How to choose the best lender
You're shopping for a mortgage and you've received four offers from four lenders. How do you choose? The first factor most people consider is the interest rate and other costs, but that's only the beginning. You'll also want to think about the lenders themselves, not simply the numbers they're tossing your way.
Here are five steps to follow when determining which lender is right for you:
1. Compare fees as well as interest rates
Comparing loans based on their annual percentage rate (APR) is a good place to start, but it's not enough. In the case of a mortgage, to get a more accurate breakdown of costs, ask the various lenders for a formal "good faith estimate" of all the fees you'll incur with your loan -- this is a standard form lenders must provide you that is more detailed than the overview you'll get with an offer. Also, ask about potential charges that may not appear on that list, such as prepayment penalties. You're not just comparing numbers here: determine how honest and upfront you feel the lender is being, and don't use a lender that you feel is evading your questions.
2. Consider your individual circumstances
Bigger lenders aren't necessarily better than smaller ones, especially if you have unusual circumstances. For example, some lenders specialize in loans for people with poor credit, while others may have more options for those with small down payments. If you have special borrowing needs, look for a lender with experience working with people in similar situations.
3. Look at the range of loan types available
There are more loan options available than ever before, so take advantage of all that choice. Look for a lender who offers a wide variety of loan types, from conventional fixed-rate and adjustable-rate to newer ones such as hybrid ARMs and option ARMs. Your lender should be able to match you with a mortgage that's right for your financial situation and risk tolerance.
4. Evaluate the level of customer service
When you're comparing offers, ask each lender about their policy regarding locking in their quoted rates and see whether there is a fee. Also, ask them to amend one of the terms (such as a payment cap) and see how willingly they agree. You're looking for flexibility and responsiveness. And also note how well they listen to you. If you ask for a 30-year fixed-rate mortgage, they ought to present that as an option, not push you toward something different, such as an interest-only loan. If you're not getting good service from a lender who is competing for your business, you're not likely to get it after you've agreed to work with them.
5. Check out the lender's reputation
Word of mouth is important in every business, including the loan market. If you've never worked with a particular lender, you'll want to find out the opinion of people who have.
As you drive home, you see a "Sold" sign has gone up on a neighbor's home on the corner of your street. You think, "I wonder what John and Mary ended up selling for," and you hope that it is not going to drive your property value down even more. You get home and call your neighbor and say, "John, congratulations on selling your home, how much did you sell for?"
John pauses and says, "Well, I know you are not going to be happy, but we accepted an offer at $390,000." After you hang up the phone, you sit down for dinner and turn to your wife and say, "Can you believe it? John and Mary sold their home for $390,000. Didn't they buy it just 2 years ago for $500,000?" Your wife says, "No, they only paid $490,000."
You think they are taking a $100,000 loss plus the costs of sale. You look at your wife and say: "They must be in some serious financial trouble to sell their home for a $100,000 loss over what they paid for it two years ago. I would never sell for that price; we are going to wait for the price of our home to go back up!" Your wife looks at you and says, "I was hoping that we would be moving to a bigger place in the next couple of years, so that the boys would each have a room of their own. Next year Randy will turn 13 and he is already frustrated by not having his own space." You reply, "Well he is just going to have to wait until the price of our home goes back up."
A couple of months later, you run into John at a neighborhood barbecue. You ask where they moved to and John says, "We bought a home up in the Greenwood Estates." You say, "Wow, those are some nice homes." John says, "It's great. We went from 2100 to 3400 square feet, with a three-car garage, a great yard and each of the kids has their own room." You say, "John, do you mind if I ask whether it bothers you that you are selling your existing home at a loss?"
"Well, yes," John paused as he spoke, "I must admit that my ego almost blew the whole thing, because I wanted to minimize our loss on the home we bought two years ago at the height of the market. Fortunately, my wife has a friend who is a great real estate agent. She gave us a copy of a Special Report called "How to Turn your $100,000 Loss into a $200,000 Gain". In the report, it shows how in our area, homes that cost around $500,000 two years ago have dropped on average over 20% in value over that last two years, so the home we paid $490,000 two years ago is only worth $392,000. The report shows that in this area, homes that cost over $800,000 two years ago have dropped on average 25% of their value. The home we bought in Greenwood Estates was worth $825,000 two years ago and we were able to buy it for $615,000.
"In the end, we sold our home for a $102,000 loss, but we are saved $210,000 on the purchase of our new home, and we really needed the space. In fact, two years ago we could have never qualified to buy the home when it was priced at $825,000." As you listen to John talk, you think to yourself, what's the catch? Could it be that, now, really is a good time to move up? No, everyone knows real estate is a bad investment right now.
John says, "The funny thing is that when I first read the report, I was so skeptical. I thought there must be a catch. I thought for sure if we took such a big loss on our existing home, we would not have enough money to put down on our new home. But the agent told us that because the Federal Reserve has stepped in to lower interest rates and the government has increased FHA loan amounts, that with our great credit history we still had enough for the down payment and the payments are only going to be a little higher than they were on our old home."
As you try to take it all in, you look at John and ask, "Aren't you afraid that prices will continue to go down and you could lose even more on your new home?" John replies, "Well, it did cross my mind. When we asked our agent about it she told us that she certainly did not have a crystal ball about what housing prices were going to do, but she pointed out that some economists have started to say that real estate is close to, if not at, the bottom of the market, and no one will know when it really hits bottom for at least three to six months after the fact. She gave us an article from Time Magazine that pointed out that even if prices drop another five percent over the next year, we would be better off moving up now. The REALTOR® pointed out that what matters more than the price of the home is the size of the payment that we need to feel most comfortable with."
John went on, "I believe five years from now that real estate will cost a lot more than it does today. I finally realized that right now I can move up and get more house than I could have afforded in the past, and won't be able to afford again once prices return to what they were. Our agent pointed out that this is the same strategy that Warren Buffet uses for investing and talks about in his book. But, as he points out, most people don't have the mental fortitude to ignore all the negative press and do what makes great economic sense.
"Looking back on it, I realize that I almost blew it by not accepting the reality that my home's value was less than what I paid for it. If I had waited for its price to come back up, I never would have been able to move up so far. It probably would have taken me another fifteen years, moving up slowly, to accomplish what I have done with this move."
As you drive home from the barbecue your mind begins to race. You look at your wife and say, "Honey, I have an idea on how we can turn the $100,000 loss in our home's value into a $200,000 gain, and help us get the extra space we could really use." The discussion begins and you realize now is the right time to make the move.
With interest rates are at thier lowest in years you realize you are not only saving on the price of the next home, but you are doing it for a much lower cost with the interest savings. Mortgage programs are changing everyday. They are becoming more available, but there will be more guidelines to qualify for a loan today. Therefore you should talk to a bank or lender and get pre-approved for your next loan before shopping for the next home.
What is a custom home?
Some people think a custom home has to be expensive. Not necessarily! Any kind of home can be custom built, from a mansion full of expensive fixtures and materials to a tiny economical cottage. What they have in common is that the features are specified by the homeowners, rather than the builder.
When building a custom home, options are evaluated only on the basis of what is important to the homeowners. Any home may be kept from becoming more expensive than necessary, by eliminating wasted space, unnecessary maintenance, and unwanted features. Simple design details, not expensive to build, can change a plain design to a charming one.
There are, of course, degrees of custom. It might be just choosing flooring, cabinets, or where to place extra mirrors. It might be making minor alterations to an existing plan to better fit personal needs. A fully custom home is designed and built entirely to your specifications. It blends your dreams and heart's desires with the property of your choice and is tailored to fit your budget. Here are some steps to building your custom home.
- Step 1: Design or locate a house plan you like, either working with an architect or through a service providing existing plans.
- Step 2: Locate a building site you like.
- Step 3: Check out the site thoroughly to ensure that you can build without difficulty.
- Step 4: Find an experienced builder.
- Step 5: Execute a contract with the builder to construct the house (after you've agreed on the price for the services).
- Step 6: Arrange construction financing with your bank if required.
- Step 7: Obtain a building permit from the municipality, usually by submitting several copies of the house plan with an application and fee.
- Step 8: Have your builder begin construction.
- Step 9: Make all your selections (tile, flooring, cabinets and so on) in a timely manner and far enough in advance to allow for items that need to be ordered.
- Step 10: Review the house carefully with the builder upon completion, making a list of any items needing repair or further work.
- Step 11: Move in after a Certificate of Occupancy has been issued by the building department.
- Step 12: Update the repair and completion list ("punch list") after 30 days in the house, removing work completed and adding new problems you've discovered.
Don't try to save a few dollars by skimping on professionals. Make sure your attorney is experienced in land acquisition/development and new construction. Real estate is a heavily regulated industry - do your best to avoid any difficulties.
Wells Fargo Short Sales - What is a short sale and how does it work?
With all the media focusing on the real estate market these days, it's hard to disseminate some of the information that's bombarding you. For owners who can no longer afford to keep mortgage payments current, there are alternatives to bankruptcy or foreclosure proceedings. One of those options is called a "short sale".
A short sale means a bank or other mortgage lender agrees to lower the balance of a loan due to hardships on the part of the borrower. The borrower sells the property for less than the outstanding balance of the loan, and then turns over the proceeds of the sale to the lender, who considers the loan "paid in full".
A short sale typically is obtained to prevent a home foreclosure. A bank or mortgage lender will choose to allow a short sale on the property if they believe that it will result in a smaller financial loss than the foreclosing process. For the original borrower (now seller), the advantages include avoiding a foreclosure on their credit history. Additionally, a short sale is typically faster and less expensive than a foreclosure. A short sale could take anywhere from 60 to 120 days or longer, depending on the mortgage company guidelines to process the transaction.
I have personally experienced working mostly with Wells Fargo and their process. It can take 60 - 120 days minimum and is not for the buyer who is in a time crunch. It takes patience and perseverance to complete the process. The offer must be submitted to Wells Fargo Short Sale department along with all the required documents, including a letter explaining the hardship, and a letter that will allow the lender permission and authorization to discuss the file with your agent or other person assisting you with this process. All documents are then reviewed for completion, including the addenda necessary for Wells Fargo to consider it.
Your lender will then usually order an updated Broker Opinion or appraisal, if needed. They will only use values of less than 90 days and will not revalue a property until another 90 days have passed. Their addenda will state the sale will be "as is" and the lender and sellers have no obligation to complete any repairs. This language must be in the purchase agreement and the listing agreement. The short sale offer must also be approved by the PMI company if the home had a PMI policy paid on the loan. In addition, the buyer must provide a loan approval letter, or verification of funds, to purchase the property when submitting an offer.
Banks and mortgage lenders have a loss mitigation department which processes most potential short sale transactions. The lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued or recorded with the district, county, or parish where the property is located. Lenders have to approve of any buyer, any concessions, selling expenses, or listing agent's commission in advance. Some lenders may require photos of the property and an itemized list and cost of repairs for the property if the condition merits it in the value. It is not always considered, but it will also help the buyers to realize any cost for after purchase repairs.
Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to loss mitigation's approval. "Red tape" is very common in short sales, similar to REO and HUD properties, requiring potentially multiple levels of approvals and conditions. Each lender can set their criteria as to what they will accept and require to proceed with a short sale.
While it is common for a lender to forgive the balance of the loan in question, it is unlikely that any additional lien holders (such as second mortgages) will forgive their balances. Wells Fargo has a specified amount they will offer to the other lien holder, but it may not be enough to release the home to sell it, and the home may still have to go to foreclosure.
When the lender decides to forgive all or a portion of your debt and accept less, the forgiven amount is usually considered as income for the borrower and is liable to be taxed. However, after the signing of The Mortgage Forgiveness Debt Relief Act of 2007, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together and find a common solution that is beneficial to both the parties. Since laws are ever changing, I would suggest that you discuss this with a qualified tax accountant to determine what is the present status of the law regarding a short sale before you agree to sell.
If you're curious about selling your home as a short sale, you should contact your lender and get the required information in writing, then discuss the situation with a local real estate professional who can guide you in regards to values and time needed to sell your property. In some cases, it can leave you much better off than the alternative of foreclosure and bankruptcy.
Remember that this is a complex process and you should always seek the help of a professional when considering a short sale
What is mortgage protection insurance?
Mortgage Protection insurance is more than just a policy to pay off the balance of your mortgage if you or your spouse passes away. Mortgage Protection is a complete package of coverage designed to ensure that whatever happens to you, you'll be able to stay in your home and not end up broke.
Of course, if you or your spouse dies, the policy pays you the money which you can use to pay off your mortgage. If you're hurt working around your house or you're in an automobile accident and can't work for awhile, your Mortgage Protection coverage can provide disability benefits (if you qualify) to provide you with cash while you can't work to ensure that your mortgage payments continue to be paid. You don't have to worry about losing your house while you're recuperating. Further, it is possible to have unemployment coverage as well (if available in your state), so that if you lose your job, your premiums will be paid for up to 6 months. And that money will come in to you, not your mortgage company, so you have control over your money. Remember, these Mortgage Protection policies are designed to help you, not some huge, bureaucratic loan company. That's a good thing!
If the protections already described were all there is to Mortgage Protection, it would obviously be better for you than just a simple term life policy, but there's even more available to you. There's something called "Waiver of Premium" which allows you to skip paying your insurance premiums for a while as you deal with whatever caused your disability claim. So not only can you receive money, you'll be able to save money too! But probably the most remarkable feature available on Mortgage Protection is the Return of Premium provision (if available in your state). If you'd like, you can arrange to have most if not all of the money you've paid over the years returned to you at the end of your policy term in one wonderful, tax-free lump sum! That's money you can put straight into a retirement plan or just spend on yourself.
The cornerstone of any mortgage protection plan is, of course, the Mortgage Life component. Your policy will provide survivors with a tax-free benefit to pay off your mortgage and possibly cover some final expenses. This coverage is available for all members of your family, including children - even if their names aren't on the mortgage. It's also possible to cover yourselves for Critical Illness protection to provide immediate funds to you should you suffer a covered critical illness. A particularly compassionate coverage available to you is the Terminal Illness Plan. Should you become terminally ill, you can access up to 50% of your policy's value to meet expenses while you’re still alive.
Another unique feature is extended premium guarantee that will absolutely guarantee that the rate you lock in today will be the same (stated in the policy contract) rate you pay through the life of the term, if you qualify.
In addition to the peace of mind you receive knowing that your family is provided for if the worst happens, you'll also rest a little easier knowing that you're covered for up to two years in the case of disability. If you or any covered member of your family is disabled in a covered accident the disability coverage will provide cash payments to you to pay your mortgage. These payments will be made in addition to any other disability or critical illness payments you may be receiving.
We've seen that Mortgage Protection plans can provide for you and your family if you pass on or if you become disabled. Now certainly that's comforting, but it doesn't account for what's probably the most likely malady to befall you - unemployment. You can easily cover yourself with a benefit that will pay your policy premiums up to six months and keep your coverage in force while you look for new employment. The alternative is to use up your savings leaving you poorer than you have to be. That doesn't need to happen.
One of the most unique features of Mortgage Protection Insurance policies is the return of premium rider that refunds every penny of premium when you live to the end of the policy term - just like getting your policy for free if you never needed it! This money comes directly back to you tax-free. Though many folks roll their distribution into some kind of retirement vehicle, it's also nice to use the money to pay off your mortgage or give your family a nice vacation together.
Selling Your Home in a Slow Market
I want to discuss briefly the positive side of the market conditions we are facing today. Gone are the days when homes sold shortly after they hit the market. Foreclosures are more common now and home sales are at a ten year low in our region. So where is the upside to this slow market bad news? If you are buying a home, these buyer’s market conditions are a dream! Inventory of homes for sale is high, which means buyers have many more properties to choose from in their price range. Buyers are also getting more for their money than just this time last year. Because homes are taking longer to sell, buyers are at an advantage when making a purchase offer. Many frustrated sellers are considering and accepting lower offers because they need to move or want to avoid foreclosure or a short sale. This market offers especially great opportunities to those who do not need to sell a home before buying. If you are a first-time home buyer that’s been on the fence, now is the time to make your move! Also, those looking for vacation property, a second home or investment real estate can also be winners by buying in this market. Big selection, lower prices and extremely low mortgage interest rates are the wonderful advantages today’s home buyers are experiencing when house shopping.
I do understand that most of us need to sell before we can buy, so if you are in a circumstance that requires you to put your home on the market, please call me. I will give you an honest and free comparative market analysis (CMA) and work hard to get you the best sale price possible. There are numerous things I can teach you that will make your home sell more quickly and for more money than those around you, but I will discuss these points further in the next issue.
If a move is not on the agenda for you, but you want to take advantage of today’s low interest rates and refinance your current home, let me know. I can refer you to a reputable, reliable mortgage broker who will make sure you get the best rates out there.
When you think of real estate, think of me first.
Gloria Young Helmstetter
We make it happen, You make it home . . .