What is this? Is it a junk fee? Do I really have to pay that? These are questions people have been asking me.
Prepaid interest is not a fee. It is actually a partial mortgage payment. I will explain.
If you close your loan on June 15, then you will own your home from June 16 to June 30. For those 15 days of ownership, the lender does not send you a bill for a partial mortgage payment; instead, it is included in your closing costs.
If you close on June 30, you will have only one day of prepaid interest, because you will own your home for only one day in June.
If you close June 5, you will have 25 days of prepaid interest.
Prepaid interest is calculated to be exactly fair. You pay for the days you own your new home from the date of funding to the end of the month.
Before you have a contract on a house, the loan officer doesn’t know which day of the month you might close; therefore, most lenders will select 15 days of prepaid interest. The most conservative lenders will select 30 days of interest, ensuring that the cost will not go up. Some lenders, in an effort to make their estimate appear cheaper than their competitors, select one or two days of prepaid interest. In this case, you will most likely see a higher charge at closing, unless you truly close at the end of the month.
Which is the Best Day to Close?
The best day to close your loan is the day you want to take ownership of the new property. For many people who are renting, the best day for them to move out of their apartment or rental house is at the end of the month. However, some people want two weeks’ lead time so they can paint and clean. In that case, taking ownership in the middle of the month works better.
Be aware that the seller might put in a clause that says closing is June 15, but occupancy is June 20. This means you will own the house on June 15 and pay the prepaid interest from that day, but you cannot move in until June 20. You are giving the sellers five days to move out and you are paying for those days for them. If you don’t like that arrangement, speak with your Realtor about the closing date matching the occupancy date.
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This fabulous Victorian dream home is for sale in a popular Seattle neighborhood. In has a secret room. Yes, Nancy Drew fans, a secret room! I shouldn’t tell you where it is, but if you guess that it might be on the third floor above the turret, behind a bookshelf, you would be right.
The secret room wasn’t always there. The current owners, Darren and Janine Pritt, added it after they purchased the home in 1994.
It was originally built in 1901.
The first improvement they made was to remove the stucco to reveal the beautiful, warm woodwork underneath.
Waking up to a view of Lake Washington and the Cascade Mountains beyond starts any day off right, in my opinion.
Go ahead and guess the listing price.
To make it easier, I’ll give you multiple choice options.
A) Over $5 million
E) It’s free.
If you guessed D for the listed price, you guessed correctly. Have fun challenging your friends to guess, and who knows, maybe one of them will purchase the home and invite you to a dinner party.
The Cost Estimate Worksheet or Initial Fees Worksheet is the form loan officers provide before they have taken a full application and pulled your credit report. What people are asking me now is, “Can I trust this estimate or will they increase their fees later?”
Great question, and I have an answer for you that will make sense.
The official 3-page Good Faith Estimate is a contractually binding document from the lender to you (per recent lending laws). The lender may not increase their lender fees by even one dollar from that GFE to the final Settlement Statement.
But the problem is, you cannot get that GFE without having your credit report pulled and submitting your financial documents. The new law ties the lender’s hands in that regard, because how can they commit a contract to you without verifying what you qualify for? So the worksheet serves as the upfront estimate now, due to this federal regulation.
This is no problem. The upfront worksheet is more specific than the GFE designed by the feds. I actually prefer it for comparing loans. However, it is not a contract, so can they increase fees later?
Yes, they could; but it would be a very stupid thing to do. And no, the good, honest, ethical loan officers would never do that!
The good, honest, ethical loan officers don’t lie to potential customers. They look out for your best interests and do all they can to help you get the best financing. They would never risk having you ditch them and file a complaint with the Consumer Financial Protection Bureau for committing bait-and-switch. Moreover, their personal moral compass would never allow that.
Even still, I have seen a minority of loan officers increase their fees between the initial worksheet and the GFE. (I see estimates from lenders all around the country from good folks using my coaching service.) There are usually red flags on the worksheet that raise suspicion.
For example, they leave off essential costs such as the appraisal report and property taxes. Then on the GFE when those are added in, they also show an increased origination fee. If that should happen to you, please send me an email and let me know. I will reply explaining what recourse you have.
Fortunately, most of the shady loan sharks are no longer in business. If your loan officer has a Mortgage Loan Officer License with a MLO #, it means he or she has completed the 20 hours of study plus additional hours of state-specific study, has passed an extensive background check including fingerprinting, and a credit check. Look for that number (or ask) and listen to your gut instinct or internal lie detector.
If you still feel uncertain, feel free to send me a question here. Your mortgage is important, and you should feel confident as you proceed with your loan.
Experian, one of the three major credit bureaus, has announced they are now selling FICO scores. (FICO stands for Fair Isaac Company, the originator of the proprietary scoring system used by mortgage lenders and other creditors.) Before you race over to their site, there is an important piece of information you need to know.
The three credit scores for sale are using their brand new algorithm called FICO 08. It has some improvements over the old system, such as medical collections are not counted against you since a majority of those are the fault of insurance companies and not the consumer. The problem is that only about 10 percent of mortgage lenders have upgraded to FICO 08.
This means that the scores you buy are likely to be different than the scores your loan officer at the bank, broker, or credit union will get when they pull your credit.
Is it then worth Experian’s fee of $50 (minus a few pennies) to get your scores? That is a personal judgment call; but for me, I would wait and let my loan officer pull the credit report that they will actually be using instead.
If you want the inside information on how certified credit specialists and credit repair attorneys get negative accounts removed from credit files and boost their clients’ credit scores, then you’ll want to check out the newly released book, Repair Your Credit Like the Pros here. With this information, you can do the work yourself and save your money for your down payment.
When refinancing, it is easy to focus on the interest rate and monthly savings, completely forgetting that your loan term (years) will make an even bigger difference in the total amount you will pay for your house.
Key Principle: When paying a mortgage, your #1 enemy is not the interest rate. It is time.
Why is Time an Important Factor in a Mortgage Loan?
Spreading out your payments over 30 years is what causes you to pay 2.5 to 3 times more for your house than the purchase price. If you shorten that time to 20 years or to 15 years, you will save tens of thousands of dollars on the typical loan.
How This Principle Applies to Refinancing
If you’ve been paying on your mortgage for close to ten years and refinance into a 30-year loan, you go backwards by ten years and cost yourself a lot of cash, even if you lower your interest rate. Therefore, you must lower your rate by a very significant amount in order to come out ahead, because ten years’ interest gets you far into the amortization schedule.
If you’re ten years into your loan and you want to refinance into a lower rate, then look at taking a 20-year loan. That way, you get the lower rate without going backwards.
Even better, also look at the 15-year loan. The 15-year loan gives you an even lower interest rate and cuts even more years off your loan. You come out ahead in every way! The only caveat is that you must be able to afford the payment.
Be careful not to take a payment you cannot afford, because you don’t want to set yourself up to default on your loan.
The bottom line is that you must consider your loan term — the number of years you’ve already paid into the mortgage and the number of years for your new loan — in order to make the best financial decision.
Good news for home buyers using the FHA loan program! The annual mortgage insurance premium (MIP) required on this loan is being cut by half a percent for all new loans starting January 26. The expectation is that this will save the average home buyer $900 per year by reducing their monthly payments.
The MIP is the fee charged to the borrower to compensate for the low down payment. FHA requires only 3.5% down. Because there is little equity in the property, insurance is required to protect the lender in case of default.
This new fee decrease affects the 30-year fixed rate loan (as well as the 25-year and 20-year term). The 15-year loan, which has a lower premium already, remains unchanged.
FHA 30-year Fixed Rate MIP Reduction
Loans less than $625,000, 3.5% down: MIP reduced from 1.35% to 0.80%.
Loans less than $625,000, 5% down: MIP reduced from 1.30% to 0.85%.
Loans at or above $625,000, 3.5% down: MIP reduced from 1.5% to 1.0%.
Loans at or above $625,000, 5% down: MIP reduced from 1.55% to 1.05%.
By boosting your credit score to top tier, you will qualify for more money at the lowest possible rate and with the best terms.
Take control of your own credit rating. Don’t believe the old line, you just have to wait for time to pass, because that is not true. Others have taken control of their credit and raised their scores–and if they can do it, so can you.
You Have Two Choices
To restore your credit and good name, you have two choices. You can hire a professional service, or you can do it yourself.
If you choose to hire a professional service, you want only the best. Personally, I would avoid those law firms that specialize in credit, because the truth is that they set you up with data entry clerks that do nothing special, certainly nothing you couldn’t do yourself for a fraction of the cost. The law firm is merely the image for marketing purposes. In reality, you get better service and better results going with a certified credit specialist.
In addition, I would avoid services that set you up on a monthly fee, because it is to their advantage to work slowly, drawing out the process over as many months as they can in order to collect more monthly fees. If you would like my professional recommendation for two top credit repair services, shoot me an email here.
If you don’t mind taking the time to do your own credit restoration work, you can save yourself the cost. But in order to avoid spinning your wheels sending out letters that will get rejected, you need to follow the same steps that the top certified credit specialists use.
In addition, take care to read the directions first, so that you avoid making mistakes that cannot be undone. For example, none of the effective credit repair specialists order their clients’ credit reports online, and neither should you, because doing so will shoot yourself in the foot–meaning cripple your ability to get derogatory items deleted before seven long years.
When people claim that derogatory credit cannot be deleted and that credit repair doesn’t work, it is because they are going about it the WRONG WAY!
All of the information you need to repair your credit is in my brand new, updated book, now available on Amazon at a low introductory price. Please see here for details, and please pass on this information to other good folks who want to improve their credit in 2015, so that they can make their financing dreams come true.
Last year, 717,000 people purchased vacation homes, according to an estimate by The National Association of Realtors.
Sound interesting? Here are some quick facts about getting a mortgage for a vacation home:
* Down payment required is at least 10% of the purchase price.
* Your debt-to-income ratio will include your current mortgage, installment loan and credit card obligations, and the new proposed payment for the second home loan, including property taxes and insurance.
* It needs to be a true vacation home and not a rental property disguised as a vacation home.
A vacation home might make sense if:
* Your primary residence is paid off or your income can easily handle a second mortgage.
* You are nearing retirement age and want to secure your retirement home now while interest rates are so low.
You should not buy a vacation home if:
* Your current income is tight.
* You have insufficient liquid funds for emergencies.
* You would get bored of going to the same place on vacation time and again.
Never buy a vacation home (or any home, for that matter) on impulse. Take your time to select the right location. Make sure you scout out the local area. And visit the property in person before making a final decision.
If you’d like to explore further, talk to your mortgage loan officer about a pre-qualification, then contact your Realtor for available homes.
Thank you, U.S. Veterans, for serving our great country, the United States of America. To those who are still overseas, we pray for your safety. To those who are back home, welcome. To all, we express our respect, appreciation, and gratitude.
VA Loans Are Gaining Popularity
The VA home loan program for is flying at record levels. New VA loans for Veteran home buyers has more than doubled since 2007.
In 2011, VA loans were about 3% of the purchase market. Today, they are approximately 7%.
For new construction, VA loans make up about 14.5%.
An estimated 22 million U.S. veterans may be eligible for VA loan benefits now.
Advantages of VA Home Loans
* VA loans require zero down payment.
* VA interest rates are competitive with prime conventional loans.
* VA underwriting offers more generous requirements for credit and debt ratio (depending on the individual lender).
U.S. Veterans: A Heads-Up!
Not all VA loans are priced the same, so Veterans still need to do their due diligence and shop for the best deal. For example, recently I saw a $2,000+ fee difference between two lenders with the same interest rate for the same borrower.
The best way to shop for a mortgage is to contact one bank, one mortgage broker, and a third lender of your choice. Ask for a Cost Estimate Worksheet, and then describe your scenario. For example, you might say, “I am looking for a VA loan, 30-year fixed rate, $350,000 purchase price. My credit score is 685.”
If you have any concerns about getting the best loan, please feel free to take advantage of my personal coaching service.
God bless you, U.S. Veterans, and God bless America!
Charles Head and his brother Jeremy Michael Head have been sentenced to prison for a fraud scheme that cheated homeowners in California, the Northwest and East Coast out of their homes and damaged their credit.
According to the FBI website, the Head boys and their team of 16 cohorts preyed upon home owners who were seeking help with their mortgages.
These liars secretly added individuals who were friends and family members to the home owners’ real estate titles. Once that was accomplished, they proceeded to do maximum cash-out refinances. Altogether, they stole $15 million for themselves, which they shared with their team.
U.S. Attorney Wagner said: “This defendant purposely targeted the financially vulnerable during their time of greatest distress with promises of help. Then he tricked them into handing over their most valuable asset, their home. When victims in one scheme grew scarce, he opened up a new scheme drawing in victims from across the country. Few economic crimes are more reprehensible. No sentence will undo the damage wrought by Charles Head and his fellow scammers, but today’s sentence brings a measure of justice for their victims.” Source
Charles Head was sentenced to 35 years in prison, Jeremy Michael to 10 years. The 16 other convicted fraudsters are awaiting sentencing.