Real Estate Law Blog : Staten Island Real Estate Lawyer » good faith estimate

Are You Missing Out On Refinance Savings?

Sdecker — Thu, 21 May 2009 18:36:26 +0000

As a result of the depressed economy, lenders have reduced interest rates to historic lows but many homeowners are not getting the benefits as they see refinancing as a hard process. (See another interesting article from NY TIMES correspondent Bob Tedeschi) This is not the case so if you have an interest rate of more than 5.5% you need to call quickly investigate the benefits of refinancing your mortgage. While lenders have tightened up their underwriting criteria (you will need good credit, income and your home must have positive equity) if you can qualify to refinance it should save thousands of dollars.

A couple things to consider

1) Difference in rates between existing and new loan
2) Closing Costs
3) Are you increasing your mortgage’s principal balance and loan term?

Refinancing should not be a mystery. Call your lawyer with a copy of your current mortgage statement and he can give you a quick run down on what to say to a lender and how to save a couple dollars on lender and title company fees. Call a couple of lenders and get a few good faith estimates (GFE) to review with your lawyer. He will quickly show you the differences between the estimates and calculate the true closing costs. Divide the closing costs by the monthly cost savings and you will get the time needed to recover the closing costs (number of months). For the refinance to make sense you must be sure that you will keep the new mortgage long enough to recover the costs.

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HOW CAN MY ATTORNEY SAVE ME MONEY ON MY REFINANCE

Sdecker — Tue, 05 May 2009 16:17:14 +0000

Besides making you clear on the goals of your refinance your attorney should be able to review your GFE and point out where potential cost savings may occur. From suggesting potential lenders to trying to get the lender to accept a modification or assignment your lawyer’s familiarity with lending practices should help you understand the process and save money on closing costs. From the big money items like interest rate to closing costs saved by doing a modification or assignment and CEMA through suggestions on how to reduce bank and title fees it cannot hurt to ask your attorney to look at your particular situation to discuss ways to save you money.

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HOW TO GET A GOOD FAITH ESTIMATE

Sdecker — Wed, 29 Apr 2009 18:53:18 +0000

When discussing a client’s refinance I usually go over a script on what to say to the mortgage brokers to get a GFE. When you call the right type of lender you should only need to answer a few general questions about your income and credit in order to get a GFE. Because a GFE is not binding until the borrower makes an official application (and the lender is able to verify their creditworthiness), it is not necessary for a borrower to give much information to get a GFE. When shopping for a loan ask for a GFE but make sure the broker does not to run a credit report until you have decides to make an application. You are shopping for a loan so if the broker can’t give you a GFE without running your credit report then you should call another lender. Your lender will ask you about the following 3 items-loan term, loan type and loan amount.

1) LOAN TERM -the number of years that the borrower has to repay the loan is called the term. The term can vary but most common is 30 and 15 year terms (although so lenders will allow you to do 10 or 20 or 40 years). When looking at the term remember that the shorter the term the higher the monthly payments. When looking at the 15 or 30 year mortgages the 30 year mortgage will have lower monthly payments while a 15 year mortgage will have higher payments which will save a substantial amount of interest over the life of the loan. Another issue to look at is flexibility. While a 15 year mortgage will normally have a lower rate (and higher payment) a 30 year mortgage allows the borrower to make lower payments. Once taken a 15 year mortgage requires higher monthly payments which can’t be lowered. A 30 year mortgage can be shortened to 15 years at the borrower’s option by making prepayments. Remember to weigh the interest rate savings of a lower rate on a 15 year mortgage term versus the payment flexibility of the 30 year mortgage term with lower monthly payments and the option to make prepayments.

2) INTEREST RATE TYPE- FIXED or ADJUSTABLE RATE-While most borrowers appreciate the security of a fixed rate loan for some an adjustable rate mortgage can make sense. Whether to consider an adjustable rate will be determined by your estimate of how long you may keep the mortgage. Fixed rate loans offer a principal and interest payment that remains constant. Adjustable Rate Mortgages (ARMs) allow the interest rate to change periodically and are based on an index. The index and change periods can vary greatly and take particular care to understand them before entering into an ARM. Change dates can be as quick as monthly and as long as 7 years. The shorter the change date the lower the initial rate but the risk is that over time the changing rates may be higher than a fixed rate. The index can be a bank prime rate or US Treasury Bill rate or other published rate. Homeowners who do not see themselves keeping their mortgages for a long period of time can save money using an ARM. It is important to remember that an ARM can be tricky as many people who bet that they could refinance their ARMs (or whose plans to sell the home changed) are now stuck as falling property values make refinancing impossible. Before taking an adjustable rate it is quite important to be clear on your goals and discuss with your attorney or accountant before approaching a lender.

3) LOAN AMOUNT – before starting your loan search try to determine if you are seeking to increase the amount you have borrowed. Home Improvement, College Costs and Debt Consolidation are all reasons people seek to refinance and borrow more on their homes. While any borrowing must be looked at from tax and financial perspectives it is often cheaper to borrow mortgage money than other types of loans and given the deductibility of mortgage interest this may be a good option for some homeowners. But remember you have to pay it back.

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SHOPPING FOR A LOAN-GETTING A GOOD FAITH ESTIMATE

Sdecker — Wed, 29 Apr 2009 18:50:02 +0000

I tell all my friends to call your real estate lawyer before you start the process. Even if you are knowledgeable about interest rates it never hurts to make a call to get some advice that could save money. While it serves to reason that a lower rate is better that is not the whole story because if you do not understand the loan program and the closing costs you do not have the whole story. Remember mortgage brokers are selling a product and ordinarily there will be competition for your loan. Competition between lenders is good in that it can help lower your borrowing costs. So what is the best way to determine loan is best for my situation? Comparing estimates from a few different lenders. To adequately investigate a loan I need to review a Good Faith Estimate of Closing Costs (GFE). A GFE is a from prepared by the lender which should show the interest rate and type of program (30 year term, fixed rate) and the closing costs the borrower can expect to pay to close the loan. A GFE is required as part of a lender’s package and a competent broker should be able to get one for the borrower BEFORE the application.

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