Artisan Mortgage Blog

The Elusive Mortgage Price

Most consumers have always been taught to shop goods and services based on price.  In the mortgage industry this can be very elusive.  There are many factors that determine the “Price” of a mortgage, that are often too complicated for the basic consumer.

The easiest formula to determining price on a mortgage is a combination of the interest rate and the costs associated with the loan. The problem with this equation is that the price is ever moving.  You could do all your homework, call 10 lenders get your quotes and by the time you are all done the prices have moved!

 Now, let’s talk about our ability to determine the price. Many consumers get confused when discussing “closing costs” because they often mistake pre-paid items for costs and tend to focus more on the “settlement charges” rather than the actual costs.  I’m going to give you a little tutorial I often give to my clients and even then not all people will completely understand.  As well, when you are given costs up front they are only an estimate!  The actual costs of your loan are determined at the end of the loan process, so that all the due diligence you did in the beginning didn’t even provide the actual costs. I know this can be a lot to handle, so bear with me and give it a shot.

 When you close on a mortgage, at closing you must pay for all settlement charges.  For refinances, settlement charges will consist of both closing costs and pre-paid items. On purchase transactions you can add adjustments to the total settlement charges.

Let’s start with closing costs. These are costs you pay to obtain the mortgage. You pay the fees and never see that money again. 95% of all fees can be determined up front, but some costs are not actualized until the loan has been completed, such as actual recording fees or complete title costs.  Sometimes a lender may ask for an appraisal review during the underwriting process which would add to your costs after the initial estimate. Things like these are why actual costs can differ from original estimates. My saying is your Good Faith Estimate is only as good as your loan officer.

Pre-paids items are not costs. Repeat, pre-paid items are not costs.  Pre-paid items consist of three items, interest, taxes and insurance. These items are expenses that you would need to pay no matter what, however the lender is requiring you pay some of these expenses in advance. Most pre-paid items are associated with setting up an escrow account, however pre-paid items exist regardless of whether or not there is an escrow account. Pre-paid items will be what they are no matter what we estimate them to be. A good loan officer will be able to give you an accurate estimate of pre-paids, but the truth is most loan officers don’t understand it either. They use a basic formula for estimating pre-paids separate from the actual transaction which is never 100% accurate.

So when shopping for a mortgage, my advice is to ignore pre-paid items if you can tell the difference between a cost and a pre-paid item. Pre-paid money is your money and always is your money, pre-paids are used to pay your taxes, insurance or interest which would have to be paid no matter what.  Sounds confusing right? Well it can be!

Adjustments are items on a purchase that are paid back to the seller for misc. costs and reasons. Example, you purchase a home where the seller has oil heating. There is a 100 gallons of oil in the tank, so the seller requires that you adjust back to them for the cost of the oil in the tank.  This will be money you need to provide at closing that wouldn’t be part of your loan estimate because it has nothing to do with your mortgage. So don’t think the costs of your mortgage changed because you needed an extra $300 at closing for this adjustment.

Alright, now let’s talk about rate. When a rate is quoted to you, it is quoted based on many factors. If one of these factors changes during the process so does your “Price”. I will provide a list of factors that can affect rate and I’m sure I might leave a couple out, but these are the main ones.

Credit, your credit score will affect your rate. Also, your credit score can change if a new report is needed on top of the initial one used for the price quote. Sound familiar anyone?

LTV, :Loan to Value. The equity position at which you borrow is major component of your “Price”. If the estimated value of loan amount changes from the initial estimate so does you price. Here’s a tip, when shopping for a mortgage ask your loan officer at what equity position is your loan be quoted at?  By estimating the value of your home high, I would be able to quote you a lower rate. However the final rate will be determined by the actual value.  Value change equals rate change.

Property type. You get a quote for a mortgage and your loan officer assumes a single family home. However you want to buy a 2 family home, well this changes your “Price”.

Here’s a quick list of lesser factors but factors just the same that can change your price:

Loan amount -  the amount you borrow can change your price

Lock period -  the number of days you lock the rate in for can change your price

State -   the state you in which your home is located can change your price

Subordinate financing -  Whether or not another mortgage exists on the property can change your price

What you do with the loan proceeds can change your price. Use money from your mortgage to pay off credit cards and that’s right your price can change.

Whether or not you set up an escrow account can change your price. Really? yup. Don’t escrow for taxes and insurance and watch your price go up.

And many more factors that can affect your price. Now you can see why the the elusive “Price ” of a mortgage can be a daunting task to obtain.  That’s why consumers should not only be educated on what they are buying, but also need to know they are working with a professional who knows what factors to look out when quoting a “Price”.

Most importantly, rates change all day every day.  Our mortgage prices can move throughout the day and are issued every morning. So the loan quote you got on Monday may not be valid Tuesday.  You are never guaranteed your rate until the rate is locked in, and if one of your factors change so does your locked in rate.  Just because the rate is locked doesn’t mean it can’t change during the underwriting process.

 My only advice is seek a true mortgage professional who you can trust.  Don’t think because you are going to a BIG BANK that they will have everything right. Employees at BIG BANKS don’t always know what they are doing.  BIG BANKER BOB may have funny commercials and sleek letterhead but know, you are being put through a process and not being dealt with on a one to one level.  Corporate process’s can get things right but they can also get them wrong.  And if you’ve ever dealt with a big corporation who got things wrong and something was outside the PROCESS, you know how frustrating it can be to get it fixed.

Try to absorb some of this knowledge and I will follow up in a couple of days. Please feel free to post your questions to me, as I may make an attempt to have you better understand.  Knowledge is not knowing everything, but it’s knowing how to obtain the facts!!

Jim Barry

The Best of Long Island 2009!

Artisan Mortgage has been voted as The Best Long Island Mortgage Company in 2009!
For more information please visit Long Island Press at www.longislandpress.com

Tags: Artisan Mortgage, best company, long island, mortgage company, new york

Trying to time a bottom

I was at a meeting with old client last week who has over 40 years experience on Wall Street and he gave me a good point to share with my customers.  He had worked with his clients, managing money and mostly dealing in stocks.  He told me that too many of his clients were over concerned about buying stocks within 10% of the bottom and selling them within 10% of the top( Talking about stock prices). His advice to them was to stop concerning themselves with the absolute top or bottom and to focus more on the 80% in the middle.

I think this is a great analogy for many people shopping for a mortgage. Rates are awesome right now and too many people are over concerned with getting the absolute lowest rate. Again, we are talking about prices that move everyday so it is very difficult to time a bottom.  I have customers paying over 6.5%, who are sitting and waiting for rates to get lower, when in fact over the last 2 weeks they have gone up.  Run the numbers, if 4.75% makes financial sense jump on it and get it done.  Don’t miss the boat because you thought you could get 4.5%. It may or may not happen, however you should be more concerned with the majority of the savings you are getting at the 4.75% rather than having rates run up to 5.5% before you could refinance or purchase.

 Rates move everyday, That’s right, rates move everyday!!!

If you think you can time a bottom, get in the pit and start trading bonds. 

If the numbers work do the loan.  Take the advice from a true mortgage professional, think it through and make a decision. By waiting for more you may indeed get less.!

Crazy Low Rates

The predicted super low rates have come true. Merry Christmas and Happy Holidays. 30 year fixed rate mortgage touched 4.375% this morning. If you don’t buy a house or refinance a mortgage during these times you are missing out on some cheap money.  This is the lowest I’ve seen the 30 year fixed rate mortgage in 15 years of experience. 

BUY, BUY, BUY

or miss the boat

Rates Are LOW, LOW, LOW

The average rate on a 30 year fixed rate mortgage came down to 5.25% this week. The rates have been holding closer to 6% the last couple of weeks, but with the injection of capital recently, rates have dropped . I believe the real estate market is near a bottom, so if you’ve been on the fence about buying– get off.

While all others are wallowing in the negativity of the news, the true believers getting ready to make a fortune. Real Estate is still a solid investment for the long term.  Our population grows every year and there still not making any more land. Think for yourself, don’t be a sheep!!

Rates, Rates and even lower Rates

Interest rates for the benchmark 30 year fixed rate have dropped significantly. The 30 year fixed rate is hovering around 5-5.25%. There has also been some speculation in the media about rates dropping to 4.5%. This comes from a report put out by the Fed on their plans to purchase additional mortgage backed securities in the hope of driving rates down even further.

Here’s my advice:  This may or may not happen. Either way, rates are great right now! Don’t miss out on this cheap money with the notion of it getting even cheaper. Most people will not be able to time a bottom, so shop around find the best interest rate and seriously consider locking it in.  Just because the Fed talked about hopefully bringing rates down close to 4.5% doesn’t mean it is going to happen.

Where rates finally bottom at is somewhat unimportant considering where rates are today compared to 6 months ago.  If you are planning on purchasing or refinancing, now is the time!  Search out a true mortgage professional and get their advice and make your own decision. 

 Don’t get greedy when it comes to mortgage rates.  If any of you know Jim Cramer you’ve heard the term pigs get slaughtered.  That applies in this instance.

Cleaning out the clutter

The other night I was home cleaning out some old boxes that had been laying around for a while.  I am at times a little obsessed with throwing things out, so I find myself often trying to find unnecessary clutter and get rid of it. My motto is “When in Doubt, Throw it out!”.  I feel as though the things you own, own you!  I am a big believer in less is more. Many times I have clients upgrading to bigger homes just because they need more space for the things  they own,  never see and never use.  This is only a sidebar to what I am going to share with you today.

So here I am cleaning up and I come across one of my sleep journals. Many times the best ideas I get come at night right before bedtime, so I keep a journal close by and write down my thoughts. It helps me rid thoughts from my mind and sleep a lot better. I want to share with you one of my entries from right about the time I started Artisan Mortgage Company.  Take it as you will.

People build wealth like card castles, high and wide and fast, but blown away or tumbled from the bottom in an instant!

Build your wealth slow and stable with blocks. Blocks of wealth that remain and grow on their own!

Life’s objective is two part, sustenance and happiness.  To accomplish both would be to succeed, while many get lost in the pursuit of just one!  We need balance in our lives.  Just as we build our personal relationships on solid foundations so should we build with our money.

Private Mortgage Insurance —– The “X” factor

It’s been some time since I’ve been able to post some new information. While others in my industry are struggling to stay afloat , I’ve been hard at work closing loans in the face of tough mortgage conditions.  One of the biggest issues I’ve been running into lately is the availability of PMI.  I’m going to start by giving my readers a brief 101 on PMI-  Private Mortgage Insurance.

Most loans today are done through Fannie Mae, Freddie Mac or FHA. ( I’ll explain why in another blog )

These institutions require that the borrower of the loan take out an insurance policy against loan default, anytime the borrower is financing more than 80% of the homes value.  In the case of FHA, they will require PMI regardless of your equity position. I will tailor this information more towards Fannie and Freddie where most of the great loans are being done today.  The lenders believe that if they have to foreclose on you they will probably only recoup 80% of the home’s value through a foreclosure sale.  This is why insurance comes into play.

When you finance more than 80%, you will be required to pay for an insurance policy that INSURES the LENDER in the case you default on the loan. If you default, the lender makes a claim with the PMI company and can recoup some of their losses.

 In the past, there were a wide variety of PMI companies issuing insurance on all types of mortgages, i.e. investment properties, no income verified loans, co-ops, condo’s etc, etc. Wait, not anymore!

Just like all the big lending institutions tightening their lending guidelines, so have the PMI companies. Now, many times I am able to get a person approved for a loan through various mortgage companies but am unable to acquire them a PMI insurance policy that the lender requires to complete the loan.  There are many PMI companies out there and they do differ from company to company, however it seems that the PMI companies have become the last word in lending. It matters not if the bank wants to do the loan, if you can’t obtain PMI.

One of the easiest ways to get around PMI is through the use of combo loans. In example, if you want to borrow 90% on a purchase, you can break the mortgage into 2 loans. The first loan would be for 80%( NO PMI needed) and we would also get a second mortgage for 10% of the purchase price. You are still able to finance 90% of the deal, but it is broken up into 2 loans. Generally, the interest rate on the piggyback second mortgage is slightly higher but often it is cheaper than paying for the PMI. The best part is there is no need for PMI underwriting and PMI. If the the lenders are willing to do the 2 loans we don’t need to get a yes from anyone else.

The only problem to that solution is 2nd mortgages can now be tough to obtain. Not all lenders are doing them and not all lenders are doing them well.  Here is where a good broker should be up on their products and be in constant search for new ones. I’ve just recently signed up with a large national lender who is one of the few still doing combo loans.  This has allowed me to offer loans to clients turned down by PMI companies for PMI insurance where other lenders have given up on them because they don’t have the product or PMI eligibility.

 PMI, which used to be a sure shot has changed our game. Loans are now being underwritten twice, with PMI companies having the final say. It doesn’t mean we have to stop doing loans because PMI’s are unwilling to write policies, it just means we have to be a little more diligent in our qualification processes and make sure we are up on the latest products!

Service! Service! Service!

Service! Service! Service!

If  I could choose one thing that stands out when comparing a wholesale mortgage broker from a retail mortgage bank it would be very simple, it would come down to service. The service that I can provide as a wholesale broker is the reason why I am here. There are many tiny nuisances in the mortgage industry that need to be addressed and more importantly they need to be addressed by someone that cares.

Let me just make myself clear!!! Not all wholesale brokers are going to be great and are going to provide you with the best service but working with a quality wholesale broker is always better by far than working with a retail bank.

Who else is going to answer your phone calls 7AM in the morning before you go to work or 9 PM when you are just getting home. The ability to have easy access to and to communicate with someone when you have a question is invaluable. Many times I hear from clients that tried to work with a retail bank and there experiences were very much the same. They would state that every time they tried to call the loan officer they were working with the person was either unavailable, they were transferred to someone else or if they did get lucky and speak with the loan officer the person could not answer the question because the file was in another department.

When it comes to getting your loan done, when it comes to getting your loan done quickly and when it comes to having the sense of security knowing that you are being taken care go wholesale.

Will I get the Best Deal with my Current Bank?

Will I get the Best Deal with my Current Bank?

Many times I have customers come to me wanting to find out what kind of loan and what kind of “deal” I can offer them. They do this because they are being solicited by their current bank with special deals but many times these deals are no more than teasers to get their current customers back through the doors for more business.

Retail banks already figure that they have earned your trust because you are already banking with them so why not advertise other services. Just because they are advertising to you more services and products it doesn’t necessarily mean that they are better or even competitive. In this day and age it is very easy and convenient for you to shop products and services at your own home in very little time.

So next time your local bank offers you something that you like and sounds good, shop around you may be surprised at how much better you will be able to do. Wholesale brokers like myself not only offer the same products your bank does, we can actually shop your loan with various banks and offer you a discounted Wholesale Rate.