Your Mortgage Representative, Or: Finding a Rep to Represent You
Buying a or refinancing a home requires decision after decision and you need to choose someone to represent you in your quest for a mortgage. Let’s take a look at the options and give you some tools to help you select an appropriate mortgage consultant; first, let’s look at who’s out there:
1. There are the loan officers at the retail consumer banks. These people work for one financial institution and sell the financial products that their own bank offers.
2. There are the mortgage bankers who represent companies whose business is to lend money for mortgages; some of these mortgage bankers also represent other financial institutions as a mortgage broker.
3. And there are the mortgage brokers. Brokers represent numerous financial institutions and offer the widest array of products.
Mortgage bankers like to emphasize that they have greater control over the process since they work directly with the bank’s underwriters and close loans in their own name. However, they must follow their investors’ criteria just as a broker must follow the banks’ criteria. Bankers also like to tout that they make the loan. What they don’t identify is that they frequently just ‘table-fund’ the loan – reselling or reassigning the mortgage immediately after close to the real mortgagee.
In reality, bankers and mortgage bankers and brokers all work through the same corporate layers. And they work from basically the same rate pricing as their broker brethren. Mortgage brokers are not another layer, just another channel within each bank. A good mortgage broker has strong relationships with the underwriting and closing departments in each of the banks they work with. And there are no additional costs to the borrower.
1. So why bother with a broker? Mortgage brokers can use their breadth of access to information to help you choose the right loan program. Industry professionals talk about institutional appetites for particular types of loans depending upon investor interest. You know a bank’s interested in a particular line of business (type of mortgage) when their rates for that loan product are low; low rates attract borrowers. The bank with the best rates for a 5/1 ARM in January may not be the bank with the lowest rate three months later. A good broker will ferret out the bank of the moment that is particularly interested in the type of loan you’re looking for and place you there. A good mortgage broker will shop around for the best rate. A bank rep has only one choice – whether their bank is in the market for that type of loan or not and whether their rate is the best or not.
2. A good mortgage broker will pre-qualify you and match you with a particular bank interested in your financial profile.
3. The mortgage market can be volatile. Borrowers are content when they lock in a rate and the market moves up. But when a rate is locked and rates then drop dramatically, most borrowers are motivated to take advantage of that opportunity. If the bank won’t float down the rate, a broker may have the option to move the loan to another bank; the banker does not have that flexibility.
Rates at Historic Lows. Does Your Mortgage Suit You Now?
The rates for fixed 15- and 30-year mortgages are at or near historic lows. This is an ideal time to examine your current loan and compare it to what is now available. You may be able to reduce the amount of your payments, change an adjustable rate mortgage to one that is fixed, or shorten the amount of time required to pay-off your loan.
What’s the magic formula to determine whether or not refinancing your mortgage is a prudent move?
A half a percent cut in rate? A full point? More? There is no mortgage genie.
Your time-table and circumstances are your baseline. The new mortgage must save you an amount that is meaningful to you in a time period that aligns with your plans. How long do you intend to stay in the home? What do you consider a reasonable amount of time to recover the closing costs?
Your financial profile includes your W-2 income if you are a wage earner, rather than being verifiably self-employed, assets in checking, savings, stocks, bonds, retirement funds; your credit history which shows a FICO score (think 720 and above for a realistic conversation about a non-government 15 or 30 year-fixed loan) indicating how you have managed credit, and your current liabilities.
Your profile includes your mortgage debt and the appraised value of your home. If your mortgage exceeds 80% of the appraised value lenders will require that you purchase mortgage insurance, adding a monthly expense not included in the rate. This is one of the reasons that the phrase “it’s not about the rate it’s about the payment” is not sales hype but a caution to examine your total cost to own (CTO) the mortgage. Also, depending on your profile and the amount of equity in your property you may be eligible for different rate.
If you are pulling rate quotes from the web you must know the source. Check for information about points and the length of the rate lock. If you are running a web calculator on refinancing note that the amount of your new mortgage must include closing costs (unless you are paying them out of pocket). Some web sites assume that the new mortgage and the one you are paying off are for the same amount, potentially showing a false savings. The new mortgage showing all closing costs (so that they can be paid off at the low-rate over time) will be higher.
Gather your documents
and start your math motor running. After all, there is no mortgage genie.
Want more information on the mortgage landscape? Visit this informative webcast:
Does your mortgage suit you now? http://tinyurl.com/2b8dw44
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Does your mortgage suit you now?
Distinguished CPA on tax breaks and incentives for homeowners
Investing in Real Estate
By Sol Skolnick
The recession, the banking
crisis,the decline in home values have
all of us reassessing personal finances and re-balancing investment portfolios.
There has been a decrease in home prices and a slowing of the purchase market. Many of my clients are wondering if lower prices present an opportunity for investing in real estate. Of course, not all areas in the tri-state area or all types of housing stock present the same level of opportunity.
During the hey-day of low down payments many speculators purchased potential rental properties. These would-be landlords, enabled by meager capital requirements, overpaid for properties and had neither the cash reserves nor the business skills to maintain these homes. The result has been foreclosures, short sales and tenants in jeopardy of being underserved or displaced.
Lenders, in belated response to this situation, increased the required amount of down payment money and pegged the interest rates for investment properties substantially higher than for owner-occupied residences. The rational for this strategy is simple: a landlord is more likely to retreat from a troubled financial situation involving an investment property than his or her own primary residence.
Owning real estate is a business proposition. Although we interweave emotions and personal preference with the acquisition of or own homes it is essential to understand the business side of the equation.The recent downward correction in prices has probably enhanced the potential for investments with value. Whether buying a single-family home that you intend to rehabilitate and re-sell or a maintaining a multi-family dwelling you must first create a business plan that takes into account the cost to own, not just the cost to acquire.
The costs to maintain a single-family home in Westchester County usually cannot be justified through rental income. This is particularly true in the current market which has high taxes and many properties that are simultaneously available for rent or sale by owners who may become accidental landlords.
Multi-family dwellings can provide rent-paying tenants which creates an economy of scale for the owner.
If you are intrigued by the potential opportunities created by the current market be sure to solicit the advice and counsel of a real estate broker with experience in the residential investment market, you accountant and a mortgage professional.