Closing Costs

Yesterday a homeowner asked me why they have to pay closing costs such as recording fees, processing fee, underwriting fee, etc… even though they were going through their current lender.  Their thought was since they already have the loan why do they need to be charged these fees again.  The reason for this is that more than likely whoever you are making your mortgage payment to does not own your mortgage.  They are the servicer of your mortgage meaning they send you the bill, collect your money, manage your escrow account and update the credit agencies.  When they receive your monthly payment, they cash your check and forward your money to the end investor that actually owns your mortgage, which could be a Wall St. Hedge Fund, Investment Club in China or Bank in Hong Kong…etc.  They do keep a small portion to cover their expenses and make a profit for servicing the loan.  So even though you might be going through your current lender, you will have to pay these fees again because you are basically doing a new loan.

If you do not want to pay these fees, you can elect to do a no cost loan.  A no cost loan does not mean that there are no costs, rather it means the lender you are doing the loan with is paying them for you.  How they do this and still make a profit is by premium pricing which means they are giving you a higher than par rate.   A par rate means that the lender is not being paid on the back side to do your loan, so that is why when I quote a par rate I state that you must pay all costs including one point loan origination/discount/broker fee.   If you are keeping your home short term it would be better to pay less costs and secure a higher interest rate.   If the par rate is 5.00%, as a consumer you can elect to take a higher rate and with the money your lender is being paid for giving you a higher than par rate they can pay your fees for you and still make a profit.   Generally speaking you should expect a rate anywhere from .50% to 1.0% higher for a no cost loan.

The par 30 year conventional rate mortgage is in the 5.00% to 5.25% range for the best qualified consumers.  In order to qualify you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including one point loan origination/discount/broker fee.   As always, you can elect to pay less in fees and take a higher interest rate.  I recommend to my clients if they are keeping their home for more than 7 years to pay all the costs to secure the best rate which over time will save them much more in interest than the upfront costs.

Tips for 1st-time Homeowners

Suggestions;

• Know your score. Check your credit score before you make any decisions. Credit scores range from 300 to 850. The median U.S. credit score is about 693, according to Experian, one of the three main credit reporting agencies. A score below 620 usually results in a borrower being charged a higher interest rate or being denied credit. In today’s environment, you will need a good score to qualify for a mortgage. If your score is lagging, wait a few months. In the meantime, pay every bill on time, pay down as much debt as possible to improve your chances. If possible, ask creditors for increases on your credit limits to help out the “credit available” aspect of your credit score – but do not tap into the addition.

• Do not stretch too far. Often, borrowers are told they can qualify for a higher mortgage than they can comfortably pay. It is wise to keep housing expenses below 35 percent of your total income. Leave breathing room in your budget so that if something unplanned does occur, you will be able to keep your home.

• Know the full costs of buying. The down payment and principal and interest on a mortgage payment are only the beginning of home-related costs. For a typical mortgage payment, “escrow” payments, or the costs of home insurance, property taxes, and, in some cases, private mortgage insurance, can total hundreds of dollars per month in addition to principal and interest. Determine the property tax amount – the largest part of the escrow payment – by checking with your real estate agent.

• Be sure to not deplete savings or cash on hand when making a down payment, since new homeowners often must complete initial work on the home, such as painting, flooring, landscaping or bringing an older house up to date. After that, a rule of thumb is to budget 1 percent of the home’s purchase price per year for home repairs and upkeep.

• Understand private mortgage insurance. Conventional Mortgages with less than a 20% down payment & all FHA Mortgages require PMI in case the owner defaults on the loan. When the home owner pays the mortgage down to 80% or less of the home’s value, the home owner can request the lender to cancel the PMI on a conventional mortgage and stop paying the additional amount. Meanwhile, PMI is tax-deductible, at least through 2010.

• Check for prepayment penalties and other provisions. If your loan has a prepayment penalty, borrowers face hefty charges if they pay it off early. This provision also can apply to future refinancing, so be forewarned. To determine if there is a prepayment penalty, review the Truth in Lending disclosure or ask your lender to find out. Prepayment penalties have come under increased scrutiny since the mortgage crisis began, so if you find your loan has one, voice your dissatisfaction directly and clearly to your lender or broker.

• First-time home buyers – including people who have not owned a home for at least three years – qualify for a tax credit of up to $8,000 if they purchase a home before Dec. 1, 2009. The credit does not have to be repaid if the buyer keeps the home for at least three years.

• Buyer beware. Some of the lowest prices on homes today are “fixer-uppers” or homes sold “as is” because of foreclosure. Invest in a home inspection before agreeing to purchase any home. You may even be able to split the cost of this inspection – typically less than $400 – with the seller. The inspection will inform you of any faults in the home and help you determine the approximate cost to remedy those problems. Without an inspection, you could wind up owning a home that requires thousands of dollars of repairs.

Credit Score Tidbits

This info is from a friend who works for Fair Issac….

• the only gov’t authorized free credit report is from; www.annualcreditreport.com

 • do not close revolving debt accounts…definitely will have a negative impact on your score

• paying down revolving debt is one of the best ways to improve your score

• when negotiating a short-sale or mortgage modification with your lender, ask that they report, “paid as agreed”…if they report as, “in partial payment”, “deferred payment” or “not paying as agreed” your score will suffer substantially

 • if you’re shopping for a home or car loan, all inquiries within a 14-30 day period are treated as a single inquiry by FICO

• using a credit counselor for debt relief has a negative impact on your credit score

Defending or Defensive

It’s perfectly O.K. for the administration to defend what it’s done so far.

It’s fine to have Vice President Joseph Biden touring the country, highlighting the many good things the stimulus money is doing. It’s also reasonable for administration economists to call for patience, and point out that the stimulus was not expected to have its full impact this summer, or even this year.

But there’s a difference between defending what you’ve done so far and being defensive.

It was disturbing when President Obama took back Mr. Biden’s admission that the administration “misread” the economy, declaring that “there’s nothing we would have done differently.”

There was a whiff of the Bush infallibility complex in that remark, a hint that the current administration might share some of its predecessor’s inability to admit mistakes. And that’s an attitude neither Mr. Obama nor the country can afford. What Mr. Obama needs to do is level with the American people. He needs to admit that he may not have done enough on the first try. He needs to remind the country that he’s trying to steer the country through a severe economic storm, and that some course adjustments — including, quite possibly, getting input from all sides

Be a Donkey

I recieved this over the weekend…I made minimal changes…thank you Daisy!

One day a farmer’s donkey fell down a well.

The animal cried for hours as the farmer tried to figure out what do to do.

Finally he decided the animal was old and the well needed to be covered up anyway; it just wasn’t worth it to retrieve the donkey.

At his request, his neighbors came to help fill up the well with dirt in order that they may officially close it.
Each grabbed a shovel and began to shovel dirt in the well.

At first the donkey cried pitifully as each shovelful rained down on him.  A few shovel loads later, the farmer noticed that the animal
had quieted down.  When he looked down into the well he was astonished to find that with every shovelful that went into the well
the donkey shook it off and took a step up.

As the farmer’s neighbors continued to shovel the dirt in, it didn’t take long for the donkey to keep stepping up on the dirt and slowly
he was able to step over the edge of the well and trot off.

As we go about our lives we occasionally find the things that matter have taken an unexpected turn very much like the donkey’s story.  We may find
ourselves stuck bemoaning our circumstances.  However, though life will shovel dirt on us.– ALL KINDS OF DIRT — how we perceive
the dirt will make all the difference.  The trick to getting out of any well we find ourselves in, is to not let it bury us.  Instead, shake it off and
take a step up.  Each of our troubles is a proverbial stepping stone if we allow it to be.  We can get out of the deepest wells simply by not giving
up.  Shake it off and take a step up!!

Our Rights…meaning of 4th of July

Contrary to popular myth, the men who signed the Declaration of Independence were not great Americans. Instead, they were great Englishmen. In fact, they were as much English citizens as Americans today are American citizens. It’s easy to forget that the revolutionaries in 1776 were people who took up arms against their own government.

So how is it that these men are considered patriots? Well, the truth is that their government didn’t consider them patriots at all. Their government considered them to be bad guys — traitors, all of whom deserved to be hanged for treason.

Most of us consider the signers of the Declaration of Independence to be patriots because of their courage in taking a stand against the wrongdoing and tyranny of their own government, even risking their lives in the process.

Yet not even the patriotism and courage of these English citizens constitutes the foremost significance of the Fourth of July, any more than the military victory over their government’s forces at Yorktown does.

Instead, the real significance of the Fourth of July lies in the expression of what is undoubtedly the most revolutionary political declaration in history: that man’s rights are inherent, God-given, and natural and, thus, do not come from government.

Throughout history, people have believed that their rights come from government. Such being the case, people haven’t objected whenever government officials infringed upon their rights. Since rights were considered to be government-bestowed privileges, the thinking went, why shouldn’t government officials have the power to regulate or suspend such privileges at will?

The Declaration of Independence upended that age-old notion of rights. All men — not just Americans — have been endowed by God and nature, not government, with fundamental and unalienable rights. Governments are called into existence by the people — and exist at their pleasure — for one purpose: to protect the exercise of these inherent rights.

What happens if a government that people have established becomes a destroyer, rather than a protector, of their rights? The Declaration provides the answer: It is the right of the people to alter or even abolish their government and establish new government whose purpose is the protection, not the destruction, of people’s rights and freedoms.

The Constitution and the Bill of Rights must be construed in light of that revolutionary statement of rights in the Declaration of Independence. The American people used the Constitution to bring the federal government into existence but also, simultaneously, they used that document to limit the government’s powers to those expressly enumerated in the Constitution. With the Constitution, people limited the powers of their own government in a formal, structured way, with the aim of protecting their rights and freedoms from being infringed upon by that same government.

Why did Americans deem it desirable and necessary to limit the powers of the federal government? Because they feared the possibility that their new government would become like their former government against which they had had to take up arms. While they recognized the necessity for government — as a means to protect their rights — they also recognized that the federal government was the greatest threat to their rights. By severely limiting the powers of the federal government to those enumerated within the Constitution, the Framers intended to encase the federal government within a straitjacket.

Even that was not sufficient for the American people, however. As a condition for approving the Constitution, they demanded passage of the Bill of Rights, which emphasized two deeply held beliefs: (1) that the federal government, not some foreign entity, constitutes the greatest threat to the rights and liberties of the American people; and (2) that the enumeration of specific rights and liberties, both substantive and procedural, would better ensure their protection from federal infringement.

On the Fourth of July we celebrate the patriotism and courage of those English revolutionaries who were willing to pledge their lives, fortunes, and sacred honor in defense of the most revolutionary declaration of rights in history — that man’s rights come from God and nature, not from government.