Frequently Asked Questions
Why choose Montecinos Group?
Our mission is to serve our customers with honesty, integrity and competence. Our goal is to provide home loans to our clients while providing them with the lowest interest rates and closing costs possible. Furthermore, we pledge to help borrowers overcome roadblocks that can arise while securing a loan.
Is a mortgage broker better than a direct lender?
What’s the difference between a direct lender and a mortgage broker?
This question comes up very commonly and there is a lot of misinformation out there about this subject. Let’s begin with the fundamental difference. A loan officer at a bank is employed as an agent of the bank they are representing. At the end of the day, bank is selling you a product (a mortgage), and paying their sales team a commission. The borrower pays this commission to the loan officer at the bank either by paying higher fees or a higher rate so that the bank can compensate the loan officer for the sale. A broker, on the other hand, is self-employed, or works for a mortgage firm who represents the borrower and is an agent of the borrower. The broker has a fiduciary duty to perform in the borrower’s best interest, not the banks’.
A mortgage broker creates value to the banks and investors by submitting fully compliant loan packages without the investor being required to engage in sales, screening, or processing of their applicants. It lets them do what they do best, is simply provide capital in exchange for monthly interest payments.
There is a misconception, where homeowners may come under the impression that a mortgage broker is a “middle-man” or that somehow a broker must mark-up a consumer’s rate in order to earn a profit. In fact the opposite is true. A broker is almost always compensated by the investor in the form of a yield spread premium.
For example:
Bank of Hometown’s base rate to lend 30 years if no application or processing was required: 2.5%
Bank of Hometown’s rate, when originating the mortgage direct to a consumer: 3% (the difference between the 2.5% and 3% is to earn enough to pay for the origination, commission and processing at the bank)
Bank of Hometown’s rate, when originating through wholesale channels to a licensed broker: 2.5% (the bank will offer the real rate to the broker, because the broker will do not have to handle all the origination and processing)
The broker is able to secure a 2.5% rate commitment on the wholesale channel. With the offer to lend to the broker at 2.5%, the bank will also pay the broker an upfront rebate or other compensation for any rate above the 2.5% wholesale rate. The broker can mark up his wholesale rate of 2.5% by .25% to earn a big enough rebate to pay for expenses and make a profit, thereby delivering a 2.75% rate to the consumer at .25% less than the 3% the investor would be willing to offer had they been required to handle all originating and processing activities.
The difference, .25% to the rate,is about 100bps worth of credit given back to the consumer, who saves approximately $4,000 in an upfront credit towards any settlement costs, or $19,242 over the course of a 30 year loan on a $400,000 loan amount.
How do I compare mortgage offers?
Comparing multiple mortgage offers for a home loan is a challenge you will face when refinancing your home.
If you are looking at multiple offers for the lowest mortgage rate, Here is what you need to know:
- Obtain a Loan Estimate (LE).It’s a three page document required by law to be sent to you within 3 days of your application date. This document will outline your interest rate, payment and all fees associated with the acquisition of the loan.
- Look specifically at these line items: D and J.“D” is your total cost to obtain the loan without any prepaid items and “J” is any credit being issued to you.Ignore the other figures on this document for the purposes of comparing one offer against another. D minus J is the total you are spending in fees to obtain the offered interest rate.
- Use the same rate for all lenders you are comparing.If you are comparing a 4.5% at Lender A, then make sure you are comparing at 4.5% and Lender B and C, then it’s a simple as using D minus J.and finding who is offering the best terms at that given rate.
- Make sure that all the lenders you are comparing are using the same criteria to generate your offer including: credit score, estimated home value, and loan purpose (purchase/refi/cash out).
If you are still having trouble, and if you are speaking to multiple lenders, try to determine who really has your best interest in mind and ask them to help you compare your offers.
How do I get the lowest rate?
Every mortgage company under sun claims to have the lowest rates. But who really has the lowest rates? It’s hard to tell with all the clever ads and fast talking salespeople, but I will break down how it really works in this quick article:
Here’s how it usually ranks: in order from highest rates to lowest rates:
1. Big banks (Bank of America, Wells Fargo etc)
2. Mortgage Servicing Companies (Mr. Cooper, etc)
3. Direct Lenders/Retail (Quicken Loans, loanDepot, American Financial Network etc)
4. Credit Unions (Navy Federal, Schools First etc)
5. Mortgage Brokers/Wholesale Brokers
There are several reasons why the big banks and retail direct lenders charge more:
1. Familiarity/Comfort – Big banks can get away with charging more because some people will always just feel more comfortable doing business in the bank branch atmosphere.On top of them being aware that they can charge more for this service, they also need to charge more to cover the large infrastructure expenses associated with running a nationwide brick and mortar operation.
2. Psychological impression – Mortgage servicing companies charge a premium because most consumers believe that they will get a better deal because they are staying with their existing company.The truth is that the company you are currently making your mortgage payment to is most likely a collection company who is working on behalf of the actual holder of your mortgage which is usually Fannie Mae, Freddie Mac, or Ginnie Mae. In fact, I worked at a mortgage servicing company who I won’t mention here and I was floored when I learned that we were given two rate sheets. One for our existing customers and another rate sheet for new customers who management considered more likely to shop around (a full .25%-.375% higher rate).
3. Name recognition – Large direct lenders spend millions of dollars every month to build up a brand name for themselves including expensive television ads, online campaigns, even going as far as to purchase entire sports arenas to build brand awareness.In addition to this, they run very inefficient operations with low skill level staff which racks high training and attrition costs.They need to make up for this by charging very high margins to pay for these expenses putting their rates significantly higher than the wholesale rates that are available to savvy rate shoppers.
How to compare your offers to ensure you are getting the best deal:
- Obtain a Loan Estimate (LE).It’s a three page document required to be sent to you within 3 days of your application date.
- Look specifically at these line items: D and J.“D” is your total cost to obtain the loan without any prepaid items and “J” is any credit being issued to you.Ignore the other figures on this document for the purposes of comparing one offer against another. D minus J is the total you are spending in fees to obtain the offered interest rate.
- Use the same rate for all lenders you are comparing.If you are comparing a 4.5% at Lender A, then make sure you are comparing at 4.5% and Lender B and C, then it’s a simple as using D minus J.and finding who is offering the best terms at that given rate.
- Make sure that all the lenders you are comparing are using the same criteria to generate your offer including: credit score, estimated home value, and loan purpose (purchase/refi/cash out).
What if my appraisal is low?
Are you worried about receiving a low appraisal or have you already received a low appraisal than your accepted offer? This article is for you.
Although the home-buying process has its own ups and downs, unquestionably the most nerve-wracking moment is when the appraisal ensuring that the appraisal doesn’t come in significantly lower than your expectations or the accepted offer.
Don’t worry, we have some solutions for you. Although it’s tough to remain calm in this situation, especially when the deal appears to be falling apart. We recommend that you should stay calm and make reasonable choices that could assist you to close the deal, successfully.
Why Do Low Valuations Happen?
According to recent Realtor Confidence index survey by the National Association of Realtors (NAR), 42 percent of the respondents faced the appraisal issues during January-March 2018.
Diane Saatchi, a seasoned real estate guru, explains that “In a rising market, low appraisals are common because the appraisals are based on sales that closed when the prices were lower”.
There are other factors that could lead to a low house appraisal. For instance
- Incorrect evaluation by the inexperienced appraiser
- Declining market value due to a low buyer interest in certain neighborhoods
- Overpricing by the seller
- Appraiser overlooked the pending sales data or relied upon data of incomparable sales.
- There are no acceptable comparables that can be used to justify your purchase price
How Does A Low Appraisal Can Change My Loan Options?
When you are buying a home, your lender can issue you a loan on the lower of either your accepted bid or the appraisal value. For instance, you have negotiated a price of $500,000 for a home in a competitive market and applied for loan equivalent to 80 percent of the property price. And you have planned to have 20% as a down payment (that you already have). When the lender’s appraisal comes back, it shows the value of the home is $450,000.
As the appraisal is significantly lower than the negotiated price, therefore, your panic is justified. You must now arrange another $50,000 to close the deal, or the deal will fall apart.
Solutions
Although a low real estate appraisal is discouraging, however, it does not have to be a deal breaker.
Makeup the difference in cash, if you can afford that
A low appraisal does not mean that lender will not issue the funds, as the lender only cares about the appraisal to the extent it affects the loan-to-value ratio. For instance, it means that the lender will only issue a loan at the appraised value. Therefore, you can pay the remaining amount, if you can arrange it.
Renegotiate the agreement
If there are only a few buyers in the market, and the interest in the property is low, the seller may agree to lower the price. This is a solution where everyone benefits (i.e. both seller and buyer are happy).
Peter Grabel, a mortgage expert, adding that “you might go back to the seller and ask them to reduce the price. Although they are under no obligation to do so, they might be willing to cooperate because they don’t want to lose you as a buyer as they don’t have any other offers for the property”.
Although, the seller might be upset about the low appraisal, most reasonable sellers eventually come to terms knowing the fact the most future buyers will come in at the same value. The following adage explains the point “Sometimes a bird in the hand is best”.
Appeal the appraisal
Also known as the “rebuttal of value”, this solution requires some teamwork. For instance, the homeowner, buyer, and mortgage officers must work together to find the comparable market value data that the appraiser might have missed.
Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage”, argues that “it is possible that the appraiser overlooked some important data (for instance, homes similar in location, square foot, and style). The appeal team can provide this data to the appraiser to justify their higher valuation”.
This appeal might include the price of recent listing collected from the listing agents to show that the recent price hike in the area. There is a chance that the appraiser might change his valuation, however, it is a hard battle to fight.
Order a Second Appraisal
If you have applied for a Federal Housing Authority (FHA) loan, ask your lender to provide a list of FHA-approved appraisers. In some cases, there is a possibility of a second appraisal. Either the buyer or the seller can pay for the second appraisal that can often range in between a few hundred to a thousand dollars. Sometimes, the second appraisal may offer a higher valuation, especially, if the first appraiser was inexperienced or made mistakes while evaluating the housing data.
If your loan is a conventional loan, then it is subject to the rules of the Home Valuation Code of Conduct (HVCC). Under these terms, you are eligible to demand a local appraiser if you find out that that the lender hired an appraiser who is not familiar with the local market.
Apply for mortgage insurance
If any of the solutions above, do not work and you still want the property, you can apply for a mortgage insurance. However, if this option is selected you will have to pay a mortgage insurance premium for the mortgage period. That is, your monthly payment will consist of the mortgage payment, mortgage insurance, property tax and property insurance.
Concluding thoughts
If the appraisal is not according to the negotiated agreement, you can always cancel the deal. However, there are a few options, if you really want to buy the property. If the appraisal is conducted by the non-FHA-approved appraiser, the seller has the option to relist the property in the market and may be able to sell it for the listed price. Still, most reasonable sellers will eventually come to terms knowing the fact the most future buyers will come in at the same value.
What will my payment be?
This all varies on a few details. Use the mortgage calculator to get a general idea.
Mortgage Calculator
