Mortgage Loan Origination Fees And Charges
February 12, 2010 by · Leave a Comment
You may wonder how many origination points you can legally be charged by your mortgage broker. The maximum fee cap varies from state to state. Wisconsin for example the broker is capped at 6% total commission. This means that you could be charged up to 6 points origination fee by your broker. This can also be split up between lender paid Yield spread rebates to the broker and origination fees.
Depending on your situation you may want to re-think the question. It isn’t how many points can I be charged but instead should be “how many points will I allow myself to be charged”? Many direct lenders charge a lot of points. One way to avoid being overcharged is to work with a broker or mortgage professional that is not a direct lender. Look over your good faith estimate and make sure your comfortable with the charges.
As a rule of thumb, 1% percent is what most reputable brokers will charge for an origination fees, if the loan falls within normal loan amounts.
Your loan officer is probably willing to work with you on how they make their money. For example, if you want lower closing costs, they may increase your interest rate to be paid yield spread from the lender that completely covers their fees. On the other hand, if you want the lowest interest rate, they may put all of their fees in ‘origination fee’, and you will pay for it out of your closing costs. Tell your loan officer what is important to you, and they should be willing to work with you on it. If not, you might consider finding a new one.
Not only does the maximum fee or number of points that a mortgage broker can charge vary by state, but it also varies by each lender. Each lender has their own policy in force that determines how much they will let a loan officer charge a customer. Many lenders are starting to cap the maximum points that can be charged to a borrower to 5%.
Usually, depending on the loan program, things such as points are negotiable. Very rarely will the number of points charged be at the maximum amount possible.
If you are wondering whether the mortgage broker you are working with is charging the maximum number of points allowed, you may consider working with another broker. However, there are situations that can exist, that would merit an unusually high fee (points) be charged for a loan. If you are wondering, call two or three other mortgage brokers and explain your scenario with great detail to see where your deal ranks with what they may be able to do for you.
Why Is My Credit Bad
January 24, 2010 by · 1 Comment
When you begin the process of securing a home loan, often you will compare mortgage rates first. It is soon after many find that their credit history is nto as good as they thought. Your credit maybe considered bad and causing a low score for a number of reasons. While there are numerous reasons for bad credit some of the more common ones are as follows. You have numerous credit cards that are maxed out or close to the credit limit, you have unpaid judgments or collection accounts, you have 30 day late payments showing on your payment history. All of these examples can cause severe drops in your credit score.
One area people overlook that can negatively impact their credit report is failing to honor mobile phone contracts. Cell phone companies give away free phones to customers who sign on with their services for a specified period of time, usually one to two years. Terminating subscription to the phone service before the expiration and failing to reimburse the phone carrier for the cost of the free phone is considered breaking the contract. Cell phone companies would then report to the credit bureaus and cause a blemish on the credit history. Such blemishes are not serious, but they nonetheless lower credit scores.
Credit scores generally range from about 350 to 850.
* 800+ = great credit
* 700-799 = good credit
* 600-699 = average credit
* 500-599 = bad credit
* under 500 = hard to get a loan at all
Your credit can be bad for a variety of reasons:
Late payments
High Account Balances
Bankruptcy
Collections
Chargeoffs
To minimize negative on your factors you will need to pay down balances, make payments on time, dispute incorrect information, and let the passing of time lessen the impact of past bad credit.
Too many inquires at one time can affect your credit score.
If your credit score is low because of a high balance on a credit card, transfer some of the balance to another card. Try not to open a new card because to do this can also reduce your score.
One reason why your credit may be bad is because of erroneous information reported on your credit report. This can happen to anyone and is actually quite common. This is one reason why you need to check your credit report out at least once per every 12 months. By checking you credit report for free you can keep an eye on your credit and make sure that you take care of any erroneous information when it happens, not when you are trying to apply for a loan and it comes as a surprise to everyone. Utilize your one free annual credit report each year to take a look over your credit to make sure everything looks well. There are many reasons as to why credit report errors can happen so make sure that if errors do happen to you that you rectify the situation immediately.
Maintaining high balances on your credit cards and other revolving debt negatively impacts your credit score. Paying down credit cards balances below the 70%, 50%, and 30% thresholds is a quick way to boost your credit score.
Paying down your credit card balances to around 30% will help your score. If you can, try to keep the balance at that level at all times. If you need to raise your score quickly, and don’t have the money to pay down your balances, you may request that your creditors increase your credit limit. This will in turn lower your balance in comparison to the limit.
Only use this technique if you are responsible with your credit. Once your limit is increased, it may be tempting to go on a shopping spree. Know that if you do this, you will be in a much worse situation than when you started. Not only will you have more debt, but you will increase your ratio of balance to limit.
You should frequently check your credit report at least twice a year to know what your credit profile looks like. Sometimes erroneous items appear on credit that you may not know about and when it comes time to utilize your credit it can affect the rate you will get. Depending on the state you live in, you are allowed at least one free credit report per year from each of the three major credit bureaus; Experian, Equifax and Transunion.
Watch on your credit report for companies that are illegally renewing the chargeoff date every month in order for the account to never gain history. These companies you should call and address this immediately.
Here is a general guidline which outlines the five major types of information used to calculate a FICO score. Each type of information counts as a percentage of a total FICO score:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of credit
There are several ways to increase your credit. However the fundamental principle is the bills must be paid on time. This doesn’t mean by the due date. For the sake of your credit a payment must NEVER be more then 30 days late. If you are acquiring 30 day lates on your credit then your credit standing will deteriorate quickly. Judgments also hurt your credit even if you pay them.
It is also important to note that a credit score is a snapshot. Although it shows your payment history, length of credit, etc., having inaccurate (negative) information removed from your credit bureau report will immediately reflect an increase in your score.
If you do decide to pay off some of your credit cards, be sure to leave the cards open. The credit bureaus look favorably upon accounts that have been open for a substantial period of time, especially if they are showing a zero balance.
Remember that a credit score amounts to a prediction of how likely it will be that you go 60 days late or more on your mortgage in the next two years. One thing that will really lower this score is if you carry high balances on revolving debt and then start making a few of the payments late. This is the pattern of a consumer who is close to getting in trouble with debt.
Things that may go into a collection or judgment that will hurt you credit include unpaid medical payments, unpaid utility payments, and unpaid cell phones or cable payments.
If you have old collections on your credit report, paying them off now can actually hurt your credit. Credit Agencies look at the age of a delinquent item: if you pay it off the “date of last activity” becomes recent instead of old. There are many reputable credit repair agencies or credit counselors that can help guide you in restoring your credit.
Compare Mortgage Rates , Can You Afford To Buy A Home
January 24, 2010 by · Leave a Comment
Can I afford to buy a home? There are many different factors that go into deciding if you can afford to purchase a home. The most important factors are what is my present income and how much do I have saved. Borrowers can qualify for many different loan purchase programs however they must decide if they can afford it and compare mortgage rates
When someone asks “can I afford to buy a home?”, he or she is often thinking of the short term of 1 or 2 years.
Instead, try thinking of the long term. In many parts of the country, over a period of several years, homes increase in value by at least 5% a year. So, home owners have an asset that is growing.
At the same time, if their mortgage has a fixed rate, their housing expenses are staying relatively constant, unlike renters, who are seeing an increase in housing expenses generally of 3% to 5% a year.So, in the long term, home owners have less money going out and an asset increasing in value.
Why should you pay for someone else’s mortgage? In a sense that is what you are doing when you are renting. Contact your mortgage professional to see what price range of home is right for you and let your money work for you and not your landlords,
Investing in a home is still one of the safest places to invest your money. Real estate will almost always appreciate and give a good return on the initial investment.
When considering to buy a home and figuring out how much you can afford, it is a good idea to sit down with your spouse and calculate your total monthly expenses. This should include all of your monthly bills such as car payment, credit card payments, cell phones payment, personal loans, cable/satellite television bills, etc… This way you can calculate how much you can comfortably afford to spend on a monthly mortgage payment and not fall into the trap of buying a home that is out of your price/payment range. Many homeowners and potential homeowners can qualify for homes and monthly payments that are much, much more expensive than what they can comfortably afford, while living the same lifestyle that they are used to. Please remember just because you can qualify for a $400,000 home does not mean you have to buy a $400,000. Buy a home because it meets your needs and most importantly it is within your budget comfortably. Allowing your home to own you instead of you owning your home has been an increasing trend over the past few years with the availability of all of the new mortgage programs and competitive underwriting programs available out there.
Can you afford to continue renting? Home ownership is the most popular investment tool. With a mortgage you gain equity be paying down principle as well as through property appreciation. You can also use the interest paid on your mortgage as a tax deduction, however you may need help with taxes . To determine if you can afford a home you need the experience and expertise of both a good loan officer and a good real estate agent. Together they will help you determine how much you can afford and if there are homes in your area that meet your preference and price range.
As far as most banks loan qualification guidelines are concerned, home owners should have debt payments, including mortgage and other necessary housing expenses, of no more than approximately 45% of gross income. However, since people have different spending habits, homeowners should decide for themselves how much of a mortgage can they afford.
A good rule of thumb is to keep your mortgage payment approximately the same as your current rent payment. If you have been able to pay a rent payment every month, then you should be able to afford a mortgage payment of the same amount.
Regardless of where you live, how much you earn or what type of house you are shopping for, as soon as you find out how much the seller is asking, your first reaction might be something like, “Wow! That’s expensive!” Your initial assessment is correct. With prices rising quickly, particularly in areas like New York and Boston, even starter homes can carry hefty six-figure price tags. Your next reaction is likely to be, “Can I afford that?”
Generally speaking, most prospective homeowners can afford to mortgage a property that costs between 2 and 2.5 times their gross income. Under this formula, a person earning $100,000 per year can afford to mortgage between $200,000 and $250,000. But this calculation is only a general guideline.
Ultimately, when deciding on a property, you need to consider a few more factors. First, it’s a good idea to have an understanding of what your lender thinks you can afford – to gain a precise idea of what size of mortgage their clients can handle, lenders use formulas that are much more complex and thorough. Secondly, you need to determine some personal criteria by evaluating not only your finances but also your preferences.
Many brokers are able to perform a rent vs. buy analysis that will not only compare rate quotes and your monthly payments, but also the potential tax savings, the appreciation of the home, and other factors you may not have considered. In many cases it is actually cheaper in the long run to purchase a home than to continue renting.
How Market Conditions Affect Interest Rates
January 24, 2010 by · Leave a Comment
The Federal Reserve recently lowered interest rates to an all time low. The rate is now close to zero , but how does that affect home mortgage rates? Market conditions are a primary factor in determining mortgage interest rates. Rates fluctuate day to day. Take the time to compare rate quotes
When the Chairman of the Federal Reserve lowers “rates,” he lowers the “Federal Funds” rate. Its the interest rate at which large banks lend funds to one another and is a “short-term” rate. Mortgage interest rates are long-term, up to 30 years. Longer-term interest rates are sensitive to expectations about inflation. When short-term rates fall, like the ones the Federal Reserve controls, borrowing and spending usually increase, which can actually cause inflation. Longer-term rates, like mortgage interest rates, can rise when concerns about inflation increase.
Bond prices and bond yields have a direct effect on long term interest rates. Bond prices and bond yields always move in opposite directions (if one pays more for a bond, the yield decrease, and vise versa). Bond prices, hence their yields, are affected by many economic indicators. Some of the monthly economic indicators the bond market pays close attention to are Non-Farm Payrolls, Unemployment Rate, and Gross Domestic Products, Consumer Price Index, Producer Price Index, and Retail Sales. As a rule of thumb, when these economic indicators forcast a strong or inflationary economy, bond prices fall and bond yields increases, interest rate will go up. If a weak economy or low inflation is expected, bond prices rise, bond yields falls and rate will fall.
When the Stock Market is in a Bull trend (Up Trend) it is indicative of monies flowing into the market. Historically, The stronger the up trend in stocks, the weaker the real estate market will be durring the same period. Weak realestate markets (lack of demand) will result in declining prices in home values, which usually correlate to a rise in mortgage interest rates.
One aspect of the economy that can cause interest rates to rise is inflation. One of the reasons interest rates were so high back in the 1980’s was that the market felt that inflation was out of control. Investors demand high rates of return when there is inflation because they are investing or loaning with today’s dollars and being repaid with tomorrow’s money. If the market senses inflationary trends, interest rates will usually rise.
Many domestic and international investors, particularly those investing in the country’s stock and currency markets, will respond to a hike in interest rates by moving money out of the country. This is due to a belief that the increased cost of borrowing will weaken balance sheets and devalue equities, thereby creating a ripple effect which weaken’s the country’s currency.
Because Adjustable Rate Mortgages and Fixed Rate Mortgages are affected differently it is very important to find a mortgage professional who understands the market conditions and the relation between the bond markets and interest rates. Your mortgage broker can help you make the decision on when to lock a rate which can save you thousands of dollars over the life time of your loan. He can also help you choose the right program!
It is important to note that Adjustable Rate Mortgages (ARMs) and Fixed Rate Mortgages are affected differently by an increase made by the FED or Federal Reserve. The FED makes adjustments to the short term rates which in turn affects things like the bond market, a key determining factor in the 30 year fixed rate. The 30 year rates work in the opposite direction to the 10 year note. If the price of the 10-yr note falls, the rates rise.
Adjustable rates are comprised of two things an Index, and a Margin. The margin is set by the banks so when the FED adjusts the rates, banks in turn make adjustments. The Index is a regularly published rate that is independent of the lender and generally used as a market indicator. Examples of and Index would be: PRIME, LOBOR, MTA, COSI, etc.
Markets are often ahead of the Federal Reserve. Mortgage interest rates are determined every day in active public markets. If those markets believe the economy is slowing, interest rates may fall as markets anticipate that the Federal Reserve might lower short-term rates. This happened in the last half of 2000 when mortgage rates began steadily dropping, even though the Federal Reserve left their short-term rates unchanged. The opposite can happen as well. Mortgage rates can rise well ahead of the Federal Reserve increasing short-term interest rates.
It’s almost impossible to accurately predict the future of something as complex as the U.S. economy. However, it is important that we, as mortgage consumers, understand some of these market dynamics. Sometimes, a lack of understanding can cost us a lot of money.
This is why it is important to “shop” for your mortgage with lenders on the very same day. Key factors can see mortgage rates changed several times in a given week, sometimes in the same day. The lender that you get a rate from on Monday may not be able to give you the same rate on Wednesday.
Key Factors in Qualifying for a Home Mortgage Loan
January 27, 2009 by · Leave a Comment
When a lender makes a decision about a mortgage application, they consider two basic factors: 1) your ability and 2) your willingness to repay the loan. No matter how you compare mortgage rates, these two factors are important
Ability to repay the mortgage is determined by verifying your current employment and analyzing your total income. Lenders prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years. Your proposed monthly payment will be compared to your monthly income and debt.
Willingness to repay is influenced by how you have paid previous loans and by examining how the property will be used. Willingness can be gauged by your credit report and previous commitments to pay rent and/or utility bills. There is also a greater tendency to stick with your payments if you live in a house as opposed to a rental property or vacation home.
It is important to remember that there are no set rules and each applicant is handled on a case-by-case basis. Many applicants come up a little short in one area, but make up for it with other strong points. These compensating factors may include a large down payment, solid employment, extensive educational background or overall financial health.
For applicants who need to make a lower down payment, mortgage insurance is protection for the lender in case you stop making payments. This allows low and moderate income families to become homeowners with low down payment programs
When trying to qualify for a home purchase, make sure that you get pre-approved before you begin house hunting. This will let you know how much of a mortgage you can be qualified for and if there are any problems with credit or anything, should provide you some time to take care of the issues upfront (not after you have already signed a purchase agreement and have a time deadline). Qualifying for a home loan is a fairly simple process with a knowledgeable and experienced mortgage broker.
Most lenders will allow for a debt to income ratio of between 40% to 55%.
When getting qualified for a home mortgage loan the property (collateral) will also need to be deemed acceptable to the lender. This is usually done by means of having your home appraised by a licensed appraiser and the underwriter reviewing the appraisal.
Automated underwriting is used on most conforming loans and this may allow for a certain amount of lates on your credit, a higher debt ratio or a lower credit score, so there may not be any set guidelines for your credit or debt ratio.
There are several ratios that get used to see if you qualify for a home loan. Your credit is examined, your income and your job history are all important factors when looking to qualify. The help of an honest and experienced mortgage professional is vital to getting approved.
Your gross monthly income is used to qualify you for a mortgage loan. Your gross income is how much you make before taxes.
