Sometimes borrowers ask, “Why don’t your rates match the ones I see online?” It is easy to quote rates out there, but every borrower should remember that their loan is different, and that often the advertised, or publicized, rates are slightly higher due to a number of factors.
First, the rates in Freddie Mac’s survey (which come out every week) include average discount points paid for the mortgage. But not everyone is willing to pay points: a point is 1% of the mortgage amount, charged as prepaid interest. Many borrowers do not want to pay points, and loan officers agree because unless you’re going to live in your home for a very long time, paying points often doesn’t make sense.
The second reason that your rate might be different than a rate you hear on the radio or see online is that your characteristics mean price adjustments. For example, a credit score on the low side will prevent you from getting the lowest rates. Low levels of home equity will also mean a pricier mortgage rate. Focusing on LTV, for example, at least a 20% equity cushion (80% LTV) in your home for a refinance, or down payment for a purchase, will help obtain a better rate for a borrower. And if a borrower wants a jumbo mortgage, you will want 25% or 30% down for the best rates.
Property type also influences rates: in the current environment, liens on condos usually carry a slightly higher rate unless you want to put more money down. And if your mortgage is for a vacation home or investment property, you can also expect to pay a higher rate. And lastly, some lenders have so many loans in process that they will intentionally make their rates slightly higher in order to slow down new business. Your loan officer can help answer questions on the best rate and price combination.
When you start the process of applying for a mortgage, you may feel as though you're giving every single bit of personal and private information to your mortgage lender. Just why does your lender need to know all of those things? Are your personal financials and credit history really necessary just to get a quote?
As you approach a loan officer to apply for a loan, you should be prepared to deliver quite a bit of personal information. Taking a closer look at how the loan industry works will help you understand why this is necessary.
Increased Scrutiny Means Increased Details
In the early 2000s, lenders were known for having loose underwriting for mortgages. Many people were given mortgages that they really were not qualified to have, and this led to the financial crisis of 2008 and the following real estate slump. Now, lenders are facing tighter scrutiny from the Consumer Financial Protection Bureau, and this has triggered increased requirements when borrowers approach lenders in pursuit of a loan. In order to get a mortgage, you are going to have to give up a lot of details and prove that you are credit worthy.
Why a Credit Pull Is Vital
Borrowers who suspect they may have credit problems or who are private in nature may wish to wait to have their credit checked until they're certain they've chosen the right lender and loan. Also, some borrowers don't want to approve the credit check because they don't want to have a credit pull on their history. However, your chosen lender can't offer loan terms without pulling your credit, and if you want to have more than one quote, each lender you apply to is going to have to pull your credit. These credit pulls do have a temporary impact on your credit report, but as long as you don't have an excessive number of inquiries for different types of loans, this shouldn't create a problem.
A Full Financial Picture
Your credit score is just part of the picture that your lender will need. Your lender's also going to need to know your financial situation. This includes your income, investments and other debts. This, combined with your credit rating, will show the lender whether or not you are a safe risk. Once the lender has all of this information, they can provide you with a loan that fits your financial profiles. If there are problems, the lender can also help you know what to do to improve your credit and financial profile. If you're denied, the lender will tell you why, and you can take measures to change your situation and improve your chances of being approved for the next loan.
So yes, when you apply for a loan, you will need to offer up quite a bit of personal and financial information. It's simply part of the process. To limit the number of credit pulls and disclosure you are required to make, shop for lenders first and narrow down your choices to a couple, then apply, but don't be afraid to give up your information, because without it, you can't get a loan.
If you want to start an argument, announce to a crowd that the economy is recovering: half will agree with you, half won’t. Certainly the recent downturn has impacted many, leading to short sales, foreclosures, and bankruptcies. And plenty of people are asking about buying a property that was involved in a bankruptcy. To answer that, the key issue is what type of bankruptcy was filed, and how long will it take to close?
Since most such sales come with no representations, warranties or indemnifications, attorneys representing buyers should make due diligence their number one priority. Section 363 of the U.S. Bankruptcy Code allows parties involved in a Chapter 11 or Chapter 7 (most common for consumers) proceeding to dispose of real property in order to help pay off their debts through a highly structured process aimed at getting the most out of each asset while retaining the least liability.
As such, properties are sold "free and clear" from all liens and encumbrances, but it's not uncommon to later discover hidden issues, experts say, and the buying process itself can present various other hurdles. The buyer should conduct exhaustive due diligence. The trustee or debtor-in-possession rarely has access to all of the materials a buyer would typically need to see before making a decision to purchase property; sometimes a debtor has destroyed the documentation prior to the bankruptcy, or not kept it in good enough shape.
A buyer should take advantage of the property being “Free and Clear”. Although the transfer of the property comes with no representations or warranties, it also comes with no liens or encumbrances. A buyer should enlist a knowledgeable lender and real estate professional, and be prepared to move quickly in what could be a competitive bidding environment.
The main goal under any filing in bankruptcy is to give one, who is burdened with debt, a fresh start. A debtor files a petition with the court, along with a schedule of assets and creditors; a trustee is appointed to administer the sale of nonexempt property. The primary role of the trustee is to pay the secured and sometimes unsecured creditors, from the proceeds of the sale of property, and this may take up to 45-60 days to wind its way through courts – but could very well be worth it to the buyer!
For home sellers, two basic options exist. They can sell their home on their own as a for sale by owner (FSBO) property, or they can sell with the assistance of an agent. Many sellers think that working with an agent is the more costly option, and thus try to sell their home on their own without assistance. Here are 5 reasons why this may not be the best idea.
1. Lower Sale Price
Most sellers choose to go the FSBO route because want to save money. They think, "If I'm not paying a real estate agent, then I get more profit from the sale of my home." Unfortunately, any additional profits they're hoping for end up counteracted by an often lower selling price.
According to the National Association of REALTORS, FSBO homes have a median sales price of $185,000 in. This is compared to a median price of $245,000for agent-assisted homes. A typical agent's fee of 6% on a home price of $245,000 is just $14,700, compared to the $60,000 difference in the prices. So, even with paying an agent, the seller using an agent still makes more money on the sale of the home.
2. Slower Sale
Sellers who tackle the prospect on their own often don't have the marketing expertise to do it right. This means that the home may sit on the market longer, because fewer buyers see it. Since almost 90% of buyers search online for a home, an online presence is critical, and many FSBO sellers don't know how to generate a good one or don't have the tools to keep it up to date and in the sight of potential buyers.
3. More Difficult Transaction
The amount of paperwork necessary to legally sell a home has increased dramatically. All of the inspections, disclosures and other regulations which are mandatory are quite overwhelming, and once the property's ready to sell the process of the contract adds another layer of complexity. When someone tries to sell a home as a FSBO property, they aren't exempt from these regulations, so they must tackle the learning curve on their own. That's one of the reasons the number of FSBO properties has dramatically dropped in recent years.
When selling with a Realtor, sellers get the benefit of working with someone who has extensive experience in this. Agents have to study the regulations and paperwork before getting their licenses, and experienced agents have closed multiple sales to experience the process again and again. This prevents delays and frustration for the seller.
4. Too Many Negotiations
The home selling process can involve a number of negotiations, and most homeowners are not skilled negotiators. Not only are they going to need to negotiate with the buyer, who of course is looking for a deal, but they'll also need to negotiate with the buyer's agent. Some buyers have attorneys as well, and that represents another negotiation. The home inspector, who always finds something wrong with the house, is another place where negotiation has to happen. Without experience in negotiation, this can be incredibly stressful for the seller. An agent comes alongside and guides these negotiations, knowing what is worth fighting for and what is worth conceding.
5. Insufficient Exposure to Buyers
One of the reasons successful real estate agents are successful is because they have a large reach to find prospective buyers for their homes. This starts on the internet, where the majority of buyers start their search. An agent is able to post in all online venues, including those linked to the MLS. In addition, agents know the most effective offline advertisement venues, so sellers don't waste their time posting in newspapers that no one reads. Finally, agents have buyers they're working with as well, and they're motivated to sell to their own buyers to increase their income, so they're going to show buyers the seller's property. When selling on their own, sellers must figure out all of the different venues, post the listing themselves and then hope for the best.
Sellers considering selling on their own have an uphill battle to face. It's always better to partner with an experienced Realtor, as doing so makes the process ahead much smoother and less stressful.
Underwriting guidelines change all the time. But interestingly, one thing that is somewhat constant is the amount of down payment due at the closing table. Many borrowers find, however, that coming up with the cash for the down payment has perhaps been the biggest obstacle to homeownership.
Seventy-five years ago, banks would only loan money to buy a house if the homebuyer had 30 percent or more of the sales price for the down payment. Even in 1935 when the average price of a home in the United States was $3,400, coming up with $1,000 for a down payment was a challenge. After all, the average income of a worker was just $1,500 per year. But in the 1930s the government decided to step in and help Americans buy their homes, and the Federal Housing Administration (FHA) was created to offer prospective homeowners the opportunity to buy a home with a small down payment and a stable 30 year fixed rate loan.
Today, our government, through the FHA, insures lenders who offer FHA loans. These loans have many benefits but probably the most noteworthy is that FHA insured loans allow a homebuyer to buy a home with as little as 3.5 percent down and to borrow as much as $729,750 (in a high-priced housing market) at a competitive 30-year fixed rate. FHA loans are typically more lenient on credit and allow a borrower to spend more of their monthly income on their house payment than conventional loans. They also allow a borrower to receive all of the down payment as a gift.
But FHA-insured loans also have their downsides. For example, FHA loans require mortgage insurance on every loan, despite the size of the down payment, and that mortgage insurance effectively adds up to 1.35 percent to the note rate. In other words, if the 30-year fixed rate today were 3.25 percent, the effective rate for an FHA loan would be over 4.5 percent.
Alternatively, the conventional financing offered by Freddie Mac and Fannie Mae requires the borrower to pay for mortgage insurance only if there is less than 20 percent for the down payment. Mortgage insurance may be paid either on a monthly basis or as a lump sum at the close of escrow. The precise payment options are dependent on the loan to value ratio, the loan amount and the credit score. Unlike with the current FHA loans, mortgage insurance on conventional loans does not continue throughout the life of the loan.
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