Today’s Topic: Mortgages. An insiders view into the mortgage industry, options for those with poor credit and a complete run through of the various fees associated with a mortgage. This is a must listen if you are contemplating a refinance or looking to take out a mortgage in the future. Below you’ll see a complete transcript of the conversation for your reference.
Paul: Okay. Alright, so, I’d like to welcome Janeen Do to the FiscalGeek Podcast. Today, we’re going to talk about mortgages from the view of an insider and hopefully Janeen can break down for us some of the questions I know the readers have had with regards to options for poor credit, some of the other refinance options, and maybe just a breakdown of all those various fees that you see on your normal mortgage breakdown, so, welcome Janeen.
Janeen: Thank you. Nice to be here.
Paul: First off, maybe could you give us a little background about your experience in the mortgage world and how you got into it?
Janeen: Sure, so, as most people do we get married and buy a house and you’re just totally at the mercy of your real-estate agent, usually. They usually bring in your mortgage person because you don’t know anybody, unless you’ve got an uncle or someone in the business.
Janeen: So, that’s how it was for us. We had a guy from our church we knew and we trusted him to help find us a house and that’s all that I cared about was finding the perfect house. Little did I know that there was a whole lot more to it. You just don’t know this stuff, no one teaches it to you, no one tells you about it, there’s a billion books to read, but they’re like, you know, 500 pages long and something you’d never want to sit down and read.
So, for me it was very, just a nervous experience. You know, going through the whole loan process, am I going to get qualified and all of a sudden you’re judged on something you never even thought about, your credit, how you handled your credit, all of that kind of plays into stuff. You know, you get a job, you went to college, you thing you’re doing the right thing and so, we bought a house, didn’t think anything of it. As long as we could afford the payment, we were happy, we had our house, we moved in and then we had two kids, we have to move into a larger house.
So, we find a bigger house, it’s the same guy, he used the same guy. So, it’s like, okay, this is kind of comfortable I know what he’s going to ask for this time, he wants my, you know, two years of work history, two years of W2’s, two pink statements, all that kind of stuff, seemed familiar and I’d gotten into this house, little more of a stretch, but we said “Okay, we can handle this.” So, later we started getting offered to refinance the house. So, then it was like, why do I need to do that? You know, what’s wrong with the loan I have?
Janeen: And I didn’t, still, know why we refinance and why it was better, but all I knew was that my payment was lower and I was happy, you know, but the problem is with that, is that there is only good reasons to refinance, you know, and they don’t tell you that. They earn a commission every time they do a loan through you, with you, using you, you know, basically you are the one, that’s how they get money and so, you know, when I finally got into it, I’d only ask people, “Why do you want to refinance?” “Are you going to sell soon?” “Do you want to start all over again, 30 years, you’re into this 10 years already and you’ve got 20 years left, why do you want to start again?”
Yes, your payment will be lower, but is that your goal? I mean, do you ever want to pay this house off? You know, or they’re going to move in two years, why would they do that? So, there’s smart questions to ask, but you don’t even know the questions to ask. So, we’ve refinanced, like three times and one of the times this gal wanted us to be in her sales force, if it was, you know, see if it was a company I don’t know if I can name companies, but she wanted us to join her company and it was PriAmerica, so it’s kind of a multi-level marketing company.
Janeen: So, you join them and you can sell after you take a huge amount of courses and get licensed. You can sell life insurance and home insurance and, I mean, insurances and mortgages and all this other stuff. So, they said all you have to do, you know, if you sign up with us to do this, we’ll teach you how and your loan can be the first loan.
I’m like, wow, so we’re going to pay you each, both me and Tony, $400.00 to do this loan, we’re like, sweet! You know? Since then I have gone back, looked back on that paperwork, we paid $9000.00 in fees for that loan and I don’t mean the appraisals, you know, all the fees that you normally pay and I’ll go over that, like a good faith estimate, I’ll pull one out and kind of run down the fees that are fair and I’ll tell you who does that job and why.
Janeen: But, right now, these, these, you know, we paid $9000.00 and I thought, well, what a great deal and yes, you lowered our payment and we had this bi-monthly payment where you pay twice a month instead of whatever is going to pay off and”¦
Paul: Yeah. Yeah.
Janeen: You know, but when we sat there and had her looking in the eye, but I said “The math doesn’t work for me.” I said “I’m still owing another $20,000.00 on my house and I never did, but I’m paying $500.00 less a month, somewhere the math doesn’t work.” And she kept telling me the interest rate doesn’t matter it’s because you’re making your extra payments it’s all going to come out in the end.
I’m like, yeah, I’m making extra payments and that’s what’s bothering me. You know, I just, none of it really made sense to me and she flat out, I mean, lied to me. I mean, she is someone who worked with Tony for five years at this hotel and then she left to go do her own thing. I’ll tell ya, lets just say she didn’t come over for dinner anymore, you know, I mean, it was just kind of one of those things.
Janeen: I’ve learned way too much, I went back and looked and found that good faith estimate and all that other information and we just got totally ripped off. So, after my kids started going back to school, I decided, you know, I don’t want to be a travel agent anymore, I had done corporate travel agency for over ten years, part of my kids, then I quit and then they start full time school and then you’re left, kind of empty nest, if you will, for 8 hours of the day and I’m like, what am I going to do and I can start working again.
So, I met someone at the church and they were into mortgages and I wasn’t looking to refinance or anything. She said, just come, it’s a free class, we’ll do a training, if they hire you, then yeah, you are commission only, but hey, if you know enough people and you can get stuff going, at least you get this free education, which is true. It is very hard to get into the business to find out people who will tell you.
So, I was in my last, my third training session, I spend like 12 hour days, I mean, a couple of long days there and I said, I just raised my hand and I said “You know, how do I make our money?” I mean, I get the fees, I get this and I understand all the ins and outs of these loans and what if I’s and went on, I mean, you know, why would you do this and why would you do that and what the interest rates. He goes, “Finally somebody asked.” And I’m like, after all this, you know, how do I get paid for this? I mean, it just seemed like the people were paying a lot of money already, why are they going to pay me?
Paul: Right. Right.
Janeen: So, that’s how I got into it. I started to feel more confident about it and I said, you know, this is something I could do and some of the dealings I still didn’t quite jive with, like with my heart, I’m like, okay, I’m not going to do that, if I do this I’m not going to do that, you know, and when I do this I’m going to really explain it to people and I just always really wanted to make sure that people understood, you know, what you’re paying for. Is it a good deal? Why do you do it? You know, why bother? Really.
Paul: Yeah, yeah.
Janeen: So, in specifics, where do you want me to start? I guess.
Paul: Well, let me ask you the question then. If you were to go out today, say you know, you’re not, not in an area where you know anybody, you’re, say you’re initial example when you were looking for a house, what would you recommend somebody look for in a lender or broker when they’re looking for a mortgage?
Janeen: Word of mouth is good. If you have any friends that you trust really well and say, you know, have, did you have good dealings with these people and you know I’ll tell you where, if you go into a bank and you ask “Hey, I’d like to look at a mortgage loan” first of all they’re like “Oh, okay” and either they’re all over you or they’re like, you know “Okay, come on down” and here’s the piece of paper and they write down (8:02) 5.5 today and 5.7 for this and, you know, they just kind of write down things and you just walk out the door like, that really didn’t help me, you know?
I would first of all, check with friends and family to see if there’s someone they used that they really enjoyed working with because it’s a long process. I mean, it totally is supposed to be a month, but I’ve done a refinance for, my goodness, I was working with these people for three months, because we have (8:24).
We had to switch lenders a couple of times because for whatever reason, when all this craziness was going on, they got declined and I’m like, I know you’re a good borrower, I know you’ve got potential, I’m know you can, I know I can get you a loan, but this guy just for whatever reason, their hands are tied and they’re buyer, you know, they can’t sell this loan for whatever reason. So, you’re going to want to find someone that you at least feel like you can communicate with and who’s going call back and I would test that a few times.
Are they going to call you back? I mean, even just for questions. I would tell people, if you’ve got a question 10:00 at night, and you don’t feel comfortable calling me, you know, call me first thing in the morning or write it down and text me and I’ll get it, just set this huge thing of communication, because you need to be available for people and you need to be available for you too, you know, for me to call people and have me available, but that and I’d say, boy, it’s tough to say, you can’t just call someone, this is the one misconception that people always got, what rate can you get me?
And every single time I have to say “Boy it really depends” and they’re like “Well, what does it depend on?” “It depends on your credit, it depends on what kind of loan you want, it depends on what kind of term you want, it depends on a lot of stuff that I can’t get for you right this second looking at you so, I’m not going to lie to you and tell you I’m going to give you 5 1/4 , because (9:41) rate out there, but you may not qualify for that. You know, so if you’re getting people just spouting off numbers to you just to get you in their door, they’re not going to lye into you.
Paul: You’re right, okay.
Janeen: Because until I pull your credit, until I pull your credit and until I have you fill out an application, until I know that you’ve been working for two years at the same job, I not going to waste, you know, I’m not going to waste my time by telling you a bunch of numbers that I know I can’t guarantee, you know? You can’t sit there with me and say “Okay, what’s your credit score?” and you’d say “It’s 815 or it’s 805″ okay, great, I know I can get you a loan how long have you been in this job?
Do you have any bankruptcies? Did you have any, you know, past history and I’ve had people just lie to me and know and I’ll pull their credit and then they have federal, you know, some kind of weird debt, like they didn’t even know they had. “Oh, man, that was when my mom died” and you know, “we got left with her debt” “I didn’t know it went to my credit” and I’m like, “We need to work on this.” So, credit is the first thing.
If you don’t know you have good credit and if you don’t, you know, there are some free things you can go online and check and it’s not the best credit. It’s not going to tell you everything, it’s maybe only going to give you one of the three big tri-merge, you know ratings. When I was at (10:50) my company, I could do tri-merge so you know; it’s Experian, Equifax and TransUnion, (10:55). So, those guys, see they’re all talking to each other and if they’re all meshing about the same number, that’s your real number.
They take the means, they drop the lowest and they drop the highest and you get the center and it’s whoever’s the lowest of the husband and wife too. So, if you want to file with your wife, if you want to apply with your wife, she has 710 and you’ve got 680, 680 is what the banks going to look at. They look at the mortgage and they look at the means of both of you.
Paul: That’s good to know.
Janeen: Yeah, it is.
Paul: Okay, and what typically is considered a good credit score in the, for the mortgage industry, so if I want to get the best possible rate on my loan, what’s my score range going to have to be?
Janeen: It’s changed a lot it used to be back in the day when there was sub-prime loans, you know, you could get a loan with almost 510, 480. Those don’t exist anymore. You’ve got to be, if you’re 680 or above there’s a couple of programs that may do it, but they’re going to add on a higher rate. They are just going to tack it on so, if you are 680 or 720, I think 720 to 750 is more of the range that you want to be at.
You can be at anything over 750, 760, 780, 780 and higher your job, you’re going to get the absolute lowest rate, you don’t have to worry about anything as long as you’ve got a job for two years in the same line of work, not just, you know, I worked at Jiffy Lube one year and I was (12:16) the second year.
Janeen: They’re looking for two years of work in the same line of work for at least one of you. I mean, I wrote a lot of letters of explanation, you know, some, but credits huge and it’s not, if you have someone pull it, and I wouldn’t say, you know, I’m going to go buy a house this month let’s go see if I can get qualified. No, you want to say we want to buy a house lets get qualified first.
Go to your bank, go to your mortgage rep, I mean, whoever you’re going to use that you feel confident with, have them pull your credit and that’s the thing with going to a mortgage broker, like I was, that’s the one thing I felt really confident about in talking to people. I have access to over 70 different lenders, Bank of America, US Bank, Flagstar, a bunch of names you’ve never heard and don’t even care about except that they all lend money and then they’ll sell it to big banks or they’ll sell it to Freddie Mac or Fannie Mae, they’re all, right?
Janeen: So, it doesn’t really mat”¦ Is once you get a good mortgage broker, you know, and they’re reputable, you know, you can pull most of them up in Better Business Bureau or asking around, I mean, the thing is that the mortgage rep, the mortgage broker you pull your credit once, if you stick with them, that credit pull is once and they can go and apply and look and search for all the lenders that they’re linked to. You walk into Bank of America and let them pull your credit, then you walk over to US Bank and let them pull your credit, you’re like “Oh, my brother-in-law said BECU has the best rates”.
Well, then let me pull your credit. After three credit pulls your three credit pulls in 90 days, so that could mean that you bought a car or if you bought some furniture or any credit card you open within the 90 day period , you have three or more credit pulls, your credits going to drop. It can go down to 500 points, I mean, it can go fast. You know, they’re called inquiries and so you’ve got a lot of inquiries at the bottom of that report. So, that’s the one thing you think about. I always tell people “Have you bought anything big where, you know, they would pull your credit, even looked at buying a car and saying oh, lets see what kind of financing you can get”, that’s huge. You can”¦
Paul: So, something like if I go out and pull my free credit report for a manualcreditreport.com ahead of time to get an idea to make sure that I, whether I thought that I did or not, to make sure I didn’t have any inquiries on there is probably a good rule of thumb, wouldn’t you say?
Janeen: And it’s sad that I’ve had people come and they’ve had like five inquiries from a credit card, trying to get them to get a card, and it’s like those, some of those, we can write letters against to say, look I didn’t even apply for that card, you know, that’s, those any more illegal and I don’t see them very often, even two years ago I used to see tons of them, like US Bank or Chase Bank or all these companies that can send you, you know, the card companies that you get junk mail from too, they’re just checking your credit to make sure you good and they send you two cards for you and your wife and say “Hey call now to activate you’re already pre-approved for $15,000.00″ I mean, that must happen a lot , but not so much anymore.
Those don’t count against you as much as you actually initiating because they’re thinking, okay, well, you’re out there trying to buy something or you know, you’re going to do something with your money and that’s all they know. It’s a huge an algorithm and everything fishes into these three, you know, credit bureaus and that’s all I know is all these numbers and some action is good, most action is bad. So, you know, if you feel, what I tell new couples who don’t even have credit, get at least three lines of credit whether it be either a cell phone, you know, a Macy’s card, a gas card, anything. Charge up to 1/30, well 30 percent.
So, if you have a thousand dollar limit charge up to $300.00 and leave it there for three months and pay the minimum payment only. That shows you using credit that shows you’re not abusing it and you’re not using it. I’ve got people who have, like a brother of mine, brother-in-law of mine, his credit’s good, but it could be a whole lot better, but he pays everything cash, he doesn’t even have a credit card. So, you need to, in order to even have a credit rating you’re going to have to need credit and show that you use it and show that you use it wisely.
People go over, whatever 30% is, the threshold that’s a special number. If you go over 30%, well, you’re mismanaging your credit, under 30% well, you’re really not, you not really using credit. So, you know, like someday when my daughter moves away and goes to college, I’m going to get her a credit card, okay, a hundred dollar limit, or five hundred or whatever it is, go to 30% and stay there for three months. Just pay the minimum, don’t pay it off and that’ll show that you’re using credit wisely. Whatever the algorithm thinks wisely is, that’s what it is, so”¦
Paul: Well, what if you’re in a scenario and certainly a place we moved into where we no longer use credit cards and things of that nature what kinds of options do you have at that point? Or do you?
Janeen: Well, Paul, for you you’re not looking to buy a house, so I’m going to say”¦
Paul: No, I’m not, but let’s say”¦
Janeen: Well, most people aren’t. I mean, you’d be surprised, well, I do know you’ve taken the Dave Ramsey class so, a lot of people use credit. Everybody you know uses credit, so once you get to a point where your life, where you’re happy where you’re living you can really do that and not screw your credit up, I don’t think.
I mean, I still pull my credit once a year and it’s still good, really good and I don’t have any credit card debt. You know, I mean, I’m (17:42) that’s the credit card”¦. Because we use it for points to go on free trips, I pay it off every month so, I’m sure the credit card companies don’t like me, but I’m (17:54) because I’m not buying anything.
Paul: So, you’re, you’re better, but the point is that we have some history of credit in the past and hopefully good…
Janeen: Oh, yeah, and they go way back to the very first card you ever had to cards that don’t even exist anymore on that list. So, yeah, you still have credit history, right, you’re not doing anything to fowl it up, it’ll just stay the same. It’s not going to go down lower, but I’m saying for you people who need to build credit that’s what you’ve got to do.
Paul: Now, so, in some cases there’s frequently mentioned of the option for mortgage companies to do manual underwriting for people that may not have good credit and things of that nature. How realistic is that actual advice?
Janeen: It’s a pain in the (18:36) I’ll tell you that right now. Manual underwriting basically means that, the last company that I worked for, they did manual underwriting for, let’s see, Flagstar, I think it was and what that means is that their underwriters have been scrutingly trained by Flagstar’s underwriters to say this is what we accept. Period. No letters of explanation about it this is what we accept.
If you have a lender that meets these criterions you can underwrite this here in your house. So, usually that means the fees come down a little bit and it’s actually better because first of all they manually underwrite it right there so I don’t have to charge my client as much because we’re not paying Flagstar to do it and so, there is usually a savings there.
Sometimes there’s even a mortgage companies who fund loans , which means that they will fund it and then it gets sold, literally the next day to whatever lender they did, which is kind of a, that’s a nice thing for the people who are doing like what I was, you know, as a mortgage broker, loan officer, because sometimes they’re funded the same day that they’re signed or you know, you don’t have to wait for these extra days for everything to have to happen, but you know, wherever their underwr”¦
They’re going to be underwritten by whosever going to buy the loan, basically or whosever does basically try to sell this loan to. So, before you’d even, before I’d even submit a loan, I’d have to make sure all of this criterion had been taken care of and the loan was going to fund.
That’s the goal, I mean, everyone’s goal is to fund a loan, they’re not looking to just, you know, wave people on and say “Oh, yeah, well too bad you didn’t get it we’ll just, you know, next one” no, they’re all hungry for business and so they all want to fund these loans, but, if it’s not being, no matter where it’s underwritten and so an underwriters job is, I think, they are like the tax guy, if you will.
I mean, they’re like the guys who have to just nitty gritty, really determined and is this person going to pay? That’s all their worried about is this person going to pay and is this going to be a good loan to pass on to whoever’s going to buy this loan from us because nobody really holds on to them.
Paul: Yeah, right.
Janeen: You know, they’re all being sold so they”¦
Paul: So, is that, is that a decision solely usually based on credit or will they consider things like here’s your income, here’s your, maybe your outstanding debt, like that?
Janeen: No, it’s absolutely everything. There’s your debt to income, there’s your credit, there’s your ability to pay, as well as your willingness to pay so your ability to pay is saying that you actually do have a job and they will call and say, “Will this guy have a job in the future?” “Yes he will.” “Great.” And they check that off their list.
I have seen these lists their from a legal sized piece of paper and the smallest print you’ve ever seen with a little check box, everything next to it that they have to check off all the way down the row and if there’s anything in question, they get it underlined and it goes back to my office, they send that thing to me and I’ll get these messiest things that I’ll have to go through and say okay, we need to prove that you will keep this job and we need to prove that you were out of work for those two months as to why you missed those two months of work because they don’t like the idea that you were out of work for two months and we have to write a letter, you know, like I have a neighbor whose grandpa, grandfather died so, he had to take two months off work to help his mom and his grandmother to through all this funeral stuff and get rid of the house and, you know, all this stuff that you just couldn’t do on a full time job.
So, a lot of that, I mean, when it is manually underwritten it doesn’t go off to lets say the computer or off to, you know, it takes a little longer, definitely, because you have manpower involved, instead of just computers, but there’s a lot more heart to it that you can really say, hey, you know, this is the deal, these people really are sincere about wanting to buy this house and that’s where the letters come in, you know, and that’s kind of what loan officers get paid to do.
A lot of times, just making letters, making a good case for their client making sure that that bank knows these people are willing to pay, they have the means to pay, and you know, if even that they have people in their family who are willing to help them out because if you get, you know, gifting and, you know, that kind of a thing then, you know, that, it’s either a good thing to some lenders or a bad thing to some lenders depending on the lender, but”¦
Paul: Okay. Okay, so maybe we could walk through this just a little bit. When you, as you go through your mortgage process you’ll get a good faith estimate, right, of what you may have to come up with or the various fees, etcetera. If, maybe we could go through what, you know what those various fees are and what, what, you’ll always be there and what may mask some other types of, you know extra add-ons?
Janeen: Definitely, okay, so pretty much you’re good faith estimate anymore is becoming extremely important to all the government agencies, state agencies as far as not hiding fees and totally putting it out there for people to what it is. It’s a lot easier to read then they were in the past, I know they still are long and most of you don’t understand, but basically right at the top is loan origination fee, and then it’s paid to, and then it’s the broker or the lender or whoever’s doing the loan, usually the broker or the bank and they’ll have that bank or that financial institution name right next to it so, there’s no getting around that and a lot of banks will charge between 2 and 3 points they’ll say.
Forget the word point and just put the word percent. So, basically, 1%, I would charge between a half and 1% depending on if it was family or close friends or just someone that was referred to me. So, the thing is it’s 1% of the entire loan amount not just a commission amount or whatever, it’s 1%. So, if it’s a $400,000.00 loan that’s a $4000.00 commission.
Janeen: Okay. So, that’s another thing that we do for the $200,000.00 loan, I’d say, well, maybe .75, you know, just, just, you know, so I make something off the deal, you know, (25:05) because you know, you get taxed on that and I have fees taken out of mine , our checks as well, we have fees taken out of our checks as well, like not just taxes, but fees you have to pay into the business and other things, but, then the next one is loan discount fee.
Now, this is if the lender is giving back some sort of a discount and so that could be, if you’re going to buy the loan down. Let’s say they say we’ll give you 5 ¼ percent on your loan or, you know, if you want to pay, you know a ¼ percent we’ll go down to like, you know, it was never very much, it was always ridiculous, like instead of 5 ¼ they’d go to oh, 1.525, but you have to pay ¼ and that’s a ¼ percent of the entire loan.
Janeen: You know, on a $400,000.00 loan that’s another $1000.00 up front paying to buy that loan down. By an 1/8 or 1/16 then it will be worth it, you know?
Paul: Yeah, yeah.
Janeen: So, that’s”¦ I see people get ripped off all the time doing that and it’s like, awe, you know, and what I do is I take $1000.00 and I take that 1/8 of a point and how much, what’s the dollar amount between the 5 ¼ to the 5 1/8 and if it’s $25.00 and I’m paying $1000.00 for it how many months is that going to take me to get that back?
Paul: Right, right.
Janeen: You know, if it’s two years and you know you’re going to stay at that house, like I did, buy that loan down, the one that I’m in now, I wanted a 15 year and I wanted a certain rate and he goes, okay, it’s going to cost you $1500.00 to do that and I say well, between the 15 and the 30 year, and that rate’s so much lower, you know, it’ll take me after 8 months I will have made back my $1500.00 and from that day on I’m, then I’m really saving the money. So, I’d say anything under, you know, 15 months down, it’s almost worth it if you’re going to be there awhile. You know, to save another, I don’t know, another $175.00 bucks a month, it’s worth it. You know
Janeen: But, sometimes if it’s just $25.00 or $50.00 even is like, should I pay $1000.00 for it, I mean, how many is, that’s forever, you know, that’s too long and it’s just not worth it and then that’s another $1000.00 in that banks pocket because, you know, you defected by the rebound. Appraisal fees, they’re about 500 to 550 that’s just how much they are any more they they’re, you know, I used to have an appraiser that I worked with all the time and he gave me really good rates and then all of a sudden you can’t even call your own appraiser anymore, you can’t ask him for comps to kind of say well, give me an idea of what these people, you know, what they could get, this is for refinances, it was really, I had a great relationship with a guy and he was super nice and super helpful and then all of a sudden they said you no longer can talk to them because they think we’re persuading them on what to appraise the house for , well, no I mean, he’s not willing to lose his job over this persons refinance they don’t even know this person from Adam, but for whatever reason a lot of this crazy stuff, I don’t even know how old I, all that stuff played out with the appraisers and some mortgage people, but illegal stuff happened and things were pretty (28:22) where they shouldn’t have been and kind of”¦ Anyway, that’s a fair fee of the appraiser. Credit reports”¦
Paul: Yeah, yeah, it sure seems like it swayed when we originally bought our house here and we did a refinance we had a crazy appraisal fee for our house, I think it, it’s something like, and it was $150,000.00 that we had gained in about a years time and then we just refinanced again recently and is part of the Freddie Mac relief refinance mortgage law and when the highly conservative roll now, but it’s like the pendulum won so”¦
Janeen: Well, the markets done that too, but mostly it’s all this appraisal fraud that went on and it doesn’t help anybody, when you’re working in the business and you’re seeing this happen, like who does that help? I mean, nobody, really. I mean, the banks are thinking they’re buying paper to a house that’s worth a whole lot more than what it is and that’s not fair to them the owner is taking out way more money than they can really afford to pay back and then when they’re upside down two years later when everything just kind of falls out, who’s left holding the bag of these banks?
I mean, because they allowed it to happen. You know and they were, it’s crazy. Okay, next one, credit report, that’s obviously, they’re around twenty bucks, twenty one dollars. You either pay it up front or you pay it in the, on your good faith at closing. Lenders, inspection fee, I never used that, I don’t know, I never used that fee so, I guess if the lender wanted to inspect the house there would be a fee for that. That’s kind of ridiculous, usually, the buyer has an inspection and that’s all you need.
Janeen: cart blanc is never attached to the good faith estimate that I’ve ever seen.
Janeen: So, you just pay that on your own, if you’ve got a buddy of a buddy that knows whose a good inspector, you know good houses, you know, I’m going to get under there myself and check it out and make sure there’s no termites and all that kind of stuff.
Paul: Right. Right.
Janeen: But, it’s important for buyers. Mortgage broker fee that is in lieu of or can be the same as origination fee there should never be both of those usually just one or the other, they’ll loan origination fee or the mortgage broker fee”¦
Paul: Why would those two be different?
Janeen: Well, if the mortgage, I guess if the mortgage broker”¦
Paul: Would that be so if, say I, if I was a mortgage broker and I originated in the banks loan would they, could the bank require a loan origination fee and then I put my mortgage broker fee on top of it or is that not a”¦
Janeen: I don’t think so. I know you’re not allowed to put things on both lines. It has to be one or the other. For the company that I worked for I think we either put one or the other. Basically if it’s a mortgage broker fee is (31:15) refunding a loan and loan origination fee is, we’re just originating the loan. Just making the loan happen. You know, like going to present it to another lender, that type of thing.
Janeen: So, I was always told you could never have both, it has to be one or the other and any more our company’s, like just put it on the top line. Don’t ever bother with ever putting anything on the second line it’s just there’s no reason for it. So, it’s (31:40), but tax related service fees, (31:49) okay, I’ve never used that either. Processing fee, now there’s a processor and she is my right hand gal, shes the one whose processing between me and the lender, I don’t ever get to talk to the lender, underwriters are never going to have any dealings with those people.
She’s your go between gal and she’s the one who, if she moved from a company, I moved with her because I trusted her with everything with all my loans I mean, you have to be a really reputable person because you’re getting, I put this tax together and I have to send it off to her and you need to trust who that person, that loan, who that’s going to they’re going to process it based on because they’re going to do calling the companies to make sure the person works where they really do work and getting that paperwork together.
They get your tax copies from the IRS if they’re needed they put the whole package together and find out what every lender, exactly what they want, I may provide lets say a hundred pages, but really she knows that’s just my standard thing to her. I just make it as easy as possible and I give her every bit of information that I possibly think that the lender would want and then she picks through every little bit as far as you know, what bank statements, which retirement funds, which (33:02) they want she’s the one that sends it off to them and gets the correspondence between the actual lenders while I’m out talking with my clients or telling them, you know, this we need and so I talk to the clients she talks to the banks and that’s about it.
We the only way we come together is between her and I so if the lender wants another letter of explanation she tells me exactly what it needs to say and what it needs to explain, I’ll go to my client and say, we need to write this up, let’s get it together, get it off to her so she gets it off to the banks. She’s your go between the banks. She’s the one running the circus basically as far as (33:37). The underwriting fee is always paid to whoever is underwriting the loan whether it’s an in house underwriting fee, it will say underwriting paid to the lender or paid to the broker if the brokerage is actually underwriting the loan.
Anymore, I think it’s more going towards, unless they have an in house underwriting or doing specific companies that you have a really tight relationship with and we trust you to underwriter their loan. It’s, your not going to have a whole lot of choices when you just do in house underwriting.
Janeen: Because you’re not going to underwrite for everyone that’s for sure, but the underwriters the one who the processor talks to on the banks side and makes sure that everything’s coming through exactly the way her bank likes it and it’s got to be a perfect package, she has to present it to her manager at the very end and say look here’s what I’ve received from the processor, from you know, (34:29) where I work and so she’s their processor if you will, but it’s called the underwriter. She’s the one making sure that whoever is going to buy this loan in the end is going to buy it because she, she’s scrutinizes it enough.
Paul: Okay, and what’s a typical fee for that?
Janeen: $595.00, $600.00.
Janeen: And processing $495.00 to $550.00 maybe just dependant, you know?
Janeen: Still, almost $1000.00 between those two gals or men or whosever doing the work.
Paul: Right, right.
Janeen: Wire transfer fee that kind of stuff bugs me because what if (35:05) what if it was always Fed Ex’d or what if it was always faxed? I mean, we put in like, $10.00 sometimes just so that it did cover it, but in the end when escrow comes and there is no, especially where the escrow come in, if there was no wire billed necessarily nothing wired, it just comes off, but you may see a wire fee no more than $10.00, $15.00. The flood cert. that’s $10.00 it’s always $10.00.
Every home, I don’t care if you live on top of a mountain, they’re going to check for flooding. It’s just that every state requires it because it’s just easier that way they just blanket every property that comes through goes through this company that checks for flood and no you’re not in a flood zone, you’re cleared, you’re done it’s on your title and you’re cleared to go. So, you’re always going to see the flood cert. Now (35:51) premium this is the best number whoever’s working the loan because this is the eye opening one because (36:00) premium paid to the broker by the lender.
I’m like, oh well, I don’t pay this, this isn’t a fee I pay, but let me tell you, you do in the end. You’ll see numbers there four thousand, five thousand, six thousand and it’s like oh, you know, that’s just the fee, I was still always very uncomfortable going over that line with my clients because (36:35) well, that’s the fee the lender, the bank is paying me to sell you this loan. So, basically I set that fee, I could, if it’s a, lets say, lets just say there’s a range, there’s always a range of about six different, you know, all breaking up within eight, six different rates. So, at 5% it pays back lets say .125 percent of the total loan, okay?
At 5.125 it’ll pay back, borrow, let’s say a quarter point, a quarter percent of the entire loan so at 5.375 all of a sudden there’s a jump, it pays back 1.15 of the entire loan so whether they make $1000.00 commission from a bank, I give you 1/8 point higher rate I’m going to make almost, you know, $4000.00. The back end that’s where people make their money. So”¦
Paul: And in the meantime you can get a crummier rate just because they’re trying to get more in commission.
Janeen: Yes, and the gal that trained me, I won’t name her name because I don’t deal with her anymore, she’s like two on the front and two on the back, Janeen, that’s how it works. I said, and the first loan I did, guess was for my mom and I said yeah, I’m not going to do that, she goes, are you kidding me, rates are great right now and they are great, when the rates are good and they pay good because people are used to seeing 6% and all of a sudden when they drop down to 5, I can still (38:10) an a half and make a flood of money on the back, right? So, it would be like, oh boy, what should I do? What should I do?
For me it was always like I would say I want 1 point total. I will usually break it in the front and have them pay up front for it and then get the best rate I could and get a half point on the back. That was me. I was happy with 1%, if it was crazy, I didn’t do crazy big loans, like $500,000.00, $600,000.00, so that would be a different story, I think. I’d have to be because I just can’t. I (38:43) people’s money. So, I was like uh”¦ So, for me I think that was fair. I was getting paid for my work and fair compensation for the lender.
You know and I’m happy to make one whole point total or you know, then that for me was a fair loan, but there’s a lot of people who say two points on the front, two points on the back and that’s what banks will do, they’ll say two points to buy this loan, two points on the front so right off the bat I’ve got a $400,000.00 loan they’re making $8000.00, but then whatever rate they sell you on the back, you look at the YSP and you see, you can figure out what percentage that number is of your total income that’s that percentage that persons making on the back.
Janeen: So, that’s the big secret right there, but you know”¦
Paul: Yeah, and”¦
Janeen: “¦and so, how do you compare those? How do you compare loans? All you want is the best rate possible and unfortunately as volatile at the rates were, even a year ago, they were 5% one day and I’m not kidding you, a week goes by, two weeks goes by when it’s about time to lock the rate for these people because, the thing is, you go and lock rates in for so long and it was my job to find it and I would get up at 6 AM every morning to see if the rates were going to go up or down, based on what they were doing in New York and I would check it, check it, check it and I noticed there was a trend at about 2 PM every day they dropped.
So, I would call up my thing and at 2:00, it would almost be like those ticker people, you know, that you see at the New York Stock Exchange? That’s the game I played for my clients because I just wanted to make sure that, hey, if it dipped I’m dipping with them, I’m going to pick that because all I’m looking for is a half percent for me. So, if I can get them at 5% and I get a half on that, awesome, but there was times when they went up and the best I could get you is 6%, you know, because I gotta get paid, you know, I can’t do this enough (40:37-38) and some people that did and some people that didn’t, but that’s a game you play with that.
You really try to get the people the best loan, but I have so many people who were just like, they were doing so many loans, I don’t care whatever it is today, just lock it. I want, they would just tell their person I want 1 ½ on the backs of whatever that rate is that’s what you give them. Okay, and then they would call and give some sob story and say, wow, I’m really sorry you didn’t qualify for that rate. Bull, you qualified for it; I wasn’t willing to sell it to you.
Paul: Yeah, yeah.
Janeen: So, anyway moving right along, let’s see, title charges, you’re always going to have escrow, your, you know, and that’s, it’s based on a percentage of the house and you can pick up an escrow table anywhere, really, you could go online and just look up, you know, Pacific Northwest Highland Escrow and look up their escrow fees in their charts.
There’s a title fee and an escrow fee. Refinances, they do kind of flat line it like 450 for a refinance. They’re not going to charge you all of the escrow fees that they do on a sale because a sale is a lot more involved than a refinance. So, they’ll have flat fees on refinances, but there’s always going to be a varied fee based on the loan amount for purchases.
Janeen: On the escrow. On the title it’s always a little higher then the escrow, always and it’s only on the fees chart and, you know, if the house, if the house, if the loan amount is $400,001.00 to $450,000.00 it’s this fee, you know, it’s a total chart. There’s no guessing or it’s not a certain percentage. I’m sure they have some sort of system they use, but those are always going to be there. Notary fees, you know, it depends on the title and the insurance company.
I always chose companies who were first, close to my clients, but more importantly at good rates. I knew they (42:36) person. If I had a client who they needed to have a notary go out to the house after hours because they’ve got little kids, and they’re, you know, they’re parents and the dad doesn’t get off until six, the banks are closed and you can’t go get it notarized somewhere else, the escrow company it is for nothing.
So, $50.00 is a fair fee, but I’ve seen them higher and it’s kind of ridiculous. So, you know, I have a tough time dealing with some, only with real-estate agents because they’ll just choose whoever their buddy is and they’ve got some escrow company that they really want to use and I don’t know if they get some kick backs or whatever, but it’s like, are you kidding me, they’re like the most expensive one you can use and they’re all doing the same job. You know what I mean?
So, I should shop around especially for refinances. I’ve got one company that I knew would only charge a flat fee for no matter how expensive the house was and that’s how I would deal, so, you know, and they have to be nice to work with and (43:24) you’re probably going to have that because you’ve got to get documents from escrow (43:28) the very next day by 9:00 to fund a loan. So, those fees are going to be in there. Re-conveyance you’re only going to see that usually with a refinance.
Janeen: Because they have to, well, you know, yeah, yeah, because that’s just re-conveying the loan with the county and someone has to do it, but these email dock fees stuff like that, that’s just ridiculous. You know, you shouldn’t have attorney fees unless you hire one there shouldn’t be any fees.
Janeen: Document separation fees there shouldn’t be any of those, I mean if the escrows come their just doing their job, their getting paid well for it, there’s no reason to add all these extra little fees in there.
Janeen: Recording fees we’re always going to have your recording fees at the government recording fees, it’s a standard $75.00, usually. Let’s see moving down, pet inspection, that’s extra stuff and then you get down into your items to be paid in advance. These are your estimated closing costs. That’s going to be your interest, your mortgage insurance, your hazard insurance.
The tough thing for people to understand is the interest. Is because we’re like, well, why am I, you know, it’s basically if you move into an apartment fifteen days into the month you’re not going to pay the first fifteen days they’re going to, you know adjust that fee for you and you’re only going to pay for half that month the same way is if you move in, because you’re always paying in the arrears with mortgages.
That’s why when you refinance, oh great I got a month off with no mortgage, not really, because of these interest payments, the interest so, what they’re figuring is that okay, when you take the loan over and you start paying for it in May, you’re really paying for April. So, if we closed this loan sometime in March, well, somewhere that loan converts or somewhere you take over the loan and it’s yours, the house is yours.
Whatever the closing date is that’s the date you own and start to pay every single day that days of interest. In the (45:31) that I’m looking at right now the days of interest is $30.00. So, from the date you sign and it’s yours $30.00 a day is your fee.
Janeen: So, you’re pre-paying in interest, you’re prepaying for the month that you’re going to live there and until your first payment starts. So, if you move in on the fifteenth, well, what you’re going to pay for the month of April and the fifteen days prior to that if you move in March 15th and your first payments not going to be, you know, until May. So, I’ve got people saying, wow, man, I didn’t plan on coming to the closing, I didn’t plan on closing and coming to the tables an extra $400.00.
Well, you know, for whatever reason the paperwork didn’t get to me fast enough, I couldn’t get to my processor, we didn’t get this loan closed when we wanted to or closing early or not closing at the end of the exact month so you don’t have to pay another day or, you know, sometimes you get interest credit. If you move two days into the month they’re going to credit you two days and then start, you know, the following month, so”¦
Paul: Okay, yeah.
Janeen: That’s just interest and you know, at one point, I said not one day will this house not be paid for to the bank, so either your paying for it by interest or the dude who’s selling it is paying for it. Do you know what I’m saying?
Paul: Right, right, right.
Janeen: So, that turns out like, oh, okay I get that. Like, you’re not going to let, I don’t know, there’s just not going to be no fluff day where five days go by and (46:47) ever. Never! Mortgage insurance now, that’s if you do have mortgage insurance you’re going to usually pay one year premium right up front it depends on the kind of loan you have. So, that’s something you’ve got to start thinking about paying in advance.
Hazard insurance, they’re always going to ask for one year in advance and four months in reserve. Now, the reserve is your own private escrow that the bank holds for you so that’s going to be, you’re going to pay reserve months up front as well. So, if you pay one month, lets say your house has an insurance premium for one year is $799.00 they’re going to take four months of that which is $6663.00 and hold that and charge you right up front to hold that in a bank account for you come the next year to pay that year off to pay the next year off.
You’re paying this year up front as that next year rolls around they’ve already got the money sitting there waiting to pay that bill for you. That insures that your house, that they kind of own, because, you know, they fronted the money is going to be insured the whole time.
Always insured, never going to go behind. So, they need that up front and they used to not do that about five years ago you had the option do you want to include your taxes and insurance? You do not. Now, they’re like, it’s included. If you don’t want it included it’s going to cost you another quarter point in your rate right on the top. So, that’s what they do to make sure that their house, basically, their house until you’ve paid for it is going to be covered by insurance.
Janeen: School taxes (48:19) taxes and again the same thing for the property taxes is that they take the property tax and divide by 12, they’ll collect, depending on where you are in the cycle, you know, every April 30th and October 30th you pay your property taxes, the 31st. Pay your property taxes, well, if we’re, lets say we’re going to close this loan in July, they’ve already received the Aprils, they’re still waiting for Octobers and then it takes six months reserve of your property taxes and hold that until it rolls around until you pay your next property taxes.
Well, they’re due in October they’ll pay them for you, but they’ve still got to reserve for the next time and there’s always a flush in there and at any time you can call the bank and what’s in my reserve, or when you get your statement you can see what’s in your reserve, but you know already how much needs to be paid out if their over, I think it’s like, $1200.00 in reserve, over in reserve there’s going to be $1200.00 left at the end of the year after they pay your October property taxes you can ask to get that money back.
Like your, you know, the thresholds too big, most banks, it’s not even worth the effort to have people call them or get their hands slapped in trouble, so they’ll just send you a (49:30) well, all of a sudden I got this money back and I don’t know why, well, because they’ve been holding on to it longer than they needed to and the property taxes went down, you know, your home insurance went down or it didn’t go up like they thought it was going to so, they’re holding on to too much of your money and there is a, I can’t remember what the exact number is, but there is a threshold that they cannot go over and it holds your money.
Janeen: Which is kind of nice to know and when you do get refinanced or you do sell, banks don’t swap escrow money. So, where you have to come up with this again when you buy a new house, refinance again, any money that’s sitting in that reserve, at any point, all that money is yours and will be coming back to you. It can take 6 to 10 weeks. It can take awhile for (50:09), but it’s your money and they’re holding on to it.
Janeen: So, those, the fees that, you know, I saw every single day, those are the basic ones I don’t know that there is, I’m trying to look here, (50:25) that’s if you’re doing a VA loan, I mean, there’s all different fees that can be on there, but (50:30) just don’t get used. You know, if you (50:32) you know, basically the process would be underwriters and your appraiser they’re going to get paid. Their doing a good job they’re working the hardest, they’re doing the job. Any other piddly things that you see that you don’t understand, you question it, say what exactly am I paying this for? What is this? What is that?
And then they’ll give you a good explanation, if not, you take it off. You know, I’ve (50:56) and I’ll ask the escrow agent, why is this currier fee, who used the currier to determine this fee, oh yeah, we should have taken that off, well, okay. You know?
So, I had every escrow company that I worked with I had them send me the HUD1, which is the final, final before I even went to meet with my client at the escrow office, you know, that afternoon and I would go through that with a fine tooth comb comparing to the numbers that I quoted and if I was within a $100.00 I did my job. If I was outside of a $100.00 I felt like, okay, something’s not right here and I would backtrack, okay well, we did move their closing date, we did move, you know, they did, they had (51:35) and a whole lot more than we had guesstimated.
So, I wanted to have answers for people for when they came to the table because I knew, people didn’t just want to waste money. You know, and I’m the same way, I’m a penny pincher to the end. So, if somebody came to me and said well, what’s that $75.00 I better have a good answer, you know, or at least have it taken off if it’s incorrect.
So, I have to say every single HUD1 that I looked at I’d say 98%, it was wrong by more than a $100.00. By more than $100.00 sometimes up to $400.00 and I had to have it corrected before I got there, but if you don’t have a loan officer who’s looking at that you just paid $400.00 more than you needed to because someone had an error. There’s so many hands in the pot for working a loan, it’s just ridiculous, but that’s just the way it is.
Janeen: So, you’ve really got to scrutinize and you know, and have someone there, question everything, you know, and if, most of the time it’s legit, you know that person really did do their job and they deserve to get paid, but sometimes (52:33) hit me right, I don’t know about that, it just doesn’t seem right, you know and if they can take it off, they will if it’s not supposed to be there because they don’t want to get in trouble later, but you know, it’s just, like I said, there’s a lot of people touching the loan and moving the paperwork and you know, it’s just a lot of information that, it’s all quite secure, you know, my Fed Ex it gets to places, it’s not like it’s just, you know, thrown in a file and you know, around the room, but there’s a lot of, a lot of hands touch these files.
Paul: Yeah, yeah.
Janeen: Make sure that all the numbers are still jiving and everything adds up in the end and you’re not paying more than you need to.
Paul: Yeah, okay. Well, great, gosh thank you so much for taking the time to fill us in and I think I learned quite a bit. I was, as you were going through that I was looking through my last good faith estimate when we did our refinances, still trying to and I had some (53:25) questions on that whole yields spread premium because there wasn’t any originating fee or mortgage broker fee with mine and I was trying to figure out how they were paid. Yes, exactly.
Janeen: No one works for free. Right? So”¦
Paul: Yeah, yeah.
Janeen: So, sometimes it’s almost better to say like, if they’re not, if it’s all a free loan, if they’re saying we’re not going to charge you any fees, okay, first of all no one works for free. So, right away you know something’s up, but not necessarily up, but there’s another way that they’re looking at and that’s the way they get their payment, you know, if it’s a premium, so you, at that point, you’re kind of at a point where it behoops you to say well then if I get, you know, what will it take for me to buy my rate down, you know ½ a point.
That would make a difference in your mortgage and if it’s like, you know, 1 point, for a whole 1/2. Geez, that could be worth it to you because you’re not paying it up front anyway. You know, unless you don’t want to pay nothing and it’s fine and you’re happy with your rate, but that’s where you have a little leverage, I guess to say, well, you’re not charging me on the front so obviously you’re getting paid by the lender so, hey maybe I’ll buy my rate down and then that’s where you can go on and pay to have the rate, tell them what the best rate that they’re going to give you first before you tell them you want to buy your rate down and then (54:42) 5 ½ is the best that I can offer you?
So you say, well, what if I wanted it to be a 5 how much can I buy that, how much would it cost me to buy the rate down to 5? And then they’re going oh, my goodness, you know, let’s talk about it, okay, cool. Well, lets see here maybe it’ll be about 1 ½ points, well, you know that’s 1 ½ % of your total loan and then you say, and then you get to ask yourself how many months is it going to take me?
How much more lower is my rate going to be? Divide that by how many, you know, but the dollar amount of the difference, you know, if it’s $500.00 or $300.00 a month, divide the $1500.00 you’re paying, well, okay that’s three months, four months, ten months, eighteen months, that’s worth it to me.
Then I know I’m really saving this ½ percent. It looks good on paper, but really I, you know, I’m paying up front, so after eighteen months then I’ll be free and clear and really making that $500.00 back every month, so.
Paul: Yeah, okay. Okay, great, well thank you so much again, Janeen, this has been an eye opening conversation and I think this is kind of a must listen for anybody who’s thinking about getting a mortgage or a refinance especially in light of all the goings on in the economy and being where it’s at, so I really appreciate it.
Janeen: You’re so welcome and have a good night.