First Time Home Buyer: How to Demand Transparency from your Loan Officer
There are so many ways for a loan officer to fool you and I have heard them all in my time in the business. Now I bring this knowledge to you in how to demand that your loan officer never fools you. I will also cite all of the documents that your loan officer is legally required to show you yet rarely will. I will make you as close to impenetrable as possible.
Interest Rate: Ah the interest rate. As a consumer it is always the first thing on your mind, and always the first tool you use to shop for the best deal possible on a mortgage. Of course, us in the “know” realize that there the interest rate alone rarely dictates a good deal on a mortgage. So how do you decode what your interest rate will be and if it is in fact a good value when a loan officer is so well equipped to talk his or her way around this subject? Well the value part will be covered under the APR heading below, but first let’s talk about how to know what your interest rate is and what it will be at the time you close.
The Rate Lock Agreement: The rate lock agreement sounds like a form that you would have to sign and consent to. In fact most companies will have you sign a rate lock agreement, but this does not have to be a form according to Michigan law (MCMPA). In fact it can also be a verbal agreement between you and your lender. If a loan officer promises you a certain interest rate, it is literally against the law to change it. You can in fact, sue your loan officer if they made a verbal promise to deliver a certain interest rate and then changed it unless you yourself have provided misinformation or request changes to your loan program. Most people don’t realize this. Just always require that your loan officer is honest with you, even if that means they tell you that they don’t know what your rate will be. In most instances, the most honest loan officer will give you a fair range of current rates
Key phrases a loan officer will use in deceiving you about your interest rate:
Well we can’t lock your rate because they change so often. (They change often but a loan officer should still be able to offer you a lock based on when you qualify)
I can get you that rate, for sure, but we need to see if you qualify first (a loan officer should never say for fact they can get you any rate until they know you qualify and if they do they are breaking the law and breaking your trust).
Oh yeah, like 6% (before they even know your name).
And ALWAYS be aware of any advertisements that come with an interest rate printed on them, no matter what the form they use. Any advertisement with an interest rate contains so many opportunities for a loan officer to lie to you that it is NEVER worth it in the end.
APR or Annual Percentage Rate: This is one of the most confusing numbers in all of mortgage lending and is even confusing for the very person that is meant to teach you about it if they are not properly trained. The APR is an expression of the “cost of your credit” as a percentage. In other words it takes in account all of the “cost of your credit” or fees you will pay in connection with getting a loan and breaks it down into a percentage. A lender is legally required to provide you with this figure in accordance to the Truth-in-Lending Act (TILA) within three days of applying for a loan. They come on a form referred to as the T.I.L. that features other important information as well, but the APR is the most prevalent feature.
Key phrases a loan officer will use if they are trying to confuse you when explaining this to you:
Nobody even really understands how this APR thingy works.
It’s an awful government form, you know government, everything they do is stupid.
Don’t worry about that APR it is not your interest rate and doesn’t affect your loan.
In fact the APR is a useful tool in comparing one loan to another. It is certainly not the end all to loan shopping, but it is useful because it breaks down all of the charges that you do not carry from one lender to the next. So things like a credit report fee or an appraisal fee are not used in the calculation because they will be a part of your loan costs no matter what. The APR does use fees like origination charges, broker fees, and. The important things to remember her are: make sure your loan officer offers you a “TIL”, make sure they explain the APR the way I explained it, and make sure they show you the charges that figure it.
The Broker Fee: This is important whether you are being charged one or not. The important thing to remember is that the reason a Mortgage Broker exists in the first place is that a broker does not need the mortgage lender to pay them to sit at a desk all day even when they are not originating loans. The broker does, however, have to pay to advertise or maintain an office of their own in order to get to you in the first place. So the ultimate end game is to compare if the broker fee is cheaper than what the bank will charge you. Again this is not the only factor to consider but it is useful because if your concern is upfront fees as opposed to monthly payment, you will want to compare the broker fee as opposed to the interest rate that your payment is based on. Any broker is required to explain this to you as mandated by the Michigan Consumer Mortgage Protection Act (MCMPA) via the Borrower’s Bill of Rights. You have the right to know what your loan officer is making as a result of originating your loan the same way that your bank is required to give you this document and explain this to you as well. The problems mostly arise by the fact that a bank loan officer is not required to explain exactly how much they are making by originating your loan because they are considered an hourly employee of the bank. Obviously a bank loan officer will always be able to present their origination fee as cheaper than a broker. This is where the APR can be compared to your interest rate and used a tool to distinct which is a better value.
Whether or not you are qualified. This is the tough one to decipher. By law any lender is required to give you a credit decision within 30 days. Obviously, the process gets a bit muddier once the term pre-approval comes into play and even more so when you have a less than perfect credit or employment situation that makes qualifying difficult. The important thing to remember is that if someone is telling you that you qualify before they have seen a credit score, employment information, asset information, or heard your entire story- they are lying. It is impossible for someone to tell you what you qualify for without having taken a full application so be leery of anyone that does.
The Good Faith Estimate (GFE): This is a breakdown of all the fees involved in acquiring your loan. If you look carefully, you will see on the GFE which fees are used in calculating your APR. This will further your shopping power by realizing what will be charged by anyone and what will only be charged by a bank or what will only be charged by a broker. The big thing I feel is to be aware of things that are conveniently left off of a GFE but will be added later. Specifically those charges that are used to calculate your APR that some loan officers like to leave off of a GFE, or grossly under estimate in order to make the bottom line look better. These include Tax Escrows, Pro-Rated taxes(only on purchases), title insurance, title closing fee, days of interest, and processing fees. These will all always be charged regardless of lender and will always be able to be properly estimated (with reason) at time of application. So if you are comparing GFEs and you notice a large difference between these charges or that one has been omitted, it should immediately send up a red flag that one of your loan officers is not being honest with you.
Basic Legal Forms: There are a few basic forms that you are required by law to receive within 3 days of applying for a mortgage, so be leery of anyone that does not provide them. Good Faith Estimate, Truth-in-Lending, Borrower’s Bill of Rights, Servicing Disclosure, Consumer Caution Disclosure, and the Closing Costs booklet.
If you follow these guidelines and are not afraid to walk away from a loan officer that does not comply with these guidelines, you will make the loan process much simpler for you.
For more information Call Today or visit our website:
810-953-4266 or Icon Mortgage Lending.com
Interest Rate: Ah the interest rate. As a consumer it is always the first thing on your mind, and always the first tool you use to shop for the best deal possible on a mortgage. Of course, us in the “know” realize that there the interest rate alone rarely dictates a good deal on a mortgage. So how do you decode what your interest rate will be and if it is in fact a good value when a loan officer is so well equipped to talk his or her way around this subject? Well the value part will be covered under the APR heading below, but first let’s talk about how to know what your interest rate is and what it will be at the time you close.
The Rate Lock Agreement: The rate lock agreement sounds like a form that you would have to sign and consent to. In fact most companies will have you sign a rate lock agreement, but this does not have to be a form according to Michigan law (MCMPA). In fact it can also be a verbal agreement between you and your lender. If a loan officer promises you a certain interest rate, it is literally against the law to change it. You can in fact, sue your loan officer if they made a verbal promise to deliver a certain interest rate and then changed it unless you yourself have provided misinformation or request changes to your loan program. Most people don’t realize this. Just always require that your loan officer is honest with you, even if that means they tell you that they don’t know what your rate will be. In most instances, the most honest loan officer will give you a fair range of current rates
Key phrases a loan officer will use in deceiving you about your interest rate:
Well we can’t lock your rate because they change so often. (They change often but a loan officer should still be able to offer you a lock based on when you qualify)
I can get you that rate, for sure, but we need to see if you qualify first (a loan officer should never say for fact they can get you any rate until they know you qualify and if they do they are breaking the law and breaking your trust).
Oh yeah, like 6% (before they even know your name).
And ALWAYS be aware of any advertisements that come with an interest rate printed on them, no matter what the form they use. Any advertisement with an interest rate contains so many opportunities for a loan officer to lie to you that it is NEVER worth it in the end.
APR or Annual Percentage Rate: This is one of the most confusing numbers in all of mortgage lending and is even confusing for the very person that is meant to teach you about it if they are not properly trained. The APR is an expression of the “cost of your credit” as a percentage. In other words it takes in account all of the “cost of your credit” or fees you will pay in connection with getting a loan and breaks it down into a percentage. A lender is legally required to provide you with this figure in accordance to the Truth-in-Lending Act (TILA) within three days of applying for a loan. They come on a form referred to as the T.I.L. that features other important information as well, but the APR is the most prevalent feature.
Key phrases a loan officer will use if they are trying to confuse you when explaining this to you:
Nobody even really understands how this APR thingy works.
It’s an awful government form, you know government, everything they do is stupid.
Don’t worry about that APR it is not your interest rate and doesn’t affect your loan.
In fact the APR is a useful tool in comparing one loan to another. It is certainly not the end all to loan shopping, but it is useful because it breaks down all of the charges that you do not carry from one lender to the next. So things like a credit report fee or an appraisal fee are not used in the calculation because they will be a part of your loan costs no matter what. The APR does use fees like origination charges, broker fees, and. The important things to remember her are: make sure your loan officer offers you a “TIL”, make sure they explain the APR the way I explained it, and make sure they show you the charges that figure it.
The Broker Fee: This is important whether you are being charged one or not. The important thing to remember is that the reason a Mortgage Broker exists in the first place is that a broker does not need the mortgage lender to pay them to sit at a desk all day even when they are not originating loans. The broker does, however, have to pay to advertise or maintain an office of their own in order to get to you in the first place. So the ultimate end game is to compare if the broker fee is cheaper than what the bank will charge you. Again this is not the only factor to consider but it is useful because if your concern is upfront fees as opposed to monthly payment, you will want to compare the broker fee as opposed to the interest rate that your payment is based on. Any broker is required to explain this to you as mandated by the Michigan Consumer Mortgage Protection Act (MCMPA) via the Borrower’s Bill of Rights. You have the right to know what your loan officer is making as a result of originating your loan the same way that your bank is required to give you this document and explain this to you as well. The problems mostly arise by the fact that a bank loan officer is not required to explain exactly how much they are making by originating your loan because they are considered an hourly employee of the bank. Obviously a bank loan officer will always be able to present their origination fee as cheaper than a broker. This is where the APR can be compared to your interest rate and used a tool to distinct which is a better value.
Whether or not you are qualified. This is the tough one to decipher. By law any lender is required to give you a credit decision within 30 days. Obviously, the process gets a bit muddier once the term pre-approval comes into play and even more so when you have a less than perfect credit or employment situation that makes qualifying difficult. The important thing to remember is that if someone is telling you that you qualify before they have seen a credit score, employment information, asset information, or heard your entire story- they are lying. It is impossible for someone to tell you what you qualify for without having taken a full application so be leery of anyone that does.
The Good Faith Estimate (GFE): This is a breakdown of all the fees involved in acquiring your loan. If you look carefully, you will see on the GFE which fees are used in calculating your APR. This will further your shopping power by realizing what will be charged by anyone and what will only be charged by a bank or what will only be charged by a broker. The big thing I feel is to be aware of things that are conveniently left off of a GFE but will be added later. Specifically those charges that are used to calculate your APR that some loan officers like to leave off of a GFE, or grossly under estimate in order to make the bottom line look better. These include Tax Escrows, Pro-Rated taxes(only on purchases), title insurance, title closing fee, days of interest, and processing fees. These will all always be charged regardless of lender and will always be able to be properly estimated (with reason) at time of application. So if you are comparing GFEs and you notice a large difference between these charges or that one has been omitted, it should immediately send up a red flag that one of your loan officers is not being honest with you.
Basic Legal Forms: There are a few basic forms that you are required by law to receive within 3 days of applying for a mortgage, so be leery of anyone that does not provide them. Good Faith Estimate, Truth-in-Lending, Borrower’s Bill of Rights, Servicing Disclosure, Consumer Caution Disclosure, and the Closing Costs booklet.
If you follow these guidelines and are not afraid to walk away from a loan officer that does not comply with these guidelines, you will make the loan process much simpler for you.
For more information Call Today or visit our website:
810-953-4266 or Icon Mortgage Lending.com
Comments