Monthly Archives: July 2018

What Type Of Mortgage Loan

Homebuyers and homeowners need to decide which home Mortgage loan is right for them. Then, the next step in getting a mortgage loan is to submit an application ( Uniform Residential Loan Application ). Although we try to make the loan simple and easy for you, getting a mortgage loan is not an insignificant process.

Below is a short synopsis of some loan types that are currently available.

CONVENTIONAL OR CONFORMING MORTGAGE Loans are the most common types of mortgages. These include a fixed rate mortgage loan which is the most commonly sought of the various loan programs. If your mortgage loan is conforming, you will likely have an easier time finding a lender than if the loan is non-conforming. For conforming mortgage loans, it does not matter whether the mortgage loan is an adjustable rate mortgage or a fixed-rate loan. We find that more borrowers are choosing fixed mortgage rate than other loan products.

Conventional mortgage loans come with several lives. The most common life or term of a
mortgage loan is 30 years. The one major benefit of a 30 year home mortgage loan is that one pays lower monthly payments over its life. 30 year mortgage loans are available for Conventional, Jumbo, FHA and VA Loans. A 15 year mortgage loan is usually the least expensive way to go, but only for those who can afford the larger monthly payments. 15 year mortgage loans are available for Conventional, Jumbo, FHA and VA Loans. Remember that you will pay more interest on a 30 year loan, but your monthly payments are lower. For 15 year mortgage loans your monthly payments are higher, but you pay more principal and less interest. New 40 year mortgage loans are available and are some of the the newest programs used to finance a residential purchase. 40 year mortgage loans are available in both Conventional and Jumbo. If you are a 40 year mortgage borrower, you can expect to pay more interest over the life of the loan.

Fixed Rate Mortgage Loan is a type of loan where the interest rate remains fixed
over life of the loan. Whereas a Variable Rate Mortgage will fluctuate over the life
of the loan. More specifically the Adjustable-Rate Mortgage loan is a loan that has a
fluctuating interest rate. First time homebuyers may take a risk on a variable rate for qualification purposes, but this should be refinanced to a fixed rate as soon as possible.

Balloon Mortgage loan is a short-term loan that contains some risk for the borrower. Balloon mortgages can help you get into a mortgage loan, but again should be financed into a more reliable or stable payment product as soon as financially feasible. The Balloon Mortgage should be well thought out with a plan in place when getting this product. For example, you may plan on being in the home for only three years.

Despite the bad rap Sub-Prime Mortgage loans are getting as of late, the market for this kind of mortgage loan is still active, viable and necessary. Subprime loans will be here for the duration, but because they are not government backed, stricter approval requirements will most likely occur.

Refinance Mortgage loans are popular and can help to increase your monthly disposable income. But more importantly, you should refinance only when you are looking to lower the interest rate of your mortgage. The loan process for refinancing your mortgage loan is easier and faster then when you received the first loan to purchase your home. Because closing costs and points are collected each and every time a mortgage loan is closed, it is generally not a good idea to refinance often. Wait, but stay regularly informed on the interest rates and when they are attractive enough, do it and act fast to lock the rate.

Fixed Rate Second Mortgage loan is perfect for those financial moments such as home improvements, college tuition, or other large expenses. A Second Mortgage loan is a mortgage granted only when there is a first mortgage registered against the property. This Second Mortgage loan is one that is secured by the equity in your home. Typically, you can expect the interest rate on the second mortgage loan to be higher than the interest rate of the first loan.

An Interest Only Mortgage loan is not the right choice for everyone, but it can be very effective choice for some individuals. This is yet another loan that must be thought out carefully. Consider the amount of time that you will be in the home. You take a calculated risk that property values will increase by the time you sell and this is your monies or capital gain for your next home purchase. If plans change and you end up staying in the home longer, consider a strategy that includes a new mortgage. Again pay attention to the rates.

Reverse mortgage loan is designed for people that are 62 years of age or older and already have a mortgage. The reverse mortgage loan is based mostly on the equity in the home. This loan type provides you a monthly income, but you are reducing your equity ownership. This is a very attractive loan product and should be seriously considered by all who qualify. It can make the twilight years more manageable.

The easiest way to qualify for a Poor Credit Mortgage loan or Bad Credit Mortgage loan is to fill out a two minute loan application. By far the easiest way to qualify for any home mortgage loan is by establishing a good credit history. Another loan vehicle available is a Bad Credit Re-Mortgage loan product and basically it’s for refinancing your current loan.

Another factor when considering applying for a mortgage loan is the rate lock-in. We discuss this at length in our mortgage loan primer. Remember that getting the right mortgage loan is getting the keys to your new home. It can sometimes be difficult to determine which mortgage loan is applicable to you. How do you know which mortgage loan is right for you? In short, when considering what mortgage loan is right for you, your personal financial situation needs to be considered in full detail. Complete that first step, fill out an application, and you are on your way!

Different Types of Mortgages

A guide to 15 different types of mortgages on offer in the UK. From Standard Variable Rate mortgages to more unconventional mortgages such as Current account and self certification mortgages

1. Standard Variable Mortgage

The most common type of mortgage. Mortgage payments depend on the lenders SVR. This is usually influenced by the Bank of England Base Rate.

2. Fixed Rate Mortgage

A mortgage with a period of 2-4 years where the interest rate on mortgage payments is fixed. There may be a slight premium for security, but it avoids interest payments becoming un affordable.

3. Capped Mortgage

This is like a fixed rate mortgage. It states a maximum interest rate but it can fall under some circumstances.

4. Self Certification Mortgage

A mortgage where there is not any need to prove your income through published accounts. Often taken by self employed.

5. Repayment Mortgage

A mortgage where you pay both, interest on the loan and capital repayments. Most mortgages are repayment mortgages. It means at the end of your mortgage term you will have paid off your mortgage debt.

6. Interest Only Mortgage

Mortgage where you only pay interest on loan and do not repay any capital. This requires a separate investment plan to be able to pay off the mortgage capital at the end of the mortgage term

7. Investment Mortgage.

A type of interest only mortgage but where taking out a mortgage also involves taking out a complementary investment plan to be able to pay off the mortgage debt.

8. Endowment Mortgages

Similar to an investment mortgage. There were many problems with endowment mortgages in the UK because often the investment failed to be sufficient to pay off debt.

9. Base Rate Tracker Mortgage

Similar to a standard variable rate mortgage. This is a mortgage where the interest rate is fixed to a certain discount compared to the Bank of England Base Rate

10. 100% and 125% mortgages

Usually it is necessary to pay a deposit of upto 10% of the house price. However with rising house prices many lenders are now offering a mortgage for the full amount. In some cases lender offer more than 100% to enable spending on the house itself.

11. Joint Mortgage

A Joint mortgage involves buying a house with others to increase the chance of getting a mortgage. Also known as co buying mortgages.

12. Adverse Credit Mortgages

Help for people looking for mortgages with bad credit ratings

13. The Never Ending Mortgage

A new and quite small type of mortgage where there is no necessity to pay off the mortgage at all. Instead you can pass your mortgage onto your children.

14. Reverse Mortgage

This is where you can receive income from the value of your house in return for the lender receiving an increasing share of the value of your house.

15. Buy to Let Mortgages

This involves getting a mortgage to buy a house with the specific intention of renting it out. These mortgage are more dependent upon the state of the Housing market

16. Offset / Current Account Mortgage

This is when your mortgage is combined with your current account at a bank or building society. If you have savings in your current account these are automatically used to reduce the mortgage capital you owe and therefore lower the level of mortgage interest payments.

Types Of Mortgages Available

In Canada there are two types of mortgages available to residential borrowers, one being a conventional mortgage and the other is a high-ratio mortgage. Within both types of mortgages there are two sub-types, which are either open or closed mortgages.

To clarify the various options one can be presented with when shopping for a mortgage this article is divided into two parts;

Part one deals with the difference between a conventional mortgage and a high-ratio mortgage and part two deals with the different sub-types of mortgages available within the two types. However, these are fairly generic explanations – just as there are many different lending institutions, so there are almost as many different varieties of mortgages available. This is another good reason to consult a mortgage broker. Depending on your situation, one type of mortgage may be better for your circumstance than another.

CONVENTIONAL MORTGAGE:

If you have at least 20% of the purchase price (or appraised value if this is lower than the purchase price) as a down payment, you can apply for a conventional mortgage.
Some lenders may require either CMHC, Genworth or AIG insurance as well because of the property’s location or type, even though you have 20% or more equity.

LOAN TO LENDING:

to 65% 0.50%

65.1 to 75% 0.65%

75.1 to 80% 1.00%

80.1 to 85% 1.75%

85.1 to 90% 2.00%

90.1 to 95% 2.90%

95.1 to 100% 3.10%

Please note: Insurance premiums are higher when the amortization is greater than 25 years or if there is more than one advance. This usually happens if you are building your house or having it built for you. Check with your Mortgage Broker to learn what the applicable premiums will be.

The insurance premium is calculated by multiplying the mortgage amount needed by the applicable percentage.

For example:

If the purchase price is $112,000 and the required mortgage is $100,000. You divide 100,000 by 112,000. This equals 89.29%.

Looking at the above chart – the premium is 2.00% when the lending ratio is 89.29%.
The next step is to multiply the mortgage amount by the insurance premium. Using our example this means $100,000 X 2.00% = $2,000. Your actual mortgage loan will therefore be $102,000.

CMHC’s 5% DOWNPAYMENT PROGRAM was originally for first-time homeowners, but was expanded in May 1998 and is now available to all purchasers (principal residence only) who meet the normal requirements. Furthermore, borrowers can now even borrow up to 100% of their purchase price under new CMHC’s Flex Down Insurance Program.

CMHC may set maximum purchase prices under these programs depending on the city so check with your Mortgage Broker to learn what the price limits are in your area.

If the property is a duplex (and you are buying both sides), with one side being owner occupied, the minimum down payment is 5.0%.

Mortgage brokers and lenders must verify that the borrower has the 5% down payment and 1.5% of the purchase price to cover closing costs. The only exception to the 1.5% is when the purchaser qualifies for an exemption of the Land Transfer Tax (Ont.) or Property Transfer Tax (B.C.), or similar provincial tax exemption. In these cases the mortgage broker or lender must ensure that there are sufficient funds available to cover all remaining closing costs.

OPEN MORTGAGES:

An open mortgage allows you to pay off part or the entire mortgage at any time without penalties. Open mortgages usually have short terms of six months or one year. The interest rates are higher than those for closed mortgages with similar terms.

VARIABLE RATE MORTGAGES / ARM (ADJUSTABLE RATE MORTGAGES):

At the start of a variable rate mortgage, the lender will calculate a mortgage payment that includes principal & interest. For the term of the mortgage your payments usually do not change. However, as the prime rate changes so will your mortgage rate.
If interest rates are dropping, less of each payment will go toward interest and more will go toward principal. If interest rates rise, more of your payment will be interest and less money will be reducing your principal.

Some of these mortgages are completely open (you can pay off all or part of your mortgage at any time without penalties). Others that offer a ‘prime minus’ interest rate (e.g. prime – 0.375%) may charge a penalty.

The interest rate on most variable rate mortgages is compounded monthly.

CAPPED RATE MORTGAGES:

These are variable rate mortgages that the lending institution has rate ‘capped’. In other words, the rate will fluctuate with prime, but the institution guarantees that you will not pay more than a certain interest rate, set by them.

These mortgages often have a penalty for early ‘payment in full’ and are often not portable.

CLOSED MORTGAGES / FIXED RATE MORTGAGES:

The expression ‘closed mortgage’ originates from the 1980’s when this type of mortgage was literally ‘closed’. You contracted to the lender to make your payments for the term chosen, you could not pay anything additional, nor could you pay off the entire amount for any reason except the sale of your property.

These days, there are many ways to pay down your mortgage principal quicker, though the name ‘closed’ mortgage still remains. See pre-payment options for ways to pay off your mortgage quicker.

Fixed rate mortgages are the most popular type of mortgage. You benefit from the security of locking in your mortgage interest rate, for lengths of time ranging from 3 months up to 25 years. The rates are slightly lower than for an open mortgage for the same term.

If you think interest rates could rise, you may want to choose a longer term, such as a 5 or 10 year term. If you think that rates are going lower, you may want to gamble on a shorter length of time. Discuss this with your Mortgage Broker.

The major lending institutions have different pre-payment options allowed under their contracts. These options allow you to pay off your mortgage faster. It is also possible to pay off most closed mortgages prior to the end of the term or pay down a portion of the balance owing. However, lenders charge penalties for doing so.

Please note that some lending institutions will not give any pre-payment options. It is wise to find out what options are available before entering into any mortgage contract.

CONVERTIBLE MORTGAGE:

These are fixed rate mortgages for terms of 6 months or 1 year. Not all lending institutions offer convertible mortgages. With a convertible rate mortgage you can lock into a longer term during the current term of your mortgage without penalty – but only with the same lender. For example, if after a couple of months you hear that interest rates are going to increase, you may change to a longer term mortgage such as the 5 year term.

REVERSE MORTGAGE:

CHIP – Canadian Home Income Plan is the name of the company providing reverse mortgages in Canada.

A reverse mortgage allows homeowners to convert equity in their homes into cash, without selling the property or having to make monthly payments.

To qualify, homeowners must be at least 62 years old, have significant equity in their property and live in B.C. or Ontario.

The amount that can be borrowed depends on the homeowner’s age. Reverse mortgages are for between 10% and 40% of the appraised value of the home. The older the homeowners, the more they can borrow.

The homeowner retains ownership and possession of the house. The lending company registers a reverse mortgage against the property. At death, or when the house is sold, the loan and the accrued interest must be repaid.

The biggest disadvantage to reverse mortgages, is that the interest keeps building on the amount of money borrowed (hence the maximum 40% loan). This means that if you borrow $50,000 this year and your interest bill is $5,000, next year your interest will be charged on $55,000 and so on. The longer the loan is in place, the greater the interest bill that has to be paid.

It is possible that when the house is sold, 100% of the proceeds from the sale may be required to pay off a loan.

If the homeowner dies the estate will have to pay off the loan and the accrued interest. This may wipe out any inheritance for the homeowner’s heirs.

Finding the Right Mortgage

In each state there are thousands of mortgage brokers. How do you know which one to choose so that you will end up at the closing table on time with the interest rate, loan terms and fees promised to you? Here are some tips and data that hopefully will give you the information and tools needed to find the right mortgage broker, how to work with them and to help minimize the risks before you get to the closing table.

First let’s eliminate some of the ways borrowers typically choose a mortgage broker. This may just remove most of the problems before they occur.

How Not to Shop for a Mortgage

As a lot of people do, you could go to the Internet and call the first few mortgage brokers that pop up, check the local Sunday Real Estate Section to see who has the best rate, or call someone from out of the Yellow Pages. However these should be defined as ways NOT to shop for a mortgage:

Searching On-Line

Most every mortgage broker is listed on the Internet. While it is a great resource, it is not the best way to shop for a mortgage. It may be obvious to some, but just because a mortgage broker’s Web site shows up high on search engine listings does not mean they have the lowest rates or have the best service or are even reputable. High search engine rankings do not speak to these factors, but rather to the fact that the webmaster who built the Web site probably spent hundreds of hours building and fine-tuning their site to show up on the Internet listings when you type in certain mortgage “keywords”. Search engines do not rank listings by the quality or reputation of a broker but more by the amount of other similar Web sites that link to that Web site, the amount of visitors it receives, how much the broker may have paid to be listed there and many other factors.

Once I had a customer call me and say “You must be reputable as you showed up #1 in Google.” Yes, I am reputable, and I do like to think we offer very good service and low rates, but that is not why my broker was listed at the top. (Number one out of over 275,000 listings for the term “atlanta mortgage”.) It was because the webmaster spent hundreds of hours building and fine tuning all of the pages within the site to show up with high rankings.

There are many Web sites that list mortgage company’s rates on-line. I don’t put too much stock in sites that list these company’s rates online. Typically mortgage brokers pay to be listed on those sties and some are “affiliate” sites. Which means they are charged a fee when the visitor goes to the link that was clicked on. To find out if you are on an “affiliate” site, click on the link it takes you to and examine the web address. If it has a code at the end of the domain name, such as “http://www.anybroker.com/source=2519” it is generally an affiliate. There is nothing wrong or illegal about this, just realize some of the sites may be biased by the companies that pay or give an incentive to be listed on their site.

Another tip is not to waste time in clicking on sponsored links. On Google they are listed in the right column, (and recently at the top of every page in a shaded box) while AOL’s links are lightly colored boxes at the top and bottom of the page and on Yahoo they are listed in the column on the right side and at the bottom of the page in a colored box. As they name implies they are “sponsored” links which means to be listed the broker has paid to be there.

Be aware that if you complete a form on a mortgage Web site concerning wanting more information prepared to be flooded with calls or emails from mortgage brokers wanting your business. There are a lot of Web sites that are only “lead” sites. They get your information and then sell that information to mortgage brokers across the nation. Only submit information on the Web site of the mortgage broker that you know you will be working with.

The bottom line is the Internet is a great way to find out more about a mortgage broker that you are considering using but it may not be the best way to find one you can trust.

Choosing a Mortgage Broker Based Solely On Rate
The interest rate obtained on a mortgage is one of the most important factors of a loan, but it is not everything. There can be over 30 separate closing fees that can factor into the total cost of obtaining a mortgage loan.

Don’t be fooled by brokers advertising that they have the lowest rates. Most mortgage brokers and lenders have about the same rate on comparable programs on any particular day. They may quote them with or without Loan Origination fees and/or Discount Points, which makes it even more confusing. When selecting a mortgage broker the interest rate is an important factor but let’s take it a step further to get a better picture of the total cost to you.

Sometimes when a prospective client calls me asking “What’s your rate?” I ask them what they would like 6%, 5% or even 4%. The fees to obtain such a low rate may be exorbitant, but we offer it. So again, rate isn’t everything. It is the total cost that the borrower ends up paying that makes the difference.

You have probably seen mortgage brokers advertise rates at 1%. Do you really believe that 1% money is available? The answer is No. This is what the monthly payment is based. Don’t be deceived by just rate.

The Liar’s Rate Sheet

Another way some borrowers shop for a mortgage broker is by comparing rates in the Sunday Real Estate section of their local newspaper. In the industry this is referred to as the “Liar’s Rate Sheet”. Here is how it works. Mid-week the mortgage companies forward rates and APR (Annual Percentage Rate) to the newspaper for the different loan programs. They may quote the actual rate for that day or they may be quoting what they think it will be on Monday. All mortgage companies know you can’t call them until the first business day of the week so they may hedge the rate a little to get the phone to ring on Monday. I am not suggesting that all or even a majority of the mortgage companies that list their rates in the newspaper do this. Most mortgage brokers and loan officers that I have met over the last 20 years are honest and ethical. But this is a very competitive business and there is a lot of money to be made on every loan.

Another flaw in the Liar’s Rate Sheet is in the APR’s that are listed. A simple definition of APR is, the true cost of the loan including certain designated closing costs. There are some loan officers that do not know how to calculate APR correctly. So do not base your decision on choosing a mortgage broker solely on the APR quoted.

Here is a sample of 10 recent rates and APR’s quotes in a major metropolitan newspaper by local lenders and mortgage brokers: (These are based on $175,000 loan amount with 20% down payment, 30 year fixed rate loan.)

Note Rate APR Origination Fee Discount Points

5.875% 6.050% 0 1.90

6.000% 6.103% 0 0

6.125% 6.603% 1.00 .13

6.125% 6.270% 0.16 0

6.250% 6.122% 0 0

6.250% 6.305% 0 0

6.250% 6.425% 0 0

6.250% 6.624% 0 1.00

6.375% 6.289% 0 .75

6.375% 6.470% 0 00

If you were trying to make a decision as to what mortgage broker you may want to contact based upon the note rate (interest rate) or the APR you would not only be terribly confused, you would also be misled. The only way you can accurately compare rates and fees among mortgage brokers is with an accurate and complete Good Faith Estimate and complete Truth in Lending forms.

It is also important to remember that many, if not all of the mortgage companies and brokers listed typically pay to be listed there each week.

If you want a partial list of mortgage brokers in your city use the Sunday paper for that reason. Utilizing the phone book or Internet will give you a bigger list. If you want a full list go to your state’s Web site that lists all licensed mortgage brokers in your state.

Where to Start

When you are looking for any type of professional service person, accountant, dentist, etc, who do you turn to? People typically ask the opinion of someone they trust, be it family, friends, neighbors, co-workers, attorney, accountant or other professionals. The referral method can also be used to help find a mortgage broker.

Make a list of 10 people (who have a mortgage) and ask the name of the broker they worked with. Be sure and get the name of the person they worked with. Keep in mind that service between one broker or loan officer and another can vary widely so you will want to contact that specific person, not just anyone in that broker. Also be sure to ask if they were happy with the rate and service they received.

Collect at least three names of loan officers or brokers or maybe even up to seven or eight. Why so many? Because it may have been a few months or years since your referral source last used this individual and it is possible that they have moved to a different company or even changed careers. In addition, not every mortgage broker is going to want to work with you concerning items that we are discussing. Also list any broker or loan officer that you have used in the past and were happy with.

A wise business man once told me. “Know who you are dealing with”. Now that you have a preliminary list of names let’s try to find out a little more about whom you are dealing with. To help with this I have put together two simple approaches:

1. Background checks

2. Making contact (Parts A and B).

Step 1 – Simple Background Checks

Don’t worry, there is no need to hire a private investigator or do any “dumpster diving” to gain secret information. I do, however, suggest that you do a little investigative work. It should only take about 30 minutes and it will not cost you anything. In fact, it may save you a bundle of money and stress later in the process.

Visit the government Web site for the state in which the mortgage broker is located that you are researching. Locate the page that has a list of mortgage brokers or lenders. If the company you are researching is not listed they may be listed under a different name. Also you may be able to search by the individual or loan officer’s name.

If they are listed on the State’s Web site, it may also list how long the broker has been licensed (you should do business with them only if they have been in business for a minimum of two years), how many loans they have closed in the previous year, how many employees they have, and if they have had any consumer complaints made against them, administrative fines levied or regulatory orders (such as “cease and desist” orders) placed on them, any of their employees or broker. Be sure to search under the individual broker or loan officer’s name, keeping in mind that some states do not license loan officers so that person may not be listed. Checking with the Better Business Bureau may give you some additional information but in my experience most mortgage brokers and lenders are not members of the BBB.

Find their Web site and read about them. Do they post their rates and update them daily? Do they offer informative articles or information? Read their bio’s, Mission Statement and Privacy Policy to try to get a sense of what they are about, what they stand for and their vision of how they conduct their business. In addition, look for membership in professional associations, awards, etc. If they do not have a Web site I would not deal with them.

Check to see if they are a member of the National Association of Mortgage Brokers. http://www.namb.org. I highly recommend working only with a broker or loan officer that has such designation because it shows a higher degree of professionalism and dedication to the industry.

Another organization to check with is the Association of Professional Mortgage Women. http://www.napmw.org Members of this association are made up of individuals in all aspects of the mortgage industry, however, you typically will not find many brokers or loan officers as members. This is a great resource for finding mortgage professionals in affiliated services in the mortgage industry such as title insurance brokers, appraisers, closing brokers and real estate attorneys.

There are also local mortgage associations that are not affiliated with a national association and I would still give credit to the broker or loan officer for being a part of a group that offers ongoing education and sets goals of ethical standards to their members.

Look on the company Web site to see if they are a member of any of these mortgage organizations or other trade associations. However, keep in mind that just because you see one or all of these logos or references on their Web site, does not mean that the person you are working with holds the designation or is a member of that association.

Here is a recap of information to research as you are narrowing down your top candidates:

o Broker or Lender?

o State Web site for complaints?

o How long in business?

o BBB complaints?

o Has a Web site?

o Rates are posted daily?

o Member of any national or local mortgage association?

o Professional designations?

STEP 2 – MAKING CONTACT

The next step is to contact the mortgage broker or loan officer to whom you were referred.

Part A – Approaching the Broker

If you were referred to a specific loan officer try to stay with that person. If you just have a broker name or if the individual you were referred to is no longer there and you still wish to check out the broker, ask for the broker or manager of the company and not just any loan officer who gets the phone. While this may not always be possible or practical, unlike a loan officer, the broker does not have to split the income with anyone else. In a larger broker the broker may not be able to give your loan the full attention it needs. But always start with the broker or manager and work down.

Many years back I received a phone call from a gentleman stating he was looking for a mortgage broker to “establish a business relationship with.” That struck me as a professional way to do business. I ended up doing a couple of transactions with him and felt we had a good working relationship. He approached me as a professional and I treated him as such. The point is, when you contact the person you are considering working with, let them know you are looking for a mortgage broker to establish a business relationship with.

Here is a suggest way to start the conversation:

“My name is _________ I am shopping for a mortgage and am calling a few brokers that have been recommended to me to see who I would like to establish a business relationship with. I was recommended to you by __________.

Do you have a few minutes to speak?

Great, I have just a few questions:

If they agree to speak to you, briefly lay out what you are doing, including if you are looking for financing for a purchase or refinance and the loan amount. In addition, mention your credit scores or credit history, the percentage of down payment. Then ask, if they offer the type of financing you need. If the person starts to offer rates, terms etc. politely let him know that you are not shopping for the rate and program now, rather you just want to get some basic information.

Ask if they are a broker or lender. If you are speaking with a loan officer then ask if the broker is a broker or lender. If they are a lender, try to politely end the conversation or tell them you need to work with a broker. (I recommend only using a mortgage brokerage broker, not a mortgage lender for your transaction.

Another good question to ask is how long they have been in business. (If speaking with a loan officer – how long they have been with this broker as well as how long they have been in the mortgage business.) I suggest you work with someone that has been in the mortgage business for at least two years.

It is important not to commit to a meeting on the phone or let them send you a Good Faith Estimate. The most important information is if they are a broker or lender, how long they have been in the business and maybe if they offer the type of financing you are looking for.

Part B – The Interview

Once you have narrowed down your list of potential mortgage brokers that you may want to deal with, it is time for the interview.

Start by calling them back and let them know you may be interested in working with them and you would like to get more information. I always suggest that you meet face-to-face at their office to get a feel for them and their broker. If you can’t meet with them at their office you can do it over the phone. Be prepared with your list of questions listed below, as they may want to do the interview immediately.

When you speak with them, again mention what type of loan you will need, (purchase or refinance, conventional, construction, investment, etc.) and be prepared to go into some detail about your financial situation, including employment status, credit history, down payment amount and the source of it and a rough idea of your financial assets. Do not let them start taking an application on you. You are there to interview them, not the other way around.

Do not give out your social security number during this interview. There is no need to do this yet as you are not going to decide on what broker to deal with until you have interviewed everyone on your list.

Questions to Ask the Mortgage Broker
Here is a list of suggested questions to ask the broker or loan officer.

Application Questions

o Will I get a signed Good Faith Estimate?

o Will you guarantee your estimate of closing costs? If not all at least yours?

o Who will pay for any extra charges that are over and above your Good Faith Estimate?

o Will you update the Good Faith Estimate as we move through the process?

o Is there an extra cost if I do not set up an escrow account (commonly called waiving escrows) providing the loan program allows that to be done?

o If my credit score affects the interest rate and/or program is it possible that you will help me raise my score to obtain a better rate and program?

o Does your credit reporting system offer a Credit Score Analyzer so we can work on raising my score?

o What is your approximate closing ratio for loan applications taken?

Service Questions

o Do you have in-house or contract processing? (If you are scoring these answers then in-house processing gets an extra point.)

o Will it be okay if I speak directly with your loan processor?

o How often can I expect to be updated on the progress of my loan?

o (If purchasing). My contract has a date to get approved for financing Can you make that deadline?

o What will you provide me to give to the seller to satisfy that stipulation?

o Will I get a copy of the appraisal, title commitment, and credit report? Note: Some, but not all states require the mortgage broker to give you a copy of the credit report that they have pulled. If they are not allowed to give you a copy they must at least give you a form that shows the credit scores on your report.

o Do you utilize Automated Underwriting?

oMay I pick my own title or closing broker or attorney?

o Will I have a Preliminary Closing Statement 24 hours prior to the closing so that my attorney and I have time to review it?

o Will you be present at the closing?

Fee Questions

o Do you charge an application fee? (Be aware that some brokers charge a non-refundable up-front loan application fee. Is the fee applied towards the appraisal and credit report? Ask if you will receive a refund of the unused portion).

o What is your typical Loan Origination fee on a loan of this size?

oI s there a separate broker fee? If so, how much is it?

o What is your processing fee?

o Is there an admin fee or any other fees that will be paid directly to you?

o Will you refund any overage on the credit report or courier fees?

Note: Do not mention the word or imply that there are any junk fees. It may be construed as offensive to a broker or loan officer. Be specific when addressing the fees or charges.

Rate Questions

o Do you have a rate float down policy?

o What if I lock a rate and the rate goes down? Will you lower the rate?

Privacy Questions

o How will you secure my private financial information?

o Do you have a written information and privacy plan?

Note: The Gramm-Leach-Bliley (GLB) Act requires financial institutions to ensure the security and confidentiality of all personal information collected from potential customers and to have a written policy and plan in place that all employees must abide by. Ask for a copy of their privacy policy (If they don’t have one, you may not want to give this broker all your personal and financial information, including data needed for someone to steal your identity).

Miscellaneous Questions

o How long have you been in the business?

o About how many lenders are you approved with?

o What professional associations are you a member of?

o Do you have any professional designations?

o Tell me about your broker and why I should choose you to handle my loan transaction?

Loan Program Question

If you are unsure or if you would like more input ask: What loan program would you suggest?

Cost Estimate Question

Would you mind preparing a Good Faith Estimate and Truth in Lending statement?

Broker Questioning Opportunity

Do you have any questions of me?

When the interview is complete, thank them for their time and let them know that you will get back with them. If at this point you feel comfortable with working with this broker or loan officer you may ask that he forward a Good Faith Estimate and Truth in Lending to you so you can review these forms and estimates.

EVALUATING THE BROKER

After your interview you may want to ask yourself some other questions to help determine or grade the mortgage broker regarding how you think they will handle your loan.

Consider these points:

Did the mortgage broker have any questions for you?

Did you feel he wanted to know more about your overall financial goals and how this mortgage fits with those goals?

Take time to evaluate which broker you wish to work with. Do not make a commitment to anyone until you have reviewed the Good Faith Estimate and Truth in Lending disclosures closely.
When you do receive the Good Faith Estimate, and hopefully, the Truth in lending statement, it should look professional and be complete have accurate dates and other information disclosed.

Hopefully, after you have done all of your homework you will be able to find a broker you feel comfortable with and that you believe will give you honest and ethical service.

Mortgage Licensing Update

The activity in the states continues to rise. Numerous states are considering legislation to curb the foreclosure crisis. Nothing of course can stop it at this point, but the states seem to feel that increased regulation of mortgage companies will at least help the situation. Mortgage Licensing is one of the hotly debated topics in the states. Consumer groups feel that there should be increased licensing, education, and bonding requirements for the mortgage companies and their employees. Many people think that too many requirements may increase the difficulty of a borrower to find the right loan for the right price as mortgage companies have to spend more money to comply with these requirements. Let’s take a look at the recent regulatory activity as it relates to mortgage licensing.

Washington Mortgage Lender Licensing

Washington has changed their requirements for mortgage lenders. Many will now need to be licensed under the Consumer Loan License. What activities can a licensed mortgage broker engage in under the Mortgage Broker Practices Act (MBPA) without triggering the license requirements of the Consumer Loan Act (CLA)? As a licensed mortgage broker you may act in these capacities:

Broker – assisting borrowers, or holding yourself out as able to assist borrowers, in obtaining a residential mortgage loan. Loans close in the name of the lender.

Table Fund – “Table-funding” means a settlement at which a mortgage loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. The mortgage broker originates the loan and closes the loan in its own name with funds provided contemporaneously by a lender to whom the closed loan is assigned. WAC 208-660-006.

Non-delegated Correspondent – You close loans in your name with funds provided by a lender through a line of credit. The lender provides the underwriting criteria the borrower must meet and makes the final underwriting decision.

Masachussetts Loan Originator Licensing

WHO IS REQUIRED TO HAVE A MORTGAGE LOAN ORIGINATOR LICENSE?

Any natural person who: (a) is employed by or associated with one (1) and not more than 1 mortgage lender or mortgage broker licensee regulated by the Division; and (b) negotiates, solicits, arranges, provides or accepts residential mortgage loan applications on real property located in Massachusetts, or assists consumers in completing such applications.
Sole proprietors licensed as mortgage brokers or mortgage lenders by the Division, as well as owners, officers and directors or entities licensed as mortgage lenders or mortgage brokers, are required to be licensed as mortgage loan originators in Massachusetts if they meet the definition above.

WHEN CAN AN INDIVIDUAL APPLY FOR A MORTAGE LOAN ORIGINATOR LICENSE?

LOAN ORIGINATORS WHO WERE WORKING FOR A LICENSED MORTGAGE LENDER OR MORTGAGE BROKER PRIOR TO NOVEMBER 30, 2007:

Applications must be submitted to Massachusetts through NMLS before May 28, 2008. The requirement for applicants to have completed a residential mortgage lending course does not apply to any individual who was working for a licensed Mortgage Lender or Mortgage Broker prior to November 30, 2007. Individuals who have changed employers since November 30th are also not required to complete a course prior to becoming licensed. Please note that any individual who meets these dates of employment standards and who does not file a license application with the Division of Banks prior to May 28th must complete a residential mortgage lending course prior to becoming licensed.

LOAN ORIGINATORS WHO FIRST BEGAN WORKING FOR A LICENSED MORTGAGE LENDER OR MORTGAGE BROKER AFTER NOVEMBER 29, 2007:

Applications must be submitted to Massachusetts through NMLS before July 1, 2008. Prior to becoming licensed, all applicants must complete a residential mortgage lending course that has been approved by the Division of Banks. However, applicants may submit their application filings to Massachusetts through NMLS prior to completing a course. Individuals who are presently working as loan originators may continue to operate after June 30th only if they have submitted a mortgage loan originator license application to Massachusetts through NMLS. Beginning July 1st, any individual who does not have a license application pending with the Division of Banks may not continue to originate loans in Massachusetts. Any individual who submits an application before July 1st will have until August 31, 2008 to complete a residential mortgage lending course. If such an applicant fails to complete a course prior to September 1, 2008, his/her mortgage loan originator license application will be terminated.

For information regarding the educational requirements for Mortgage Loan Originator license applicants, please see Regulatory Bulletin 5.1-105. The Division of Banks currently accepting applications for the approval of Mortgage Loan Originator educational courses.

Oklahoma Amends the Education Requirements for Mortgage Brokers and Mortgage Loan Originators

Effective November 1, 2008, new applicants for a mortgage broker license in Oklahoma will be required to have completed 20 hours of approved education during the three years immediately preceding the date of application, and new applicants for a mortgage loan originator license will be required to have completed 16 hours of approved education during the three years immediately preceding the date of application.

Tennessee Amends Mortgage Licensing Requirements

Effective January 2009, applicants for a license as a mortgage lender, mortgage loan broker, mortgage loan servicer, or mortgage loan originator will be required to complete an educational training course. Criminal background checks will also be required for mortgage lender, mortgage loan broker, mortgage loan servicer, or mortgage loan originator applicants, and for registered mortgage loan originators seeking to continue registration.

Minnesota Adds Commercial Loans to Definition of Residential Loans

Effective August 1, 2008, the definition of “residential mortgage loan” under the Residential Mortgage Originator and Servicer Licensing Act (the “Act”) will expand to include commercial loans secured by 1-4 family residential real estate. The bill also expands the definition of “residential real estate” to include non-owner-occupied property, and extends certain record-retention requirements from 26 to 60 months.

Colorado Adopts Emergency Rule Making Initial and Continuing Education Mandatory for Mortgage Brokers

Effective January 1, 2009 all mortgage broker applicants must complete the 40 hours of licensing education and pass the two-part exam prior to applying for a mortgage broker license.

All mortgage brokers who currently maintain a Colorado mortgage broker’s license must complete 40 hours of licensing education and pass the two-part licensing exam by January 1, 2009.

Illinois Anti-Predatory Lending Database Registration for Mortgage Brokers and Loan Officers

On May 15, Illinois began registration of mortgage brokers and loan officers on the Anti-Predatory Lending Database. The Anti-Predatory Lending Database Program, pursuant to Public Act 95-0691, will become operational on July 1, 2008. In order to record any mortgage against Cook County property, a Certificate of Compliance or Certificate of Exemption must be attached to the mortgage. Property located outside of Cook County is not subject to the act. A mortgage broker or loan originator that takes a loan application will be required to enter certain information into the database. The database will first determine whether the property is exempt. If it is not exempt, the database will then determine if it will be necessary for the borrower(s) to obtain counseling. If counseling is not required, the loan may proceed to closing. If counseling is required, the borrower(s) will be notified and given a list of all participating counseling agencies. The act aims to reduce predatory lending practices by assisting the borrower in understanding the terms and conditions of the loan for which he or she has applied. The act does not prohibit any type of loan.

Connecticut Eliminates Secondary Lenders and Brokers Act

Effective July 1, 2008, new legislation essentially does away with the Secondary Mortgage Lenders, Brokers and Originators Act by consolidating all regulation of mortgage lenders and brokers under one act. The bond amount for lender and broker licensees will also increase and the mortgage license application procedures and requirements will be modified.

Iowa Amends Code Chapters Administered By Division of Banking

Effective January 1, 2009, new legislation establishes initial education and examination requirements for persons subject to registration under the Mortgage Bankers and Brokers Act. Effective July 1, 2008 the required surety bond amounts will increase and the annual license and registration expiration dates will change from June 30 to December 31 for mortgage banker and broker licensees.