate.
9. Documentation required from you to qualify for the loan. Many states have tried or are trying to prohibit self-reported income even for borrowers who are self-employed. Now there is a good move designed to penalize all small business owners. But I digress, declared income loans were definitely abused in recent years in many if not most markets. Still, if you have an interest rate at one lender quoted at 8% and at another lender at 6%, I would recommend seeing what kind of documentation each requires.
10. Down payment amount required from you. When someone calls my office and says “your loan officer quoted a rate of 6.875% but Polly Wants A Cracker Loans down the street quoted me 6.250%”, my first question is “How much down payment is required on PWAC? ?” A 90% loan is going to be a bit more expensive than an 80% loan.
11. Be honest with yourself about your purchasing power. Some people may qualify for rates and terms that others do not. Just because your neighbor qualifies for a 30-year 6.5% fixed mortgage doesn’t mean you will even with the same lender.
12. Know that some costs are associated with the type of property, the type of loan (terms), your credit, income and assets, the condition the property is in, the intended use of the property, and other factors. The GFE and TIL are only as honest as you and the loan officer who prepares the documents. NO LOAN OFFICER CAN SEND AN ACCURATE GFE/TIL UNTIL THEY HAVE REVIEWED YOUR QUALIFICATIONS AND THE QUALIFICATIONS OF THE PROPERTY. Until then it’s just an ESTIMATE.
In summary
Review the total estimated funds needed to close in the GFE Review the APR and terms in the TIL Ask for clarification on terms you don’t understand Shop around 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 can’t tell you what you should expect to pay in fees because I can be accused of price fixing. Suffice to say, by using the information in this article, you’ll be a better informed borrower and much more likely to get a better mortgage for your needs.