Military Income:
In addition to just the base pay, military personnel may be entitled to additional forms of compensation. Income from variable allowances, clothing allowances, flight or hazard pay, rations, and proficiency pay is acceptable, provided that its probability of continuance is just verified in writing. An additional consideration may be the tax-exempt nature of some of these payments which can be grossed up by 25%.
Comparing deals for a mortgage can be a very confusing task. You can shop til you drop for mortgage rates, mortgage fees, and the best APR (Annual Percentage Rate); however do you REALLY know what to look for?
Well let’s have a look.
Just the other day, I was having coffee with a potential client that was looking to buy a home, and she pulled out 4 different GFE’s (Good Faith Estimates) for me to have a look at.
Wow, talk about diversity! While I won’t name the companies (and believe me, I would LOVE to), here were just 3 things I noticed just right off the bat:
1. Escrows reflected LESS than what the property’s tax rate really was
2. APR was very misleading, and the most important was
3. All 3rd party fees on each GFE were different
Now if you’re a seasoned home buyer or a First Time Home Buyer, things like this will definitely matter and will end up costing you a lot of wasted time, money, and effort if you aren’t careful.
My goal in this article is, in plain English and simply explained, is to:
1. Break down the GFE
2. When you should receive a GFE
3. What to compare when comparing and how
4. How to get the BEST deal
Breaking Down the GFE
So let’s begin by breaking down this thing, and trust me, this’ll be super easy.
The 800 section of the GFE is where you will see the lender, broker, and appraisal fees, respectively. No matter what the FEE is called (underwriting, application, administrative, etc), it’s being charged on the bottom line. If someone says, “We don’t have application fees!” making their offer seem more appealing, they can easily turn around and add a “Weekend Fun” fee. The rule is as long as it’s disclosed, it can be charged.
The rest of the sections (900-1300) are all 3rd party fees and cannot be controlled by the loan officer. Some of these fees are:
1. Taxes and Insurance
2. Title fees
3. Escrow Impounds
This is why asking for a GFE before you take an application and talking about your financial parameters is just plain shooting yourself in the foot guys! I’ve had people ask me for an estimate before I could even say hello at times, in which I’ve respectively had to decline because I knew we were already headed into disaster.
When Should I Get a GFE?
By law, you should receive a Good Faith Estimate within 3 days of a written and complete application for a mortgage. Does everyone do it? (Chuckles) Nope.
What and How to Compare
So now it’s game time. You’re 18 days away from closing on your house and decision day is creeping up.
“Who do I choose?”
“Why are his fees different?”
“Is this rate too good to be true?”
Totally understandable questions- I understand you don’t want to be taken advantage of. Now let me show you how to compare and what to compare.
A Good Faith Estimate shows the interest rate, term, loan amount, and all settlement costs on the mortgage you are applying for. All of the items on the GFE fall into 3 categories listed below:
1. Interest Rate
2. Lender Fees
3. Everything Else (3rd Party)
The interest rate simply depends on market conditions at the moment of locking it. Throw CNN, FOX News, and all other morning radio shows out the window when they are “predicting” where rates are going to go. I’ve had people call me up expecting a 0% (honest truth) because they heard it on the radio. People, if it’s too good to be true, it is. If you want legitimate and unbiased advice, feel free to call or email me. Following MBS (Mortgage Backed Security) trends and weekly economic reports, I have my finger on the pulse of what’s going on and have saved people tens of thousands of dollars by recommending “lock” or “float” options derived from my sources.
In regards to lender fees, they will vary just like with any product you buy. A vase at Wal-Mart will differ from a vase at Crate and Barrel. Why? Well each company has its own business model that they have to follow. That’s it- it’s not hard.
Since we’re become pretty good friends now, I’ll let you in on another little secret as well.
For the most part, Mortgage Broker fees are variable, where as Mortgage Banker fees are fixed. Brokers have to send out their loans to wholesale lenders that will fund your loan, so each lender will have different fee structures. Broker “A” can quote you $1,500 in fees, find out that same lender just went out of business, and now you’re exposing yourself to a change in charges. Mortgage Bankers will have more simplified fee structure and you should expect it to stay more constant. I am not saying one way is better than the other because the same can happen to a Banker if he has to broker out your loan, however it is just a little less likely in my opinion.
The rest of all the 3rd party charges will be determined by what other parties are involved. While you, the consumer, have the right to choose the title company, I highly suggest having your mortgage professional recommend a few that he/she uses. For some reason, realtors believe that they choose this part of the transaction (and some do a good job), however most do not. Throughout the entire finance process, the lender and title company are in constant communication to get your loan funded in the most efficient and snag-free way possible.
So, How Do I Get the BEST Deal Out There?
The easy and SIMPLE answer is…YOU!
You will ultimately determine the best deal that you get. Timing, advice, recommendations, and being a team player is needed to get the best deal.
Timing is HUGE these days! One of my current clients is taking about 2 weeks to send me his W-2’s, while his rate lock is going to expire in less than a week- Yes, that’s his bad!
And when it comes to rates guys, time is money. Rates move daily.Don’t expect last week’s rate TODAY!
Also, if you want to know what “rates are doing today”, don’t waste your time applying on a million places online, having 100 people call you and have a brilliant start to the conversation by asking “What is your rate?” Go to the local newsstand and pick up a paper, but remember, what is advertised and what you QUALIFY for are 2 totally different things.
Here are my 5 TOP TIPS I can give you:
1. NEVER SHOP ON JUST APR!
Whoever recommends this to you may actually live in a van down by the river. Each lender calculates this differently, so you won’t be comparing apples to apples. Sometimes the numbers aren’t worth the paper they are written on.
2. HAVE YOUR FACTS READY
For comparison purposes, used fixed costs for taxes and insurance with each mortgage company so estimates can remain constant.
3. BE THE BOSS
In essence, what you are doing is HIRING your loan officer to represent you. So, why don’t you go through your own little “hiring process” with them? Ask about experience, references and the big question “How Are You Different?” from others. This will be the best tool.
4. DON’T SHOP YOURSELF OUT OF THE MARKET
Don’t get greedy by waiting for that magical 0% like my friend.
5. OVER-SHOPPING
If every new phone call causes a “Send me a GFE and I’ll let you know” reply, then you have what is called “Mortgage-itis”. This is the first symptom letting you know to stop and work with what you have, OR if you want, put things on hold for a few days. It’s just like cramming for a big test. Take a break.
In the end, you will always get what you pay for. Those who are cheap will get cheap. Those who pay more for a little better service will get just that. I’m not suggesting getting slammed with pointless fees for the sake of commission, however most everyone these days wants everything for free. It’s better to pay a little more for a service or product you can rely on, rather than just getting a cheaper price for something that may cost you even more money down the line. In the mortgage industry, what you ultimately pay more for is knowledge.
Tommy Xintaris is a Senior Mortgage Banker for 360 Mortgage Group. He has over 9 years experience in finance. For a free opinion of your mortgage, you can email him at Tommy@FHALoanHouston.com .
Ok, so we have, including today, 3 days left until 2009. Forget the streamers, the FREE champagne, and the next day hangovers, its time to take advantage of what we have left in 2008.
I checked rates today and we are up about 32 bp (basis points) and are still hovering around the 4.75% mark on a 30 fixed, so lock ‘n load if you can.
No major reports today, but tomorrow’s Consumer Confidence report will have an impact in my opinion. What this reports does is detail the attitudes on present economic conditions and what consumers (YOU AND ME) expect to happen in the future, and this has a pretty big impact on stock and bond markets.
On Wednesday, the MBA (Mortgage Bankers Association) Purchase Applications report and the Jobless Claims Report will be coming out, in which last time was nearing the 7% mark.
Without going into too much detail, I would recommend locking something in at the moment. No point in risking ANYTHING with prices being this good. I don’t think this holiday season has been the best in terms of spending, and with the Hamas and Israel conflict going on too, this is definitely going to have a negative impact on oil prices which will hurt interest rates.
Take my advice and thank me in ’09.
Hope you all have a safe and great New Year!
In an FHA transaction, if there is a family member acting as the Realtor on the subject property, he/she can give their commission to the borrower for funds to close.
Here are some FHA guidelines in regards to calculating income.
Its CRUCIAL to be able to calculate income correctly and UP FRONT at the time of application because this can save everyone a lot of money and headaches when done correctly.
Individual Tax Returns (IRS Form 1040).
The amount shown on the IRS Form 1040 as “adjusted gross income” either must be increased or decreased, based on the lender’s analysis of the individual tax returns and any related tax schedules. Particular attention must be paid to the following:
a. Wages, Salaries, and Tips. An amount shown under this heading may indicate that the individual is a salaried employee of a corporation or has other sources of income. It also may indicate that the spouse is employed, in which case the income must be subtracted from the adjusted gross income in the analysis.
b. Business Income or Loss (from Schedule C). The sole proprietorship income calculated on Schedule C is business income. Depreciation or depletion may be added back to adjusted gross income.
c. Rents, Royalties, Partnerships, Etc. (from Schedule E). Any income received from rental properties or royalties may be used as income after adding back any depreciation shown on Schedule E.
d. Capital Gain or Loss (from Schedule D). This transaction generally occurs only one time, and it should not be considered in determining effective income. However, if the business has a constant turnover of assets resulting in gains or losses, the capital gain or loss may be considered in determining the income, provided the borrower has at least three years’ tax returns evidencing capital gains. An example includes an individual who purchases old houses, remodels them, and sells them for a profit.
e. Interest and Dividend Income (from Schedule B). This income, which is taxable and tax-exempt, may be added back to the adjusted gross income only if it has been received for the past two years and is expected to continue. (If the interest-bearing asset will be liquidated as a source of the cash investment, the lender must adjust accordingly.)
f. Farm Income or Loss (from Schedule F). Any depreciation shown on Schedule F may be added back to the adjusted gross income.
g. IRA Distributions, Pensions, Annuities, and Social Security Benefits. The nontaxable portion of these items may be added back to the adjusted gross income, if the income is expected to continue for the first three years of the mortgage.
h. Adjustments to Income. Certain adjustments to income shown on the IRS Form 1040 may be added back to the adjusted gross income. Among these adjustments are IRA and Keogh retirement deductions, penalties on early withdrawal of savings, health insurance deductions, and alimony payments.
i. Employee Business Expenses. These expenses are actual cash expenses that must be deducted from the borrower’s adjusted gross income.
Starting January 1, 2009, all rate and terms will be 100% LTV (Loan-to-Value) including the UFMIP. Streamline Refinances will be at 98.5% and regular FHA refinances will be 98.25%.
This is an excellent opportunity for everyone to now start taking advantage of these interest rates. They have not been this low in YEARS, and now is a perfect time to see how much you can save.
Also remember, as I wrote in my previous post, that the new down payment requirement will now be 3.5% for all purchase transactions of the lesser of the appraised value or sales price. This is in addition to any closing costs incurred by the borrower.
Congress created the Federal Housing Administration in 1934. At this time, nearly two million construction workers were laid off. Only four out of ten people owned their own home. In addition, mortgage loan terms were outrageous. Borrowers had to put 50 percent down, and the note ballooned in 3 to 5 years. So the mission of the FHA was to encourage home ownership.
The FHA became a part of HUD, which is the Department of Housing and Urban Development, in the year 1965. In the mid-1980′s, the FHA transitioned to what we call direct endorsement and began approving lenders to underwrite and close their own loans. Prior to this time, the FHA did have a hand in the process of the loan.
It’s amazing to me that after 20 years of this direct endorsement program being in effect, nearly eight out of ten real estate agents I speak with still think that the FHA has a hand in the process of the loan. This is something that’s very important for you to know. When you’re working with real estate agents, you need to make it clear to them that the loan will be processed like any other loan.
It’s also very important to know what the FHA actually does and does not do. First, let’s start with what the FHA doesn’t do. The FHA does not buy loans, they do not originate loans, and they do not service loans. What the FHA does do is provide insurance on loans made by FHA-approved lenders. It is actually the pioneer in mortgage insurance. As you know, mortgage insurance protects the lender in case of default on that loan.
Here are a couple of additional FHA facts:
- The FHA is the only government agency that operates entirely from its own income, and costs the taxpayers nothing.
-It is also the largest insurer of mortgages in the world, insuring nearly 30 million properties since its inception in 1934.
The Energy Efficient Mortgages Program (EEM) helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy-efficiency features to new or existing housing as part of their FHA-insured home purchase or refinancing mortgage.
This program seeks to help achieve national energy-efficiency goals (and reduce pollution) and provide better housing for people who might not otherwise be able to afford it. By considering the savings on monthly utility bills when determining how large a mortgage the household can afford, as many as 250,000 more new homebuyers could qualify per year, according to a 1986 study by the Joint Center for Housing Studies. Although EEMs have been available in some States since 1980, they have been little understood or marketed. With EEMs, borrowers do not need to get a separate, costly loan for energy improvements when buying an existing home.
Type of Assistance:
EEM is one of many FHA programs that insure mortgage loans–and thus encourage lenders to make mortgage credit available to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first time home buyers) and to residents of disadvantaged neighborhoods (where mortgages may be hard to get). Borrowers who obtain FHA’s popular Section 203(b) Mortgage Insurance for One- to Four-Family Homes are eligible for approximately 97 percent financing, and are able to fold closing costs and the up-front mortgage insurance premium into the mortgage. The borrower must also pay an annual premium.
EEM can also be used with the FHA Section 203(k) rehabilitation program and generally follows that program’s financing guidelines.
Eligible Customers:
All persons who meet the income requirements for FHA‘s standard Section 203(b) insurance and can make the monthly mortgage payments are eligible to apply. The cost of the energy improvements and estimate of the energy savings must be determined by a home energy rating system (HERS) or an energy consultant. Up to $200 of the cost of an energy inspection report may be included in the mortgage. Cooperative units are not eligible; individual condominium units may be insured if they are in projects that have been approved by FHA or the Department of Veterans Affairs, or meet certain Fannie Mae guidelines.
Eligible Activities:
EEM can be used to make energy-efficient improvements in one- or two-unit existing and new homes. The improvements can be included in a borrower’s mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life. The cost of the improvements that may be eligible for financing as part of the HUD mortgage is either 5 percent of the property’s value (not to exceed $8,000) or $4,000 — whichever is greater.
- by FHA Loan.com
Feel free to contact us today to help you “Go Green!”
With mortgage rates taking a tumble over the last few days, loan officers with customers who have an FHA insured mortgage have been calling frantically to get them locked in at a lower rate.
What is an FHA streamline?
FHA Streamline refinance is a program designed to give borrowers who already have an FHA insured mortgage the ability to refinance to a lower rate without the expense and hassle of a traditional refi. Typically that means no appraisal, no credit check (other then a mortgage reference to make sure they have been on time and you can be late up to 2 times in the last 30 days depending on the lender), no employment information and little or no fees.
You need to remember that FHA is an insurance policy and not a lender. When you put that into perspective you realize that it is in the best interest of the FHA program to allow for streamlines. Lower payments equal less likely to default on there obligation which in turn means less of the FHA insurance pool being used up. Its just like regular insurance, its there but no one wants to use it unless they have to!
So when rates go down- FHA streamline is the way to go to lower your monthly payments.
Interested in a Streamline? Visit www.FHALoanHouston.com today and apply!
FHA Modernization
Brian Montgomery, Assistant Secretary for Housing, has testified before the House Financial Services Committee that modernizing the Federal Housing Administration is of paramount importance for America’s “troubled subprime borrowers.” The FHA has been insuring mortgage loans for low and moderate income families since the depths of the Great Depression, but these loans became unpopular with the advent of the subprime market.
However, subprime mortgage loans have proven to be extremely risky for borrowers with bad credit or low income, a problem which has resulted in a recent surge of foreclosures. Home foreclosures not only force borrowers out of their place of residence, but also cost the lender an average of $40,000 and can wreck havoc on real estate investors, lenders, and communities at large.
By approving of the modernization reforms, Montgomery claimed that the “FHA could potentially assist tens of thousands more borrowers who need an exit strategy from their subprime mortgages.” Some of the proposed changes include:
- Removal of the mandatory 3% down payment, which many low income borrowers cannot afford. The FHA plans to switch to a more flexible down payment option.
- Increasing the limits of FHA mortgage loans. Traditionally, FHA had standard loan limits which were often lower than those of subprime mortgage loans. In areas of the country where housing costs are relatively high, many individuals looking to purchase a home could not, as the old FHA loan limits were below the median house prices. With these changes, people in states like New York and California will be able to obtain an FHA loan that will have a loan limit high enough for homes in those areas.
- Creating a new risk-based structure. Currently, all borrowers who apply for an FHA loan are subject to a standard premium. In the new structure, the premium would be based on the credit profile of the borrower and would shift up or down based on that borrower’s level of risk to the lender.
All of these modifications are part of the Expanding American Homeownership Act which passed the House last year by an overwhelming majority. With this new structure, the FHA would not only be able to reach thousands more borrowers, but it would present “a safer, more affordable financing option than many subprime loans,” according to Montgomery. By modernizing its practices and requirements, the Federal Housing Administration will be able to continue increasing homeownership among low-income Americans, minorities, the homeless and the elderly.
Though these sweeping changes to FHA policy will give the most aid to first-time home buyers and families without previous mortgages, the FHA will also continue to offer refinancing options for those who are still working on another loan. As previously noted, many low and moderate income families have found themselves unable to make monthly mortgage payments, mainly due to risky and financially unsound loans. As more and more individuals wish to refinance to a safer, more stable loan, the FHA is there to assist. The number of conventional to FHA refinances has almost doubled in the last year, and as long as borrowers meet a few simple requirements, they will qualify for a more reliable FHA refinance.
- MortgageLoanPlace.com