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Mortgage - David Reed


Year 2010

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IntroductionThe mortgage process is extremely confusing. 1. Where Mortgage Loans Really Come FromOdds Are, Your Mortgage Will Be Sold.Not Only Can Your Bank Sell Your Mortgage, but You Gave It Permission to Do So.If Your Bank Sells Your Loan, You May Lose Some Privileges.Sometimes Your Rate Is Not Reduced When You Pay Points.Some Fees Are Junk Fees.Mortgage Brokers Must Tell You How Much They're Making on Your Loan.Wholesale Lenders Can Pay Brokers to Send Them Loans.Wholesale Lenders Can Limit What Brokers Charge You.YSPs Are Not Bad for the Consumer.Brokers May Try to Keep Who the Lender Is a Secret Until the End.Your Broker May Not Know Until the End Who Will Ultimately Be Your Lender.If You Locked in a Rate and Your Broker Can't Tell You Who the Lender Is, He's Lying.Beware of "Special" Deals.Many Mortgage Bankers Allow Their Loan Officers to Broker Loans.Credit Unions Can Sometimes Have the Best Fixed-Rate Mortgages Anywhere.Mortgage Brokers May Be Able to Find, on Any Given Day, a Slightly Better Rate Quote.Mortgage Brokers Aren't More Expensive Than Mortgage Bankers.Your Mortgage Broker Doesn't Use 1 00 Lenders.The Number of Wholesale Lenders Is Dwindling.Your Mortgage Broker May Now Have Fewer Options Than a Mortgage Banker.Sometimes the Best Rate Is Not Your Only Consideration.Your Best Choice May Not Be Either a Broker or a Bank.Brokers, Banks, and Mortgage Bankers Must All Be Licensed Nationally, and They Have to Tell You This.Fannie Mae, Freddie Mac, the VA, and the FHA Don't Make Loans.A VA Home Loan Guarantee Doesn't Mean That You're Guaranteed an Approval.There Might Be One More Zero-Down Loan for You: US DA.2. The Mortgage Loan ProcessMortgage Calculators Found on the Internet Will Always Tell You to Buy."Declining Markets" Cause Calculators to Malfunction.Knowing and Using the Following Terms Will Improve Your Chances of Not Being Taken Advantage Of.A Prequalification Letter Is Essentially Worthless in Today's Real Estate Market.It's the Approval That Sellers Want to See.Using Terms Used Only in the Lending Industry Will Put Your Loan Officer on Notice That You're Not to Be Messed Around With.How Smooth Your Loan Closing Will Be Is Directly Proportional to How Long Your Loan Officer and Your Loan Processor Have Been Working Together.Your Loan Isn't Approved by a Person or a Loan Committee Anymore.All Mortgages Must Be Run Through an AUS."Manual" Underwriting Is Rare.If You're Declined by an AUS, Your Loan Officer Can "Tweak" Your Application in an Attempt to Get You Approved.The Advent of the AUS Led to Stupid Loan Officers.An Experienced Loan Officer Will Know When to Tweak and When Not To.One AUS May Approve While Another Could Decline.You Don't Have to Supply Tons of Documentation at Application, Even if Your Loan Officer Asks for It.Giving More Information Means That You Have to Document More.Some Things on Your Loan Application Are Completely Unnecessary.Some Boxes Are Simply for Identification and Won't Be Used to Determine Eligibility.3. Risk ElementsCan You Pay Back the Lender?Will You Pay Back the Lender?What If You Don't Pay Back the Lender?Mortgage Lenders Can Adjust Risk Elements 1 and 2, but They Can't Adjust Element 3.If the Property Doesn't Conform to Specific Appraisal Guidelines, You Won't Be Able to Get a Loan.Lenders Don't Always Need a Full Appraisal.Lenders Now Need a Down Payment.Low-Down Loans Can Be a Trap.Alternative Sources of Down Payment Money Are Better than Low-Down Loans.It's Okay If You Make a Small Down Payment—but It Can Affect Your Monthly Payments.Beware of Lenders Who Say, "I Figured Out a Way That You Don't Have to Pay Mortgage Insurance."There's Another Way to Deduct Mortgage Insurance.The Higher Rates Go, the More Attractive Mortgage Insurance Becomes.Mortgage Insurance Can Cancel Your Loan Approval.Down Payments Will Come Under Strict Scrutiny—and the Less Down Payment You Have, the More Scrutiny You Will Receive.Anything That Can Be Appraised Can Be Used as Down Payment Funds.There Are Several Unacceptable Sources of Down Payment Funds4. Closing CostsRecurring Closing Costs Are Nonnegotiable; Nonrecurring Closing Costs Can Be Negotiable.Watch the Nonrecurring Fees for Junk Fees.Your Loan Officer Is Supposed to Advise You of Potential Charges, but the Estimate Doesn't Have to Be Accurate.Your Loan Officer Probably Can't Explain the APR Number.Knowing What's Included in the APR Is Critical When Comparing Loans.The APR Can Be Useful Only When Comparing Identical Loan Programs.Loan Officers Can Lowball Third-Party Fees to Make Their Loan Offering Look Better.Realtors Have a Stake in Making Sure That You Are Not Screwed.You Can Call Companies Directly to See If Their Fees Are Accurately Quoted on an Estimate."Guaranteed" Closing Costs Don't Mean That the Whole Estimate Is Guaranteed.Sometimes Major Closing Cost Errors Are Made by Incompetent Loan Officers.Estimates for Property Taxes and Insurance Are Often Wrong.Mortgage Brokers Have a More Difficult Time Quoting Accurate Closing Fees than Mortgage Bankers Do.There Is No Such Thing as a "No-Closing-Cost" Mortgage Loan.Mortgage Brokers Must Disclose Any Yield Spread Premium Accurately.5. Interest RatesMortgage interest rates can be a mystery. The Mortgage Rates You See in the Newspaper Are Never Reliable.Mortgage Rates Advertised on the Internet Are Also Inaccurate.The Federal Reserve Has Little to Do with Your Mortgage Rate.The Fed Attempts to Control Inflation and the Cost of Money.The Prime Rate at One Bank Can Be Different from the Prime Rate at Another.A Lender's "Secondary Department" Sets Mortgage Rates for Its Company.It's Imperative That You Get Rate Quotes on the Same Day at the Same Time.Mortgage Bond Pricing Isn't Available to the General Public.Mortgage Rates Aren't Tied to the 10-Year Treasury Note or the 30-Year Treasury Bond.Adjustable-Rate Mortgage Indexes Are Easy to Follow; Fixed-Rate Ones Are Not.When Getting Rate Quotes, Get Quotes on the Exact Same Rate, Term, and Type.Make Sure Your Rate Quote Covers Your Time Requirements."Spot" Rate Quotes Are No Good.Loan Officers May Try to Increase Their Fees to Offset a Lower Rate Quote.Lenders Can Make Certain Assumptions When Quoting Rates.Ultimately It's the Loan Officer Making the Rate, Not the Lender.In the End, You're Not Negotiating the Rate; You're Negotiating the Loan Officer's Commission.The Greater Your Loan Amount, the More Leverage You Have.Banks Can Set Their Own Rates.You Don't Have to Pay Discount Points or Origination Fees.Rate Quotes Are Worthless Unless Your Rate Is Locked In.Loan Officers Can Make More Money off of You Through "Market Gains."Mortgage Brokers Can Lock You In at One Wholesale Lender, Then Lock You In at Another If Rates Move Down to Make More Money.Some Lenders Offer "Float-Downs."If Your Broker Is Playing the Market, You Could Both Lose.After You've Locked, Your Loan Officer Won't Tell You When Rates Have Dropped—You Have to Watch the Market Yourself.Your Loan Officer Should Never Advise You When to Lock.6. CreditThe Most Important Element in Your Loan Approval Is Your Credit Report.There May Be Mistakes on Your Credit Report That You Don't Know About.Writing an Explanation Letter to the Credit Bureau Does Absolutely No Good.If There's a Mistake on Your Credit Report, It's Your Lender Who Can Best Help You Fix It, Not the Bureau.Underwriters Don't Look at Your Various Credit Accounts and See How Many Late Payments You Have or Haven't Made.Bankruptcy Doesn't Automatically Mean That You Can't Get a Mortgage.Conventional Lenders Can Make a Loan Even If the Bankruptcy Is Less than Four Years Old.If You're in a Chapter 13 Bankruptcy, You Can Still Get a Mortgage Through the FHA.Mortgage Lenders Make No Distinction Between a Chapter 7 and a Chapter 13 Bankruptcy.Not All Credit Scores Are the Ones Lenders Use.VA, FHA, and USDA Loans Don't Require Scores, but Lenders Do.While There May Be Three Different Credit Scores, the Lender Always Uses the Middle One.If You're Applying with Someone Else on a Mortgage Loan, the Lender Will Use the Credit Score of One Person or the Other, but Not Both.A Cosigner Can't Erase Someone Else's Bad Credit.It's Better to Remove an Extra Person on a Loan Application If That Person Has Bad Credit.Paying Off and Closing Credit Accounts Will Hurt Your Credit Score.It's Not Whether the Payment Was Late, It's How Late It Was That Makes the Difference.To Optimize Your Credit Score, You Should Have a Balance of About One-Third of Your Credit Limit.Your Credit Score Can Affect How Much Money You Can Borrow.Predatory Lending Still Exists.Loans by Themselves Aren't Necessarily Predatory, but a Loan Officer Can Make a Predatory Loan.You Can Repair Your Credit; Don't Pay Someone Else to Do It for You.If You're Behind on Your Mortgage, Your Lender Has the Best Solutions.7. Loan ChoicesThere Are Really Only Two Types of Loan: Fixed and Adjustable.Rate Caps Protect You When You Have an ARM—Pay Attention to Your Caps, and Make Sure Your ARM Has Them.When Comparing ARMs from Different Lenders, Pay Close Attention to the Starting Rate.Your Margin Is Your Lender's Little Secret.Your Lender May Try to Confuse You by Comparing ARM Loans with Different Indexes.Do Your Research and Choose an ARM Only When Rates Are at Relative Highs.Lenders Can't Predict the Future, and Neither Can You.Some People Aren't Built for ARMs.There Are Other Choices Besides a 15-Year and a 30-Year Fixed Rate.Hybrids Are a Nice Choice, but They're Still ARMs.Stay Away from Negative Amortization.Don't Be Fooled by the Term Potential Neg-Am.Don't Be Fooled by "Payment-Option" Loans.Interest-Only Loans Carry Additional Risk.Low-Money-Down Loans and Interest-Only Don't Mix.Prepayment Penalties Aren't Always a Bad Thing.Prepayment Penalties Can Be "Hard" or "Soft."Some Prepayment Penalties Can Be Bought Out.You Might Be Steered Away from Government Loans.You May Be a First-Time Home Buyer Even Though You've Owned a Home Before.You Don't Have to Be a Veteran to Qualify for a VA Loan.Don't Be Talked Into Any Particular Type of Loan.8. RefinancingDon't Wait Until Rates Are 2.00 Percent Below Your Current Rate Before You Refinance.Don't Pay Points or Origination Fees When Refinancing.Don't Pay Any Closing Costs When Refinancing.You Might Be Able to Reduce Your Note Rate Without Refinancing at All.A Modification Can Also Make Sense When Rates Don't Drop.Cash-Out Refinancing Can Cost You More than You Think.Loan Officers Can Take Classes to "Sell" a Refinance.Higher Loan-to-Value Cash-Outs Carry Higher Rates.Explore an Equity Loan in Lieu of a Cash-Out Refinance.When Rates Are Low, It's Better to Secure a Fixed Rate.There Are Ways to Save on Closing Costs When Refinancing That Weren't Available to You When You Bought.When You Pull Cash out, the Lender Will Ask You What You're Going to Do with the Money—Be Careful with Your Answer.You Still Have to Qualify for a Refinance, Just as You Did for the Purchase.You'll Need More Equity to Refinance a Conventional Loan.Your Old Appraisal Doesn't Matter.You Can Refinance into an FHA Loan If You Have Equity Concerns.You Can't Add Someone to a Refinance to Help You Qualify.If You Have an FHA or VA Loan and Want to Refinance and Your Credit Has Been Damaged, You're in Luck: You Can "Streamline."When You Refinance, You're Not Skipping Payments.The Best Time to Close a Refinance Is as Close to the First of the Month as Possible.9. Buying and Building NewUsing a Realtor Will Save You Money.If There Are Any Special Business Relationships Between the Builder and Other Businesses, You Need to Know About Them Before You Go Any Further.Your Contract Could Spell Disaster.Separate the Cost of the Upgrades from the Cost of the House.The Builder's Lender Is Probably a Mortgage Broker.Developers Don't Get Paid Until the Very End of a Project.Your Builder Doesn't Care About the Origination Fee.Construction Loans to Build a Custom Home Have a Whole New Set of Concerns.Although Construction Loans Can Be Found at Many Lenders, It Pays to Work with a Construction Loan Officer.The Slower the Construction Period on Your Project, the More Money You Have to Pay.Owning Your Own Lot Is Automatic Equity in Your New Home.Construction Loans Are Easy to Compare.When You Are Constructing Your Home, Your Permanent Mortgage May Not Be Locked In.You Can Guarantee Your Interest Rate on Both the Construction Loan and the Permanent Mortgage, While Reducing Closing Costs, with a One-Time Close Loan.If Rates Have Gone Down During Construction and They're Much Lower than Your Predetermined Permanent Rate, Ask Your Lender for a Reset.You Don't Have to Refinance Your Construction Loan with the Same Lender.Commitment Fees Are Not Uncommon with Construction Loans.Your Construction Loan Lender May Require a Contingency Fund.Glossary
 
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