This week, I saved some homeowners, a lovely couple in California, from making a financial mistake that would have cost them $115,720. Could you be making a similar mistake?
The wife asked my opinion on the Loan Estimate they received from a big national bank you would all recognize. It was a refinance to lower their interest rate and payment.
Her gut instinct said something was off; although, she wasn’t sure what. That’s when she reached out to me.
A close look revealed that the refinance was going to save them $47 per month. That adds up to $564 per year, and $16,920 over the life of the loan, 30 years. But wait!
They were already seven years into their loan. And most of the interest is paid in the first five years.
By going backward seven years, this “lower payment” was going to cost them $115,720 more!!!
And for what–to save a paltry $47 per month?
Mrs. Homeowner responded, “How can they do that to people?”
Good question. Her husband was a disabled U.S. Veteran, injured serving our country. How could they, indeed!
Before you jump into a refinance to lower your monthly payment, stop and consider what it will cost you to go backwards to the beginning of a 30-year term.
If you choose to go to a mortgage broker (rather than a bank or direct lender), you could get a customized loan term that won’t require you to go backward at all. That’s right! A mortgage broker can write a loan for 28 years, 27 years, 19 years, any term that makes the best financial sense for you.
If you are in CA or WA, I am licensed in those two states. If you are in AZ or OR, I have a colleague who is licensed there. Thank you.
I love California, and I am excited to announce that I am licensed to do mortgage loans in the Golden State. Whether you are a first-time home buyer, a seasoned home buyer, or a home owner refinancing, I can help you get the best loan for your situation.
Here are some of the loan programs I can help you with:
* First-time home buyer FHA loan with 3.5% down or with gift money for the down payment.
* Grant money for the down payment on an FHA loan with no pay back whatsoever. A true grant, from a private bank. No neighborhood restriction.
* Conventional loans: 30-year fixed, 20-year fixed, 15-year fixed, 10-year fixed rates.
* 5/1 ARM: fixed for the first five years, then adjusts annually. A good loan for people who plan to keep the home for five years or less.
* VA loan for U.S. Veterans
Getting Pre-Approved is No Cost
There is no cost to get pre-approved and/or to find out how much house you qualify for. Let me know what you want, and I will take it from there.
What Does It Mean to Be “State Licensed”?
Loan originators who work for banks and credit unions do not have to be state licensed. The CFPB assumes the bank will vouch for their integrity and competence. However, mortgage brokers and direct lenders (such as myself) have to pass multiple hurdles in order to do business in California. Here are the requirements we go through that those at banks and credit unions get to skip over:
* 20 course hours plus additional class hours for California state law.
* Pass both a national test and a CA state test.
* Get fingerprinted and have a background check done.
* Have a credit report pulled and checked for personal financial responsibility.
* Be approved by the CA state authority.
You might say that state licensing ensures a higher level of scrutiny, which means more security and peace of mind for you.
Please feel free to contact me about your mortgage questions or financing needs via the Ask a Question page here.
Looking for a Recommendation for a Licensed Real Estate Agent?
I have worked with fine real estate agents in California. If you would like my recommendation for an agent who will work hard and put YOUR best interests first, send me a message here.
If so, I have good news for you. After looking at local banks, credit unions, and other lenders, I have joined VITEK Mortgage Group, a lender with a stellar reputation. As a mortgage loan officer, I can shop the wholesale divisions of lenders such as Wells Fargo, Chase, Ditech, Caliber, and more — as well as VITEK’s own line of loan products.
It is important to me to get the very best loan at the very best pricing available for my clients. Having the ability to shop without being limited to only one lender’s loan products gives me the ability to do that. If I worked for a bank or credit union, I would be limited to their loan products only — and when it comes to a mortgage, it is NOT a “one size fits all” situation.
If you want a seasoned professional who wrote the book on mortgage rip-offs and money savers to do your loan shopping for you, then I am your gal. Not only that, but I go another step in helping you get a good title and escrow company, because now in 2015, too many title and escrow companies are piling on the junk fees and over-charges.
As a loan originator for VITEK Mortgage Group, I can extend their Peace of Mind Guarantee:
* Guaranteed On-Time Closing
* Guaranteed Real-Time Status Updates
* Guaranteed Best Value
VITEK stands for Value, Integrity, Teamwork, Excellence, Knowledge.
That is pretty much everything you and I want in a company.
I am licensed in WA state and will soon be licensed in CA as well. (I have met all the requirements for California and am awaiting on the Dept. of Business Oversight for their acknowledgement.)
Please let me know how I can help you with your home purchase or refinance.
NMLS License # 1284134
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.
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.
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.”
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.
* 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.
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.”
If you used an FHA loan (3.5% down payment) when you bought your house, get out the Truth-in-Lending form. Near the bottom, you’ll find in bold Prepayment Penalty. Is the box checked for may have or for will not have a prepayment penalty? Regardless of which box is checked, if you close your loan on any day of the month except for the last day, you will pay a penalty.
Question: “Can they do that? My documents says I will not have a prepayment penalty!”
Answer: Yes they can, and I guarantee you that they will. If you pay off your mortgage in the middle of the month, FHA will charge you interest for the entire month, no matter when you vacate the loan. So essentially, you are paying FHA extra interest payments even after the loan is closed. This is a prepayment penalty.
How They Keep It Hidden
When they calculate the pay-off balance on an FHA loan, they roll in those extra days of interest on what you owe. If you wonder why your pay-off figure seems too high, the FHA prepayment penalty could explain it.
How to Avoid the Prepayment Penalty
If you have an FHA loan, you need to close on the last day of the month. If that is not possible, close as near to the last day as you can in order to minimize your financial penalty.
FHA is Making Millions on Hidden Prepayment Penalties
In just one year alone (2003), FHA pocketed an extra $587,400,000 in profit from home sellers’ prepayment penalties. Over the course of the last decade, that multiplies to billions of dollars charged to unsuspecting first time home sellers and home owners refinancing.
Stop the Madness!
In 2011, U.S. Senator Ben Cardin (MD-D) tried to pass a bill stopping FHA’s prepayment penalty. Unfortunately, FHA poo-pooed the bill and it failed to pass.
Now the Consumer Financial Protection Bureau (CFPB) is pressuring FHA to stop the penalty. They say it’s not fair, and they want FHA to knock it off.
FHA is Fighting Back
FHA says if they are forced to drop the penalty, then new borrowers “can expect to pay a slightly higher rate.”
Thanks a lot FHA. Now you’re going to charge ALL home buyers at the beginning of the process instead of only the ones who don’t close at the end of the month?
New Policy Won’t Affect Existing Home Owners
If the new policy passes — and I think it will — it won’t affect current home owners. The existing loans will still be subject to the financial penalty. So be vigilant about your closing date. Make sure you close at the end of the month to avoid the paying extra.
We are getting ready to buy a house and want to get pre-approved. Do you recommend going to a bank or a credit union?
That is a good question, especially since one of my coaching clients came to me last week with Cost Estimates from a large national bank, a small community bank, and a local credit union.
Because each lender used a different format for their upfront cost estimate, it wasn’t clear to her which was the best choice; and that is precisely what my Estimate Review and Consultation Service is for. Curious about how the numbers came out?
I’ll show them to you below, but first, it is important to know that these numbers are for these particular lending institutions only. Not all of the three Big Banks (Bank of America, Chase, Wells Fargo), not all community banks, and not all credit unions are the same. Some banks and some credit unions are better or worse than others, so no “lender profiling” allowed.
For my client’s loan, a 15-year fixed rate refinance, 80% Loan-to-Value, no extra cash out, here is what she was offered:
3.5% 15-yr fixed rate
$1,854 points & lender fees
3.75% 15-yr fixed rate
$1,400 lender fees, no points
4.25% 15-yr fixed rate
$2,007 lender fees, no points
The credit union showed $1,954 on one line and then hid three additional lender (junk) fees in another spot. I call them junk fees, because when you’re charging $1,954 to process and underwrite a loan, there is no reason to tack on additional fees. It is nonsense and garbage. It seems they didn’t want to put a number beginning with a 2 on the lender fee line, so they scattered $53 in three fees elsewhere on the form.
Are you surprised to see that the credit union had both the highest rate and highest fees?
Personally, I am not thrilled with any of these three offers, because all the fees are too high.
On the other hand, the interest rates that start with a 3 are excellent.
Soon — possibly my next blog post — I am going to expose a brand new scam, a bait-and-switch. You won’t want to miss it, so please consider subscribing to the blog. I post only once a week (occasionally twice) so that your email is not inundated with messages.
Loan sharks are still in business, lurking inside of what are supposed to be reputable banks and mortgage lenders. These are the liars who bait you with an Initial Fees Worksheet or Cost Estimate that looks like a good loan. When doing your comparison shopping, they appear to be the cheapest and best. The icing on the cake is their personal charm; loan sharks are famous for being good communicators.
A home owner refinancing in Southern California asked me to review the three cost estimates she received. The one from a direct lender in San Diego appeared to be the best, so she proceeded with her refinance. But two days later when she received her official Good Faith Estimate, she saw that every one of the fees had been raised.
The lender underwriting and processing fee? Higher by about $400!
The appraiser fee? Higher!
The credit report fee? Higher!
The flood certification fee? Higher!
The tax service fee? Higher!
I advised her not to sign the paperwork until all the fees were corrected. The loan officer quickly apologized and blamed his loan processor. But guess what? The next day when he came out to her home to get the loan disclosure package signed, the fees on the new documents were still higher than initially disclosed. He mumbled some excuses and explanations and told her to sign.
She refused to be a victim of bait-and-switch and sent him packing. She then chose to go with a different, more honest lender.
This was the right choice. A one-time mistake can be fixed, but try to raise fees a second time, and it’s time to move on to a better loan officer. In this case, I don’t blame the lender, but the individual loan officer. He quoted fees that were lower than the company allowed, presumably thinking once he baited in the customer, she would stay no matter what.
A home buyer in Seattle last week had better luck. He also used my review and consultation service, because he didn’t want to spend the time and hassle of shopping around.
“I figured I would get one estimate and if it looked okay to me, get your expert opinion,” he said.
The initial estimate looked just fine. The interest rate was at the best available rate for the day and there were no unnecessary junk fees. The lender’s fee was competitive. I told him to proceed with confidence, and if he had any questions when he received his loan disclosures, to let me know.
The next day he emailed me his official Good Faith Estimate, and right away, I spotted a problem. The appraisal fee had been raised from $450 to $500. I pointed this out to him and suggested he ask the loan officer to correct it. Happily, the loan officer fixed the “error” right away, and all was good going forward. Using my service saved him $50 (he hadn’t noticed the increase) and gave him peace of mind.
If you’d like an expert opinion on your own loan offer, Initial Fees Worksheet, or Good Faith Estimate, please see here. One of my clients called me “The Mother Theresa of Mortgages.” Needless to say, I was flattered. It’s good people who are trying to get good loans that motivate me to do what I do.