Home renovation loans
So you find the home that really fits everything in your list – location, size, price range – except it needs a few upgrades or repairs. Conventionally you would need to be able to (a) get the house approved for purchase even with the necessary repair, (b) be able to fund the repairs out of pocket and (c) deal with the entire transaction with a lender who knows little or nothing about rehab purchases. Problem solved if I may be so bold.
Play this short audio file for more information.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
Contact form on this web site
Subprime loans and home ownership
Home Ownership and Subprime Loans
During the last decade lending guidelines changed dramatically. The changes at the beginning of the decade were precipitated by loosening federal guidelines as a result of the outcry for more equal access to home loan products for under-served markets. The old adage ”give ‘em and inch and they’ll take a mile” soon came into play.
While sub-prime loan products, a name simply referring to loans that did not meet conventional guidelines, had been in existence prior to – and in fact are still in existence today – they became more the standard for many brokers and banks alike because they were simpler to close due to their lax lending requirements. By 2007 non-conforming loans comprised the largest percentage they had in history and the lack of requirements for underwriting are what made these loans so dangerous.
Among the many requirements for underwriting conforming loans which did not exist in non-conforming (sub-prime) loans was the necessity to verify the legitimacy and originality of required documentation like bank statements, pay stubs and others. Unfortunately this laxness spilled over into conforming and government lending as well. Until recently underwriters and investors rarely required any sort of evidence of the originality of documents.
The Veteran’s Administration (VA) has always been more likely to ask for evidence of originality when the copies are actually submitted. It only follows that the VA would be one of the first agencies to re-enforce this policy. However the VA is not the only agency or organization to require CTC for non-original documentation. In fact it was very common in the 1990s and earlier for post-closing auditors to write up a file which did not have “Certified True Copy” (CTC) photo-copies in the file.
Chances are over the next few months the CTC policy will come into play across the board. This means applicants will be increasingly like to be asked to submit either original documentation or notarized copies. It may be possible your lender will ask you to send in documentation or visit your local notary public to have your photo copies witnessed. Chances are the request is non-negotiable.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
Contact form on this web site
What are closing costs?
It would be simple to say “closing costs” are the amount of money required to be brought to the closing table at the time of purchase or refinance. Oh that it were that simple yet it is not. In fact different agencies and organizations have different definitions for the same term. Perhaps we can do some good here and provide the true definition for the components of closing costs, establish which costs go where and which costs are negotiable.
If you want to say closing costs are the total fees you bring to the closing table that would include this list and maybe more in some cases:
- Appraisal fee – to the appraiser
Pie Chart of Closing Costs
- Credit score fee – to the credit bureau
- Origination fee – to the loan officer
- Funding fee – to the lender
- Underwriting fee – to the lender
- Processing fee – to the processing company
- Broker fee – to the mortgage broker (if there is one)
- Recording fee – to the county courthouse
- Loan registration fee – to the state department of banking and finance
- Title exam – to the title company/private investigator
- Attorney fee – to the closing attorney
- Attorney’s wire fee – to the attorney
- Lender’s title insurance – to the title insurance company
- Owner’s title insurance – to the title insurance company
- Real estate taxes and escrow – to the state, county, city where due
- Home owners insurance – to the owner’s insurance company
- HOA fees – to the HOA/COA
Some of these fees are only closing costs because the lender, unless the borrower chooses to waive escrows of taxes, insurance and HOA, would be required to be paid over time anyway. In fact most HOAs require an initiation fee even if you are paying cash. That is the best way to think of closing costs as associated with purchasing a home anyway: which fees would exist even if there were no lender: attorney fees, recording fees, appraisal fee, home owner’s insurance, etc.
Two of the biggest fees associated with the purchase of a home are not considered closing costs and those are the down payment and the real estate broker fees. Brokerage fees are not considered a closing cost because they are added to the sales price and the seller pays them and down payment is going straight to the purchase of the home. If we counted down payment as a closing cost then someone paying cash would be considered to be paying 100% closing costs.
What about “no closing costs” loans? Simple. They don’t exist. The buyer or home owner who is refinancing pays the costs either in cash, from the proceeds of the loan, using a down payment assistance program, or by the lender increasing the rate enough to earn more in interest. None of those closing costs go away when they are required. The attorney doesn’t work for free, the appraiser doesn’t work for free, the loan officer, processor and underwriters do not work for free.
Hopefully understanding these fees and where they go will help you in your next purchase or refinance to understand the cost and how to better manage or prepare for your closing.
*The set of closing costs used for this chart are typical for a mortgage broker. They will vary from state to state and lender to lender … but not by much.
Related articles
- Good-faith estimates bring higher closing costs (sfgate.com)
- Survey: Mortgage closing costs 37% higher (usatoday.com)
- New rules limit too-low estimates of closing costs (knoxnews.com)
- What are “seller concessions”? (kennycook.com)
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
Contact form on this web site
What are “seller concessions”?
- Image by familymwr via Flickr
You may have heard the term seller concessions in conjunction with a home purchase. What is generally meant by that term is when the seller uses part of the proceeds of the sale to pay some of the costs of the loan for the buyer. Generally speaking government loans allow up to 6% (of the loan amount) in seller concessions and conventional loans allow up to 3%.
Seller concessions are intended to pay closing costs and pre-paids, not down payment. If the seller wishes to contribute more than the allowed maximum in lender allowed concessions the simple solution is to lower the sales price. In return this lowers the loan amount and the seller can still cover the closing costs and pre-paids (taxes, insurance, HOA escrows) from the proceeds of the purchase. The proceeds, in case you are wondering, come from the money going to the seller for the purchase of the home.
Plain math example:
- Allowed seller concessions 6%
- Closing costs 1.5%
- Pre-paids 4.5%
- Sales price $200,000
- Loan amount $193,000
- 6% of $193,000 is $11,580
- Cash to seller decreased to $181,420 ($193,000 – $11,580)
- Cash from buyer $7,000 (down payment)
The seller cannot contribute (under most rules) to the down payment. Seller concessions can only go to closing costs and pre-paids. Check with your reputable lender and see what maximum concessions are and how they may be used for your particular loan program.
As a seller offering the max in concessions is a great way to attract buyers.
UPDATE: Taxes, insurance and HOA are NOT considered closing costs. Although they may be paid at the time of closing they are costs that would be required to be paid regardless of whether or not there is a loan. If you do not wish to escrow your taxes, insurance and HOA fees most lenders and most loan programs allow a “waiver of escrow” for a small increase in interest rate. The reason the interest rate increases is because loans without escrow accounts present a higher risk to the lender.
Related articles
- FHA Gets Tougher on Mortgages (online.wsj.com)
Dangers of shopping mortgage rates online
You’ve seen those ads touting some crazy low number like 2.125% home loans! The first thing I usually notice is there is no APR advertised on the same line and in the same font – federal violation. This is often my first hint this is a lead generation company and not an actual lender. Lead generations companies, so it seems, can advertise just about anything they like since they are not actually providing home loans. In my opinion those who buy leads from companies who advertise should be held equally accountable – not likely to make me popular among “the liars club”.
Some months ago I wrote a post about this subject and even received a couple of phone calls from mortgage brokers, mostly out west, who would like to have done me bodily harm. We all know people in the industry who make outrageous claims they can very rarely deliver and weasel their way around the law by publishing a mult-paragraph disclaimer secreted away on some difficult to find asterisk centric page.
Even with the rates you see published by Zillow and BankRate, both reputable companies, you will often find the brokers and lenders who feed those companies the rates pushing it to the very lowest number possible to be achieved under the best circumstance on the best of days. Those rates never take into consideration anything except the best of circumstances and to really see the full picture one would need access to the qualifying factors – which are will hidden if published at all.
Understanding mortgage pricing is like understanding pricing for any other service: the higher the risk the higher the cost. Lenders base mortgage rate factors on credit score, loan amount, property type, and other factors due to the risk provided from those types of loans over the years. It’s no secret that the pool of borrowers of people with 720 or higher credit scores, 20% or more down payment and purchasing a single family home in the $200,000 range are less likely to miss a payment or default on the loan than the pool of borrowers with credit scores around 630 and 3.5% down on the same home. It’s just a fact of numbers.
So when you see interest rates advertised your first response should be doubt – and that will serve you well. If you have a middle credit score of 740 or higher, are paying at least 20% down on a home within the conventional mortgage limits for your area, you have a good income and ample assets then it is possible you will qualify for the rates you see advertised online.
BIG WARNING: There is a, an I use the term very loosely, “mortgage company” which advertises regularly on one of these type websites and their rates always seem about a full 1% lower than everyone else’s. Every day they take thousands of phone calls of people who do not qualify for those rates. Do yourself a favor – find a reputable lender who doesn’t use parlor tricks and flashy numbers to steal your trust. Hang up, call someone local and trustworthy, and give them your business.
ABOUT ONLINE LEAD COMPANIES: Most online lead companies will sell your information to 3 to 5 (or more) people. Even though the lead company may have advertised some obnoxiously low interest rate the company who purchases your lead is under no obligation to offer it. These mortgage brokers will pay as much as $50 or more for your phone number and you bet they are going to do whatever they can to get their money back. Don’t get me wrong, some of these lead buyers are the most honest and ethical people you will meet. Unfortunately many of the lead companies have neither honesty nor ethics.
Related articles
- Mortgages: Preventing Credit Score Dings (nytimes.com)
- Benefit of higher credit score dwindles at top end (sfgate.com)
- U.S. 30-year mortgage rates fell in week – Zillow (reuters.com)
An Appraisal is not an Inspection
- Image via Wikipedia
While eating dinner with my wife at one of our favorite Mexican Cantinas, which also happens to be less than a mile from home, we overheard two other diners discussing something we know quite a bit about. What caught my ears was when one of the ladies said to the other, “So she pulls into my driveway in her Porsche and gets out in a tight black dress and heels and I think to myself, ‘this girl is not dressed to crawl around in my attic and crawl space’.”
At first I thought maybe she was talking about a real estate agent but she continued, “I mean what kind of appraisers are these banks sending out these days? I could just imagine her crawling up on the roof and on ladders – she didn’t even have a ladder.”
It was at that point I realized she, like countless others, likely does not know the difference between an appraisal and an inspection. Chances are more people do not know the difference than do. In fact I run into it regularly in my own work when people say things like, “the guy didn’t check the outlets or water pressure or anything”.
In an effort to help the reader better understand let’s start with saying what the lender wants in almost every case in an appraisal not an inspection. There are some cases where the lender may ask for an inspection but in almost every case it is an appraisal. The difference? The appraiser tells the lender what they believe the actual worth/value of the property to be. The inspector tells the future home owner if there may be issues with the property that need to be dealt with now or may present an issue in the future.
Inspectors are there to find things like water leaks, bare wiring, code violations, etc.
Appraisers are there to tell the lender their estimation of the value of the property.
Then you get very confusing terms from people who should know better like “appraisal inspection”. There is also something called a Broker Price Opinion (BPO) which is neither and has no value when a loan is being considered.
Related articles
- Home Inspection or Appraisal: What’s the Difference? ASHI Sets the Record Straight for Homeowners and Buyers (eon.businesswire.com)
- Hvcc Update!!!! It Hurts the Consumers & Our Economy!!! (annarborundressed.com)
- The Ten Reasons People Can’t Sell Their Homes (247wallst.com)
- What is a BPO? (Broker Price Opinion) (findwell.com)
- All You Need To Know About Appraisals (apartmenttherapy.com)
- Home Seller and Buyer Liability for a Home Inspection (brighthub.com)
FHA insurance changes
- Image via Wikipedia
The cause for celebration over Federal Housing Administration lowering the upfront mortgage insurance premium is short lived. Concurrent to lowering the upfront fee is the increase of the monthly insurance premium fee.
Lowering the UFMIP from 2.25% to 1% will certainly decrease the amount of repayment. However, increasing the MIP from .55% to .90% (on loans with a down payment of 5% or less) will increase the cost of repayment significantly. The end result will be the FHA having more operating capital if the result is not a significant decrease in the number of sales due to borrowers not being able to qualify on debt-to-income ratios.
Currently, if you are purchasing a home at $200,000 (for example) with the FHA minimum down payment of 3.5% your base loan amount, prior to the UFMIP add back, is $193,000. Adding back the UFMIP, at the current rate of 2.25%, brings the loan amount to $197,343. The MIP cost per month, at the current rate of .55%, is $90.45 per month.
After October 4th 2010 the UFMIP will be only 1% meaning the loan amount including UFMIP will be $194,930 – a savings of $2413 on the purchase price. However with the new MIP rate of .90% the monthly MIP addition to the payment will be $130 – resulting in a payment approximately $40 per month higher. At that rate the savings on UFMIP ($1900) will be lost in about 4 years.
One plus is that, at least currently, MIP does have a tax benefit and the buyer should consult their tax preparer for detailed information on the tax benefits of a monthly mortgage insurance premium.
Related articles by Zemanta
- UPDATE 1-US FHA set to increase borrowing costs next month (reuters.com)
- Senate approves higher government mortgage fees for new loans (usatoday.com)
- Higher Government Mortgage Fees Approved By Senate (huffingtonpost.com)
- US FHA set to increase borrowing costs next month (reuters.com)
- FHA Insured Mortgages: A Disaster In The Making (businessinsider.com)
Four sins of mortgage qualification
- Image via Wikipedia
Soon will come the day in the lives of most readers when purchasing a new home will be a desire realized or a necessity placed on them by the demands of life. Even those who already own a home may be faced with the decision or necessity to refinance a current home loan. Sadly most home buyers and owners plan more for their next vacation or even a family picnic than they do an upcoming mortgage.
Mortgage planning really is a science because it is based on numbers instead of emotions. While the buying process itself may be driven by more than numbers the actual financing of that property, or even the decision to purchase with cash, is primarily a series of numeric calculations. As such there are ways for anyone to plan for their next mortgage in order to receive the best possible rate and terms available.
The four sins
Negative impacts on the applicant’s ability to borrow loans are not always of their own doing yet some are. Clearing one’s history of these three sins, if they exist, will greatly improve their likelihood of not only being approved for a home mortgage but getting the best rate and terms.
What fees are included in the APR (Annual Percentage Rate)?
- Image via Wikipedia
The Annual Percentage Rate (APR) is one of the most misunderstood numbers there is on the mortgage documentation. Additionally it is the most easily abused and even though it is supposed to exist to protect shoppers can be so misconstrued as to actually harm the shopper. Be that as it may here are fees that must be included in the calculations for APR in the state of Georgia.
| APR FEES | |
| Processing Fee | Allowed |
| Underwriting Fee | Allowed |
| Origination Fee to Lender | Allowed |
| Discount Points to Lender | Allowed |
| Broker Fees for Services Rendered | Allowed |
| Commitment Fee | Allowed |
| Lock Fee | Allowed |
| Closing/Escrow Fee to | Allowed |
| Attorney’s Fee to | Allowed |
| Disbursement/Funding Fee | Allowed |
| Wire Transfer Fee | Allowed |
| Warehouse Fee | Allowed |
| Assignment Fee | Allowed |
| Amortization Schedule Fee | Allowed |
| Copy Fee | Allowed |
| Fax Fee | Allowed |
| Document Review Fee to Lender | Allowed |
| Courier or Express Mail Fee to | Allowed |
The APR is the total cost of the loan over the life of the loan averaged with the base interest rate. For example if you have an interest rate or 4.5% and closing costs of $5000 on a $100,000 loan the .5% APR qualified closing costs would result in an APR of 4.923% while $10,000 in APR qualified closing costs on the same loan would result in an APR of 5.333%
The way this can be abused or manipulated is by charging a higher base rate and shifting the rate commission to cover some of the closing costs. Not that this is necessarily a bad thing but it gives a hint as to how this figure can be manipulated.
Related articles by Zemanta
- Friday’s Mortgage Rates…Trending Lower (raincityguide.com)
- How loan originators are compensated and why consumers should care. (raincityguide.com)
- 36% Annual Percentage Rate Is Not Enough Says Check ‘n Go (lockergnome.com)
Bad credit home loans
- Image via Wikipedia
“Anyone can qualify regardless of credit”. “No application refused”. “No minimum credit score required”. The ads are still out there and mostly on Craigslist. Generally those ads are not from mortgage lenders or banks but from mortgage lead generation companies. Unlike mortgage companies lead generators are not required to be licensed, don’t offer home loan services and are not held to the strict standards of mortgage companies in advertising so they make a lot of outrageous claims hoping to get as many people to give them their information as possible.
The truth is there just aren’t any conventional home loans for people with “bad credit”. Not even FHA as is often misconstrued. FHA home loans, just like conventional home loans, actually require a relatively clean credit history although they do allow some negative reporting – even that is limited to scope and history.
Live Desk
Daily Rates for Qualified Buyers
Today |
Last Week |
|
| 30 Year Fixed | 3.56% | 3.61% |
| 15 Year Fixed | 2.87% | 2.92% |
| 5/1 ARM | 2.34% | 2.51% |
Credit Reports
Follow Me!
Archives
- October 2011 (4)
- September 2011 (11)
- August 2011 (2)
- July 2011 (1)
- June 2011 (1)
- May 2011 (1)
- April 2011 (4)
- February 2011 (2)
- January 2011 (1)
- November 2010 (1)
- October 2010 (4)
- September 2010 (1)
- August 2010 (1)
- July 2010 (4)
- June 2010 (2)
- May 2010 (4)
- April 2010 (2)
- March 2010 (7)
- February 2010 (1)
- January 2010 (6)
- December 2009 (2)
- November 2009 (7)
- October 2009 (12)
- August 2009 (4)
- July 2009 (2)
- June 2009 (6)
- May 2009 (9)
- April 2009 (7)
- March 2009 (10)
- February 2009 (9)
- January 2009 (20)
- December 2008 (15)
- November 2008 (20)
- October 2008 (3)
- January 2007 (6)
- December 2006 (16)
- November 2006 (6)
- October 2006 (8)
- September 2006 (13)
- August 2006 (12)
- July 2006 (15)
WordPress Sites
Twitter
Skype
