Tag Archives: mortgage

What is Prepaid Interest?

home owner 2On your cost estimate worksheet or Good Faith Estimate, you see “Prepaid Interest” for several hundred dollars.

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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Can You Trust a Mortgage Cost Estimate?

SkepticThe 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.

Should You Roll Closing Costs into Your Loan?

GFE4 Rolling the closing costs into your loan so that you don’t have to bring in money at signing is an option in a refinance.

For a purchase loan, closing costs may not be rolled into a loan. Most home owners refinancing do roll in closing costs; but then again, most do not consider doing it any other way. Let’s look at the pros and cons for your options.

Advantages of Rolling Closing Costs into Your Refinance

1) There is no money out-of-pocket except for the appraisal. (A minority of lenders also require the credit report be paid out-of-pocket. Still fewer want a non-refundable application fee, and I do not recommend working with those lenders.)

2) It requires one less step, because you don’t need to get a cashier’s check.

Disadvantages of Rolling Closing Costs into Your Refinance

1) You take out a larger loan, because your closing costs are added. (In a 30-year term loan, it does not make much difference in your monthly payment. Depending on loan size and the lender’s costs, it could be as little as $10 to $30/month.)

2) You pay interest on the closing costs, because they are now part of the loan.

3) It may be easier for the lender to overcharge you, because borrowers who are bringing in no money out of pocket do not pay as much attention to points, high fees, and junk fees. It all seems so “painless” with the costs all rolled in.

I have seen people sign shockingly expensive loans with a big smile on their faces all because the loan officer told them, “Don’t worry about it; it’s all rolled into the loan.”

Conclusion

Which option is best depends on your personal cash flow situation. If you can easily pay for your closing costs, then why not take the smaller loan with the smaller payment?

On the other hand, if paying for the closing costs would present a financial hardship, then by all means, go ahead and roll them into the loan.

Before you proceed, make sure your refinance is a good one. Pick up a copy of the best-selling book that exposes all the dirty secrets that make consumers pay too much. It’s a quick, easy read and you can skip around to the chapters that interest you most.
Mortgage Rip-Offs and Money Savers

I recommend the paperback copy, because the Good Faith Estimates from real banks and brokers that expose the junk fees, etc. come out too small to read on the Kindle.

 

 

 

When the Good Faith Estimate Doesn’t Match Your First Estimate or Initial Fees Worksheet

GFE3 HELP! My GFE doesn’t match the original estimate or fees worksheet that my loan officer gave me. What can I do?

This is a good question and one that home buyers ask me. Here are two reasons why you might see a different origination fee on your official 3-page Good Faith Estimate.

Two Reasons Why Your GFE Might Be Different Than Your Fees Worksheet

1) Look to see if the loan officer split up the origination fee on several different lines in the upfront estimate. This often happens when the origination fee is high and not competitive with a fair market fee. I saw this again earlier this week when a home buyer used my consultation service.

On the upfront worksheet, there were four fees:

an origination fee,
an additional underwriting fee,
an additional processing fee,
and an IRS tax transcript fee.

These four fees were added together on the official GFE, because this form does not allow the loan officer to split up lender fees on different lines.

In this particular situation, the lender was charging $2,412 more than the national average origination fee, so I told the home buyer what steps to take.

2) If there is a legitimate “change in circumstances” (as the law says), then the lender has the right to increase their origination fee. A legal change in circumstances would be something like you told the loan officer you had excellent credit, but then when they pulled your credit report, they discovered that your credit was sub-par. Another legitimate change would be a change in loan programs, such as the need to switch from a conventional loan to a FHA loan.

A “change in circumstances” is not when the purchase price changed due to negotiations, but the loan-to-value ratio and loan program remain unchanged. If the price is higher or lower, but you are still putting 20% down, that does not constitute an excuse to raise the lender fees.

“Borrower Beware”

The new lending laws have not put all loan sharks or liars out of business. There are wolves in sheep’s clothing in every type of institution, including credit unions. Some home buyers think that if they go to their local credit union, they automatically get a good deal, but that is not true. I have posted in the past about credit unions pulling a bait-and-switch or overcharging.

Before you sign the loan disclosures, make sure you understand all the charges for your loan and agree to them. Once you sign, the lender is not going to negotiate, because your signature certifies your acceptance. However, your signature does not obligate you to the loan. That is important to know, because if you discover you are being over-charged, you are free to cancel and go elsewhere, if a satisfactory conclusion cannot be reached. (Always speak to your loan officer and try to work out a fair fee schedule before canceling. Respect your loan officer’s time and effort, but also respect yourself.)

I am available to review your cost estimate, initial fees worksheet, and/or Good Faith Estimate. Please see my Personal Coaching page for details, including the fee schedule.

Be smart, be informed, and then be confident with the terms of your loan.

 

 

 

 

 

 

 

 

Five Dangers of Co-Signing

co-sign Before you agree to be a co-signer for a friend or family member, consider the hidden dangers. By co-signing, you are not simply vouching for that person’s integrity. You are legally taking on responsibility for the loan yourself.

As a result, the debt and payment are yours in the eyes of a mortgage lender. The mortgage underwriter will calculate that payment into your debt ratio. This could easily prevent you from being able to buy the house you want. But hold on, there’s more…

Five Reasons Why Co-Signing is a Dangerous Move

1) No one can predict the future. What if the primary borrower gets hit with an illness and is hospitalized? What if he/she needs surgery and cannot work? What if the company they work for is sold or undergoes a restructure so that they are laid off work? What if they are a victim of identify theft? What if natural disaster strikes? What if they die in a crash? I don’t mean to be negative, but no one can promise with 100% certainty that the loan won’t pass on to you.

2) If the primary borrower does not make payments for any reason whatsoever, you are legally responsible for the loan. No exceptions.

3) The debt goes on your credit report. This could lower your credit score due to high balance-to-limit ratio and/or to debt load.

4) The debt goes on your debt ratio. This could prevent you from being approved to buy a house or an automobile.

5) It has the potential to harm, and even completely ruin, a good relationship. It’s happened more often than you might think.

Never co-sign for your girlfriend or boyfriend, not even if you are engaged to be married. That might sound extreme, but I’ve seen too many tearful people with unpaid debt on their credit reports that are leftover from a relationship that didn’t work out. Not only did the string of late payments ruin their score, but they were prevented from moving on with their lives in buying a home for themselves.

I’ve seen co-signing situations turn into lawsuits among family members.

Co-signing is dangerous. If you value your relationship, say no. Often people don’t realize what they’re asking, and if they did, they would not put you in such an awkward and precarious position.

If you feel reticent to say no, then blame it on me. Say, “I’d be happy to write you a letter of recommendation, but Carolyn Warren — whose advice I follow — says co-signing is dangerous and must not be done, ever, no exceptions.”

Make your friend or family member feel good with a nice letter. But whatever you do, DO NOT SIGN a legal agreement, not even as a co-signer.

 

 

How Mortgage Lenders Calculate Your Debt Ratio to Determine What Price House You Can Afford

kitchen counter top viewBefore you fall in love with that gorgeous home, figure out whether or not you can afford it. Remember this:

The one who holds the money makes the rules.

If the underwriter says your debt ratio is too high, you will be denied. (And be forewarned: the spreadsheet you made showing you can afford it means nothing. The underwriter will not give it a moment’s glance.)

As I mentioned in a previous post, your loan officer can calculate your debt-to-income (DTI) ratio for you. But what if you want to do it yourself? What if you want to double-check the loan officer? Here’s how it’s done.

1) Take your gross income (before taxes and other deductions). Use the highest figure on your W-2 forms. You must have been employed in the same line of work for the last two years in order to count the income. If you have a brand new part-time gig, it won’t count. If you have brand new bonus income, it won’t count.

For self-employed people, use the Adjusted Gross Income near the bottom of page one of your tax returns. Again, you must be self-employed for the last two years. If you have a new business, you cannot count your self-employment, even if it is in the same line of work as your previous W-2 job.

2) Add up your monthly outgo. Use all of the minimum payment obligations that show on your credit report. If you pay your entire credit card bill each month, you do not use that balance in your outgo; instead, use only the minimum payment required.

Do not count expenses that do not show on a credit report such as phone, utilities, cable, gas or bus, or grocery.

Add in the new proposed mortgage payment for the house you want to buy. Include principal, interest, taxes, insurance, and monthly mortgage insurance if putting less than 20% down. (You can use the easy calculator at MortgageHelper.com here.)

3) Divide your total outgo by your gross income. This is your DTI. Most mortgage lenders want to see a max of 38% DTI, but some will go higher if the rest of your application is strong. The highest I’ve seen is 49% DTI with a 800 credit score and significant cash reserves.

For example, if your gross income is $5,000/mo. and your outgo is $3,000/month:

5,000 divided by 3,000 = 60 DTI. That is too high and will be denied.

You would then need to pay down debts and/or choose a less pricey house.

By knowing your price range, you avoid the disappointment of being denied. And again, if it seems too complicated to calculate yourself, all loan officers at mortgage companies and banks are happy to do it for you. They love using their handy HP calculators, so don’t hesitate to ask.

Happy house hunting! It’s a good time to own your own home.

How to Avoid the New High Mortgage Lender Fees and Keep More Cash in Your Own Pocket

Money 2The annual report for lender fees, state by state, is out. Is your state on the five most expensive or the five least expensive states in which to close a mortgage loan?

That’s an interesting question, but more important is how do you avoid paying those over-priced closing costs, no matter what state you are in?

It is my pleasure to tell you that I see Good Faith Estimates from all over the U.S., and from all types of lenders: banks, brokers, credit unions, and other direct mortgage lenders. None of my clients (and I expect that none of my book readers either) are paying the new higher fees stated in this report.

None! They’re too smart for that. They keep more of their cash in their own bank accounts and shell out less for inflated origination costs padded by junk fees.

Five Most Expensive States for Mortgage Fees

1) Texas: $2,280 average origination fee

2) Alaska: $2,195 origination fee

3) New York: $2,109 origination fee

4) Hawaii: $2,009 origination fee

5) Wisconsin: $2,035 origination fee

There is no reason to pay so much! This is approximately double what my clients are paying for origination in those states.

The most expensive states I see for origination are California and New York where my folks are paying about $1,200 on average.  Who’s paying $2,280 in Texas? Some vulnerable folks who are being taken advantage of, that’s who. I know a good Texas lender that charges a flat fee of $900 and not a penny more.

Five Least Expensive States for Mortgage Fees

47) District of Columbia: $1,791

48) Ohio: $1,707

49) Missouri: $1,749

50) Tennessee: $1,746

51) Nevada: $1,570

Too high, all of them! I like to see the origination fee for these least expensive states at $800 or less.

How Do You Pay Less?

It’s not hard to pay less and keep more of your money in your own pocket. Simply use the loan shopping method in my books. It’s in Mortgage Rip-Offs and Money Savers and in Homebuyers Beware. Make three phone calls and ask one question. That’s it. The only change for 2014 is that instead of asking for a Good Faith Estimate, ask for a Cost Estimate, because lenders won’t give out a GFE unless they pull your credit report first, and you don’t want that.

Why Have Origination Fees Gone Up?

The report states that lender origination fees (including the admin. fee, application fee, processing fee, underwriting fee, doc prep fee, and miscellaneous junk fees) has increased by a 9% in the past year. Why?

There are two reasons.

1) New federal mortgage regulations are costing lenders more time, and time is money.

2) Borrowers have been lulled into a false sense of security, thinking that the government involvement in the mortgage industry has protected them from being ripped off (which is not true). Therefore, they neglect comparison shopping.

It’s not hard to save yourself $500 to $1,00 or even more. If you don’t want to or can’t take the time to read one of my books, then you can take advantage of my personal coaching service. If I don’t like your loan, I will find you a better one that I do like. Information is here. Watching the video testimonial is optional. Scroll down to read the details.

Only You Can Bring Down Lender Fees

When borrowers say no to the banks and mortgage companies with the high fees and choose to do their business with the good, reasonably priced lenders, they control the market. The over-priced lenders will be forced to lower their fees or starve. It’s that easy, and you have the power to do it.

If you know someone who is considering buying a home or refinancing, please do them a favor by passing along this information. Thank you.

To see my source for the annual Bankrate report, go here.

What Price House Can You Afford?

front door of a houseEmily Johnson found the perfect house for her family. Four bedrooms, three baths. The master suite had a garden Jacuzzi tub, just what she  needed after a long, hard day of work. There was plenty of street appeal, too. After hours of looking on the Internet, she’d found The One.

Her next step was to contact the real estate agent who was listing the house and ask to see inside.

Emily fell in love.

That evening, she brought her husband out to see the house, and he agreed with her that it was just what they wanted. They asked the real estate agent how they could make an offer. And that’s when everything fell apart.

You see Emily, like so many other house shoppers, had done everything wrong  — starting with her initial search.

What Went Wrong?

When you want to buy a house, your first step is not searching the Internet for what you want. Your first step is to find out how much house you can afford. That way, you can tailor your search to what is appropriate and realistic. What’s the point of falling in love with a house that is out of your price range? Why set yourself up for disappointment?

house modest2To find out how much house you can afford, ask a mortgage loan officer for a pre-qualification.

A pre-qual is a quick evaluation by phone. The loan officer will ask you a couple questions about your income, outgo and down payment, then give you an estimate for the loan amount and home price you can qualify for.

No credit check is needed. To make sure your credit report is not pulled without your authorization, do not give out your social security number.

Once you know your true price range, you can cruise the Internet to your heart’s delight. By looking at homes you can afford, you set yourself up for success and avoid heartbreak.

 

Home Owner Awarded $16,000,000 By Jury in Case Against Big Bank

money hundredsLike many home owners who have tried to secure a loan modification for their mortgage, Philip Linza felt like he was hitting up against a brick wall. Over and over again.

His lender, PHH Mortgage, made one bumbling error after another, and as a result, Linza, a resident in Sacramento, CA, almost lost his house.

Fed up, he sued in a court of law.

The jury, presumably also fed up with the ineptitude and shenanigans of big banks, decided to award Mr. Linza an unprecedented amount of money: $514,000 in compensatory damages plus $15.7 million in punitive damages.

PHH Mortgage, the sixth-largest mortgage loan originator and eighth-largest loan servicer, isn’t taking its punishment without a fight. Vice President Dico Akseraylian claims the verdict is not supported by facts or by applicable law. Furthermore, he says the amount of the award “is grossly disproportionate to any alleged damages.”

Perhaps the award is a wee bit high. A typical jury award for mortgage fraud would be in the $15,000 to $100,000 range. So I can see why $16 million would be a big pill to choke on. Plus, he does still have his home.

Now with a review and appeal as the logical next steps, one has to wonder if the home owner will ever see a dollar of that money.

Everything about this story seems over-the-top to me. What do you think?

Source: Philly.com

 

Who Chooses the Title Company for a Mortgage?

realtor2When you buy a house or refinance your existing mortgage, title insurance is required. Title insurance protects the interested parties (you and the lender) from a whole host of possible problems:

* False liens and judgments. (This is common. Someone with a name similar to yours fails to pay a bill and next thing you know, it shows up as a lien on your property. Title insurance protects you and removes it.)

* False heirs claiming ownership. (As in, “My grandma used to live there and she willed the house to me.”)

* Mistakes and errors. (They happen.)

* Fraudulent claims. (Someone says you owe money when you don’t.)

It’s easy to see why title insurance is important: it protects your ownership in the property. But who chooses the title company?

If You Are the Buyer

For a purchase loan, your Purchase & Sale Contract states who the title company is. So, it is decided between the buyer and seller. In some states, it is seller choice. However, the buyer has the right to request a certain title company. If the seller is a private party, they will usually agree to the buyer’s request. If the seller is a bank, then the bank usually has a title company they work with for all their transactions, and they don’t want to switch.

If you are buying from a private party, chances are the seller (like most consumers) is not familiar with title companies; therefore, it ends up being the real estate agent who chooses.

Personally, I like to choose my own title company, because I want a company with a good reputation that doesn’t charge me a bucketful of junk fees. In recent years, some title companies and escrow companies have jumped on the junk fee bandwagon. In addition to their normal compensation, they have added on extra fees such as e-doc or email fee, doc prep. fee, wire fee, courier fee, archive fee, review fee, auxiliary fee, and whatever fee.

How annoyed would you be if you ordered a hamburger for $7.95 and then the restaurant charged you a pickle fee, ketchup fee, mayo fee, and mustard fee? You would say that is part of the hamburger and $7.95 should cover it all, right? The same goes for all the title and escrow add-on fees. It’s bogus, and this is why I like to choose my own title company.

If You are Refinancing

When you refinance, there is no seller or Realtor involved, so the title company is your choice alone. If you do not tell your loan office which title company you would like to use, the loan officer will choose one for you. The same goes for the escrow or closing agent. You need to designate who that should be.

Why It is Important to Choose

By choosing wisely, you could save yourself several hundred dollars. Why pay hundreds more when you could keep that money and use it on something for your home instead?

To see a list of required fees and bogus fees used in mortgage loans, please see Mortgage Rip-Offs and Money Savers, because unfortunately, unnecessary costs are still being tacked on to loans today.

Thank you to Jason Caldwell for writing this review 14 days ago: “The book is exactly what I am going through, loved the book I also emailed her also she responded with very in depth email. I mean she really cares. but I am a first time home buyer and well going through the loan process of first time home buyer. Everything in the book she mention of how the loan officer will react to questions is true. Some of them wouldn’t show me a Good faith Estimate.Cover.3D.Mortgage Rip-Offs
From my experience so far, Loan officers don’t depend and don’t want a return buyer. they want to sell you the loan make their high profits and be done.

The book not only tells you but show how they make their profits. how the today’s loan officers can bait and trick you at signing, yes you heard me right switch right at the signing table.

I recommend this book for anyone getting the a mortgage loan to read this book first. This should be a college text book. Ive read and i go back make my own notes. The book is that informed and that good.”

 

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