What is the difference between a mortgage banker and a broker?
A mortgage banker originates loans and uses their own money to close the loans. The mortgage broker originates loans and then brokers the loan to an investor. The broker does not use their own funds to close the loan. Many consider brokers to be "middlemen" and feel they add to the cost of obtaining a loan. Some brokers may be competitive with their rates and fees and others may not be. It pays to compare before making your final decision on whom to work with.
How can I tell which lenders are predatory
before I get in the deal too
deep?
It helps if you can be referred to a loan officer that is part of a real estate investment team. A team will be made up of a Realtor, Loan Officer, Appraiser, Title Company and Closing Agent. The goal of these teams is to hold each other accountable for delivering exceptional service to their clients.
What are loan programs and why should I know the difference?
Loan programs are the various loan options available for consumers to purchase a home. You can waste thousands of dollars if you do not take the time to learn about different types of loans available to make sure you have the one that is tailored to your needs. A good loan officer will take the time to ask you questions about your current and future financial situation so that they can narrow down the loans that would be best for you.
There are three basic loan types with variations of these available. The three basic types are:
Conventional
FHA - insured by the government
VA - guaranteed by VA
For details on conventional loan programs you may want to visit www.fanniemae.com . For details on FHA loan programs visit www.hud.gov .
For details on VA loan programs visit www.va.gov .
What is a "point"?
A point, also known as "discount points" is a fee that increases the yield to the lender. One point equals one percent of the loan amount. If the current interest rate was 8% 0 + 1 that would mean you could receive a rate of 8% and pay "0" points and 1 origination fee.
What is an origination fee?
The origination fee is the fee you pay the lender for originating the loan. The loan officer's commission typically comes out of this fee. One origination fee equals one percent of the loan amount.
Is it true you should wait until the last day of the month to close?
No, this is a common myth but in reality it would be better to try to close by the third week of the month. The reason people are told it is better to close the last day is because their closing costs are lower due to the interest they are required to pay per day on the loan. The problem with this practice is that most people do try to close the last day of the month and there is a mad rush with mortgage and closing agents trying to get everything ready to close. If a problem occurs there is not sufficient time to take care of it and still close on time.
Where is the best place to research interest rates?
A good way to determine what market rates are is to look at the Fannie Mae required net yield for 30-year, fixed-rate mortgages delivered for sale to Fannie Mae by lenders within 60 days. You can look in the Wall Street Journal and look for the Fannie Mae, or the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) posted yield. You can also obtain the information by calling Fannie Mae's 24-hour yield hotline at 1-800-752-7020 (after the greeting press 2, then 1, then 1) or you can go to their site on the Internet by visiting:
www.fanniemae.com/singlefamily/doingbusiness/db_rate_chart.html .
Although these rates are a little higher than market rates, they are a good indicator of the current market. If you were going to negotiate a rate with your lender and you were not going to pay an origination fee or any junk fees, the rate you could get would be very close to the FNMA posted rate. For more information on how to negotiate the best rate see Report # 2.
What fees are negotiable in the buying process?
The fees that are negotiable vary with lenders and new fees are constantly being added that may be negotiated. The following are a few of the typical fees that may be negotiated:
Processing Fee
Underwriting Fee
Document Preparation Fee
Points
What is "lock-in" and how does it affect my loan?
The term "lock-in" refers to locking in the interest rate on your loan. Some lenders will allow you to lock in the rate at loan application and others require that you have loan approval before they will allow you to lock in the rate.
I do not have perfect credit. Doesn't this limit me
to taking whatever
I can get?
In today's market most lenders have loans for all credit situations. The interest rate, fees charged and amount of down payment required will be based off of your specific credit situation. The key is to check with several different lenders as there may be more options with different lenders. This will also give you comparisons on rates and fees and help you avoid getting ripped off.
What are overages?
An example of an overage being charged is when a lender's market rate is 8% 0 + 1 and the loan officer charges you 8.5% and pockets the difference instead of crediting the buyer's closing costs. Or they may charge 8% at 2 (two discount points) + 1 instead of 0 + 1. The loan officer would then get paid more from the lender they sell the loan to.
I haven't been able to make my mortgage payments, and I'm about to lose my house. Can HUD help me?
Contact one of the HUD-funded housing counseling agencies closest to you. Or you can call the Housing Counseling Hotline at 1-800-569-4287.
I believe that I may have experienced discrimination when I was looking for housing. How can I file a complaint?
You can call the Housing Discrimination Hotline: 1-800-669-9777.
What is PITI?
PITI stands for principal, interest, taxes, and insurance The four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
What are "reserves"?
Reserves are a cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves vary according to the type of loan you obtain and according to your lender. Typical reserve requirements are 1-3 months.
What is "prepayment"?
Any amount paid to reduce the principal balance of a loan before the due date - payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
What is a prepayment penalty?
A fee that may be charged to a borrower who pays off a loan before it is due. Always ask if your loan will have a penalty if paid off early. A typical penalty is 6 months PITI. This is common with loans to borrowers with credit problems. You may want to consider discussing the specifics of this fee as you negotiate the terms of your loan with your lender.
What is a balloon mortgage?
A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specified term. For example:
The Fannie Mae seven-year balloon mortgage is a type of fixed-rate mortgage with a term of seven years. The principal and interest you pay are amortized over a longer period (30 years) than the actual term of the mortgage. At the end of the balloon period, you may pay off the outstanding balance with a lump-sum payment or exercise the option to refinance for the remaining term.
What is a balloon payment?
A balloon payment is the final lump sum payment that is made at the maturity date of a balloon mortgage.
What is a bi-weekly mortgage?
A biweekly mortgage is one that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower's bank account. The result for the borrower is a substantial savings in interest.
Question from a Realtor
Is there such a thing as a governing authority
or place to report bad/pitiful mortgage companies? I have the sellers
and the buyers mortgage company sucks, they've been lying all along,
missing deadlines that
I now believe they never intended to keep and costing my sellers another
month's interest by not closing on time (and that's just the beginning).
Anyhow, any thoughts on if there is any recourse?
Answer
Unfortunately there is no "one", no "where", no "how", to report sorry mortgage companies to except the Better Business Bureau. That really does you no good. If they are brokers then you can send a complaint to the Texan Savings and Loan League but they will tell you they are helpless to do anything even if it is about fraud. The chief did a speech one time and admitted that the lawyers could tie his hands every time. The mortgage bankers association has no grievance committee or anything like that. The bad mortgage companies have no consequences except that you will not use them again.
One of the things that needs to be addressed is not only predatory lending
but also giving good service and customer care. It affects the Realtor and
Title Company just like predatory lending does. I hope you come out allright
on the deal. This is why the CFS training and GiantLion are going to be so
important for credibility.