Sellsius real estate marketing blog

A.B. Wenzell (1909)

This Open Mike post is by John DiFiore. John is in the mortgage industry and specializes in first time home buyers and those with less than stellar credit. John says this post is meant for consumers, but Realtors can skip to the end for a message. OK, take it away John.

You are getting closer to purchasing your first home so you go online or see an ad in the newspaper advertising 5.25% for a 30 year fixed rate with no points or origination fee. Pretty darn good you say to yourself knowing that the best rate you’ve seen til now is 6.375%. You call and get a VERY friendly and seemingly helpful person who spends a lot of time on the phone with you making you feel good and going over this great loan. The next day after running your credit report, he calls to tell you that your score was not bad but didn’t quite qualify for the advertised rate and that your debt to income ratio was high because of credit card debt so your rate may be slightly higher but not to worry because it will only increase the monthly payment slightly. He sends you a package with disclosures and the rate at 5.75% which concerns you because the payment is now more than just a slight increase from what you were told but it’s still much better than everyone else’s 6.375% so you sign the papers figuring you still have a pretty good deal. However, when you show up for the close, you find out that your rate is actually going to be 6.625% and is an adjustable rate mortgage (not 30 year fixed) and you have a 1.5% broker fee included in your closing costs. You get very mad and call up your loan guy. If you’re lucky and he answers the phone he will tell you that because of “this” and because of “that” the underwriters would only agree to clear the loan at the new rate and terms. Then when you ask him about the 1.5% extra closing cost, he tells you that it wasn’t points or an origination fee, it was a “broker” fee (so you see – technically he didn’t lie). Depending on the loan, points or fees are ok, but you should know what they are BEFORE the close.

So at this point, you really only have two choices:

Option 1: You want very much to hurt your loan guy for completely misleading you about monthly payment, rate and fees and you walk away from the table. Unfortunately, this choice will usually cost you the house you were just about to buy. Yes, the house that you looked for on nights and weekends for months; the house with an easy commute for you, the perfect sized yard, great kitchen, good school, in short, the house you both fell in love with.

Option 2: You want very much to hurt your loan guy for completely misleading you about monthly payment, rate and fees but you sign everything and close on the property because this is the house for you and the thought of starting the process all over again is worse than the increased payments, rate and fees.

(By the way, this can happen on refi’s too, where there also may be pressure to close in order to pay debt obligations as agreed upon).

What happened here?

You got sucked in by an ad showing a very low rate which was probably a complicated specialty loan with all kinds of stipulations including the rate changing each year. Sometimes the rate advertised is real; however, to qualify for it you must be putting down 20%, have a credit score over 740, great income, low credit card debt and significant liquid assets. Really, how many people would qualify for that?

In all fairness, occasionally as things come up during the loan process there could be a slight change in terms. For example, legitimate questions about deductions from your pay check (alimony, child support or a credit union loan), judgments or liens on your credit report, delays getting documents to your loan guy as rates may be rising, you failing to say your income included a bonus or overtime, etc. These things can all affect the rate. That’s why, on the initial conversation, I will only give a range of what I think the rate may be. Then, after having everything I need in front of me, I will give the client a real rate and, if appropriate, lock it in. Remember this: NOTHING justifies a rate or fee increase or a different type of loan without you knowing about it reasonably prior to the close! You should be aware of any changes BEFORE the closing date!

SIMILAR ADS TO BEWARE OF

Ever see the ads on billboards on the side of the highway or on TV, where an unbelievably great rate is advertised in huge print and underneath there is a paragraph on the bottom of the screen for 2 seconds that looks something like this:

Yes, these are disclaimers and conditions on that fantastic deal shown above in the HUGE print. It still may be a good deal but you must ask questions and get a copy of the disclaimers and conditions that you can actually read.

ANOTHER COMMON TRAP

If you do not completely, positively, comprehensively, fully, totally, and thoroughly understand what “negative amortization” is, do not even for a second consider any ads that say you can borrow $400,000 for $1380 per month!. Did I make myself clear on the above point? This is a negative amortization loan with a rate of 1.5%. If you aren’t 100% sure of what the negative amortization option of an option ARM loan means, run for the hills without looking back!

A FINAL WORD OF ADVICE

Believe it or not, there are honest mortgage guys out there. I actually care about my clients and feel personal satisfaction, especially for a poor credit situation or after helping someone buy their first home. If you’re close to needing a loan and want straight talk and candid ethical advice, give me a call if you’d like me to get you a mortgage.

For Realtors: We offer generous RESPA compliant incentive referrals.

John DiFiore, Mortgage Specialist, Eastern Division

Worldwide Capital Mortgage Corp.

877-298-2311

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