Question by ButSiriuslyFolks: Refinancing Through Mortgage Company?
I’m looking into refinancing our house plus some extra to take care of some credit card debt. We really need to eliminate it, and while most of the banks I’ve talked to would barely lower my present rate of 7.3%, I talked to a “mortgage company” that offered me 6% straight.
I really need this refinance, but don’t want to end up in foreclosure because I don’t have the foresight to sense issues with this. It is relatively reputable…a family business in town for 20 years (not a fly-by-night), but what do I need to watch out for? What do I need to put in the agreement to make sure I don’t get screwed with one late payment or something. Can I make sure my loan doesn’t get sold to an outside source?
Help me out, please!
Answer by Matt K
Mortgage companies are usually just brokers. Deal directly with the banks for more secure deals. Banks are regulated by the Federal government – brokers are barely overseen by state examiners.
Know better? Leave your own answer in the comments!
I disagree with the person that says go with a bank. A bank can only offer you their own programs, you don’t get the options a broker can offer. Beware of rates that seem to good to be true…. a fair rate and a cheap rate are not the same ……take a look at the yahoo finance section and read about refinancing. Loan To Value, Debt to Income and Credit score are the determining factors on what lenders will offer you. 😛
Here’s what should determine your situation:
The Five C’s of Lending
Character – The member’s integrity, trustworthiness and quality references.
Capacity – The ability to repay the loan.
Collateral – The security or property pledged against the loan.
Credit – The member’s payment history.
Capital – The member’s net worth or the personal dollars invested.
You need to do more than “just talk” to a mortgage lender in order for anyone to quote you a rate for a mortgage. You need to apply, submit all necessary documentation, have the file underwritten, receive stipulations from the underwriting department AND actually “LOCK” the loan for a specified period in order to be assured the rate, term etc…, then once you recieve a FINAL GFE (Good Faith Estimate) 3 days prior to closing, you can make the most informed decision regarding the refinancing of your home. As for your outside source remark, most lenders ARE NOT portfolio lenders and will at some point sell your paper. Hope this helps.
What you need to consider is how much you are saving by paying off your credit card debit. If you are saving money each month, than it is to your advantace to refinance. You can clain the mortgage interest you pay going long form at tax time.
Talk with a bank/broker, a bank/broker underwrites for the bank side, and if they can’t do it, than the loan is submitted to a outside lender. For instance, I look at rates, and choose the best rate possible for my clients, before locking in the rate. (I have 100 outside companies that I can submit to) so I only have to pull credit 1 time, and they look at my credit. A single lender (not a broker) has programs available, but they may not be able to help you and your situation, so you go elsewhere, and than that person pulls your credit (see what I mean.) If you shop, your credit is pulled and that is considered a soft pull, for a 30 day period. Just like shopping for a auto, it is good for 30 days. If you apply for a credit card, that is considered a “hard” pull and it drags down your credit score. When looking to purchase a home &/or refinancing, please do not apply for a credit card, Department Charge Card, Gasoline Card or make any major purchases, like a auto, etc. This will pull your credit down.
Try to find someone (broker) that will pull your credit one time, and submit your loan application to company’s that will go off his credit report. By the way, a loan application is called a 1003, and they will issue you a GFE (Good Faith estimate, with in 3 days, that is per the RESPA laws, and the TIL (Truth in Lending). This will tell you the up-front closing cost (etc) associated with your loan. This is a estimate only – not the final – but it does help you figure things out. With the many changes with lenders today, companies will want you to escrow you taxes and insurance if the LTV (loan -to -value) is over 80 percent of the appraised value.. FHA requires it. Conforming side, will charge a .25 to the interest rate if you want a escrow waver… Good Luck.
If you have decent credit and equity built up, 6% is a realistic number for a 30 year fixed rate. Just make sure you read the loan documentation carefully.
Ask a lot of questions and pay attention to the answers. Ask straight out, Is this loan fixed for life, or will it adjust someday. I’d bet it’s probably a fixed rate they are offering you, since most banks these days have severely cut back on the ARMs they are offering. The smart money is in FHA and Fannie right now, and most of the business here is fixed rates.
As far as your other questions:
Loan terms generally don’t change if you miss payments, they aren’t like credit cards. If this is a fixed rate, the rate won’t change because you miss a payment.
There’s not much you can do to prevent a loan from getting sold, especially if it’s done through a broker. It’s standard practice these days, and the only thing that changes is the address the checks go to. The loan terms can not change because the loan was transfered.
I would also recommend getting quotes from 1 or 2 other agencies. If you want to post your specifics here (credit score, income, equity, etc…) I can better answer your questions.
And for the person who said brokers are better then banks. This may have been true last year, but many of the major banks have completely cut out their wholesale divisions. The fact is, you don’t have access to all the loan programs you used to, and a mortgage bank that does correspondent lending will usually have more programs available then the average broker. You just need to find an LO who actually knows what they are doing and is a professional, not just some kid that recently got into the business and doesn’t know how to do any more then read a rate sheet. Go to ml-implode.com and check out all the major banks that have cut out their broker business completely. The banks are trying to push the brokers out of the industry. Broker originated loans statistically perform much worse then bank originated loans, and the banks and investors know this. I’m not saying all or even most brokers are bad, but the small percentage that are really ruin it for the rest of you.