Find out what mortgage banks or brokers don’t want you to know (1 in a 4-part series of articles)
Website design By BotEap.comBuying a mortgage these days can be like walking through a minefield only to find out too late in the process that your home refinancing or purchase won’t close on time or at all.
Website design By BotEap.comThe mortgage industry can be a minefield for consumers who are not sufficiently informed about the process and do not know where not to tread. Here is a partial summary of the potential dangers and how not to become their victims.
Website design By BotEap.com1. Mortgage industry/market volatility and outdated pricing 2. Incomplete or misunderstood loan scenarios 3. Low mortgage price and/or interest rate 4. Low closing cost (before HUD final) 5. Lender fee and/or interest rate escalations 6. None Existing or bogus rate locks 7. Intimidation by contract 8. Financial incentives to overcharge
Website design By BotEap.com1. Mortgage Industry/Market Volatility and Outdated Pricing: Because mortgage prices reset every day, and in my experience sometimes three times in the same day, price comparisons from different loan providers they may not be valid if they are not made at the same time. I’ve been a radio talk show host for 3.5 years and a listener emailed me with the following question: “I looked up a few lenders using the phone to contact the ones that seemed most promising based on the rates published in the local paper. When I went back to the one with the best prices, however, I was told that those prices were no longer valid. Is there a way to avoid starting the process all over again?”
Website design By BotEap.comI’m afraid not. Most mortgage lenders/brokers change their prices daily, usually in the morning after the secondary markets open, and sometimes during the day as well. This is a major issue for buyers using traditional distribution channels, as the prices collected from lender one on Monday and lender two on Tuesday will not be comparable if the market has changed in the meantime. Prices advertised in newspapers are out of date when printed. A newspaper that publishes price information in its Monday edition, for example, reports prices for Friday. On Monday, when the newspaper hits the streets, the lenders already published new prices.
Website design By BotEap.comThe Internet can ease the pain of buyers trying to stay on top of the market. For one thing, it provides more current information than the print media. But not all mortgage websites provide up-to-date data. The vast majority of single lender sites are not kept up to date. Multi-lender referral sites, which provide pricing information from hundreds or even thousands of lenders, rely on lenders to keep their information up to date, which some do but many don’t. Some of the prices published on the Internet are therefore even more out of date than those in newspapers.
Website design By BotEap.comIn most cases, when consumers are comparing based solely on interest rates, it serves as a red flag to the banker or broker because only the uneducated consumer who is unfamiliar with the mortgage process would result in a comparison based on interest rates. only on interest rates. The interest rate a consumer will be able to obtain on a mortgage will depend on their credit score, income, assets, income-to-debt ratio, and other factors that make it unique to the consumer’s individual characteristics. This is a very challenging concept for consumers to realize because they have been trained and bombarded by the different media advertisements to make that phone call.
Website design By BotEap.com2. Incomplete or Misinterpreted Loan Scenarios: Because mortgage prices depend on a wide variety of consumer characteristics, such as: income, credit, assets, property type, and other characteristics, misclassification and subsequent rate setting Mispricing, accidental or deliberate on the part of the banker or broker are very common in the mortgage industry, especially if they have been in business less than three years.
Website design By BotEap.comLenders vary the terms they offer consumers based on loan amount, consumer income, types of employment, credit, assets, and property features that they believe affect the risk or cost of the loan to them . Lenders consider loans used to purchase investment property to be riskier than loans used to purchase property that will be occupied as the consumer’s primary residence. To compensate lenders for the risk, these loans carry a much higher interest rate than loans for primary residences.
Website design By BotEap.comHere are some other factors that could have the same effect as an interest rate increase:
Website design By BotEap.comThe borrower does not have a permanent residence in the United States. There is a co-borrower who will not live in the house. There will be a second mortgage on the house. The house is a condominium with more than 4 floors. The borrower wants to avoid monthly tax and insurance escrow payments and wants to be responsible for paying them.
Website design By BotEap.comThe number of different types of features is huge due to all the different combinations of the features that define a specific market segment, such as those listed above. Mortgage buyers should understand that no one lender operates in all market segments, and the narrower the market segment, the fewer lenders there are. A lender can be very investor-friendly, for example by offering its mortgage products to real estate investors. Another thing buyers need to understand is that the lender that offers the best deal in one market segment is very unlikely to be the one that offers the best deal in another market segment. This is one of the main reasons that mortgage brokers have become such an important part of the mortgage market in recent years. Since mortgage brokers deal with multiple lenders, they are positioned (unlike consumers) to identify lenders and investors operating in a particular market segment and select the best of the available solutions for a specific transaction.
Website design By BotEap.comTo shop effectively, consumers need to make sure they locate themselves or their broker’s will in the right market segment beforehand. Otherwise, the buyer does not know whether or not the information collected from him reflects the price of the special market segment. It also helps to have an idea of how your particular market segment is priced. Below is a list of the main factors of the market segment:
Website design By BotEap.comMortgage market segments
Website design By BotEap.comAt least some lenders use all of the factors listed below to price mortgages.
Website design By BotEap.comTransaction characteristics:
Website design By BotEap.com1. Loan amount
Website design By BotEap.com2. Desired blocking period in days (15-30-60-90)
Website design By BotEap.com3. Down payment (as a percentage of property value)
Website design By BotEap.com4. Mortgage Terms
Website design By BotEap.comProperty if not single-family detached:
Website design By BotEap.com5. Two families
Website design By BotEap.com6. Three families
Website design By BotEap.com7. Four families
Website design By BotEap.com8. Cooperative (the building is owned by a cooperative association)
Website design By BotEap.com9. Condominium (borrowers own the unit in a project where some facilities are common property)
Website design By BotEap.com10. Condo over four stories tall
Website design By BotEap.com11. Manufactured (house was not built on site)
Website design By BotEap.com12. Attachment (“Twin”, “Triplex”, “Row”)
Website design By BotEap.com13. Planned Unit Development (home is located in a PUD with a homeowners association that collects debts)
Website design By BotEap.comPurpose of loan if not to purchase for occupancy as a permanent residence:
Website design By BotEap.com14. Second Home Purchase (Holiday Home)
Website design By BotEap.com15. Refinance
Website design By BotEap.com16. Cash Out Refinance (loan is greater than prior loan balance by more than settlement costs)
Website design By BotEap.com17. Investment (the house is bought to rent)
Website design By BotEap.comDocumentation if not standard:
Website design By BotEap.com18. Alternative documentation (borrower wants to provide payroll and bank statements rather than wait for employer and bank verification of information)
Website design By BotEap.com19. Self-Employed Documentation (borrower wishes to use special documentation requirements available to self-employed individuals)
Website design By BotEap.com20. No income verification (borrower does not want lender to verify reported income)
Website design By BotEap.com21. No asset verification (borrower does not want lender to verify reported assets)
Website design By BotEap.com22. “Undocumented” (borrower does not want lender to verify reported income or assets)
Website design By BotEap.com23. No income ratios (borrower does not want income used to determine qualifications)
Website design By BotEap.com24. Streamlined Refinance (borrower wants reduced documentation requirements available only on refinances)
Website design By BotEap.comSpecial characteristics of the borrower
Website design By BotEap.com25. Non-occupant co-borrower (one of the borrowers will not live in the home)
Website design By BotEap.com26. Subordinated Financing (There will be a Second Mortgage on the property when the new loan is made)
Website design By BotEap.com27. Non-permanent resident alien (borrower is employed in the US but is not a US citizen or permanent resident)
Website design By BotEap.com28. Non-Permanent Resident Alien (borrower is not a US citizen and not employed in the US)
Website design By BotEap.com29. Waiver of security deposits (borrower wants to be responsible for paying taxes and insurance)
Website design By BotEap.comAnd the most important consumer segmentation is the credit rating of the borrower. Lenders always check a borrower’s credit and typically rely heavily on a single measure of creditworthiness called a “FICO score.”
Website design By BotEap.comFICO scores go up to 850, which is a perfect score. Some lenders, for example, provide the lowest prices only to borrowers with scores above 680. Those between 620 and 680 pay a higher rate on a 30-year fixed-rate loan. Between 600 and 620 they pay even more. And between 580 and 600 pay even more, and more… There is no uniformity in how these scores are used, however, and other lenders may use different cut-off points.
Website design By BotEap.comTo receive a FREE copy of the full 4-part series of The Insider Report and the 8 Things You Absolutely Need to Know Before Applying for Any Home Loan, visit our website.