A look at how the upcoming tax season will be offering some economic relief.
With the housing market going through a major reset and talk of a possible recession, the government is attempting to stimulate our economy by offering an increased loan limit and rebate plan for tax payers and homeowners. This is not only welcome news for potential home buyers, but also for current homeowners looking to refinance. Below are a few government proposed strategies designed to boost the housing market and your wallet.
The Mortgage Forgiveness Debt Relief Act
As Benjamin Franklin once said, “In this world nothing is certain but death and taxes.” During this tax season, this statement rings true; taxes prevail as the housing market continues to fluctuate and homes drop in value throughout the nation. In order to reduce financial stress, the government has introduced the Mortgage Forgiveness Debt Relief Act.
Although the Act doesn't cut taxes altogether, it does help American families secure lower mortgage payments without facing higher taxes. Before the Mortgage Forgiveness Debt Relief Act was enforced, homeowners were losing money on both their homes and on taxes. Though their lender would forgive a portion of their mortgage, the tax code treated the amount forgiven as taxable income. The Mortgage Forgiveness Debt Relief Act gave homeowners the freedom to work with their lenders, refinance their mortgage and pay no taxes on any debt forgiveness they receive from now until the year 2010. Call Lakewood Capital Inc. today at 888-516-7555 to learn more about the Mortgage Forgiveness Debt Relief Act and your mortgage options.
Tax Rebate Program
In order to jump start the economy, the government is issuing rebates to more than 116 million families throughout the nation. This highly anticipated rebate will provide a much needed boost to everyone's bank account.
The minimum rebate issued to those eligible is likely to be anywhere from $300 to $600 for individuals, with an additional $300 for each child. The rebate limit for families is expected to be around $1,200, more than enough to make a significant dent on any gas and/or grocery bills.
Raising the Roof on Home Loan Limits
Congress is updating the National Housing Act in their efforts to combat the housing market slump. The proposed revisions will raise the limit on Federal Housing Administration (FHA) loans from the current loan limit of $417,000 to a limit as high as $730,000. The increase of the loan limit will not only improve the availability of safe federally insured loans, but will make home ownership more affordable and attainable.
Those looking to buy property are not the only ones reaping the benefits of this change. Homeowners who hold a sub-prime mortgage are also eligible to refinance into federally insured loans. This enables them to keep their homes and avoid the threat of foreclosure. Call Lakewood Capital Inc. at 888-516-7555 to discuss any new mortgage options that you may be eligible for.
Keeping You Informed...
As a borrower, it is important to watch the market and stay in touch with your mortgage professional who is dedicated to keeping you informed of the latest market trends and mortgage options. Take advantage of your mortgage broker's knowledge to improve your home equity and prepare for the opportunities available on the upside of the possible recession. Visit Lakewood Capital Inc. online or call us today at 888-516-7555, to learn more about the most cost-effective loan options that will fit your current situation and help you obtain your ownership goals.
Thursday, March 6, 2008
Credit for the Business Owner
Most of the companies out there have NOT kept up with the changes in the credit reporting industry. For example...
Almost everyone can tell you how to get an 800 FICO score 7 to 10 years from now. Some people can even teach you to fix your FICO score in 2 to 5 years. But what if you're a business owner where the name of the game is to be able to build extensive lines of credit in the name of your business as quickly as possible?
Leaves those offering "Cut up all your credit cards and pay off all your debts" advisors slack-jawed and drooling. They simply haven't a clue, an they represent 99% of the advice you're going to get.
If your goal is business credit, and/or the ability able to walk into a bank and borrow a million dollars on your signature- or better yet- nothing but a handshake, your FICO score will only take you so far. FICO is but one component of the overall picture if you're re a credit builder.
Therefore, EVERYTHING you think you know about good credit mgiht be useful if you're the typical, undisciplined consumer, but way wrong if you're a business-builder.
FIX IT
If you want to STOP BAD CREDIT and put yourself on the ROAD TO GOOD CREDIT, you need to remember the Three Magic Words for Credit Repair : I DON'T RECALL.
Contact the credit bureau- especially on old lates but DO NOT do ANYTHING to confirm or deny the remark. For old, closed accounts simply state, "I do not recall being 30 days late on my Discover Account in August 2003. Will you please look into it? If you cannot verify this information in 30 days, please remove it." They will likely not even research this. They'll just remove it. (Hey, they're just employees doing a job- they don't want to have to work. I'm not telling you to lie, so don't anybody get off on a tangent and miss the point: So you remember- tell the truth. "I noticed that my report says I was 30 days late on my Discover acct back in August 2003. It's not like me to be late. Will you please look into it..." It's true: you noticed it, and it's not like you to be late- is it? OK then. Remember, you're innocent until proven guilty- it is not incumbent upon you to admit fault. It's their job to document it- if they can't then don't make it your problem.
INVEST in credit repair. Don't cheap out and wait for that Government mandated "freebie" blended score thingy. Get individual reports- reports from each of the individual credit bureaus. When you do, it's free to handle much of this on line. If you're just that cheap- you may be entitled to a free credit report direct from the bureaus under at least one circumstance. You may know that identity theft is the number one non-violent crime in the country. It's more likely than any other non-violent crime to happen to you. Given that identity theft is so prevailent, do you believe you may be a victim of identity theft? (Are you worried, yet?) If so, the credit bureaus must, by law, send you a free copy of your credit report.
Here's how to contact The BIG Three
Equifax 1-800-685-1111
PO Box 740241
Atlanta, GA 30374-0241
www.equifax.com
Experian 1-888-397-3742
PO Box 2104
Allen, TX 75013
www.experian.com
Trans Union
PO Box 1000
Chester, PA 19021
www.tuc.com
The FIVE components of a credit decsion:
Character: Probably the most important that you have control over. Your FICO score is a part of Character- but not all. Other examples include documented paid private notes, and letters of recommendation, as well as other factors like your standing in the community. There are ways to defend your character as well. For example, to defend against a few minor dings in your credit report- you might want to walk in armed with the credit report of your lender? How are THEY doing? What's their track record? Debt ratio? etc. (If you're tactful, this can be extremely effective. Knowledge born of research gets respect).
Capacity: Capacity is your ability to repay the loan- it's generally your income. Lenders like you more the better your capacity to repay. One way to enhance capacity is to explain any expected future income, or increase in income.
Collateral: Specific asset used to securitize a loan. To enhance Collateral- you could offer cross collateralization- like a "blanket" mortgage that covers more than one property.
Capital: How much are you worth? The loan may not be secured per se, but the lender may want to know there's something behind you.
Conditions: Conditions are generally out of your control. Conditions could be the market at large, or it could just be the conditions of a particular lender. A guest of the Windy City Round Table got a $1M loan to start a business back in 1973 when a million bucks was real money. When they made the last payment in 1980 something- the loan officer that made it was still there. He said, "We never really expected you to last more than a year." Really? "Yes, we had two weeks to loan that sum and you were our chance to do it" Amazing, isn't it? You can "enhance" conditions through intelligence. If you have first hand knowledge of the lender, you may know something that will help you, banking and lending journals and trade publications are a great source.
USE IT OR LOSE IT
This is the one that will absolutely kill you if you're of the "pay off all your debt and close the accounts" mindset. If you don't USE credit, you're going to LOSE credit. Idle accounts may result in your creditors arbitrarily lowering your limits, or even closing the account. The optimum use of credit for credit building is between 30% and 60% of each available line. Under 30%- think again. Creditor may reduce credit line, or even revoke it altogether. Between 60% and 75% is not bad, but it is not in the credit building range. 75% to 100% is a giant red flag and will likely be detrimental to your FICO score as well.
What is that SUPER-SECRET FICO FORMULA anyway?
Well it is a proprietary algorythm but there are some general guidelines. They can vary from creditor to creditor, but it helps if you know them generally:
Your Payment History: 35% Goes to Character
Your Credit Use: 30% Use it or Lose it
Length of Credit Hist: 15% Closing that old acct. could shorten it!
Your New Credit: 10% To many new accts? Not enough?
Types of Credit: 10% The more the merrier- car, house, cc's
Credit Leveraging- or, When Rate Doesn't Matter:
You get a credit card, or cards with a nice line of credit. People bring you their deals. You qualify them and their deals. They pay three times the min. payment for three months, and make a final balloon payment at the end. This allows you to build credit at someone else's expense. You make an aggreement to loan the money secured, you get points, and you set the rate above what you have to pay by say 3%. This exact repayment plan gives you AAA credit that you get paid to build.
Three Banks, Three Months, Three A Credit
Here's a great strategy Donna gave us that uses the very definition of AAA credit to give yourself better credit. The amount used in the example was $3,000. You could use $1,000, or $10,000 just as easily for slower, or faster results depending on your goals, and what's available to you.
Walk in to Bank Number One and open A savings account, or short term CD at Bank Number One with your $3,000. Wait four or five days. Walk back into bank Bank Number One and tell them you have a short term situation and you'd like a loan for 1 year secured by your deposit at their bank. They will make you a 12 month 100% secured loan at 5% interest-only with a balloon at the end.
Walk into Bank Number Two and make a $3,000 deposit. Four or five days later, do the same thing you did at Bank Number One.
Go to Bank Number Three and deposit $3,000. Do the same thing. Now, you'll proceed to make three times the min. payment at Bank Number One, then Bank Number Two, Then Bank Number Three and you'll repeat this until you've made three tripple payments on each loan. The next payment you make on each loan will be the full amount of the loan. You have now fulfilled the precise definition of AAA Credit, and the next time you walk into those banks- you'll likely get an unsecured or signature loan. Pretty neat, huh?
Almost everyone can tell you how to get an 800 FICO score 7 to 10 years from now. Some people can even teach you to fix your FICO score in 2 to 5 years. But what if you're a business owner where the name of the game is to be able to build extensive lines of credit in the name of your business as quickly as possible?
Leaves those offering "Cut up all your credit cards and pay off all your debts" advisors slack-jawed and drooling. They simply haven't a clue, an they represent 99% of the advice you're going to get.
If your goal is business credit, and/or the ability able to walk into a bank and borrow a million dollars on your signature- or better yet- nothing but a handshake, your FICO score will only take you so far. FICO is but one component of the overall picture if you're re a credit builder.
Therefore, EVERYTHING you think you know about good credit mgiht be useful if you're the typical, undisciplined consumer, but way wrong if you're a business-builder.
FIX IT
If you want to STOP BAD CREDIT and put yourself on the ROAD TO GOOD CREDIT, you need to remember the Three Magic Words for Credit Repair : I DON'T RECALL.
Contact the credit bureau- especially on old lates but DO NOT do ANYTHING to confirm or deny the remark. For old, closed accounts simply state, "I do not recall being 30 days late on my Discover Account in August 2003. Will you please look into it? If you cannot verify this information in 30 days, please remove it." They will likely not even research this. They'll just remove it. (Hey, they're just employees doing a job- they don't want to have to work. I'm not telling you to lie, so don't anybody get off on a tangent and miss the point: So you remember- tell the truth. "I noticed that my report says I was 30 days late on my Discover acct back in August 2003. It's not like me to be late. Will you please look into it..." It's true: you noticed it, and it's not like you to be late- is it? OK then. Remember, you're innocent until proven guilty- it is not incumbent upon you to admit fault. It's their job to document it- if they can't then don't make it your problem.
INVEST in credit repair. Don't cheap out and wait for that Government mandated "freebie" blended score thingy. Get individual reports- reports from each of the individual credit bureaus. When you do, it's free to handle much of this on line. If you're just that cheap- you may be entitled to a free credit report direct from the bureaus under at least one circumstance. You may know that identity theft is the number one non-violent crime in the country. It's more likely than any other non-violent crime to happen to you. Given that identity theft is so prevailent, do you believe you may be a victim of identity theft? (Are you worried, yet?) If so, the credit bureaus must, by law, send you a free copy of your credit report.
Here's how to contact The BIG Three
Equifax 1-800-685-1111
PO Box 740241
Atlanta, GA 30374-0241
www.equifax.com
Experian 1-888-397-3742
PO Box 2104
Allen, TX 75013
www.experian.com
Trans Union
PO Box 1000
Chester, PA 19021
www.tuc.com
The FIVE components of a credit decsion:
Character: Probably the most important that you have control over. Your FICO score is a part of Character- but not all. Other examples include documented paid private notes, and letters of recommendation, as well as other factors like your standing in the community. There are ways to defend your character as well. For example, to defend against a few minor dings in your credit report- you might want to walk in armed with the credit report of your lender? How are THEY doing? What's their track record? Debt ratio? etc. (If you're tactful, this can be extremely effective. Knowledge born of research gets respect).
Capacity: Capacity is your ability to repay the loan- it's generally your income. Lenders like you more the better your capacity to repay. One way to enhance capacity is to explain any expected future income, or increase in income.
Collateral: Specific asset used to securitize a loan. To enhance Collateral- you could offer cross collateralization- like a "blanket" mortgage that covers more than one property.
Capital: How much are you worth? The loan may not be secured per se, but the lender may want to know there's something behind you.
Conditions: Conditions are generally out of your control. Conditions could be the market at large, or it could just be the conditions of a particular lender. A guest of the Windy City Round Table got a $1M loan to start a business back in 1973 when a million bucks was real money. When they made the last payment in 1980 something- the loan officer that made it was still there. He said, "We never really expected you to last more than a year." Really? "Yes, we had two weeks to loan that sum and you were our chance to do it" Amazing, isn't it? You can "enhance" conditions through intelligence. If you have first hand knowledge of the lender, you may know something that will help you, banking and lending journals and trade publications are a great source.
USE IT OR LOSE IT
This is the one that will absolutely kill you if you're of the "pay off all your debt and close the accounts" mindset. If you don't USE credit, you're going to LOSE credit. Idle accounts may result in your creditors arbitrarily lowering your limits, or even closing the account. The optimum use of credit for credit building is between 30% and 60% of each available line. Under 30%- think again. Creditor may reduce credit line, or even revoke it altogether. Between 60% and 75% is not bad, but it is not in the credit building range. 75% to 100% is a giant red flag and will likely be detrimental to your FICO score as well.
What is that SUPER-SECRET FICO FORMULA anyway?
Well it is a proprietary algorythm but there are some general guidelines. They can vary from creditor to creditor, but it helps if you know them generally:
Your Payment History: 35% Goes to Character
Your Credit Use: 30% Use it or Lose it
Length of Credit Hist: 15% Closing that old acct. could shorten it!
Your New Credit: 10% To many new accts? Not enough?
Types of Credit: 10% The more the merrier- car, house, cc's
Credit Leveraging- or, When Rate Doesn't Matter:
You get a credit card, or cards with a nice line of credit. People bring you their deals. You qualify them and their deals. They pay three times the min. payment for three months, and make a final balloon payment at the end. This allows you to build credit at someone else's expense. You make an aggreement to loan the money secured, you get points, and you set the rate above what you have to pay by say 3%. This exact repayment plan gives you AAA credit that you get paid to build.
Three Banks, Three Months, Three A Credit
Here's a great strategy Donna gave us that uses the very definition of AAA credit to give yourself better credit. The amount used in the example was $3,000. You could use $1,000, or $10,000 just as easily for slower, or faster results depending on your goals, and what's available to you.
Walk in to Bank Number One and open A savings account, or short term CD at Bank Number One with your $3,000. Wait four or five days. Walk back into bank Bank Number One and tell them you have a short term situation and you'd like a loan for 1 year secured by your deposit at their bank. They will make you a 12 month 100% secured loan at 5% interest-only with a balloon at the end.
Walk into Bank Number Two and make a $3,000 deposit. Four or five days later, do the same thing you did at Bank Number One.
Go to Bank Number Three and deposit $3,000. Do the same thing. Now, you'll proceed to make three times the min. payment at Bank Number One, then Bank Number Two, Then Bank Number Three and you'll repeat this until you've made three tripple payments on each loan. The next payment you make on each loan will be the full amount of the loan. You have now fulfilled the precise definition of AAA Credit, and the next time you walk into those banks- you'll likely get an unsecured or signature loan. Pretty neat, huh?
YOU NEED TO KNOW YOUR CREDIT SCORE
BAD credit can disrupt your life. That's why, in addition to paying your bills on time, it is important to check the accuracy of your credit reports several months before applying for a mortgage or car loan. And these days, you also can find out your credit scores - the numbers lenders use to decide how likely you are to repay a loan.
WHY do you need to know you scores? Because the lower your scores, the higher risk you are to a lender and the less likely you are to get the best rates on loans. Checking your score with Equifax, Experion or Transunion (the 3 major credit reporting companies) before you apply for a loan can save you money if you catch a mistake and correct it. When you are buying a home, the difference between good scores and poor ones can translate into well over $100,000 over the life of a mortgage according to Howard S. Dvorkin, president of Consolidated Credit Counseling Services, a nonprofit debt-counseling service.
MOST lenders initially use the Experion score system known as FICO, developed by Fair, Isaac and Co. Several factors go into your score, including bankruptcies, how many years you've had credit and the number of new credit applications you've made. Most consumers FICO scores fall between 300 and 850. Sixty percent score above 700; 27% score between 600 and 699, and 12% score between 500 and 599. The way lenders view scores varies from one institution to the next. But generally speaking, this is a rough guide to how your score may be perceived by a mortgage lender:
700 and above - EXCELLENT - you will get the best rates
680-699 - GOOD - lenders will be favorable, but you should make moves to improve your score further. Expect to qualify for rates ½ to 1% above Excellent ratings.
620-679 - AVERAGE - the lower your score in this bracket, the more collateral lenders will require and the higher rates you may get. Expect to qualify for rates 1-2% higher than Excellent. Commercial lenders will not accept your loan request below 680.
580-619 - SUBPRIME - scores in this range are often referred to as A- credit. You will have to put more down and pay far higher rates than most borrowers. If you score 590, for example, and want to but a car, any loan you get will carry a high interest rate. If the average rate on a 5-year car loan is 8% at the time you apply, expect to get a car loan for 11-13%.
BELOW 580 - Often referred to as B/C-credit, you can expect to only qualify for adjustable rate mortgages (ARMs). Consumers in this range will pay above 11% for mortgages and will need down payments of at least 20% to purchase homes.
MOVES to make a mediocre credit score or even a bad one better are not difficult. You can take steps to improve any credit score. The 1st step is to make sure that your credit history is accurate. Your scores are only as good as the information reported by your creditors to the credit bureaus. Each credit bureau may not have the same information. The 2nd step is to use the information on your credit history to improve your scores. Each credit bureau will list the top 4 reasons for why your credit score is where it is. You may find the biggest reason your scores are low is that the outstanding balances on your credit cards are too high compared to the total credit limits. Any credit score will improve if you pay off balances and pay on time.
WHY do you need to know you scores? Because the lower your scores, the higher risk you are to a lender and the less likely you are to get the best rates on loans. Checking your score with Equifax, Experion or Transunion (the 3 major credit reporting companies) before you apply for a loan can save you money if you catch a mistake and correct it. When you are buying a home, the difference between good scores and poor ones can translate into well over $100,000 over the life of a mortgage according to Howard S. Dvorkin, president of Consolidated Credit Counseling Services, a nonprofit debt-counseling service.
MOST lenders initially use the Experion score system known as FICO, developed by Fair, Isaac and Co. Several factors go into your score, including bankruptcies, how many years you've had credit and the number of new credit applications you've made. Most consumers FICO scores fall between 300 and 850. Sixty percent score above 700; 27% score between 600 and 699, and 12% score between 500 and 599. The way lenders view scores varies from one institution to the next. But generally speaking, this is a rough guide to how your score may be perceived by a mortgage lender:
700 and above - EXCELLENT - you will get the best rates
680-699 - GOOD - lenders will be favorable, but you should make moves to improve your score further. Expect to qualify for rates ½ to 1% above Excellent ratings.
620-679 - AVERAGE - the lower your score in this bracket, the more collateral lenders will require and the higher rates you may get. Expect to qualify for rates 1-2% higher than Excellent. Commercial lenders will not accept your loan request below 680.
580-619 - SUBPRIME - scores in this range are often referred to as A- credit. You will have to put more down and pay far higher rates than most borrowers. If you score 590, for example, and want to but a car, any loan you get will carry a high interest rate. If the average rate on a 5-year car loan is 8% at the time you apply, expect to get a car loan for 11-13%.
BELOW 580 - Often referred to as B/C-credit, you can expect to only qualify for adjustable rate mortgages (ARMs). Consumers in this range will pay above 11% for mortgages and will need down payments of at least 20% to purchase homes.
MOVES to make a mediocre credit score or even a bad one better are not difficult. You can take steps to improve any credit score. The 1st step is to make sure that your credit history is accurate. Your scores are only as good as the information reported by your creditors to the credit bureaus. Each credit bureau may not have the same information. The 2nd step is to use the information on your credit history to improve your scores. Each credit bureau will list the top 4 reasons for why your credit score is where it is. You may find the biggest reason your scores are low is that the outstanding balances on your credit cards are too high compared to the total credit limits. Any credit score will improve if you pay off balances and pay on time.
First Time Home Buyers
Many people dream of owning a home but the home loan process can be confusing for many first time home buyers. Mortgage lenders offer first time buyers with many home loan options and assist the buyer in finding the best home loan for them. First time home buyer programs can offer lower interest rates, low down payments, or reduced taxes.
FHA and VA Loans for First Time Buyers
First time homebuyers often experience the most difficulty amounting a significant down payment and everyone should have the opportunity to buy a home. For this reason the Federal government has developed two loan programs to assist homebuyers that have a little or no down payment. These programs are called the Federal Housing Administration (FHA) and the Veteran's Administration (VA). These programs are not solely intended for first time home buyers; your home loan advisor will be able to determine if you qualify and if so which program is acceptable for your needs. FHA and VA loans can be especially advantageous when combined with a HFA or MCC first time homebuyer program.
Who is Eligible for a First Time Buyer Loan?
First time home buyer programs are designed to help borrowers who may not have enough money to pay the full cost of the down payment or the closing costs on a mortgage. These programs make obtaining a mortgage more cost effective. There are even programs specifically for residents of each state. First time home buyer programs are available to those who have not owned a home for the past three years.
Community Home Buyer Programs
Community homebuyer programs reduce the down payment the borrower must pay to 3%, which must be the borrower's own funds. The closing costs can be gift funds, a grant, or seller assistance up to 3% of sale price. This type of home loan requires the home buyer to take a class on home ownership in their state. Upon completion of the class, the homebuyer will receive a certificate that reduces the cash requirement and expands the qualification ratios. Community homebuyer programs have been making it possible for many people to have the opportunity to buy a home.
What is Escrow?
Escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of an event. In simpler terms, escrow is where the transaction changes hands and prevents the seller from not receiving the money from the sale and prevents the buyer from not receiving the home that was purchased. Escrow is important to both buyers and sellers during the mortgage process.
Mortgage Credit Certificates
A Mortgage Credit Certificate or MCC is a certificate awarded by your local government agency authorizing the home loan borrower to take certain federal income tax credits. The credits awarded help to free up funds and make the monthly home loan payments more affordable for the homeowner. First time home buyers are typically the candidates eligible for an MCC but in special cases that you may discuss with your home loan advisor this requirement may be waived. Income and purchase price requirements also vary state to state and should be covered in conversations with your home loan representative.
At Lakewood Capital Inc. our mortgage brokers offer a wide variety of first time buyer programs. First time buyer programs can make securing a home loan easier and more affordable. Contact us at 1-888-516-7555 to begin your first time buyer loan.
Why Use a Broker?
Well, there are two primary channels that a consumer can obtain a mortgage loan - mortgage banks and mortgage brokers. Each of these groups have their own distinct advantages and disadvantages.
Mortgage Banks:
Generally, when people in the industry refer to mortgage banks, they are often talking about large retail banks such as Bank of America, Wells Fargo, Washington Mutual, etc. What makes these companies mortgage banks is that they lend their own money for mortgage loans. In other words, when you get a loan at Bank of America, they are actually writing the check at the closing.
Mortgage Brokers:
Mortgage brokers are middlemen who put home buyers and mortgage banks together. In other words, mortgage brokers do not actually lend their own money, but coordinate obtaining funds for you among the many different mortgage banks. Most mortgage brokers are small Mom & Pop business that are usually not known outside of their local markets. However, there has been a lot of consolidation in the industry and there are some large brokerages that are gaining in brand recognition.
People tend to favor mortgage brokers because on average they tend to be more competitive. Mortgage brokers do not have an allegiance to one particular bank and have the ability to find the best deals for their clients. When dealing with a mortgage bank, all you have access to is that particular bank's mortgage products and rates, which may or may not be competitive for your situation. Additionally, if you need a niche loan product or have credit issues, you are definitely better off with a broker. I also believe that the best loan officers tend to work for brokerages. Many banks use low paid call center workers and telemarketers to work as loan officers. Also, many loan officers work at banks early in their careers to get training and switch to brokerages where they can earn more money once they have built a sustainable client base.
Many people falsely believe that they can save money by going to mortgage banks directly instead of through a broker. What they fail to realize is that mortgage brokers obtain WHOLESALE interest rates from mortgage banks. The rates that a broker gets from Wells Fargo or any other retail bank are substantially different than the rates that would be offered if you went to that bank directly. The reason is that it is cheaper for a mortgage bank to offer their products to brokers at a discount and allow the brokers to add in their profit accordingly rather than to try to hire, train, and manage their own sales force. Simply put, mortgage brokers are like an outsourced sales force for mortgage banks. The general market agrees with my assessment as about 60% or so of mortgage loans are originated through brokers.
Mortgage banks do have their strengths. First, many people prefer to deal with recognizable brand names. Second, because they are making the lending decision, they can be more efficient in some cases.
The downside to mortgage brokers is that there tends to be a "used car salesman" component to the business. A few bad apples spoil it for the true professionals. With very little regulation and ridiculously low barriers to entry, mortgage brokerages can also attract some shady characters. As a result, it is important that consumers make sure they are dealing with a reputable brokerage and loan officer. Again, it isn't about the interest rate quote, but the person you are dealing with.
Regardless if you choose a bank or a brokerage to handle your deal, it is important to check references, rates, and fees to ensure you are receiving a competitive offer.
When you obtain a mortgage, it is the loan officer who will make or break your experience. The loan officer's primary responsibility is to guide the client through the financing process. Regardless of the interest rates and closing costs you receive, ultimately the loan officer is the one who is going to be responsible for ensuring you have a smooth purchase. I don't want to make this email overly complicated, but let me put this another way to get my point across:
Most consumers go about getting their mortgage by shopping on price - interest rate and closing costs. This is the wrong way to shop for mortgages. First, because the mortgage market is so fluid and pricing is so individualized to each person's situation, it is impossible for a consumer to know if they are getting the "best" deal. Second, most consumers usually have no idea what type of mortgage they want. I would say half my clients initially choose the wrong mortgage until we discuss their goals and objectives with the home they are purchasing. Third, because there is no way to hold lenders to rate quotes, consumers have no way of knowing if what they get on the day of closing will be what they wanted. They have to put their faith in the lender to deliver which gets me to my next point. If you have to put your faith in the lender, you should go about choosing your lender the same way you would choose any other professional - interviewing the loan officer like you would an attorney, CPA, or any other service professional.
I am not saying interest rates and closing costs are not important. However, what many consumers fail to do is strike a balance between expertise and costs by treating their mortgage like a commodity when in fact it is not the mortgage you are paying for, but the loan officer experience and dependability which cannot be commoditized. On a $500,000 investment, saving $50 should be of no consequence. While you don't want to over pay, you also don't want to nickel and dime your way out of a good deal either. A good loan officer will always get you a competitive rate, but a competitive rate does not always come with a good loan officer. Which version one do you think is more likely to close?
Put another way, would you rather hire an attorney for $100 bucks an hour who ALWAYS wins or hire an attorney for $75 bucks an hour who MIGHT win? So, would you rather hire a loan officer at 6% who ALWAYS closes on time or the random loan officer at 5.875% who MIGHT close on time, ultimately jeopardizing your $10,000 deposit in earnest money?
Before you even start talking interest rates, you should be discussing things like:
1) Your loan officer's education and professional background? Was your loan officer an accomplished professional in another industry and do that have an established track record in the business or were they hawking cell phones at a mall kiosk two weeks ago?
2) Your loan officer's client base? They should be able to describe their typical client which should generally be similar to your demographics. Most successful loan officers generally have a niche.
3) How well does your loan officer assess your needs? Do they immediately start quoting rates or do they complete detailed due diligence before spouting off rates? Most good loan officers do not "quote" rates without getting a FULL APPLICATION which means they need to fully assess the scenario. There are too many variables to just start spouting off rates. Can they logically explain why certain programs are better than others?
Buying a home is a complicated financial transaction. Unlike any other purchase you make, there are a host of other parties that will be involved each with their own responsibilities and agendas.
Let us be your Mortgage Provider:
Lakewood Capital Inc. would like to extend our services to you.
Our goal is to help out with all your lending and financial needs. Whether you are looking to purchase a new home, a vacation getaway at the lake, get some cash to pay off some bills, or just lower and fix your current rate, Lakewood Capital promises to provide you with the highest quality service coupled with the most competitive rates and superior mortgage programs in Maine.
Please call us today too free 1-888-516-7555 for a cost free, no obligation analysis of your current mortgage situation. It's a great time to take advantage of the markets low rates while working with Mainers that care about Mainers.
Thank you. Your business is important to us.
Sincerely,
Seth Jacobs
Lakewood Capital Inc.
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