Mortgage Financing Options

No Closing Costs Mortgages vs Closing Costs

So, you are being sold on the No Closing Costs type of mortgage. Wow, this sounds great honey. Not only are we getting into the house that we truly want, but with hardly any money out of our pocket. This sounds too goo to be true. WAIT!!   Did you just say what I think you said?  Please repeat that. Okay says the client....  this sounds too good to be true.

So, I'll supply the shovel so you can dig your own hole? I have been in mortgage lending for over 14 years now. Every time business slows down, you see more lenders advertise these no closing cost loans. Has anyone ever noticed this?  Just recently Bank of America and Countrywide have advertised these types of loans. But they never mention the rates. Did you notice this?  They want you to call into their call center. It's called ADVERTISING. And it makes sense, right? This can be common sense once someone starts to explain the ins and outs of this type of mortgage. Tip: Ask for rate. Focus on RATE and PAYMENT, with costs.

So, why is my rate much higher than the closing costs loan? Because your higher rate is paying for your closing costs. This is simple math. But if you fall for it and don't ask the right questions. Or, if you get a loan officer that won't make you aware of this and or explain this to you, you could be digging your own grave?

Now, I am not saying that no closing cost loans are bad. It comes down to your goals. I always ask my clients their goals and if your lender doesn't do this in the first 10 to 15 minutes, this is a red flag. If you aren't going to be in the house for more than a year, then this might be a viable option. Better yet, this can be a great program for those investors that buy and flip homes. It depends on how long that you plan on keeping the house.

Tip:  Think twice in regards to what you see on television and or what you read in the paper. Make sure you speak with a professional loan officer that will explain many different financing options to you. Even if they are advertising just one type of loan. Remember, nothing in life is free. And if it sounds to good to be true, then it usually is.

Conclusion : There are standard costs when it comes to buying or refinancing a home no matter who says what. We all get the money from the same place. It doesn't matter how big the company is. We all can basically give you the same deals. You want someone that is going to give you great service. Be available when you have questions. Not someone that is hard to reach once they have your application.

FHA, is this the best mortgage program? -- First Time Homebuyer Tips -- Best Programs & Why -- Part 3 of 4

So, what have we learned so far, from Parts 1 and 2, in regards to the First Time Homebuyer Tips? Listen to me and only me? No, not that, because this can get you in trouble sometimes, depending on who you listen to. Some loan officers think they know it all and sound like it. Just because someone sounds really nice doesn't mean they might be a good fit for you. The meaning behind this comment is in here, How busy are you really? --Customer Service It's in the 3rd paragraph.  My underlining thought on this whole topic is if it sounds too good to be true, then it usually is. When shopping on your own, don't pick the very best offer. It's been proven. Go with someone trusted, a referral.

Onto the best program for you. If you talk to me, I try to find out your goals first. No matter what you might think that you want or would need, in order for me to do my job, I need to know certain things.

• How long do you plan on being in the house. Not everyone knows the answer, but it's one of the most important questions not asked often.
• How much money do you have total, even though you might want to use less. And using less is actually better for several reasons. Ask me and I will tell you these reasons.
• Do you have kids?  Ages?  College in the future?
• Do you have other bills that don't show up on credit or appear on your pay check?

So Jeff, what is the best program?  Some people don't have much money to work with or none at all. If this is the case, I would start with My Community. For more details on this, read MY COMMUNITY by Melissa Olson. And MyCommunity Mortgage by : Ron Withers. This can be a great program and will beat any rate that subprime loans might offer, even while having low credit scores. BUT.... your rate will be about 1/2% higher than your typical 5% down conventional mortgage or your typical 2 1/4% down FHA loan. This could be a big difference in payment, depending on your loan amount.

Okay, Jeff, I understand the higher payment part. So, what can I do? FHA will allow for 100% gift. Technically it could be like borrowing money from a relative. The lender doesn't want to know about this. In all honesty, it's a gift and it's not suppose to be paid back. My whole point? On an FHA mortgage, you need 3% of your own money,your own funds. If you can get a gift from a family member, it could mean the difference of $100 to $170 a month in payment, depending on the loan amount. FHA is just as compatible in rate as a 5% down conventional loan. For more information on this, please read Creative FHA financing -- No money out of pocket from the buyer!!! Also, FHA can be used for those with less than perfect credit. Sure, so can the My Community program. Overall, it comes down to your goals and cash on hand. And credit can be a factor. Keep in mind, you can get seller's help which is called seller's concessions. Ask me about this for a better explanation.

Your basic types of programs:  Each has their own meaning and purpose. Ask a professional.

• FHA
• Conventional
• VA
• Subprime

 

Conclusion : There are 100's of programs out there. Some are great for the consumer and then some are great for the loan officer or the lender. Wait, the LENDER?  Yes, meaning that they get more of a residual per se for selling you this specific loan. Basically, they make MORE MONEY. Can these types of programs be good for you though? Yes they can, but they aren't for everyone and need to be explained in detail. The problem here, they aren't explained and SOLD to the average consumer on a misconception, that they are misled.

Do some research on the name of the program if it doesn't sound familiar. You can basically Google anything nowadays. Then do it. As I have said many of times, a bad question is a question never asked.

First Time Homebuyer's Series :

• First Time Homebuyer Tips -- FHA - Conventional - VA - Subprime -- Part 1 of 4

• First Time Homebuyer Tips -- Understanding your credit & Being Qualified -- Part 2 of 4

• FHA, is this the best mortgage program? -- First Time Homebuyer Tips -- Best Programs & Why -- Part 3 of 4

First Time Homebuyer Tips -- Understanding your credit & Being Qualified -- Part 2 of 4

Preparation is usually the key for most things in life. Being successful at it doesn't always happen overnight. Buying a home is usually the biggest investment is one person's lifetime. So, should you be scared? Can the process be intense? Sure, there are going to be certain emotions involved and maybe more so if buying with someone else. But it will also be FUN, especially with the correct education in the home buying process and surrounding yourself with easy to work with professionals in both real estate and mortgages. Key Tip : ENJOY it and treasure it for life. Your memories will last forever. Find a keep sake or two for a scrap book.

Shopping for a home : how and where to begin...... ????

• Ask family or friends for someone trusted.
• If you are currently working with a realtor, they should know one or two trusted loan officer's in the mortgage industry.
   
• Online, the internet. Now, this can be dangerous at times. But how about reading blogs of a few professionals, to get an idea about what they offer and their services. Instead of those that advertise low rates, which anyone can do.
• If you bought a home once before and were very happy with your previous loan officer, go back to what made you happy. Who you trusted and who you had success with. (sure, this is for 1st time buyers, but maybe you bought many years ago. Maybe your significant other once owned a home.)

There are other avenues in regards to where you can find lenders and realtors. And understanding the process behind the scene, what to expect from a lender, and how to proceed can and are very crucial when it comes to buying a home.

Credit : There are so many misconceptions of what a pre-qualification letter and a pre-approval letter is in regards to when speaking with a loan officer. There is a big difference. For specifics, please read : The difference between a Pre-Approval and a Pre-Qualification letter.

Understand Your Credit : Many lenders buy lists from the credit agencies so they can solicit new business, especially from those that just had their credit viewed in the last month. Meaning, if you just spoke to a loan officer that you gave permission to pull your credit, you might be getting calls from other lenders, whom you didn't even inquire about. What can be done?

• Don't keep shopping. Many inquiries over a certain time could hurt your credit rating. If you feel comfortable with one person, why risk shopping with others that will over promise and under deliver. You could shop yourself out of the market. The bottom line is that we all get the money from the same place. Usually when someone has a better rate or no costs outside the average, if you have been shopping, then it's usually too good to be true.
• Trigger lists -- Each lender should include in their loan application package a form that allows you to "opt out", not allowing that lender to sell your personal information. You can also go to this web site for more information : www.optoutprescreen.com
• Know how your credit score is calculated and how you could improve your credit score. This is something that I can help you with, because of my 14 years of experience in the mortgage industry. Don't let other lenders make it seem that it's all about your credit score also. There is more to it than just your credit score.

Overall, don't get overwhelmed with all of the information provided. Again, that is why there are professionals out there to help you. Just be careful because there are so many that are just sales people. If you can sense that someone is not only helpful but very passionate in what they do, this might be your best avenue or resource in receiving the best advice and service when obtaining a mortgage.

TIP : Don't be afraid to ask questions. In my opinion, a bad question is a question not asked. Allow for some time for this individual to ask the appropriate questions. It shouldn't matter if it is done in person or even on the phone. The main concern is allowing about 20-30 minutes so they can do their job correctly. And this is just for the basics. My biggest help in helping you is knowing your GOALS. And be honest and upfront with the information that you supply, no matter what the situation might be.

First Time Homebuyer's Series :

• First Time Homebuyer Tips -- FHA - Conventional - VA - Subprime -- Part 1 of 4

• First Time Homebuyer Tips -- Understanding your credit & Being Qualified -- Part 2 of 4

• FHA, is this the best mortgage program? -- First Time Homebuyer Tips -- Best Programs & Why -- Part 3 of 4

First Time Homebuyer Tips -- FHA - Conventional - VA - Subprime -- Part 1 of 4

Reality....  Buying your first home can be intense, but still can be FUN with the right people. There are many professionals out there that are willing and able to help you with this process. But the more that you understand this process, the easier and more comforting this experience will be remembered with pleasant memories.

You first need to align yourself with a good loan officer and real estate agent so as not to get led down the wrong path. I am not here to SCARE YOU, but I am not here to paint a pretty picture and just tell you to trust anyone that says "I promise" or "don't worry". These are commonly used terms in the mortgage and real estate industry. Randy Prothero talks about more amateur Real Estate Experts than ever before.

In this 4 part series, I am going to give you advice, my opinions, and my expertise as a loan officer with over 14 years of experience just in the mortgage industry.

One piece of advice is that this can sometimes take time. It's not like shopping for clothes, furniture, or even picking out a car for that matter of fact. Sure, I could get you approved for a mortgage in 1 week. You shouldn't be waiting last minute to do that though. My concern is don't buy a house just because you need to be out by a certain date. And DON'T wait with 2 months left before your rent lease is up. I am starting to see this as a problem as of lately. Just because there are a lot of homes on the market, doesn't mean that you have a better chance of finding your dream home. Talk to a realtor that knows the area well. Don't forget, there are other buyers out there also, looking for the same. Meaning.....  more people will bid on the better homes out there, with multiple offers. That is why getting not only pre-qualified for a mortgage is important, but possibly Pre-Approved (knowing the difference).

 

 

On a more serious note, especially now, rates can move on you at any given time as quickly as a hot air balloon can go up. Robert Ashby points this out in regards to rising rates and why. Sure, the lender that you choose should keep an eye on this for you. But yesterday is a perfect example of what can happen in a split second and not every loan officer believe it or not watches the market. Bloomberg.com can be a very good place to get market reports and updates.

Watching the market is especially important if you already have contracts on a home. I locked in a few of my clients last week because I do keep an eye on the bond market daily. But if you are still shopping for a home, that lender won't be able to lock you into a rate until you actually find a home. You want a trusted loan officer that is on top of this and giving you updates and not waiting until the last minute. And keep in mind when shopping for a mortgage, don't always focus on Rate.  Payment is just as crucial.

 

Lastly, even if you are just starting out, start saving a little here and a little there. Sure, there are so many mortgage financing options out there with even 100% financing programs. But each program is different. Word of advice, speak to someone qualified and not just fatherly advise even though he may mean well. Or those that just bought a home, your neighbors, or even co-workers. As mentioned above, rates and programs can change daily.

And when speaking to a loan officer, if they are quick to pre-qualify you, this could be a red flag. Please read Purchase Price vs Payment. What's missing?

 

 

This might be a little long, but an excellent read. Vickie Kessinger talks about 99 Questions & Answers About Buying A Home.

 

Conclusion : In Part 2, I'll talk about more specifics when it comes to getting pre-qualified and pre-approved. What to look for, how to find those professionals, and how to be better prepared.

Please click all links because each link is related to this topic and will share more secrets and give you a much better outlook in regards to purchasing your new dream home.

First Time Homebuyer's Series :

• First Time Homebuyer Tips -- FHA - Conventional - VA - Subprime -- Part 1 of 4

• First Time Homebuyer Tips -- Understanding your credit & Being Qualified -- Part 2 of 4

• FHA, is this the best mortgage program? -- First Time Homebuyer Tips -- Best Programs & Why -- Part 3 of 4

The Myths about ZERO point mortgages instead of paying points upfront……

I have been doing this for 14 1/2 years now. When I first got into this industry, sure, I was green….brand new. Sure, I had classes in High School and College in regards to financing, economics, managing your money, your typical math classes, and even some accounting classes. But what got me were the lawyers and the accountants that told their clients not to do mortgages with points associated to them. Or the typical family member and your next-door neighbor that got this great deal with zero points and that this was the way to go. Even the talk radio shows that might have been talking about one specific thing in regards to points and zero points, but that you came into the middle of the program. So you might have heard differently.

One of my first questions when speaking to a client, refinancing or purchasing, is what their goals are for the near future and their long-term goals. Now, many of us don’t have these so-called crystal balls that many claim to have. Things can happen at any time. But I have a lot of passion in what I do and I care what I do, helping those clients to achieve their dreams. And by giving them options in what kinds of programs there are and the costs behind these programs, I can help them achieve this dream and their goals.

 

This sometimes can be simple math and not even the calculators online can tell you if you should refinance or even buy a house. These calculators are a formula made up by someone’s calculated guesses and certain factors included. I am not looking for the typical answers of; “I want Zero points” and “those no cost loans”. Just because the client says that they want this type of loan, doesn’t mean that it fits their needs.

 

I am going to use an example in regards to someone purchasing a $200,000 house with no money down. Let’s keep the example simple by stating the only closings costs will be zero points or with 2 points. And for those that might not be putting more than 20% down, please read my previous blog: PMI (Private Mortgage Insurance); why you need it and the different types of PMI

 

             EXAMPLE

                                              ZERO POINTS                           2 POINTS

             Loan Amount               $200,000                               $200,000

 

             Int. Rate                       6.375%                                  5.750%

 

             Cost of Points                 $0.00                                   $4,000

 

             Monthly                      $1,247.73                              $1,167.14      

             Payment   P & I                   

 

Part 1

At this point, the difference of payment is $80.59. Let’s assume that you are in a 25% tax bracket for income tax purposes. You need to consult your accountant on the different tax deductions when it comes to purchasing and refinancing. Keep in mind that this is a purchase transaction. You can write off the full amount within your tax bracket as opposed to when refinancing. So your calculated savings will be $1,000 next year. Now your cost of the points is $3,000. Keep in mind that you are saving $80.59 a month. When dividing this into the cost of $3,000, it tells you that it would take you 37.2 months to recoup this money. Your break-even point now becomes 3.2 years.

 

Part 2

Here is where so many lenders fail in educating the average client or where the client doesn’t see the true savings. You also have the amortization of the loan.

If you kept the loan for 5 years at 6.375%, your principal balance would be $186,950.49. If you were paying 5.75% for those same 5 years, your principal balance would be $185,524.37. This is a difference of $1,426.12 savings by paying 2 pts to get your interest rate lower.

In closing:

Again, these are examples and not including other lender costs or even mortgage insurance depending on your down payment. This comparison is just for informational purposes in explaining how points and no points work. And yes, you would need that extra money to even buy the rate down. This doesn’t always apply to everyone because of the money issues. And it also comes down to your monthly and yearly goals, may it be short term or long term. But this is a good dissection of what your money can do for you and how it can work for you. And one of the old MYTHS of points is that the lender is making more money. This is not true at all, as long as your lender is comparing true apples to apples.

***These rates and points are just an example. It all depends on your income and credit qualifications in order to get these rates.***

 

For more Info:  Jeff Belonger   jbelonger@nationalfuturemortgage.com

        

 

The Pay Option Arm : Get the LOWEST PAYMENT!!! But beware.... read on.

Buy a house for $400,000 and pay $1,341 a month.  WOW...... This is a win win situation. But wait, did you know the name of this type of mortgage program?  It's called The Pay Option Arm : But when advertised, lenders state...."Get the lowest payment!!"   Please read on to get a better idea of this type of program.

Many of us know that advertisements are to get you interested, to call that particular company. Making it sound like the next best thing to gold. Remember the Gold Rush? It sounded great. But many people lost their lives in search of the ultimate dream of getting rich. In regards to this program, the ultimate goal of the consumer?  Getting the lowest mortgage payment possible. Please read : Rate vs Payment

Lately, there have been a string of advertisements talking about these ultra low payments. Quicken Home Loans just came out with one called the Secure Advantage. DiTech, who is owned by GMAC mortgage, has a commercial telling you to call on the same type of mortgage mentioned above, with the same payment. These are all the same types of loans that can be found with any lender. The question is, are they leading you down the right path for you, the consumer? Are these types of mortgage programs making holes in your financing and within your house? Who actually benefits from these programs? Does the lender sway you to take this type of program because they are making more money from them.  

 

Now, don't get me wrong. This is can be a good program, but it's not for everyone. You need to understand all of the ins and outs of this program. With rates being so low, you can get better security with a fixed rate. This program is for those that will take the difference in the low payment and apply it towards other investment opportunities.

Financial opportunities :

-- stocks and bonds that give a much higher return.

-- taking the difference and buying investment properties

But this generally won't happen because the average consumer needs that lower payment so they can afford that larger house. Basically living beyond their means.

 

Just be careful. I say this because I am dealing with a client in Florida now that is trying to get out of this loan. She told me that she was pressured into this loan and the end result was that the lower payment did look interesting. In which this case was her deciding factor. Sure, she was given each disclosure to be looked over. But don't you as the consumer come to us, the mortgage professional, because we should be looking out for your best interest? The answer should be YES. But this is not always the case. Greed can be a powerful thing. In this women's case? She is now seeing her payment go up and her mortgage principal also go up. Here is another good read : Purchase Price vs Payment.    what's missing??????