Refinancing - What lenders won't tell you!

Lenders won't tell you which mortgage loan product is right for you! It is still absolutely essential for borrowers to do their homework before contacting lenders about refinancing.

Earlier this week, my step-dad who is retired, called me to ask my advice about refinancing.  He had already spoken with his lender, Wells Fargo, but wanted to know what I thought before he made a decision.  I told him that I thought it is a good time for him to refinance because he has at least twenty-percent equity in his home, his current interest rate is 6.02% and he is approx. 13 years into his 30-year fixed rate mortgage loan.  I suggested he consider a 15 or 20 year fixed rate mortgage product (almost all of the major lenders are now offering 20 year fixed rate loans); the interest rates are currently approx. 1% less than 30-year mortgage loan products.  Unfortunately, the lender did not recommend a 15 year or 20 year mortgage product to my step-dad.  Instead, the lender offered a 30-year fixed rate mortgage loan at an interest rate of 5.02%.  Below I provided an analysis of the lender's offer, against my recommendations:

30 year, fixed rate
Loan Amount = $77,000 (closing costs included)
Interest Rate = 5.02%
Est. Property Taxes = $4500
Est. Home Owners Insurance = $550
Monthly Mortgage Payment = $835.13 (includes Principle/Interest/Taxes/Insurance)
Principle & Interest = $415.12
Interest Only = $322.12
Total Interest paid after 30 years = $115,215.20

20 year, fixed rate*
Loan Amount = $77,000 (approx. closing costs included)
Interest Rate = 4.04%
Est. Property Taxes = $4500
Est. Home Owners Insurance = $550
Monthly Mortgage Payment = $889.06 (includes Principle/Interest/Taxes/Insurance)
Principle & Interest = $468.23
Interest Only = $259.23
Total Interest paid after 20 years = $62,215.20

15 year, fixed rate
Loan Amount = $77,000 (approx. closing costs included)
Interest Rate = 4.825%
Est. Property Taxes = $4500
Est. Home Owners Insurance = $550
Monthly Mortgage Payment = $983.66 (includes Principle/Interest/Taxes/Insurance)
Principle & Interest = $562.83
Interest Only = $245.44
Total Interest paid after 15 years = $44,179.20

Most people over 50 should be concentrating on paying off their homes.  Likewise, retired people should be doing the same.  So, why didn't the lender recommend a shorter term mortgage loan after he was informed that my step-dad is retired and that he was simply looking to reduce his interest rate and his mortgage payment?  Because lenders are conducting business as usual.  Business as usual means, making the most money for investors, which doesn't equate to doing what's in the best interest of the borrower.

Ultimately, I recommended that my step-dad choose the 20 year fixed rate mortgage loan.  His interest rate will be significantly reduced, and he will shave approx. $100 per month off of his current mortgage payment.  Consequently, his mortgage loan will be extended an additional five years compared to where he is in his current loan, however, he will have the option of paying an addtional amount towards the principle over time to help offset the additional cost involved (approx. $18,036.00 over the term of the new loan).*  With the 20 year loan at 4.04%, he will save at least $53,000.00 over the twenty-year period. 

Remember, before you contact a lender about refinancing, establish what is best for you.  Look at the numbers and then shop the lenders to find the best loan product for you!

Merry Christmas and Happy New Year!

Loan Modifications

Last night I met with a friend of mine's just to chat and catch-up.  I hadn't seen or talked with him for a few weeks.  I asked him about the status of his loan modification, which he desparately needs as a result of his impending divorce.  My dear friend told me that he had hired a third-party to negotiate on his behalf with Bank of America to reduce his mortgage payments and get rid of the outrageous balloon payment that is coming due in a couple of months.  I was absolutely mortified at what he told me, including the fact that he has paid this third-party, in full, fees to the tune of approximately $3,000.00.  I told him to call his servicer first thing in the morning and inquire about the status of his loan modification.  I have a gut feeling that he's been scammed.  Below are some tips for you to avoid being scammed as suggested by California's Attorney General's Office:

5 Tips to Avoid Being Scammed

1. Don't pay up-front fees. Foreclosure consultants are prohibited by law from collecting money before services are performed.
2. Don't ignore letters from your lender or loan servicer. Responding to those letters is your best bet for saving your house.
3. Don't transfer title or sell your house to a "foreclosure rescuer." Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.
4. Don't pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.
5. Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.

If you reside in California, you can go to the Attorney General's website and check to see if the third-party you are working with is registered with the Attorney General's office.  You can also obtain a list of consultants who are.  Just click on this link California Attorney General.  I also highly recommend NACA (Neighborhood Assistance Corporation of America).  They have a very good track record working with servicers and advocating for a mortgage solution that is in the best interest of the homeowner NACA.

Be smart, be diligent and be persistent.  Help is available.  Have a great day!

Dual Agency

In my previous blog I indicated that I would touch upon the topic of dual agency in a future blog, and therefore, I will discuss this very important relationship today. 

A real estate agent must disclose in writing the duties, which arise from certain agency relationships, the broker's status as agent of the seller, agent of the buyer, or agent of both the seller and the buyer. This disclosure must be made as soon as practical.* An agent can represent a seller, a buyer, or both.

If the broker represents both the seller and the buyer, the agency relationship is called "dual agency".  The responsibilities of agency as they apply to licensed brokers and licensed sales people are: 

• The agent must inform the principal of all facts pertaining to the handling of the principal's property.
• An agent must put client's interest above interest of self or others (fiduciary relationship).
• The agent may not gain any monetary interest in the property without the principal's prior consent.
• An agent may not use the principal's property to his or her own advantage.
• An agent must exercise honesty, reasonable skill and care, fair dealing and good faith in dealing with a third party.

BROKER REPRESENTS SELLER
SELLER  ï FIDUCIARY            ïBROKERð HONEST & TRUTHFUL  ðBROKER 
(Principal)             RELATIONSHIP                 (Agent)                           RELATIONSHIP                     (Third Party)

BROKER REPRESENTS BUYER
SELLER  ï        HONEST & TRUTHFUL     ïBROKERð FIDUCIARY  ð BUYER 
(Third Party)         RELATIONSHIP                                (Agent)                           RELATIONSHIP       (Principal)

BROKER REPRESENTS BOTH PARTIES (BUYER & SELLER)
SELLER  ï FIDUCIARY            ïBROKERð  FIDUCIARY       ð BUYER
(Principal)             RELATIONSHIP                 (Agent)                            RELATIONSHIP             (Principal)

First time home buyers should educate themselves about the home buying process before they embark on what will no doubt be the biggest investment of their lives.  It is common for individuals to walk into an open house, fall in love with the house and begin what unbeknownst to them could be a dual agency relationship with the agent hosting the open house.  I personally think it is better that a buyer, especially a first-time home buyer, hire a real estate agent that will be working exclusively for the home buyer.

*Note: This type of law differs from state to state.  In California it applies to all sales of residential property that contains one to four units.

Have a happy day!

Do unto others...

Ah yes, the golden rule.  Did you know real estate agents and brokers have an even higher ethical standard in which to live by if they are going to conduct real estate transactions?  That is, to put the client's interest before their own.  Think about what that means for a moment.  It means every concern and every issue that is important to the real estate client should be of utmost importance to the real estate agent!  Over and above anything else, including whether or not the purchase or the sale of the property will be in jeopardy.

Real estate agents are required to conduct a visual inspection of each and every property that he/she is involved with, whether or not they are representing the buyer, the seller or both the buyer and the seller (we'll get into dual agency in a separate blog).  As a result of this inspection, issues that may materially affect the property's desirability are often discovered during the agent's initial inspection.  It is the duty and responsibility of the real estate agent to memorialize and notify all parties involved about potential red flag issues that have been discovered.  Sellers also have a legal responsibility to disclose all issues that materially affect the desirability of the property.  This likely includes informing all parties involved about issues such as roof leaks and repairs or replacement, plumbing leaks and repairs, termite infestation, mold infestation, to name just a few.  This disclosure requirement pertains to bank owned properties as well.  Many people, as well as some real estate agents, mistakenly believe that banks can sell properties "as is" and that "as is" means that banks do not have a duty to disclose.  This is not true! 

The next time you are out with your real estate agent shopping for a home and you notice something like a water stain on the ceiling, but your real estate agent did not mention or list it on his/her inspection report, find out why.  It could be that your agent didn't notice it, or it could mean that your agent was hoping that you wouldn't.  Either way, your agent may not be as diligent as he/she should be.

Have a great day today :-)