Beware of your credit score, it may be costing you thousands of dollars when financing a home. Fannie mae and Freddie Mac, since being bailed out by the American taxpayer, have instituted "loan level pricing adjustments". LLPA's are increased costs paid by the consumer borrowing money from lenders. These fees are not profits that go to the lender's coffers, rather thousands of dollars that go directly to the institutions that own more than 50% of the mortgages in America.
The LLPA's range from .25% - 5% of the loan amount. What used to be considered a "good" credit score, now can cost a consumer $1, 2, 5, 10,000 extra in fees or a substancially higher interest rate for the duration of the loan. With all of the chnages in Washington regarding financial reform and transparency, it should be noted that these costly adjustments have gone under the radar and are non-transparent to the consumer. To look at the adjustments click here, this is a link to the LLPA matrix on the Fannie Mae site.
LLPA's do not stop at adjustments for credit only, there are adjustments for non-escrow, purpose of the loan, occupancy of the property and loan to value. These adjustments are accumulated. An example - A borrower with a 679 credit score on a 80% ltv would pay 2.5% X the loan amount additionally for a rate. The same borrower purcasing a 3 family house to occupy would pay an additional 1 point or 3.5 points total due to the number of units.
My advice is to monitor your credit score. If at any point it falls below 740, have a professional review it for recommendations which can lead to pushing your score higher over time.
Wednesday, May 26, 2010
Wednesday, May 19, 2010
Dodd Bill "Too Big to Fail"
Without getting political - how many have actually paid attention to what your representatives actually do in Washington DC? In our business, they are looking for 100% transperancy which is a good thing for the consumer. Here's my question, why are the guys trying to set the rules for transperancy doing it off the senate floor?
Better yet, why would the federal government come out with a compensation cap for the people that write loans and work with Joe Homebuyer, but not limit the big banks from their compensation when selling a loan after it closes (non-transparent to borrower)?
What I have read about the Dodd Financial Reform Bill is the purpose is to make things transparent and to avoid "too big to fail banks". Question of the day - what happens when small brokers and mid-size lenders are out of the business of mortgage loans? Answer - Banks are even Bigger to Fail!
From my 18 years in the business, I have never seen a bill that will make it more costly for the consumer. The federal government imposed the Home Valuation Code of Conduct. It did accomplish the random ordering of residential appraisals. It also allowed the "Too Big to Fail Banks" to open appraisal management companies which charge 50% more for the consumer's appraisal even though they pay the appraiser 50% less than they had earned previously. The small businessman (the appraiser) doing the work gets paid half and the large bank gets an extra 50% out of Joe Homebuyer.
Gotta love it when a plan comes together!
Any questions, call me - 860 305-1609
Better yet, why would the federal government come out with a compensation cap for the people that write loans and work with Joe Homebuyer, but not limit the big banks from their compensation when selling a loan after it closes (non-transparent to borrower)?
What I have read about the Dodd Financial Reform Bill is the purpose is to make things transparent and to avoid "too big to fail banks". Question of the day - what happens when small brokers and mid-size lenders are out of the business of mortgage loans? Answer - Banks are even Bigger to Fail!
From my 18 years in the business, I have never seen a bill that will make it more costly for the consumer. The federal government imposed the Home Valuation Code of Conduct. It did accomplish the random ordering of residential appraisals. It also allowed the "Too Big to Fail Banks" to open appraisal management companies which charge 50% more for the consumer's appraisal even though they pay the appraiser 50% less than they had earned previously. The small businessman (the appraiser) doing the work gets paid half and the large bank gets an extra 50% out of Joe Homebuyer.
Gotta love it when a plan comes together!
Any questions, call me - 860 305-1609
Monday, May 3, 2010
Four Goals to Determine Best Mortgage for YOU!
When purchasing or refinancing a home, your main goals should be to
1 – Get the lowest monthly payment to meet your financial objectives,
2 – Maximize your federal income tax benefit,
3 – Conserve as much capital as possible to meet your financial objectives, and
4 – Meet your risk tolerance.
The mortgage you select to use is a valuable financial instrument that should not be taken lightly. While considering the mortgage that is right for you, use the above to consider which will meet your short and long term strategies. Most people consider a mortgage a loan to buy a home. I can’t stress enough that this is a misconception!
It is said that purchasing a home may be the largest investment a person ever makes in their life. The financial instrument you choose – your mortgage – is a long term debt instrument that needs to fit into your financial plan.
1 – The lowest payment – There are many different mortgage programs that exist today. Not only are there terms ranging from 5 – 40 years. There are also different loan types to consider. There are stable fixed rate mortgages which the payment stays the same over the term of the loan. There are also mortgage programs that allow for interest only payments or loans that allow variable interest features.
Most people get hung up on what the lowest interest rate is without consideration of two very important details – the Annual Percentage Rate and the financial instrument product. My belief is the general public associates the lowest interest rate with the lowest monthly payment. Now, more than ever, your lowest monthly payment actually depends on your credit score, your down payment, your risk tolerance and your short and long term needs.
As an example a 5% fixed rate FHA mortgage actually has a higher payment than a 5.375% USDA Rural Development mortgage. Even when the down payment is 3.5% more for the FHA loan!
Another example would be a 10 year fixed interest rate is much lower than a 30 year fixed interest rate, however the monthly payment is close to double.
2 – Maximize your federal income tax benefit – This may be one of the most overlooked goals when considering the financing options available to you. One of the only tax deductions you may have at the end of the year are the property taxes you pay on a home and the interest associated with the financing for the home. Currently, mortgage insurance is tax deductible through 2011. Once that exception expires, it most likely will not be expanded, as the USA needs as much income as possible these days.
Make sure that you are maximizing this benefit of home ownership.
3 – Conserve as much capital as possible to meet your financial objectives – Most homebuyers and people looking to refinance a mortgage generally look to have the lowest monthly payment. A way to decrease the monthly payment is to invest more money in a home so that they are borrowing less. A simple analysis would suggest if your money is better spent being invested in the home or invested in paying off another debt. You should also consider is your money better spent pre-buying interest instead of an increased down payment.
Choosing to pre-buy interest would actually give you a lower payment by decreasing your interest payments each month for the life of the loan instead of decreasing the loan balance…and it actually conserves your capital that may be used to pay down other, higher yielding debt instruments or the conserved cash could be used to invest in a higher yielding asset.
4 – Meet your risk tolerance – The program that would give you the absolute lowest payment would be a variable rate mortgage that changes as frequently as possible. However, most people do not have the appetite for this much risk when it is tied to their biggest investment. Determining what your risk tolerance is generally will help lead you to the right program for you.
Risk tolerance does go farther than choosing a fixed or variable rate mortgage. If I asked you why you want a fixed rate mortgage, I would expect to hear because it’s “safe”. I agree, having the same, stable payment does lend itself to safety.
With safety being considered, do you think having a larger down payment invested in your home is a “safer” option because the payment will be a little lower? If you answered yes, I would disagree. Having capital in your home makes it a non-performing investment that is far more at risk because you do not have any control over your capital.
As a mortgage planner, my job is to help clients objectively determine their needs by considering these goals. If you would like to take advantage of a complimentary 30 minute needs analysis, please call me to schedule an appointment.
Vin Biscoglio
MLO#6954
860 305-1609
1 – Get the lowest monthly payment to meet your financial objectives,
2 – Maximize your federal income tax benefit,
3 – Conserve as much capital as possible to meet your financial objectives, and
4 – Meet your risk tolerance.
The mortgage you select to use is a valuable financial instrument that should not be taken lightly. While considering the mortgage that is right for you, use the above to consider which will meet your short and long term strategies. Most people consider a mortgage a loan to buy a home. I can’t stress enough that this is a misconception!
It is said that purchasing a home may be the largest investment a person ever makes in their life. The financial instrument you choose – your mortgage – is a long term debt instrument that needs to fit into your financial plan.
1 – The lowest payment – There are many different mortgage programs that exist today. Not only are there terms ranging from 5 – 40 years. There are also different loan types to consider. There are stable fixed rate mortgages which the payment stays the same over the term of the loan. There are also mortgage programs that allow for interest only payments or loans that allow variable interest features.
Most people get hung up on what the lowest interest rate is without consideration of two very important details – the Annual Percentage Rate and the financial instrument product. My belief is the general public associates the lowest interest rate with the lowest monthly payment. Now, more than ever, your lowest monthly payment actually depends on your credit score, your down payment, your risk tolerance and your short and long term needs.
As an example a 5% fixed rate FHA mortgage actually has a higher payment than a 5.375% USDA Rural Development mortgage. Even when the down payment is 3.5% more for the FHA loan!
Another example would be a 10 year fixed interest rate is much lower than a 30 year fixed interest rate, however the monthly payment is close to double.
2 – Maximize your federal income tax benefit – This may be one of the most overlooked goals when considering the financing options available to you. One of the only tax deductions you may have at the end of the year are the property taxes you pay on a home and the interest associated with the financing for the home. Currently, mortgage insurance is tax deductible through 2011. Once that exception expires, it most likely will not be expanded, as the USA needs as much income as possible these days.
Make sure that you are maximizing this benefit of home ownership.
3 – Conserve as much capital as possible to meet your financial objectives – Most homebuyers and people looking to refinance a mortgage generally look to have the lowest monthly payment. A way to decrease the monthly payment is to invest more money in a home so that they are borrowing less. A simple analysis would suggest if your money is better spent being invested in the home or invested in paying off another debt. You should also consider is your money better spent pre-buying interest instead of an increased down payment.
Choosing to pre-buy interest would actually give you a lower payment by decreasing your interest payments each month for the life of the loan instead of decreasing the loan balance…and it actually conserves your capital that may be used to pay down other, higher yielding debt instruments or the conserved cash could be used to invest in a higher yielding asset.
4 – Meet your risk tolerance – The program that would give you the absolute lowest payment would be a variable rate mortgage that changes as frequently as possible. However, most people do not have the appetite for this much risk when it is tied to their biggest investment. Determining what your risk tolerance is generally will help lead you to the right program for you.
Risk tolerance does go farther than choosing a fixed or variable rate mortgage. If I asked you why you want a fixed rate mortgage, I would expect to hear because it’s “safe”. I agree, having the same, stable payment does lend itself to safety.
With safety being considered, do you think having a larger down payment invested in your home is a “safer” option because the payment will be a little lower? If you answered yes, I would disagree. Having capital in your home makes it a non-performing investment that is far more at risk because you do not have any control over your capital.
As a mortgage planner, my job is to help clients objectively determine their needs by considering these goals. If you would like to take advantage of a complimentary 30 minute needs analysis, please call me to schedule an appointment.
Vin Biscoglio
MLO#6954
860 305-1609
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