Seven Questions To Ask The Lender Of Your Choice
Thursday, February 25, 2010
Unless you have enough cash to cover the purchase price of a property you want to buy, you’re going to need to get a mortgage. But how do you select the lender, much less the loan program, that will work best for you?
We suggest you ask the following questions when you talk with (interview) various lenders. If you do not like the answers given, continue shopping until you find a lender whom you feel comfortable. But, also remember to be nice! You may discover your expectations cannot be met and the first lender you spoke with actually is the best fit for you!
1) What kind of loan is best for me?
First of all, know that a lender needs to ask you a lot of questions before they can answer your question of “which loan is best for me?”. Also, don’t be shy! Ask the lender to describe the pros/cons concerning:
Fixed Rate Loans (The principal and interest payment does not change over the amortization period of the loan. The only thing that would alter the payment amount due to the lender might be interest and/or tax escrow amounts and perhaps Private Mortgage Insurance [PMI]. Fixed rate loans will typically charge an interest rate greater than the initial rate offered by Adjustable Rate Mortgages [ARMs].)
Adjustable Rate Mortgages (The initial interest rate is typically lower than a fixed rate, but the interest rate and resulting payment amount will change each, pre-determined, adjustment period. [One-year and three-year are most common.]
Interest-Only Loans (Run like the wind! [in our opinion] This type of loan has gotten a lot of people in trouble over the last few years. Only go here if you have a very good understanding of the financial marketplace.)
2) What is the Interest Rate?
The interest rate quoted will be the ‘simple interest rate’, not the ‘Annual Percentage Rate’ (APR). The APR is a fairly complex calculation that includes the simple interest rate and many of the fees received by the lender in the way of ‘closing costs’. So our recommendation is to focus on the ‘simple interest rate’ and find out about ‘closing costs’ and ‘discounts points’, etc. separately.
Also, make sure you find out the answers to the following when you discuss an Adjustable Rate Mortgage (ARM):
What is the Index? (The basis used to determine the future increases or decreases of your interest rate (Cost of Funds Index and Average of One-Year T-Bills are two of the more common indexes.)
What is the Margin? (The lender’s Profit Margin or ‘spread’ that is added to the ‘index’ to determine the resulting simple interest rate charged.)
What are the ‘Caps’? (The maximum amount your interest rate can fluctuate each adjustment period AND during the life-time of the loan. [ You will hear “1 and 3” for example; which means your rate can change, up or down, a maximum of one percent each adjustment period, and a total of three percent, up or down, over the lifetime of the loan.)
What is the interest rate the Caps are based upon? (Sometimes we hear of a lender who bases Caps on an interest rate different [usually higher] than the initial rate quoted. So ask this question just to be on the safe side.)
3) What are the Discount Points and Closing Costs?
“Discount Points” are an optional, up-front, expense that is used to lower the interest rate charged. (Many refer to Discount Points as ‘interest paid up front’.) Each ‘point’ is the equivalent of 1% of the loan amount and will ‘buy down’ the mortgage’s interest rate anywhere from 1/8 of a percent to 1/4 of a percent, dependant on the type of loan and amortization period. Currently, with interest rates so low, it is rare that we see someone willing to pay cash up front to lower their interest rate. However, if you do pay Discount Points, they are fully tax deductable.
“Closing Costs” is a term we use to lump in many additional fees that go to the lender and other closing-related services such as the appraisal, credit report, recording fees, escrow establishment charges, the Lender’s Title Policy, closing attorney fee. The lender’s commission, or ‘origination fee’, accounts for a majority of the closing costs.
Do not be shy to ask for explanations of some fees that will show up that we often refer to as ‘junk’ or ‘garbage’ fees. A lender may be willing to waive a few fees in order to keep your business!
An estimate of these fees is duly noted on the “Good Faith Estimate”, which federal law requires lenders give you.
4) If I make a loan application, how long will it take for me to receive my Good Faith Estimate?
The Real Estate Settlement and Procedures Act (RESPA) requires lenders to give you a “Good Faith Estimate” which shows all the costs associated with the loan for which you are applying. Currently, lenders are not required to guarantee the Good Faith Estimate. However most reputable lenders do tend to honor what they give you unless there are changes to the loan, who the third-party vendors are (for example - closing attorney and the appraiser), or changes were made to the Purchase Agreement after the initial estimate was calculated. (It is a good idea to hold on to the Good Faith Estimate and have it with you at the closing table in case there are discrepancies. This heightens the chances the lender will adjust charges to come closer to, or meet, the original estimate.)
5) Is there a pre-payment penalty for the loans being quoted?
It is rare that we see a pre-payment penalty. If the lender says there is a pre-payment penalty, we suggest you look for another lender.
6) Can I lock in my loan interest rate at time of application?
Interest rates do fluctuate. If you think rates will get higher after you make your full loan application, you may want to lock in your rate. However, lenders are not required to allow you to lock in your rate, and, if you do lock in your rate then interest rates move downward, do not expect lenders to also allow you to receive the lower rate, although some lenders will allow you to have a ‘one-time-drop privilege’.
Most lenders will require you to have negotiated a binding Purchase and Sale Agreement before they will lock in your rate
Also, when interviewing lenders, ask if the lender charges a fee for locking in rates, how long a lock-in is good for, and to give you the lock-in in writing.
7) How long will it take to get loan approval after I make loan application?
Today, we are finding lenders can process a loan in 30 to 45 days on average.
YOU control a lot of this aspect of getting a loan. You must be organized and able to get to records needed by the lender (two years tax returns; current pay stub; all account numbers and mailing addresses for ALL credit cards held in you name regardless if these are rarely, if ever, used accounts; etc.) Also, notify your employer that you are making a loan application and you sure would appreciate them turning around the VOE (Verification of Employment) quickly!
Ask the lender what potholes might be lying in wait and how can we avoid these problem areas!
- Scott Askew
Posted in: Intown Atlanta Real Estate News
Will A Seller Have To Pay Income Tax On Any Short Sale Forgiven Debt?
Thursday, February 18, 2010
Prior to the Mortgage Debt Relief and Emergency Stabilization Act of 2008, money forgiven by a lender in a SHORT SALE was considered taxable income. In many circumstances, the new law no longer requires taxpayers to pay federal income tax on forgiven debt, provided the property is their principal residence only.
Taxpayers may exclude debt forgiven on their principal residence if the loan balance was less than 2 million dollars. The limit is 1 million dollars for a married person filing separate returns.
The law applies to debt forgiven in 2007, 2008 and 2009, and the Economic Stabilization Act of 2008 has extended this forgiveness through 2012. It includes debt reduced through mortgage restructuring, refinancing, home equity lines of credit, short sales as well as mortgage debt forgiven in connection with foreclosures.
As a reminder - this is debt that was used to buy, build, or improve, a principal residence only.
And - as always, consult your attorney and/or CPA concerning tax matters.
- Scott Askew
Posted in: Intown Atlanta Real Estate News
What You Can Learn About Buying A Home From TLC’s “Say Yes To The Dress”
Friday, February 12, 2010
In an effort to control spending in this sluggish economy, I’ve considered giving up cable television. After all, most of the scripted shows that I watch are on network television, and sadly, my unhealthy obsession with CNN may have more to do with T.J. Holmes and Rob Marciano than the news. However, two things keep me paying an ever increasing monthly stipend to Comcast: DVR and TLC. I think the Digital Video Recorder speaks for itself. It’s a major scheduling convenience, and I can fast forward through the lousy commercials. TLC is a little harder to explain. Ironically, while I constantly complain that the only programming that seems able to survive the ratings war is cop dramas and reality television, I love TLC, originally dubbed The Learning Channel, which schedules very few informational shows in favor of reality television. What can I say? I’m complicated.
One of my favorite shows on TLC is “Say Yes To The Dress”. There are three elements at play in this show that make it so appealing to women: Fashion, Dream Weddings, and Drama. As I’ve yet to be married, the first two elements allow me to fantasize about my own wedding-day wardrobe, hopefully to be realized at some point in the future. But the drama element is chock full of lessons for home buyers, both male and female. Seriously. Leave it to me to put the “Learning” back in TLC. Here we go:
Lesson 1 - Budget Is Key!
Not asking about the budget at the beginning of the appointment is rookie mistake number one. I’ve seen it a number of times, and sadly some of those rookies didn’t make it to the next season. If a bride-to-be falls in love with a dress and then finds out that it exceeds her budget, one of two things happens. In scenario A, she or her family coughs up the extra cash for the dress and on a golf course somewhere, her father suddenly and unexpectedly doubles over in pain, or at the wedding reception the guests are surprised to find that Vienna sausages straight out of the can are the only thing on the menu. In scenario B, the bride-to-be leaves depressed and in tears unable to find another dress in her budget that measures up to the dream dress. Either way, it is not a positive outcome.
The same rule applies when buying a house. The first thing I tell my buyers to do is to start the loan approval process with a loan officer. Before we start our search, we need to know how much you can afford, and more importantly, what you are willing to afford. Those are often two very different numbers. A good loan officer will walk you through those steps and help you determine the bottom line. This is critical. Even a $20,000 price difference can drastically change the locations and types of homes that are available. You don’t want to fall in love with a home that you either can’t, or are unwilling to, afford. It makes the search process that much harder going forward.
Lesson 2 - It’s All About You!
A recurring theme in the show is a bride-to-be falls in love with a dress, but begins to doubt her decision when friends and family aren’t as enamored with the frock. You know what they say opinions are like… and everyone’s got one. Consulting trusted advisors when making a big decision, like what to wear on your dream wedding day or how to make the biggest financial commitment of your life (i.e. buying a home) is a wise decision. However, when it comes down to it, it is your decision. What makes you happy? It’s your dress. It’s your home. You’re the one who has to live with it. Your opinion trumps everyone else’s!
That brings me to the second thing I tell my clients. Create a needs list first, and wants list second. Your needs list will usually be shorter than your wants list. What does the house have to have to be functional for you? How many bedrooms and baths? What does it need to be near? What is a must have for you? Your wants list will be longer and should be prioritized. This will not only help you stay true to yourself and choose a home you really enjoy and meets your needs, but also will help your agent assist you in making the best decision for you. That brings me to the next lesson.
Lesson 3 - A Good Consultant Is Invaluable!
“Say Yes To The Dress” is filmed in the Kleinfeld Manhattan boutique. It is the premiere bridal salon in the world with more than 2,000 dresses. That can be overwhelming for a bride-to-be, to say the least. Luckily, the consultants are there to help. They listen to the clients describe their dream dress, ask about different styles, and inquire about the budget. Then they maneuver the thousands of dresses in the stock room and edit a selection of dresses for the bride to try on. Sometimes they strike gold with the first dress, or in cases where the bride isn’t as certain of what she wants, they evaluate dress by dress and continue to hone in on the perfect gown. They know all too well that if they lose sight of the bride’s goals, the appointment can quickly turn into a disaster for everyone. It’s their job to keep the brides on track to finding the perfect dress that melds their needs and desires.
As a real estate consultant, my job is much the same. Atlanta is home to nearly 5 million people. It covers more than 8,000 square miles. Real Estate incorporates a vast body of knowledge that is rapidly changing. It can be overwhelming for any buyer, especially a first time home buyer. Keeping in mind all the things we discussed above and more, a good agent will edit a selection of houses for you to ‘try on’; expertly navigating the system for you every step of the way; protecting your interests in contract negotiations, providing valuable, thoroughly researched information, which finally enables you to rest easy at the closing, knowing that you’ve found the home of your dreams, your needs and your budget.
I hope you’ve found the above analogy entertaining and more importantly, informative!
If you are considering purchasing a new home soon, please join us for a roundtable discussion at Fourteen West, REALTORS’ offices on March 6th, 2010, 10:30-11:30 am.
We will be discussing the current federal tax breaks, loan options and more.
The address for Fourteen West’s office is 1411 N. Highland Ave, Atlanta, GA 30306, 404 874 6357.
If you’d like more information, please e-mail me at .(JavaScript must be enabled to view this email address). I hope to see you there!
- Ashlee Heath, Real Estate Consultant with Fourteen West, REALTORS
Posted in: Intown Atlanta Real Estate News
Handy Helpers - Common Household Items page five
Thursday, February 11, 2010
Soda (coke/pepsi, etc. NOT diet drinks)
1) Clean car battery terminals by pouring some soda over the terminals and letting it sit. Remove the resulting, sticky, residue with a wet sponge.
2) Loosen rusted-on nuts and bolts by placing a rag, soaked with soda, around the bolt for several minutes.
3) Make cut flowers last longer by pouring about a half-cup of soda into a vase, and filling with water. (The sugar in the soda will make blossoms last longer.)
4) Clear out slow drains by pouring a 2-liter bottle of soda down the clogged drain.
The above really should make you think twice about drinking too much soda!
Vinegar
1) Remove stubborn price tags or stickers by ‘painting’ them with several coats of vinegar. Let the liquid soak in for five minutes, then wipe away the residue.
2) Make wool sweaters fluffier by dropping a couple of capfuls of vinegar during the rinse cycle for an extra-soft feel.
3) Kill weeds between cracks in pavement, paving stones, etc. by spraying straight vinegar on them multiple times.
Posted in: Intown Atlanta Real Estate News