First Time Home Buyer: How to Demand Transparency from your Loan Officer

There are so many ways for a loan officer to fool you and I have heard them all in my time in the business. Now I bring this knowledge to you in how to demand that your loan officer never fools you. I will also cite all of the documents that your loan officer is legally required to show you yet rarely will. I will make you as close to impenetrable as possible.

Interest Rate: Ah the interest rate. As a consumer it is always the first thing on your mind, and always the first tool you use to shop for the best deal possible on a mortgage. Of course, us in the “know” realize that there the interest rate alone rarely dictates a good deal on a mortgage. So how do you decode what your interest rate will be and if it is in fact a good value when a loan officer is so well equipped to talk his or her way around this subject? Well the value part will be covered under the APR heading below, but first let’s talk about how to know what your interest rate is and what it will be at the time you close.

The Rate Lock Agreement: The rate lock agreement sounds like a form that you would have to sign and consent to. In fact most companies will have you sign a rate lock agreement, but this does not have to be a form according to Michigan law (MCMPA). In fact it can also be a verbal agreement between you and your lender. If a loan officer promises you a certain interest rate, it is literally against the law to change it. You can in fact, sue your loan officer if they made a verbal promise to deliver a certain interest rate and then changed it unless you yourself have provided misinformation or request changes to your loan program. Most people don’t realize this. Just always require that your loan officer is honest with you, even if that means they tell you that they don’t know what your rate will be. In most instances, the most honest loan officer will give you a fair range of current rates

Key phrases a loan officer will use in deceiving you about your interest rate:

Well we can’t lock your rate because they change so often. (They change often but a loan officer should still be able to offer you a lock based on when you qualify)
I can get you that rate, for sure, but we need to see if you qualify first (a loan officer should never say for fact they can get you any rate until they know you qualify and if they do they are breaking the law and breaking your trust).
Oh yeah, like 6% (before they even know your name).
And ALWAYS be aware of any advertisements that come with an interest rate printed on them, no matter what the form they use. Any advertisement with an interest rate contains so many opportunities for a loan officer to lie to you that it is NEVER worth it in the end.

APR or Annual Percentage Rate: This is one of the most confusing numbers in all of mortgage lending and is even confusing for the very person that is meant to teach you about it if they are not properly trained. The APR is an expression of the “cost of your credit” as a percentage. In other words it takes in account all of the “cost of your credit” or fees you will pay in connection with getting a loan and breaks it down into a percentage. A lender is legally required to provide you with this figure in accordance to the Truth-in-Lending Act (TILA) within three days of applying for a loan. They come on a form referred to as the T.I.L. that features other important information as well, but the APR is the most prevalent feature.

Key phrases a loan officer will use if they are trying to confuse you when explaining this to you:

Nobody even really understands how this APR thingy works.
It’s an awful government form, you know government, everything they do is stupid.
Don’t worry about that APR it is not your interest rate and doesn’t affect your loan.

In fact the APR is a useful tool in comparing one loan to another. It is certainly not the end all to loan shopping, but it is useful because it breaks down all of the charges that you do not carry from one lender to the next. So things like a credit report fee or an appraisal fee are not used in the calculation because they will be a part of your loan costs no matter what. The APR does use fees like origination charges, broker fees, and. The important things to remember her are: make sure your loan officer offers you a “TIL”, make sure they explain the APR the way I explained it, and make sure they show you the charges that figure it.

The Broker Fee: This is important whether you are being charged one or not. The important thing to remember is that the reason a Mortgage Broker exists in the first place is that a broker does not need the mortgage lender to pay them to sit at a desk all day even when they are not originating loans. The broker does, however, have to pay to advertise or maintain an office of their own in order to get to you in the first place. So the ultimate end game is to compare if the broker fee is cheaper than what the bank will charge you. Again this is not the only factor to consider but it is useful because if your concern is upfront fees as opposed to monthly payment, you will want to compare the broker fee as opposed to the interest rate that your payment is based on. Any broker is required to explain this to you as mandated by the Michigan Consumer Mortgage Protection Act (MCMPA) via the Borrower’s Bill of Rights. You have the right to know what your loan officer is making as a result of originating your loan the same way that your bank is required to give you this document and explain this to you as well. The problems mostly arise by the fact that a bank loan officer is not required to explain exactly how much they are making by originating your loan because they are considered an hourly employee of the bank. Obviously a bank loan officer will always be able to present their origination fee as cheaper than a broker. This is where the APR can be compared to your interest rate and used a tool to distinct which is a better value.

Whether or not you are qualified. This is the tough one to decipher. By law any lender is required to give you a credit decision within 30 days. Obviously, the process gets a bit muddier once the term pre-approval comes into play and even more so when you have a less than perfect credit or employment situation that makes qualifying difficult. The important thing to remember is that if someone is telling you that you qualify before they have seen a credit score, employment information, asset information, or heard your entire story- they are lying. It is impossible for someone to tell you what you qualify for without having taken a full application so be leery of anyone that does.

The Good Faith Estimate (GFE): This is a breakdown of all the fees involved in acquiring your loan. If you look carefully, you will see on the GFE which fees are used in calculating your APR. This will further your shopping power by realizing what will be charged by anyone and what will only be charged by a bank or what will only be charged by a broker. The big thing I feel is to be aware of things that are conveniently left off of a GFE but will be added later. Specifically those charges that are used to calculate your APR that some loan officers like to leave off of a GFE, or grossly under estimate in order to make the bottom line look better. These include Tax Escrows, Pro-Rated taxes(only on purchases), title insurance, title closing fee, days of interest, and processing fees. These will all always be charged regardless of lender and will always be able to be properly estimated (with reason) at time of application. So if you are comparing GFEs and you notice a large difference between these charges or that one has been omitted, it should immediately send up a red flag that one of your loan officers is not being honest with you.

Basic Legal Forms: There are a few basic forms that you are required by law to receive within 3 days of applying for a mortgage, so be leery of anyone that does not provide them. Good Faith Estimate, Truth-in-Lending, Borrower’s Bill of Rights, Servicing Disclosure, Consumer Caution Disclosure, and the Closing Costs booklet.

If you follow these guidelines and are not afraid to walk away from a loan officer that does not comply with these guidelines, you will make the loan process much simpler for you.

For more information you can call or check out our website:
810-953-4266 or www.iconmortgagelending.com

Michigan Real Estate Purchase: Escrow Account

What is it? An escrow account is basically a mandatory savings account to pay your taxes and insurance from. Every month you will pay your mortgage payment and a portion of that payment will go to the mortgage and a portion will go to the escrow account. When your tax and insurance bills come due, they will be paid from your escrow account company automatically. You will never see a tax or insurance bill, yet they will get paid.

 

Why do you need it? With almost all loans an escrow account is required by the lender you are getting your loan from. The same as with your mortgage payment, if you do not pay your taxes, you will face foreclosure. Instead of being foreclosed on by your lender, you will be foreclosed on by Uncle Same.  The possibility of tax foreclosure threatens your lender’s ability to ensure you repay them. Hence, they require that you have an escrow account so that you can’t simply stop paying your taxes.

 

How will this affect your closing? You will need to fund the escrow account with enough money to make not only the next upcoming payment, but enough to make sure you never get behind on future payments. The amount collected will change slightly depending on the time of year you close, but in general you should plan on 3 months of your monthly Home Owner’s insurance payments and 8 months of your monthly Property Tax payments to be collected at closing.

 

These reserves, while painful at closing, will end up making you very happy in the long run though. When your taxes go up- as they inevitably do- this will cushion the blow to your monthly payment and make the hike a more steady increase and easier to deal with.

 

For more information, go to our website:

www.iconmortgagelending.com or call us at 810-953-4266

Michigan Real Estate Purchase: Pro-Rated Taxes.

Pro-Rated Taxes: Oh, the agony! Nothing causes headaches the way pro-rated taxes do. What exactly are they? It’s your tax bill…and yes…it is YOUR tax bill. In most places in Michigan you get two bills for Property Taxes. One for winter and one for summer. In the vast majority of places, you pay these taxes in advance meaning you are paying in July for the tax bill between July of that year and July of next year; same for the winter bill Dec.-Dec. If you buy a house, let’s say in August, the seller has already paid for the taxes through July of next year. Even though they have paid through July, they will only own the home for one month covered under that bill and you will own it for the remainder of time covered by that bill. You will be required to reimburse them for the time that you will own the home- August through July for the summer bill and August through December for the winter bill.

 

How to calculate what you will have to pay. It’s no secret; you can calculate this yourself to check it. Take your closing date. Count the number of days from that day until December 1^st. call this (a). Count the number of days from the closing day until July 1^st. call this (b).

Now take your winter tax bill and divide by 365, take your summer tax bill and divide by 365. Then you have the daily amount of each tax bill. Multiply the days you have by the daily amount and you can come up with the two amounts. Add them together and this is the amount of pro-rated taxes you will have to pay.

 

EXAMPLE: You close January 15th. So you have 320 days until Dec. 1 and 166 days until July 1^st.

The tax bills are winter: $565 divided by 365=$1.55 and summer: $1786 divided by 365=$4.89

320 days (a) x $1.55 = $496 and 166 days (b) x $4.89 = $811.74

$496+$811.74 = $1307.74 is your pro-rated tax bill.

 

Seems simple, why all the headaches? Well, with all of the foreclosure properties being bought now, there is rarely upfront truth about what the Property Taxes for your purchase are. Most times the MLS listing will reflect what the Property Taxes were before the bank took possession. When a bank owns a property they are unable to claim a Homestead Exemption like you and I. Think of the homestead exemption as a discount on taxes for you Primary Residence. The bank is not a resident, so they pay more. This also means that when you buy it from them, you pay more. Ask your Realtor upfront what the non-homestead tax amount is. This will help eliminate the possibility of a BIG surprise come closing time.

 

If you are still uneasy about whether the tax information provided is accurate or not, call the county tax assessor about the true tax amount you will be paying at closing time. Google: “county name” tax assessor to find the correct phone number.

 

For more information, visit our website:

www.iconmortgagelending.com or call us at 810-953-4266

Michigan Real Estate Purchase: Don’t Get Taken Advantage Of.

It’s so odd to me that so many people claim to have been mistreated by their mortgage lender. There is a litany of paperwork we are required to provide to you when you apply. I am sure there were plenty of less than reputable loan officers out there that didn’t care to go through the numbers, but an even slightly educated borrower can’t be taken advantage of. So, here’s how to become an educated borrower.

 

The Good Faith Estimate. Make sure you get one, make sure you get one from several lenders, make sure you compare them row by row and not the bottom line. Some lenders may trick you by not providing certain numbers that will pop up later (read my other blogs), make sure you don’t use anyone that leaves numbers off.

 

The Borrower’s Bill of Rights. Make sure you get one, make sure you understand it. You can get it right here: Borrower’s Bill of Rights, but don’t trust anyone that doesn’t give you one- you know since it’s required by law and all. They are easily understandable, just actually read it.

 

You have the right to shop around, you have the right to know how much the lender is making. This doesn’t just mean the fees, but how much they are making from the interest rate. Also, most people think only a broker makes money from the interest rate…and they are wrong. Banks make yield spread too, even when they fund the loan, so make sure to get IN WRITING how much they are making.

 

The HUD-1 Settlement Statement. This has all of the details of your loan, save the interest rate. All fees will be lined up for you and this is the FINAL document to calculate these costs. A major mistake most borrowers make is to wait until closing to see this. You have the right to see this before you sit down to close. Demand your loan officer provide it a day before closing.

 

Most importantly, don’t accept the run around. There are a million and one excuses a lender can use to get around providing these documents in a timely manner. Unfortunately for them, you now know that they are required to do so.

 

Simply don’t accept it. Look at more than the bottom line. Look at the integrity of the individual you are working with. If you can have faith in that person, you should do fine.

 

For More Information Go To Our Website:

www.iconmortgagelending.com

Michigan Foreclosure Purchase: What can the selling banks do or not do?

I have close a lot of foreclosure purchases over the last two years and have ran into some very odd demands from the selling banks. I would like to provide you with some of this information now on what these banks can and can not do that might help you in your own pursuit.

They can demand that you provide them with a pre-approval letter.
They can not demand that you obtain a pre-approval letter from any specific lender or broker. The doesn’t mean you won’t be told otherwise, but RESPA prohibits a seller, real estate agent, insurance agent, or anyone else from demanding an individual use any specific lender.

They can demand that your lender’s pre-approval letter states that you are credit worthy.
They can not demand to have your credit report or credit scores be provided to them. The Gramm-Leach-Bliley Act protects your privacy from any entity involved in the transaction that is not your financial service provider. You can give written permission for the selling bank to see these, but I certainly would advise against it.

They can write purchase agreement addendums that supersede any original terms of the purchase agreement you signed with your Realtor and submitted to them.
They can not hold you to any terms that you do not agree to in writing. Though you may be excited to hear that your offer was accepted, I urge you to sit down with our Realtor and Loan Officer before signing the addendums that come back from the bank.

They can refuse to pay for a title insurance policy and pass the cost on to you.
They can not force any of their closing costs on you without disclosure in the purchase agreement. Seems like more and more we find extra little charges being slipped into transactions. If you didn’t agree to pay it, you don’t have to- just be sure to review your HUD-1 Statement with your loan officer.

I hope this helps some of you out. I am sure more will pop up in the future. If you have any requests for info, just email me matt@iconmortgagelending.com or go to our website: www.iconmortgagelending.com

Michigan Foreclosure Purchase: Seller’s Concessions and Closing Costs

First, why would you want concessions? Well if you refer to my other blogs about closing costs, you will see all the various closing costs and pre-paid items involved with obtaining a mortgage. All of these costs will need to be paid at the closing table. The financing you are obtaining will most likely not allow you to include these in your loan amount. Most mortgage programs will not allow your loan amount to go over the purchase price. In fact, there is only one viable mortgage program left that will allow you to roll your closing costs in without seller’s concession. Depending on your financial situation or your ability to leverage, you may not want to bring all of this money to the table to close. The concessions provide a way for the seller to pay them as a part of the transaction. Ultimately, you are still paying for them as a part of your purchase price, but with concessions you will be paying them over the course of 30 years instead of paying them upfront.

Free money? Awesome! Few things in life are free, and closing costs are not one of them. The seller of a property may agree to pay in part or all of your closing costs as an incentive for purchasing their property over others. The seller is lowering their net gain from the sale to pay your closing costs. Still, this is a part of your negotiation when making an offer on a property.

Still seems perfect, any negatives? To use simple math- if your purchase price is $100,000 and the seller gives you $6,000 in concessions; instead of receiving $100,000 from the sale, they will get $94,000 since the $6,000 went to your costs. If someone bid on the same property at $100,000 with only $5,000 in concessions: the seller gets more money from the second bid and you lose. Also, if you are the only bidder but $94,000 is than the seller is willing to take, they may negotiate a higher purchase price for you in order to include the concessions. In this scenario- let’s say that the seller will not accept less than $96,000 to take away from the sale. They may negotiate this to have a purchase price of $102,000 and pay up to $6,000 in closing costs, making their bottom line $96,000.

Decisions, Decisions. It’s not really all that complicated. Is the change in monthly payment worth not having to spend the cash? Is the money in your pocket able to bring in more than the extra payment amount going out? The answer to that, is the answer to your concession conundrum.

For more in-depth help or answers, go to our website:

 www.iconmortgagelending.com

Closing Costs: Pre-Paid Items

I have written a few different blogs about closing costs and how to understand where your precious pennies go. This time I am focusing on one of the most misunderstood sections of the Good Faith Estimate (GFE)- The Pre-Paid Items. Don’t worry “pre-paid” simply means paid at the closing, whether paid for by you or by the seller as a part of the seller’s concessions, but nothing is due prior to closing.

 

1. Per Diem Interest: A good way to spot a phony loan officer is one that only uses a day or two of per diem on their GFE because it is an easy way to shave off a couple hundred bucks from your bottom line and easily explainable as a last minute change. So what’s this for anyways? It’s your first mortgage payment (but just the interest portion)- calculated from the day of your closing until the end of the month. You won’t have a payment due for the next month. The interest collects through the month and your first principle and interest payment (P&I) is due on the first day of the following month, i.e. you close in August and your first full payment is due the first of October.
2. Escrow Collection: With almost all loans an escrow account is required. Mainly because a tax foreclosure threatens your lender’s ability to ensure you repay them. The amount collected will change slightly depending on the time of year you close, but in general you should plan on 3 months of your Home Owner’s insurance payments and 8 months of your Property Tax payments to be collected at closing. These reserves, while painful at closing, will end up making you very happy in the long run though. When your taxes go up- as they inevitably do- this will cushion the blow to your monthly payment and make the hike a more steady increase and easier to deal with.
3. Pro-Rated Taxes: Oh, the agony! Nothing causes headaches the way pro-rated taxes do. What exactly are they? It’s your tax bills…and yes…it is YOUR tax bills. You see, in most places in Michigan you get two bills for Property Taxes. One for winter and one for summer. In the vast majority of places, you pay these taxes in advance meaning you are paying in July for the tax bill between July of that year and July of next year; same for the winter bill Dec.-Dec. If you buy a house, let’s say in August; the seller has already paid for the taxes through July of next year yet will only own the home for one month of that bill. That means you have to reimburse them for the time that you will own the home- August through July for the summer bill and August through December for the winter bill.

Seems Simple, why all the headaches?:Well, with all of the foreclosure properties being bought now, there is rarely upfront truth about what the Property Taxes for your purchase are. Most times the MLS listing will reflect what the Property Taxes were before the bank took possession. When a bank owns a property they are unable to claim a Homestead Exemption like you and I. Think of the homestead exemption as a discount on taxes for you Primary Residence. The bank is not a resident, so they pay more. This also means that when you buy it from them, you pay more. Ask upfront what the non-homestead tax amount is. This will help eliminate the possibility of a BIG surprise come closing time.

 

 For more in-depth help or answers, go to our website:

 

www.iconmortgagelending.com

 

Closing Costs and Mortgage Fees: Or how the bad man made me pay too much.

We have all heard horror stories about good folks being buried in surprise fees, or fees being buried so deep in paperwork that nobody could tell who was getting what. Please use this as a common sense approach to making sure you are getting a good deal on your mortgage.

 

I will start by listing the fees that all loans will be charged. These, no matter what someone tells you, will ALWAYS be charged to close a loan.

 

1.      Title Charges:

$350-450 for a closing fee. You pay this to the person that coordinates your closing and goes through the paperwork with you and tells you where to sign. If you have the choice in title company you may get a better price, but with a purchase (particularly a foreclosure purchase) expect $450.

 

$350-$? For title insurance. This is charged based on your loan amount. In general if you take your loan amt. In Thousands multiplied by 3.5, you will get the answer. So for $100,000 loan amount you figure as (100×3.5=$350).

Note: When purchasing a foreclosure, plan on paying for the bank’s title insurance as well. It is required by your lender to have title insurance for the seller, and most banks’ policy is to not pay for this themselves. Not very fair, but that’s what their attorneys came up with to get them more money.

 

2.       “The Man”:

$75-$125 Recording fee. This goes to the register of deeds to record your mortgage with your local government.

 

3.      The Lender:  

Whether you are using a broker or you go directly to a bank, there will be a few charges from whoever it is that is lending you money.

1%-3% Origination Fee. This will typically be 1%, though it may be higher depending on the amount of service your loan will require. Like with any of these fees, don’t be afraid to ask why any certain amount is being charged. Any good loan officer will have a certain amount their services are worth and will unabashedly explain their fee. The folks to watch out for are the ones willing to negotiate their origination or look at this amount as arbitrary. Demand confidence and expect the service to back it up!

$595-$795 as an Underwriting Fee- For the evil people that make a credit decision for you by picking apart the most inane details of your life.

$250-$500 as a Processing Fee- Most lenders have both a person that is your loan officer and a processor that basically sifts through all of the paperwork, making sure every tiny detail is in order.

$40-$60 for a Wire Transfer fee for the people that handle the actual dispersing of money between them and the seller or your current lender if you are refinancing.

                       

So those are the fees you should expect to be charged on any loan. Anyone telling you something different…expect them to explain it to you because chances are they are not being totally honest. Do yourself a favor and avoid any loan officer or bank that provides you a Good Faith Estimate without these charges included, because they will be included eventually! It should also go without saying (now that you are better educated) that you should avoid any loan officer or bank that does not immediately provide you with a Good Faith Estimate at all…mostly because it is required by law that they do.

 

The final math on all of the above comes to about $3000 for a $100,000 loan. This is about what you should expect for your closing costs on a purchase loan no matter where you go. A refinance is a bit cheaper, plan on about $2000-$2500. This does not include any of your “Pre-Paid charges”. Pre-Paids include you tax and insurance escrow, per diem interest, and Pro-rated taxes (on a purchase).  I will explain these in future blogs, but none of these are determined by your loan officer and are non-negotiable.

 

For more in-depth help or answers, go to our website: www.iconmortgagelending.com