The interest rate you get on your loan is dependent on your credit score, and your choice of lender. Know what it is before you shop. Above 740 is the best rates. 680 is about the lower end for decent rates. The difference can save you thousands over time.
*** Each time someone runs your credit, your score will go DOWN by 3 points!!!!!
Get your score before you shop and get it from a source that does not register as an inquiry on your credit report. Too many inquiries is often cited as a reason to decline a loan. This means DONT give a lender permission to run your report until you have decided to go with them for the loan. It may seam like a nice service they offer, but is actually setting the hook in you.
Lenders like to "hook" you with a credit report inquiry so that you have to stay with them, knowing that your score will drop if you go another place.
Be careful of "free credit report.com" They are only free after you pay them.
The govt site is www.annualcreditreport.com. This one is free and does not ding your score.
The credit report you get can be one of your best choices. I like Clear Choice Credit. They provide the report and also several pages of suggestions of how to raise your score and how much your score will go up if you do their suggestions. It may be something like pay off Nordstroms to only 30% of the balance and your score will go up 20 points. Or something like that.
What hurts your score:
Credit cards with a balance more than 50% of the available limit. Other accounts similarly.
Late payments hurt a lot. Always make payments on time. A 30 day late payment can ding your score 40 points. Bankruptcy stays on for 10 years. they hurt but are not a deal killer.
*****Before shopping get your credit report. Any judgement will have to be paid before you get a loan.
Pay attention here!!!! If you have a judgement on your report, it is old and you feel is not legitimate or fair, deal with the people BEFORE they get wind of your home purchase ideas. Once they know you are getting a loan, they won't budge an inch on getting the full amount out of you. If you contact them first, you can usually negotiate a pay off much lower. (you are moving out of state and want to offer them a reduced payoff) They know that out of state, is nearly impossible to collect. They will run your credit to look for inquiries!!!! If you already gave the bank permission to run your credit, they will know what is up and you will pay the full amount.
How much do you need to make for a loan? The payment should be below 30% of your income. The payment plus all other debt should be below 45% of your income.
How much for a down payment? New programs offer a 1% down payment! This is amazing. The lender with the 1% down also contributes 2% to you from their YSP, meaning you instantly have gained 2% equity.
Any questions, email me: ctinej@hotmail.com
Wednesday, July 20, 2016
Rates and fees explained.
Lets say you call a bank and ask for the rates on a loan. First know that the Bank ONLY has THEIR rates and you have no shopping going on. A Broker on the other hand may have as many as 200 lenders in their date base from which to choose. The good ones have computer sorting to find the best ones each day!!!
They may quote you a rate and you have no idea what that means. You may think you know but you DON'T. They will quote a rate with high fees so the rate sounds low. They will assume your credit score is over 750 which is where the best rates are. You may get much less. This tactic is to get you in to fill out an application. DON'T FILL OUT ANY APPLICATIONS till you are sure you want to proceed to close with that lender. Read the next blog to understand why.
The "PAR" rate is one that you should understand. Always ask for this rate when making comparisons. This is the interest rate you get with no origination fees. This means that the bank is making enough on the YSP (read the previous blog to understand YSP) to NOT charge you the origination fees they have. The title company and title insurance fees, appraisal fees may still be charged.
Now, think 7 years. This is the number that buyers of the loan use to establish their returns on their purchase. Buyers are Huge outfits like Fanny Mae etc. They buy blocks of loans for hundreds of millions of dollars at a time. The typical loan lasts 7 years so they use that to determine what to pay for the loan.
You should also consider that 7 year number when deciding on what rate you want. The available interest rates are a sliding scale with the lowest rate corresponding to the highest loan fees. No fees means a higher rate. For instance, if you are offered a 3% loan it may have a cost of 2 points plus you pay all the loan fees. If you intend to keep that loan beyond the 7 years, you may come out ahead by taking the rate with lots of up front fees.
A "no out of pocket closing cost loan" can mean that all those fees are ADDED TO YOUR LOAN BALANCE. Beware of this. If you were to pay off the loan via a refi in a few years you will LOOSE all those fees, which could be around $10,000. If you plan to sell, refinance or pay it off soon, take a little higher rate with all the fees paid by the bank. A no closing cost loan!!
A no closing cost loan means that the interest rate is raised enough so the the higher corresponding YSP is high enough to pay all the fees, including the title, appraisal etc. In this case you will pay a higher interest each month, but have not added any of those fees to your loan balance. This is the choice to make if you intend to pay it off soon. ***If you know you will refi or pay it off in a couple years, ask for a Binder Policy from the title company. You will pay 110% for the insurance policy but get a 100% refund toward your refi later. Hardly anyone knows of this. Could save you a thousand bux!!
Shop all your sources the same day!!! The rates change daily, sometimes a couple times a day. To be fair to your self and the brokers, compare companies on rates quoted on the same day. Obviously this is a huge task that can take all you time. Using a Broker with computer sorting can do it for you in a flash.
How much can you save?. LOTS!!! I see folks save a full 1/2% on the interest rate -which amounted $1200 per year, and got the borrower an additional $2000 from the YSP toward closing costs. This is compared to three of the nation's biggest lenders.
My email is : ctinej@hotmail.com
They may quote you a rate and you have no idea what that means. You may think you know but you DON'T. They will quote a rate with high fees so the rate sounds low. They will assume your credit score is over 750 which is where the best rates are. You may get much less. This tactic is to get you in to fill out an application. DON'T FILL OUT ANY APPLICATIONS till you are sure you want to proceed to close with that lender. Read the next blog to understand why.
The "PAR" rate is one that you should understand. Always ask for this rate when making comparisons. This is the interest rate you get with no origination fees. This means that the bank is making enough on the YSP (read the previous blog to understand YSP) to NOT charge you the origination fees they have. The title company and title insurance fees, appraisal fees may still be charged.
Now, think 7 years. This is the number that buyers of the loan use to establish their returns on their purchase. Buyers are Huge outfits like Fanny Mae etc. They buy blocks of loans for hundreds of millions of dollars at a time. The typical loan lasts 7 years so they use that to determine what to pay for the loan.
You should also consider that 7 year number when deciding on what rate you want. The available interest rates are a sliding scale with the lowest rate corresponding to the highest loan fees. No fees means a higher rate. For instance, if you are offered a 3% loan it may have a cost of 2 points plus you pay all the loan fees. If you intend to keep that loan beyond the 7 years, you may come out ahead by taking the rate with lots of up front fees.
A "no out of pocket closing cost loan" can mean that all those fees are ADDED TO YOUR LOAN BALANCE. Beware of this. If you were to pay off the loan via a refi in a few years you will LOOSE all those fees, which could be around $10,000. If you plan to sell, refinance or pay it off soon, take a little higher rate with all the fees paid by the bank. A no closing cost loan!!
A no closing cost loan means that the interest rate is raised enough so the the higher corresponding YSP is high enough to pay all the fees, including the title, appraisal etc. In this case you will pay a higher interest each month, but have not added any of those fees to your loan balance. This is the choice to make if you intend to pay it off soon. ***If you know you will refi or pay it off in a couple years, ask for a Binder Policy from the title company. You will pay 110% for the insurance policy but get a 100% refund toward your refi later. Hardly anyone knows of this. Could save you a thousand bux!!
Shop all your sources the same day!!! The rates change daily, sometimes a couple times a day. To be fair to your self and the brokers, compare companies on rates quoted on the same day. Obviously this is a huge task that can take all you time. Using a Broker with computer sorting can do it for you in a flash.
How much can you save?. LOTS!!! I see folks save a full 1/2% on the interest rate -which amounted $1200 per year, and got the borrower an additional $2000 from the YSP toward closing costs. This is compared to three of the nation's biggest lenders.
My email is : ctinej@hotmail.com
understanding the lending business
Why an Independent Wholesale Mortgage Broker?
A lack of transparency can make understanding the loan business impossible. So, I'll provide a simple explanation as to why you may get a better deal from a broker than by going directly to the underwriting source or bank.
When you call a major bank who also has wholesale broker cooperation, you will talk with an In House Sales Person. They are employed by, housed by, insured by, educated by, and supported by the bank. All that costs a lot. Independent brokers bring fully processed loan packages to the bank, with NO overhead, like all those internal expenses related to their employees. To compensate for this, the Bank will pay the outside Broker a fee for bringing in the loan.
Generally, all loans are sold on the secondary market to huge investors like Fanny Mae etc. When the loan is sold, some of the future earnings are shared back with the bank and broker. They call this a Yield Spread Premium, or YSP. Many lenders do not disclose this to the borrower and don't have to. Many borrowers believe that Mortgage Originators make it on a 1% origination fee. NOT SO. I have seen a YSP as high as 9%!!!
Some brokers will share their part of the YSP with the borrowers by buying down the rate, or paying fees related to the loan. If one broker offers a better interest rate, or lower fees, it is most likely because that Broker is not making as much money as the others. They are sharing part of that YSP with the borrower.
I think that the abundance of regulations keep brokers honest, but those regulations have nothing to do with how much they want to make. So....It pays to shop around. First shop for a Broker you like, who will then shop for a good wholesale source for your loan.
Two places to save money are 1-, the Broker and 2, the choice of Wholesale Underwriter.
IN the next blog, we will discus rates and fees as well as how to save as much as 1/2% by shopping around.
my emial is ctinej@hotmail.com
A lack of transparency can make understanding the loan business impossible. So, I'll provide a simple explanation as to why you may get a better deal from a broker than by going directly to the underwriting source or bank.
When you call a major bank who also has wholesale broker cooperation, you will talk with an In House Sales Person. They are employed by, housed by, insured by, educated by, and supported by the bank. All that costs a lot. Independent brokers bring fully processed loan packages to the bank, with NO overhead, like all those internal expenses related to their employees. To compensate for this, the Bank will pay the outside Broker a fee for bringing in the loan.
Generally, all loans are sold on the secondary market to huge investors like Fanny Mae etc. When the loan is sold, some of the future earnings are shared back with the bank and broker. They call this a Yield Spread Premium, or YSP. Many lenders do not disclose this to the borrower and don't have to. Many borrowers believe that Mortgage Originators make it on a 1% origination fee. NOT SO. I have seen a YSP as high as 9%!!!
Some brokers will share their part of the YSP with the borrowers by buying down the rate, or paying fees related to the loan. If one broker offers a better interest rate, or lower fees, it is most likely because that Broker is not making as much money as the others. They are sharing part of that YSP with the borrower.
I think that the abundance of regulations keep brokers honest, but those regulations have nothing to do with how much they want to make. So....It pays to shop around. First shop for a Broker you like, who will then shop for a good wholesale source for your loan.
Two places to save money are 1-, the Broker and 2, the choice of Wholesale Underwriter.
IN the next blog, we will discus rates and fees as well as how to save as much as 1/2% by shopping around.
my emial is ctinej@hotmail.com
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