Coming back to an oldie but a goodie...I got these tips from Suze Orman. Love this book, Young, Fabulous and Broke. If you don't already own it, I suggest getting it.
1. Check your credit reports at least once a year to make sure there are no mistakes that could make your FICO score lower. You can get one free from each credit bureau at http://www.annualcreditreport.com/. You wouldn't believe the amount of people that I have given credit reports to and they don't know what a debt is. It is very important to know what you are working with.
2. File a fraud alert with a credit bureau if you think you are a victim of ID theft.
3. Complete an ID fraud affidavit if your account has been stolen or "borrowed" by a financial criminal.
4. You can also check your FICO score on http://www.myfico.com/. If your score is below 760, there are things you can do to change it over time.
5. Pay your bills on time, even if it is just the minimum, to keep your FICO score strong. This is one of the things you CAN NOT change on a credit report. The only thing that will fix this issue is time.
6. Do not cancel your credit cards as a way to improve your FICO score. It may actually cause your score to drop. This is another thing that is irreversable. Once you have your credit card paid off, just cut the card up. You don't HAVE to use it, but if you cut off that line of credit, you are shooting yourself in the foot. On the other hand, DON'T go and open a ton of credit cards!
7. Keep your mortgage shopping under a 2-week period, so your FICO score will not be negatively affected. Everyone says that if you have a lot of inquiries on your credit report, that your score will go down. This is true...if you are opening up a lot of different lines of credit. If you are shopping around for a loan, you should be fine.
8. Keep a partner with a low FICO score out of the mortgage.This will ensure that you are able to get a better interest rate, which will save you a lot of money over time.
9. Pass down your FICO score to your kids. One of the best ways to educate your children on smart financial management is to send them off to college with a great FICO score and an appreciation of why that's a very big deal. Add a child to your card and they will inherit your credit profile.
Friday, December 17, 2010
Thursday, December 16, 2010
Today's Mortgage Rates - trending higher
Why have rates been trending higher and what does make them rise or fall? Is it the Fed? Inflation? The banks? Fannie Mae or Freddie Mac? Is it is secret conspiracy?
The answer is that it rates move based on a number of related factors, including you and me, the consumer or the "end investor".
Mortgage money can come from a variety of sources. Most of it comes from investors called "capital markets." This is where investors interested in purchasing debt instruments (bonds) come to buy these products. Sellers must attract these buyers by competing with a variety of products with different rates of risk and return over given periods of time. Many of these products include US Treasuries, corporate bonds, foreign bonds, etc.
Who is the "end investor"? Consumers are the end investor. If you are buying bonds, and let's say stocks are paying more, will you keep your money in bonds? The answer for most people is no, depending on the risk versus return. So, when people take money out of the bond market, rates will then rise. And, vice versa, when people take money out of the stock market and put it into the bond market, rates will get lower.
This is the easiest way to explain the market for mortgage rates. This makes up most of the explanation. There are also other factors involved, but it is mostly based on the bond market, which is controlled by the "end investor" meaning the consumer.
The answer is that it rates move based on a number of related factors, including you and me, the consumer or the "end investor".
Mortgage money can come from a variety of sources. Most of it comes from investors called "capital markets." This is where investors interested in purchasing debt instruments (bonds) come to buy these products. Sellers must attract these buyers by competing with a variety of products with different rates of risk and return over given periods of time. Many of these products include US Treasuries, corporate bonds, foreign bonds, etc.
Who is the "end investor"? Consumers are the end investor. If you are buying bonds, and let's say stocks are paying more, will you keep your money in bonds? The answer for most people is no, depending on the risk versus return. So, when people take money out of the bond market, rates will then rise. And, vice versa, when people take money out of the stock market and put it into the bond market, rates will get lower.
This is the easiest way to explain the market for mortgage rates. This makes up most of the explanation. There are also other factors involved, but it is mostly based on the bond market, which is controlled by the "end investor" meaning the consumer.
Friday, December 10, 2010
Renting Vs. Buying - Stop throwing money away!
If you believe:
- Buying a home requires a large down payment.
- The monthly payments would be too much even if you qualified for a mortgage.
- The benefits of owning a home do not outweigh the benefits of renting.
Consider these facts:
- For first time home buyers, there are loan programs that require as little as 1/2% down payment.
- For all other home buyers, there are loan programs that require as little as 3.5% down payment.
- Interest rates are at an all time low and home prices extremely affordable.
- Equity is a great benefit of home owning as well as privacy, security, and tax deductions.
If you are spending $1,000 on rent, what does that mean in 5 years? It means that you will have spent $60,000 in rent.
If you are spending $1,000 for your mortgage payment each month, what does that mean in 5 years? It means that you will have built $20,000 in equity, and if homes start appreciating, you will have been investing your money. Not to mention, all of the interest you will have paid is tax deductible!
If you have a steady job and are renting, you should consider buying a home. If you would like me to compare what you are paying in rent to how much home you can buy, give me a call or email me. I'm happy to help you decide if it is a good decision to buy a home or not.
Thursday, November 18, 2010
Paying rent? Am I throwing money down the drain?
Am I throwing money down the drain?
The average rent for a 2 bedroom apartment in St. Louis, MO is $737/month. That doesn't seem completely unreasonable, does it? But, what does that mean if you are renting for 5 years? What that means, is that you have spent $44,220 and have nothing to show for it...well, I suppose you haven't been homeless, which is always a plus.
What could $737 mean in terms of a mortgage? That means, a $145,455.17 loan. That also means a $153,110.71 purchase price! What can you get for $153,000? I was looking online today, and I found a 4 bedroom, 2 bathroom house listed for $150,000.
Now, if you are truly someone who wants to budget everything out(which is smart)...lets include taxes and insurance in that $737 payment. That means you can get a loan for $105,982.94 if you are paying $200/month in taxes and insurance. That means, you can afford a $111,560.99 home. What can you get for $111,000? I found a 3 bedroom, 1 bathroom home at $110,000 looking online.
Now, I know what your question is...how much equity will I build after 5 years of owning a home? I did an easy amortization schedule on a $105,000 loan amount, and after 5 years of regular payments of $532.o2 with no pre-payments, you will have built almost $10,000 in equity. If you pre-pay $50/month, you will have added $3,000 in equity totaling $13,000.
On the higher priced home, at $150,000, you will have built $13,000 in equity. If you pre-pay an extra $50/month, you will have $16,000 in equity.
This is all not to mention that prices and rates are at an all time low right now. If you are renting and you have a steady job, you really need to look into buying a home. If you don't take advantage of this opportunity, you could be wasting a lot of money.
Please contact me if you want me to equate your rent to what you can afford if you buy a home. It could be a lot higher than you think!
The average rent for a 2 bedroom apartment in St. Louis, MO is $737/month. That doesn't seem completely unreasonable, does it? But, what does that mean if you are renting for 5 years? What that means, is that you have spent $44,220 and have nothing to show for it...well, I suppose you haven't been homeless, which is always a plus.
What could $737 mean in terms of a mortgage? That means, a $145,455.17 loan. That also means a $153,110.71 purchase price! What can you get for $153,000? I was looking online today, and I found a 4 bedroom, 2 bathroom house listed for $150,000.
Now, if you are truly someone who wants to budget everything out(which is smart)...lets include taxes and insurance in that $737 payment. That means you can get a loan for $105,982.94 if you are paying $200/month in taxes and insurance. That means, you can afford a $111,560.99 home. What can you get for $111,000? I found a 3 bedroom, 1 bathroom home at $110,000 looking online.
Now, I know what your question is...how much equity will I build after 5 years of owning a home? I did an easy amortization schedule on a $105,000 loan amount, and after 5 years of regular payments of $532.o2 with no pre-payments, you will have built almost $10,000 in equity. If you pre-pay $50/month, you will have added $3,000 in equity totaling $13,000.
On the higher priced home, at $150,000, you will have built $13,000 in equity. If you pre-pay an extra $50/month, you will have $16,000 in equity.
This is all not to mention that prices and rates are at an all time low right now. If you are renting and you have a steady job, you really need to look into buying a home. If you don't take advantage of this opportunity, you could be wasting a lot of money.
Please contact me if you want me to equate your rent to what you can afford if you buy a home. It could be a lot higher than you think!
Thursday, September 30, 2010
Should I be paying Private Mortgage Insurance?
Should I be paying Private Mortgage Insurance?
Other than permitting someone the privilege of borrowing money - Private Mortgage Insurance(PMI) actually does little for Homeowners. The original intent was to expand the scope of home ownership beyond individuals who had 20% down payments. However, in these cash-strapped times, people with good credit scores view mortgage insurance either as a nuisance or a hurdle to home ownership. Even people that HAVE 20% to put down prefer not to part with that much cash. So the question is Why - Mortgage Insurance?
It is time to pose this legitimate question: is there a direct correlation between lower down payments and mortgage delinquencies? The stock answer is - Yes, just ask the mortgage insurance companies. But not so fast! Hundreds of thousand of loans that HAD MI went belly up. Taking a Bad loan and adding mortgage insurance does not make it better! Many of those loans should never have been made in the first place. The follow-up question that begs to be asked is: if a loan is good, will it perform better by adding an additional $100-$150 per month? I don't think so...
PMI is not a bad thing, but does it make sense? For some individuals - absolutely. It is the only option. However, there is another large group of clients that should be told about another existing option other than paying PMI. There is an additional option to be considered and here is why: if an individual already owns a home and is paying PMI and is making monthly payments on-time, who would refinancing out of PMI and dropping payments make the loan more risk? It doesn't. Dropping some one's payments is a good thing! Especially when clients can cut mortgage insurance AND reduce their interest rates!
Example:
A customer has a home worth $195,000. Their rate is 6%.
6% rate + PMI = Monthly payment of $1139
Let's say they refinance down to a lower rate with PMI.
4.25% rate + PMI = Monthly payment of $1056 (they save $83/month)
NOW...let's see what happens when we get rid of PMI altogether....
4.25% rate + NO PMI = Montly payment of $928/month (they save $211/month)
Which option would you rather take? I would take the $211 savings and get rid of MI altogether.
If I could be of service to you or someone you know in getting rid of their PMI, please get in touch with me. I'm happy to give you a complimentary comparison.
Other than permitting someone the privilege of borrowing money - Private Mortgage Insurance(PMI) actually does little for Homeowners. The original intent was to expand the scope of home ownership beyond individuals who had 20% down payments. However, in these cash-strapped times, people with good credit scores view mortgage insurance either as a nuisance or a hurdle to home ownership. Even people that HAVE 20% to put down prefer not to part with that much cash. So the question is Why - Mortgage Insurance?
It is time to pose this legitimate question: is there a direct correlation between lower down payments and mortgage delinquencies? The stock answer is - Yes, just ask the mortgage insurance companies. But not so fast! Hundreds of thousand of loans that HAD MI went belly up. Taking a Bad loan and adding mortgage insurance does not make it better! Many of those loans should never have been made in the first place. The follow-up question that begs to be asked is: if a loan is good, will it perform better by adding an additional $100-$150 per month? I don't think so...
PMI is not a bad thing, but does it make sense? For some individuals - absolutely. It is the only option. However, there is another large group of clients that should be told about another existing option other than paying PMI. There is an additional option to be considered and here is why: if an individual already owns a home and is paying PMI and is making monthly payments on-time, who would refinancing out of PMI and dropping payments make the loan more risk? It doesn't. Dropping some one's payments is a good thing! Especially when clients can cut mortgage insurance AND reduce their interest rates!
Example:
A customer has a home worth $195,000. Their rate is 6%.
6% rate + PMI = Monthly payment of $1139
Let's say they refinance down to a lower rate with PMI.
4.25% rate + PMI = Monthly payment of $1056 (they save $83/month)
NOW...let's see what happens when we get rid of PMI altogether....
4.25% rate + NO PMI = Montly payment of $928/month (they save $211/month)
Which option would you rather take? I would take the $211 savings and get rid of MI altogether.
If I could be of service to you or someone you know in getting rid of their PMI, please get in touch with me. I'm happy to give you a complimentary comparison.
Tuesday, August 31, 2010
How much do I need to make to afford a house?
How much do I need to make in order to afford a house payment?
Good question. The answer is, not that much..........as long as you don't have a lot of debt.
If you are making $30,000/year, you can probably afford a $125,000 home pretty easily. This will make up 35% of your expenses if you add in about $200 for taxes and insurance. This means that your other debts that are being reported to the credit bureaus cannot exceed 10%, or $250/month. This is assuming a 5% rate, which is high considering today's rates in the low 4's.
If you are making $40,000/year, you can probably afford a $160,000 home pretty easily. This will make up 35% of your expenses if you add in about $300 for taxes and insurance. This means that your other debts that are being reported to the credit bureaus cannot exceed 10%, or $330/month. This is also assuming a 5% rate, which is high considering today's rates in the low 4's.
If you are making $50,000/year, you can probably afford a $197,000 home pretty easily. This will make up 35% of your expenses if you add in about $400 for taxes and insurance. This means taht your other debts that are being reported to the credit bureaus cannot exceed 10%, 0r $416/month. This is also assuming a 5% rate, which is high considering today's rates in the low 4's.
Just think about your budget, and you can most likely afford a home and stop wasting your money on renting. You definately need to make room for utilities you are not used to paying, though, like sewer, trash, water, etc.
Good question. The answer is, not that much..........as long as you don't have a lot of debt.
If you are making $30,000/year, you can probably afford a $125,000 home pretty easily. This will make up 35% of your expenses if you add in about $200 for taxes and insurance. This means that your other debts that are being reported to the credit bureaus cannot exceed 10%, or $250/month. This is assuming a 5% rate, which is high considering today's rates in the low 4's.
If you are making $40,000/year, you can probably afford a $160,000 home pretty easily. This will make up 35% of your expenses if you add in about $300 for taxes and insurance. This means that your other debts that are being reported to the credit bureaus cannot exceed 10%, or $330/month. This is also assuming a 5% rate, which is high considering today's rates in the low 4's.
If you are making $50,000/year, you can probably afford a $197,000 home pretty easily. This will make up 35% of your expenses if you add in about $400 for taxes and insurance. This means taht your other debts that are being reported to the credit bureaus cannot exceed 10%, 0r $416/month. This is also assuming a 5% rate, which is high considering today's rates in the low 4's.
Just think about your budget, and you can most likely afford a home and stop wasting your money on renting. You definately need to make room for utilities you are not used to paying, though, like sewer, trash, water, etc.
Thursday, June 17, 2010
Do Adjustable Rate Mortgages Scare you?
There is a stigma that adjustable rate mortgages (ARMs) are bad loans and that fixed rate mortgages are the only way to go. It is true that ARMs have hurt a lot of people in the past. However, today, some ARMs can benefit you greatly.....if you are careful about how you use them.
History...
ARMs have been around for a very long time, but they did not become popular until the 1980s. In the 1980s, mortgage rates were running at about 8%. The government had a cap on how high mortgage rates could be(8%), so instead of changing things, mortgage companies would charge points on the loan. (1 Point = 1 Percentage of the loan amount). It got to the point where people were paying 8% rates and 15-16 points on a loan. So, if you have a $200,000 home, this means that on top of a down-payment, you could be paying about $32,000 in points.
Because of this problem, the government decided to change the caps on what mortgage rates could be. They changed them to 10%. Well, it came to a point again, where rates were maxed out and points were being charged so the government changed the cap again. The trend kept going on and on, and people were paying what we would think, today, are outrageous rates for their homes.
This is when ARMs came into play.....
How do ARMS work?
An ARM rate is figured by taking the index average (either Treasury or LIBOR) and adding the margins. The margin is how much the rate can go up. So, let's say that the US Treasury index is .36% and the margin is 2.75%. This means that the rate is 3.11%. When you come to the end of the term, your interest rate can change. It will go up or down based on what the indexes are at the time.
The government sets a cap on how much your interest rate can rise. So, for easy numbers, lets say that you have an initial rate of 5% for 3 years. After that initial 3 year period, your rate can change every year until you either refinance or pay the loan off. Let's say the loan has a cap of 5%, meaning that your loan can never go over 5% higher than your initial rate. You also have a cap on how much it can change on every term, let's use 2%. So, you start out with a 5% rate. After 3 years, let's say that the index rises. Your rates cannot exceed more than 2% higher than the initial rate so you are maxed at 7%. The next year, the index rises again. Your rates cannot go higher than 9%. The next year the index rises again. Your rates cannot go over 10% because of the cap that is on the loan.
This being said, ARM loans in the 1980s through the 1990s mostly did not have caps. So, let's say that you started out with a 5% rate. Your rate can rise after the first year to 15%. This is where a lot of people really got hurt, and it is also when the government started capping how much a rate can go up.
When would it be a good time for me to get an ARM?
Most people will live in their first home less than 5 years. So, maybe a 5/1 or 7/1 ARM would be a good idea. This will get you a fixed rate for 5 or 7 years. You may end up getting as much as a full percentage point better on rates. This could save you a lot of money.
An ARM is also a great idea if you are very careful with your finances. If you are a person that is meticulously looking at your bank statements everyday, and you keep track of everything, you can save a lot of money by getting an ARM. Remember, you can refinance out of the loan you are in as long as your home holds its value, you have on-going income, and your credit stays the same. Just don't get in the habit of refinancing every year...that can become expensive.
What should I look for when I'm talking to my loan officer about an ARM?
Make sure when you get the ARM Disclosure, you read it carefully. Make sure that you are absolutely aware of how high the caps are. Make sure you are asking them about pre-payment penalties. Find out how long your rate is fixed. Ask how often rates can change. Make sure that you are completely comfortable with the loan. If you are not comfortable with it, it is not the loan for you.
History...
ARMs have been around for a very long time, but they did not become popular until the 1980s. In the 1980s, mortgage rates were running at about 8%. The government had a cap on how high mortgage rates could be(8%), so instead of changing things, mortgage companies would charge points on the loan. (1 Point = 1 Percentage of the loan amount). It got to the point where people were paying 8% rates and 15-16 points on a loan. So, if you have a $200,000 home, this means that on top of a down-payment, you could be paying about $32,000 in points.
Because of this problem, the government decided to change the caps on what mortgage rates could be. They changed them to 10%. Well, it came to a point again, where rates were maxed out and points were being charged so the government changed the cap again. The trend kept going on and on, and people were paying what we would think, today, are outrageous rates for their homes.
This is when ARMs came into play.....
How do ARMS work?
An ARM rate is figured by taking the index average (either Treasury or LIBOR) and adding the margins. The margin is how much the rate can go up. So, let's say that the US Treasury index is .36% and the margin is 2.75%. This means that the rate is 3.11%. When you come to the end of the term, your interest rate can change. It will go up or down based on what the indexes are at the time.
The government sets a cap on how much your interest rate can rise. So, for easy numbers, lets say that you have an initial rate of 5% for 3 years. After that initial 3 year period, your rate can change every year until you either refinance or pay the loan off. Let's say the loan has a cap of 5%, meaning that your loan can never go over 5% higher than your initial rate. You also have a cap on how much it can change on every term, let's use 2%. So, you start out with a 5% rate. After 3 years, let's say that the index rises. Your rates cannot exceed more than 2% higher than the initial rate so you are maxed at 7%. The next year, the index rises again. Your rates cannot go higher than 9%. The next year the index rises again. Your rates cannot go over 10% because of the cap that is on the loan.
This being said, ARM loans in the 1980s through the 1990s mostly did not have caps. So, let's say that you started out with a 5% rate. Your rate can rise after the first year to 15%. This is where a lot of people really got hurt, and it is also when the government started capping how much a rate can go up.
When would it be a good time for me to get an ARM?
Most people will live in their first home less than 5 years. So, maybe a 5/1 or 7/1 ARM would be a good idea. This will get you a fixed rate for 5 or 7 years. You may end up getting as much as a full percentage point better on rates. This could save you a lot of money.
An ARM is also a great idea if you are very careful with your finances. If you are a person that is meticulously looking at your bank statements everyday, and you keep track of everything, you can save a lot of money by getting an ARM. Remember, you can refinance out of the loan you are in as long as your home holds its value, you have on-going income, and your credit stays the same. Just don't get in the habit of refinancing every year...that can become expensive.
What should I look for when I'm talking to my loan officer about an ARM?
Make sure when you get the ARM Disclosure, you read it carefully. Make sure that you are absolutely aware of how high the caps are. Make sure you are asking them about pre-payment penalties. Find out how long your rate is fixed. Ask how often rates can change. Make sure that you are completely comfortable with the loan. If you are not comfortable with it, it is not the loan for you.
Monday, June 7, 2010
Tax Credit in Missouri!
Everyone is bummed about the federal tax credit not getting extended. There is some money you can get, though!!
If you live in Missouri, and you are buying a home in 2010, you are eligible to receive $1250! Missouri Housing Development Commission will refund First Time Home Buyers up to $1250 for their property taxes. It is part of the HOPE program they have. If your property taxes don't amount up to $1250, you can get up to the amount of your tax bill. So, if you have an $800 tax bill, you can qualify for $800.
This is only applicable if you qualify under MHDC conditions. You must be a first time home buyer. You must be under the income limits. For a 1-2 person household, the income limit is $68,400. You must be above the age of 18.
If you live in Missouri, and you are buying a home in 2010, you are eligible to receive $1250! Missouri Housing Development Commission will refund First Time Home Buyers up to $1250 for their property taxes. It is part of the HOPE program they have. If your property taxes don't amount up to $1250, you can get up to the amount of your tax bill. So, if you have an $800 tax bill, you can qualify for $800.
This is only applicable if you qualify under MHDC conditions. You must be a first time home buyer. You must be under the income limits. For a 1-2 person household, the income limit is $68,400. You must be above the age of 18.
Monday, May 17, 2010
What is the loan process?
After you have met with your lender, you may be confused on what happens behind the scenes...
Here is a little insight...
1. Meet with your loan officer. Decide what program is best for you.
2. Loan officer will run a credit report, and get a pre-approval from Fannie Mae or Freddie Mac.
3. Your loan officer will collect some documents from you to make sure that you able to buy a home. These documents typically include (and are not limited to) your past 2 years W2's and/or tax returns, copy of your driver's license and social security card, past 2 months bank statements, past 30 days paystubs.
4. Your loan officer will give you an application to sign with many different documents including the 1003 (loan application), the Good Faith Estimate (that shows what your closing costs are estimated to be), the Truth In Lending Document (that shows what your APR is), etc.
5. Once you are approved, if you are buying a home, you need to write a contract and give your realtor (or someone who is involved) your earnest money. If you are refinancing, no earnest money is involved.
6. You will decide with your loan officer (once you have a property address) if you want to lock into a rate or keep it floating.
7. An appraisal and title are ordered on the property.
8. The loan officer sends the loan through to the processer to:
a) reconcile the loan file
b) review the appraisal, title, credit report
c) prepare submission package
d) comply with Lenders' approval requirements (they differ for all investors)
e) schedule and coordinate closing
9. The loan is submitted to underwriting for approval.
10. If the loan is approved, the closing documents will be prepared, and the customer will receive the HUD-1 Settlement Statement no later than 24 hours before closing
11. Either the title company or the lender will close the loan for you, and the funds will be sent to realtor, title company, insurance company, seller, etc.
Here is a little insight...
1. Meet with your loan officer. Decide what program is best for you.
2. Loan officer will run a credit report, and get a pre-approval from Fannie Mae or Freddie Mac.
3. Your loan officer will collect some documents from you to make sure that you able to buy a home. These documents typically include (and are not limited to) your past 2 years W2's and/or tax returns, copy of your driver's license and social security card, past 2 months bank statements, past 30 days paystubs.
4. Your loan officer will give you an application to sign with many different documents including the 1003 (loan application), the Good Faith Estimate (that shows what your closing costs are estimated to be), the Truth In Lending Document (that shows what your APR is), etc.
5. Once you are approved, if you are buying a home, you need to write a contract and give your realtor (or someone who is involved) your earnest money. If you are refinancing, no earnest money is involved.
6. You will decide with your loan officer (once you have a property address) if you want to lock into a rate or keep it floating.
7. An appraisal and title are ordered on the property.
8. The loan officer sends the loan through to the processer to:
a) reconcile the loan file
b) review the appraisal, title, credit report
c) prepare submission package
d) comply with Lenders' approval requirements (they differ for all investors)
e) schedule and coordinate closing
9. The loan is submitted to underwriting for approval.
10. If the loan is approved, the closing documents will be prepared, and the customer will receive the HUD-1 Settlement Statement no later than 24 hours before closing
11. Either the title company or the lender will close the loan for you, and the funds will be sent to realtor, title company, insurance company, seller, etc.
Secondary Market
What is the Secondary Market?
The Secondary Market is a group of investors (mainly banks), that will buy a mortgage from a mortgage banker or mortgage broker.
What are the benefits of selling loans to the secondary market?
For lenders:
-creates liquidity for them to create more loans
-allows lenders to generate more money for more loans
-allows lenders to transfer the risk on to the investor
For borrowers:
-Makes the process more efficient
-Allows for the creation of new loan programs ~ meaning more options
-Helps to maintain LOWER INTEREST RATES
The Secondary Market is a group of investors (mainly banks), that will buy a mortgage from a mortgage banker or mortgage broker.
What are the benefits of selling loans to the secondary market?
For lenders:
-creates liquidity for them to create more loans
-allows lenders to generate more money for more loans
-allows lenders to transfer the risk on to the investor
For borrowers:
-Makes the process more efficient
-Allows for the creation of new loan programs ~ meaning more options
-Helps to maintain LOWER INTEREST RATES
Tuesday, May 4, 2010
No more tax credit? You may be eligible to still get $ from the government!
Yes, we are all sad that there is no more tax credit for first time home buyers. However, if you live in Missouri, you may still be able to get money out of the government.
MHDC or the Missouri Housing Development Commission offers a Cash Assistance Loan. This means that MHDC gives you 3% of your down-payment, and being that FHA only asks for 3.5% down, you would only need to bring in 1/2% as a down-payment. If you are buying a $150,000 home, you are getting $4,500. This is not a bad deal.
As with any loan, you have to qualify for it...there are some extra qualifications for MHDC....
1. You must be a first time home buyer.
2. You can not buy a home over the amount of $258,690 in a non-targeted area. (Targeted areas are labeled by MHDC)
3. The income level (in St. Louis) of a 1-2 person household cannot exceed $67,900. It doesn't matter if someone living in a house is on the loan or not, their income must be counted.
4. The 3% that MHDC will give you is considered a "forgivable loan". This means that every month you live in the home, more of the loan is forgiven (in other words, you don't owe it anymore). After 5 years, the entire loan will be forgiven.
5. You must occupy the home within 60 days of closing.
For more information on this, feel free to contact myself or go to the MHDC website.... http://mhdc.com
MHDC or the Missouri Housing Development Commission offers a Cash Assistance Loan. This means that MHDC gives you 3% of your down-payment, and being that FHA only asks for 3.5% down, you would only need to bring in 1/2% as a down-payment. If you are buying a $150,000 home, you are getting $4,500. This is not a bad deal.
As with any loan, you have to qualify for it...there are some extra qualifications for MHDC....
1. You must be a first time home buyer.
2. You can not buy a home over the amount of $258,690 in a non-targeted area. (Targeted areas are labeled by MHDC)
3. The income level (in St. Louis) of a 1-2 person household cannot exceed $67,900. It doesn't matter if someone living in a house is on the loan or not, their income must be counted.
4. The 3% that MHDC will give you is considered a "forgivable loan". This means that every month you live in the home, more of the loan is forgiven (in other words, you don't owe it anymore). After 5 years, the entire loan will be forgiven.
5. You must occupy the home within 60 days of closing.
For more information on this, feel free to contact myself or go to the MHDC website.... http://mhdc.com
Friday, April 2, 2010
Debt to Income
What are lenders looking at when they are verifying income?
First, you need to give them your past 30 days paystubs and your past 2 years tax information. The lender will then figure out your yearly income by taking the 2 years and dividing it into months.
When a lender does that, they are making sure that you can make a payment every month. The way they do this is by figuring out what your "debt to income"(DTI) ratio is.
Debt to income ratio: How much monthly debt you have versus how much you make in a given month.
*** Let's say you make $2,000/month. You have monthly debts of $1,000. Your debt to income ratio is 50% because your debt takes away from half of your income. ***
There is a top DTI and a bottom DTI. Your top DTI represents how much your mortgage payment takes away from your income. Your bottom DTI represents how much your total monthly debts take away from your income.
***Let's say you make $2,000. Your mortgage payment is $800. Your total monthly debts are $1,000. Your top DTI is 40% and your bottom is 50%. *******
What is a good DTI?
- There are different guidelines for DTI.
Fannie Mae - 28/36 - means your mortgage payment can take up 28% of your income and your other monthly debts cannot exceed 36% of your income.
Freddie Mac - 33/38 - means your mortgage payment can take up 33% of your income and your other monthly debts cannot exceed 38% of your income.
FHA - 31/43 - meand your mortgage payment can take up only 31% of your income and your other monthly debts cannot exceed 43% of your income.
First, you need to give them your past 30 days paystubs and your past 2 years tax information. The lender will then figure out your yearly income by taking the 2 years and dividing it into months.
When a lender does that, they are making sure that you can make a payment every month. The way they do this is by figuring out what your "debt to income"(DTI) ratio is.
Debt to income ratio: How much monthly debt you have versus how much you make in a given month.
*** Let's say you make $2,000/month. You have monthly debts of $1,000. Your debt to income ratio is 50% because your debt takes away from half of your income. ***
There is a top DTI and a bottom DTI. Your top DTI represents how much your mortgage payment takes away from your income. Your bottom DTI represents how much your total monthly debts take away from your income.
***Let's say you make $2,000. Your mortgage payment is $800. Your total monthly debts are $1,000. Your top DTI is 40% and your bottom is 50%. *******
What is a good DTI?
- There are different guidelines for DTI.
Fannie Mae - 28/36 - means your mortgage payment can take up 28% of your income and your other monthly debts cannot exceed 36% of your income.
Freddie Mac - 33/38 - means your mortgage payment can take up 33% of your income and your other monthly debts cannot exceed 38% of your income.
FHA - 31/43 - meand your mortgage payment can take up only 31% of your income and your other monthly debts cannot exceed 43% of your income.
Friday, March 12, 2010
What does "paying points" mean?
Sometimes you will call a lender, and you will ask them about rates.
They may tell you that you can get a certain rate without "paying points." But, you can get a lower rate if you pay a certain amount of points. What do they mean by this?
When a lender refers to paying points, they mean that you can pay a percentage point of the loan amount to buy the rate down.
Is this beneficial?
Well, that is in the eyes of the beholder....I'll give you some examples.
Let's say that a lender says, "I can give you a rate of 4.75% if you pay 2 points, or I can give you a rate of 5.125% if you do not pay points." Your mortgage is worth $100,000. If you had a 30 year fixed rate, your payment would be $521.65 with a 4.75% rate. Your payment would be $544.49 with the 5.125% rate. Two points are worth $2,000 of your loan. It would take you over 7 years to recover that $2000.
So, you need to ask yourself....is having liquid money worth more to me right now? Or is having a lower payment by $22.84 more worth it to me?
There is no right or wrong answer. Everything depends on the person that is buying the home and getting a mortgage. Assess your goals, and you can decide what is the best way to go.
They may tell you that you can get a certain rate without "paying points." But, you can get a lower rate if you pay a certain amount of points. What do they mean by this?
When a lender refers to paying points, they mean that you can pay a percentage point of the loan amount to buy the rate down.
Is this beneficial?
Well, that is in the eyes of the beholder....I'll give you some examples.
Let's say that a lender says, "I can give you a rate of 4.75% if you pay 2 points, or I can give you a rate of 5.125% if you do not pay points." Your mortgage is worth $100,000. If you had a 30 year fixed rate, your payment would be $521.65 with a 4.75% rate. Your payment would be $544.49 with the 5.125% rate. Two points are worth $2,000 of your loan. It would take you over 7 years to recover that $2000.
So, you need to ask yourself....is having liquid money worth more to me right now? Or is having a lower payment by $22.84 more worth it to me?
There is no right or wrong answer. Everything depends on the person that is buying the home and getting a mortgage. Assess your goals, and you can decide what is the best way to go.
Monday, March 8, 2010
Some Basic Tips on Getting a Mortgage
Here are some basic tips on getting a mortgage:
1. You need to remember that you will not just be paying principle and interest. You will also be paying for: Property Tax, Homeowner's Insurance, maintenance, and possibly Private Mortgage Insurance. Add about 40% onto your basic monthly costs.
2. Gifts are a great source for downpayments! But, make sure that the person giving you a gift will sign something saying that it is a GIFT, NOT a LOAN.
3. Closing costs can cost up to 2 to 3 percent of your mortgage amount. Some of these costs can be rolled into the loan. In a buyer's market, the seller may pay for some of your closing costs, but be prepared to offer them more on the price of the home. Be prepared to pay closing costs no matter what.
4. Mortgage bankers and brokers will shop around for the best loan deal for you.
5. Set a price limit before you go shopping. If you should get into a bidding war, walk away once the price exceeds your limit.
6. Your home must pass an inspection, and it must appraise out at the amount you offer to pay. So, if you offer $100,000, and the home only appraises for $90,000, you need to go back to the drawing board and re-negotiate with the sellers on your contract.
7. Make sure when you are shopping around for your loan, that you are finding a company and loan officer that is easy to talk to and deal with. You don't want to be stuck in a hairy situation with someone who is unwilling to step up their game for you. You also want someone who will be honest with you, and who will not put you in a mortgage that you will be unable to afford.
1. You need to remember that you will not just be paying principle and interest. You will also be paying for: Property Tax, Homeowner's Insurance, maintenance, and possibly Private Mortgage Insurance. Add about 40% onto your basic monthly costs.
2. Gifts are a great source for downpayments! But, make sure that the person giving you a gift will sign something saying that it is a GIFT, NOT a LOAN.
3. Closing costs can cost up to 2 to 3 percent of your mortgage amount. Some of these costs can be rolled into the loan. In a buyer's market, the seller may pay for some of your closing costs, but be prepared to offer them more on the price of the home. Be prepared to pay closing costs no matter what.
4. Mortgage bankers and brokers will shop around for the best loan deal for you.
5. Set a price limit before you go shopping. If you should get into a bidding war, walk away once the price exceeds your limit.
6. Your home must pass an inspection, and it must appraise out at the amount you offer to pay. So, if you offer $100,000, and the home only appraises for $90,000, you need to go back to the drawing board and re-negotiate with the sellers on your contract.
7. Make sure when you are shopping around for your loan, that you are finding a company and loan officer that is easy to talk to and deal with. You don't want to be stuck in a hairy situation with someone who is unwilling to step up their game for you. You also want someone who will be honest with you, and who will not put you in a mortgage that you will be unable to afford.
Wednesday, March 3, 2010
Cute Condo in Webster
2 BDR/1.5 BA in quiet Webster Groves neighborhood. Recently updated kitchen with custom maple cabinets, granite countertops, and ceramic tile flooring. Private back patio with new privacy fence and balcony off the master bedroom. Walk-in closets in both bedrooms, updated bathrooms, and wood-burning fireplace. Covered parking included. Convenient to all major highways. Recently lowered the price to $159,900. If you want information on loans for this home, please call me at 314.878.7900.
For information on this home, call Amanda Winnick at 314.968.5446. They are having an open house on Sunday, March 6th from 1:00-3:00pm. Stop by and check it out!
Monday, March 1, 2010
Tips on Credit
I got these tips from Suze Orman. Love this book, Young, Fabulous and Broke. If you don't already own it, I suggest getting it.
1. Check your credit reports at least once a year to make sure there are no mistakes that could make your FICO score lower. You can get one free from each credit bureau at http://www.annualcreditreport.com/.
2. File a fraud alert with a credit bureau if you think you are a victim of ID theft.
3. Complete an ID fraud affidavit if your account has been stolen or "borrowed" by a financial criminal.
4. You can also check your FICO score on http://www.myfico.com/. If your score is below 760, there are things you can do to change it over time.
5. Pay your bills on time, even if it is just the minimum, to keep your FICO score strong.
6. Do not cancel your credit cards as a way to improve your FICO score. It may actually cause your score to drop.
7. Keep your mortgage shopping under a 2-week period, so your FICO score will not be negatively affected.
8. Keep a partner with a low FICO score out of the mortgage. If you are buying a home with a life partner or spouse, and one of you has a low FICO score, the partner with the higher score should apploy for the mortgage alone. That way, you will get a lower interest rate.
9. Pass down your FICO score to your kids. One of the best ways to educate your children on smart financial management is to send them off to college with a great FICO score and an appreciation of why that's a very big deal. Add a child to your card and they will inherit your credit profile.
1. Check your credit reports at least once a year to make sure there are no mistakes that could make your FICO score lower. You can get one free from each credit bureau at http://www.annualcreditreport.com/.
2. File a fraud alert with a credit bureau if you think you are a victim of ID theft.
3. Complete an ID fraud affidavit if your account has been stolen or "borrowed" by a financial criminal.
4. You can also check your FICO score on http://www.myfico.com/. If your score is below 760, there are things you can do to change it over time.
5. Pay your bills on time, even if it is just the minimum, to keep your FICO score strong.
6. Do not cancel your credit cards as a way to improve your FICO score. It may actually cause your score to drop.
7. Keep your mortgage shopping under a 2-week period, so your FICO score will not be negatively affected.
8. Keep a partner with a low FICO score out of the mortgage. If you are buying a home with a life partner or spouse, and one of you has a low FICO score, the partner with the higher score should apploy for the mortgage alone. That way, you will get a lower interest rate.
9. Pass down your FICO score to your kids. One of the best ways to educate your children on smart financial management is to send them off to college with a great FICO score and an appreciation of why that's a very big deal. Add a child to your card and they will inherit your credit profile.
Monday, February 22, 2010
MHDC Loans
Thanks to the Missouri Housing Development Commission, if you can only afford a very small down-payment, you can still afford a home!
MHDC has a FIRST PLACE Loan, in which a buyer only needs .5% (that is 1/2%) to put as a down payment on a FHA loan. MHDC will pay the other 3% to cover your down-payment.
What are the requirements?
- You must be income eligible. In St. Louis, that means you cannot make over $67,900 for a 1-2 person household.
- Purchase price must be under $258,690 in a non-targeted area and $316,177 in a targeted area. (Contact your lender to find out what targeted areas are.)
- You must occupy the home within 60 days of closing. (No rental Properties here)
- You must live in the house for 5 years in order for the 3% loan to be paid off. In other words, if you don't live in the home for 5 years, you will have to repay the 3% to MHDC.
- The interest rate is automatically 5.625%. No exceptions. This was set by MHDC, not by lenders.
This is a great option for first time home buyers. You will still receive the $8,000 tax credit. So, if you choose to go this route, and you are planning on staying in a home for 5+ years, the government is going to give you $11,000.
MHDC has a FIRST PLACE Loan, in which a buyer only needs .5% (that is 1/2%) to put as a down payment on a FHA loan. MHDC will pay the other 3% to cover your down-payment.
What are the requirements?
- You must be income eligible. In St. Louis, that means you cannot make over $67,900 for a 1-2 person household.
- Purchase price must be under $258,690 in a non-targeted area and $316,177 in a targeted area. (Contact your lender to find out what targeted areas are.)
- You must occupy the home within 60 days of closing. (No rental Properties here)
- You must live in the house for 5 years in order for the 3% loan to be paid off. In other words, if you don't live in the home for 5 years, you will have to repay the 3% to MHDC.
- The interest rate is automatically 5.625%. No exceptions. This was set by MHDC, not by lenders.
This is a great option for first time home buyers. You will still receive the $8,000 tax credit. So, if you choose to go this route, and you are planning on staying in a home for 5+ years, the government is going to give you $11,000.
Thursday, February 18, 2010
Tax Credit Information
First Time Homebuyer Tax Credit:
If you haven't owned a home in the last 3 years, you may be eligible for this tax credit. This credit is for 10% of the purchase price of the home, with a maximum value of $8,000. Single taxpayers and married couples filling a joint tax return may qualify for the full tax credit amount.
Current Homeowner Tax Credit:
If you already own a residence, you are eligible for a tax credit. This incentive is worth up to $6,500 for qualified buyers who have owned and occupied a primary residence for a period of 5 consecutive years during the last 8 years. Single taxpayers and married couples filling a joint return may qualify for the full tax credit amount.
What are the new deadlines?
In order to qualify for the credit, you must sign a contract no later than April 30th, 2010.
You must close by June 30th, 2010. Those in the military do have special extensions on the time lines available.
If you haven't owned a home in the last 3 years, you may be eligible for this tax credit. This credit is for 10% of the purchase price of the home, with a maximum value of $8,000. Single taxpayers and married couples filling a joint tax return may qualify for the full tax credit amount.
Current Homeowner Tax Credit:
If you already own a residence, you are eligible for a tax credit. This incentive is worth up to $6,500 for qualified buyers who have owned and occupied a primary residence for a period of 5 consecutive years during the last 8 years. Single taxpayers and married couples filling a joint return may qualify for the full tax credit amount.
What are the new deadlines?
In order to qualify for the credit, you must sign a contract no later than April 30th, 2010.
You must close by June 30th, 2010. Those in the military do have special extensions on the time lines available.
Wednesday, February 10, 2010
FICO SCORE
Question: I've been told that too many lenders checking my FICO score can actually hurt my score. I am not clear on how I am supposed to comparison shop without causing my score to drop. What should I do?
Answer: Go ahead and shop for loans. You want to make sure you are being well taken care of by your lender. Just make sure that you do your shopping within a 2 week period. Lenders don't like to see that you have a lot of inquiries because that may mean that you are going to pile on a lot of debt. This is risky for lenders. This is not the case. You aren't applying for a lot of mortgages; you are applying for one. People in the financial industry can appreciate you being responsible and shopping around. The people at Fair Isaac have created a way for you to shop without affecting your credit score. Do all of your shopping within 2 weeks.
Answer: Go ahead and shop for loans. You want to make sure you are being well taken care of by your lender. Just make sure that you do your shopping within a 2 week period. Lenders don't like to see that you have a lot of inquiries because that may mean that you are going to pile on a lot of debt. This is risky for lenders. This is not the case. You aren't applying for a lot of mortgages; you are applying for one. People in the financial industry can appreciate you being responsible and shopping around. The people at Fair Isaac have created a way for you to shop without affecting your credit score. Do all of your shopping within 2 weeks.
Monday, February 8, 2010
Tips for First Time Home Buyers
Tips for First Time Home Buyers
1. Be choosy, but realistic.
You may never find the perfect home.
2. Do your homework before looking at homes.
Determine exactly what features you want in a home and which are most important to you.
3. Get your finances in order.
Examine your credit report & be prepared for down payment or closing cost.
4. Get pre-approved for a mortgage.
Talk to a lender NOW - before engaging a realtor.
5. Know your move-in date.
When does your lease end?
Are you allowed to sublet?
How tight is the rental market in your area?
6. Think long-term.
Are you looking for a starter home, or something to stay in for a long time?
This could influence the type of home you decide to purchase, as well as the type of mortgage
terms that might be best for you.
7. Don't become "house poor".
Buying the biggest home you can afford may leave no money for maintenance, decor, or
renovations. Plus, it may make it hard for you to save money for other financial goals.
8. Don't take chances.
Obtain a professional home inspection and, if possible, a warranty from the seller to cover any
defect within the first year.
(Information from this article came from RealEstateBook.com)
1. Be choosy, but realistic.
You may never find the perfect home.
2. Do your homework before looking at homes.
Determine exactly what features you want in a home and which are most important to you.
3. Get your finances in order.
Examine your credit report & be prepared for down payment or closing cost.
4. Get pre-approved for a mortgage.
Talk to a lender NOW - before engaging a realtor.
5. Know your move-in date.
When does your lease end?
Are you allowed to sublet?
How tight is the rental market in your area?
6. Think long-term.
Are you looking for a starter home, or something to stay in for a long time?
This could influence the type of home you decide to purchase, as well as the type of mortgage
terms that might be best for you.
7. Don't become "house poor".
Buying the biggest home you can afford may leave no money for maintenance, decor, or
renovations. Plus, it may make it hard for you to save money for other financial goals.
8. Don't take chances.
Obtain a professional home inspection and, if possible, a warranty from the seller to cover any
defect within the first year.
(Information from this article came from RealEstateBook.com)
Tuesday, February 2, 2010
What is an assumable loan?
What is an Assumable loan?
An Assumable Loan is a loan that can be transferred from the seller of a property to the buyer of a property.
For example: I am selling a home for $150,000, and I have an interest rate of 4.5% with a balance of $120,000. I am advertising the fact that I have an assumable loan. This means that as long as the buyer can pay the $30,000, they can assume the loan that I have on my home.
This would be a good option for the buyer if rates are increasing (or at least if rates are above 4.5%)
This is a good way for people to advertise when they are selling their home in a market where interest rates are high.
For people that are buying homes right now, this could be a great marketing option if you are selling your home in the future. Most likely, the housing market will rebound and rates will increase. Right now is a great time to buy a home! Rates are low, and the federal government is offering money to First Time Home Buyers AND Buyers that are trying to get a bigger or better home!
An Assumable Loan is a loan that can be transferred from the seller of a property to the buyer of a property.
For example: I am selling a home for $150,000, and I have an interest rate of 4.5% with a balance of $120,000. I am advertising the fact that I have an assumable loan. This means that as long as the buyer can pay the $30,000, they can assume the loan that I have on my home.
This would be a good option for the buyer if rates are increasing (or at least if rates are above 4.5%)
This is a good way for people to advertise when they are selling their home in a market where interest rates are high.
For people that are buying homes right now, this could be a great marketing option if you are selling your home in the future. Most likely, the housing market will rebound and rates will increase. Right now is a great time to buy a home! Rates are low, and the federal government is offering money to First Time Home Buyers AND Buyers that are trying to get a bigger or better home!
Monday, February 1, 2010
What is the Truth in Lending Disclosure?
When you are closing on your home, your lender will give you a Truth In Lending Disclosure(TIL).
What is in a TIL?
1.Your annual percentage rate (APR) is shown in your interest rate. This is your rate as a year, not monthly.
2. It will also show you what you will pay if you never prepay on a loan. So, you could have a loan amount of $168,567.28 for a 30 year term. What you will actually pay on this loan (assuming you do not prepay) is $317,136.06. That is a BIG difference.
3. It will show you the amount of payments you are responsible for.
4. It tells you if you are able to prepay on your loan (always a good idea because when you prepay, you are paying down your principle.)
5. It tells you if your loan is assumable.
6. It will tell you what your prepaid interest is (because when you close on a loan, you do not pay the first month's payment.)
7. It tells you what your home owner's insurance (hazard insurance) payment is.
8. It tells you what your county property taxes are.
9. It gives you the adjustment (what the lender owes you if they over disclosed on costs).
Always ask your lender to explain these items before signing. In order to properly manage your loan, it is important to know the details of it. Make sure you are educating yourself by asking your lender questions. Your loan officer should never be too busy to answer your questions.
What is in a TIL?
1.Your annual percentage rate (APR) is shown in your interest rate. This is your rate as a year, not monthly.
2. It will also show you what you will pay if you never prepay on a loan. So, you could have a loan amount of $168,567.28 for a 30 year term. What you will actually pay on this loan (assuming you do not prepay) is $317,136.06. That is a BIG difference.
3. It will show you the amount of payments you are responsible for.
4. It tells you if you are able to prepay on your loan (always a good idea because when you prepay, you are paying down your principle.)
5. It tells you if your loan is assumable.
6. It will tell you what your prepaid interest is (because when you close on a loan, you do not pay the first month's payment.)
7. It tells you what your home owner's insurance (hazard insurance) payment is.
8. It tells you what your county property taxes are.
9. It gives you the adjustment (what the lender owes you if they over disclosed on costs).
Always ask your lender to explain these items before signing. In order to properly manage your loan, it is important to know the details of it. Make sure you are educating yourself by asking your lender questions. Your loan officer should never be too busy to answer your questions.
Thursday, January 28, 2010
What goes into an escrow account and should I escrow?
When you get a home loan, whether you are buying or refinancing, you have the option to have an escrow account. For a government loan(FHA or VA), you have to open an escrow account.
What goes into an escrow account?
Property Taxes: Take your property taxes for the year, and divide it by 12 for your monthly payment. You will always have an extra 2 months of tax payments in your escrow account. Typically, you will pay the entire year for insurance (this is to protect you from accidentally forgetting a payment, and God forbid something happens to your home and you didn't pay your monthly insurance bill...)
Is it a good idea to start an escrow account?
Well, if you have a FHA or VA loan, you must have an escrow account according to guidelines so your choice has already been made for you.
Now, if you are getting a conventional loan, this is an important decision you need to make. I won't make the decision for you, but I will give you some thoughts on it:
-If you do not decide to start an escrow account, you will have to pay .25% of your home loan when you close. If you have a $100,000 home, that is $250.
-Whoever holds the escrow account invests the extra money into the market and makes money on it. This means that YOU are NOT making money on that money. Is it better to invest your money on your own? Can you make up the difference from that $250 you paid at closing?
-Because you are paying your entire year of insurance, you don't have to worry if your payment is made each month. You have already, in a sense, paid someone to take care of that for you. If you like to have piece of mind, this is something to think about.
-Taxes are not due until the end of the year. If your taxes are $2,000, it could be difficult to come up with that money at the end of the year while you are trying to get through the holidays. It is much easier to come up with $187.50 every month than a lump sum of $2000 at the end of each year.
-When establishing an escrow account, you have to come up with a good amount of money ($1-2000 depending on your taxes and insurance payments). Do you want to save that money at closing?
These are all just things that you need to think about when your lender asks if you want to open an escrow account. Remember that your loan officer is not making money off of your escrows so ask them to help you make the right decision. That is what your loan officer is there for, to HELP YOU!
What goes into an escrow account?
Property Taxes: Take your property taxes for the year, and divide it by 12 for your monthly payment. You will always have an extra 2 months of tax payments in your escrow account. Typically, you will pay the entire year for insurance (this is to protect you from accidentally forgetting a payment, and God forbid something happens to your home and you didn't pay your monthly insurance bill...)
Is it a good idea to start an escrow account?
Well, if you have a FHA or VA loan, you must have an escrow account according to guidelines so your choice has already been made for you.
Now, if you are getting a conventional loan, this is an important decision you need to make. I won't make the decision for you, but I will give you some thoughts on it:
-If you do not decide to start an escrow account, you will have to pay .25% of your home loan when you close. If you have a $100,000 home, that is $250.
-Whoever holds the escrow account invests the extra money into the market and makes money on it. This means that YOU are NOT making money on that money. Is it better to invest your money on your own? Can you make up the difference from that $250 you paid at closing?
-Because you are paying your entire year of insurance, you don't have to worry if your payment is made each month. You have already, in a sense, paid someone to take care of that for you. If you like to have piece of mind, this is something to think about.
-Taxes are not due until the end of the year. If your taxes are $2,000, it could be difficult to come up with that money at the end of the year while you are trying to get through the holidays. It is much easier to come up with $187.50 every month than a lump sum of $2000 at the end of each year.
-When establishing an escrow account, you have to come up with a good amount of money ($1-2000 depending on your taxes and insurance payments). Do you want to save that money at closing?
These are all just things that you need to think about when your lender asks if you want to open an escrow account. Remember that your loan officer is not making money off of your escrows so ask them to help you make the right decision. That is what your loan officer is there for, to HELP YOU!
Wednesday, January 27, 2010
Why do I pay mortgage insurance on a FHA loan?
A FHA loan is a loan that is insured by the government, or the Federal Housing Administration.
When I pay up to 20%, does mortgage insurance fall off like it would on a conventional loan? NO
You will always, always, always pay for Mortgage Insurance on a FHA loan.
Why is this?
The reason the Federal Housing Administration was founded was to make it easier for the general public to buy homes by lowering the qualifications to get one of these loans. FHA will approve a loan if a borrower only has a FICO of 620. This is looked at as a large risk for the lender, but the government is pushing that lenders get more people into homes because it helps the market. They also only require borrowers to put 3.5% down on their home.
FHA acts as a Mortgage Insurance company for government loans. Because they don't require a high FICO score, they require that mortgage insurance is paid. In the case that a borrower defaults on the loan, FHA will pay money to the lender that is servicing the loan because the customer paid for the mortgage insurance.
The reason lenders feel comfortable lending to people with these low FICO scores is because no matter what, they are guaranteed to be paid if the customer defaults because mortgage insurance has been paid for.
Example 1: Let's say that you have a FICO of 630. You are buying a home that is worth $100,000. You are getting a gift for your down payment of $30,000. The only way you can get a loan is to get a FHA loan because you have a low FICO. However, you have a 30% down payment. Do you have to pay mortgage insurance? YES.
Example 2: You have had the home that you bought in example 1 for a while. You are wanting to refinance because you think that you can get a lower rate. You now have 60% equity in your home. Do you have to pay mortgage insurance to FHA? YES.
Moral of the story is that you will ALWAYS pay mortgage insurance on a FHA loan.
When I pay up to 20%, does mortgage insurance fall off like it would on a conventional loan? NO
You will always, always, always pay for Mortgage Insurance on a FHA loan.
Why is this?
The reason the Federal Housing Administration was founded was to make it easier for the general public to buy homes by lowering the qualifications to get one of these loans. FHA will approve a loan if a borrower only has a FICO of 620. This is looked at as a large risk for the lender, but the government is pushing that lenders get more people into homes because it helps the market. They also only require borrowers to put 3.5% down on their home.
FHA acts as a Mortgage Insurance company for government loans. Because they don't require a high FICO score, they require that mortgage insurance is paid. In the case that a borrower defaults on the loan, FHA will pay money to the lender that is servicing the loan because the customer paid for the mortgage insurance.
The reason lenders feel comfortable lending to people with these low FICO scores is because no matter what, they are guaranteed to be paid if the customer defaults because mortgage insurance has been paid for.
Example 1: Let's say that you have a FICO of 630. You are buying a home that is worth $100,000. You are getting a gift for your down payment of $30,000. The only way you can get a loan is to get a FHA loan because you have a low FICO. However, you have a 30% down payment. Do you have to pay mortgage insurance? YES.
Example 2: You have had the home that you bought in example 1 for a while. You are wanting to refinance because you think that you can get a lower rate. You now have 60% equity in your home. Do you have to pay mortgage insurance to FHA? YES.
Moral of the story is that you will ALWAYS pay mortgage insurance on a FHA loan.
Tuesday, January 26, 2010
Closing Costs
Recently the Good Faith Estimate changed. What is a good faith estimate? A good faith estimate tells you what your closing costs are when you get a home loan.
When you are closing a loan, you will have to pay some costs to get the loan done. The new Good Faith Estimate does not list the costs out for you. It only tells you the entire amount of your costs.
Here is a list of costs that you have to pay when closing on a loan:
Loan Origination Fee
Appraisal Fee
Credit Report
Processing Fee
Life of Loan Flood Certification
Verification of Employment
Settlement or Closing Fee
Notary Fees
Lender's Coverage
Closing Protection Letter
Courier/Delivery Fee
Recording Fees
Survey Cost
In order to know what you are paying for each of these fees, you will need to ask your loan originator to go through them all with you. It is important to make sure you know what you are paying for so it is important to ask.
When you are closing a loan, you will have to pay some costs to get the loan done. The new Good Faith Estimate does not list the costs out for you. It only tells you the entire amount of your costs.
Here is a list of costs that you have to pay when closing on a loan:
Loan Origination Fee
Appraisal Fee
Credit Report
Processing Fee
Life of Loan Flood Certification
Verification of Employment
Settlement or Closing Fee
Notary Fees
Lender's Coverage
Closing Protection Letter
Courier/Delivery Fee
Recording Fees
Survey Cost
In order to know what you are paying for each of these fees, you will need to ask your loan originator to go through them all with you. It is important to make sure you know what you are paying for so it is important to ask.
Monday, January 25, 2010
What can I afford?
You need to figure out what your income is per month. Then, find your expenses. This is a good form to use: http://www.ginniemae.gov/2_prequal/intro_questions.asp?Section=YPTH
I'll give you an example as well.
Let's say you make $5000/month. Your expenses are your credit cards for $300/month. You have a car loan of $600/month. You have a student loan payment that is $250/month.
Remember you have to account for taxes. After taxes you only make $3700/month. Then you take your expenses off. That leaves you with $2,550 for the month. If you add on a $900 mortgage, you will have $1650 left over.
Can you still afford to live with $1650 left over for the month? Remember, you still have your phone bill, food bills, water bill, heating bill, electric bill, cable bill, trash bill, etc.
Make sure you really think through what you will have to pay for when you own a home. Set a budget for yourself and your household so that you know if you should be buying a home or not.
I'll give you an example as well.
Let's say you make $5000/month. Your expenses are your credit cards for $300/month. You have a car loan of $600/month. You have a student loan payment that is $250/month.
Remember you have to account for taxes. After taxes you only make $3700/month. Then you take your expenses off. That leaves you with $2,550 for the month. If you add on a $900 mortgage, you will have $1650 left over.
Can you still afford to live with $1650 left over for the month? Remember, you still have your phone bill, food bills, water bill, heating bill, electric bill, cable bill, trash bill, etc.
Make sure you really think through what you will have to pay for when you own a home. Set a budget for yourself and your household so that you know if you should be buying a home or not.
Friday, January 22, 2010
Do's and Dont's
Do's and Dont's of getting a loan:
Do:
Shop around for your loan.
Interview lenders and other service providers such as title company, insurance agent, etc.
READ everything before you sign it. (Your lender should explain everything to you, but make sure you fully understand everything before you sign.)
Be honest with your lender about everything that has to do with your loan.
Tell your lender about any credit problems you have had in the past. (It's better to know upfront that you cannot get a loan than to get your hopes up; your lender may be able to counsel you on how to fix any issues with your credit.)
Be wary of offers you receive in the mail or through email for financing. (While we are at it, be wary of the people you hear on the radio talking about how if you have bad credit, you can still get a loan.)
Pay your mortgage on time!!!! Even if there is a dispute. (You don't want to ruin your credit or risk foreclosure for anything.)
If you are having problems paying your mortgage, contact your loan servicer immediately!
DON'T:
Don't sign blank documents. (Have your loan originator put an X through the page if there is anything that you are worried about.)
Don't lie about your income. (Your lender will get pay stubs from you. If you don't know, tell them that you don't know.)
Don't lie about how long you have worked somewhere. (Again, your lender will verify employment.)
Don't overstate your assets. (Your lender will look at bank statements or any other assets you claim that you have.)
Don't change your income tax returns. (Your lender will look at all tax returns for the past 2 years.)
Don't list fake co-borrowers on your loan application. (Every borrower on the app has to have their credit report run. If the person doesn't show up, the lender will find out.)
Don't provide false documentation or permit anyone else to provide false documents about you.
All of this information comes from the US Department of Housing and Urban Development.
Do:
Shop around for your loan.
Interview lenders and other service providers such as title company, insurance agent, etc.
READ everything before you sign it. (Your lender should explain everything to you, but make sure you fully understand everything before you sign.)
Be honest with your lender about everything that has to do with your loan.
Tell your lender about any credit problems you have had in the past. (It's better to know upfront that you cannot get a loan than to get your hopes up; your lender may be able to counsel you on how to fix any issues with your credit.)
Be wary of offers you receive in the mail or through email for financing. (While we are at it, be wary of the people you hear on the radio talking about how if you have bad credit, you can still get a loan.)
Pay your mortgage on time!!!! Even if there is a dispute. (You don't want to ruin your credit or risk foreclosure for anything.)
If you are having problems paying your mortgage, contact your loan servicer immediately!
DON'T:
Don't sign blank documents. (Have your loan originator put an X through the page if there is anything that you are worried about.)
Don't lie about your income. (Your lender will get pay stubs from you. If you don't know, tell them that you don't know.)
Don't lie about how long you have worked somewhere. (Again, your lender will verify employment.)
Don't overstate your assets. (Your lender will look at bank statements or any other assets you claim that you have.)
Don't change your income tax returns. (Your lender will look at all tax returns for the past 2 years.)
Don't list fake co-borrowers on your loan application. (Every borrower on the app has to have their credit report run. If the person doesn't show up, the lender will find out.)
Don't provide false documentation or permit anyone else to provide false documents about you.
All of this information comes from the US Department of Housing and Urban Development.
Wednesday, January 20, 2010
Friday, January 8, 2010
Why am I paying PMI or MIP and what is it?
What is PMI? Private Mortgage Insurance is insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. PMI is attached to conventional loans.
What is MIP? Mortgage insurance Premiums are fees paid by the borrower to FHA or a private insurer for mortgage insurance. It is attached to government loans such as FHA or VA.
Does mortgage insurance do anything for me? Not really. It is really only there to protect lenders. It is a guarantee for the lender that if you, the borrower, cannot pay the loan, that they will not be out the entire amount of the loan.
Payments can be $55/month for a $100,000 loan or up to $1500/year for a $200,000 loan.
How do I avoid paying mortgage insurance?
On a FHA loan, you can never avoid paying mortgage insurance. On a conventional loan, you don't have to pay mortgage insurance if you have a 20% downpayment. This would free up a lot of money for you to use however you want to. You can pre-pay on your loan so that you decrease your interest payments, you could invest the extra money, or you could use it toward your home so that you increase your equity.
I know it is hard to find 20% of your home to put down. There are other options for you. It is in your best interest to figure out what your goals are and talk to your lender to see if they can find an option that fits your needs.
What is MIP? Mortgage insurance Premiums are fees paid by the borrower to FHA or a private insurer for mortgage insurance. It is attached to government loans such as FHA or VA.
Does mortgage insurance do anything for me? Not really. It is really only there to protect lenders. It is a guarantee for the lender that if you, the borrower, cannot pay the loan, that they will not be out the entire amount of the loan.
Payments can be $55/month for a $100,000 loan or up to $1500/year for a $200,000 loan.
How do I avoid paying mortgage insurance?
On a FHA loan, you can never avoid paying mortgage insurance. On a conventional loan, you don't have to pay mortgage insurance if you have a 20% downpayment. This would free up a lot of money for you to use however you want to. You can pre-pay on your loan so that you decrease your interest payments, you could invest the extra money, or you could use it toward your home so that you increase your equity.
I know it is hard to find 20% of your home to put down. There are other options for you. It is in your best interest to figure out what your goals are and talk to your lender to see if they can find an option that fits your needs.
Thursday, January 7, 2010
Fixed Rate Mortgage Vs Adjustable Rate Mortgage
What is better? Fixed Rate Mortgage(FRM) or Adjustable Rate Mortgage(ARM)?
First, what is a FRM? - A FRM is a mortgage in which the interest rate does not change during the life of the loan.
Second, what is an ARM? - An ARM is a mortgage in which the interest rate changes over time based on an index. ARMs usually have a lower rate because they are riskier to the borrower.
What is the better option for me? It really depends on where the market is. If the market has very low rates already, it is usually better to lock in with a FRM to guarantee that rate for the life of the loan. If the rates are rising, you may want to go with an ARM because rates tend to be lower.
The risk in an ARM is that the rates will go up after a period of time. There are different types of ARMs so you can discuss with your lender what the different options are.
The most important thing is to make sure that you are looking at your goals and making sure that your mortgage fits in with your goals.
First, what is a FRM? - A FRM is a mortgage in which the interest rate does not change during the life of the loan.
Second, what is an ARM? - An ARM is a mortgage in which the interest rate changes over time based on an index. ARMs usually have a lower rate because they are riskier to the borrower.
What is the better option for me? It really depends on where the market is. If the market has very low rates already, it is usually better to lock in with a FRM to guarantee that rate for the life of the loan. If the rates are rising, you may want to go with an ARM because rates tend to be lower.
The risk in an ARM is that the rates will go up after a period of time. There are different types of ARMs so you can discuss with your lender what the different options are.
The most important thing is to make sure that you are looking at your goals and making sure that your mortgage fits in with your goals.
Wednesday, January 6, 2010
How to manage your CREDIT SCORE
How do you pay your bills?
This affects 35% of your credit score.
If you have had late payments in the past, it has most likely affected your credit score negatively. If this has happened to you, don't worry. Just focus on getting your payments in on time right now.
If you think that paying the entire balance in full every month will help, you are not necessarily right. You need to make payments, but this doesn't mean paying off your entire credit card every month (although if you don't want to pay any interest, you want to pay it off in full every month.)
How much do you have in available credit?
This affects 30% of your credit score.
This means two things: how much outsanding debt you have (how much you owe to credit cards, car loans, student loans, etc.) and how much credit you have available (if you have 10 credit cards with $10,000 available, you may have $100,000 available in a credit).
Be careful with this. If you are consistantly maxing out your credit cards, you are perceived as a risk. On the other hand, if you don't use your credit at all, you don't have a track history.) People who have the best scores are people that use their credit sparingly and keep their balances low.
How far does my credit history go back?
This affects 15% of your credit score.
The longer you have had a credit line the better. Let's give an example. Let's say you have come into money, and you want to pay one of your lines of credit off. You have a student loan that has been around for 10 years, your car loan has been around for 2 years, and you have a credit card taht you opened 5 years ago. Pay off the car loan first because you have had it the least amount of time. (This is saying all of the interest rates are similar. If you have a higher interest rate on one, always pay that one off first!)
Mix of Credit
This affects 10% of your credit.
You should have a mix of revolving credit (such as a credit card) and installment credit (such as a car loan or a home loan). This shows that the borrower is able to handle a variety of credit.
New Credit Applications
This affects 10% of your credit.
If you have been opening a lot of new credit cards or have a lot of credit applications. If you are shopping around for a loan, this shouldn't affect your credit.
If you are consistantly looking at your credit score (or someone else is) your credit score may go down or if you have missed a payment when shopping around for a loan, your score may go down.
What doesn't affect credit score?
Age, sex, race, Job or length of employment, Income, Education, Marital status, whether you have been turned down for credit, length of time at your current address, whether you own a home or rent, information not contained in your credit report.
This affects 35% of your credit score.
If you have had late payments in the past, it has most likely affected your credit score negatively. If this has happened to you, don't worry. Just focus on getting your payments in on time right now.
If you think that paying the entire balance in full every month will help, you are not necessarily right. You need to make payments, but this doesn't mean paying off your entire credit card every month (although if you don't want to pay any interest, you want to pay it off in full every month.)
How much do you have in available credit?
This affects 30% of your credit score.
This means two things: how much outsanding debt you have (how much you owe to credit cards, car loans, student loans, etc.) and how much credit you have available (if you have 10 credit cards with $10,000 available, you may have $100,000 available in a credit).
Be careful with this. If you are consistantly maxing out your credit cards, you are perceived as a risk. On the other hand, if you don't use your credit at all, you don't have a track history.) People who have the best scores are people that use their credit sparingly and keep their balances low.
How far does my credit history go back?
This affects 15% of your credit score.
The longer you have had a credit line the better. Let's give an example. Let's say you have come into money, and you want to pay one of your lines of credit off. You have a student loan that has been around for 10 years, your car loan has been around for 2 years, and you have a credit card taht you opened 5 years ago. Pay off the car loan first because you have had it the least amount of time. (This is saying all of the interest rates are similar. If you have a higher interest rate on one, always pay that one off first!)
Mix of Credit
This affects 10% of your credit.
You should have a mix of revolving credit (such as a credit card) and installment credit (such as a car loan or a home loan). This shows that the borrower is able to handle a variety of credit.
New Credit Applications
This affects 10% of your credit.
If you have been opening a lot of new credit cards or have a lot of credit applications. If you are shopping around for a loan, this shouldn't affect your credit.
If you are consistantly looking at your credit score (or someone else is) your credit score may go down or if you have missed a payment when shopping around for a loan, your score may go down.
What doesn't affect credit score?
Age, sex, race, Job or length of employment, Income, Education, Marital status, whether you have been turned down for credit, length of time at your current address, whether you own a home or rent, information not contained in your credit report.
Tuesday, January 5, 2010
Should I be buying a home?
Questions to ask yourself when deciding whether to buy a home or not:
Do you have money for a down payment?
For a conventional loan, you need at least 5% down, and on a FHA, you need 3.5%. There are options for no down payment such as gifts, VA loans (for veteran's), and MHDC loans. For the most part, expect to be paying the down payment.
What is your credit like?
If you have a credit score below 620, you will have a very difficult time finding someone to approve a loan for you. It's not impossible if you want to pay large interest rates and fees.
What are your Debt to Income Ratios?
If your bills are taking up 50% of your gross income(before taxes) every month, you could struggle to pay your mortgage every month.
Do you have job security?
If you have any reason at all to believe that your job could be in jeopardy, you don't want to consider buying a home. Why go into foreclosure and ruin the rest of your credit and be in big trouble later in life? Most rent is cheaper than mortgage payments.
Do you tend to move a lot?
If you get sick of living in one spot all the time, you really don't want to buy a home. If you are buying a home, you want to build equity, and you will never do that by moving from place to place because you will have to get a new loan every time you move.
These are just a few of the questions you should be asking yourself when thinking about buying a home. There are many others such as:
Am I in a stable relationship or is my significant other going to leave me with a mortgage to pay by myself?
Is this going to be a good investment or is the market declining? If so, am I willing to stay in the house long enough to where the market will balance out?
Is it a seller's or a buyer's market? Are you going to pay more than what you think the house is worth?
Do you have money for a down payment?
For a conventional loan, you need at least 5% down, and on a FHA, you need 3.5%. There are options for no down payment such as gifts, VA loans (for veteran's), and MHDC loans. For the most part, expect to be paying the down payment.
What is your credit like?
If you have a credit score below 620, you will have a very difficult time finding someone to approve a loan for you. It's not impossible if you want to pay large interest rates and fees.
What are your Debt to Income Ratios?
If your bills are taking up 50% of your gross income(before taxes) every month, you could struggle to pay your mortgage every month.
Do you have job security?
If you have any reason at all to believe that your job could be in jeopardy, you don't want to consider buying a home. Why go into foreclosure and ruin the rest of your credit and be in big trouble later in life? Most rent is cheaper than mortgage payments.
Do you tend to move a lot?
If you get sick of living in one spot all the time, you really don't want to buy a home. If you are buying a home, you want to build equity, and you will never do that by moving from place to place because you will have to get a new loan every time you move.
These are just a few of the questions you should be asking yourself when thinking about buying a home. There are many others such as:
Am I in a stable relationship or is my significant other going to leave me with a mortgage to pay by myself?
Is this going to be a good investment or is the market declining? If so, am I willing to stay in the house long enough to where the market will balance out?
Is it a seller's or a buyer's market? Are you going to pay more than what you think the house is worth?
What do we need for an application?
What do you need to bring in when you are filling out an application for a loan?
Driver's License
Social Security Card
Pay stubs for the last 30 days (If you are paid weekly, we would need 4. If you are paid bimonthly, we would need 2.)
Bank Statements for the past 60 days(or past 2 months)
W2's for the past 2 years
If you are self-employed or have business expenses that are not reimbursed by your company, you will need to bring in federal tax returns for the past 2 years.
If you have rental property, you will need to bring in lease agreements.
The lender will run your credit report and start proceedings to get your loan approved.
Driver's License
Social Security Card
Pay stubs for the last 30 days (If you are paid weekly, we would need 4. If you are paid bimonthly, we would need 2.)
Bank Statements for the past 60 days(or past 2 months)
W2's for the past 2 years
If you are self-employed or have business expenses that are not reimbursed by your company, you will need to bring in federal tax returns for the past 2 years.
If you have rental property, you will need to bring in lease agreements.
The lender will run your credit report and start proceedings to get your loan approved.
Monday, January 4, 2010
Secondary Market
What is the Secondary Market?
Earlier I talked about mortgage bankers selling their loans to the secondary market. You may have asked yourself, what is the secondary market?
The secondary market consists of investors who will buy the loan from the mortgage banker. They will take over the servicing of the loan. They usually consist of banks or financial institutions such as Fannie-Mae and Freddie-Mac.
The way they make money is on the interest differential between what they make in interest on the loan and the interest they pay investors.
Example of this: You are getting a loan with a mortgage bank. Your loan originator(LO) will work with you to decide what kind of loan will be best for you. To get you the best rate, the mortgage banker will have a choice between a variety of lenders from the secondary market. This ensures that you, the borrower, will get a competitive rate. For closing, the mortgage banker will provide funding for your loan. After the loan has been closed, the mortgage banker will sell the loan to lender from the secondary market that they thought had the best rate at the time. The lender from the secondary market will then take over your loan including the servicing of it.
Earlier I talked about mortgage bankers selling their loans to the secondary market. You may have asked yourself, what is the secondary market?
The secondary market consists of investors who will buy the loan from the mortgage banker. They will take over the servicing of the loan. They usually consist of banks or financial institutions such as Fannie-Mae and Freddie-Mac.
The way they make money is on the interest differential between what they make in interest on the loan and the interest they pay investors.
Example of this: You are getting a loan with a mortgage bank. Your loan originator(LO) will work with you to decide what kind of loan will be best for you. To get you the best rate, the mortgage banker will have a choice between a variety of lenders from the secondary market. This ensures that you, the borrower, will get a competitive rate. For closing, the mortgage banker will provide funding for your loan. After the loan has been closed, the mortgage banker will sell the loan to lender from the secondary market that they thought had the best rate at the time. The lender from the secondary market will then take over your loan including the servicing of it.
Mortgage Banker/Broker/Portfolio Lender
What is the difference between a Mortgage Banker, Mortgage Broker and Portfolio Lender?
Portfolio Lender: Generally banks and savings and loans institutions. They take in deposits and use them to make mortgage loans for their portfolio. They will hold the loan until it is paid off. They make their profit from the interest differential between what they charge their borrowers and what they pay their depositors.
Ex: You bank with US Bank. You are looking for homes and one day you go to the bank and see that they offer mortgages. This is a portfolio loan.
Mortgage Broker: A company that will take a loan in, and they will find someone(usually a bank) to buy the loan from them. They act as an intermediary between the customer and the banks.
Mortgage Banker: A company that will take a loan and approve it. This company will actually fund the loan at closing, and then once everything has been closed and finished, the company will sell the loan to the secondary market. The nice thing about a mortgage banker is that you know the money will be there at closing.
Mortgage bankers also have options on who they will sell their loans to. This is really nice because if one buyer has a better rate, they can give their customers that rate.
It is always useful to do your homework on what kind of lender to go through. Don't just settle for the first person who decides to approve you.
Portfolio Lender: Generally banks and savings and loans institutions. They take in deposits and use them to make mortgage loans for their portfolio. They will hold the loan until it is paid off. They make their profit from the interest differential between what they charge their borrowers and what they pay their depositors.
Ex: You bank with US Bank. You are looking for homes and one day you go to the bank and see that they offer mortgages. This is a portfolio loan.
Mortgage Broker: A company that will take a loan in, and they will find someone(usually a bank) to buy the loan from them. They act as an intermediary between the customer and the banks.
Mortgage Banker: A company that will take a loan and approve it. This company will actually fund the loan at closing, and then once everything has been closed and finished, the company will sell the loan to the secondary market. The nice thing about a mortgage banker is that you know the money will be there at closing.
Mortgage bankers also have options on who they will sell their loans to. This is really nice because if one buyer has a better rate, they can give their customers that rate.
It is always useful to do your homework on what kind of lender to go through. Don't just settle for the first person who decides to approve you.
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