Mortgage and Lending
Brandon M. Rearick
(LMB100015628 & NMSLR 279447) FHA, VA, USDA & Conv
Caliber Home Loans, INC. NMLS 15622 Regulated by the Department of Real Estate 970-691-0122
I am a Sr. Mortgage Planning Professional that will help my clientel understand the mortgage process and empower them to make the best financial decision for themselves and their families.
Get to know Brandon M. Rearick
Of Course I am an NMLS and State Licensed Loan Officer (LMB100015628 & NMLSR # 279447) that is Bonded and Insured. I will always be on top of the market trends and volitility on a daily basias so that each and every one of my clients have some sort of insight as to why and how the bond market is ever changing, allowing me to continue to educate. My belief is that education is the most amazing form of power that my client can have. They need to understand what can trigger a change in rate, why home values are down and of course inform the to the seemingly daily changes to overlays and underwriting. Whether it be by my use of Mortgage Market Guide, Loan Toolbox, or Mortgage Coach, I have an abundance of information available to me so that I have my finger on the pulse of mortgage activity so my borrowers are enlightend.
Brandon M. Rearick's Blog Posts
As individual as buyers are, so are financing options. With over 750 financing products to choose from, we specialize in finding the right financing vehicle to meet the client's needs - from A paper product to niche product, including city, state and county bond programs.
Just the terminolgy alone in our industry can be overwhelming. Many times the consumer hears phrases or verbiage that is like a foreign language to them! Here's a link to refer to as often as needed: Glossary of Terms.
When the time to consider home ownership, the first step is determining if the time is right to buy a new home. There are many factors to take into consideration including job history, credit, savings, and budget. We are here to help with that analysis! Here is a check list of items to expect to provide: DOCUMENT CHECKLIST.
Once you have been "pre-qualified" and know the time is right, here is a check list of the next steps to consider: ONE STEP CLOSER TO HOMEOWNERSHIP. You can see from the check list that your first step is selecting a Realtor to represent you!
Visit my website at www.BrandonRearick.com to calculate a payment, check the market conditions, or apply on line 24/7.
ONCE YOU ARE UNDER CONTRACT here are tips to AVOID THE PITFALLS!!
The mortgage application process is known to be the second most "man made" stressful situations of our lifetime (divorce is number one). Not understanding the process is one of the reason, so here are some "inside tips" to help borrowers know what to expect, but more importanty what NOT to do!
Don't Buy Anything! Right after you buy a new home, the first thing we all do is start "mentally moving". Meaning, we try and figure out where the couch will go, where to angle the TV, but also what we need to fill that entry or game room, or spare bedroom! And then don't forget the landscaping, drapes, or new appliances! But STOP! One of the mortgage loan qualifying criteria is your "debt to income ratio". A new purchase may not affect your loan approval, but check with your loan officer before you move forward with that new payment. (By the way, a great website that has an easy to use and FREE room planner is here: http://www.afwonline.com/roomplanner.asp.)
Don't Miss a Payment! Its' easy to get distracted with everything you have going on right now, but what you don't want to do is miss your minimum monthly payments. Saving for your down payment and wanting those little extras for your new home - even the cost of moving can get you off your budget. Don't take a chance, cause a missed payment can cause your credit scroe to drop. A drop in your score may result in an increase of your interest rate!
Don't change jobs. This isn't the time to think about changing employers. And certainly not a time to consider changing careers! Lenders also look at your job stability and require that you have been in the same line of work for at least two years. And NEVER, EVER switch from being a salaried employee to taking a commissioned position (or worse, becoming self employed) while you are in the process of getting a loan for your home. Lenders would then require two years tax returns to substantiate your income for the purpose of granting you a loan. So stay put. At least for now.
Don't move those funds. Sometimes borrowers will move all funds to one account for easy access prior to closing. Makes sense, huh? Except that lenders must identify the source of any large deposits (we have to make sure there are no loans associated with the recent deposit). So, if you do move your funds from one account to another, make sure you keep a clear paper trail to help us identify the source.
Pack selectively! Packing up your personal belongings is okay. But keep any important paperwork available (bank statements, tax returns, pay stubs) just in case there's a last minute need to give the lender copies! And a tip when packing with children that's NOT mortgge related: a move to a child can be quite upsetting. So let them pack a box with all their favorite things. It will make them feel more secure AND like they are helping!
No leasing either! It seems that occasionally there is confusion on whether a lease is really considered new debt. IT IS! Back away from the car (and the temptation to fill that bigger garage with another car!)
Possibly none of these actions will affect YOUR loan. But now isn't the time to gamble with one of the biggest investment you will most likely make in your lifetime. Just check with your lender FIRST!
There are a few other tips you should know to avoid time delays when buying a home:
Communicate any contract changes to your lender at once.
Start researching homeowner's insurance rates and coverage options immediately!
Notify your lender and realtor at once if you plan to be out of town the day of closing.
NOW LET'S TALK ABOUT APPRAISALS!
The appraiser does not create value, the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. An appraiser may spend only a short time inspecting the property, however, this is only the beginning. Considerable research and collection of general and specific data must be accomplished before the appraiser can arrive at a final opinion of value.
It's important to understand that a majority of real estate appraisals are requested by mortgage companies only to validate the property's purchase price for loan purposes. Except for periods of very low interest rates when everyone is refinancing, most loans are for the purchase of real estate and ordered after a sale price is negotiated. Purchasers mistakenly assume the purpose of an appraisal is to protect their interests in the purchase transaction.
Actually, the appraisal is to protect the interest of the lender. Here are some points from the lender's perspective:
The lender has two sources of repayment: the purchaser's income and the property.
The responsibility to repay the loan is not based upon the property's value, so the purchaser is obligated to pay the note regardless of the fluctuation of property value.
The loan may be insured or guaranteed by a government agency. However, the government takes no responsibility for the debt if the property value is incorrect. If the loan is greater than 80% of the value, a portion of the loan may be insured by a private mortgage insurer to lessen the risk of the lender should situations lead to non-payment.
Thus, the primary purpose of establishing an opinion of value is merely one additional piece of information to assist the lender in assessing repayment risk for the loan.
The comfort you should take is in knowing that most contracts are written to allow renegotiations should the opinion of value not be equal to or greater than the sales price.
INSPECTIONS ARE NECESSARY TO PROTECT YOUR INVESTMENT!
A home inspector checks the safety of your potential new home. Their focus is on the structure, construction, and mechanical systems of the home you are interested in purchasing. A home inspection report is strictly for your benefit and findings are not of particular interest nor required to be reported to the lender of the property.
The inspector does not evaluate whether or not you're getting good value for your money. Generally, an inspector checks the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, water source and quality, the potential presence of pests, the foundation, doors, windows, ceilings, walls, floors, and roof. Your real estate agent can recommend a home inspector that is qualified and experienced.
It's a good idea to have an inspection before you sign a written offer since, once the deal is closed, you've bought the house "as is." Or, you may want to include an inspection clause in the offer when negotiating for a home. An inspection clause gives you an "out" on buying the house if serious problems are found, or gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause can also specify that the seller must fix the problem(s) before you purchase the house.
It is a good idea to be present during the home inspection process. Following the inspection, the home inspector will be able to answer questions about the report and any problem areas. This is also an opportunity to hear an objective opinion on the home you'd like to purchase and it is a good time to ask general maintenance questions.
If your home inspector discovers a serious problem, another more specific inspection may be recommended. It's a good idea to consider having your home inspected for the presence of a variety of health-related risks like radon gas, asbestos, or possible problems with the water or waste disposal system.
And that brings us to types of:
Insurance required for your loan will depend on the type of property you purchase, location of the home, and type of mortgage you are applying for. Here is a highlight of the various types of insurance that you will hear about in the process of purchasing a home.
Homeowners Insurance Title Insurance Mortgage Insurance Flood Insurance
When shopping for home insurance, there's much more to consider than how much your coverage will cost. You need to buy the right type of policy AND be sure to get the proper coverage. For instance, the needs of a buyer of a condo or townhome will differ from the needs and costs of insurance for a single family homeowner. We, as the lender, require that you have sufficient insurance to cover exposure determined only by the amount of your loan. You, on the other hand, may desire increased coverage on your home and you may want to consider provisions for personal valuables such as jewelry, your computer equipment and other possessions. That is why it's so important to take time to visit with your agent or insurance company about your personal situation.
When you apply for homeowners insurance, the insurance agent will sometimes ask you about your current occupation and employment history, marital status, previous addresses, date of birth and Social Security number. It is standard for the insurer to check your criminal, credit, and insurance history to see if you are a "good risk." The insurance company also will look at your "loss history" to see what kinds of home insurance claims you've made in the past.
In addition to gathering personal information, the insurer will need information about the home. The age of your home, the materials used to build it, where it's located, square footage, and the number of rooms all play a role. How do you heat your home? What's the overall condition of the house? How many people live in your home? How close is your home to the nearest fire station and fire hydrant?
Lastly, your agent will need to determine how much it would cost to replace your home. Once you have decided what type of homeowners policy best fits your needs, if special coverage is required for personal items that may not be covered under the basic policy, and what deductible you are comfortable with, your insurance agent will be able to give you a quote. Typically, the premium for the first year plus three months escrow for the following year will be included in the amount of money you are asked to bring to the closing of your new home.
Be sure to shop around when looking for the right insurance company as rates do vary widely. For instance, some companies offer discounts when you have both your home and auto insurance policies with them or have been insured by them for several years. Larger deductibles will also have a huge effect on your premium. Other discounts may be offered if you don't smoke, or if you qualify for senior rates. And remember, it's always a good idea to check the financial ratings of the companies with AM Best or Standard and Poor's. Let me know if you need a couple of recommendations of agents in your area.
Once you find the property you wish to call "home", you AND the lender want to be given a full disclosure of ownership and liens associated with that property before the purchase transaction is completed. That information is provided in the form of an ALTA (American Land Title Association) policy. Unlike other forms of insurance that focus on possible future events and charge an annual premium, title insurance is purchased for a one-time payment expense and is a safeguard against loss arising from hazards and defects already existing in the title.
Prior to being issued a policy, a close examination of all public records that involve title to the real estate is done. The person, who is a licensed and bonded agent, conducting the search looks at past deeds, wills, and trusts to make sure the "chain of title" has passed correctly to each new owner. The examiner also tries to verify that all prior mortgages, judgments, and other liens have been paid in full.
If a problem (called a "defect" or "cloud" on the title) is found it must be corrected prior to closing. For instance, a previous owner sold the property 15 years ago. His wife was listed on the deed but for some reason did not sign-off at closing. Her interest in the property must be removed to clear the title. A title search should uncover other potential problems or nuisances, such as rights another may hold (right of ways, view easements, power line easements, mineral rights), claims by prior undisclosed heirs, and pending legal actions.
Title insurance protects you against problems that did not show up during the title search or were missed by the examiner, or errors in public records. A title insurance policy does not cover defects that occur after you purchase the property. Also, policies often exclude issues having to do with easements, mineral and air rights, and liens. We'll be sure to review all exclusions and exceptions before you ever go to closing. Afterall, as the lender, we have an interest in the property as well! That's why there are actually TWO policies issued:
A lender policy will be issued for the amount of the mortgage. It pays the lender if a problem surfaces. An owner's policy covers the property's full sales price and insures the owner against loss.
Typically, it is the responsibility of the seller to provide you with the owner's policy. And as a part of the agreement in assisting you with the financing of the property, you provide the lender with the lender's policy.
Referred to in the industry as MI, it is probably the most misunderstood of all types of insurance. It is not the same as credit life insurance, called mortgage life insurance. Mortgage life insurance repays an outstanding mortgage balance upon the death of the person who took out the insurance policy. It's easy to confuse this type of policy with mortgage insurance.
Mortgage insurance makes low down payment loans easy to qualify for. Why? Mortgage lenders make decisions on granting home loans based on what's referred to in the industry as "layered risk". Components that are taken into consideration of risk include income, existing debt, credit scores, AND DOWN PAYMENT. The higher the down payment, the lower the risk of non-payment and potential foreclosure. However, many people today prefer to make as little down payment as possible, either due to circumstance or choice.
That's where mortgage insurance comes in! Mortgage insurance helps "balance" the risk of loss in the event of foreclosure making the loan more marketable. What this means to you is a more competitively priced interest rate even with a lower down payment.
In 1968, Congress created the National Flood Insurance Program (NFIP) in response to the rising cost of taxpayer funded disaster relief for flood victims and the increasing amount of damage caused by floods. Flood insurance is available to any property owner located in a community participating in the NFIP. All areas are susceptible to flooding, although to varying degrees, in fact, 25% of all flood claims occur in the low-to-moderate risk areas.
Flooding can be caused by heavy rains, melting snow, by inadequate drainage systems, failed protective devices such as levees and dams, as well as by tropical storms and hurricanes. When your home is flooded, it can lead to financial ruin if you don't have the proper insurance. A basic homeowners policy won't cover your flood damage! You need flood insurance - a special policy backed by the federal government (NFIP), with cooperation from local communities and private insurance companies. About 200 insurance companies write and service flood insurance policies for the government, which finances the program through premiums. Since the federal government sets the rates for properties that fall within the perimeters set by NFIP, private insurance companies that sell flood insurance compete on service, not on price. And typically, a policy does not take effect until 30 days after you purchase a flood insurance policy.
Although flood insurance is relatively inexpensive, most Americans neglect to even consider protection. Only about one-quarter of the homes in areas most vulnerable are insured against flood loss, according to the Federal Insurance Administration (FIA). In those areas, flooding is 26 times more likely to occur than a fire during the course of a typical 30-year mortgage.
Also, a study released by the FEMA on June 27, 2000, reported that close to 87,000 homes and buildings have been built on land likely to wash away during the next 60 years. Even then, some insurance companies are willing to expose themselves to these higher risk locations and take on policies in some of the developed barrier areas. Instead of an estimated $340 in premiums offered through the government program, a few private companies will charge about $3,000 a year for flood coverage of slightly less than $200,000.
It is somewhat unusual to find homes in our area built in a flood zone. Sometimes the PROPERTY may be affected, but usually not the structure of the home itself. Rest assured, we will check your property and structure against the 100 year flood maps and inform you if your property requires flood insurance coverage.
INTEREST RATES AND CLOSING COSTS
It is very important to understand how discount points affect your interest rate when comparing loan options. For instance, if you called and asked three different lenders if they had a 30 year loan available at 4.5% interest, they would most likely all tell you, "yes". But what you really need to ask is how many discount points that a 4.5% thirty year fixed rate would cost you! (One discount point is equal to 1% of the loan amount. Or, one point on a $100,000 loan would cost $1,000.) Most likely, when looking at the upfront expense vs. the monthly savings, you will come to the conclusion that to "buy down" an interest rate just doesn't make good financial sense.
Discount Points and Monthly Interest
To understand the correlation between discount points and interest rate, let's start by explaining what is meant by a "PITI" payment: P= Principal I = Interest T =Taxes I = Insurance
Principal is a fixed amount that you borrow to apply toward the sales price of the home you purchase.
Taxes and Insurance represent 1/12 of the total annual amount. Every month when you make your total PITI payment, the tax and insurance portion of your payment is put in an "escrow" account and held until due and payable.
Interest is the amount that is negotiated in exchange for the type and term of the loan. Interest can be paid monthly, or can be partially prepaid at the time of closing in the form of discount points. The more you pay up front in discount, the lower your annual interest rate, thus the lower your monthly payment.
Whether or not paying discount points makes sense for you depends on how long you plan to keep the loan. You will need to use a mortgage calculator to help you decide: Mortgage Points Calculator
Note: Each discount point paid on a 30-year loan typically lowers the interest rate by 0.125 to 0.375 percent. That means a 7.5 percent rate (7.78 APR) would be lowered to at least 7.375 percent if you pay one point. (APR: 8.36)
$100,000 Loan -30 Year Term MonthlyPayment 7.5% Interest, no points $699.21 7.375% Interest, 1 point @ $1,000 $690.68 x Difference = Monthly Savings $8.53 x Monthly Savings/$1000 = Break Even Point 117 Months
In the example above you would have to keep the home loan for over nine years to recover the cost of buying discount points (considering only the simple calculation of those funds at today's value).
Typically, it does not make sense to pay discount points to buydown your interest rate due to the "recovery factor". Therefore, typically when lenders quote interest rates, they quote a "par rate", which is a non-discounted interest rate loan.
Comparing one mortgage to another isn't as easy as just comparing rates. To make a fair comparison, you need to compare three major components of a loan's price - interest rate, discount points AND closing costs!
Comparing closing costs between lenders isn't as easy as it sounds. Every lender refers to charges differently. Some itemize the charges, others lump them together. Plus, there are actual lender charges and there are "pass through" costs, or third party expenses that a borrower is required to pay. As a lender, we know what our charges will be, but can only estimate what the third party charges are. Typical lender fees include charges for document preparation, underwriting/ processing (typically called admin fees) and origination. Third-party fees include charges for title searches, flood certifications, appraisals and such. Government fees include recording taxes and other charges assessed by local and state agencies. The last category of closing cost fees are called "prepaids". Prepaids include your up front annual homeowner's insurance plus escrows; property tax escrows; and daily interest from the day you close your loan through the end of the month.
The type of loan you apply for will also affect your closing costs. For instance, the cost of a "full" appraisal for a conventional loan is typically more expensive than the cost of an appraisal for a government insured or guaranteed loan. Unless, the conventional loan program doesn't require a "full" appraisal, meaning a physical inspection of the property is not required (these are called "drive by" appraisals). Fees are regulated closely on government loans, but there is no governing agency reviewing acceptable costs on conventional loans.
As your lender, we will give you a written estimate of costs associated with your loan. Together we will go through each cost so that you have a clear understanding of what are lender fees, third party fees and prepaid expenses. That's what we're here to help with - help give you options to assist you in making a decision that best fits YOUR personal situation.
Call me today! (970) 691-0122