LenderCity » Fixed Rate Mortgage

Higher Rate, Lower Fees or Lower Rate, Higher Fees?

Gregg Harris — Wed, 11 Nov 2009 04:40:13 +0000

Ever wonder why there is such a disparity from lender to lender when it comes to rates and fees? It really comes down to two things, marketing and their compensation. You see, most lenders are compensated by the companies they sell the loans to and therefore the higher the rate, the more compensation they receive. That is why it is in the lender’s best interest (no pun intended) to get you into a higher rate loan. What may only amount to a $20-30 higher monthly payment for you can mean hundreds or even thousands more in compensation to the lender.

This is where the marketing aspect comes in. Some lenders will use this compensation to subsidize the fees they normally charge. That is why you can find lenders with lower rates and higher fees or higher rates and lower fees. One way or another, you end up paying for it. Essentially you’re just financing it into the rate, with less due out of pocket at closing. If you shop long and hard enough, you can find the best of both worlds: a lender with low fees and low rates.

All of this is assuming a loan with no points as points should only be paid to buy the rate down. However, this is usually not a wise investment.

Why Mortgage Brokers Get A Better Deal Than A Lender Can Directly

Gregg Harris — Wed, 11 Nov 2009 04:37:28 +0000

Ever wonder why you can get a better deal going through a mortgage broker than you can if you go directly to a lender? After all, the mortgage broker just turns around and sells it to a major national lender anyway? So logic dictates that cutting out the “middle man” should yield you a better deal, right? Not in the case of mortgages.

Believe it or not, 65% of all mortgages in America are originated by mortgage brokers. Because many of those brokerages are small businesses, they can keep their overhead low and effectively lower their margins. This means lower rates and closing costs for consumers. Although lenders quietly solicit mortgage business, it costs them much more to originate a loan as they have to maintain a larger staff to do so. Therefore, they rely on thousands of mortgage brokers who in turn have “mortgage sales people” to find the business. The lender pays the broker a commission for finding, processing, and delivering the loan to them.

But not all mortgage brokers were created equal. You still want to shop for the best deal as some charge unnecessary origination fees for their services. But don’t be fooled, the lender is paying them for their services so you shouldn’t have to.

Rates Are Based on Your Credit Score and Equity

Gregg Harris — Wed, 11 Nov 2009 04:33:23 +0000

It used to be that a 720 was considered an excellent credit score, however that’s no longer the case. The new benchmark for excellent credit when it comes to mortgage rates is now a 740 or better. When we obtain a credit report, we go off the middle score (not average) when there’s only one borrower, or the lower of the two middle scores when there’s a borrower and co-borrower.

We then look at the equity position. Depending on the type of loan (rate/term refi, cash-out refi, or purchase), the rate can be higher or lower depending on the credit score and equity position.

The Housing and Affordability Plan

Gregg Harris — Wed, 11 Nov 2009 01:53:30 +0000

Although the President’s “Housing and Affordability Plan” was announced on February 17th, it wasn’t until yesterday that we got the details of what it actually means to homeowners. We are finally seeing some changes in guidelines, starting today with a major announcement by Fannie Mae. It was announced that over the next two months, significant changes are being implemented that will loosen credit guidelines and start lending to responsible people again. The pendulum that swung too wide and then back again, is now a little closer to the middle, where we knew it would end up but we just weren’t sure how soon.

The tightening has been taking place since last year, with the focus being on equity and credit scores, completely ignoring those who may have less than 20% equity or a credit score below 680. But new guidelines are focusing on who has been responsible enough to keep up with payments, rather than just sticking to a “set” formula. The focus has been on those who couldn’t keep up, so it’s good to finally see relief for those of us who have making payments on time and doing whatever we have to to keep our heads above water.

So far, only Fannie Mae has released their new guidelines so your loan must be a Fannie Mae serviced loan (contact your current lender or visit http://www.fanniemae.com/homeaffordable to find out if your loan is a Fannie loan) Some of the most important changes include:

No PMI required on a refinance if you previously didn’t have PMI. In other words, if your home’s value has dropped (most likely the case) and you go to refi and you now have less than 20% equity, then you won’t be required to have PMI.
Ability to refinance a loan with an existing second mortgage where the total LTV (loan to value) is up to 105% of the value. (Previously this was 95%)
Relaxed credit score requirements for scores below 680.

As you can see, they are really working hard to help everyone, not just those on the brink of foreclosure. And I believe many more changes are coming for responsible homeowners, including lower rates. Stay tuned…