Refinance

When is the Right Time to Refinance?

·          If you have an ARM (Adjustable Rate Mortgage) and your monthly payments are about to go up.  In a rising market, it is best to refinance into a Fixed Rate to avoid higher fluxuations in your monthly mortgage payment.

·          Debt Consolidation: If refinancing will lower your over-all monthly expenses, it may be a good idea to refinance.  You will have a much lower rate of interest than on your credit cards, and your mortgage interest may be tax deductible (consult your tax advisor for more details).  Have A Plan: It will do you no good to lower your expenses just so you can go out and run them up again.  Now that you have eliminated your high interest credit cards, it's time to invest and save that extra cash flow.

·          To improve your home: Cash out for home improvement is most often a great idea.  Not only is routine maintenance part of owning a home, but also home improvements adds value (equity/profit) to your home.

Is an ARM ever a good idea?  Yes.

There are a number of good reason to take advantage of the lower payment feature offered by ARM's:

·          When initially acquiring your home.  Face it, most of us do not have perfect credit when we apply for home loans, so getting the best rates is not always an option.  However, you can still buy your dream home and keep your payments to a minimum while you build up your credit.  As long as you pay your mortgage on time and do not get deeply into debt, your credit will improve.  Then, when the time is right you may refinance into a better program and maybe even take some cash out.

·          Cash Flow: Please be frugal with your extra cash.  You can use the extra funds to invest in your retirement and build up your savings = financial security.

In the meantime, while your loan is being processed you will need to gather together a few items:

·          Proof of all monthly income: (check-stubs, statements, social security, pension, etc.)

·          3 months bank statements (savings and checking)

·          W2’s or tax returns for last 2 years

·          Most recent statement on all asset accounts (401k, stocks, etc.)

·          If self employed, complete personal and business tax returns (all schedules) from previous 2 years

·          Purchases Only: copy of fully executed sales contract (if you have already made the offer), be sure to have your agent include that the seller will be paying up to 3% closing costs; prior to closing you will also have to obtain 1 years of homeowner insurance (this is purely your responsibility and is not covered in your loan even with 100% financing); all purchases require the borrowing to make a personal commitment of $500 (even with 100% financing) because lenders want borrowers to have a vested interest and not just give them hundreds of thousands of dollars without bringing something to the table.

·          Refinance Only: a) proof of homeowner’s insurance b) copy of most recent mortgage statement

·          2 forms of ID (Driver’s License, Social Security Card, etc.)

If you have already gathered the above necessary items, you may expedite your loan processing by faxing to: Attn: Nick Nelson 314-993-6463

Some basic rules to observe during your loan approval:

·          DO NOT quit or change jobs

·          DO NOT stop paying your bills on time

·          DO NOT STOP PAYING YOUR MORTGAGE!

·          DO NOT make any major purchases, co-sign on any loan, or open any new lines of credit

·          DO NOT allow anyone else to pull your credit, too many inquiries may effect the outcome of any loan in process

Subject: How Do I Choose the Right Broker?

Being bombarded by mortgage companies and brokers can become confusing, between interest rates, closing costs, points and experience – How can a person make an intelligent decision?

Advice: Key word “intelligent”.  More often than not, most consumers make there buying decision on who ever rubs them the right way.  While this may do wonders for your ego, you could end up paying for it – literally.  When making a financial decision, that decision should be based on the numbers.  But which numbers you ask?  Most mortgage brokers are in the habit of “hiding” their fees – this is because most believe that customers would throw a fit, and they usually do.  This comes from the fact that most customers have no idea what would be considered a normal fee, therefore they can not intelligently determine if they are being over-charged or not.  Let’s establish a few facts first.  First of all, the broker’s fee is a percentage of the loan. If you are speaking with a Loan Officer who works for a Broker, that Loan Officer is only getting a percentage of a percent typically 35 – 50%. That means the higher the loan amount, the more money the broker should make.  This percentage is often called points, 1 point = 1 percent.  What is fair?  On a $200,000 loan 2 points ($4000 out of which your Loan Officer will make 35 – 50% or $1400 - $2000 far less than what a Real Estate Agent would make: 3.5 – 7% in their pocket) would be considered reasonable.  Because this is a percentage, the number of point you are charged most likely will be higher on lower loan amounts and lower on higher loan amounts (the law limits this to 3% on conforming loans above 640 credit and 6% on non-conforming below 640 credit).  Typically, you can expect higher points if your loan is a difficult file or will require special attention.  Points are charged “up front” and represents the total of your “Loan Origination Fee”, “Mortgage Broker Fee” and sometimes hidden under the title “Loan Discount”.  In addition, there are a number of third party fees that all borrowers must pay no matter who you go through (approximately $2500 before the broker has charged you a single penny!).  So don’t let closing costs fool you.  No matter what any broker or banker tells you, trust me – you will pay these fees.  There is only one other way for your broker to get paid: “on that back” through what is called Yield Spread Premium (YSP).  This translates into a higher interest rate for you and most likely will increase your monthly mortgage payments.  This is completely hidden from the borrower and difficult to determine.  Most brokers will use a combination of these: points and ysp.  If your broker is fair, you should have lower points with higher ysp and higher points with lower ysp.  Unfortunately, a few brokers will max out both fees.  I refer to this practice as “head-busting”.  So is it better to go ahead and pay the fees up front or on the back?  If you plan to be in the home for more than 2 years it is always better to pay the points; if you will be there less than 2 years or if you are making a purchase and don’t have money for a down payment, it is better to pay on the back.

Always obtain a good faith estimate so that you may identify these fees.  Also, be aware that brokers are not required to fully disclose this information on your Good Faith (although they should!) and it can be difficult to determine if it is just the old bait and switch.  Beware of any lender who claim “no points” or “no closing costs”, since they have to get paid one way or another, you will be the one paying for it one way or another.  Save yourself a lot of hassle and time by working with one of our professionals.