BM 418 Day 10 Summary Sudweeks Spring 2012
1 Understand how a house fits into your personal financial plan 2 We talked on the New Versus Old Wisdom of Household Finance 3 Follow the money. The ones who benefit from the New Wisdom are brokers, financial planners, etc. 4 Keep the old wisdom. Buy a modest home, fix it up and pay it off. 5 Understand the advantages and disadvantages of renting, buying, building, and renovating 6 We addressed this only superficially. 7 Know the process on buying a home 8 We discussed the Process of Buying a home 9 There is a process to follow 10 We also discussed that since we are LDS, we should have smaller houses that other people. We used TT11 Maximum Payments for LDS 11 We discussed Why your Nest Egg is Not Your Next Egg. It is a house, not an investment 12 Know how to compare different types of loans with different fees 13 We talked about the factors go into picking a loan 14 They included Time Horizon, Risk Tolerance, Preferred Payments, and Goals (big house, investment, Pay off other debt) 15 We used our Excel Loan Type Spreadsheet to pick the right loan 16 We talked about Points and how to comparing Loans 17 We talked through Points and Prepayment 18 We discussed Good Faith Estimates 19 We showed how to calculate the Effective Interest Rate 20 We discussed Home Loan Calculations and TT19 21 We shared how do you compare different loans with different interest rates and fees. 22 You will have lots of options. We gave you a framework for comparing different loans with different points and fees 23 Understand my recommendations in obtaining a home 24 We finished with my recommendations in obtaining a home 25 We did Case Studies on effective interest rates 26 Case Study #2 – EIR (slide 58) 27 Case Study #3 – EIR with prepayment (slide 61) 28 Case Study #4 – EIR with buy-down points (slide 64) 29 Final Thought 30 Summarize the things learned 31 Finish with Identifying Mortgage Fraud from Lane Adrich 32 Notes: My final thought is CS Lewis, and it relates to building a home:
Imagine yourself as a living house. God comes in to rebuild that house. At first, perhaps, you can understand what He is doing. He is getting the drains right and stopping the leaks in the roof and so on; you knew that those jobs needed doing and so you are not surprised. But presently He starts knocking the house about in a way that hurts abominably and does not seem to make any sense. What on earth is He up to? The explanation is that He is building quite a different house from the one you thought of - throwing out a new wing here, putting on an extra floor there, running up towers, making court yards . You thought you were being made into a decent little cottage: but He is building a palace. (C.S. Lewis, Mere Christianity, New York, Macmillian, 1960, p. 174.)
Identifying Mortgage Fraud Lane Adrich
Although there are many lenders out there who have your best interest in mind, there are also many lenders who plan on taking advantage of you. Financial times have made many lenders desperate and they are looking for more ways to squeeze their customers for more cash. For your benefit, I would like to make you aware of potential scams so you never become a victim of fraud. Here is a list of things to watch out for:
1. Beware of “the bait and switch.” Many lenders will tell you anything to get you to walk through their door. Whether it is an interest rate that is much lower (.25%) than your competitors or very low closing costs, be cautious. Most of the time if it sounds too good to be true, it is. Once you commit to that lender, they will often surprise you at the closing table with much higher costs and a much higher interest rate. Their excuses often sound like “these were unforeseen costs” or “rates unexpectedly came way up.” This is why a lender’s reputation is more important than their costs. Research the background of potential lenders. Ask around or visit their website for credentials.
2. Beware of lenders that do not disclose a detailed good faith estimate. Each lender has resources to provide you a breakdown of each cost of your loan down to the penny. Many will choose to send you a brief typed custom document instead showing just the overall costs. This is a red flag. It demonstrates that they do not wish to disclose where your money is being applied. If they refuse to provide you with any Good Faith Estimate at all, refuse to do business with them. They do not have your best interest in mind.
3. Beware of lenders who advertise “no closing costs” or “no origination fee.” These advertisements always have a catch. Either they will raise the interest rate much higher than competitors or they will hide their origination fee by calling it a “processing fee” or “discount point.” It costs money and time to originate a mortgage, and they plan on getting it from you one way or another. Again- if something sounds too good to be true, it probably is.
Other useful information that will help you identify if your lender is trustworthy: If you are concerned that your lender will not deliver the interest rate he or she promised you, ask to see the “rate lock commitment sheet.” This is a sheet given to each lender when they lock an interest rate for their borrowers. It can be a confirmation to you that you are secured the interest rate your lender told you that you were getting. If they refuse to show it to you, something is up.
-If your lender promises to close your loan in a very short amount of time (7-14 days), make sure their underwriter is located in the same state. Mortgage brokers send out their files to underwriters in other states and in can take up to 5-6 weeks to close a loan. This is crucial if you have a deadline with your purchase contract. Mortgage bankers normally have their underwriters in the same building. This is important to confirm.