Lowest Rate + Lowest Fees = Best Loan Available?

There are many places that I can go with this but I just wanted to take a moment to ask you the following question:

Does the Lowest Rate and Lowest Fees = The Best Loan Available?

You have to be careful when you are shopping for a home loan of those that will offer you the lowest rate and the lowest fees at the same time. By nature the lower the rate the more the cost of the loan. The higher the rate the lower the cost of the loan. The reason is simple. It costs to get the best. There are many cases where you may get a low rate at a low cost but what type of loan did you get? 3 year fixed, five year fixed?

I would like to believe this is not happening in today’s market but it does. The other thing that still happens in today’s market is bad loans. Even though the scrutiny is way up there have been loans in the last year that have been made to low credit borrowers with little down payment or borrowed down payment. These loans were made with high Debt to Incomes and are a recipe for disaster. I expect to see several HUD foreclosures on the basis of these loans and continued job loss. A bad combination for those that had little to no savings and got into the home.

Loans are a lot like suits or fancy dresses. Loans have to be tailored to the individual and their specific situation. Your goals and dreams for the home will play largely into the decision of loan type, cost and structure. No two loans are ever alike. Even identical twins will get different loans because their situation is different. I mean you can buy a suit or a dress off the rack and it may fit but will it be the best fit for you? The answer is know.

How do you make sure that the combination you get is the right one for you? It starts with making sure that you are working with a professional that you are comfortable with. Ask questions, ask to see examples, ask them to explain and when they cannot answer a question do they get you the answer. My goal on every transaction is to make sure that my consumer understands every charge and expense and why we went with the loan program we did. We have a plan moving forward. I do not always accomplish this. Some consumers do not want to know all the details and ask that I give them only the basics. Those are the instances that I have earned the trust I presume.

The Best Loan Available for you is a combination lock with only one combination of rates and fees for you. Like I said no two deals are the same. If you are approached by a Loan Officer that says I have the lowest rate and fees available beware. They may very well have it but make sure that what they are selling is something you want. If you were to pass a Hot Dog stand and the vendor yelled out “I have the cheapest best Hot Dogs in town” you may or may not buy. It would depend on whether you were hungry, liked hot dogs and felt that the price was worth it.

I would suggest that everyone remember that if it sounds too good too be true it may be, however, you owe it to yourself to do your due diligence and make sure that it is the appropriate suit or dress for you.

Changes coming on December 12th by Fannie Mae

On December 12th Fannie Mae will be making major changes to their automated engine Desktop Underwriter. DU findings are the basis for most of the loans that are funded today. Once a file is assessed in the DU underwriting engine and receives Approve/Eligible findings this loan can be done. The only thing that would keep this particular loan from closing is not being able to provide the documentation requested or the Loan Officer miscalculating or inputting incorrect information into the system. (this does happen by the way so it is imperative that your loan officer understand several important criteria)

So what changes can we prepare for or expect from Fannie Mae? Highlights of these changes include but may not be limited to the following:

• An Update to the DU Credit Risk Assessment
• An update to the Maximum Total allowable expense ratio (Debt to Income) to 45% with flexibilities to 50% for certain loan case files with strong compensating factors.
• Retirement of expanded level approvals EA II and EA III recommendations
• Minimum 620 fico score for delivery eligibility
• MI Updates
• o    A new minimum MI coverage option; a loan-level price adjustment (LLPA) will apply
  o    Streamlining of other MI coverage requirements
  o    Retirement of Reduced and Lower-Cost MI options
• Implementation of High Balance Mortgage Loan Eligibility Guidelines specified in a previous announcement
• Retirement of Homestyle construction to Permanent Financing
• Implementations from three previous announcements.

The focus of these changes should go to Debt to Income. For too long we have been allowing a total back end Debt to Income to 56.99% for FHA and in some cases exceeding that for conventional financing. For all intensive purposes this means that your Housing Payment plus debt that reports to the credit bureaus minimum monthly payments added together represent 56% of your total gross income.

If you are in a 30% tax Bracket and take home 70% of the gross it leaves you 14% of your gross for all other expenses. Other expenses that include food for a family of five which is at minimum $800 dollars a month. We have set people up for failure of home-ownership.

Why you might ask? California leaves very little option for new buyers. The Housing affordability based on average income and price for the area is still high. It is very difficult to get a home that would meet the needs of a family of five in a location, near to schools on the average household budget. This would be significantly easier if we were taught about finances more accurately growing up and did not have the worldly pressures to keep up with the Joneses.

See it as good news – This may change the amount that you qualify for and that is not a bad thing. You have to see it for what it is. It is an attempt by the banks to save their own butt by forcing you to buy well within your means. It is a good thing to keep you well within your budget. Please check with your Broker and Realtor and make sure that these changes will not affect your closing. Ask them what your back end debt to income is. It should be less than 43% in my eyes.

As always thank you for Reading.

Shopping should be done at the Mall. 5 reasons why shopping can cost you more money.

I love going to the mall. There are so many stores to choose from. I    get  the opportunity to check out all the stores looking for the greatest price. I am there for jeans and I do not have the need for the customer service team to assist me in trying them on. There is little value that staff at the retail stores can add other than an occasional explanation of the product. If I leave a store and then I decide to go back two hours later the price is still the same. Malls are great for a one stop shop and one size fits all type of product. My only question would be: Do you get your suits at the mall? If answer is yes then answer the follow up: Do you leave that day with the suit that you just bought?

Mortgages are an items that need to be tailored to your specific dimensions. They are not something that you can just pick a store and then check with another store and say the price tag was cheaper over here. Price Tags can be deceiving. In our industry they are called the “Good Faith Estimate.” Here are 5 reasons why shopping can cost you more money:

1. Rates are a moving target – In the mall you can go from store to store and then back to the original store and purchase the item that you found to be the most well priced. However, imagine if as soon as you left the store they had a price change for the worse. When you went back to buy the item that was initially $100 you found out it was $125. Had you committed ealrier in the day you would have paid $100. The flip side is you could come back and find the item to be $75 and feel like not only did you make the right choice but you got a deal. This is what is going on with rates. They change daily and in many cases multiple times a day. A Good Faith Estimate is exactly that an estimate. Some will give the the absolute best case scenario and others will price in the volatility of the market. The latter is done to prep you for the worse so that you avoid let down or shock late in the game.
2. Mortgages are Custom – There is not a one size fits all mortgage. They are custom tailored to meet the needs of the individual applying for the loan. When  you are looking at every store and comparing our GFE’s (small part of what we do) there will not be an extraordinary amount of work put into your file. Our job is to shop the best deal for you. This is what brokers do. See the definition of Broker brought to you here compliments of the free dictionary. In short we organize deals and negotiate contracts for a commission. The tailor is not going to begin cutting the suit before you buy it. You may get measured and fitted but the real action will not take place until you have committed. Common ways to show your committment are paying for the credit report and the appraisal for starters and providing all the documents to give you an accurate assessment.
3. Change in the Guidelines – While you are out looking at other stores to find the right deal for you other stores are changing what they offer. Imagine going back to the store and the item that you were looking to purchase says no longer in stock or discontinued. You may be able to find a used version online or from a store that you do not trust but you would have to weigh that risk on your own. Today’s climate has led to many changes in our guidelines. Many consumers missed the boat on Nehemiah. This was seller funded down payment assistance and it has been taken off the books. When you look so hard for the deal you may miss out on the opportunity of your life time. Don’t pick the fleck out the pepper!
4. Credit Scores – Each month just after the 3rd or so your active credit will report to the bureaus. If you have had new charges post to your debts or bought something new or inquired about a new car your score may suffer the consequences. If you were borderline 620 and your score drops below this mark your chances for an FHA have just taking you away from the Mall of options and sent you to one of two specialty stores. You know what that means right? Higher Prices. You are now going to pay more for your product through the specialty store and there is no guarantee that they will be able to stay in the market long. You have to protect your score and when you have it pulled by a Broker they have that score and can use it for up to 90 days before they would have to re-pull a new report.
5. Price is what you pay value is what you get – Often times as a consumer we are shopping for the best price. I can understand and respect this. I don’t want to pay more than I have to either. However, there are many more elements to the whole customer experience. You want to feel comfortable, informed, in the know, respected and Valued. Often times when you get a victory so to speak on the price you take a hit on the value. You will get the bare minimum but that is to be expected considering you paid the bare minimum. So I like to subscribe to the wise saying “Price is what you pay and value is what you get.” You cannot shop value in our market.

If you take nothing away from this at all please understand this: Shopping can cost you more than committing to the individual you feel most comfortable with. Shop for trust and information not for price. Ask someone to refer you to someone that you can be excited to work with. You will find by doing this you will get exactly what you are looking for. Malls are a moving target and are not a fair representation of our industry. We do not sell retail and therefore your rate and price may not be waiting for you when you come back. Leave the mall as something you do on the weekend with the family or friends. We are here to work with and for you not against. Businesses built by Referral receive nothing from charging you an unfair price for their product or service.

The Mall in Motion!