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Mortgage Market Update for the Week of 1/11/10

Market Snapshot:

This week, investors and traders are saying that the economy won’t gain as much momentum as they had previously estimated.  So for now, low short term finance rates are expected to continue!

The Economic Agenda for this Week:

            Tuesday

                8:30 - Nov Trade Deficit (-$34.5B frm -$32.9B in Oct)

                1:00 - $40B 3 yr note auction

           Wednesday

                7:00 - weekly MBA mortgage applications

                1:00 - $21B 10 yr note auction

                2:00 - Fed’s Beige Book—report on the economy

           Thursday

                8:30 - Weekly jobless claims (-1K to 433K, continuing claims -2K)

                       Dec retail sales (+0.5%, ex auto sales +0.3%)

                       Dec export and import prices (N/A)

               10:00 - Nov Business Inventories (+0.2%)

               1:00 - $13B 30 yr bond auction

           Friday

               8:30 - Dec CPI (+0.2%, ex food and energy +0.1%)

                      Jan NY Empire State manufacturing index (11.25 frm 2.55; any read over zero is expansion)

               9:15 - Dec industrial production (+0.6%)

                      Dec capacity utilization (71.8% frm 71.3% in Nov)

               9:55 – U. of Michigan mid-month consumer sentiment index (73.8 frm 72.5 at the end of Dec)

What is a Truth-in-Lending Disclosure?

Truth in Lending – Frequently Asked Questions

Q. What is a Truth-in-Lending Disclosure, and why do I receive it?

A. The Disclosure is designed to give you information about the costs of your loan so that you may compare these costs with those of other loan programs or lenders. Prior to the Truth in Lending Act, no general definitions of loan terms was required by lenders, which meant that consumers were unable to compare interest rates and other loan costs in this way.

Q. Why is the APR different from the interest rate for which I applied?

A. The APR is computed from the Amount Financed and based upon what your proposed payments will be on the actual loan amount credited to you at closing. For example: In a $50,000 loan with $2000 Prepaid Finance Charges, a 30-year term and a fixed interest rate of 12%, the payments would be $514.31 (principal and interest). Because the APR is based on the Amount Financed ($48,000), while the payment is based on the actual loan amount given ($50,000), the APR (12.553%) is higher than the interest rate. If this applicant’s loan were to be approved, he or she would still receive a $50,000 loan for thirty years with monthly payments of $514.31 at 12%.

Q. Does this mean I will get a smaller loan than I applied for?

A. No. If your loan is approved in the amount requested, you will receive credit toward your home purchase or refinance for the full amount for which you applied. In the example above, you would therefore receive a $50,000, not a $48,000 loan.

Q. My disclosure says that if I pay the loan off early, I will not be entitled to a refund of part of the finance charge. What does this mean?

A. This means that you will be charged interest for the period of time in which you used the money loaned to you. Your prepaid finance charges are generally not refundable, nor is any interest which has already been paid. This charge represents an estimate of the full amount the loan would cost you if the minimum required payments were made each month through the life of the loan.

Q. Why must I sign the TIL statement?

A. Lenders are required by law to provide the information on the disclosure statement to you in a timely manner. Your signature merely indicates that you have received this information.

Understanding The Loan Process

An Overview of the Loan Process 

Make no mistake, there’s a lot involved in getting a mortgage loan. You wouldn’t be here on our website if you could fill out a one-page application and get the best loan for you funded the same day. Don’t worry, we do most of the heavy lifting for you, so you can concentrate on what’s important — preparing to move into your new home and save money!

There are five main steps involved in getting a loan. You’ll see that we’ve made your part in them as easy as possible, and we do all the work! That’s what we’re here for.

Step one: Determine how much you can borrow

This is a function of a couple things. How much of a monthly payment can you afford? And given your unique credit and employment history, income and debt, and goals, how much will a lender loan you? The first part you can get a rough idea of by using the calculators on our website. The second is a little more complex. First we complete a full application including: all borrower personal information, 2 years employment / income history, 2 years residential history, and asset information.  You can do this on our website but we will always go over it with you to insure all information is accurate and complete.  Next: “What do you want to accomplish? – You and the loan officer discuss your personal goals, ideas and objectives to get a better picture of what sales price, payments, and loan programs would fit you best.

Step two: Pre-qualify for your loan

Your information is processed and the loan options are generated and discussed at length with you.  No short cuts here, this is a very important part of the loan process. When a program is decided on we prepare a list of necessary documents.  We will also discuss this list with you at length, so you know exactly what you need from the beginning.  Please promptly return all necessary documentation so it may be reviewed. When documentation is verified a “PRE-APPROVAL” or “COMMITMENT” letter is generated.  Handle it with care — to a home seller, it’s like a suitcase full of cash! Your realty agent will use your Pre-Qual (as they may call it) to make the best offer on the home you choose, and the seller knows you’re pre-qualified. It gives you buying clout! You already know how much you can afford and a pretty close range of what your payment will be.

Step three: Execute the contract and start final processing

Once you’ve made an offer and it’s been accepted, it’s time to order the title report, property inspections and the appraisal.  We will order the title and appraisal for you and your agent can point you in the right direction for any necessary inspections.  At this time we will also prepare all the government required disclosure paperwork for your review and signature.  These documents and sometimes be overwhelming, but don’t worry we fill them out for you and will be happy to explain them line by line.  If any of the information is incorrect simply put one line through the incorrect information, write in the correct information and initial next to it.

Step four: Underwriting

The underwriter verifies all the information we’ve provided in the loan file. Income and Asset documentation match the loan application The appraisal meets the lender’s requirements in regards to value and condition The title report is clean (there are not any liens against you or the property)   Step five: Closing and Funding Your realty agent and the seller’s will work together to designate an escrow/title company to handle the closing and funding of your loan. We’ll coordinate with the escrow company to make sure all the papers your lender will need are in order, and you’ll sign the loan documents with a notary/escrow officer present.  In most cases this will take place in a escrow/title company office with your realty agent present.

You’ve answered a few questions, given us some detailed information, applied online, and next thing you know, you’re moving in! We’re in the business of mortgage loans — so we do most of the work. Doesn’t that make sense?

Reviewing Your Closing Costs – The GFE

Settlement costs

There are so many different charges involved in buying a home, it is important to know what to expect at the settlement. Your lender is required to give you a Good Faith Estimate (GFE) of your settlement costs within three business days of your loan application. Once you get it, review the charges below to avoid any surprises when you sit down to close on your loan.

There are three basic categories of settlement costs:

• Fees to get a mortgage. This includes lender fees and points, as well as a host of other charges involved in obtaining and processing your loan. Points are an upfront charge expressed as a percent of the loan amount (e.g., 1 point is 1 percent of the loan) to increase the lender’s effective yield on a loan.

Specific lender fees can include: 

1. Loan Origination Fee. This is a charge for your lender’s work in evaluating and preparing your mortgage loan.
2. Application Fee – This charge covers the initial costs of processing your loan application and obtaining your credit report.
3. Appraisal Fee – Your lender will need an opinion from an independent appraiser of the market value of the home you wish to purchase.
4. Survey – This fee goes to a surveying firm who will verify that your lot has not been encroached upon by any structures since the last survey conducted on the property and to ensure that the home and other structures and legally where the seller says they are.
5. Mortgage Insurance – A lender may require this type of insurance for buyers who make a down payment of less than 20 percent of the value of the house. The policy covers the lender’s risk in the event the buyer fails to make the loan payments. Premiums are typically paid annually from an escrow or reserve account, or in a lump sum at closing.
6. Homeowner’s Insurance – Insurance that protects property against loss caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy. Also includes coverage such as personal liability and theft away from home. Your lender will expect you to have a policy in effect by closing.

• Fees to establish and transfer ownership of the property. Your lending institution is not likely to give you a loan on a house unless you can prove that the seller owns the property you want to buy. This is where title search and title insurance fees come into play. A title agent will verify that the seller is, indeed, the owner of the property and issue a title insurance policy to guard the lender against any errors that could have occurred in the searching process. The cost of the policy is usually based on the loan amount. There may also be attorney, escrow, courier fees and other charges involved in the settlement process.

• Fees to state and local governments. These fees include transfer, recordation and property taxes collected by local and state governments. Your taxes based on the assessed value of the home, which you pay for community services such as schools, public works, and other costs of local government. Taxes can often be paid as a part of your monthly mortgage payment.  

Mortgage Shopping Secrets! (Part 2 of 2)

Mortgage Shopping Secrets! … PART 2

Once you are satisfied that you are working with a top-quality professional mortgage advisor, here are the rules and secrets you must know to “shop” effectively.

First, IF IT SEEMS TO GOOD TO BE TRUE, IT PROBABLY IS. But you didn’t really need us to tell you that, did you? Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook. Is there a prepayment penalty? If the rate seems incredible, are there extra fees? What is the length of the lock-in? If fees are discounted, is it built into a higher interest rate?

Second, YOU GET WHAT YOU PAY FOR. If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, expect that you may not close at all. All too often, you don’t know until it’s too late that cheapest isn’t BEST. But if you want the cheapest quote – head on out to the Internet, and we wish you good luck. Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience. Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run. This is the largest financial transaction most people will make in their lifetime. That being said – we are not the cheapest. Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.

Third, MAKE CORRECT COMPARISONS. When looking at estimates, don’t simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls. And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and worthless as a tool of comparison.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND. This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis. For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

Again, our advice to you is to be smart. Ask questions. Get answers.

As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t pretty confident that we feel that we can give you a great value and serve you the very best.

Please call us with any further questions you may have at this time – we are ready to work for your best interest!

Why do you charge for credit reports up-front?

Simply put:  I don’t want the qualified/closed borrower’s to have to pay for the credit reports of the unqualified or not closed borrowers.

A Credit Report is required for a mortgage and has costs associated with it.  Some lenders disclose the cost, other’s don’t – never the less it is a cost of doing business.  I require potential borrowers to pay for their own report.  They don’t pay me, they actually pay the credit vendor directly.  I’m not padding the cost of the report to cover other expenses.  It’s actually the exact cost of the report.  The borrower even gets to keep a copy of the report for their records.  It’s actually available immediately after payment via a secure website link.  There the borrower can view/print/save the report for their records.

Now to the benefits for the borrower by investing the small cost of the credit report:

1. Lower total loan costs (your not covering added expenses for other people’s credit reports)

2. Reduced interest rates (lower overall overhead allows us to charge less per loan – a direct benefit passed on to you)

3. An actual hard or soft copy of a REAL Tri-Merged Credit Report with actual REAL SCORES – to use when comparing other lenders.

4. Access to the latest in Credit Optimization Software at no additional cost (For those that need a little tweak to get the best pricing or to just qualify)

The cost of a credit report for an individual is approximately $15. 

The cost of a credit report for a married couple is approximately $22.

 

Now to the reasons why you may not want to pay for your credit report up-front:

1. You don’t have the money (Probably shouldn’t be applying for a Mortgage then)

2. The other lender you called didn’t require it. (See above)

3. You already know your scores. (There is far more to qualifying and picking a Mortgage than credit score)

Below you’ll find an excerpt from an email chain with a borrower who decided to use another lender because they didn’t want to pay for the credit report.  This is a rarity but certainly has happened before and will happen again.  But I think some of the points made are good enough to publish here.

 Email 1: The Objection

—–Original Message—–
From: C M 
Sent: 12/17/2009 9:28:33 PM
To: Rob Spring
Subject: Re: Mortgage Info From Rob Spring
Rob, 

Mortgage Shopping Secrets! (Part 1 of 2)

SHOPPING AROUND?

Here are some secrets most lenders don’t want you to know!

First: make sure you are working with an experienced, professional loan officer.  The largest financial transaction of your life is far too important to place into the hands of someone who is not capable of advising you properly and troubleshooting the issues that may arise along the way.

But how can you tell?

Here are FOUR SIMPLE QUESTIONS YOUR LENDER ABSOLUTELY MUST BE ABLE TO ANSWER CORRECTLY.

IF THEY DO NOT KNOW THE ANSWERS…RUN…DON’T WALK… RUN…TO A LENDER THAT DOES!

1) What are mortgage interest rates based on?

-The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. The 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, however it’s not unusual to see them move in completely opposite directions. (DO NOT work with a lender who has their eyes on the wrong indicators.)

2) What is the next Economic Report or event that could cause interest rate movement?

-A professional lender will have this at their fingertips. For an up-to-date calendar of weekly economic reports and events that may cause rates to fluctuate, CLICK HERE and check the box next to Economic Calandar.

3) When the Fed “changes rates”, what does this mean… and what impact does this have on mortgage interest rates?

-The answer may surprise you. When the Fed makes a move, they can change a rate called the “Fed Funds Rate” or “Discount Rate”. These are both very short- term rates that impact credit cards, Home Equity credit lines, auto loans and the like. On the day of the Fed move, Mortgage rates most often will actually move in the opposite direction as the Fed change. This is due to the dynamics within the financial markets in response to inflation. For more information and explanation, just give us a call (972/422-9016 x 500).

4) Do you have access to live, real time, mortgage bond quotes?

-If a lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!

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Be smart… Ask questions… Get answers!

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More than likely, this is the most important financial transaction you will ever make. You might do this only four or five times in your entire life… but we do this every single day! It’s your home and it’s our profession. We’re ready to work for your best interest.  Call today or APPLY ONLINE NOW!

How To Reduce Your Mortgage

How to Reduce Your Mortgage

One Additional Mortgage Payment a Year

There’s a simple trick to significantly reduce the length of your mortgage and save you thousands of dollars. The trick is to make one extra mortgage payment a year and apply that payment toward your loan’s principal.

This is the method being used by “Bi-Weekly Mortgage Reduction Services” and “Bi-Weekly Mortgage Savings Programs“. Only, when you do it yourself, you don’t pay a third party unnecessary set-up costs and fees!

Example: $100,000 loan, 30-year mortgage, 6.5% fixed interest rate

Extra Mortgage Payments/ Year Principal & Interest Additional Monthly Payment SAVINGS Total Paid # of Years 0 $632.07 0 0 $227,542.98 29.92 / 359 mos. 1 $632.07 $52.68 $29,088.02 $198,454.96 24.12 / 290 mos. 2 $632.07 $105.35 $46,492.13 $181,050.85 20.5 / 246 mos. 3 $632.07 $158.02 $58,320.95 $169,222.03 17.92 / 215 mos. 4 $632.07 $210.69 $66,969.79 $160,573.19 15.92 / 191 mos. 5 $632.07 $263.36 $73,607.77 $153,935.21 14.34 / 172 mos.

 

One-time Payment

It may not be possible for you to increase your monthly mortgage payment. Keep in mind that most mortgages will permit you to make additional payments to your principal at anytime. Perhaps, five-years after moving into your home you receive a larger than expected tax return, or an inheritance or a non-taxable cash gift.  You could apply this money toward your loan’s principal, resulting in significant savings and a shorter loan period.

Example:

With a $100,000, 30-year, 6.5% fixed interest rate mortgage loan, the borrower will pay a total of $227,542.98 to pay back the loan in 30 years. That equals $127,542.98 in interest payments.

If the same borrower makes a one-time $5,000 payment the first day of year 6, he/she will pay a total of $204,710.75 and pay off the loan in 27 years (324 months). That’s a savings of $22,832.23 in interest.

Creating a Living Trust

Living Trusts

Created while you are alive, a revocable living trust lets you control the distribution of your estate. Ownership of your property and assets is transferred into the trust. You can serve as trustee or you can appoint another to serve as trustee. If you serve as trustee, you must appoint a successor to serve as trustee upon your death.

Properly drafted and executed, a revocable living trust can avoid probate and delays as the trust owns the assets not the deceased.  Consult with your attorney and/or CPA before deciding if a revocable living trust is the right choice for you.

 

Advantages to a Living Trust Holding Title

• A husband and wife can establish a joint revocable living trust.
   
• While the trustor serves as a trustee or a co-trustee, a separate tax return is not required for the trust.
   
• The revocable living trust allows the trustee to buy, sell and finance assets just as before.
   
• In the event of incapacitation, management of the living trust passes to the successor trustee without the necessity of a court-appointed conservator.
   
• The living trust can be cancelled or changed at any time before death or incapacitation.
   
• Probate – including multi-state probate – is avoided when assets are held in a living trust. (Often probate takes 9 to 12 months.)
   
• Privacy. When a decedent dies with a living trust, the provisions of that trust usually do not become public.
   
• Litigation is discouraged by a living trust.
   
• A married couple with a living trust can reduce or eliminate federal estate taxes by setting up an Exemption Trust. While both are alive the assets remain in the revocable living trust. Upon the death of a spouse, the trust is split into two trusts: the survivors trust and an exemption trust. (For tax purposes, the surviving spouse and the exemption trust are two separate taxpayers.)

 

Disadvantages of a Living Trust

• A living trust will cost more to set-up than an estate plan with only a will.
   
• A trust agreement with a new will must be set-up.
   
• Transferring assets into the living trust will require paperwork and incur costs not encountered with a less elaborate estate plan.
   
• Handling an Exemption Trust may require extra effort from the surviving spouse.
   
• Some lenders may require property held in a living trust be removed from the living trust to refinance the property.

 

Common Terms Trustor: Creates the revocable living trust and transfers major assets into it. (A husband and wife can have a joint living trust or each can have their own living trust.) Trustee: Manages the living trust’s assets. Beneficiary: Receives the assets of the living trust. Initially the trustor, trustee and beneficiary are the same person(s).

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