Most people think they have it all under control. They get a steady paycheck, and know how much they can afford based on what they have now. I think that is wonderful! Those same people are thinking about starting the American Dream of home ownership, and think that the ease will transfer just as smoothly.
Homeownership can be easy, but properly planning is the essence of homeownership without stress. I get approached all the time by people looking to buy, and they currently pay rent of let's say $1000, and want to buy a home for $500,000. Being conservative, that will translate into a new mortgage of $3-4000 per month. These same people haven't been able to save a dime for a down-payment, have credit card debt, large car payments, and occassional collections. The reality is, without a properly WRITTEN DOWN Budget, homeownership can wear on your emotions.
My first word of advice, is to write ALL of your expenses. Not just go over them in your head, but truly write them down. See where your money is going now, and see if these expenses will continue as you own a home. Things like rent will go away, but will be offset by most likely higher mortgage payments. When I put on Homebuyer Seminars and speak with homeowners, I will give them a worksheet to write everything out. This will make the reality of your budget come to life. Maybe you can afford the $500,000 home, I just want you to be sure.
First Step: is to estimate your monthly cash-flow through the month. When do you get paid, and how much is the amount to you after taxes, and all retirement contributions?
Second Step: What are your major monthly expenses. For example, a car payment, car insurance payment, credit card payments, or basically anything that would be reported on your credit report.
Third Step: What do you routinely spend on food. Everyone has to eat, and funding that daily trend can be expensive. You don't want to buy a home and eat Tap Ramen every day. Or do you?
Fourth Step: Consider all expenses that will come with a new property. These expenses will be Water, Garbage, Gas and Electric, Cable, Phone, Cell Phone, Internet, the list can go on and on...
Fifth Step: Subtract all of the Second Step, Third Step, and Fourth Step, from the First Step and see what that gives you. This is your disposable income, or the amount of money you have leftover every month to spend on a mortgage. I wouldn't recommend taking that number and assuming that that should be your new mortgage payment, you should realize that you WILL have other expenses that come up, like car repairs, entertainment, and others, but it is a starting point.
Stay tuned for part two! I will talk about how to figure out exactly what you can afford!
Jon Vetter
San Francisco Loan Officer, for your San Francisco Home Loan
Monday, June 4, 2007
Budgeting made easy! Part 1
Most people think they have it all under control. They get a steady paycheck, and know how much they can afford based on what they have now. I think that is wonderful! Those same people are thinking about starting the American Dream of home ownership, and think that the ease will transfer just as smoothly.
Homeownership can be easy, but properly planning is the essence of homeownership without stress. I get approached all the time by people looking to buy, and they currently pay rent of let's say $1000, and want to buy a home for $500,000. Being conservative, that will translate into a new mortgage of $3-4000 per month. These same people haven't been able to save a dime for a down-payment, have credit card debt, large car payments, and occassional collections. The reality is, without a properly WRITTEN DOWN Budget, homeownership can wear on your emotions.
My first word of advice, is to write ALL of your expenses. Not just go over them in your head, but truly write them down. See where your money is going now, and see if these expenses will continue as you own a home. Things like rent will go away, but will be offset by most likely higher mortgage payments. When I put on Homebuyer Seminars and speak with homeowners, I will give them a worksheet to write everything out. This will make the reality of your budget come to life. Maybe you can afford the $500,000 home, I just want you to be sure.
First Step: is to estimate your monthly cash-flow through the month. When do you get paid, and how much is the amount to you after taxes, and all retirement contributions?
Second Step: What are your major monthly expenses. For example, a car payment, car insurance payment, credit card payments, or basically anything that would be reported on your credit report.
Third Step: What do you routinely spend on food. Everyone has to eat, and funding that daily trend can be expensive. You don't want to buy a home and eat Tap Ramen every day. Or do you?
Fourth Step: Consider all expenses that will come with a new property. These expenses will be Water, Garbage, Gas and Electric, Cable, Phone, Cell Phone, Internet, the list can go on and on...
Fifth Step: Subtract all of the Second Step, Third Step, and Fourth Step, from the First Step and see what that gives you. This is your disposable income, or the amount of money you have leftover every month to spend on a mortgage. I wouldn't recommend taking that number and assuming that that should be your new mortgage payment, you should realize that you WILL have other expenses that come up, like car repairs, entertainment, and others, but it is a starting point.
Stay tuned for part two! I will talk about how to figure out exactly what you can afford!
Jon Vetter
San Francisco Loan Officer, for your San Francisco Home Loan
Homeownership can be easy, but properly planning is the essence of homeownership without stress. I get approached all the time by people looking to buy, and they currently pay rent of let's say $1000, and want to buy a home for $500,000. Being conservative, that will translate into a new mortgage of $3-4000 per month. These same people haven't been able to save a dime for a down-payment, have credit card debt, large car payments, and occassional collections. The reality is, without a properly WRITTEN DOWN Budget, homeownership can wear on your emotions.
My first word of advice, is to write ALL of your expenses. Not just go over them in your head, but truly write them down. See where your money is going now, and see if these expenses will continue as you own a home. Things like rent will go away, but will be offset by most likely higher mortgage payments. When I put on Homebuyer Seminars and speak with homeowners, I will give them a worksheet to write everything out. This will make the reality of your budget come to life. Maybe you can afford the $500,000 home, I just want you to be sure.
First Step: is to estimate your monthly cash-flow through the month. When do you get paid, and how much is the amount to you after taxes, and all retirement contributions?
Second Step: What are your major monthly expenses. For example, a car payment, car insurance payment, credit card payments, or basically anything that would be reported on your credit report.
Third Step: What do you routinely spend on food. Everyone has to eat, and funding that daily trend can be expensive. You don't want to buy a home and eat Tap Ramen every day. Or do you?
Fourth Step: Consider all expenses that will come with a new property. These expenses will be Water, Garbage, Gas and Electric, Cable, Phone, Cell Phone, Internet, the list can go on and on...
Fifth Step: Subtract all of the Second Step, Third Step, and Fourth Step, from the First Step and see what that gives you. This is your disposable income, or the amount of money you have leftover every month to spend on a mortgage. I wouldn't recommend taking that number and assuming that that should be your new mortgage payment, you should realize that you WILL have other expenses that come up, like car repairs, entertainment, and others, but it is a starting point.
Stay tuned for part two! I will talk about how to figure out exactly what you can afford!
Jon Vetter
San Francisco Loan Officer, for your San Francisco Home Loan
Cut the cr#*, excuses only go so far.
I was a speaker at a First Time Homebuyer Seminar this afternoon, and for last time was disrespected.
Let's start off with an explanation. I was approached to host a mutually run seminar in Oakland California, for First Time Homebuyers. I think of it more as a homebuyers seminar, let's face it even people with homes need the education!
Over the last couple weeks I met with the other coordinator to go over the details, and get it all set up.
One of the things I pride myself on is my professionalism. This doesn't mean that I am a snooty know it all, with all of the answers. I wish I had all the answers. It just means that I do my best in all cases. I work hard, know what I am doing, look people in the eye, speak to them with respect no matter who they are, and 99% of the time, SHOW UP ON TIME.
Business is about keeping busy. Always having something to do. Never wasting time, unless of course, that is on the agenda! When you make committments to people to meet for something, and you don't show up on time, you are wasting their time, and basically slapping them in the face. You are telling that person, that you don't respect them, and their time isn't valuable. Now I am not trying to say that I am always on time. I would be full of it if I said that, but the reality is, I will call if I am going to be late, and my reasoning will be legitimate. Lame excuses just don't cut it. "It has been busy", "my car wouldn't start" etc., are kind of old. I am not saying that these things don't happen, you just make sure it doesn't happen again in that relationship.
OK, back to the point.
In planning for this seminar, the person that was coordinating was late to each of our 5 meetings. Yes late every single time. Excuses every time. I normally wouldn't accept this treatment, but was excited to do the seminar and see the results.
Today came, I was there 40 minutes early to put up signs, have my handouts ready, and generally be ready to go. The building that the seminar was in has a locked door at all times, so I had to call this individual to get the access code to enter the building. I dial the phone, and it went straight to voicemail.
Uh oh!
Mind you it is cold out, I am standing outside of the building, getting progressively colder...and more upset. Finally I get the call back, get the code to enter the building, and a number of crappy excuses. The worst statement, being that this person won't be there for 40 minutes. WTF????? The meeting starts in 10!!!!!!!!!!!!!!!
You have to be joking. Late again, on the big day! No way.
There was someone that was waiting for the meeting to begin, so I invited them up to have a seat and wait for the start. He followed.... Another individual came, complaining that she was supposed to have a meeting with this person a couple hours earlier and that person hadn't shown up. See a trend?
I briefed the two attendees about the situation, and we chatted about life and business.
Now I was told that there were going to be about 10 people in attendance, I am only seeing two. Do I start the seminar? After about 1/2 hour, no one else showing, I started. About 1 1/2 hours late from the original seminar start time, the co-"Planner" finally showed up. I feel like a not only got slapped in the face, but got stabbed.
I went through my information (it went well by the way), and answer questions. Nothing I hadn't heard before. Another person was set to speak, so I politely excused myself and walked out the door. (afterall it is Saturday, and I am furious by this point) The co-"planner" stopped me before I left, and had the nerve to say to me "Next month I think I can get 50 people".
I can't tell you how many things came to mind. Most of them I wouldn't ever post on Active Rain because of their indecency. I responded politely, that with me, there wasn't going to be a next time. I said a few other things, all of them polite, though I should have let her know my true feelings! I am through with that person. I calculated that this person had wasted not only about 2 hours of my waiting around outside of her office, but also I had left my office early over the course of two weeks, about 5 times, something I don't like to do.
Just wasting my time, and ultimately costing me money. Business has no place for these types of disrespect, and I don't have any patience for that in my business life.
Do you accept disrespect?
Jon Vetter
San Francisco Loan Officer for your San Francisco Home Loan.
Let's start off with an explanation. I was approached to host a mutually run seminar in Oakland California, for First Time Homebuyers. I think of it more as a homebuyers seminar, let's face it even people with homes need the education!
Over the last couple weeks I met with the other coordinator to go over the details, and get it all set up.
One of the things I pride myself on is my professionalism. This doesn't mean that I am a snooty know it all, with all of the answers. I wish I had all the answers. It just means that I do my best in all cases. I work hard, know what I am doing, look people in the eye, speak to them with respect no matter who they are, and 99% of the time, SHOW UP ON TIME.
Business is about keeping busy. Always having something to do. Never wasting time, unless of course, that is on the agenda! When you make committments to people to meet for something, and you don't show up on time, you are wasting their time, and basically slapping them in the face. You are telling that person, that you don't respect them, and their time isn't valuable. Now I am not trying to say that I am always on time. I would be full of it if I said that, but the reality is, I will call if I am going to be late, and my reasoning will be legitimate. Lame excuses just don't cut it. "It has been busy", "my car wouldn't start" etc., are kind of old. I am not saying that these things don't happen, you just make sure it doesn't happen again in that relationship.
OK, back to the point.
In planning for this seminar, the person that was coordinating was late to each of our 5 meetings. Yes late every single time. Excuses every time. I normally wouldn't accept this treatment, but was excited to do the seminar and see the results.
Today came, I was there 40 minutes early to put up signs, have my handouts ready, and generally be ready to go. The building that the seminar was in has a locked door at all times, so I had to call this individual to get the access code to enter the building. I dial the phone, and it went straight to voicemail.
Uh oh!
Mind you it is cold out, I am standing outside of the building, getting progressively colder...and more upset. Finally I get the call back, get the code to enter the building, and a number of crappy excuses. The worst statement, being that this person won't be there for 40 minutes. WTF????? The meeting starts in 10!!!!!!!!!!!!!!!
You have to be joking. Late again, on the big day! No way.
There was someone that was waiting for the meeting to begin, so I invited them up to have a seat and wait for the start. He followed.... Another individual came, complaining that she was supposed to have a meeting with this person a couple hours earlier and that person hadn't shown up. See a trend?
I briefed the two attendees about the situation, and we chatted about life and business.
Now I was told that there were going to be about 10 people in attendance, I am only seeing two. Do I start the seminar? After about 1/2 hour, no one else showing, I started. About 1 1/2 hours late from the original seminar start time, the co-"Planner" finally showed up. I feel like a not only got slapped in the face, but got stabbed.
I went through my information (it went well by the way), and answer questions. Nothing I hadn't heard before. Another person was set to speak, so I politely excused myself and walked out the door. (afterall it is Saturday, and I am furious by this point) The co-"planner" stopped me before I left, and had the nerve to say to me "Next month I think I can get 50 people".
I can't tell you how many things came to mind. Most of them I wouldn't ever post on Active Rain because of their indecency. I responded politely, that with me, there wasn't going to be a next time. I said a few other things, all of them polite, though I should have let her know my true feelings! I am through with that person. I calculated that this person had wasted not only about 2 hours of my waiting around outside of her office, but also I had left my office early over the course of two weeks, about 5 times, something I don't like to do.
Just wasting my time, and ultimately costing me money. Business has no place for these types of disrespect, and I don't have any patience for that in my business life.
Do you accept disrespect?
Jon Vetter
San Francisco Loan Officer for your San Francisco Home Loan.
Prime or not Prime, that is the big mortgage question.
I was doing my daily routine today, which usually starts off with a look at the morning market on Bloomberg, and then progresses to reading cnnmoney.com. One of the first articles I saw was Wow, I could've had a prime mortgage.
It discusses the fact that 15-35% of all people in subprime loans were given to people that could have qualified for prime loans. I knew this was an issue, but not to this extent. Towards the end of 2006 and start of 2007, I had 4, yes 4, clients that I was refinancing, and all 4 of them were perfect scenarios. Perfect credit, great income, easy deals. Every single one of them had prepayment penalties, when they were told that they didn't. There is no reason, at any Loan to Value (the amount borrowered, compared to value of the property), that they should ever have a prepayment penalty. Never. We have put people with foreclosures on the report, horrible credit, but with a really low Loan to Value, into Fannie Mae loans. This business is flooded with people that don't know what they are doing. I am not saying I have the answer all of the time, but I am confident that 95% of the time, I have done my due diligence on every persons situation, and have put together the best possible situation, with options for costs, to make sure the clients knows the options.
I am not joking whatsoever, this is hurting the business.
This is the first sign that you are in a "subprime" loan. A prepayment penalty is the first evidence. There are a few reasons that a lender or broker would put someone of this caliber into a subprime loan.
First, they are lazy. Often times they believe that subprime loans are easy to satisfy conditions, and overall much easier to get done. The reality is, that with Fannie Mae, documentation can be easier with a prime loan. The difference, is the underwriting process with a prime loan may take a little longer. Is it worth slapping a potential lifetime client with a prepayment penalty of 6 months interest, to save yourself 1 week for underwriting.
Apparantly so, 15-35% is a staggering number.
Second, They don't have any other options. One of the biggest subprime lenders of the early 2000's and even more recently, was Ameriquest. The reason I have some of the inside scoop is because my boss was an employee years back, and knew the ins and out of their operation. I have no issue with Ameriquest, though they have been killed in the media, but the reality is, as an employee of Ameriquest, you are able to sell Ameriquest product and that is it! They only offer high cost, high rate loans, because that is what Ameriquest needed to make a profit. It costs a lot to sponsor Major League Baseball, doesn't it? This speaks volumes for their training and salesmanship, to take a prime borrower and sell them something horrible. But, this is what has killed part of the market, putting good loans, into bad products.
Thirdly, Lenders believe that they can make more money on subprime loans. From my knowledge, maybe I am wrong, isn't it illegal to charge X person more than Y, just because they have different credit. I am not sure the regulation, but I am pretty sure that you have to give everyone the same deal, whatever you feel that should be. Help me out there, I can't find the law on it!?!?!?!?
So wouldn't it be illegal to make more from a subprime borrower? The only difference should be the fact that the rate will be higher, there is a prepayment penalty, and the margin and adjustment schedule for when it goes adjustable is different, on a sub-prime loan. Cost should be off the table, right?
The point of my writing is again to do your research as a consumer. People, though your loan officer may seem honest and can do a good job, aren't always what they seem. Ask you co-workers for advice, research on the internet (as you are doing right now!), and make sure that you are confident in what you are getting.
Knowledge is power in any business, but especially the mortgage business.
Jon Vetter
San Francisco Loan Officer, for your San Francisco Home Loan
It discusses the fact that 15-35% of all people in subprime loans were given to people that could have qualified for prime loans. I knew this was an issue, but not to this extent. Towards the end of 2006 and start of 2007, I had 4, yes 4, clients that I was refinancing, and all 4 of them were perfect scenarios. Perfect credit, great income, easy deals. Every single one of them had prepayment penalties, when they were told that they didn't. There is no reason, at any Loan to Value (the amount borrowered, compared to value of the property), that they should ever have a prepayment penalty. Never. We have put people with foreclosures on the report, horrible credit, but with a really low Loan to Value, into Fannie Mae loans. This business is flooded with people that don't know what they are doing. I am not saying I have the answer all of the time, but I am confident that 95% of the time, I have done my due diligence on every persons situation, and have put together the best possible situation, with options for costs, to make sure the clients knows the options.
I am not joking whatsoever, this is hurting the business.
This is the first sign that you are in a "subprime" loan. A prepayment penalty is the first evidence. There are a few reasons that a lender or broker would put someone of this caliber into a subprime loan.
First, they are lazy. Often times they believe that subprime loans are easy to satisfy conditions, and overall much easier to get done. The reality is, that with Fannie Mae, documentation can be easier with a prime loan. The difference, is the underwriting process with a prime loan may take a little longer. Is it worth slapping a potential lifetime client with a prepayment penalty of 6 months interest, to save yourself 1 week for underwriting.
Apparantly so, 15-35% is a staggering number.
Second, They don't have any other options. One of the biggest subprime lenders of the early 2000's and even more recently, was Ameriquest. The reason I have some of the inside scoop is because my boss was an employee years back, and knew the ins and out of their operation. I have no issue with Ameriquest, though they have been killed in the media, but the reality is, as an employee of Ameriquest, you are able to sell Ameriquest product and that is it! They only offer high cost, high rate loans, because that is what Ameriquest needed to make a profit. It costs a lot to sponsor Major League Baseball, doesn't it? This speaks volumes for their training and salesmanship, to take a prime borrower and sell them something horrible. But, this is what has killed part of the market, putting good loans, into bad products.
Thirdly, Lenders believe that they can make more money on subprime loans. From my knowledge, maybe I am wrong, isn't it illegal to charge X person more than Y, just because they have different credit. I am not sure the regulation, but I am pretty sure that you have to give everyone the same deal, whatever you feel that should be. Help me out there, I can't find the law on it!?!?!?!?
So wouldn't it be illegal to make more from a subprime borrower? The only difference should be the fact that the rate will be higher, there is a prepayment penalty, and the margin and adjustment schedule for when it goes adjustable is different, on a sub-prime loan. Cost should be off the table, right?
The point of my writing is again to do your research as a consumer. People, though your loan officer may seem honest and can do a good job, aren't always what they seem. Ask you co-workers for advice, research on the internet (as you are doing right now!), and make sure that you are confident in what you are getting.
Knowledge is power in any business, but especially the mortgage business.
Jon Vetter
San Francisco Loan Officer, for your San Francisco Home Loan
San Francisco Festivals- Weekend of June 2nd
Finally the warmer weather is here. Well, if you live in San Francisco, you know what I mean. Cool mornings, fog burns off to put the temperature in the 70's, and then come 5, cool again. If you are a native San Franciscan, this is what you have become accustomed to love.
You have also come to love the numberous festivals, parties, parades, races, and gatherings that consume your summer schedule.
Here are some of the festivals that are here this weekend!
Escape from Alcatraz- Check out the website, it is VERY informative and fun!
This a a huge triathalon of 1800 participants who will "ESCAPE" from Alcatraz for a 1.5 mile swim to the shore, and 18 mile bike race, and 8 mile run which concludes at the Marina Green. The participants will enjoy the cheers of nearly 13000 spectators. The cost is free, go and show your support!
31st Annual Union Street Festival
This huge FREE art festival will have 100,000 people in attendance. It offers a variety of art selections, food, wine and beer gardens, live entertainment, and other. The list could go on and on. The location for this even is at Union Street between Gough and Steiner.
For the whole month of June
The SF Maritime National Historic Park will allow you to pay just $5 per adult and have access to the park for the entire month. Take the kids, they are free under 16 years of age!
Jon Vetter
650-465-5846
San Francisco Loan Officer, for your San Francisco Home Loan
You have also come to love the numberous festivals, parties, parades, races, and gatherings that consume your summer schedule.
Here are some of the festivals that are here this weekend!
Escape from Alcatraz- Check out the website, it is VERY informative and fun!
This a a huge triathalon of 1800 participants who will "ESCAPE" from Alcatraz for a 1.5 mile swim to the shore, and 18 mile bike race, and 8 mile run which concludes at the Marina Green. The participants will enjoy the cheers of nearly 13000 spectators. The cost is free, go and show your support!
31st Annual Union Street Festival
This huge FREE art festival will have 100,000 people in attendance. It offers a variety of art selections, food, wine and beer gardens, live entertainment, and other. The list could go on and on. The location for this even is at Union Street between Gough and Steiner.
For the whole month of June
The SF Maritime National Historic Park will allow you to pay just $5 per adult and have access to the park for the entire month. Take the kids, they are free under 16 years of age!
Jon Vetter
650-465-5846
San Francisco Loan Officer, for your San Francisco Home Loan
Another scary Neg-Am story! ARRGGGHH...
It has happened again...Well, let's face it, happens a lot more than I hear.
I met with a Real Estate Agent I work with, who has a friend that bought a home in the San Francisco Home Loan Market in January, and was concerned because she didn't really know what type of loan she given, and wanted to find out. The Real Estate Agent was not the agent on the transaction, I know she would have looked out for her client at the loan signing. The buyer had been told she was getting a 4.5% fixed rate for 5 Years.
I have heard this before. I know where this is going unfortunately...So Predictable
I went through the entire loan package with the Real Estate Agent, and we noticed that she was given 100% financing on an Option Arm Mortgage. For those of you who don't know what an Option Arm is, you can read one of my other blog posts about the Reality of an Option Arm.
Other great Option Arm Blogs:
Ken Stampe Pay Option Arms - Suicide in a Mortgage Loan
Robert Ashby Exotic Loans Being Mistreated...
Tony Gallegos The Option ARM Is Akin To OxyContin
The basics of this loan is, if you pay the 4.5% start rate, you will add on to the balance every month, and owe more and more over the term of the loan. Scary!! Especially in this type of market!
This poor lady, who is relatively new to the country, had no idea about the reality of this loan. She was told she got a 4.5% rate, and she was comfortable with the payments. Enough said, she was happy.
She shouldn't be. After looking at the actual rates, she was going to defer onto her loan balance $1300 per month! Not good. No bueno. Bad.
She is excited about homeownership...the American dream. But will this situation continue for her? Highly unlikely. She is instantly put in the position to potentially lose her house in the next 5 years.
After crunching the numbers of what I could have done, given her prior excellent credit. I could have given her a first mortgage at 6.75% (roughly) and 9% on the second. Looking at the payments, it would have been just $600 more than her horrible Option Arm loan. Comparing that number to her amount of deferment per month pointed out earlier of $1300 (1300-600), she is losing $700 per month, just in interest!
The terrible thing about this, is she told the her friend I was talking to she could easily afford the payment she got. Therefore, wouldn't it make sense to afford (without the ease) a payment $600 more. After all, she is self-employed, and I am sure she could figure out a way to pay a little more for a much better loan that doesn't give her American Dream away month to month.
Looking further through final Hud, the truth comes out. The mortgage company had a large credit for closing costs written into the contract, so she wouldn't have to come out of pocket for closing costs. That makes sense, but the large closing costs, also were combined with a large Yield Spread Premium (rebate) from the bank. The broker net a $20,000 commission from this deal. They stuck it to her, in every way possible.
Bad Loan
High Cost
High Rate
High vulnerability to the market
Have I mentioned a 3 Year Prepayment Penalty yet? Oh, I haven't, of course there is one.
I couldn't even save her from this horrible loan if I wanted to, because it would cost her $20,000 just to get out of the loan.
Sense frustration? It is coming out of my pores.
This is the problem with this business. I am all for people making money in this business. After all, it is a business. But the loan to loan mentality is driving the market into the ground. It won't get any better until some action is taken to educate people about all aspects of Real Estate, ensuring people know that they have to ask questions, and not trust the first person they talk to.
Maybe that first person is a dream contact, but often times they are not.
Ask questions. Not asking questions can cost you. A good mortgage broker will offer free advice on your situation and not solicit you for your business. They will be there to support your concerns. If you don't ask for it, no one can help.
An honest San Francisco Loan Officer, for your San Francisco Home Loan.
I met with a Real Estate Agent I work with, who has a friend that bought a home in the San Francisco Home Loan Market in January, and was concerned because she didn't really know what type of loan she given, and wanted to find out. The Real Estate Agent was not the agent on the transaction, I know she would have looked out for her client at the loan signing. The buyer had been told she was getting a 4.5% fixed rate for 5 Years.
I have heard this before. I know where this is going unfortunately...So Predictable
I went through the entire loan package with the Real Estate Agent, and we noticed that she was given 100% financing on an Option Arm Mortgage. For those of you who don't know what an Option Arm is, you can read one of my other blog posts about the Reality of an Option Arm.
Other great Option Arm Blogs:
Ken Stampe Pay Option Arms - Suicide in a Mortgage Loan
Robert Ashby Exotic Loans Being Mistreated...
Tony Gallegos The Option ARM Is Akin To OxyContin
The basics of this loan is, if you pay the 4.5% start rate, you will add on to the balance every month, and owe more and more over the term of the loan. Scary!! Especially in this type of market!
This poor lady, who is relatively new to the country, had no idea about the reality of this loan. She was told she got a 4.5% rate, and she was comfortable with the payments. Enough said, she was happy.
She shouldn't be. After looking at the actual rates, she was going to defer onto her loan balance $1300 per month! Not good. No bueno. Bad.
She is excited about homeownership...the American dream. But will this situation continue for her? Highly unlikely. She is instantly put in the position to potentially lose her house in the next 5 years.
After crunching the numbers of what I could have done, given her prior excellent credit. I could have given her a first mortgage at 6.75% (roughly) and 9% on the second. Looking at the payments, it would have been just $600 more than her horrible Option Arm loan. Comparing that number to her amount of deferment per month pointed out earlier of $1300 (1300-600), she is losing $700 per month, just in interest!
The terrible thing about this, is she told the her friend I was talking to she could easily afford the payment she got. Therefore, wouldn't it make sense to afford (without the ease) a payment $600 more. After all, she is self-employed, and I am sure she could figure out a way to pay a little more for a much better loan that doesn't give her American Dream away month to month.
Looking further through final Hud, the truth comes out. The mortgage company had a large credit for closing costs written into the contract, so she wouldn't have to come out of pocket for closing costs. That makes sense, but the large closing costs, also were combined with a large Yield Spread Premium (rebate) from the bank. The broker net a $20,000 commission from this deal. They stuck it to her, in every way possible.
Bad Loan
High Cost
High Rate
High vulnerability to the market
Have I mentioned a 3 Year Prepayment Penalty yet? Oh, I haven't, of course there is one.
I couldn't even save her from this horrible loan if I wanted to, because it would cost her $20,000 just to get out of the loan.
Sense frustration? It is coming out of my pores.
This is the problem with this business. I am all for people making money in this business. After all, it is a business. But the loan to loan mentality is driving the market into the ground. It won't get any better until some action is taken to educate people about all aspects of Real Estate, ensuring people know that they have to ask questions, and not trust the first person they talk to.
Maybe that first person is a dream contact, but often times they are not.
Ask questions. Not asking questions can cost you. A good mortgage broker will offer free advice on your situation and not solicit you for your business. They will be there to support your concerns. If you don't ask for it, no one can help.
An honest San Francisco Loan Officer, for your San Francisco Home Loan.
There are four types of people...
Over the weekend I came to the realization that there are four types of people when it comes to credit. I think it is extremely important to find out who you are in the mix... Here are the four types:
1. People that think they have great credit, and do have great credit.
2. People that think they have great credit, but have bad credit.
3. People that think they have bad credit, and do have bad credit.
4. People that think they have bad credit, but have good credit.
In my experience, people are pretty aware of how they stand with credit, they have been told by people, banks or other, that they are strong, and use credit accordingly. However, there are people who really don't know where they stand. Check out my other blog on FICO scores and how they are formulated.
Credit, what is it, why is it so bad, why is it so great!
The issue with not knowing where you stand, is it puts you in a position to be taken advantage of. Fraud is one of the most horrible things to go through, and knowing where you stand will put you in a better position to question your situation, and make the best of it throughout your financial life. Check out my other blog on Fraud.
Real Estate fraud- How does it happen, why does it happen?
These types of fraud can happen, you must put yourself in the position to educate yourself to avoid the pain that these types of situations can put you through. It starts with credit. Know your score, know your positives and negatives, and don't let someone tell you otherwise. If in doubt about what someone tells you, ask someone else, a friend, or someone in the Real Estate business, for advice.
These questions came to my mind this weekend when at an Open House. I met a family that was looking to possibly buy the property, and the parent's were going to co-sign for the son on the loan, so that he could qualify.
Check out my blog on the reality of Co-signing... Credit and Co-signing Advice
The family was under the impression that the son would not qualify on his own because of issues with his credit. After going through his situation, I had a hunch that he might not be that bad off. One issue with credit, over a year ago, may have had the time to recover, and put him in the position to qualify. We went through the application, and last night when looking at his credit, it turns out he was strong enough to qualify. Submit it to Fannie Mae, PooF!, we have automated approval.
So we took them from possibly putting the parents on the loan, to now qualifying the son on his own, and not having to refinance at a later date to then put the son on the loan. That is a $3000 plus savings, plus they lock in a rate on today's terms, not what terms are like in the future.
Knowing your credit is extremely important, know where you stand, and find a reputable person in the mortgage business that you can trust. Without using someone qualified to offer you all of your options, you are setting yourself up for future issues, which in Real Estate, always adds up to future costs.
I may not be the person for you, but I think it would be a shame to not find out. You need to find someone that can give you ALL of your options, not just the standard options. Work with someone that thinks outside of the box.
Jon Vetter
Mercury Lending, Inc.
444 De Haro Street #130
San Francisco, CA 94107
650-465-5846 (Cell)
For your San Francisco Home Loan, from a trusted San Francisco Loan Officer.
1. People that think they have great credit, and do have great credit.
2. People that think they have great credit, but have bad credit.
3. People that think they have bad credit, and do have bad credit.
4. People that think they have bad credit, but have good credit.
In my experience, people are pretty aware of how they stand with credit, they have been told by people, banks or other, that they are strong, and use credit accordingly. However, there are people who really don't know where they stand. Check out my other blog on FICO scores and how they are formulated.
Credit, what is it, why is it so bad, why is it so great!
The issue with not knowing where you stand, is it puts you in a position to be taken advantage of. Fraud is one of the most horrible things to go through, and knowing where you stand will put you in a better position to question your situation, and make the best of it throughout your financial life. Check out my other blog on Fraud.
Real Estate fraud- How does it happen, why does it happen?
These types of fraud can happen, you must put yourself in the position to educate yourself to avoid the pain that these types of situations can put you through. It starts with credit. Know your score, know your positives and negatives, and don't let someone tell you otherwise. If in doubt about what someone tells you, ask someone else, a friend, or someone in the Real Estate business, for advice.
These questions came to my mind this weekend when at an Open House. I met a family that was looking to possibly buy the property, and the parent's were going to co-sign for the son on the loan, so that he could qualify.
Check out my blog on the reality of Co-signing... Credit and Co-signing Advice
The family was under the impression that the son would not qualify on his own because of issues with his credit. After going through his situation, I had a hunch that he might not be that bad off. One issue with credit, over a year ago, may have had the time to recover, and put him in the position to qualify. We went through the application, and last night when looking at his credit, it turns out he was strong enough to qualify. Submit it to Fannie Mae, PooF!, we have automated approval.
So we took them from possibly putting the parents on the loan, to now qualifying the son on his own, and not having to refinance at a later date to then put the son on the loan. That is a $3000 plus savings, plus they lock in a rate on today's terms, not what terms are like in the future.
Knowing your credit is extremely important, know where you stand, and find a reputable person in the mortgage business that you can trust. Without using someone qualified to offer you all of your options, you are setting yourself up for future issues, which in Real Estate, always adds up to future costs.
I may not be the person for you, but I think it would be a shame to not find out. You need to find someone that can give you ALL of your options, not just the standard options. Work with someone that thinks outside of the box.
Jon Vetter
Mercury Lending, Inc.
444 De Haro Street #130
San Francisco, CA 94107
650-465-5846 (Cell)
For your San Francisco Home Loan, from a trusted San Francisco Loan Officer.
Subscribe to:
Posts (Atom)
