Mortgage Shopping? Ask These 7 Questions for a Better Offer

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You know that getting a lower rate means a lower mortgage payment. This is true regardless of whether you are buying a house or refinancing. But where do you begin? Do you apply online and in turn have your information sold to multiple, probably pushy salespeople? Do you contact your bank, hoping to get a break since you have money stored there? What about the constant letters, emails, and advertising banners from your current mortgage servicer? We answer this question by comparing who has better mortgage rates.

Regardless of the type of lender you are working with, there are 7 critical questions will give you an edge in negotiating your next mortgage. Before we get to the questions, you should know how banks, direct lenders and brokers make money.

How Banks Make Money

Banks and credit unions make money on the interest rate they give you. They make money by either servicing your mortgage or selling it on the secondary market. The amount of SRP paid is based on the value of the note when it is sold off. Banks usually lend their own money and operate at a high overhead. It’s expensive to staff top earning underwriters and funders. Therefore, It’s in a banks personal interest to give you the highest rate possible to make a profit.

How Direct Lenders Make Money

A direct lender or lender also makes money on the interest rate sold to the consumer. While some more prominent direct lenders service their mortgages, most medium-sized, and smaller lenders sell mortgages as soon as closing on the secondary market. You see, lenders have an expensive line of credit which they use to fund loans. By borrowing money for a short-term from a bank or a private institution. You can expect higher rates from a direct lender because of the cost to operate lines of credit along with the high overhead required to act as a direct lender. They too make a large profit by selling you a higher rate.

How Brokers Make Money

Brokers make money by pairing your mortgage with a wholesale lending partner. Brokers set compensation with each wholesale lending partner, approved every quarter, and may not deviate from this set amount. Brokers usually do not have a line of credit or employ high salary underwriters and funders. Instead, the wholesale lender will underwrite and fund your home loan. As a result, most brokers may operate with very little overhead fees. Not all brokers pass along the savings; we do. We designed Candor Mortgage to run very efficiently using the latest technology. We do not pay our people commission because we want them concentrating on your needs, not their wallets. We are compensated by our wholesale lending partners. 

Key Factors that Will Affect Your Pricing

There are a few things you should know before contacting any company and getting a rate quote or getting pre-qualified to buy a home. The first thing is your credit score. Your credit score is one of the main factors that will impact your interest rate or closing costs. Credit scores range from 300 to 850. A credit score over 740 will usually qualify you for the best mortgage pricing. It’s important to know that while you may get a bank’s best pricing, it could still be higher than what a broker like Candor Mortgage may offer.

You should also know how much you can expect your home to appraise. You’ve probably received flyers from realtors listing how much your neighbors are selling their homes for. Those are usually a pretty good indicator of your home’s value if your home is of comparable quality. You should also check that against online search tools, like Zillow; we can also send you your home’s estimated value. We don’t need to pull your credit or make a loan application to do this.

Learn to Talk Like an nsider with some Industry Jargon 

Knowing industry terminology will help you when shopping for a mortgage because it shows that you are savvier than the typical borrower. Understand these terms for a better shopping experience:

  • Par Rate: The par rate is the interest rate a borrower may qualify for without any markup or interest rate manipulation. In other words, it’s a rate without paying any points nor yielding much lender credit.
  • Loan-to-Value (LTV): The LTV is a term often used to describe the ratio of a loan to the value of your home. For example, if your home is worth $600,000 and you are getting a new mortgage for $300,00, your LTV is 50%. LTV = Home Value/Mortgage. If your LTV is at or below 60%, you can expect better mortgage pricing.
  • Lender Credit: When you select an interest rate above par, you may receive a credit which will be used to offset closing costs. You accept a little higher price in exchange for less closing costs.
  • Discount Point (points): A point is a an amount you pay as a tradeoff between higher closing costs and interest rate or mortgage payment. Usually, a point is 1% of your loan amount, but they may not always be round numbers.
  • SRP: After a mortgage closes, it may be sold on the secondary market. A service release premium (SRP) is compensation received by a bank or lender on the sale of a closed mortgage loan.
  • YSP: A Yield Spread Premium is similar to SRP. It is compensation received by a broker for selling an interest rate above par. In 2010, President Obama passed the Dodd-Frank as an answer to the 2008 housing crisis. The act made YSP illegal.
  • FNMA MBS: We mention the Fannie Mae (FNMA) Mortgage Backed Security (MBS) because it is a way for you to see and actively track interest rates movement visually.

7 Questions for Getting an Accurate Loan Estimate

  1. What is your best par interest rate you can offer with no points or lender fees?
    While this seems like a fundamental question to ask, you will be surprised how many responses you will receive, most of which will be indirect. Par is the rate a mortgage loan originator is offering without any markup or discount. By getting the par rate from company to company, this will allow you to compare mortgage offers accurately.
  2. What lender, appraisal, title, escrow, notary, and 3rd party fees do you charge? I would like to know the total closing costs.
    If you are shopping lender types, you will discover that lender fees, appraisal, title, escrow and 3rd party fees will vary from company to company. By comparing the par rate with the total cost to obtain a mortgage, you are well on your way to comparing and getting your best mortgage offers.
  3. Do you charge a fee or deposit to lock and when may I secure my lock?
    This may seem like something minor, but it’s very important. Here is why. A company charges a lock fee (often non-refundable) to ensure you will move forward with them regardless if you find a lower rate. A common practice with some companies is not locking a loan until the appraisal is received. From initial conversation, this could be as much as 10 days where a borrower is at risk against the market. At Candor Mortgage, we do not charge any lock deposit fees and rely on our service and pricing to earn and retain your business.
  4. Are there any mortgage discounts or promotions I may be eligible for?
    Affordable lending programs like Fannie Mae HomeReady and FreddieMac HomePossible are not only for first-time homebuyers. If a lender is not knowledgeable or doesn’t have a system in place to check, you may miss out on possible additional savings.
  5. Can I get an estimate in writing?
    If you have followed steps 1 to 4 so far, you should have a legitimate rate quote. It’s time to get your loan estimate in writing. Make sure you request all the rate options you discussed in writing along with any associated closing costs and lender credits.
  6. How quickly can you close my loan?
    Asking the lender “How quickly are you able to close my mortgage?” is hugely important because closing quickly indicates competence. Plus, who wants to deal with a mortgage application for more than a few weeks? We often close or are ready to settle in 11 days at Candor Mortgage to give you an idea.
  7. Do you have a price match guarantee?
    We include this because we see this as a new trend which is alarming. A price match guarantee is usually nothing more than a sales tactic designed to build confidence in a particular company by making you think you have a safety net. If you read the fine print, nothing could be farther from the truth. We at Candor Mortgage choose not to have this type of guarantee because we do not need to. We are giving you our best loan offer upfront without holding back or trying to trick you into thinking you are getting a better mortgage than you are.

Good job reading this article and if you follow these steps, you will be able to make an apples-to-apples loan estimate comparison. Getting and knowing the numbers upfront without high-pressure sales or bait-and-switch tactics will help you choose the right mortgage.

The Critical First Step in Buying a House

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You may be shopping for a house but did you remember to shop for a mortgage? According to the Consumer Financial Protection Bureau, “nearly half of borrowers do not shop for a mortgage…”¹ As a result, these borrowers got either a higher rate or paid more in closing costs. This is why we recommend shopping for a mortgage before you start looking for a house. Finding the right mortgage can be complicated. As with any other major purchase, you’ll want to shop around before making a decision. Choosing the right mortgage begins with choosing the right lending company and asking the right questions. However, what do you need to know to start shopping for a bank, mortgage broker or lender?

Here at Candor Mortgage, we’re here to help you discover what loan is best for you by asking the right kinds of questions, listening to your needs, understanding your goals and giving you the best advice. While other companies practice pushy sales, we practice candor. It probably helps that we designed our mortgages with competitive pricing, costing less and requiring less paperwork. We are confident Candor Mortgage is the best home loan broker, we’re telling you not only how to shop but how to get the best mortgage anywhere.

What Are Your Needs?

The first step is to sit down, assess your spending and make a budget for the new house payment. Then ask these questions: What are my needs? How much do I want to spend on a new home? How much do I have saved for a down payment and closing costs? Is this the right time to buy? Am I looking to buy a home for long-term investment purposes, or will this become my primary residence? If you are buying with someone else, talk it over. These and similar questions will help you develop a better understanding of what direction you want to go in. With these questions in mind, you’ll be better prepared to purchase a mortgage that’s right for you.

When you work with Candor Mortgage, you won’t be forced to answer these questions alone. Through our unique approval process, we’ll help you step-by-step in explaining these and other vital matters.

Do you know your credit score?

After you assess your needs, it’s time to check your credit. There are three major credit reporting companies: Equifax, Experian, and TransUnion. You may get a free credit report from all three companies at www.annualcreditreport.com. It’s an excellent place to start if you haven’t looked at your credit in awhile. You may use these reports to check for errors carefully. If you want to know your actual credit scores or FICO scores, you will have to pay. If you do check your scores, you will want to check all three scores. Your scores will likely differ between the three credit bureaus. For lending purposes, most lenders will use the middle score.

Instead of going at it alone, we can help you obtain your credit report with all three credit scores. Then we will review it with you checking for any errors or misreporting. We can even help you make corrections which will often improve your FICO scores. Credit scores range from 300 to 850. It’s important to know your credit score because the interest rates you will be offered will depend on your credit score. Borrowers with a credit score above 740, typically get the best interest rate options. Want to know your credit score?

How much money do I need for a down payment?

One of the most significant costs to weigh when shopping for a mortgage is the down payment. This principal payment is typically referred to as having to be 20%, but this is not true. A down payment can range from 3% to 20% or more. While a lower down payment may come with higher interest rates, this is not always the case. Loan options like those offered by the FHA or VA provide home buyers with a flexible way of buying a home. There are also affordable home financing programs like Fannie Mae’s HomeReady, which we feel is a better option than FHA loans for creditworthy borrowers. Here at Candor Mortgage, we are constantly on the lookout for the best ways to save you money.

If you are able, it is also important to note that it can pay off to put more than 20% down, not only to lower your interest rate as previously mentioned but also to signal to lenders that you’re more than capable of paying back the mortgage loan. Further, most sellers prefer a higher down payment. Don’t forget to budget for closing costs as well when figuring out your down payment amount. Our verified pre-approval will help determine what amount your down payment should be and where in your finances it should come from.

How can I get the best or lowest interest rate?

Another and significant factor when shopping for a mortgage will be interest rates. You’ll have to think about interest rates not only when deciding what loan schedule is best for you, but also when it comes time to consider other aspects of your mortgage, such as how much to pay as a down payment. While the market dictates the overall trend for interest rates (go up and down), this is what you can do to get the best rate options.

The first factor needed is for your credit score to be above 740. Having your credit checked early in the buying process is our top recommendation. At Candor Mortgage, we often help buyers improve their credit scores by reaching out to the three bureaus to correct any false information. The second factor that will enhance your mortgage pricing is putting more money down or qualifying for an affordable mortgage product. Putting more money down makes your mortgage less risky, and lenders often reward you by giving you a better rate. An affordable mortgage like Fannie Mae’s HomeReady usually has a better interest rate and lower private mortgage insurance, both of which will give you a lower mortgage payment. The third factor is choosing the right mortgage lending company.

There are three types of mortgage companies: 1) banks or credit unions, 2) lender or direct lender, 3) mortgage brokers. As we discussed in a previous article, traditional banks and credit unions tend to be much slower and have higher rates and costs. The person you talk to at the bank often is not the one working on your mortgage. Banks make money by charging fees and higher interest rates. Lenders and direct lenders, the second type, have one or multiple lines of credit they use to fund loans. The additional overhead and cost to operate as a direct lender are usually passed on to you. Just like banks, the person who enrolls you is often not the same person who is working on your loan. Direct lenders make money by charging higher rates, origination and lender fees. This type of company does not need to disclose certain fees and can make a big profit on the interest rate they give you. Therefore, it’s safe to say, most direct lenders will have higher rate pricing and costs. The third option is independent mortgage brokers. A mortgage broker like Candor Mortgage has access to multiple wholesale lenders without any of the overhead. Uniquely to us, we use web software to compare multiple wholesale lenders’ pricing. We use cost-saving technology to run efficiently, and this allows us to pass along any savings to you. The person with whom you speak is the same person working directly on your mortgage.

One more thing, if you are working with a real estate professional like a Realtor, there is a good chance they’ll recommend that you use their in-house or preferred lender. An in-house lender may or may not have an ownership affiliation. In the end, you may choose to work with the company who is not only giving the best mortgage but more importantly who you feel has your back. At Candor Mortgage, we’re committed to providing accurate and transparent rate quotes that are helpful for you. Our rate quotes include all associated fees and costs. You’ll never run into any ‘bait-and-switch’ tactics with us.

How much will I pay in closing costs? What fees will I pay? 

Finding a way to lower your interest rates can certainly be beneficial, but it’s not the only way of saving money. Closing costs refer to the various fees that come with your mortgage, on top of its selling price. In California, the seller chooses the title and escrow company which will determine the majority of the loan fees. Some of these fees may include lender fees, appraisal fees, title insurance fees, owner’s title insurance fee, escrow settlement fees, and homeowner’s association fees, among others. These costs can quickly add up. Choosing the right mortgage company that will not only close your loan fast but also gives you the most value is crucial. Our pre-qualification and verified pre-approval processes will be upfront with you about what closing costs to expect so that you can adequately prepare.

Loan Term and Mortgage Programs

The schedule by which you pay back your mortgage loan will vary depending on whether you opt for a fixed-rate mortgage or an adjustable rate mortgage, or ARM. Fixed-rate mortgages are typically offered in either 15-year or 30-year arrangements. These options will provide some stability and consistency to your debt payments, and may be best for you if you plan on staying in this home for the long-term. The more consistent, fixed-rate mortgage options do tend to come with higher interest rates than do ARMs. An ARM will start at a fixed rate (usually for a period of 5 or 10 years) and then transition to an adjustable rate, based on market fluctuations. A unique type of ARM is a 5/5 ARM. It has a 30-year term with a fixed interest rate for the first 60 months. It adjusts in year six and every five years after that. Therefore, you can expect adjustments in years 6, 11, 16, 21 and 26. Therefore, this may be a more stable adjustable mortgage option. If you know you will be moving in 5 years; an adjustable rate mortgage may be a good fit. Candor Mortgage’s knowledge-based approach to helping you shop for a mortgage can help separate fact from fiction about different loan options and determine what’s best for you. For more clarification, check out our guide to navigating common myths about buying a home.

Overall, when shopping for a mortgage, it’s of the utmost importance you choose the mortgage company that not only will give you the best mortgage but deliver on your loan closing. By choosing the right company, you will be able to move forward to buying a house with confidence. At Candor Mortgage, we’re committed to helping you find a mortgage and a home that’s best for you. Our expert team will work with you every step of the way.

Sources:

  1. http://files.consumerfinance.gov/f/201501_cfpb_consumers-mortgage-shopping-experience.pdf

Buying a Home: A Step-by-Step Guide

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October 15, 2018 by Matthew Anticoli

Buying the perfect home for you can be daunting, with many steps requiring a lot of time and effort. These 10 steps can help make the home buying process more manageable, allowing you to move forward with confidence.

Step 1: What Can You Afford?

Before deciding to buy a home, it is essential to get a sense of how much you can afford. Look at your current debts, income, and expenses. How much money do you have coming in vs. going out? Additionally, what kind of money do you have saved already? Don’t try to figure this out on your own. Talk to an independent mortgage advisor who can help you figure out exactly how much you can afford. Once you have a strong understanding of your personal financial situation, you have taken the first step to buy your next home.

Step 2: What is Your Credit Score?

Next, it’s time to check your credit score. Knowing your credit score will help you narrow down how much you will be able to borrow, and thus how much you can afford. If your score is above 680, you’re likely to receive financing pretty easily. If you find that your score is 580 and above, you can still qualify, primarily through special loan options such as FHA loans. With a score lower than 579, you’ll have more difficulty receiving financing, and at best will receive a loan with less favourable loan terms. This is why it is crucial to have an independent mortgage advisor check your credit score before moving forward with buying a home. Checking your credit score early in the home-buying process also gives you a chance to fix any errors that may be present on your credit report, which typically has the effect of boosting your score.

Step 3: Getting the Right Pre-Approval

As you move forward with your decision to buy a home, you’ll need to begin planning how to afford this purchase. Here’s where your lender comes into play. During pre-approval, your lender will take a comprehensive look at your financial and credit documents to assess your eligibility for a mortgage loan. At the end of pre-approval, you’ll receive a pre-approval letter or PAL. You may use your PAL to start making offers. Having a PAL signals to sellers and listing agents that you are a buyer that means business!

A pre-approval is crucial and the quality of your PAL can vary depending on who you go to, whether it be a lender, a bank, or a broker. Some lending institutions will take your word for your income and assets without verifying your capacity to buy. Here at Candor Mortgage, our pre-approval is much more robust. One of our experienced mortgage advisors will verify your capacity to buy a house by reviewing your income, credit, and financials. 

Step 4: Building a Team

Now that you’ve prepared yourself to buy a home, it’s time to take the next step and bring in some help from the outside. To make your home buying experience as simple as possible, we recommend seeking the help of both a real estate agent and a lending institution.

For financing, you may choose from a bank or credit union, lender or direct lender, or an independent mortgage broker. Interest rates, closing costs, and service fees will vary from institution to institution. Your realtor may recommend their preferred lender, but you have a right to choose the lending company that is right for you.

If you need help finding a real estate agent, we’re here for you!  At Candor Mortgage we work with a well-vetted team of high-quality real estate professionals. We can help match you with a real estate agent that is right for you and your needs. You are never under any obligation to use our recommendation.

A real estate agent is not only a great source of information but also a useful strategic tool. A good real estate agent can help you save money negotiating a home’s price down. Your agent will help you make firm offers and ultimately help you get into your ideal home. The best part is, you do not pay for your agent’s help, the seller does.

Step 5: What Do You Want in a Home?

A fundamental question to ask yourself is “What kind of home am I looking for?” Do you want to live in a large home or would you prefer something smaller? Would you like your home to be close to schools, libraries, hospitals, and other essential services? Do you want someplace in or close to a major city? Questions such as these are hugely important and should be something you think about throughout the home purchase process. Your real estate agent and broker should be able to help you figure out what it is you truly want out of buying a home.

Step 6: Finding a Home

After your mortgage application has been processed and approved, you should have a better idea of what you can and cannot afford. With this knowledge, you’ll be better equipped to start looking for specific homes. If you haven’t already, check out online listings for homes in a few desired areas of yours. When house hunting, it’s best to have a few options in mind already. It’s recommended that you make a shortlist of about 5 homes; this way you’ll have a few backup options if your first choice of a house doesn’t work out. Your real estate agent should be able to help you navigate the housing market and find a home that’s right for you.

Step 7: Making Your Offer

Once you’ve decided on your number 1 choice of home, it’s time to make an offer to the seller. Your real estate agent will help you during this stage. With your real estate agent, draft an offer letter including your offer price and a deadline for the seller to respond by. Your real estate agent will determine a fair offer price based on the values of other homes in the area and on the condition of the house itself. After your initial offer, the seller will likely want to negotiate the terms of the proposal. Your real estate agent will be especially useful during this time in negotiating terms that are favorable to you.

After negotiating and settling on the terms of your offer, you and the seller will sign a purchase agreement. This will finalize the terms of your home purchase and enter you into a binding contract with the homeowner. Afterward, you will send the purchase agreement to your lender for their final approval.

Step 8: Applying for a Mortgage

Once your offer is accepted, and your agent has negotiated terms, it’s time to seek financing. You may use the services of the same company who procured your pre-approval or you may apply for a mortgage with a new lender. Applying for a mortgage, like seeking pre-approval, requires you to disclose a large amount of information. A lender will want to learn about your employment history, asset portfolio, source(s) of income, and current debts. Different lenders will ask for different information, but luckily at this stage, you should already have much of your financial information on hand and ready to send over. Once you apply, your application will progress through a series of steps, known as processing, underwriting, and closing. As your request is passed along, you may be asked to send along other documents that may have been missing. It’s crucial to send items in quickly to not slow down your home buying process overall.

Most buyers do not shop for a mortgage when buying a house. This is your last chance to shop rates and costs.

Step 9: Inspection and Appraisal

Once you’ve selected a home and entered into an agreement with the seller, you will need to order two appointments: a home inspection and a home appraisal.

A home inspection will help you determine if there are any aspects of the home in need or great repairs or otherwise deserving of your concern. It’s probably a good idea to hire a home inspector, rather than just inspecting the home for yourself. The home inspection may be one of the last times you walk through the house until after the home is yours. Take this time to begin pre-planning for how you’d like to organize your new home.

The appraisal is equally as critical as the inspection, if not more so. Your mortgage company will order a home appraiser and schedule a time for them to come and appraise the home. This will help determine a more accurate value for the home.

Step 10: Closing, Welcome Home

After inspection and appraisal, you’ll be mostly waiting for the final approval from the lender. Once this comes, your lender will specify a day for closing. At closing, all parties – you, the seller, your real estate agent, and any attorneys involved – sign final documents and make arrangements to cover down payment costs. This step also consists of the official, legal transfer of keys (and property) from the seller to the buyer.

Congratulations! You’ve completed the home buying process. Here at Candor Mortgage, we’re committed to making the home purchase process as simple as possible. With this 10-step guide, you’ll be in a new home in no time!

8 Home Buyer Myths About Buying a House

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Buying a home can be incredibly stressful. A little anxiety is normal; buying a house is one of your most significant investments. Fortunately, much of the worrying around buying a home is based on myth and misconception. With this helpful guide we’ve prepared for you, you’ll learn how to separate fact from fiction.

Myth 1: I Need to Save 20% for the Down-Payment to Buy a Home!

When people talk about making their down payment, they often mention something known as “the 20% rule.” The 20% rule refers to the belief that a 20% down payment is ideal or even necessary when closing on a home. If you, like many others, think this is the case, you may be worried about how to afford a 20% down payment. Fortunately for you, the 20% rule is a myth!  For conventional loans, down payments can range from 3% to 20% or more. So if 20% is too high, you can choose to pay any amount between 3% and 19%.

There are benefits to putting more money down. Most lenders will give you a lower interest rate because the more you put down, the lower the risk to the lender. There are some loan options with down payments less than 3%, and some even with 0%. You may be better off with a lower down payment versus paying rent. Talk to a mortgage adviser today to learn more.

Myth 2: I Can’t Buy a House With Student Loan and Other Debt!

If you’re looking for a mortgage or wanting to buy a home, and you have a fair amount of debt, you may be worried about whether or not you’ll qualify for financing. Don’t fret! There’s no need to worry about not getting financing simply because you currently have debt or are paying off student loans. Although there is such a thing as ‘too much’ debt, what matters when applying for a mortgage is your ability to pay your new home loan and other debts. A lender’s underwriter will look at your debt-to-income ratio (DTI), or how punctual and consistent you are with paying off your debts. Your DTI is calculated by dividing your monthly amount due by your monthly income. If this ratio is above 45%, you may run into some difficulty getting a loan with favorable terms, but improving your DTI can be fairly simple. If you do find yourself with a DTI above 45%, try to pay any outstanding payments, cut costs where you can, or search for additional sources of temporary income.

Myth 3: My Credit Score is Way Too Low! I’ll Never Qualify.

Your credit score matters, especially when looking to get a mortgage. While it is essential for some programs, it does not mean it is the defining factor of your mortgage application.  If you are concerned that your credit score is too low, you should start by checking it and checking it early.  It’s especially important to know your credit score before making an offer.  By checking it soon, it will give you and your mortgage adviser time to fix any defects.

A low score does not automatically disqualify you from receiving financing. There are many loan programs through government agencies, such as the FHA or VA, that have lower credit score requirements than conventional loans. These programs are designed with the needs of first-time or low-income homebuyers in mind, and as such have more lax requirements.

Some easy ways to optimize your score include correcting any errors on your credit report, paying your bills on time, and avoiding any new lines of credit (car loans, new credit cards, etc.)  It is highly recommended you work with an experienced mortgage adviser to avoid any potential issues.

Myth 4: If I Need a Realtor, My Best Bet is To Ask Friends and Family For a Referral

As with most things, it feels natural to ask our friends and family for their input on important decisions. When looking for a realtor, however, this is not necessarily the best choice. While recommendations from friends and family may be a starting point, you’ll want to base your selection of a realtor on more than someone’s opinion. When looking for a realtor, it’s important to consider a potential realtor both as a person and as a professional. As a person, your realtor should be someone you trust, with a personality that makes you feel comfortable. As a professional, they should not only be well-organized and practice professionalism but also provide insight to help you buy the home you want. You’ll need someone who has an understanding of the local housing market and knowledge about the kind(s) of homes you are considering.

We recommend reading online reviews as part of your realtor selection process.  Another option may be to speak to some past clients.  Most realtors will be happy to oblige if you ask, it shows you are a serious buyer.  Take a look at past closings, do any match the type of home you are looking for?  

If you need some recommendations, we would be happy to help. There is never any obligation to work with a realtor that we or anyone may recommend.  Pick the person who earns your confidence.  Save some time and energy by considering a realtor vetted by us.

Myth 5: If I Don’t Use a Realtor, I Will Save Money!

Many people shy away from getting a realtor for fear that having one is too expensive, thinking that they’re better off not getting one and should save their money. What most borrowers or buyers don’t realize, however, is that they typically don’t even need to pay for a realtor’s services – the seller does. The seller usually pays a realtor’s commission.  So as the buyer, you spend the same amount for the house regardless of whether or not the realtor is there. Additionally, having a realtor could even save you money if they help you negotiate a lower price with the seller. Furthermore, a good realtor will help you with making offers that benefit you.  

Myth 6: An ARM Sounds Too Risky. 30-Year Fixed is the Best Option For Me!

If you’re looking to buy a home, you’ve likely heard of two common mortgage options: 15-year and 30-year fixed-rate mortgages. While these are the most popular and typical choice, fixed-rate loans aren’t the only or even the best option. The best choice is choosing the mortgage that will fit your needs.

Whereas a 30-year mortgage loan has one fixed interest rate throughout its lifetime, an ARM starts at a fixed rate, switching to an adjustable rate after a specified amount of time. Fixed-rate mortgages can offer some sense of stability to your debt-paying life, but they also tend to come with higher interest rates. With an ARM, you could have a standard rate for 5 or 10 years and then switch to an even lower rate, if market conditions permit. Most ARMs are 5 or 10 years fixed; once your rate becomes adjustable, it will adjust itself a certain number of times annually (usually just once) within a set range. While an ARM comes with drawbacks of its own, in many cases it’s the better choice than a 30-year fixed-rate mortgage.  An ARM is usually a good choice if you plan on moving in the next 5 years.  

Myth 7: Buying a Home Is Too Expensive. I Should Rent Instead!

When considering whether to rent or buy a home, renting may seem like the cheaper option. Although rental payments may feel more manageable than monthly mortgage payments, this is not always the case; it also doesn’t mean renting a home is cheaper overall. It’s helpful to think of renting as a short-term option, and buying a home as more of a longer-term investment. Renting isn’t always cheaper, and over time it can become more expensive than buying a home, especially if one considers the opportunities for a return on one’s investment. As always, renting and buying each have their own pros and cons, and one option will not be the best for everyone.

Myth 8: I’ve Saved Up Enough Money to Cover My Down-Payment and That’s All I Need To Do!

There are a variety of costs that come with purchasing a home, and a down payment is one of them. If you’ve saved money to cover this important cost, that’s great! You should be aware of the other costs of buying a home, some of which may vary depending on the lender you select. In addition to your down payment, you should be prepared to pay for lender’s fees, title and escrow fees, and pre-paid fees.  Most lenders have an underwriting fee which can vary from lender to broker to bank.

these hard costs: appraisal, escrow settlement fees, lender title fees, and lender’s underwriting fee.  homeowner’s insurance.  Depending on the type of loan you choose or qualify for, you may also pay HOA. You will also pay homeowner’s insurance fees, HOA fees if applicable, as well as any utility fees (also known as utility adjustments) that the seller may ask of you. This is not intended to scare you! Although there are many different fees that can crop up throughout the course of purchasing a home, they can often be negotiated down and need not be a surprise if you manage your finances effectively. Continue saving as you have been. With money already set aside for your down payment, you’re off to a great start!

We’ve just run through some of the more common myths and misconceptions about buying a home. Although there are certainly more out there, the above guide should help to ease any unwarranted fears you may be having about purchasing a home. Here at Candor Mortgage, we’re committed to providing you with as stress-free a home-buying process as is possible.  Ready to get started?  Connect with us today! 

First-Time Homebuyers’ Faq

First-time-buyers-faq

If it’s your first time, buying a home can be a stressful experience; luckily, it doesn’t have to be.  At Candor Mortgage, our goal is to give you the information and support you need. Below are a few common questions and useful tips about being a first-time homebuyer in California.

1. Rent or Buy?

Many are hesitant to purchase a home, especially if it’s for the first time.  Millennials are especially unsure if buying a home is the right financial decision for them.  At the end of the day, it comes down to your financial situation and your particular needs. Owning a home can be a significant (and safe) long-term investment, but it’s not the kind of investment that will produce excellent returns in the short-term. Likewise, renting can be a great way to find someplace to live without the full commitment of buying a home, but may also end up being more expensive in the long-run. This is especially true if the cost of renting keeps increasing throughout California, specifically in higher-cost areas like Orange County.  Think about your own financial needs and goals to determine which option might be best for you. Want to weigh the pros and cons? Talk to an independent mortgage expert today.

2. Is My Credit Score too Low?

It’s fairly common to be worried about one’s credit score when looking to buy a home, as it does have an impact on how lenders determine your eligibility for a mortgage. As a general rule, a higher score (generally 725 and above) will yield more favorable loan terms, usually in the form of a better interest rate. If your score is in the ‘fair’ range (679-580), you are still likely to receive financing and may qualify for various federal programs, like FHA loans. If your score falls below 580 and sits closer to 300, you may be required to pay additional fees to receive financing or not be eligible for financing at all.  If you are worried about your score, try examining your financial situation for areas of improvement, such as paying off any outstanding debts. Get more credit tips. Talk to a credit expert today.

3. Will I Need a Real Estate Agent?

Working with a real estate agent can help take a heavy burden off the shoulders of any homebuyer, especially first-time homebuyers. A real estate agent can answer any questions, give recommendations on things like offer prices, and provide you with a better understanding of the local housing market. Typically the seller of the home is responsible for paying the real estate agent, so you won’t even have to pay for their helpful insight and expertise. Most real estate agents are found through referrals, but that’s not always the best method.  It’s essential to pick the right agent for you, someone who meets your needs. Is their personality a good fit? Do they specialize in the houses in your price range? Are they local? If you are buying in the city of Orange, for examaple, you will want an agent that is an expert on the local market.

Need to find the right real estate agent in your area?  We can help. There is no obligation to use our recommendation, but every agent we work with has been vetted by our team.  We work with agents that have a strong track record. Need help finding the right agent? We can help! Let’s talk.

4. What is Mortgage Pre-Approval?

Pre-approval is a great way to signal to both lenders and sellers that you’re a serious homebuyer. Pre-approval is a thorough process completed before even finding a home, and is a way for a potential lender to screen someone looking to take out a mortgage loan. At the end of the pre-approval process, you’ll receive a pre-approval letter, or PAL. This way, a lender will have a better sense of your ability to pay back any loans you may take out, and you’ll be able to easily show sellers and other lenders that you’re prepared for this financial decision. Pre-approval typically takes anywhere from 2 to 4 weeks with most banks, credit unions or lenders; during this time a lender will look at information such as your credit score, monthly expenses, employment history, and income history, among other things.

At Candor, we take our pre-approvals to the next level by verifying your income, assets, and credit.  Within 24 hours of providing your financials and mortgage application, we will complete your pre-approval.  With a Verified Pre-Approval, you are showing sellers and listing agents that you mean business. Get verified today to see how much home you can buy. 

5. What is a Down Payment?

A down payment is the sum of money you pay upfront to get a mortgage loan. This payment is a percentage of your new home’s full purchase price. Most lenders prefer a down payment of 20%, but a down payment can be either higher or lower than that. A down payment anywhere from 3 to 10% is usually ok.  A gift from a relative, fiancé or domestic partner is a valid down payment source for most mortgages today.

Additionally, loans that are backed by federal agencies, such as the FHA, VA, and USDA, tend to both be tailored to the needs of first-time homebuyers and come with low/no down payments. The lower your down payment is, however, the higher your interest rate will likely be.  Some buyers may also have to pay mortgage insurance with a down payment less than 20%.

6. How Can I Make this Process More Affordable?

As you’ve probably learned at this point, buying a home comes with a lot of different costs. Fortunately, there are a few ways in which one can purchase a home at an affordable price. One example is down payment assistance.  In addition to any local down payment assistance programs, there are some statewide programs in California like California Housing Finance Agency (CalHFA) and Golden State Finance Authority (GSFA). Grants for down payment assistance are offered to help homebuyers pay for all or part of a down payment.

In many cases, the homebuyer is not required to pay back the grant. There are specific eligibility requirements for such grants based on income and asset information, and one can learn more about them from federal agencies. Additionally, Fannie Mae and Freddie Mac offer a variety of programs to help mid-to-low income earners purchase a home, such as the HomePath Ready Buyer Program from Fannie Mae or Home Possible Mortgages from Freddie Mac.  The good news is there are many different programs available. See what you qualify for today.

7. Can I Still Purchase a Home With Student Loans?

The short answer is yes; it is possible to both qualify for a mortgage and buy a home if you also have student loan debt. It may be more challenging to do so, but it is possible. One thing to consider is the role that your debt-to-income ratio (DTI) plays in your eligibility for a mortgage.  Your DTI is the monthly income you earn divided by any debts, calculated as (monthly income)/(monthly debts). If your DTI is higher than, say, 45%, most lenders will be hesitant to offer you financing given the amount of debt you are currently managing. As a type of debt, student loans will factor into your DTI calculation, and so if you are shouldering a particularly heavy burden of debt, it may prove difficult for you to receive financing on a home. There are a variety of ways you can lower your DTI, from paying off what debts you can to cutting your expenses. Some lenders may also be willing to work with you in drafting a loan package that makes the most sense for you.

Purchasing a home for the first time is a daunting yet ultimately rewarding experience.  Choosing the right mortgage company and real estate agent is crucial to your success. This article merely scratches the surface of the possible concerns and questions that come up about this important financial decision, but it should provide you with an overview to get started on this exciting journey.

Talk to a mortgage expert today to get the information you need to confidently take the first step towards buying a home.

Get a Jumbo Mortgage With Conventional Rates

Better-Jumbo

If you live in one of the counties in the table below, a conventional high-balance mortgage may be a better option if your loan amount is above $453,100.

Have you tried refinancing only to be told your loan is non-conforming or Jumbo?  Are you looking to buy a home only to be limited by your county loan limit?  It’s likely the county limit in your area for a conventional conforming mortgage is $453,100.  A mortgage above $453,100 is called a conventional high-balance mortgage.  You are no longer limited to a loan amount of $453,100.  Save by getting a conventional mortgage up to $679,650.  Now available in all counties throughout California.  If you are looking to refinance, get a better loan.  If you are buying a home, buy a home with less stress and a lower rate or cost loan.

Conventional High-Balance Mortgage Details:

  • Fast turn times, averaging 15 days or less
  • Purchase, Cash-out and Rate and Term Loans
  • Starting at a 680 FICO
  • 20% down for purchases
  • 80% Loan-to-value (LTV)
  • A maximum debt-to-income ratio is 43%
  • Primary and second homes
  • 1-2 units

Counties in California with a limit of $453,100 

County Name2018 Loan Limit (1 Unit)2018 Loan Limit (2 Unit)
AMADOR$453,100.00$580,150.00
BUTTE$453,100.00$580,150.00
CALAVERAS$453,100.00$580,150.00
COLUSA$453,100.00$580,150.00
DEL NORTE$453,100.00$580,150.00
FRESNO$453,100.00$580,150.00
GLENN$453,100.00$580,150.00
HUMBOLDT$453,100.00$580,150.00
IMPERIAL$453,100.00$580,150.00
INYO$453,100.00$580,150.00
KERN$453,100.00$580,150.00
KINGS$453,100.00$580,150.00
LAKE$453,100.00$580,150.00
LASSEN$453,100.00$580,150.00
MADERA$453,100.00$580,150.00
MARIPOSA$453,100.00$580,150.00
MENDOCINO$453,100.00$580,150.00
MERCED$453,100.00$580,150.00
MODOC$453,100.00$580,150.00
PLUMAS$453,100.00$580,150.00
RIVERSIDE$453,100.00$580,150.00
SAN BERNARDINO$453,100.00$580,150.00
SAN JOAQUIN$453,100.00$580,150.00
SHASTA$453,100.00$580,150.00
SIERRA$453,100.00$580,150.00
SISKIYOU$453,100.00$580,150.00
STANISLAUS$453,100.00$580,150.00
SUTTER$453,100.00$580,150.00
TEHAMA$453,100.00$580,150.00
TRINITY$453,100.00$580,150.00
TULARE$453,100.00$580,150.00
TUOLUMNE$453,100.00$580,150.00
YUBA$453,100.00$580,150.00

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Is a 5/5 Adjustable Rate Mortgage (5/5 ARM) Right for You?

Best-ARM

An Adjustable Rate Mortgage (ARM) is not for everyone, but everyone should know about them.  If you know for certain you will be moving in the next 5-10 years, an ARM may be the better choice.  A 5/5 ARM just might be the perfect loan for some in 2018.  A mortgage with a lower rate can save you money.  People move for various reasons, life happens.  You may move for employment, family or housing needs.  According to the Census Bureau1, people move on average of 11.7 times within their lifetime.

How mortgage reform created a better ARM

In 2010, President Barack Obama signed into Federal law The Dodd-Frank Wall Street Reform and Consumer Protection Act2 (a copy may be found here).  The act eliminated risky features like pre-payment penalties and negative amortization.  Most ARMs today use a more stable index.  For example, a 5/1 ARM uses the 1-year Libor while a 5/5 ARM uses the 5-year CMT.  To find your interest rate, add the index + margin.  

Is a 5/5 ARM, a balance of stability and lower rate?

A 5/5 ARM might be the better choice for some.  The low initial rate stays fixed for 5 years.  After 5 years, it adjusts once and is fixed for another 5 years.   That’s two adjustments in 15 years.  A traditional 5/1 ARM is fixed for 5 years and then adjusts every year thereafter.  The rate can adjust by a maximum of 2% every five years.  The cap or the limit of the interest rate change is 5% from your initial rate.  If rates come down, your rate will as well.

Choosing the right tool for the job:

Interest rates as of 2/21/2018.  This is some sample purchase loan rates for a purchase price of $500,000 and a loan amount of $300,000.

How much can you expect to save compared to a 30-Year Fixed?

Other considerations

According to the Urban Institute, only 2.1% of people obtained an ARM in 20163.  Close to 98% of consumers obtained a fixed rate.  In a low rate environment, an adjustable rate mortgage usually does not make sense.  If rates go up more, the spread will increase and Arms may be more attractive.  A 5/5 Arm is priced close to a 5/1 Arm and gives you more stability because the adjustment periods is every 5 years, not every year.

  1. For example, you plan on moving or refinancing in the next 5-10 years.
  2. You expect your household income to increase in the next few years.

Life is unpredictable.  While we always hope for the best, we should still plan for the worst.  You may want to speak to a financial advisor to come up with your worst-case numbers.  Basically, you will want to know the minimum income needed to cover your expenses if something were to happen.

Conclusion

An ARM may be a solid choice if you are planning on moving in the next 5-10 years.  Some of the pluses are a lower monthly payment or attacking your principal balance.  If you are considering an ARM, take a look at the 5/5 Arm.  It adjusts only once every 5 years.  In 15 years, there are only two adjustments.

Our goal at Candor Mortgage is to support you with solid advice.  We are here to give you the information you need to make the right decision for you.  If you’re interested in learning more or discussing your unique situation, call us at (800) 714-3184.


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Sources:

  1. https://www.census.gov/prod/2014pubs/p20-574.pdf?cssp=SERP.
  2. http://www.cftc.gov/idc/groups/public/@swaps/documents/file/hr4173_enrolledbill.pdf
  3. Housing Finance at a Glance.  The Urban Institute.  March 2017, Page 9.  A Monthly Chartbook.  https://www.urban.org/research/publication/housing-finance-glance-monthly-chartbook-march-2017/view/full_report.

Who Has Better Mortgage Rates, a Bank, Direct Lender or Mortgage Broker?

boxing-gloves

Faster.  Lower.  Better.

These are the advertising keywords you probably see every day.  It seems all mortgage companies advertise the best service, lowest rates and closings in the blink of an eye.  One of the biggest mistakes loan shoppers make is assuming that everyone is the same.

The three types of companies are a bank, direct lender or mortgage broker.  When shopping for a mortgage, you have many choices.  By knowing the difference, you will identify which company type is right for you and how to get a better loan.

Mortgage lending differences

While there are many differences between the three types of institutions, there is one common factor.  A conventional loan from a bank, direct lender or mortgage broker is the same Fannie Mae or Freddie Mac loan.  The only difference may be the interest rate and closing costs.

Banks and direct lenders lend money and underwrite loans, brokers do not.  Banks use their own money or borrow from under banks or even the Federal Reserve.  Lenders have access to one or more lines of credit from a bank or financial institution.  Think of this like a big credit card.

Think of this as a credit which can fill up and max out.  These lines of credit can very profitable or costly.  When banks and lenders take on the responsibility of underwriting a loan, they accept the risk of an unmarketable loan.  This is a very expensive proposition.  Often scrutinizing and requesting more paperwork.  A broker does not lend directly or have a line of credit.

Banks and direct lenders normally only have one option, their option.  Brokers work with multiple wholesale lenders and have access to multiple loan options.  The wholesalers compete for the broker’s business. These wholesale channels are not open to the public, you need a broker for access.

How Loan Pricing Works

According to the CFPB, nearly 50% of new home buyers do not shop for a mortgage1.  For example on a recent loan, we are competing with a bank and we are .25% better in rate and a similar cost.  

Broker Scenario:

The principal and interest payment on a $375,000, 30-year Fixed-Rate Loan at 4.500%, $150,000 cash-out, and 38% loan-to-value (LTV) is $1900.07 with 0 points due at closing. The Annual Percentage Rate (APR) is 4.553%. The principal and interest payment do not include property taxes and home insurance premiums, which will result in a higher actual payment. Rates current as of 3/8/2018.

Bank Scenario:

The principal and interest payment on a $375,000, 30-year Fixed-Rate Loan at 4.750%, $150,000 cash-out, and 38% loan-to-value (LTV) is $1956.18 with 0 points due at closing. The Annual Percentage Rate (APR) is 4.750%. The principal and interest payment do not include property taxes and home insurance premiums, which will result in a higher actual payment. Rates current as of 3/8/2018.

A bank and direct lender set the interest rates and therefore the profit.  Brokers are compensated by the wholesale lender.  Operating as a bank or lender is costly.  Lending money and lines of credit cost money.  If there is a loan buy-back or cannot be sold, it’s very expensive.  To fund loans, you need to hire funders and underwriters.  This additional overhead is priced in the interest rate or closing costs and is passed along to you.

Brokers tend to have lower pricing compared to banks and direct lenders.  Brokers do not have the overhead of underwriters, funders or lines of credit.  Brokers do not have the marketing and management overhead either.  You probably will not see commercials from brokers on TV.  There will be no celebrity endorsements.  You will not find layers and layers of management or administrative overhead.  Brokers tend to operate with much less overhead.  As a result, brokers are often able to offer lower rates and costs compared to your bank or direct lender.

What about service between a bank, direct lender or Mortgage Broker?

A bank, direct lender or mortgage broker will follow a traditional loan fulfillment model.  A banker/loan officer takes your application.  Your loan is then handed off to a loan processor.  A typical processor has 30-40 files to work on every month.  The daily attention given to a file is therefore limited.

Getting them on the phone is usually difficult.  To make matters worse, the processor is usually located in another state, in a different time zone and works in a processing call center.  The odds are stacked against you because another person is delivering on the promises of the banker.

How we deliver better mortgage rates

We designed Candor Mortgage to operate with minimal overhead.  We don’t pay our people a commission.  Commission structures are used to manipulate people.  Plus, someone will probably put their commission before your needs.  We merged the role of the processor and loan officer to create a one-person support system.  The same person who helps you initially is also the same person who helps close your loan.  It’s really that simple. 

Get a rate quote today and see for yourself.  


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