Friday, August 26, 2011

How Do You Estimate Closing Costs?

How much are closing costs?  1%, 2%, 3%, 4%?  Today's winning question by Cary Sanger of Your Castle Real Estate addresses that subject. Cary receives a $25 Starbucks card and gets his contact information sent to the 6,600 people on our contact list. We also list his contact info on our blog (10,199 visits for the first 6 months of 2011) and on our blog at Active Rain, a real estate blog with more than 210,000 members.

Cary's contact info follows:

Cary Sanger
Managing Broker
Your Castle Real Estate Inc.
Phone: 720-560-0111
Free Metro Denver Home Search at:
www.DenversBestHomeSearch.com

Cary's question is: Do you have a rule of thumb for closing costs based on a percentage of the purchase price if people want a general idea of what they will need in addition to their down payment?

Here's the answer: It is extremely difficult to estimate a percentage for closing costs without knowing all about the borrower and the property. Here's why.

Many of the closing costs are fixed costs, meaning they are the same regardless of how big the loan is. Some examples of fixed closing costs are:
  • Appraisal fee
  • Credit report
  • Underwriting fee
  • Tax certificate
  • Loan closing fee
  • Real estate closing fee
  • Title insurance fees
  • Recording fees
Other closing costs change depending on the size of the loan or the purchase price. Here are some examples of closing costs that change:
  • Origination fee (usually 1% of the loan amount)
  • State tax stamps
Still other closing costs depend on the individual property, the interest rate, the borrower's credit, or the closing date. Here are some examples:
  • Property taxes: depends on the property and the date of closing
  • Homeowner's insurance: depends on the property and the borrower's credit score
  • Pre-paid interest: depends on the borrower's credit score (which determines the interest rate), the loan amount, and the date of closing
Now let's see how these different fees determine the closing cost percentage. Let's assume a property sells for $100,000 and the fixed costs are $2,000. The variable costs (the costs that are different in every situation) will probably be low because the taxes and insurance will be low. Let's assume the variable costs total $2,500. Total closing costs would be $4,500, which is 4.5% of the purchase price.

Now let's assume we have a property selling for $500,000. The fixed costs would be the same - $2,000. The variable costs would be higher because the loan amount, the taxes, and the insurance would be higher. They might be $8,000. The total closing costs would be $10,000, which is 2.0% of the purchase price.

Even though the closing costs are $5,500 less for the cheaper house, the percentage is much higher than it is for the expensive house - 4.5% versus 2.0%.

It's always a good idea to have your lender (preferably us) tell you how much the closing costs are. Guessing based on a "rule of thumb" will give you an incorrect number most of the time.

Getting a loan approved is easy - if you know what to do. The Mortgage Experts know what to do!!!

Make sure you check out our web site:
www.mtgsupportservices.com


By the the way, don't forget to refinance your current mortgage. Rates are very, very low right now. Don't miss out! Call us today to get the details for your particular situation.

Friday, August 19, 2011

Are the Strict Underwriting Guidelines Coming to an End?

There's no doubt that the underwriting guidelines for mortgages have gotten stricter over the past few years. Today's winning question by Phyllis Ursetta of Integrity Realty addresses that subject. Phyllis receives a $25 Starbucks card and gets her contact information sent to the 6,600 people on our contact list. We also list her contact info on our blog (10,199 visits for the first 6 months of 2011) and on our blog at Active Rain, a real estate blog with more than 210,000 members.

Phyllis's contact info follows:

Phyllis Ursetta, Broker/Owner
Integrity Realty
303-570-1344
phyllis@integritydenver.com

Phyllis's question is: "Do you see any end in sight to the strict enforcement of the underwriting guidelines, specifically, the requirement that a buyer have 20% down to buy an investment property, even though they have very high credit scores, excellent income, and plenty of money in the bank?"

Here's the answer: There probably won’t be a change to the stricter guidelines that are in place for conventional loans for quite a while, especially for investment properties. Investment properties have a significantly higher foreclosure rate than primary residences.

Fannie Mae actually only requires a 15% down payment for investment properties, but they also require mortgage insurance for any loan that is greater than 80% of the value (or sales price) of the property.

The problem is that the mortgage insurance companies refuse to insure investment properties, so the end result is that you need 20% down. If a loan has mortgage insurance and that loan goes into foreclosure, then the mortgage insurance company has to write a check to the lender. The mortgage insurance companies are losing millions of dollars right now and they have no desire to lose more, so they have all said they will not insure investment property loans. No mortgage insurance = 20% down.

Regarding the qualifications of the buyer, the days of loan decisions being made on an individual basis are long gone. It really doesn't matter if a borrower is incredibly well-qualified. As long as they are buying an investment property, they get lumped in with all the other people who want to buy investment properties. Unfortunately, many of those people do not pay their loans back, and everyone has to abide by the stricter underwriting guidelines.

Things will change when the foreclosures stop. That is going to take a long time.


Getting a loan approved is easy - if you know what to do. The Mortgage Experts know what to do!!!

Make sure you check out our web site:
www.mtgsupportservices.com


By the way, don't forget to refinance your current mortgage. Rates are very, very low right now. Don't miss out! Call us today to get the details for your particular situation.

Monday, August 15, 2011

Great Classes on Mortgages and Credit Reports

People continue to rave about our mortgage and credit classes. We've helped hundreds of people over the past few years learn more about loans and how to qualify for them. Attend a class yourself and see why people love them!

Following is a list of our upcoming classes. All are held at the Lowry campus of Colorado Free University (near 1st and Quebec). Call CFU at 303-399-0093 to register.

  • How Not to Get Ripped-Off When Buying a House. Learn about loan fraud, interest rates, where the money comes from to fund your loan, why loans get sold, and everything else about mortgages. Next class is Tuesday, August 16, from 6:30 PM - 9:30 PM. This class is free, but you must register.
  • Get Your Home Loan Approved!: FAQ's and Secrets of Mortgage Underwriting. In this class, we'll tell you all the things that no one else will, and we'll answer ANY questions you have about getting a loan approved. It's our newest class and is already a hit. Next class is Wednesday, August 17, from 6:30 PM - 9:30 PM. This class is free, but you must register.
  • Understanding Your Credit Score. Everything you wanted to know about credit reports and credit scores. We'll tell you exactly what to do to get the highest credit scores and how to keep them high. Credit repair companies HATE this class because you'll never again have to waste money paying someone to "repair" your credit if you attend. Next class is Tuesday, September 13, from 6:30 PM - 9:30 PM. This class is $41 for non-members and $29 for members of Colorado Free University.
Getting a loan approved is easy - if you know what to do. The Mortgage Experts know what to do!!!

Make sure you check out our web site:
www.mtgsupportservices.com


Friday, August 12, 2011

Does the S&P Downgrade Affect Mortgage Rates?

Everyone is talking about the S&P credit downgrade, and today's winning question by Lise LeBlanc of Keller Williams Executives Realty deals with that subject. Lise receives a $25 Starbucks card and gets her contact information sent to the 6,600 people on our contact list. We also list her contact info on our blog (10,199 visits for the first 6 months of 2011) and on our blog at Active Rain, a real estate blog with more than 210,000 members.

Lise's contact info follows:
Lise LeBlanc, GRI
Keller Williams Executives Realty, LLC
303-242-6460
liseleblanc@kw.com

Lise's question is: "How would you explain in simple terms to a first time home buyer the effects the downgrading of the AAA debt rating will have on their new mortgage apart from rates possibly increasing? How much time will they have before rates start going up? What can they do now?"

Here's the answer: Mortgage rates depend on how the mortgage backed securities bond market is trading. If there is a big demand for mortgage bonds, then the rates go down. If there is not a big demand for mortgage bonds, then rates go up.

The biggest purchasers of US mortgage bonds are foreign governments: China, Japan, etc. These foreign governments have lots of cash they must invest in something because they want to earn a return on their money. Mortgage bonds, because they are backed by the US government, are considered to be very safe investments. If the foreign governments did not invest in mortgage bonds, they would have to invest in something else. The alternatives at the moment are not very good, so the demand for mortgage bonds is very strong, which keeps rates low.

The economic situation in Europe is horrible right now, so no one wants to buy Euro bonds. The situation in the rest of the world is not very good, either. So despite the S&P downgrade, US Treasury bonds and US mortgage bonds are still just about the safest investment anyone can make.

It is impossible to say how long rates will stay low. Anyone who tells you that they know where rates are going is just making it up. If they really knew where rates were going, they would not be dispensing mortgage advice. Instead, they would be billionaire bond traders living the high life on Wall Street.
The important thing to keep in mind when talking about interest rates is that macro-economics (the world economy) determines where rates are going. As long as the rest of the world is worse off than the US, rates will stay low. At the moment, the US economy is as good as it gets.


Getting a loan approved is easy - if you know what to do. The Mortgage Experts know what to do!!!

Make sure you check out our web site:
www.mtgsupportservices.com


Monday, August 8, 2011

Is the Earnest Money Part of the Down Payment?

We received a very big response to our email tip last week suggesting that agents explain the basics to their prospects and clients. In order to help out a bit more, here is an additional question that buyers often ask us.

Is the earnest money part of the down payment?

Here's how to answer that question. "Yes, the earnest money deposit you make when you submit an offer is part of the down payment. You pay the earnest money to show the seller that you're serious about the offer. If they accept your offer, the earnest money is subtracted from the amount your lender requires as a down payment."

Answer that question before your clients and prospects ask, and watch the trust build.

And don't forget to tell them:

  • It doesn't cost a buyer anything to use a real estate agent.
  • Any agent can sell any house. You don't have to use the agent whose name is on the sign.
Most of your competition is NOT telling their clients these things - that's why they are always asking us.

Despite what you may have read or heard, knowledge is not power. SHARING knowledge is power. Share your knowledge of the real estate business with your clients and prospects. They really don't know the answers to the basic questions we all assume they know.

Getting a loan approved is easy - if you know what to do. The Mortgage Experts know what to do!!!

Make sure you check out our web site:
www.mtgsupportservices.com



Tuesday, August 2, 2011

How to Find the Best Mortgage Interest Rates

This week's winning question was submitted to us by Ed Coulter of Vista Homes Real Estate. Ed receives a $25 Starbucks card and gets his contact information sent to the 6,600 people on our contact list. We also list his contact info on our blog (10,199 visits for the first 6 months of 2011) and on our blog at Active Rain, a real estate blog with more than 210,000 members.

Ed's contact info follows:

Ed Coulter, GRI
Graduate of the Realtor Institute
Vista Homes Real Estate
303-726-4844
vistahomes@msn.com

Ed's question is: "What is the best web site to look at for real-time interest rates?"

Here's the answer: There really is no good site for real-time loan rates, and here's why. Rates are posted on thousands of web sites. However, there are many adjustments to the rates that are never shown to the public. These adjustments are known as "loan level pricing adjustments" and they can affect the interest rate tremendously - sometimes by as much as a few percentage points.

Here are some examples of the things that affect rates:

  • Rate lock period
  • Occupancy type (primary residence, second home, or investment property)
  • Amount of the loan
  • The borrower's credit scores
  • Amount of the down payment
  • Property type (single family residence, townhouse, or condo)
  • Subordinate financing (is there a second loan?)
Unless a lender asks a borrower for all of this information (and much more), they can't possibly provide an accurate quote. The web sites that list rates (real-time or not), are either lead-generating web sites that sell the borrower's contact information to multiple lenders, or bait and switch sites intended to get the borrower to call. All the large lenders, and many smaller lenders, employ these tactics to get customers.

The very best way to get an accurate rate quote is to use lenders who tell you that they cannot possibly give you an accurate rate quote without gathering the information listed above and more.


Getting a loan approved is easy - if you know what to do. The Mortgage Experts know what to do!!!

Make sure you check out our web site:
www.mtgsupportservices.com