Mortgage Blog

Mortgage Brokers are compensated in one of two ways. Either on the “front-end” with fees such as origination fees and mortgage broker fees or with “back-end” compensation from the Lender. This back-end compensation is usually referred to as “Yield Spread Premium” (YSP). It allows the Broker to offer lower fees to the borrower than might otherwise be the case.

There has been some controversy about YSP with many consumer advocates claiming it leads to borrowers paying a higher interest rate on their loan than would otherwise be the case.

Meanwhile, rarely mentioned is the Lenders version of YSP. When Lenders sell their loans to investors they receive compensation in the form of “Service Release Premium” (SRP). While most States require that mortgage brokers disclose YSP there are no requirements for Lenders to disclose SRP.

Moreover, many studies have show that Mortgage Brokers on average deliver lower rates and better service than Lenders. The key is always to obtain quotes from at least 2 or 3 mortgage companies. Compare them to see which is better. At the end of the day you will often find that a mortgage broker can offer you a better deal than the Lender. Don’t forget to check reputations too. The Better Business Bureau is a good place to start. An offer is only as good as the integrity of the people making it.

Have you ever bought anything and felt shortly thereafter that you did the wrong thing.

This is a very common feeling and it’s called buyers remorse. It is particularly common in the real estate business because of the magnitude of the transaction.

Buyers who just signed a purchase agreement to buy a home often experience the following three feelings.

1) I paid too much

2) I acted too quickly

3) I didn’t see enough homes

In order to feel comfortable in your next home purchase be careful to take your time. Do careful research and make it a point not to make a decision on the spot. Take a day or two to think it over. The current housing market is favorable to buyers so there is no need for you to feel rushed.

1. Not shopping enough. Hard as it is to believe many people only obtain one quote when looking for a mortgage. Sometimes they go to their Bank or Credit Union and sometimes they use the lender recommended by the realtor or builder. This is a big mistake. I recommend you look for 3-4 quotes. Be fair and let everyone know you are shopping. Don’t necessarily go for the lowest bid. Be sure to take reputation into account. Otherwise it could come back to bite you later.
2. Shopping too much. If you shop around too much you greatly increase your likelihood of coming across the bad actors in our industry. Look too hard for the “lowest” rate and you are sure to find someone willing to say anything to get your business. They know you are unlikely to walk away at closing – so it works for them – at least in the short run.
3. Choosing the wrong loan. If you are on a fixed income don’t pick a high risk loan such as the “Option ARM”. This type loan gives you a low teaser rate – often around 1% - but can pile “negative equity” on your mortgage balance. Know your risk level and stick with it. A reputable mortgage professional won’t steer you in the wrong direction - which brings up number four.
4. Not doing your homework. This goes hand in hand with the first two. Research the companies you are considering doing business with. The Better Business Bureau and your States financial regulatory body are good places to start. If you are dealing with a Mortgage Broker – make sure they are a member of the NAMB (National Association of Mortgage Brokers). Ask for references. Look for someone who returns your calls, is pleasant, informative and knowledgeable.
5. Not telling the whole story. Don’t hold relevant information back from your loan officer. For example, if you are self-employed and have difficulty proving your income – tell him/her in advance. It will ensure you get an accurate quote and make the loan process run smoothly.
6. You like to look them in the eye! Don’t select a Lender just because they have an office near you or because you have your checking account there. That local office may add to overhead and mean a higher rate. Once again get 3-4 quotes and check reputations.
7. Not Reading the paperwork. Read the paperwork! Your Lender will send you loan disclosures within 3 days of your application. Pay special attention to the “Good Faith Estimate” (GFE) which will show your closing costs and the “Truth in Lending” (TIL) Form which shows your APR. At closing pay attention to the “HUD1” form which will show your final closing costs. Also important the “Note” (which shows your interest rate) and look for any mention of a “prepayment penalty”. This could cost you thousands if you plan on moving or refinancing in the near future. If you have any questions ask your loan officer right away.

One final note: I have been in the mortgage industry for 8 years. I have a financial industry background going back over 20 years. In my experience most mortgage people are honest and want to help you. Avoiding these seven mistakes should make your next mortgage experience an enjoyable one.

Verifying Your Down Payment, Closing Costs and Assets

A critical step in the mortgage loan application process is to verify the sources for your down payment, closing costs and assets, as well as documenting income and debts. The lender uses this step to determine your qualifications as a borrower.

Down Payment & Closing Costs

Documenting that the down payment comes from your savings and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.

Take extra care to document the sources for any monies to be used for the down payment or closing costs.

Acceptable Down Payment & Closing Costs Sources

• Cash in a bank account, CD's etc.
• Mutual funds / stocks / IRA / 401K
• Proceeds from the sale of another property
• Gift from an immediate relative
  
  Assets

Collect information about your personal assets that add to your net worth and help to prove your credit worthiness.

Common Assets Considered in a Mortgage Loan Application

• Funds in Savings, Checking, Money Market account, CD's etc.
• Stocks, bonds, mutual funds, 401K and retirement accounts
• Life insurance with a cash value
• Other Real Estate property

Please feel free to use our Loan App checklist to gather the documentation required by most Lenders.