Pros and Cons of Working with a Mortgage Broker

When working with a mortgage broker, you are working with someone who purchases loans from a variety of different mortgage lenders before selling them to another mortgage banker for a profit. Since mortgage brokers work with a variety of different lenders, they can often offer better rates to their clients than the typical bank. On the other hand, mortgage brokers do work on a commission and regularly charge extra fees that are not included with bank loans.

Perhaps the biggest benefit to working with a mortgage broker is that a mortgage broker can often get a loan for those who may otherwise have difficulty getting one. As such, working with a mortgage broker is a good option if you meet one of these criteria:

• You are self-employed
• You have less-than-perfect credit
• You recently started a new job
• You are carrying a high debt load

If none of these sound familiar, it may be in your best interest to obtain a loan through a bank.

Pros and Cons of Getting a Bank Loan

When obtaining a loan through a bank, you are typically getting a loan from a bank that is lending out its own money. The bank makes a profit as it collects the loan fees and interest from the customer. It is important to note, however, that your lender may change to a different bank over time. This is because most banks package their loans in bundles of $1,000,000 or more and then sell them to a secondary market in order to make a commission.

While there is a chance that your bank will sell your loan to the secondary market, obtaining a bank loan is generally a safe and easy bet for those in need of a mortgage loan. In general, bank loans are less costly upfront than loans obtained from a mortgage banker because there are not as many add-on fees. Furthermore, because banks do such a large amount of business, they are capable of cuttings costs and passing those savings on to their customers.

For those with bad credit, obtaining a bank loan may be difficult. This is because banks only give loans to those with good credit, a steady income and demonstrated job stability. While this is a downside for those with poor credit, the careful screening process helps banks keep the costs low for those with good credit. In addition, because bank loan officers usually do not receive a commission, they generally do not try to push customers to purchase expensive add-ons. Mortgage brokers, on the other hand, make more money if they are able to convince you to include additional items on your loan.

One simple way to pay off a mortgage early is by putting a portion of a mortgage payment aside automatically from each paycheck into an interest baring savings account. In doing so, the money is out of sight and out of mind, no need to worry about how it’s going to be done, because if you don’t even see it then you won’t be tempted to spend it. If one sets aside approximately half of their mortgage payment every other week, it will end up in a savings that is equivalent to an extra payment every year. Setting aside slightly more than half will cause an even greater savings, causing the mortgage loan to be paid off at an even a faster rate. Depending upon the length of your mortgage term and when a savings plan was implemented, months or even years will literally be peeled off of your mortgage loan. All that has to be done is to pay whatever is put aside each time a mortgage comes due which in all actuality will cause a homeowner to end up with a few payments that are significantly more than the minimum monthly mortgage payment.

Don’t like the idea of having to track how much is being saved over the course of a year? Then one may want to use income tax returns to help you make up the difference. For many people, the amount that they receive in their tax returns is significantly more than their mortgage payment. While many count on monies received back from the United State Government on their taxes to pay off other debts, or to make purchases, it is better to use at least part of that money especially if the money that is to be received back is quite significant. By using part of your tax return money to pay down a mortgage loan, it can be the equivalent of an extra mortgage payment once per year which can significantly reduce how much one owes. If you can afford to contribute more than just the amount of one payment or if you use this in conjunction with the savings plan mentioned above you can pay off your mortgage even faster. Now how great would that be?

Now back to the interest baring savings account. If you have a high-interest savings account, you can use that interest to help you pay off your mortgage ahead of time. Once or twice per year, pull out money from your savings that’s equivalent to part of the interest that you’ve accrued and add it in with your mortgage payment. Provided that you have a high enough savings balance you should be able to make a significant impact on your mortgage debt by doing this. Over the course of the year the amount that you add to your mortgage payments could potentially equal an entire extra payment or more. Should you worry that you can’t keep yourself motivated to keep making these extra payments, you might consider using a bi-weekly mortgage service. These services automatically withdraw one half of your mortgage payment from your checking account every two weeks, and then make your payment for you when it comes due. The system works similar to the paycheck savings plan mentioned above, but since you have an outside company doing the work for you all that you have to do is make sure that you have the money in your account to cover the withdrawals. Though the services do charge fees to cover their costs, the amount that you save in interest payments will be significantly more than what you pay to the service – some lenders even provide these types of flexible payment plans at no extra charge, check with your lender for options.

The Federal Reserve, along with the FDIC and the Office of the Comptroller of the Currency, is on board with a proposal that will require home buyers to make a down payment of 20% of a home’s sales price in order to be categorized as a qualified residential mortgage borrower. Another proposal would demand that a borrower keep a 75% loan-to-value ratio for refinances and 70% for cash out refinances where a borrower is granted a larger loan.

The proposals must be signed off on by six federal agencies, including the Federal Reserve, FDIC, and the Office of the Comptroller of the Currency, as well as the Exchange Commission, Department of Housing and Urban Development, and the Federal Housing Finance Agency. Once the proposal has been passed by all agencies, it will be released to the public for review.

The proposals being considered are ultimately aimed at improving home financing standards, subjecting non-qualified residential mortgages to strict risk retention rules, which will force banks to maintain five percent of the value of a mortgage on their books. The rule is meant to force lenders into a vested interest in their lending decisions, instead of leaving them free to lend to unqualified individuals and then package those loans into securities that are sold to third-party investors.

So what is a loan modification? A loan modification simply means that the mortgage loan is modified outside the original terms of the contract been the mortgagor and the mortgagee. Loan modifications offer different types of modifications to include: changes in the terms of the loan, reducing the principal amount of the loan, lower monthly mortgage payments or interest rate, lengthening the terms of the loan, and reduce penalties. The loan modification program does not discriminate based on the status of the mortgage therefore at the time a borrower applies for a loan modification, mortgagees can be either current with their mortgage payments, late, in default and even in foreclosure.

Who qualifies for the Home Affordable Modification Program? There are several prerequisites and eligibility requirements for those who seek to modify their mortgage loan through the Home Affordable Modification Program: loans must have originated on or before January 1st of 2009, first lien loans on owner occupied residences must have an unpaid principal balance of $729,750, all potential borrowers must document their income and sign an affidavit of financial hardship, property owner verification will be verified, and modifications can only be done once until December 31st of 2012.

The Making Home Affordable Program is a compliant and legitimate program offered through the U.S. Goverment; however there are warnings and scams to take heed to. After the crash of the mortgage crisis, many mortgage companies created separate divisions calling them ‘mortgage foreclosure rescue services’ which promised borrowers that they would work on their behalf (for quite a fee, no less) to beg and plea with their lender to modify the loan. Many desperate borrows have fallen for this trap, as the Home Affordable Modification Program would never operate as such. Borrowers must be aware of the several modification scams that are ravaging throughout the country, and borrowers must beware. It’s imperative to remember that scammers offer false promises and often tell the borrower to stop making mortgage payments to their lender as they will become the liaison between the mortgagor and mortgagee. In addition scammers ask for fees upfront requesting that they be wired or mailed overnight and only accept payment through a cashier’s check or money order.

The U.S. Government hosts a number of resources at no charge offering homeowners the tools that they need to get for more information on loan modifications through The Making Home Affordable Program. HUD.gov and HUG.org are excellent sites to obtain the information with HUD approved counselors available by phone as well to answer any questions.

Education on the home loan modification process is truly the key when researching options. With the vast amount of resources provided to borrowers through their lenders and The Making Home Affordable Program, many have been able to keep their homes by modifying their mortgage loans, saving them from foreclosure.

Sale-Leaseback Schemes – The scammer presents themselves as a savvy investor with a desire to help families in need.  The scammer offers to buy the house, bring the mortgage up to date, and let the homeowner rent back the house indefinitely with the intention of buying back the home. Preying upon a family’s basic desire to remain within their house, these “investors” convince homeowners to sell the homes far below what the home is worth. The home is never rented back to the family; it is usually flipped with the investor vanishing.

Charging High Fees For Little or No Service- In this situation a scammer will pose as a legitimate foreclosure consultant, oftentimes as a mortgage or financial broker. Exploiting the complexity of a foreclosure or refinancing, the scammer operates off of the assumption that the average homeowner is hesitant to handle mortgage matters themselves for fear of making a mistake or by simply assuming they wouldn’t understand it. The scammer locks the homeowner into a yearly contract and charges exorbitant fees for services the homeowner could have easily done himself or herself. You can avoid this by following a very simple rule: Legitimate foreclosure consultants do not seek you out, you have to go to them. If they are contacting you there may be reason for suspicion.

Stealing The Home – Undoubtedly every homeowner’s worst nightmare, but it happens, and oftentimes to otherwise wary and intelligent people who let their guard down during desperate situations. In these schemes, the foreclosure scammer gets the homeowner to surrender ownership of the home usually through outright deceit and trickery. In many reported cases, the homeowner believed that they were signing new mortgage loan documents, when in fact they signed over their homes. In some cases of flagrant criminality, scammers simply forged the homeowner’s signature on documents, counting on the fact that the average homeowner does not pay enough attention to their foreclosure proceedings, and will notice only when it is too late.

The companies and individuals who scam people are experts in gaining trust. They are often smooth talkers, keenly aware of a homeowner’s desperation. They will either call you, send a mail item or e-mail, or may actually come to the house in person.  If you are having financial difficulties, or are about to go into foreclosure, make sure you deal solely with your lender as soon as the problems start. Lenders would prefer that you stay within your home and will work with you, as well as recommending the proper and certified consulting you may need.

One thing that will be of benefit to you is having a reputable Realtor working with you and advising you while you are working with your lender for a solution. Though they are not legal counsel, they are often very experienced with foreclosure proceedings. If you trust your Realtor (and you should, otherwise don’t work with them!) they can be an invaluable source of information and informal advice.  An experienced Realtor knows the process and will help you find the right solution.

About the Author: Let Taft Street Realty be your professional guide to Hudson Valley real estate. Check their website to view all Ulster County community listings, including real estate in Stone Ridge NY.

So how is one to choose the best lender? A good place to start when beginning your search for the perfect lender is to ask around. A few of the best resources are your professional real estate agent, friends, or co-workers who have recently purchased a home through financing. Contact the lenders who are recommended, choose the lenders that have good reputations, excellent track records, display a high level of competency and are always in communication with you, the borrower. Do your homework, research and review their terms of service, and look and see if that lender has a program that meets your needs and has a track record of actually bringing funds to the table on time so that transactions close.

Once you find a lender that fits your criteria, the next step is in understanding why it is important to select the best lender. Well for one, by getting pre-approval for a home mortgage by a reputable lender, your offer becomes more attractive to the seller. If for example, you as the borrower were to choose an inept or “shady” lender then both the listing agent and the seller may be concerned with your financial resources and situation.  In addition, choosing a lender that is not dependable or experienced can cause major issues in regards to closing, i.e. funds were not received in time for closing after the lender assured all parties involved that the funds would be received in a timely manner, dramatically higher closing costs at closing not disclosed prior to the borrower on the ‘Good Faith Estimate’, lender does not return calls especially when it is the day of closing, lender changing the terms of the loan and not notifying the borrower until the day of closing. These are all frightening examples of how imperative it is to get all the facts when selecting the best lender.

Understand the difference between a mortgage lender and a mortgage broker. Mortgage lenders work for a bank or other financial lending institutions, are employees of these institutions who work to sell and process mortgage loans. As a borrower, the lender will take your application and will work to find the loan that meets your requirements. Once approved, the lender will take you from the purchase of your home through the closing process.  Mortgage brokers are more like free agents. They are paid a fee to work towards the real estate transaction and work with hundreds of lenders, finding homebuyers and determining the best mortgage for them based on their credit situation. Mortgage brokers can usually find mortgage loans for any type of credit.

Does it make a difference? Know the differences. If a borrower is looking to purchase out-of-state, then a local mortgage broker may assist in finding a lender in another part of the country. A local mortgage lender may not, particularly if it is a small bank that does not have a local branch in the part of the country a borrower is looking to purchase in.  Mortgage brokers can also find a lender that will make a loan when a local bank has turned down a loan.

Remember that knowledge is power. By doing your homework in selecting the perfect lender, and understanding your choices and options whether it be with a mortgage lender or mortgage broker, you will find a true professional, one that provides the level of service that you expect, who treats you as a valued customer, and can bring funds to the closing table.

Before delving into the Pros and Cons of going FHA, it is imperative to understand fully what the FHA is. The FHA was created in the early 1930’s during the Great Depression by the National Housing Act of 1934. During the depression, foreclosures and defaults spiked tremendously therefore it was designed primarily to increase home production and reduce unemployment, and is in charge of numerous programs to promote home ownership. The FHA does not make loans; FHA loans are insured loans made by private lenders obtained with the help of the FHA and are backed by the United States Government. FHA insured loans allow lower income Americans to borrow money that they otherwise would have to purchase a home. With a small down payment, buyers can purchase a home. Although FHA loans make it easier for people to qualify for a mortgage, they’re not for everybody.

The Pros of Going with FHA Financing

Typically almost anybody can get an FHA loan and makes home ownership a reality to many buyers, especially in today’s economy. Here’s why:

• Credit does not have to be stellar
• Flexible income guidelines
• No prepayment penalties
• Allow to purchase with a small down payment as small as 3.5%, when other lenders require higher down payments
• Up to 6% Seller Assistance
• Some programs offer no down payment
• Low closing costs
• May be assumable
• Leniency during financial hardship
• Fixed rate payments for 15 or 30 years
• Loans that cover fixer-upper purchases to include all repair/remodel costs
• Help for Seniors with reverse mortgage option
• Programs available for refinancing

The Cons of Going with FHA Financing
There are a few disadvantages to FHA loans, however:

• Credit must be established
• They are conservative loans; lower loan amounts which means you borrow less
• Strict mortgage insurance guidelines-have to pay private mortgage insurance called PMI
• Are designed for the longer-term home buyer and don’t have the variety that non-FHA loans have
• No down payment loans require borrows to have excellent credit and larger incomes
• Appraisal guidelines may be stringent
• Because FHA is backed by the US Government, it may take longer to process the loan as opposed to conventional mortgages

The bottom line is this: if you are looking for a mortgage with a low or no down payment or if your credit is not up-to-par then an FHA loan is most likely the way to go. If you have exceptional credit and a larger down payment, then a conforming loan would not be your best option. Whatever the case may be and most importantly, educate yourself to find out the best program that will suit you. After all, buying a home is the largest and most significant purchase you will make in your lifetime.

Qualifying homeowners whose mortgage lenders agree to participate in the HAMP program can benefit from lower monthly payments that result from a renegotiated lower interest rate as well as a 40 year repayment period.

Eligibility is limited to borrowers who are facing foreclosure on their primary residence, which was financed on or before January 1, 2009 and which has an unpaid principal balance of $729,750. The goal of the modification is to ensure that monthly mortgage payments do not exceed 31% of the borrower’s monthly income, so that any or all of the following steps may be considered when modifying the terms of the loan:

• Reduction of the interest rate to as little as 2%
• Extension of the loan term to 40 years
• Reducing the amount of the principal that must be repaid per month by deferring part of the principal repayment until the loan is paid off – in such cases, interest on the deferred part of the principal can be waived.

Once a homeowner qualifies and the monthly payments are modified, a trial period of three to four months is necessary to ensure that the new monthly payments are indeed kept current. After the successful conclusion of the trial period, the mortgage is permanently modified, and the new monthly payments and terms remain in force until the loan is paid off.

It should be noted that there is no fee to participate in this program, and that the Department of Housing and Urban Development (HUD) provides free loan counseling as a part of the HAMP program, and paying for any type of HAMP related consultation or advice is strongly discouraged. However, the final determination of whether or not a borrower is able to participate rests with the lender, which determines eligibility according to federally issued guidelines and formulas.

Lenders are granted incentives for each HAMP modification that they approve; however, they are under no obligation to approve any application and they do so only in cases where it is clear that the incentives make it worthwhile for them not to proceed with foreclosure. The decision of whether or not to approve a HAMP application takes into account not only the ability of the borrower to make the lowered payments on a regular basis, but also the lender’s own interests concerning the property.

In addition to lender incentives for participating in the program, a lender receives additional incentives for the first three years so long as the borrower makes timely monthly payments. The borrower also receives the same incentives of one thousand dollars per year in monthly installments for every mortgage payment made on time during a given year. Even if the borrower has been late on one or more payments, the incentive payments are made for the months in which the payments were made on time so long as the loan remains in good standing.

Separate programs for secondary mortgages, as well as specific programs for borrowers who become delinquent in their mortgage payments as a result of unemployment, are also available under the HAMP program. While the criteria for qualification are very strictly applied, and the lowered payments may still be too high for some borrowers, the HAMP program offers a viable method of staving off foreclosure for borrowers who are able to qualify and to maintain timely payments under this innovative federally guaranteed mortgage relief program.

The best time to refinance your home is when you can refinance your mortgage to take advantage of a lower interest rate that will lower your monthly payments. To determine whether it’s a good time to refinance you will need to do a simple calculation to see how long it will take to recoup the expenses that it will cost you to refinance.

Let’s take a very easy example to see if a person would be better served to refinance their mortgage or not. Our example is a mortgage on a home for $100,000 at 6.00% interest. This person has a mortgage for a term of 30 years. The monthly payment for this mortgage would be $600. For our example, let us say that the person has been living in their home for 5 years, so they have 25 years left on their loan, and they are able to qualify for a new lower interest rate of 4.5% if they refinance their mortgage and move it to a new loan company. The biggest question that this person will need to find out is how much it will cost them to refinance. Just like when this person closed on their original loan there are a lot of fees that must be paid to complete a refinance. There might be origination fees, points, appraisal fees, attorney fees, title insurance, or inspections. All of these fees could add up to thousands of dollars. Let’s pretend that this person’s fees would total $1500.

Our next step is to run the numbers. What we find is that when this person does a refinance their monthly payment lowers by about $133. With this lower monthly payment, this person in our example is able to recoup their costs for the refinance in exactly 12 months. If this person intends to stay in their home for longer than 12 months, they will save money by going through the refinance process. Additionally, if this person stays in their home for the remaining life of their loan, they will save over $12,000 in interest because of the lower interest rate.

Rates are at historic lows right now so it would behoove you to run this exact scenario for the current state of your mortgage if you have one to see what rate you might qualify for, and then to see how long it will take you to recoup the cost that you will pay for your refinance. If you plan to stay in your home longer than it would take you to recoup the cost of the refinance, then it is generally a wise decision to go through with the refinance. These steps will help you make the best decision for your situation!

In 1938, in response to the Great Depression encompassing the entire country, US President Franklin Delano Roosevelt and the US Congress created Fannie Mae in order to make available federal money to local banks for the financing of home mortgages. The goal was to increase both home ownership in the US and the supply of affordable housing. Fannie Mae buys bank mortgages, in essence creating a liquid secondary market for mortgages. Loan originators can then originate more loans.

In 1954, an amendment to the Federal National Mortgage Association Charter Act turned Fannie Mae into a mixed-ownership corporation which meant that private individuals could own common stock of Fannie Mae. The federal government retained the preferred stock.

in 1968, Fannie Mae was completely converted into a private corporation so that Fannie Mae funds would no longer appear in the federal budget. Fannie Mae was split in two entities, one still called the Federal National Mortgage Association (or Fannie Mae), while the other was called the Government National Mortgage Association, or Ginnie Mae. Ginnie Mae remained a government organization, buying and supporting insured mortgages of the Veterans Administration and Farmers Home Administration, with the complete financial backing of the US government.

In 1970, the federal government gave authorization to Fannie Mae to allow the corporation to buy private mortgages not insured by the federal government. At the same time, the federal government created the Federal Home Loan Mortgage Corporation, called Freddie Mac, as competition with Fannie Mae, in order to build a more efficient and robust secondary mortgage market.

The way in which Fannie Mae works is that the corporation buys mortgages from approved mortgage sellers. Fannie Mae’s form of payment can be either cash, or a mortgage-backed security that promises timely payments of principal and interest. The recipient of that security can keep it, or sell it.

Fannie Mae can also securitize mortgages out of its own portfolio and sell the result to buyers, with the same guarantees of timely payment of principal and interest.

By paying for these mortgages, Fannie Mae gives financial institutions new money with which to originate new loans. Credit and housing markets in the US thereby become more liquid and more flexible, allowing the markets to deal with new financial and business situations more easily.

Fannie Mae sets guidelines for loans that will be accepted by Fannie Mae for purchase — such loans are called “conforming”, while loans that don’t meet the Fannie Mae guidelines are “nonconforming” .

Fannie Mae gets no direct government backing or funding. Securities issued by Fannie Mae have no government guarantee of ever being repaid. Fannie Mae certificates are not an obligation or debt of any part of the United States government. Fannie Mae is the sole issuer of Fannie Mae securities, and is the only guarantor of the certificates, and of payment of principal and interest.