Georgia FHA Home Loans - (& Opinion)

Yesterday I had a customer who is an engineer at one of the largest cable companies in the world tell me he was feeling pressured from me to get his mortgage loan origination agreement so I could lock his rate. Just as I read his email a man was in my office to pick up my son's XBox360 and that man is a career firefighter. He overheard part of the conversation and looked at me questioningly. I said, "every job has details other people have no idea about. People have no idea what you do when you are not fighting a fire and only think they know what you do while you are fighting a fire."

The moving parts of your job are a mystery to me unless you are in my industry. For example I really have no idea what the producer of a news show does. Oh, I (like some of you), may think I know what one does but all we can picture are just imaginary glimpses of what a news show producer may do. Part of the challenge is that most of us believe we know everything we need to know about other people's jobs to critic them or make demands of them which are up to unreasonable. This article aims to help the layman and real estate agent understand the importance, urgency and risk involved in locking an interest rate.

Rate sheets can be quite complex. For loan officers who work for a servicing lender there usually is only one rate sheet with which to become familiar. Even that one sheet has changes often multiple times per day. For smaller lenders, like my Novation Mortgage, we depend on the investors (lenders) we sell to for providing our rate sheets. Since we sell to multiple investors we monitor multiple rate sheets. Part of our job is to advise our applicants on which rates are available, what type of loan they are associated with and when those rates are at best value and may change.

I will admit the average loan officer has no clue what affects rates nor when they may be in danger of moving. Generally the order takers at the bigger lenders don't even care whether rates are about to go up or down - they just read what's on the screen. That makes it even more important for the borrower to have a good understanding of what affects rates and what it means to lock a rate. It also makes good sense to work with a loan officer who works for a small broker or small lender because they are usually much more involved in rate changes and what affects them.

The definition, pure and simple, of locking the rate is to reserve the amount of funds for the loan at the specified interest rate. While that sounds simple it's actually quite complex, carries a cost to the lender and presents a fair deal of work to the secondary marketing department. Hello - who are these new people? Secondary marketing department? That's a whole new department where you may find a real loss mitigator working next to the lock desk, the post closing auditor and the secondary marketer. It's where your actual rate is determined.

What actually happens is the amount of the loan (the amount the customer is borrowing) is taken out of the warehouse line or funding pool. It is, in essence, borrowed from the investment pool until the loan closes. So if you were the lender and your friend wanted to borrow $100,000 from you you would go to the bank and borrow that money at interest rate (A) and lend it to your friend at interest rate (B) - that's called the spread. Now, if you borrow that money at 4.5% on April 10th and your friend needs it on April 30th you are actually paying the interest on that loan until your friend actually borrows the money on the 30th.

Why did you not wait until the 30th to borrow the money to loan to your friend? You could have - but you knew that the interest rate was 4.5% on the 10th - you also knew, or had reason to believe, the rate would go up before the 30th. You locked the loan on the 10th to get your friend the best rate.

What if your friend changed their mind after you locked the rate (borrowed the money to fund their loan)? You would still have done all the paperwork to take that money off your line and you would still pay the interest for the time you had the money off your line. So does the lender. Loans that don't close can cost the lender hundreds or thousands of dollars just like it would you as an individual.

I hope this helps you understand the seriousness of locking a loan rate and what it means to the lender - whether they are small or large - can you imagine what losing a loan after locking the rate means to small lenders? Just another reason we don't like to commit to early and why we take it a little personal when borrowers change their mind after we have locked the rate. Yes, it's a part of doing business but every loan that withdraws or falls out after locking just adds to the overall cost of doing loans for people who are serious about borrowing.

By the way - I locked the guy's rate at a very low number. I have seen this before ... he will goof around trying to beat my very low pricing. By the time he calls me back he won't be able to get that rate anymore because it will have expired. If you're not dealing with a true mortgage professional from your local market area you are very likely making a mistake. Don't make the mistake of automatically jumping for the loan officer who calls you or sends you an email without checking with a true local professional.

Novation Mortgage is in Metropolitan Atlanta Georgia and we provide FHA, VA and conventional (Fannie Mae and Freddie Mac) funding for our neighbors since 2001. Call me directly at 678-946-0101

Chances are if you are a homeowner with an FHA loan in Georgia you have been contacted, solicited, hammered ... by out of state lenders offering you the opportunity to "refinance and close in a week with no closing costs and no appraisal". We've seen those quotes - here is a guideline for you to use to comparison shopping.

Credit Scores

You will be told, have been told and will read "FHA has no credit score requirements". Let me add - FHA does not lend money, they insure a portion of the loan. The lenders have credit score requirements. Currently the lowest I know of from any mortgage investor (the people who actually pony up the money) is 580. As a more general rule, however, a minimum middle score of 620 will be required.

Down Payment

I actually saw someone recently who proclaims to be an "FHA expert" advertising "100% Financing with FHA". This is deceiving - under the new rules FHA requires a down payment of 3.5% of the loan amount from the borrower.

Down Payment Assistance

You have erroneously read and heard there is no down payment assistance: false. What was eliminated in late 2008 was seller funded down payment assistance (and this is still figthing a weak fight in the House and Senate). Down Payment Assistance is still available from recognized non-profits such as local housing authorities and local and state government agencies. In Georgia we have the Georgia Dream Program. Down payment assistance is also still available from linear family members (parents or children) and employers. In fact your linear family member or employer can lend you the money and place a lein on your home to help guarantee repayment.

Investors Cannot Use FHA

Almost no real estate investor can purchase investment property using FHA. Obviously there are some gurus out there selling seminars to tell investors they can get an FHA 203(k) rehab loan to purchase properties. Almost completely wrong unless you have a website that ends in .gov or you have already been certified by HUD as a Community Redevelopment Corporation. However, you can use FHA to purchase or refinance your primary residence even if you own investment property.

Loan Origination Fee

When shopping for a loan there are many parts you need not only to compare but to understand. The loan origination fee is charged by the bank, lender or broker accepting the application for an FHA (or any other type) loan. These are expressed in specified dollar amounts or percentage of the loan amount. Compare those dollar for dollar.

Mortgage Broker Fee

Simply include this as a part of the Loan Origination Fee - in other words for comparison when there is an MBF simply add it to the Origination fee for comparison puproses.

All Other Fees

Some banks or brokers have volume pricing from their settlement companies they can pass along to the borrower when the borrower chooses to use that settlement company. For example the regular cost for a closing attorney in Georgia may be $450 but we have a small discount from a large firm to $400 and another smaller firm to $195 ... but compare ALL fees and charges.

Interest Rate

This should go without saying. Banks, lenders and brokers make more money the more they charge and less money the less they charge. If you're getting a quote of 7% from one bank and 6.5% from the broker and all other fees and terms are similar it's kind of easy wisdom who to pick.

Terms

Make sure you are looking at identiacl loans. A 15 year loan is cheaper than a 30 year loan (in interest charges).

Loan Size

Almost every bank will give you the option of paying closing costs out of pocket or from the loan itself. Including closing costs in the loan is not a bad thing but just make sure you are comparing loan amounts. If one lender looks like they are giving you a better deal than another bank look at the loan amounts, too. The one giving the "better deal" may be increaseing your loan amount by a few hundred to a couple of thousand dollars more.

FREE Advice

Let's be honest. I am a mortgage banker and I don't get paid unless I close loans. It is my job to make sure my customers are completely satisfied and fully understand what they are getting. I am painstakingly detailed in my explanations to applicants even when they say, "I don't need you to explain all this stuff." Here is my personal guarantee: I will never stuff you in a loan you do not understand or with which you are not fully comfortable. If you are in the southeast call me at 866-946-0120 extension 101. In the Atlanta area call me at 678-946-0101. For Georgie FHA home loans and Georgia FHA streamline refinances there is no better choice for integrety, performance and concern.

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Be careful when you answer because you may not exactly know the full answer. As an agent it is something you hear and something you learn about in CE classes from time to time but do you know exactly how they are determined? You will in five minutes. Some of you already do so you may be excused to continue Rain surfing but thanks for stopping in! There are also several readers who are not in the industry and really want and need to know this answer!

When you hear "discount" you automatically think of "something for sale which can be purchased for less than the normal price" right? That is exactly what we have come to know and understand as a discount. In the lending industry it is slightly different. There is a price for the discount - in other words the discount is created because the borrower (or seller or loan officer or real estate agent) buys something down from the "retail" price.

Have you ever wondered why some lenders advertise rates for (total examples so chill) 6.5% but one advertises for 5.75% for the "same loan"? Apparently there is some sort of a discount - to the interest rate. How could it be that one lender could offer an interest rate almost a full interest percent lower than all the others? Chances are it requires a "discount" to be purchased to "buy the rate down". This is not always in the borrower's best interest but can be. I really like to use refinance proceeds to "buy the rate down" when it is possible if the borrower (home owner) intends to keep that loan for at least several months before paying it off or refinancing.

Now here's where it gets a little tricky and I would wager that even 60% or more of "loan officers" (even some who are occasionally in the newspaper, on the radio or on TV) do not fully understand. Leave it to me to educate them because maybe, just maybe, it will improve my industry and the economy in some minuscule way for the nation and in some huge way for their next borrower. If I ask how much does it cost to buy down an interest rate one-half of a percent - how do you answer?

Most people, agents and loan officers included, will say .5% of the loan amount - but they would be wrong. Let's do the math that way. Let's say the PAR rate is 5% but you want a 4.5% rate. Now let's say, for math's sake, the loan amount is an even $200,000 and you fully qualify for that loan at that rate. Obviously the rate difference is .5% or 1/2 point. The common thought would be that you would need to pay .5% of the loan amount to buy that rate down. Anyone with a calculator or math brain can quickly deduce you would need to pay $1000 if you need to pay .5% of the loan amount to buy the rate down .5% - you would be incorrect.

Interest rates are established by the amount note buyers (mortgage investors) are willing to pay for a specific loan time at a specific interest rate. To buy the rate down using a discount you need to pay the difference between what the investor is willing to pay for the mortgage at par (5%) and how much they are willing to pay at the discount rate (4.5%).

Mortgage interest rate sheets can be fairly complex. I enjoy letting students see rate sheets for the very first time. I intentionally find the most obfuscated sheets just to prove my point about what makes interest rates so different based on so many qualifying factors.

Pictured is a snapshot from an actual rate sheet from earlier today on a 15 year Freddie Mac loan. We'll be using only the 30 day lock column (maybe I'll address locks later if enough of you ask about them) and we'll be buying the rate down to 4.5% from 5%.

The first thing you will notice is some of the numbers are in parenthesis and red. That is the amount that is rebated back to the loan officer as a commissionable revenue. (This is only divulged at mortgage brokers, mortgage bankers and lenders can hide this from you). On a 30 day lock the rebate amount is .713% of the loan amount ($200,000) so in this case $1426. If you were dealing with me you would have the choice of me getting this as a rebate or you paying it as part of the other fees out of pocket. (More on that later if enough of you ask about it - NOBODY works for free.)

Now, we want to get your rate to 4.5% and let's just say you are paying all your fees up front so I don't need that rebate from the lender anyway. The number in the 30 day lock column where it intersects with 4.5% is how much? Right 1.000 which means exactly 1% of .... the loan amount. So while the actual difference between 5% and 4.5% is .267% it is going to cost you a full 1% to buy your rate down .5% - confused?

Okay, the difference between 5% and 4.5% is determined this way: At 5% there is a .713 rebate but at 4.5% the loan costs (somebody other than the lender) 1% - if we subtract .713 from 1.000 we get .267 which is what the occasional untrained loan officer thinks. The truth is the cost difference between 5% and 4.5% is 1.713% but since you're not paying a retail rate with .713% going to the loan officer the discount costs you only the rate buydown price of 1% - you can NOT negotiate this price with the loan officer. If you want 4.5% you are going to pay a 1% discount, not a .5% discount as the vast majority of real estate agents would advise.

If you have questions and you are in the southeast and you really need a loan but your loan officer has no idea how to explain discounts to you you're probably not dealing with a highly knowledgeable mortgage banker. That's what I do for a living and I take my job very seriously. Call me for a quick application and I will show you why calling me is the best choice you can make for yourself, your family and your future.

Ken Cook - Novation Mortgage 678-946-0101 Georgia Home Loan Professional, Trainer and Lender

Stop giggling! I know 95% of the people who read this will say "everybody knows that" but they don't. I know because I get people who call in and ask what it means! I never treat them like they don't know anything because many of them are very brilliant people who just do not know what those words mean. So this is for those who really are not completely sure what those words mean and to help some of the rest of you be genteel when being asked.

Simply put it is a way of saying "percentage of the original price or value". Normally you will hear this phrase in association with foreclosures, distress sales and bank held properties. You will hear people say, "Oh, you can pick that up at fifty cents on the dollar" or "seventy cents on the dollar". That simply means 50% of the original value or 70% of the original value.

Investing in real estate is simple to say and really simple to do but you better be working with a lender who knows what they are doing. I have rescued hundreds of people for very experienced loan officers who have done hundreds of home mortgages but only a few, if any, real estate investment loans. There is a HUGE difference between the qualifications and specification for a real estate investment loan and a primary residence. Even the way income and assets are calculated are different.

If you are interested in an investment property purchase or refinance in Georgia or Florida I can assure you nobody has more experience. Listen to this short interview with me on the John Adam's Radio Show.

On one of my blogs the traffic logs keep showing a certain search string containing something similar to "who qualifies as a first time home buyer". There is a remote possibility you, the reader, may not know why this is a popular question. If so the short answer is: Congress just raised the first time home buyer tax credit from $7,500 to $8,000 and extended the qualifying purchase period to homes purchased between January 1 and December 1 of this year (2009).

There are literally thousands of blogs and articles dedicated to explaining the changes so this one deals with this one question only. Who qualifies as a first time home buyer? The answer is dependent on a couple of conditions so the explanation breaks those apart:

If the buyer is single they cannot have owned a primary residence within the last 36 months. This means they cannot have been on title in the last 36 months even if they are a co owner, buyer or signor.

If the buyer is married they nor their spouse may have owned a primary residence in the last 36 months. Investment properties and second homes do not count against them.

Here's the best thing to do if you live in Georgia or Florida and you think you may be a first time home buyer then call me at 866-946-0120 extension 101 or email me at ken AT novationmortgage.com

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