Recent Questions About Mortgage Shopping In My Mailbox
April 18, 2018
“How many price quotes should I get in refinancing my mortgage?"
As many valid quotes as
possible, two or three valid ones help, 10 phony ones are
worthless, or worse. Valid price quotes must meet three
Same Market Timing:
All quotes must be as of the same day, since mortgage
lenders reset their prices every morning. Comparing A’s
price on Monday with B’s price on Tuesday is looking for
Same Transaction Features:
Valid price quotes are based on the same
assumptions regarding the features of your transaction that
affect price. These include the loan amount, property
value, type of property, zip code of property, lock period,
whether or not you are waiving escrow, your FICO score, and
whether you are occupying the house or renting it. And on a
refinance, you must indicate whether or not you are taking
any cash out of the transaction.
If you don’t specify all of these
factors, the lender will probably assume the best so the
price quote will be as low as possible. For example, if your
home is a duplex, which usually commands a higher price, and
you don’t indicate it in soliciting a price quote, the
lender will assume that it is a single-family home because
that commands the lowest price.
Absence of “Low-Balling:”
Even if you specify all relevant
transaction features, some loan officers (LOs) will quote a
price below the price they could actually deliver that day,
a process called “low-balling.” The purpose is to win the
bidding contest with other LOs so that you will come back.
If you do come back, the low-ball
price quote will be explained away either by changes in the
market since the original quote, or by transaction features
that you neglected to mention when you solicited the
original quote. Indeed, low-balling is most likely to occur
with borrowers who request a price quote without specifying
all the relevant transaction features that affect the price.
To obtain prices on my web site,
shoppers must enter all the information that affects
prices – otherwise the prices don’t appear. Prices are shown
for each lender, they are always current, and they are
received directly from each lender’s pricing system,
by-passing the lenders’ LOs.
Is the “Zero
Plus Mortgage” a Good Deal?
“The ”zero plus
mortgage” has no origination, underwriting or processing
fees and gives the borrower a $1,000 closing credit. Will it
save the borrower a bundle, as advertised?”
This question can’t be answered
definitively without knowing the interest rate charged and
all the transaction features that affect the price.
Nonetheless, I am quite confident that the answer is “no”
because this lender is doing nothing more than giving a
special name, and tying a ribbon around, a standard option
that all lenders offer.
To illustrate the point, I
shopped my site for a 30-year fixed-rate loan of $380,000 on
April 14 and was offered 16 combinations of interest rate
and lender fees. These ranged from a fee of $10,485 with a
rate of 3.75% to a credit of $22,325 at a rate of 5.625%.
Within that distribution is another option, consisting of a
rate of 4.375% and a credit of $1709. If I retained that
rate but cut the credit to $1,000 and called it “The
Lender’s Special”, it would have no origination,
underwriting or processing fees, and it would provide a
$1,000 closing credit. But it would be a rip-off rather than
Take a HECM
Reverse Mortgage Now or Wait?
“I am 62 and won’t
need any funds till I stop working at 65. Should I take a
HECM credit line now and sit on it, or would I do better to
wait 3 years and take it then?”
If you take a credit line now and let it sit unused, the line will grow at a rate equal to the mortgage interest rate plus the 0.5% mortgage insurance premium rate. If you wait 3 years, the initial line will be larger because you are 3 years older and (presumably) your house will be worth more. In working the numbers, I found that with an annual house appreciation rate of about 2.5%, it was a wash. If you expect appreciation to exceed 2.5%, you do better by waiting, and vice versa.