As a competent mortgage loan officer, I often get homebuyers asking me if they are ready. They want to know if they qualify. I also get the same question asked over and over internet sites. The first question is often “How much income do I need to qualify?”. The second question is often if I can get them into the house. Congratulations on starting your home. You have made the decision to buy a home and now you want to get through the door. Call me as a buyer’s agent, if you have no idea what is more important… qualifying or buying. I am always happy to discuss either issue with homebuyers.
First of all I want to stress that getting a mortgage is not as simple as posting on the computer and picking out a random lender. Not only does it take a complete application, but there is a procedure to the entire process. Unless, you have a preferred lender that you trust and have a complete wish list with you – you can’t just walk into the door and buy. Not without qualified.
Fees- I am going to say some very important things about fees. First of all, please be aware of the fee structures etc. You’ve heard the advertisements “no cost” mortgage. Yes it is possible to close on a no cost mortgage. But generally the costs are built into the rate you are paying. So if it an “No cost” mortgage, the broker or lender must give compensation (and usually the borrower gets a “free” trip around the world to the island of fame) to compensate the mortgage broker/lender. These are also called “discount points”. How do you know about these and if they are a good deal? Here’s how…. “Discount points” are basically an instrument that equals 1% of the loan amount. On a $300,000 loan, the “Discount point” that you pay is $3,000. Many lenders will gladly waive it for you (to avoid giving up the interest you should be paying). Another way to get a reduced rate is to agree to pay an extra point (per 100K) in the form of a higher interest rate. For example, if you were offered a 15 year fixed rate loan with a 1.5 Discount point, your rate and closing costs would be about $30/month higher, than with a rate that was based on a 30 year fixed rate. The Concord is reconsidering the Rules, Data and Fee Required approach to its Home Loan programs. If that is something you are interested in, crunch the numbers with your loan officer.
Fees- Again, going back to Fannie Mae and Freddie Mac policies, the fees you pay for borrowing the money range from 3 points, on up to a 15% charge on the front end to the back end. While that is certainly a substantial cost, keep in mind that the federal government is NOT in the mortgage business and as a result when you walk away from the table YOU Scores WILL LOSE. More than likely, your closing and the title company. Why? I’ll tell you why in a sec. Here’s why… on a $300,000 loan, the borrowers payment would be $3,500. If we take that same $300,000 (lets say 30% of the total loan amount) and apply that as a formula to the 15% charge on the back end…we can stretch that to $5,500…in other words the FHA charges 16.5%. Add these costs together and your typical buyer is now looking at $10,000. Just put the 14.5% rate in the financial context of your loan and performs a factoring exercise using your knowledge of the deal – it is a no-brainer. The borrower doesn’t want to pay any more on the front end. A quick calculation will show that the lender is way ahead in the loan math than you, the buyer. Consider this and remember it again.
Interest Rate- The lender will quote different rates. They all want your business so they are willing to give you a loan at a 5.0% interest rate. They all want you to “lock-in” at a lower rate and they may quote on a rate + payment (you can actually forget about for 5 years). Those interested in paying down the principal first, preferably at a much lower interest rate but you can “float” the rate for a short term (say 5 years)
Closing, Title Fees- A separate item that can either be charged as a “point” or if you are refinancing the interest rate is the higher of a.5% or 2% of the quote from the broker. The broker will reduce their commission by directing you to their preferred mortgage broker/bank.