Spokane Real Estate Voice: January 2010

WHAT IS MORTGAGE APR, Can You Explain It?

APR Demystified and APR Predators Exposed

First, lets demystify Annual Percentage Rate (APR).

Mortgage APR was designed to allow consumers to use one standardized number to compare each lender's rate for the same type of loan while rate shopping.  It is supposed to represent the borrower's cost and it works like this.

If I lend you, $10,000  and, I charge a $500 Bump-ta-Bump Fee, you will actually receive $9,500, however you must still repay me $10,000.  Mortgage APR is my real yield and your real cost on this loan.

We agreed that you will repay the loan at 8% interest on $10,000, HOWEVER you only received $9,500 therefore I will earn more than the 8.0% interest rate I charge on $10,000.  In this case, my yield (APR) is 9.799% on the $9,500 you received.   

APR is the lender's yield on dollars actually lent ($10,000 minus $500 = $9,500); in this case, the lender's yield (APR) on $9,500 is 9.799%   (APR is computed as if the above example is a 30 year loan)

The $9,500 also represents the Amount Financed in the Truth In Lending (TIL) disclosure. 

For those of you who use spreadsheets the Rate Function will find APR.  Use the Amount Financed for Loan Amount and use the monthly payment on the actual loan amount.

Fees that must be subtracted from a mortgage loan to properly calculate Amount Financed for APR

Origination and Discount Points

Processing and Lender Fees

Pre-Paid Interest (Use 15 days when closing date is unknown)

Monthly Mortgage Insurance must be added to the payment of all FHA loans and Conventional loans greater than 80% loan to value. 

The inclusion of Mi or MIP accounts for the large spread between Rate and APR on loans with mortgage insurance.

NOTES:  Fees Not used in APR calculation; third party fees such as appraisal and credit.  APR can only be compared on loans of the same type and amortization period

How Do APR Predators Work?

Many sophisticated borrowers shop interest rates by searching for lowest APR which, if property stated, is a valid way to compare similar loans.  Unfortunately, APR is not always stated properly.

How is advertised Mortgage APR is misstated? 

• Prepaid Interest is not included - most common deception and true on all online Rate sites   i.e.: Bankrate.com, Interest.com, Mortgage101.com, ShopRate.com, etc.
• Prepaid Interest is understated - must be 15 days when closing date is unknown.
• MI or MIP is not included in the APR on any online rate sites, Bankrate etc.
• Some lenders do not include MI or MIP on their web sites such as Amerisave.com 
• Lender fees are either understated or not included in the APR calculation.  This is a tricky one because No or Low Lender Fees does not necessarily indicate a predatory lender.  Some lenders charge a higher rate and no points or fees for their so called "Zero Cost" loan.  However, the "Zero Cost" rate will always be higher than a rate with points and/or fees. 
• Notes to the above: 
  • there is no such thing as a Zero Cost loan and some states prohibit lenders from advertising Zero Cost Loans.
  • The spread between Rate and APR on loans greater than 90% LTV should be at least 0.700%.  When it is not... you are being scammed

Rate - Points - Fees are all interdependent

The best way I can explain this is show various Rate - Point - Fee combinations where the lender is making the same gross profit on each combination. 

In the examples below, we will use a $200,000 loan amount and Lender gross profit of $1,000, on a day when the Lender's cost for a 5.000% rate is par (0 point).

Best Rate:  $1,000 Lender profit in various combinations of points and fees

Rate	Fees	Points	APR	Profit
5.000%	$1,000	0	5.044%	$1,000
5.000%	$500	0.250	5.044%	$1,000
5.000%	$0	0.500	5.044%	$1,000

Lowest Fees:
You pay $0 points and fees and Lender's investor pays the lender $1,000 for the higher rate.  

Rate	Fees	Points	APR	Profit
5.125%	$0	0	5.125%	$1,000

The point here is that lenders design their loans to provide talking points for their sales staff (loan officers).  They all require a certain profit margin and it is not important the way the loan is structured as long as the closed loan delivers their required profit margin. 

This illustration also points out the value of correctly stated APR as a way of comparing mortgage loans.  For the sake of these illustrations, prepaid interest was not used.  If 15 days PP was calculated it would have increased each APR by 0.019%.

Education is Consumer's Only Real Protection. 
Listed below are some educational articles.

• What You Should Know About APR
• How To Shop for Mortgage Rates.
• Beware of Misleading Lender Advertising
• Education is the best consumer protection
• Rates and Point Relationship Explained

Bill Ladewig

800.664.7283 (SAVE)

Bill@YourFhaGuru.com

Website

 

 

 

Bill Ladewig is a Mortgage Broker Licensed by the California Department of Real Estate 00968137

San Diego FHA and VA Home Loans Escondido Mortgages Escondido Localism San Diego FHA and VA Home Loans San Diego Localism San Diego UFMIP Escondido Mortgages Escondido Localism San Diego Mortgage

One of my good friends, Gilbert Sauceda, runs a local company called the Color Factory.  They specialize in logo design and t-shirt printing, along with signage and branding. 

Gilbert's company is working in conjunction with HELP (Help End Local Poverty) to provide t-shirts at their material cost (i.e. no profit) to benefit Haiti in the wake of the recent earthquake.  All proceeds will be going to help. 

I've been looking for ways to help ever since this tragedy occurred last week.  I'm hoping to leverage my following to get exposure for this project.  They are offering 1,000 shirts for sale as part of this initiative. 

I was impressed that they are doing something tangible to help.  The shirts appear to be very nice, and you can see them here:

http://www.helpendlocalpoverty.bigcartel.com/

At a cost of $25, please consider purchasing a shirt so that additional funds can be directed to Haiti.  HELP is a solid, legitimate organization.  Please help spread the word!

 

If you enjoyed this post, why not connect with me elsewhere?

                 

If you're looking for a home in the Austin area, you can visit my primary Austin real estate website at www.austintexashomes.com.  Thanks!

                                                                                                                                                        

Working as a Massachusetts Realtor for the past twenty four years, I have seen just about everything. For Gods sake when I started in the business we carried around a huge MLS book with all the listings that was almost as heavy as an encyclopedia. There was no Internet back then.

In fact in the mid 1980's we did not even have the modern convenience of a fax machine for a while. Back then when you needed something signed you had to hand deliver it! In many respects things are a lot easier today.

While there have been quite a few changes over the years in the Real Estate business, the one thing that continues to amaze me is how consumers go about picking a Realtor to represent them in the sale of their home.

I am going to bet that most top producing Realtors that are interviewed probably get the listing somewhere between 85-90% of the time. What about the other 10-15%? How many times have you done a presentation for someone selling their home and you did not get the listing?

While monitoring the daily updates for new properties hitting the market you notice the home which you interviewed for has just been added to MLS. You check to see who has listed the property and your immediate reaction is ....WTF??? Sorry to be so braizen but it's true!

If you are a Realtor reading this article you can probably empathize with me.

You look at the Realtors name and you either have never heard of the person before or you know they don't do a lick of business.

Just to torture yourself a little further you check out the listing and see the following:

• There are only a couple of pictures of the house posted in MLS.

• The quality of the photo's absolutely SUCKS. It is obvious to you
  the agent picked up a disposable Kodak camera on the way to take pictures.

• You read the description of the property and there is barely anything of value. It clearly looks like the agent didn't care and just
  wrote anything to fill the space. Of course there is also either bad
  grammar, spelling mistakes, or the use of abbreviations that buyers have no clue what they stand for.

 

At this point you may have steam coming out your ears but you decide to go to Google the agents name. Clearly you are expecting to see at least a website the agent owns that markets their listings to potential buyers. NOPE...you see nothing...ZIPPO.

You don't even bother but you know if you head over to some of the most visited Real Estate sites on the internet like Realtor.com, Zillow.com or Trulia.com, the agent will not have done anything to "enhance" the listing by adding extra photos and having detailed descriptions showing off all the best features of your home.

This is what happens in the 1st week of your relationship with the Realtor you just chose because they either did one of the following:

1.) Lied to you about the value of your home and you believed them.

2.) They charged you 1/2 percent less on the commission everyone else was quoting you. You think you saved money but you just cost yourself BIG TIME because you always get what you pay for in life.

 

You see a REAL good Realtor doesn't need to do these things to win business. A true professional goes the extra mile in everything they do. They have a passion for their work and it shows.

So if you are going to be selling your home and meeting with a Real Estate agent you better ask good Realtor interview questions. Don't get stuck with the Realtor clown above! Do your home work. I can almost guarantee you things are going to get worse from here.

I think most would agree having a burger from a steakhouse is better than McDonald's. It works the same way picking a Realtor as well. ____________________________________________________________________________________________________

About the Author: The above Real Estate information on is your Realtor a clown in disguise was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356.

Have a home to sell in Metrowest Mass? I have a passion for Real Estate and love to share my marketing expertise!

For Metrowest Massachusetts Real Estate and homes see Massachusetts Real Estate. Want to have MLS access to beat other buyers to your dream home? Sign up with no obligation at my MLS Property Finder Site.

I service the following towns in and around Metrowest Massachusetts: Hopkinton, Milford, Upton, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Grafton, Northbridge, Uxbridge, Franklin, Douglas, and Framingham MA.

Click here to view Bill Gassett's Real Estate profile.

 

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Building lasting relationships by helping people move in and out of Metrowest Massachusetts for the last 24 years.

The Importance of Pricing Your Home Right THE FIRST TIME!

One of the cardinal sins that many sellers make is overpricing their home. Let's look at what will happen if you overprice your home:

1. Buyers will not even see your home!  Many people say that we are currently in a "buyer's market."  All that really means is that there is an oversupply of homes and there are more sellers than buyers in the marketplace. Since buyers have more choices, they are generally going to look at lower priced homes first.

2. Real estate agents will use your home to sell their clients another home!  Here's how this works. An agent will say to his client, "Mr. and Mrs. Buyer, you see this home for $499,000 ... well you can buy this other comparable home two blocks over for $479,000 ... let's go look at that one and buy it!"

3. You will end up chasing the market!  In most areas, the real estate market is flat or depreciating. As more inventory comes onto the market, prices decrease.  If you overpriced your home and need to do a price reduction, you will now be in "chase mode" and have to do a large reduction to attract interest. This is not a good position to be in.

4. Your home will sell for less than it would have had you priced it right from the beginning!  There are many reasons for this.  The main one is that the optimum time to sell a home is in the first 21 days on the market.  After that, and especially after the first few months, buyers begin to wonder why the home hasn't sold and tend to make lower offers.  You will also have to start reducing the price of the home to attract interest.  A recent report found that homes with price reductions sell for an 11% discount.  That's a lot of money!

5. You will get very frustrated!  Let's face it ... keeping a home in great "showing" condition and having strangers tour your property all of the time is emotionally taxing and time consuming. The longer you have to do it without actually selling the property, the more frustrated you will become.  Ultimately selling your home for less than you planned will only serve to further aggravate the situation.

As you can see, it is critically important to price your home right the first time, in order to sell quickly and for top market price.

Are you thinking of moving or would just like to talk real estate?  Call me or e-mail me for a complimentary real estate consultation, including a market analysis of your home.

-- Danny

 

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© Boulevard Realty 2010. All Rights Reserved.

About the Author: DANIEL DIMA BATSALKIN is the Principal Broker and CEO of Boulevard Realty, a full service real estate brokerage serving the discerning needs of clientele throughout Los Angeles, California.  Mr. Batsalkin specializes in representing sellers and buyers of residential real estate in Los Angeles, Beverly Hills, Brentwood, Bel Air, Santa Monica, Sherman Oaks, Valley Village, Studio City, Encino, Tarzana, Calabasas, the South Bay and other Los Angeles communities. Capitalizing on a background practicing real estate law, Mr. Batsalkin provides clients with a strong level of comfort due to his extensive knowledge of real estate contracts, powerful negotiation skills and use of the latest technologies

Mr. Batsalkin may be reached directly at 310.933.4281 or via e-mail.  

Visit Boulevard Realty on the web at www.blvdrealty.com for real estate information and to view all available Los Angeles homes for sale.

Visit the Boulevard Realty Los Angeles Real Estate Blog.

 

 

FHA Loan rumors now become a reality – So what happened?

 

Wow... I just talked about some rumors that have been floating around for months about FHA loans. Let me make something clear. They are rumors to me until they are officially stated through HUD/FHA. And on that note, they are also rumors when you read blogs that actually state that they happened already, when it was still in discussion. Here is what I said yesterday.

FHA Loans Rumor Alerts - 3% seller concessions & FICO scores - Part 1 of 2

In our ever changing world of mortgages in the last several years, FHA made a few changes that were announced today, but there is no concern to panic, at least in my opinion. You can read it directly on HUD's web site.

FHA Announces Policy Changes to Address Risk and Strengthen Finances

 

 

 

 

*** The FHA Loan changes as of January 20, 2010 ***

 

So what are some of the major changes or possible changes in the near future and what impact could they have on the average homebuyer? (4 changes below)

 

• FHA Upfront Mortgage Insurance Premium - Known as UFMIP - This is what gets added to your loan amount after your down payment is subtracted from your purchase price or your base loan amount of what you are refinancing. The old amount was 1.75% for purchases and refinances and 1.50% for all FHA streamline refinances. It will now be raised to 2.25%. HUD is also requesting that Congress increase the annual premium, which is your monthly mortgage insurance. Currently it is .55% and .50%, depending on your LTV position. This change will not take place until the spring. (more on this below)

Example of the UPMIP change - Sure, it will hurt some, but that extra 1/2% on the total does not change the payment as much as you think it does. On a $300,000 loan, you are talking about an additional $1,500. This equates to an additional $8 per month.- Not much to disqualify someone, depending on how high their debt-to-income ratio was initially pushed.

 

• FHA credit score and downpayment changes - As mentioned yesterday, FHA mortgages never had a FICO score (credit score) number. It still doesn't and here is where the rumors went wrong.  FHA has raised their credit score requirement for 3.5% downpayments to 580. Previously, you needed to have a credit score of 500 or higher. I will talk about this difference in change tomorrow in Part 2. This change will not take place until early summer.
  

• Reduction in allowable seller concession from 6% to 3% seller help -  Just basic mathematics... the buyer won't be able to get more than 3% from the seller to pay for their closing costs and pre-paids. This change will not take place until early summer.

 

• More awareness of FHA lenders perfromances - Basically giving the public more information and more access to this information. This can be found in # 4 under the new policy changes. New FHA policy changes

 

 

 

 

So why the changes and what do they do to you, the borrower?

 

As many of you know, HUD has been suffering major losses within their mortgage insurance pool. HUD just insures these loans. This is the money that is collected from the UPMIP and the annual monthly mortgage insurance (MMI). Here is some food for thought. HUD states this. "This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing."

 

FHA gets the Upfront Mortgage Insurance Premium (UPMIP) from the lender very quickly after the loan closes. This is upfront cash. But they want to shift some of this weight to the monthly mortgage insurance, claiming that it will reduce the total monies to the borrower. It is hard to argue this until we know what number they want to increase the monthly fee to. Once I know what the new percentage is, I will write a blog in regards to this shift to the MMI that in my opinion is smoke and mirrors. I will explain more in that blog.

 

Why change the credit scores to include a higher downpayment if you have a score below 580?  This basically allows FHA to balance its risk, yet still give anyone the chance to obtain a FHA mortgage. But keep in mind, they would need 10% down. I will be talking about this in part 2, giving you a better understanding of how hard these types of loans will be to obtain and why.

 

Lastly, lowering the seller concession from 6% to 3%. This has been a long standing discussion that appraisal values were raised to cover the additional expenses to the borrower, allowing the seller to pay for them. This effort also tries to keep those agreement of sale contracts from changing to a higher purchase price, just to cover such costs as mentioned above.

 

 

Keep in mind, there will be a new FHA mortgagee letter that will be out officially tomorrow, giving more detail.....and that this is not 100% official until the mortgagee letter is published. And as mentioned, the next step for HUD is to get congress to act on increasing the annual monthly mortgage insurance, which is known as MMI.

 

 

 

Important Reminder – be very careful of what articles you read about FHA loans. Several articles came out late yesterday, before HUD posted their own information. I have already read one article that was missing 1 of the 4 changes. And one article was giving bad opinion and advice, in my opinion, based on their lack of knowledge and experience in the mortgage industry. Keep in mind, they are just journalists trying to get some sort of news to the public as soon as. The new mortgagee letter will be out tomorrow. – 1/21/10

 

 

FHA Loans Rumor Alerts - 3% seller concessions & FICO scores - Part 1 of 2

FHA Loans Rumor Alerts - You don't need 10% or 20% down & more about credit scores - Part 2 of 2

 

 

 

 

                    

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For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc