The 10 SECRETS Mortgage Companies DON’T Want You To Know About March 20, 2007Posted by Scott Nugent in mortgages.
Copyright 2007 Scott Nugent
You might be asking yourself… Why would a person who sells mortgages for a living want to reveal insider secrets to potential clients – jeopardizing his own commission? The answer is simple really… Just as teachers educate our children to make a difference, I am in the mortgage business because personally, there is nothing more satisfying than assisting families in achieving the American dream of home ownership.
All too often in the mortgage world, mortgage brokers’ best interests are for themselves – NOT you. These mortgage companies and brokers purposely use deceitful tactics and shady business practices to get your business at any cost – including ripping you off ! It’s a deplorable way for mortgage companies and brokers to make a buck, but most homebuyers feel as if they’re at the mercy of the lenders- when the total opposite is true.
Look no further for a mortgage professional and company with the utmost honesty, and integrity. Although sharing these secrets won’t make me popular with most Florida lenders, trust me… I SLEEP WELL AT NIGHT, and you will too !
Feel free to browse my website http://www.orlandomortgage.cc
1. “No closing cost” loans are a SCAM. Remember the old adage – nothing in life is free! What mortgage companies don’t tell you is that you actually pay a higher interest rate than you actually qualify for. True, you might pay less for closing costs, but in reality, your monthly payment may be $100-$300 more. Let’s say you qualify for a 6% rate and borrow $200K for your home. The monthly payment on this loan will be roughly $1,200. Some mortgage companies might tell you that they will give a no closing cost mortgage. They might tell you that your rate will be 7% with a monthly payment of an estimated $1,330. Here, you didn’t know you qualified for the 6% rate because of this deceitful practice. Notice, the difference between both rates is 1%. If you check your figures, by having a no closing cost loan, you pay about $110 more per month! The only time a ‘no closing cost’ loan may benefit you is if the difference in the interest rates between the ‘no closing cost loan’ and the original loan you qualify for is significantly smaller, roughly 1/8%. Here, the impact on your monthly payments are not as impacted and more respectable.
2. You do not have to work with the realtor that a mortgage broker recommends. It is true that when realtors and mortgage brokers have a business relationship, the loan and house buying process can run much smoother. You may want to try working with the realtor a mortgage broker recommends first, but remember, you do not have to stick with them if you feel your best interests are not being served.
3. If you close at the beginning of the month, your closing costs are higher. As a buyer, you are obligated to pay interest until your loan principle is paid in full, as with any loan. By closing early in a calendar month, your first mortgage payment isn’t due until a month later than it would be if you closed at the end of a month. So you won’t save any money overall by closing later, but you do have to cough up less cash up front.
4. You might not have to pay private mortgage insurance (PMI). According to Freddie Mac, the average down payment on new mortgage loans is 10%. Whenever your down payment is below 20%, lenders require you to get PMI. If you get an FHA loan, PMI is required regardless. What you may not know is that you can take out two mortgages and avoid PMI altogether. Assuming you put 10% down, you can take out a first mortgage of 80% of the principle, and a second mortgage of the remaining 10%. Since PMI can cost $100-$150 per month, this very well could be your best option. The interest rate on your 10% second mortgage will be higher than the rate on your 80% first mortgage, but you will save a lot on your monthly payments, plus, remember, mortgage interest is tax deductible !
5. Broker fees are almost always negotiable. Mortgage Brokers are like car dealers. They get you a mortgage at wholesale prices and mark them up as commission. Many mortgage brokers like to give you fee reductions if you agree to supply them with names and contact information of friends, family members, co-workers, etc. that you might know that are also in the market to get a mortgage or refinance. This is definitely a nice little tidbit of knowledge that is beneficial to both parties involved. For you, cheaper mortgage fees, and for the mortgage broker, potential new leads and a chance to increase his/her network.
6. Application fees are not necessary. An application fee is what I call a ‘junk fee’ that’s sole purpose is to line the lender’s pocket. Request a waive in the application fee. If you are turned down, you might want to look elsewhere.
7. Having your credit check by multiple lenders does not affect your credit score. Some lenders will have you believe that by getting your credit pulled by more than one mortgage company will negatively affect your credit score. The truth is, you are allowed to have up to five credit checks from potential lenders before your credit score is adversely affected.
8. Your privacy is of utmost importance. Some lenders outsource your information to third and fourth parties if you do not tell them not to. With identity theft higher than ever, protect your privacy and be sure to inform any lender you work with that you do not want your information outsourced.
9. Do not take NO for an answer. If you’ve been turned down by multiple lenders due to bad credit or other factors, believe that you can still get a loan. There are hundreds, if not thousands of free down payment assistance programs offered by local governments and organizations. You may also want to consider an FHA (Federal Housing Administration) loan. I have seen numerous bad credit buyers get 100% financing through this program. Many lenders are not licensed to do FHA loans. If you have trouble getting financing, ask your lenders if they are FHA accredited. It can make the difference between disappointment and getting into your dream home.
10. A little something called Yield Spread. This is the most coveted secret of the mortgage industry. Yield spread is the percentage mortgage professionals make on the interest rate you’re quoted. For example, a mortgage broker gets you a wholesale rate of say, 6.25%. This is the rate that he/she can give you, but will make no money on it. So, if the mortgage broker wants to make 2% on the loan amount of your home, they will ask the bank to give them the rate that will pay them that 2%. So you may be quoted the rate of say, 7% which includes the mortgage broker getting paid 2%. Now remember, when you work, you want to get paid, and the same goes for mortgage brokers. Adding to your interest rate is not an illegal practice whatsoever. The key is to be sure that your mortgage professional is not charging you more than 5% between the yield spread, and the amount he/she charges you on the loan itself. Anything more than that is highway robbery of your hard earned cash ! In order to find out how much a mortgage professional is charging you on the yield spread, all you have to do is request to look at the HUD (Housing and Urban Development) document, and it will tell you clearly how much your interest rate was ‘marked up’ to pay the mortgage broker.