Real World-Best Advice

Want to “cut through the fat”? Want the “short story version”? Rather read the Clift notes? We cut it down for all of us that live in…The Real World…

Below we’ve listed all of our “Real World - Best Advice” excerpts taken from throughout the site. These “snippets” can be found in the Good Faith Estimate, How to read a Good Faith, What fees are negotiable, and How to negotiate sections.

Real World: Rule of thumb: The higher the interest rate a lender charges, the lower the fees a lender should be charging you! Make sure you are getting your BEST RATE possible…Get more than 1 estimate!

REAL WORLD: THE GOOD FAITH ESTIMATE IS THE MOST IMPORTANT DISCLOSURE TO UNDERSTAND WHEN GETTING A MORTGAGE! In a nutshell, this form is a breakdown of all costs that will be associated with the purchase or refinance of your home. You will be using this form to negotiate the best rate and fees for your mortgage. It’s made so that you can go line by line and compare the costs of different loan offers. It’s prepared for a borrower to be able to compare costs - line by line of different lenders loan offers (Pg. 3 GFE).Get at least 2 estimates to compare costs. 3 may be better. Even though it is an “estimate” of all costs, all lenders should be able to estimate within $100.00 of their particular fees. Click here for more information.

REAL WORLD: The fees that are the most important (to save you money) are spelled out in the next couple of sections. Several fees for a mortgage are required on every transaction. Although those fees will fluctuate from lender to lender - most can be reduced or even deleted. Best advice: Make sure you work with a lender that will negotiate! You are the customer - the lender should earn your business. Best advice: Hold on to all GFE’s that your lender provides you. This will help cross reference line by line what changes were made. Click here for more information. 

REAL WORLD: Some lenders will appear to have lower rates than others to try and “get your business”…only for you to find out that the interest rate was really good for only 7 or 15 days. In the real world it is nearly impossible to close a loan in 7 to 15 days. Best advice: Ask them how long this rate is good for or locked in. Make sure it is good for at least a 30 day rate period. See: How to read a Good Faith Estimate, Important dates Nav tab-Good Faith Estimate

Best advice: Ask your lender when the cutoff period is to accept the loan offer and/or how long that the interest rate will be guaranteed (locked in). 30 days or more is acceptable. See: How to read a Good Faith Estimate, Important dates Nav tab-Good Faith Estimate

Best advice: a good lender will ask you specifically if you are agreeing to terms and/or tell you that you are locked in to the interest rate and fees. If you are not clear, just ask…” Am I locked in, and for how long?” As of January 1, 2010 some lenders will have you sign an “intent to proceed” form. At this point you should be locked into your interest rate. . See: How to read a Good Faith Estimate, Important dates Nav tab-Good Faith Estimate

REAL WORLD: Most lenders will lock your rate at application. This is the most conservative way to guarantee an interest rate and fees. Ask your lender what they think interest rates are going to do - up or down? The professional loan officer will be able to guide you in the right direction. See: How to read a Good Faith Estimate, Important dates Nav tab-Good Faith Estimate

REAL WORLD: The reason why borrowers don’t get an escrow account is that they feel it better to keep the monthly amounts of homeowners and taxes in their bank accounts and earn interest as opposed to the lender earning interest on their money. It is probably in your best interest to get an escrow account with the lender and not worry about making sure that annual tax and homeowner’s costs stay current. See: How to read a Good Faith Estimate, Escrow account info. Nav tab-Good Faith Estimate

REAL WORLD: Have your loan officer provide a separate form showing the actual breakdown of fees including the name of the fee, whom it is actually paid to, and associated the dollar amounts. If this is not possible, we recommend they provide a preliminary HUD 1 closing statement from the closing partner (the company actually doing your loan closing). This HUD 1 closing statement will show the item number with a line by line breakdown of all costs associated with your loan, and who it is being paid to. See: How to read a Good Faith Estimate, Summary of settlement charges. Nav tab-Good Faith Estimate

Best Advice: Ask your lender for a breakdown of whom these fees are paid to directly. The GFE 2010 will not show this breakdown, only the total of all origination charges. Reason: this will help you in negotiating the best rate and fees, and with whom you need to discuss - discounting (or deleting) the fee! See: How to read a Good Faith Estimate, Summary of settlement charges. Nav tab-Good Faith Estimate

**Best Advice: Any term ending in “fee” is probably negotiable!

Best Advice: if you are buying a home, ask your loan officer for a breakdown (on a separate form) of actual fees being paid by you …ex: HUD 1 closing statement. This will clear up any ambiguity on if you (the borrower) or the seller of the home is responsible. See: How to read a Good Faith Estimate, Title services. Nav tab-Good Faith Estimate

Best Advice: having an escrow account allows a borrower to make one (1) Monthly payment throughout the year, and the lender will take care of paying the Annual charges. This is the easiest way to make sure payment of your taxes and insurance is done on time. See: How to read a Good Faith Estimate, Escrow account info. Nav tab-Good Faith Estimate

REAL WORLD: If you know that you have good to excellent credit, and know that you qualify for the loan applied for, negotiate every fee listed! Conversely, if you have poor to “just OK” credit and may have a question about whether you qualify (because of your credit rating), your bargaining power may be reduced. Lenders and brokers do work harder to get certain loans approved because of credit and possible income hurdles. We recommend getting at least 2 Good Faith Estimates to compare lenders rates and fees. 3 are optimal. Note: We are not saying that you cannot lock in a fair rate and fees…but you must face the reality of your circumstance and possible reduced “bargaining power” - because of your adverse credit rating… See: What fees are negotiable with a lender?

**Compensation to Broker from Lender (not paid out of loan proceeds) this is called the Yield Spread Premium. This fee is paid to the mortgage broker or lender by the end lender or investor. This fee is not paid out of pocket directly by the borrower! It is paid to the broker by the lender. It is directly related to the interest rate charged to the borrower. Rule of thumb: the higher your interest rate, the more the yield spread paid to the broker or lender. It is expressed as a percentage only of the loan amount. **Licensed Mortgage Brokers are required to disclose the maximum yield spread premium within 72 hours of loan application via Good Faith Estimate (normally 0-3% of the loan amount). Licensed Mortgage Brokers are required to also redisclose to the borrower the exact yield spread premium when the loan is locked in via Good Faith Estimate, Truth in Lending and Mortgage Brokerage Agreement. This fee is negotiable by having your lender or broker credit you by that amount towards closing costs, or by lowering your interest rate. Section: Good Faith Estimate costs - definitions

REAL WORLD: Some lenders will not charge a credit report directly - but combine it with or (call it) in another term - i.e. Administrative fee, document preparation, or application fee. **When charged in this manner, it will not show under line 804, but is required to be shown as an Origination fee. It then becomes a NEGOTIABLE FEE. Do your best to try to get the fee only reduced not deleted. See: What fees are negotiable with a lender?

REAL WORLD: Unless your credit score, income, monthly bills and job history are exactly the same as your neighbor or “the guy that said he got a 4% interest rate”…I’m not sure how you would get an accurate “pre-approval”. Talking to a family member, neighbor or someone at the office about what interest rate they got, is not the right way to start the mortgage process. Get it in writing from someone! Otherwise, you are going into the transaction at a major disadvantage. Your expectations may be too high or worse too low when you deserve a better rate! See: How to Negotiate

**REAL WORLD: We feel that total fees paid to the lender (all fees - including the net yield spread premium after any credits) should be as low as possible. YOUR GOAL: that all fees paid to the lender to not exceed 1% of the loan amount, or $2500.00 whichever is lower. Ex: $150,000.00 loan - max total fees to the lender (1%) $1500.00. Ex #2: $400,000.00 loan amount (1%= $4000.00) max total fees to the lender should equal no more than $2500.00. If you are not able to achieve the lower number, get as close to it as possible. Don’t forget: If you have great credit and know you will have no problem qualifying for the loan, there is no reason why you can’t achieve the lowest fees possible. If you have so-so credit and no compensating factors for the lender to work with, the higher amount in our computation should be acceptable to you. See: How to Negotiate

Best Advice: Have your Realtor negotiate these fees to be paid by the seller if a purchase transaction. If a refinance, find another company to close your loan or have the fees reduced dramatically. . See: How to Negotiate

REAL WORLD: The Title Company’s and Attorney’s that close loans for a living do take on risk in delivering clear title to you at the closing. We do feel that they are compensated well with the amount earned from the lenders policy required for each purchase transaction closed. These firms are paid 70% of the promulgated rate and all title endorsements. If you are a buyer of a home and didn’t have a choice in choosing where you close, have the seller pay all the fees. You can expect to see higher fees with an attorney, but don’t necessarily have to close with one. All title companies have an attorney representing them and making sure title is acceptable. If you are refinancing a home, try to do the closing with whom you originally closed with when you bought the home. They will most likely give you a better deal because all the heavy lifting has been done for the title policy on the original closing. Do make sure you get an Owners Title insurance policy though when you buy a home. Make sure the cost is under $125.00 (it only costs the title company $25.00 for this policy). This will save you money and provide possible protection in the future. See: How to Negotiate Title charges

Best Advice: If your lender does make a change (on the GFE), make sure to check that all other fees on the GFE (not negotiated lower) have not changed! Most importantly: Make sure that the loan amount and interest rate has not changed from the original GFE! See: How to Negotiate Make a decision on a lender

Best Advice: Most mortgage brokers will be able to reduce the interest rate if the market moves lower. Banks and credit unions may not be able to deliver this option but, they do have the power to offer a longer lock in period than most brokers. See: How to Negotiate Make a decision on a lender

Best Advice: Banks and Credit Unions customarily will be able to offer longer lock in periods than brokers. Brokers (in contrast) will have more streamlined processes and be able to close quickly. See: How to Negotiate Make a decision on a lender

REAL WORLD: Have some fun with all that money you saved!

REAL WORLD: No Smoke. No Mirrors. Real Advice.

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