News!
I am proud to announce the launch of my new website -
Virtual Loan Pro. This website is the successor of MichiganLoanOfficer.com and will be directly linked to the Honest Mortgage Answers website. As of March 12th, the MichiganLoanOfficer.com website will be obsolete and will be redirected to the VLP website. I appreciate everyone's patience during this time. As always, if you have a mortgage or real estate related question, please feel free to contact me.
Posted by Jason Lash at 10:09 PM
Escrow Account Confusion
One of the most difficult things for borrowers to understand is the way an escrow account works for them. I always make it a point to explain escrow account information to all of my clients (unless they prefer not to know about it) so I thought I would post about it here as well. An escrow account is an account in which the lender holds a borrower's money in a non interest bearing account for future property tax and homeowners insurance bills. Okay, that is easy enough to understand but how do they calculate how much to hold at closing and why is it so much??? I will try to make this as easy to understand as possible.
All Michigan real estate owners have 2 property tax bills due every year. For the most part, these bills are due on July 1st and December 1st. Let's say the closing on your new home takes place on March 30th. Your first mortgage payment is not due until May 1st. With every principal & interest mortgage payment you make, you also send 1/12th of your July Tax Bill and 1/12th of your December Tax Bill (Tax Bill divided by 12 = 1/12 of the tax bill). By the time July 1st comes around, the lender would have collected 3 months of mortgage payments and 3/12ths of your Summer Tax bill, right? Right. You are 9/12ths short on your Tax Bill. Well, this 9/12ths of your Tax Bill will be collected at your closing on March 30th by the bank/investor and they will most likely add another 2/12ths for a cushion in case your Tax Bill increases in July. Understand? I hope so.
It works the same way for your December Tax Bill. If your closing was on March 30th and your first payment is due on May 1st, how many payments will you have made by December 1st? The correct answer is 9. Your lender has collected 9/12ths of your Winter Tax Bill. You are 3/12ths short, right? Nope, your lender collected 3/12ths at closing and an additional 2/12ths as a cushion in case your tax bill increases. This will work the same way for your homeowner's insurance premium that is due each year.
In addition the above math, there are Federal Regulations that dictate exactly how much a lender can hold in your escrow account. If the above math equals an amount over the Federal limit, you will receive that money back at closing in the form of an aggregate adjustment.
Well, some of you may have tax bills that are due on different dates. If that is the case, the math is still the same. Take each tax bill and divide by 12. Count the number of payments made before each tax bill is due. Subtract that number from 12 and you have the total number of monthly tax payments (?/12) that will be collected at closing (you may want to add 2 months to that figure for a cushion so you are not caught off guard when the lender does).
I hope you find this information helpful come closing time. As always, if you have a mortgage or real estate related question or if you would like to do business with Alex Toth, the Michigan Loan Officer, please feel free to call me at 877-300-9378 or
email me anytime.
Posted by Jason Lash at 11:34 AM
Tough Love
This week I have had some thoughts and questions come to mind that I think every mortgage professional asks him or herself but refrains from asking their potential clients. Questions like:
If a person loses a home to foreclosure, what makes him or her think that he or she should purchase another home 3 months later?
If it wasn’t the customer's fault that they had several credit cards charge off with $2000 balances or higher, then whose fault was it?
Why does this customer feel that they qualify for 100% financing and can purchase a home with a credit score of 530?
Why does the customer think they deserve a lower interest rate when they had a bankruptcy discharge 2 weeks ago and they have no money down to buy a home?To sum up these thoughts..... it is time that people take responsibility for their actions. I know this is blunt and may come off as brutal but it's true. I know that the advertisements on TV are appealing and the pressure to charge now and pay later is great but no one is holding a gun to to the buyer's head. Yes, I feel that there should be a class taught to High School students on the consequences and responsibilities of credit. The lack thereof does not excuse anyone from irresponsible financial dealings.
Don’t get me wrong, I have had hard times myself. I won’t go into detail but I can understand the situation some people may be in. Nearly everyone falls on hard times such as job loss, medical concerns, death, or other tragedies. The question I ask is this. Before the hard times, why do some people make those purchases on credit? Why do they think they need to purchase a home right now? How is buying a home right now going to solve their immediate problems? Why do they feel bitter because they were turned down due to their credit history?
It always amazes me when I meet with someone that is asking for me to put them into a position to fail. Folks, if a person has $25 in the bank and $2000 in past due bills, why does he or she feel that they need to buy a home? Sometimes it takes time to prepare for such a commitment. Most people take what they can get without knowing that they could wait 60-90 days to tweak their credit and receive MUCH better loan terms.
Oh and another thing.... it takes a lot of integrity to sit in front of another person and be honest about credit problems BUT if you are honest in the beginning, it makes things A LOT easier. I never pass judgement on anyone that initially has been dishonest with me about their credit. I know it's a difficult thing to face. I also know it is embarassing for them to find out that the credit report doesn't hide much from me and sooner or later I have to find out what happened.
I may lose business because of this post but I will make some other mortgage professional's job that much easier. Work together with your mortgage advisor towards a solution if there aren’t immediate options for your home loan. Excellent credit is a goal that takes a lot of effort to achieve and maintain. If you have credit concerns or questions, please contact me and I will do everything I can to help, guide, and educate you towards excellent credit ratings and a more secure future.
Posted by Jason Lash at 11:04 AM
Today's Mortgage Broker
The mortgage broker of yesteryear was a bit different than today's mortgage broker. A mortgage broker use to act more along the lines of an agent rather than a loan officer. Here's what I mean. If you're a sports fan then you are probably familiar with certain sports figures that pull in the BIG contracts for ungodly sums of money. Skill and ability have a lot to do with that but the major factor in contract negotiations is usually the athlete's agent. The agent is hired to represent the athlete and secure the best possible terms for him/her. The agent always receives a split or percentage for his/her services but it's a win win situation for both parties involved.
Back in the day, a mortgage broker would search for and secure the best possible terms for his or her client and in exchange for their services, the borrower would pay a commission to the broker. Today's market has changed things a bit and now a mortgage broker generally offers the loan program that provides him/her with the highest YSP (Yield Spread Premium) or incentive to sell a particular program.
I read an article a week or so ago from NAR (National Association of Realtors) that stated that 43% of all mortgage financed home purchase transactions in 2005 were completed with the assistance of 100% financing. Almost 50%!! What that tells me is that there were a LARGE number of home buyers that did not have the cash to put money down. If this was the case, then how could they pay a mortgage broker a fee to acquire the best possible terms?
The truth is that today's mortgage broker is more of a warehouse club like Costco or Sam's Club. Sometimes they have the best deals and sometimes they don't. If you choose to work with an ethical mortgage broker and he/she received a YSP from the investor, you will most likely still be better off than if you went to the bank or credit union. A good mortgage broker has access to a number of loan programs and is constantly looking for better rates and service for his/her clients. It is possible to get an interest rate below the retail going rate without having to pay a large broker fee.
Lastly, never trust the national averages on websites over your broker. Give him or her a chance to explain how they came up with a certain rate or loan program before making a judgement. Mortgage rates for $500,000 homes in California cannot compare with rates on $125,000 homes in Michigan. It's the truth. Several factors are involved in determining interest rates such as loan size, loan to home value ratios, credit worthiness, debt to income ratios, etc. Every wholesale investor will have their own rate adjustments for those things. Another good practice would be to ask your mortgage professional what it is that you can do to lower your rate or better your terms.
As always, if you have a question or a concern or perhaps need a second opinion, please feel free to contact me.
Posted by Jason Lash at 2:31 PM
