In mortgages, simple usually means more expensive
TERRY SAVAGE email@example.com August 26, 2012 6:20PM
Home sales rose in the Southland last year.
Updated: May 3, 2013 12:15PM
It’s a great time to get a mortgage. I’ve been telling you that for several months. The housing market is starting to firm up, with sales and even prices increasing in some areas.
But financing a house is not just a decision about interest rates. There are other fees and costs involved, and several ways to deal with them. If you’re not a mortgage expert, you might need help from a good mortgage broker.
Many lenders — whether large banks or online services — simply plug in your data into a form to see if you “fit.” They don’t have the expertise to help you create a mortgage that is tailored to your needs and your special situation.
So when I recently advised that you go online to check mortgage rates in your area — still a good idea at Bankrate.com — I was reminded by several mortgage brokers that the “right” loan for you is about more than just the interest rate.
Mortgage rates only part of deal
Of course, everyone compares interest rates on a mortgage loan. But that’s only part of the total cost of your mortgage loan.
In fact, a new proposal by the Consumer Financial Protection Bureau to create a simple “zero-zero” mortgage (no fees, no points) in order to make comparisons easier for consumers, is likely to cost them more.
Randy Johnson, a widely respected California mortgage banker who writes a mortgage newsletter ( loan-wolf.com) ran through the reasons a one-size-fits-all mortgage could wind up costing consumers a fortune over the life of the loan.
He explains that there are always costs in getting a mortgage, not only for the services of the broker or lender, but also for appraisals, title search, escrow holder, etc. They’re not doing all this work and funding your loan for nothing.
And there are only three ways to pay for these services:
◆ Write a check.
◆ Increase the amount you borrow to cover the fees.
◆ Or pay a slightly higher interest rate on the loan, building in a profit for the lender.
But that slightly higher interest rate could make a big difference in your total payments over the life of the loan. In fact, over 30 years of loan payments, the higher rate could amount to more than 10 times the initial fees, if they had been paid by check at the closing!
Bottom line: Mortgages are not simple. Simple may equate to costly. You must either know what you’re doing — or get some good, professional help.
Leslie Struthers is a mortgage specialist at GuaranteedRate.com, a large and respected online mortgage source. While you can compare rates online there, you also work with an individual mortgage banker, who will help you figure out which offering is most appropriate for your situation.
Struthers notes that a savvy mortgage banker can help you in ways that aren’t readily apparent to most consumers. Here are some of her tips:
Choose an appropriate appraiser: The new appraisal that is required will cost about $300 — and you’re paying for it. Struthers suggests that when the appraiser calls to set up an appointment, you first ask if he or she has done other houses in your area. If they seem unfamiliar with your housing development or community, you can always ask that a different appraiser be sent out — before the appraisal is done! Most borrowers don’t realize they have this power.
Manage your credit report: Pull your credit report and credit score before you apply for a loan. If there is old, negative stuff on it, don’t try to make up for it by finally paying off a defaulted loan. That will only bring bad news to the top of your report! She also suggests that if you have a credit card on which your debt is greater than 35 percent of your limit, you should pay it down — and then wait a few days until that information hits your credit report. You can then get your credit “re-scored” — coming out with a higher score.
Take advantage of government Refi deals: By now, most people trying to refinance have given up on the government programs that promised so much, but deliver so little. But Struthers helps borrowers through the HARP refinancing program. There are special opportunities, she says, for borrowers who are underwater (25 percent or less) on the value of the home, but are current on their monthly payments.
If you fit this picture and haven’t refinanced since 2009 — and if your mortgage is owned by Fannie Mae or Freddie Mac — you just need some knowledgeable help, and a credit score above 620, (or 720, if you’re really underwater) to get a new deal.
And Struthers notes, if your current bank/mortgage holder is refusing to help, go to helpwithmybank.gov/complaints, which takes you to the Office of the Comptroller of the Currency. Once this office is involved, you will get your lender’s attention and get your HARP refi going.
Getting a new mortgage or doing a refinancing these days exposes you to a blizzard of paperwork. But don’t give up because the financial services industry is so mixed up. Get help — and get that mortgage. When you’re dealing with the right people it can be a lot easier than you think. And that’s The Savage Truth
Terry Savage is the Chicago Sun-Times’ nationally syndicated financial columnist, and a registered investment adviser. Post personal finance questions on her blog at TerrySavage.com and blogs.suntimes.com/savage.