At a closing recently I was talking with two seasoned real estate professionals sharing horror stories about people going online for mortgages. If you want to buy a handbag or electronics or something like that, go ahead. If you end up not getting the deal you thought, you can challenge the charges and seek remedy through your credit card company. At worst case, you've lost the amount you agreed to spend. Not so with a mortgage. It's an expensive gamble you can easily avoid and the further away or larger an institution you're dealing with, the higher the probability you're not going to get what you think you're getting.
There's no magic money out there - when you hear rates have gone up, they've gone up everywhere. The point is, if you're looking at refinancing and you're going to save serious money and make life easier on a monthly basis, don't put off doing it because you can't get a particular rate that you're shooting for. You're taking a chance at missing the boat and you don't want to do that.
TIP #2 - Vote yourself a pay raise!
No matter which political side you sit on wouldn't it be nice to be like Congress and be able to vote yourself a pay raise? Why not consider voting yourself in for a pay raise by getting better terms on your mortgage? Lots of people are doing it, so you really owe it to yourself to check it out and see if refinancing will improve your situation overall.
Most of us survive on a limited budget which means it's more important than ever to use money in a smart way in order to spread it around as much as we can.
How about refinancing to eliminate your escrow account and improve your monthly cash flow with the decision to pay your own taxes and insurance? If you choose to, you can write a check to yourself each month and deposit it into your own savings account for whatever the monthly amount runs for your taxes and insurance. That way, you won't be lending money to the mortgage company all year, interest free. Better yet you'll also never receive one of those ugly letters from the mortgage company telling you how much your payment is going up due to the escrow account having a shortage.
TIP #3 Good Faith Estimates
Three things you need to know about good faith estimates.
As far as the interest rate, you're always working with a moving target. If you've got one or several from a week ago you're comparing, it's old news. Unless you've specifically agreed with the loan officer who sent it to you, it's not locked and quite likely has changed. Constantly chasing the lowest rate is like a dog chasing its tail - you've got to stop at some point or you're going to fall down.
Second, make sure the estimate you get has a bottom line and it all adds up. Your payoff plus your closing costs need to total the amount of the new loan. If they don't you're going to either come to closing with a chunk of money or raise the loan amount thus distorting the payment amount you're looking at.
Last and most important, the estimate is worth the integrity of the person preparing it. If you don't know them, you don't know the validity or the accuracy of what you're receiving.
TIP #4 Self Employed Beware!
One recent change that will affect many folks who are looking to buy or refinance their homes:
If you are self-employed or a contract worker, beware of write offs on your tax returns. There are no longer any stated income loans - you tell us you make $100,000 per year but your tax return shows you made $30,000 - that's the number you'll be qualified on, the number on the tax returns. You will also have difficulty qualifying if you have declining income.
Tip #5 Hold off on that shopping!
From the time you decide to buy or refinance until your loan closes and funds, don't buy anything you don't have to have. It used to be that your credit report would be run again the day before you close. Now it's run between closing and funding. On a refinance in Texas on your primary residence, funding does not occur until 4 and sometimes 5 days after your closing. If your debt ratio or your monthly payment obligation has increased it not only could delay, but may actually de-rail your loan funding.
Purchasing new things for your home, a new car, or anything else that adds to your monthly debt obligation could disqualify you for the loan you've just signed papers on.
Tip #6 FBI - First Be Informed!
Know something about who you're dealing with - don't just go through knothead mortgage.com. "Know that what you're being quoted" makes sense and will work for you. If you have an equity loan where you've taken equity out of your home - rates are different. Don't just look at the rate, compare the costs. You don't buy a house after looking at just 1/2 the house. Don't do it with a loan.
Tip #7 It's property tax time again - watchout!
Well folks 'tis the season - keep in mind when it comes to tax season - if you pay your own taxes and insurance and you are in the process of re-financing, beware of the fact that once the tax bills are out, your taxes have to be paid as part of your closing. The same applies with insurance. If the renewal of your insurance is coming due within 60 days of your closing, the renewal must be paid for at closing.
Also, don't jump the gun and pay them right before closing. If you pay them ahead of time and the payment hasn't shown as being posted, it will delay your closing and you could lose that locked in rate, which you sure don't want to do in this crazily erratic interest rate market we're in.
Tip #8 Avoid financing your property taxes - here's how
If you've been looking to refinance, you haven't missed the boat yet. Yes rates have been moving up, but don't avoid refinancing because you can't get a rate in the 3's. Look at the whole picture. Here's what to look at. If you can lower your monthly payment by $200 or more, or if you can keep a payment similar to what you have now but take years off of your loan, that's progress. The savings may not look like much on a monthly basis, but if you're going to take 2 years off of your loan, what does saving two years on your house payment add up to?
Lastly, don't confuse closing costs with escrow reserves required to set up your loan. Your own taxes and insurance are your money, not closing costs. If you really want to get the most bang out of your buck, bring the escrow money needed to closing, rather than rolling it into your loan - that way you're not paying interest on your own tax and insurance money.
Tip #9 Give yourself credit!
Getting educated about anything major you're thinking of doing is always to your advantage, and in the home buying business, there's no such thing as TMI, or too much information. If you're thinking of buying a house and you're not sure, check out your own credit. It's especially important to check it yourself, number one so you know and number two it doesn't count as a hit against you because enough of those will pull down your score. Two things to remember, pull a tri-merge so you have 3 scores and print those scores so you know. Credit scores are more important than ever, and a credit report with no scores is pretty much useless. That's why they are free.
Bad things happen to good people and lots of folks out there don't have the credit scores they once did. But if you're nervous or uncomfortable about what it might look like, check it, face it and then you can get on with fixing it.
Tip #10 Professionals are worth their weight in gold!
Good professional realtors are worth their weight in gold; good ones can help you get a better deal whether you're buying or selling, but you need to make sure you're working with the right one. If you're trying to sell your home and it's been on the market for months, whether you want to admit it or not, it's overpriced. That's why a realtor listing your property over the market isn't doing you any favors.
When choosing a realtor to work with, interview 2 or 3 then choose the one you like the best - not the one with the most well-known name or a bloated windbag that tells you they can get more for your house than anyone else. The market, not the realtor, will determine what you get for the house.
On the buying side, ask the right questions such as do you attend the closings? If you have a conflict on the day of closing will there be someone there representing you in your absence? And finally, before you make a decision, look at the numbers on comparable properties, not what they're listed for, but what they've actually sold for. Otherwise, it's just talk and talk is cheap.
Tip #11 Paper - What's important and what's not.
For a society that's supposed to be moving toward paperless, we seem to be using more than ever. When it comes to your closing and that seemingly endless stack of paper, there are really only 2 documents you need to pay attention to:
- The note - that's what spells out the terms of your mortgage. Check the note for the interest rate, the principal and interest payment and the statement that confirms you have no pre-payment penalty.
- The closing statement - most people look at the bottom line and if it's what you're expecting or less, you don't look at the rest. You need to check the rest because if you are setting up an escrow account, the closing statement is where you'll find the monthly allocations for taxes and insurance. Make sure those numbers look right. Also, if you're buying, check the front page to make sure you're getting a credit for the seller's portion of the property taxes. Once the note and closing statement are checked, the rest is fluff and boiler plate and ready to sign with gusto.
Once in a while I'll have someone call and ask "What's the reason to go with your company versus my big bank?" Bottom line is we care. Just like the other advertisers on KSEV, small companies only stay around a long time because they're doing it right and people come back and refer others.
Example: We have a return client we're working with, what I affectionately refer to as a repeat offender. We're refinancing both their primary and their second home. One of our processors noticed their flood insurance was very high. Flood zone maps change from time to time but the agent still had it listed in a high risk flood area. We sent some information over and this year's flood premium went from $1,600 to just over $300. Is somebody at a big bank or online going to do that? Not hardly. When going for personal or financial services - go small, personal, boutique service and you'll come out better every time.
Tip #13 Brokers vs Bankers vs Builder's Lenders
Many people are under the wrong impression when it comes to the word "broker". The media has given many a negative impression when it's not necessarily true. In most cases, as long as you're dealing with a qualified, experienced mortgage broker/mortgage banker, you're probably going to get a better deal than you can find on your own. The key is working with someone who has been around a long time, and whose reputation you know, or someone you trust has referred you to.
Here are some facts on the subject you really should know, to be an informed, educated borrower. I think you'll find them interesting.
Keep in mind, when we talk about bankers here, we are talking about employees working at a bank, not mortgage bankers.
- Mortgage Brokers/Mortgage Bankers are required to be licensed to originate loans-bankers are not.
- Mortgage Brokers/Mortgage Bankers must attend continuing mandatory continuing education and ethics training-bankers do not.
- Mortgage Brokers/Mortgage Bankers fees are transparent and must be disclosed-banker's fees do not
- Mortgage Brokers/Mortgage Bankers must pass a rigorous background investigation to ensure no past convictions or criminal activity-bankers do not
- Mortgage Broker's / Mortgage Banker's rates are based on wholesale pricing. Bank's interest rates are based on retail pricing
- Most of the "Preferred" lenders that work with builders are not licensed, and fall within the loose requirements and standards of the bank loan officers who are not licensed.
