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If you are considering purchasing a home or refinancing—you can go to quickenloans.com or lendingtree.com along with local mortgage lenders in your area—to determine what loan will best suit you—and your family. You can compare closing costs, APR's and Par rates to determine what loan will best serve your—and your family's long-term interests.
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Learn How Home Loan Amortization Works...
How To Properly Shop For A Mortgage Loan:
1) Always shop for your loan properly
2) Always scrutinize the Good Faith Estimate that you receive from each lender
3) Always know your true credit status--by staying abreast of your credit
Always focus on the true cost of the loan and not just the payment (APR)
THE 3 STEP PRE-APPROVAL PROCESS
1) You get pre-qualified—don’t give out SS number(s)—Inform the 3 lor 4 lender's that you select that they will have a 33.33% or 25% chance of getting your business.
Also state that you have all your paperwork ready and will be easy to work with—and be true to it.
2) You compare 3 Good Faith Estimates and choose a loan officer to work with. Inform loan officer of your credit score and credit history but do not have your credit score pulled during the comparison period.
3) You get pre-approved! Pre-Approval will give you more negotiating power than a mere Pre-Qualification
a) complete loan application
b) you negotiate fees on your good faith estimate
c) you sign GFE and other disclosures for your file
d) your loan officer gives you a pre-approval letter or certificate
e) you give a copy of the pre-approval letter to your real estate agent
NOTE: A Good Faith Estimate is a detailed itemization of all closing costs and fees estimated to be required at closing. It also includes the loan amount, loan type, interest rate, monthly payment, and funds required to close/funds back to the borrower.
You should know that a YSP (Yield Spread Premium) is nothing more than a back-end commission. The YSP goes by various names i.e., service release premium, yield differential, rate participation fee, or service release fee among others.
If your loan officer asks you for money before he or she provides you with a GFE, tell him/her that you do not feel that is appropriate at this time. Why should you obligate yourself before you know what the loan looks like?
What To Look For On The Good Faith Estimate (GFE)
If a company has 4 or more junk fees, or junk fees you are not comfortable with cross them off your short list.
*Always have the loan officer put YSP on the (Good Faith Estimate) GFE otherwise don’t do business with them
*If lender is an in-house lender they don’t legally have to disclose the YSP
*Direct lenders without a YSP will still make money by offering rates over par
Fees you should rarely or never pay on the GFE
1) Administrative Fee
2) Application Fee
3) Appraisal Review Fee
4) Ancillary Fee
5) Courier Fee
6) Documentation Preparation Fee
7) Document Review Fee
8) Email Fee
9) Processing Fee
10) Title Review Fee
11) Settlement Fee
12) Survey Fee
Other Fees To Look For On The Good Faith Estimate (GFE)
1) Discount Fee
2) Underwriting Fee
3) Warehouse Fee
4) Creative Fees
5) Duplicate Fees
1) Appraisal Fee
2) Attorney fee or escrow Fee
3) Credit report
4) Flood Certification
5) Tax Service Fee
6) Title Insurance Fee
7) Recording Fee or Reconveyance Fee
8) State Tax or State Stamps
Grants -DP Assistance
30- year fixed rate
15-year fixed rate
40 or 45 yr. fixed rate
Adjusted Rate Mortgage (ARM)
2/28 and 3/27 “Fixed Rate” Adjustable Loans
High Debt Ratio Loans
Stated Income Loan
Hard Money Loans
Option Arm (Also go by the following names) Pick a Payment Loan Cash Flow Option Loan Pay Option Arm
1) negative amortization:
For example, 2% balance tacked on to your loan balance with minimum option.
2) 4 payment options:
1-minimum—balance up (negative amortization)
2-interest only—balance same
3-30 yr. payment—balance decreases
4- 15 yr. payment—balance decreases faster
QUESTIONS THAT YOU MUST ASK YOURSELF WHEN SHOPPING FOR AN OPTION ARM?
1) How long does that low start rate last?
2) How often can the rate adjust?
3) What is the index? So you can check the history.
4) What is the margin? When your payment adjusts, it will be determined by the index plus the margin. What is the margin for par? A large margin will increase the YSP (back-end commission) to a loan officer and lender.
5) What is the minimum payment cap?
6) What is the negative amortization cap?
7) What is the lifetime interest rate cap?
8) What is the highest my payment can go?
9) What is the payment recast period?
10) Does the loan have a conversion option? If so, what is the fee.
11) Other—Whatever you feel is important to you and your family
You Should Only Consider an Option Arm If:
You cannot get started in Real Estate in any other way.
Home values in your area are expected to rise.
You expect your income to increase substantially in the near future.
You are Self-Employed and you need flexibility due to cash flow variation.
Do not consider If:
You are trying to maximize your buying power—buying more than you can afford
You are not certain you can handle the maximum payment cap
Home prices are expected to remain stagnant
You are not highly liquid and/or have heavy debt load
You lack fiscal discipline and do not have a workable budget, realistic savings and retirement plan, emergency fund, and/or other compensating factors at work.
The Truth In Lending Disclosure Statement is neither a contract nor a commitment to lend but it will state the APR the finance charge the amount financed and the total number of payments. It will also state if there is a prepayment penalty either partial or full.
If partial you may be entitled to a refund of finance charge. If “may have a payment penalty” is checked that means THERE WILL BE ONE—see formula above for calculating prepayment penalty. It will also state if the loan is assumable or not.
On the Truth in Lending Disclosure Statement be alert for:
Other Key Questions To Ask The Loan Officer
If interest rates go down between the original Good Faith Estimate and the lock-in period who should benefit?
You, Me—or Both of Us?
Asking questions that show that you have insight into the loan process is the best way to communicate that you are a savvy consumer.
Be sure to always state to the loan officer that you have all of your paperwork handy and will be easy to work with and be sure to follow through on that statement.
Be sure to ask for a statement (or guarantee) in writing that says the mortgage company’s final cost will not vary by more than 8 to 10%.
*Also Note: If after analyzing the three or four lenders—you are still not comfortable—you may want to expand the number of lenders.
Be sure you do the comparisons within a two week period, and definitely not more than four weeks (it is wise to do all of the comparisons on the same day).
Also you should not have your credit score pulled over a period of two weeks or more.
If your score is pulled, be sure to do it in a two or three week time span. The shorter the span, the better.
If your credit score is pulled over a greater than two week period some credit rating agencies may think that you are shopping for multiple loans on multiple properties and therefore your credit score could decline.
About This Article:
The above article was written by Thomas (TJ) Underwood. Thomas (TJ) Underwood is an active real estate broker in the state of Georgia and is the writer behind The Wealth Increaser, Home Buyer 411, Home Seller 411, The 3 Step Structured Approach to Managing Your Finances, Managing & Improving Your Credit & Finances for this MILLENNIUM and CREDIT & FINANCE IMPROVEMENT MADE EASY—FREE GUIDE.
He is the creator of TheWealthIncreaser.com where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner. He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future.
You can contact him from a number of sources but the most direct way is to contact him through the contact us block that can be found at the bottom of this page.
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Thomas (TJ) Underwood has been providing financial advice as a tax practitioner since the mid 1980’s and began his financial planning career (while earning a Bachelor of Science Degree in Business Administration/Finance/Marketing), in Detroit at Wayne State University. From 2010 up to the present he continues to provide visitors timely personal finance and wealth building advice and articles—including real estate advice—on 3 sites that he has created since 2010.
Even though he is an active real estate Broker in the Atlanta Metropolitan area, he continues to blog consistently to help visitors and those who desire lasting financial and life changing success the opportunity to change their life for the better in a more efficient way.
You can learn more about him and gain access to all three sites that he has created by going to Who is the creator of TheWealthIncreaser.com page.
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