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)

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!

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, 

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!

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

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.

The holidays can put a dent in your savings especially if you’re planning to buy a home. But there are several ways to cut costs so your finances aren’t in the red by New Year’s Day. Consider the following money saving tips:

• In lieu of buying presents for every family member, suggest a gift exchange and draw names out of a hat.
• Agree on a spending limit for gifts for friends and family and stick to it.
• Make your holiday meals a potluck and assign each guest an item to bring.
• To prevent the urge to overspend when shopping, use cash and leave your credit cards at home.
• Consider buying a joint gift rather than individual gifts for a family such as a zoo membership or movie tickets.
• Instead of holiday wrap, buy monochromatic wrap in holiday colors such as green, red, or gold that can be used all year.
• For young children, half the fun of holidays is often opening the gifts. Wrap small, inexpensive items separately – coloring books, crayons and picture books or novels, even stocking stuffers work well. Or recycle hand-me-down toys by wrapping them up and putting them under the tree.
• Instead of spending a lot of money on gifts from the mall, give homemade treats like fudge, truffles, cookies or jams and jellies.
• To cut down on postage and holiday card costs, send mail only to out-of-town friends and family you’re not likely to see throughout the year. Or send e-cards, which are usually free.
• To keep your electricity bill down, use a timer to turn outdoor lights on and off at designated hours.
• If you know you won’t be able to pay your credit card off right away, make sure you use a single low-interest card to make purchases – that way you can easily track them.
• When traveling during the holidays, try to fly on the day of the actual holiday (Thanksgiving Day, Christmas Day). It’s usually cheaper and there are plenty of seats.
• Subscribe to receive e-newsletters from your favorite online merchants. They will often e-mail coupons to use for savings on purchases and shipping costs. Or subscribers may receive private sale information.
• Sometimes buying an item online is cheaper than going to the store since many sites don’t charge sales tax and offer free shipping. Use the savings to have the gift mailed directly to the recipient instead of standing in line at the post office.
• Instead of buying an expensive gift, make a donation to a worthy cause in a friend or family member’s name.

A buydown is a type of financing where the buyer or seller pays extra points (also called discount points) to reduce the interest rate on a loan.

 Buydowns make it easier to qualify for a loan because they lower a loan’s interest rate. They can also allow you to buy more house for your money.  There are generally two types of buydowns: a permanent buydown and a temporary buydown. A permanent buydown lets you pay extra points to get a low interest rate over the life of your loan.

A permanent buydown can be paid by the seller or the builder as an incentive to finalize a sale by creating lower monthly payments. Sellers can also benefit from assisting with a buydown with a difficult to sell property or during slower market conditions. It increases the buyer’s ability to qualify for a loan, therefore, allowing the home to be sold quicker. Plus, a buydown offer is usually less than a price reduction on the home.

In a temporary buydown, you prepay interest in exchange for a lower rate during the early years of a loan. The most common temporary buydown is called 3-2-1, meaning the mortgage payment in years one, two and three is calculated at rates 3 percent, 2 percent and 1 percent, respectively, below the rate on the loan. On a 2-1 buydown, the payment in years one and two is calculated at rates 2 percent and 1 percent below the loan rate. And on a 1-0 buydown, the payment in year one is calculated at 1 percent below the loan rate.

A temporary buydown can be a benefit to a buyer whose current income is low but anticipates that it will increase during the next two years. First-time homebuyers who need to purchase all of the furnishings that go into a new home may also find a temporary buydown appealing.

Ever heard the old rule of thumb, you should only refinance if your new interest rate is at least two points lower? That may have been true years ago, but with refinancing dropping in cost over the last few years, it’s never the wrong time to think about a new loan! Refinancing has a number of benefits that often make it worth the up-front expenditure many times over.

When you refinance, you might be able to lower your interest rate and monthly payment — sometimes significantly. You might also be able to “cash out” some of the built-up equity in your home, which you can use to consolidate debt, improve your home, take a vacation — whatever! With lower rates and balances, you might also be able to build up home equity faster with a shorter-term new mortgage.

All these benefits do cost something, though. When you refinance, you’re paying for most of the same things you paid for when you obtained your original mortgage. These might include settlement costs and other fees, an appraisal, lender’s title insurance, underwriting fees, and so on.

You might have to pay a penalty if you refinance your previous mortgage too quickly. That depends on the terms of your existing mortgage. These penalties are illegal in some places, and more often than not when you have one of these penalties on your current mortgage it applies only for the first year or two. We’ll help you figure it out.

You might pay points to get a more favorable interest rate. If you pay (on average) three percent of the loan amount up front, your savings for the life of the new mortgage can be significant. You should be aware that the IRS has recently said that points paid for the purpose of refinancing your mortgage cannot be deducted in their entirety in the year you pay them, unless the refinanced loan is primarily for home improvements. Consult your tax professional before deducting points you pay on your new mortgage from your federal income taxes.

Speaking of taxes, if you lower your interest rate, naturally you will be lowering the amount of mortgage interest payments you can deduct from your federal income taxes. This is another cost that some borrowers consider. We can help you do the math!

Ultimately, for most people the amount of up-front costs to refinance are made up very quickly in monthly savings. We’ll work with you to determine what program is best for you, considering your cash on hand, how likely you are to sell your home in the near future, and what effect refinancing might have on your taxes.

There aren’t quite as many loan programs as there are borrowers, but it seems like it sometimes! We’ll work with you to qualify you for the best loan program to fit your needs. But there are some general considerations you can have in mind in advance.

Are you refinancing primarily to lower your rate and monthly payments? Then your best option might be a low fixed-rate loan. Maybe you have a fixed-rate mortgage now with a higher rate, or maybe you have an ARM — adjustable rate mortgage — where the interest rate varies. Even if it’s low now, unlike your ARM, when you qualify for a fixed-rate mortgage you lock that low rate in for the life of your loan. This is especially a good idea if you don’t think you’ll be moving within the next five years or so. On the other hand, if you do see yourself moving within the next few years, an ARM with a low initial rate might be the best way to lower your monthly payment.

Are you refinancing primarily to cash out some home equity? Maybe you want to pay for home improvements, pay your child’s college tuition bill, take your dream vacation, whatever. Then you’ll want to qualify for a loan for more than the balance remaining on your current mortgage. If you’ve had your current mortgage for a number of years and/or have a mortgage whose interest rate is higher, you may be able to do this without increasing your monthly payment.

You want to cash out some equity to consolidate other debt? Good idea! If you have the equity in your home to make it work, paying off other debt with higher interest rates than the interest rate on your mortgage — for example, credit cards, home equity loans, car loans, some student loans — means you can save possibly hundreds of dollars a month.

Do you want to build up home equity more quickly, and pay off your mortgage sooner? Consider refinancing with a shorter-term loan, such as a 15-year mortgage. Your payments will be higher than with a longer-term loan, but in exchange, you will pay substantially less interest and will build up equity more quickly. If you have had your current 30-year mortgage for a number of years and the loan balance is relatively low, you may be able to do this without increasing your monthly payment — you may even be able to save! For example, let’s say years ago you took out a $150,000 30-year mortgage at eight percent. Your payment is about $1,100, exclusive of taxes, insurance and so on. If your balance today is down to $130,000, you might take out a 15-year mortgage at six percent and have an almost identical monthly payment. This is a great option for people whose main goal is not to save money on their monthly payment but rather want to build up equity and pay off their home more quickly.

Absolutely! Even if you haven’t so much as picked out houses to visit yet, it’s important to see your mortgage professional first.

Why? What can we do for you if you haven’t negotiated a price, and don’t know how much you want to borrow?

When we pre-qualify you, we help you determine how much of a monthly mortgage payment you can afford, and how much we can loan you. We do this by considering your income and debts, your employment and residence situations, your available funds for down payment and required reserves, and some other things. It’s short and to the point, and we keep the paperwork to a minimum!

Once you qualify, we give you what’s called a Pre-Qualification Letter (your real estate agent might call it a “pre-qual”), which says that we are working with you to find the best loan to meet your needs and that we’re confident you’ll qualify for a loan for a certain amount.

When you find a house that catches your eye, and you decide to make an offer, being pre-qualified for a mortgage will do a couple of things. First, it lets you know how much you can offer. Your real estate agent will help you decide on an appropriate offer, but being pre-qualified gives you the confidence to know you can follow through.

More importantly, to a home seller, your being pre-qualified is like you walked into their house with a suitcase full of cash to make the deal! They won’t have to wonder if they’re wasting their time because you’ll never qualify for a mortgage to finance the amount you’re offering for the home. You have the clout of a buyer ready to make the deal right now!

You can always use the calculators available on our site to get an idea of how much mortgage you can afford — but it’s important to meet with us. For one thing, you’ll need a Pre-Qualification Letter! For another thing, we may be able to find a different mortgage program that fits your needs better.