Are you Commingling? Mortgage Definitions

Commingling can take several different forms and meanings so we are going to focus on the root of the word. According to Wikipedia, Commingling literally mean “mixing together.” This is a common concern in the Real Estate world when it comes to collecting Earnest Money deposits and such. Taking a clients money and mixing it with your own personal funds is illegal. Financial advisors and attorneys also run the risk of serious legal action if they were to commingle funds.

It is when a fiduciary mixes funds that he holds in care of the client with their own funds. This makes it difficult to determine who’s funds are who’s and in the case of financial investment how to distribute gains.

For the purposes of this blog I wanted to touch on Commingling from the gift perspective.  As FHA continues gain steam as one of the premier financing tools for a home purchase so does gift for down payment. The Paper trail of the gift is extremely important and must be consistent throughout. For Example: Your aunt has agreed to give you $5000 for the use toward your purchase. Your aunt must show she has the ability to give the money via a bank statement, evidence the withdrawal from that account, show the cashiers check and the borrower must provide a statement receiving the funds. The cashiers check and the deposit into the borrowers account must match. Many times clients take the Cashiers check from the aunt and Commingle the funds with another small deposit. Now the paper-trail of the gift does not match across the board. If the additional funds were case they are hard to track.

Commingling could cost you time and anxiety in your purchase transaction if you do not pay attention.

Mortgage Definitions: PITI but not the Pity you think.

As we continue the series of Mortgage Definitions brought to by California Home Strategies we take a look today at PITI. This is definitely “PITI” but not the pity you think.

PITI: This stands for Principal, Interest, Taxes and Insurance. If you have a loan with “impounds” which is your taxes insurance are included in your monthly payment then the payment you make every month is PITI. If you have a loan with Mortgage Insurance this would also be included in the monthly payment but is not part of the PITI definition.  PITI is also used in the calculation of your Debt to Income ratios.

It is important to understand what PITI is. Dave Ramsey recommends that you total mortgage (PITI) not exceed 25% of your gross monthly income. Consult your mortgage broker to see what is right for your family. The standard FHA guidelines require a 31/43 Debt to Income.

Thank you again for reading. Until Next Time.

Mortgage Definitions: Note or Promissory Note

Commonly we are asked to supply a copy of our note when we are refinancing our mortgage or applying for a second mortgage. Many times as a consumer we state what is a note? So I decided to post the definition here:

Note

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Your note outlines the specific terms of the loan. When the loan begins, the maturity date, the interest rate and the sum. If it is an adjustable rate mortgage and the terms of the adjustments and if you have a pre-pay. The note can tell you a lot about your loan.

Where can I find a copy of the note?

Generally, you will have a copy of the note in the packet that the title company provided you at the time of signing. It will say not or promissory note at the top of the page. If you are ever in doubt contact your Loan officer and they should be able to guide you.

Until Next Time!

Mortgage Definitions: Servicing

Many times there is confusion when buying a home of whom you will pay in the end. The use of a broker is very common and when we use a broker to help us obtain a mortgage our loan is sold. The broker may obtain the loan for you through Acme wholesale and Acme will promptly sell that debt to an investor. That investor may or may not service the loan. They may have someone else service the loan. So what is Servicing?

Servicing – The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

If you are like me that leaves me asking the question then what is a servicer?

Servicer – An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

So in the most layman’s term possible servicing and a servicer is the debt collector. This is where you will send your payment and all correspondence about that payment will be made directly through this company.

Mortgage Definitions: Lock In and Lock In Period

It is common to hear the terms Lock In or Lock In Period associated with your new home purchase. The terms are very important to your financing and it is important to have an understanding of them.

Lock In – An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

Lock In Period – The time period during which the lender has guaranteed an interest rate to a borrower.

Previously, we examined different costs associated in Free Mortgage Step Right Up! These costs are either in rate and offered by the wholesaler via yield spread premium or they are paid upfront as pre-paid interest also known as discount. Each morning the investor sets the rates they are willing to sell on the open market based on their risk tolerance. They will set what they determine to be the par rate of the day and build the pricing off that rate. Par rate is generally represented with a 30 day lock defined as the lock in period.

Lock in Periods  are important because they are the time that you are given to execute the funding of your loan at the rate and the cost that you “Locked In” at. The shorter the period of the lock the cheaper the costs for the rate that you are locking in.

For Example: If you were locking the rate 4.75% today on a 15 day  lock the cost would have been .125% discount. The same rate locked for a 30 day period would have cost .250% discount. To give yourself an additional 15 days to get your laon closed it would have cost an additonal .125% of the loan amount. (this example is for illustrative purposes only and may not represent your borrowing position. Rates were on a 30 year conforming fixed rate mortgage with 740 fico, full doc on a single family residence purchase. Please consult your professional regarding your loan specifically.)

The constant change in the market require the investors to at times make midday chnages to the pricing. The imrovements can be for the better or for the worse. There are cases when more than one change can occur in a given day. If you have locked prior to the change you are safe from the change. If the rates have gotten better you are not allowed to get the better rate or pricing that it changes to. On the other hand if the pricing deteriorates you are locked in at the pricing prior to the deterioration. Pricing is time stamped so it is imperative when making a decision you are decisive. See Don’t bend over picking up pennies while dollar bills fly over you head  ! Indecision can prove to be a costly mistake.

For More Reading on Rate Locks, Lock In or Lock in Period you can also read:

Mortgage Locks: Certainly Uncertain! 3 tips to locking your mortgage.

Mortgage Rates Locking or Floating part 2 of 2 by Jeffrey Belonger

As always thank you for reading,

Matt Freeman

Free Mortgage Step Right Up!Definitions Continued:Origination, YSP, and Discount

Extra, Extra, read all about it! We got your free mortgages over here! No cost, no fees all we need is for you to apply and voila. I am sure that you have heard of the infamous no cost mortgage. You know the one that costs you absolutely nothing. Yeah that one. Oh you got one of these before. I am so sorry to hear that.

The truth is there is no such thing as “no cost.” I know surprise surprise. It is quite often that we come across consumers that have been told about the “no cost” mortgage. It could not be any further from the truth. You see the illusion in the trick is that there are third party vendors that are not part of the Mortgage per se that want to be paid. Examples of those professionals would be the appraiser, the title company, the termite guy and the credit vendor to name a few. Ask you mortgage consultant about the “no cost” mortgage and see what they say.

This blog is not about the “no cost mortgage though. It is a continuance on the series of definitions. Today we will take a look at the different types of ways that your mortgage professional is paid. There are three terms that you will commonly hear:

Origination -  Loan origination is the fee that is charged by the Broker or Banker that you are working with. Commonly, this makes up a portion of the broker or bankers commission. When applying for an FHA mortgage it is common to see 1% origination.

YSP or Yield Spread Premium - yield spread premium is an incentive that the wholesaler pays the broker for delivering a quality loan package and for locking specific rates. In general the higher the rate the higher theYSP. However, today’s market has changed YSP and many times the previous statement no longer holds true. There are several reasons for this but one of the reasons is that investors are afraid of an early pay off. See if they are to offer large incentive to sell higher rates and the rates remain low, there is a likelihood that the consumer would refinance to a lower rate. When the consumer does this early on in the loan it is called an early pay-off. An investor who has paid a large incentive for the higher rate will not have held the investment long enough to recoup the pay out resulting in a loss on the investment. It is common to see incentive be offered at the rates that are selling in the secondary market.

Discount – This is the opposite of YSP. Discount is paid to the investor to obtain a lower rate. It is essentially pre-paid interest. If you are willing to pay more money up front to the investor then they are willing to discount the note rate. This process lowers your monthly payment but increases the upfront costs of the loan. Discount will be made payable to the wholesaler that you are obtaining the loan through.

You cannot have discount and YSPon the same loan. However, origination can be seen with both discount and ysp. The broker has a percentage that they make on the loan. Many times that is with a combination of loan origination and ysp. In some cases the math would point to paying all origination for the broker/bankers fee so that the rate is lower and there is no YSP.

How do you know what is right for your loan? Consult your professional but also ask yourself the following question? How long do I see myself in this home and this loan? The answer to that question will help your professional show you the appropriate combination. After all, it is simply mathematical. The numbers never lie and they will tell you what is right and what may not work.

As Always thank you for tuning in.

All the best,