10 Things Your Lender Won't Tell You - Part 4

 

Here are two more (in our series of 10) things your Lender Won't Tell You…
6. "We're in Cahoots With Your Real Estate Broker."

 

When shopping for a product, it's always best to get a recommendation, right? That depends on who's doing the recommending. A real estate agent who directs you to his or her favorite lender is not necessarily offering you the best deal. In fact, there's a chance the lender paid your broker a fee for the referral — a practice that is illegal.

 

In a handful of states, such as California and Minnesota, real estate brokers can negotiate mortgage loans. Depending on how well this area is regulated in your state, this could be cause for worry. Is the loan offered going to be the best deal you could get? Peter G. Miller, a former agent and author of The Mortgage Hunter (HarperCollins, $13.50), raises another concern for the buyer. "The second issue is, will my confidential financial information be transmitted to the seller? And will that give the seller a negotiating advantage?" He points out that the real estate broker is often obligated to get the seller the best possible price for the property. If the broker knows your financial background, that could prove very useful to the seller.   One way to avoid this pitfall is to hire your own agent, one that will be representing you as a buyer's agent, and preferably one that will act as an Exclusive Buyer's Agent.  In other words, an agent that never lists property for sale, but only represents buyers.

 

Other types of lending partnerships are cropping up around the country. For instance, computerized loan originators, which allow borrowers to scan selected lenders' deals on PCs, are up and running in many real estate offices. The U.S. Department of Housing and Urban Development is currently trying to revise its regulations in this area to address issues like disclosure of the relationship between the real estate broker and the lender. The aim is to ensure that consumers can benefit from this kind of system, but are protected from any possible abuse. In the meantime, you don't necessarily want to avoid these offers. They may be the best deals around. But "may be" are the operative words.
 
7. "Once You Buy Mortgage Insurance, Good Luck Canceling It."

 

You need to buy mortgage insurance because you can afford only 15% of your down payment, but your lender assures you it's no big deal. Once your equity grows to 20%, he says, you can bag the insurance payments. Good decision? Nope.

 

Lenders make it sound easy to get rid of your mortgage insurance, but when that time comes, they often balk. "It's not true that the borrower can just stop paying," says Linda Washing, a Manager of Housing Programs at Consumer Credit Counseling Services Southwest and a former loan officer. "It's the lender's prerogative."

 

That can be expensive. On a mortgage on a $200,000 home, with 15% down, a buyer's mortgage insurance will cost about $43 a month, or $516 a year. With just 5% down, the cost goes up to $120 a month, which is almost three times as much, according to GE Capital Mortgage Insurance. Depending on which insurer you go with, it can cost even more. Some require an additional fee upfront — on top of the monthly payment — of as much as 1% of your loan if you put only 5% down. Since your lender typically chooses your insurer, this is probably going to be beyond your control as well.

 

The key is to understand the terms of your mortgage insurance obligations before you close your loan. Get your lender to explain what conditions you have to fulfill before you can stop paying for insurance. Some lenders simply require an appraisal to prove you've paid down 20% of the home's value.

 

Next time, a look the final 3 items in our list of 10…

 

 

10 Things Your Lender Won't Tell You - Part 3

 

Today, 2 more things your lender won't tell you….
4."Our APR Doesn't Mean What You Think It Does."

 

When lenders advertise their loans, they use annual percentage rates, or APRs. The APR is supposed to help you compare loans on equal terms by combining the fees and points with a year of interest charges to give you a loan's true annual cost.

 

The problem is, every lender's APR policies differ. Some include their application fees in the APR, some don't. So two loans from different banks may have different APRs even though they have identical rates and points. To complicate things even more, APRs also vary depending on the size of the loan, whether it is adjustable or fixed, and on the lenders' requirements for mortgage and title insurance. Not many people understand the differences, says Keith T. Gumbinger, an analyst with HSH Associates, a New Jersey mortgage research and tracking service. "We have studied it and determined that [the APR] is fairly meaningless."

 

5. "We Never Met a Fee We Didn't Like."

 

It's bad enough being nickel-and-dimed over a checking account. ("What? A $10 charge when someone else's check bounces?") But when banks make home loans, the extra fees can go through the roof — often to the point of being illegal.

 

Lenders are required by Respa, the Real Estate Settlement Procedures Act, to give you a good-faith estimate of your closing costs when you hand in your application, and extra charges are a violation of the law. But some banks try to sneak them in anyway. "I've seen $150 messenger fees," says Charles Baird, an Atlanta lawyer who has represented a number of people who have sued their mortgage lenders. "I also see strange fees, like a 'jumbo warehousing' fee. Many don't refer to any real service, but I see them on settlement papers all the time. Lenders tend to be very creative when it comes to fees."

 

Always ask for a detailed, itemized list of your estimated closing costs when you hand in your loan application. It's required by law. Then on closing day look carefully at the figure called "amount financed" on your settlement papers. If it does not equal the principal you are borrowing, minus any points or interest paid upfront, ask your loan officer why. It could mean he slipped some fees into the amount financed and you can guess what that means: You'll pay interest on those charges.
Next time, a look at reason's 6 and 7 in this series…

 

 

10 Things Your Lender Won't Tell You - Part 2

 

Today, a look at 2 more of the Things Your Lender Won't Tell You.

 

2. "A Slightly Higher Rate for You Means a Big Paycheck for Me."

 

Getting you a loan with the lowest possible interest rate is not necessarily in your lender's best interest. Rather, he probably wants you to take the highest rate that you can afford. That's because on top of their regular commission — usually 1% of the loan — lenders can earn an "overage" of another 1% to 2% if they sell you a loan that is more expensive than the best available deal.

 

Sometimes they mark up the rate by one point; other times, it's just half apoint. In any case, it adds up. One Fairfield, Conn., couple has to pay an extra $1,000 every year on their $230,000 mortgage because their loan officer sold them a 30-year loan at 9.5% — higher than the best rate that day. The reason: For charging the higher rate, the broker reaped a 1% fee.

 
3. "Don't Count on Your Rate Lock When Rates Are Rising."

 

Even though you've locked in the interest rate on your new loan for 60 days, don't count on getting the rate when your application is approved. Sometimes lenders will actually hold up your application if it means you'll have to pay a higher rate. In 1993, the Federal Trade Commission charged Lomas Mortgage USA, one of the nation's largest lenders, with falsely promising borrowers that it would unconditionally lock in the mortgage rate and discount points for 60 days. In fact, in many instances Lomas levied higher rates and more points within the 60-day period, the Commission charged. The Dallas lender settled with the FTC in July, 1993, and agreed to pay $300,000 in so-called "consumer redress."

 

"It's the lender who has control over how quickly the paperwork gets done," notes Michelle Meier, a lawyer with the Washington activist group Consumers Union. "And there are always all kinds of reasons why that locked-in rate is unavailable by the time they get to closing."

 

"It's the lender who has control over how quickly the paperwork gets done, and there are always reasons why the rate isn't available by then."

 

As interest rates rise, so do rate-lock complaints. Patricia Cunningham, Consumer Affairs Manager at the Illinois Office of Banks and Real Estate, says that in 1994, when interest rates were high, more than 600 rate-lock complaints came in. In 1995, when interest rates fell, so did the number of complaints — by half. In 1996, with interest rates back up again, the number of complaints also rebounded.
Next time, a Look at #4 and #5 in this series…

10 Things Your Lender Won't Tell You - Part 1

 

Our next several posts will discuss the various activities that must happen before you can close on a mortgage loan, and tells you what will happen at the closing meeting, including what types of documents you can expect to receive.

 

The mortgage loan closing (or settlement) is the meeting at which you take official ownership of the house. You’ll be required to sign many papers and pay your closing costs at the meeting in order to take possession of your new home. Technically, two separate closings occur at this time: the closing of your loan and the closing of the sale. Then, at the end of the meeting, you get the keys to your new home!

 

Although the closing process varies from state to state, and even within the same county or city, certain activities are standard. It is to your benefit to understand the many activities that need to occur before, during, and after the closing meeting and their costs.  Of course, as your Buyer's Agents, we will assist you every step of the way in the closing process!

 

More on this topic in our next post.  Why not subscribe to our blog using one of the convenient subscribe icons to the right of this post?

 
 

Before deciding which house to buy, think about your lifestyle, your current and anticipated housing needs, and your budget.  Finding the right house involves striking a balance between your wish list and the reality of the housing market.

 

Your Wish List

When creating your wish list, take a look at your lifestyle.  For example, if you love to cook, you'll want a well-equipped kitchen.  If you love to garden, you'll want a yard.  If you want to work at home, you may want a room for a separate library or home office.  If you have several cars, you may require a garage or parking spaces.

 

Write down on paper all the things you and your co-purchaser, if there is one, would love to have in your home.  You can let your imagination take over, but realize that you will have to cut the list back later.

 

As you think about your housing needs, it's important to consider how long you may live in your home.  If you are newly married, you might not be concerned with a school district right now.  But you could be in several years.  Will you move then — or is the house you are looking for now is in a neighborhood where good schools are available?  If you have aging parents, might they need to live with you in the near future?  If so, you may want to look at homes that offer living arrangements for them as well as you.  So, when preparing your wish list, factor in both your current housing needs and what you may anticipate a few years from now.