Mortgage Brokers vs. Banks: Who Gets Your Business?

On November 9, 2014   /   Home Buying, Home Finance, Mortgage  
Tags: , , ,
mortgage

By: Angela Colley

When you’re looking for a mortgage, you can use a mortgage broker or deal directly with the bank.

Each choice has pros and cons, and depending on your personality, you’ll have to decide which is right for you.

Going it Alone

If you go it alone, you deal with the bank directly. If you’re a regular customer and have a great relationship with your bank, you might receive better terms and interest rates.

If you don’t have a good working relationship with a particular bank, you should shop around. Even if you do have a bank you’ve worked with, you should consider shopping around anyway—don’t trust your bank is automatically giving you the best deal.

Keep in mind that when you’re on your own, comparing rates and terms can be time consuming and complicated. You may not know how to compare mortgage products correctly or be savvy enough to slice through all the financial jargon.

Each bank typically offers just a few mortgage options, so in order to find the best one, you will have to research them each individually.

Pros of Using a Broker

Brokers are mortgage experts. They know the market, follow trends and know which institutions offer which mortgages products. They’ll also know which lenders are offering discounts or deals.

Importantly, brokers can save you time. A smart broker can identify the most appropriate lender for your specific circumstances and know which mortgages will be most appropriate. They also handle the hassle of paperwork and interaction with lenders, which can help relieve stress from the process.

This saving of time, work and stress is a big factor for many individuals who use a mortgage broker. Some brokers develop personal and professional relationships with lenders, which may accelerate the application process.

However, these relationships aren’t always a good thing.

Cons of Using a Broker

You may want to use caution if you pick a broker. Here are three reasons why.

1. Mortgage brokers aren’t free. Broker fees typically range between 1% and 2% of the mortgage. You also need to consider who pays the broker’s fee. While many mortgage brokers receive payment from the lender, some charge sizable fees to the borrower. This is especially true if there’s a situation involving credit issues or other financial hurdles.

2. A bad broker can favor lenders, not you. The deep relationships that some mortgage brokers develop with particular lenders can work against you. For example, a broker might steer you toward a lender with whom they have a long history—and not the one that offers the best terms. Likewise, if a broker is more concerned with netting the highest commission, they won’t have your best interests in mind.

3. They’re not all created equal. Mortgage brokers aren’t equally skilled and knowledgeable. Some brokers may not know of all the deals and options, which means you won’t get the best deal out there. To find the best broker in your area, ask around. Recent home buyers and a REALTOR® may be able to steer you toward a broker who can get you better rates.

Updated from an earlier version by Moshe Pollock.

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Why Your Home Offer Was Rejected

On November 2, 2014   /   Home Buying  
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By: Craig Donofrio

You’ve made the decision to buy a home, and congratulations are in order.

But entering the market and looking for your dream home is just the first step. After you’ve identified a home you love, you’ll need to make an offer.

As you make your way through the buying process, remember that your home offer works both ways: It can help you stand out from other buyers—or lead to a quick rejection from a seller.

A well-made home offer is key to landing your dream home, but a poor offer can end in a definite no. Offers are rejected for many reasons—lowballing and contingencies are just a couple.

Here’s what you need to know to avoid the rejection of your home offer.

Was Your Home Offer Too Low?

Sellers expect a fair price for their home and occasionally base their asking price on emotional attachment to the property. If you make a lowball offer, the seller isn’t legally bound to answer, but these things might happen:

  • An emotionally-attached seller may take a low home offer as a personal insult.
  • The seller won’t think you’re serious about buying the home.
  • The low offer may irritate the seller into rejection rather than negotiation.

Low Earnest Money Deposits

Don’t try to win the seller over on your heartfelt interest in the property alone. It doesn’t matter how much you love the house if you cannot afford what the seller is asking.

If you are intent on submitting a low home offer, avoid rejection by submitting a substantial earnest money deposit, which can vary from $1,000 to 3% of the sales price.

If your earnest money deposit is lower than this, you won’t seem like a serious buyer. 

The Listing Agent Has Dual-Rate Commission

A listing agreement can keep your offer from acceptance. This is an agreement by the seller’s listing agent to reduce his or her commission on the terms of representing both the buyer and the seller.

If your agent is the one negotiating a home purchase, the seller will end up paying more and receiving less at the end of the sale—which may lead some sellers to wait for another bid.

Seller’s Demands Weren’t Met

Many sellers present special conditions when negotiation a sale. For example, the seller may ask for one of the following:

  • For a larger earnest money deposit
  • To push back the closing date
  • For specific financing terms
  • For a pre-approval letter from a lender

A home purchase offer can fall through if the buyer does not fulfill the seller’s terms. However, if you include these into a written home offer, your chances for closing on the house can increase greatly.

Keep Moving Forward

If negotiating a home purchase the first couple of times only ended in disappointment, keep moving forward. Those prospects were obviously meant for someone else.

Surely your dream home is just waiting around the corner. Keep your eyes ahead and try your best the next time around with another home offer.

This story was rewritten from an earlier version on realtor.com®.

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6 Keys to Writing Winning Offers in a Sellers’ Market

On October 11, 2014   /   Real Estate News  
Tags: , , , ,
writing winning offers

By: Anne Miller for Realtor.com

In a sellers’ market, competition can turn fierce. Standing out becomes a challenge.

In these tight markets, smart strategies can make a big difference. Money helps, of course, but so does some creative and heartfelt communication—and having the right professional in your corner.

Follow these six tips, and you’re going to find success is just around the corner … along with your new house.

1. A good agent

An assertive, experienced REALTOR® will know the market well and will move quickly to present an offer to the seller.

They’ll be able to guide you through options that may seem a little crazy in a slower market—but could prove the difference between success and more house-hunting in a tight one.

2. An earnest deposit

A substantial deposit makes a big difference.

A reasonable deposit will be about 3% of the value of the property. A seller usually takes such an offer seriously and will feel confident you are committed to stand by this offer.

This could give your offer a winning edge. Submitting a pre-approval letter with the deposit puts your bid ahead of the others by showing the seller you have serious intentions.

3. Money talks

Of course, the more cash you can offer up-front can make a difference. too.

If you can afford a 30% or 40% down payment (or more), that may tempt sellers. And, in the long run, it will save you money on a mortgage, shortening the length of your loan and the interest you pay.

Few homeowners are likely to dismiss an all-cash sale. But let’s be honest—that’s a lot of dough that most people don’t have access to.

4. Get personal

Appeal to the seller’s emotions: include a personal letter in the offer to the person selling the property.

Explain why you want to buy the house and what you particularly like about it. Be as specific as possible. Appeal to what you may know of the property history.

Perhaps it’s a historic house the sellers lovingly restored, and you plan to keep it that way—tell them. Maybe you’re looking forward to raising your children in the specific community.

Other offers will appear impersonal in comparison.

5. Speed things up

Offer to close quickly. Most sellers want to make a speedy transaction—they’ll like this.

A standard closing period is about 30 days. If you can close in three weeks instead, this could convince the seller to accept your bid—even over one that offers more money.

Another winning negotiation strategy is to waive some of the contingencies usually included in a standard contract. For example, a winning offer can be one which agrees to shorten the period the buyer has to inspect a property for lead paint contamination.

Before you agree to waive any contingencies, however, you should check with your attorney.

6. Be nice

The sellers want a few more days in the house. Consider giving that to them rent-free.

There’s a few things ideally you’d like them to fix—but if they aren’t deal-breakers, consider letting that go.

Be friendly and personable, because if you prove to be someone they don’t mind dealing with, that could tip things in your favor, too.

Confirm Your Commitment

Ultimately, the question is this: how much do you want a new home?

In a sellers’ market, you’re probably going to have to give more, in many ways.

But hopefully your perseverance will pay off—for your family, and your bank account.

Updated from an earlier version by Wendy Dickstein.

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Help! I Lost My Job While I Was Buying a Home

On September 28, 2014   /   Home Finance  
Tags: , , ,
purchase home

By: Credit.com

Help! I Lost My Job While I Was Buying a Home

Losing a job is tough enough. But what do you do if you find yourself out of work when you’re weeks or even days from closing on your dream home?

Brutal, but it happens.

Employment isn’t a requirement for getting a home loan—just ask retirees. The issue is ensuring there’s stable, reliable income that’s likely to continue. For most homebuyers, the source of that stream is a steady 9-to-5 job.

Needless to say, losing your job unleashes a wave of uncertainty into the loan process. It doesn’t automatically kill your deal. In fact, it may not even delay things. Whether you can salvage the purchase often depends on your overall income picture and how quickly you land a new gig.

And even then, you’re still at the mercy of an eagle-eyed underwriter already on high alert. Success in these situations comes on a case-by-case basis. Here are a few things to know.

Should You Tell Your Lender?

Your first inclination might be to see if you can sneak one past the goalie. That’s a bad idea for a couple reasons.

One, lenders verify your employment and income early in the loan process and again near the time of closing, sometimes just hours before. They’re almost always going to hear it straight from your (now former) employer.

Two, you could be committing mortgage fraud by failing to disclose your job loss. Borrowers usually sign documents requiring them to notify the lender about any significant changes to employment or income.

Three, even if you could keep it a secret through closing, would you really want to? Unless you’re hopping into another job, making those new mortgage payments might be a real challenge. Defaulting on a home loan can wreck your credit and hamper your financial profile for years.

In fact, missing payments on any debt can hurt your credit, and if your job loss results in late payments on other debts in the lead-up to your mortgage closing, your credit score will reflect that.

Monitoring your scores can help you keep up with what’s going on with your credit so you can address any problems with your creditors and your lender (and one way to monitor your scores for free is through Credit.com).

New Employment

You may be able to hang onto that new home if you swiftly land a new job. It’ll need to be similar to your old one, in terms of the field, the type of work and the pay. Written details and confirmation from the new employer can help.

Lenders may require you to be back to work for 30 days before moving forward, a wait that could affect everything from your closing date to your interest rate and more. In some instances, you might be able to convince the lender to move forward without delay, especially if you get a new job posthaste.

So much depends on your specific situation.

Depending on the loan type, you could also look to add a co-signer and count that person’s last-minute income. That person would need to meet the same credit and underwriting requirements you did.

Also, you should both fully understand the implications of being a co-signer, i.e. what happens if you miss a payment.

Talk with your loan officer and your real estate agent about your options. Remember that continuity is critical regarding the new job. Jumping into a new career will usually require a significantly longer wait before lenders are willing to count that income.

Other Income

Most people need their employment income to qualify for a home loan. But some borrowers may have other sources that can satisfy the lender.

Retirement income, disability income and rental income can all be considered. Lenders will want to verify these sources and have confidence that it’s likely to continue for at least the next three years.

—

This article was written by Chris Birk and originally published on Credit.com.

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Is an Assumable Mortgage a Good Idea?

On September 21, 2014   /   Home Finance  
Tags: , , ,
home buyer

By: Michele Lerner for Realtor.com

Looking for an alternative to a traditional mortgage?

An assumable mortgage is a loan that allows a buyer to take over a seller’s current loan, typically with no change to the terms or interest rate.

When interest rates are low or falling, borrowers aren’t interested in taking on a loan with a higher interest rate than what a broker could offer.

But, if you’re purchasing a home with an established loan at 3.75% and mortgage rates have risen to 5.5%, you may want to consider an assumable loan.

Why consider an assumable mortgage

The top benefit to assuming a loan is a lower interest rate than you could get by applying on your own. In addition, your closing costs will be reduced. You’ll still have to pay some fees for the loan qualification process.

If you’re assuming an FHA loan, you won’t need to pay upfront mortgage insurance costs—just the ongoing mortgage insurance payments for the life of the loan.

One other advantage of an assumable loan is that you’ll be paying only the remainder of the seller’s loan.

Some simple math gives you a good example: if a seller borrowed $200,000 for their home purchase in 2011 at 4.2% with a 30-year loan, their monthly principal and interest payments are $978. If you were to borrow $200,000 at 5.2% with a 30-year loan, your monthly principal and interest payments would be $1,098.

In addition, because the seller has already repaid the initial three years of the loan, you would only need to make payments for the remaining 27 years of their loan. The sellers will have paid down $24,562 in interest after three years of payments.

By assuming the loan, you’d save $43,268 over the 30-year loan thanks to the difference in interest rates—plus the interest that the owners have already paid ($24,562)—for a total savings of $67,830.

Assumable mortgage options

Conventional loans are rarely eligible for assumption—most typically require the loan to be paid in full when the property is sold or transferred to another owner. VA and FHA loans are eligible for assumption, but there are a couple of additional requirements:
?FHA and VA loans both require the borrower to be approved for the loan.
?VA loans allow a non-veteran to take over the loan, but the sellers are still responsible for the loan if the new borrower defaults. If a veteran assumes the loan, the sellers are not responsible for the loan after settlement occurs.

Obstacles to an assumable mortgage

Before you run out to capitalize on someone else’s favorable loan, realize that a loan assumption isn’t always on the table.

In addition, you’ll typically need significant cash or to take out a second mortgage if the current home price is more than the remaining mortgage.

For example, if the sellers have made three years of payments as in the example above, their remaining principle due is $189,353. If the home appreciated in value and you buy it for $250,000, you’ll need extra cash as your down payment in order to assume the loan.

Alternatively, you can make a smaller down payment and finance some of the additional cost with a second loan, but be aware that second mortgages are more difficult to qualify for and typically have a higher interest rate than a first mortgage.

A good lender will help you decide whether a loan assumption or a traditional finance makes the most sense for your home purchase.

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