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Beware of the rules of Lending, 5 of 12 Overdrafting
May 17, 2012 by Elise Groves · Leave a Comment
DON’T OVERDRAFT — I’m not talking about drafting Ryan Tannehill with the 8th overall pick either. Let’s talk about nasty little subject that we call BTDs or Bank Transmitted Diseases. As much as we don’t want to admit, we have all gotten lazy, had 1 too many drinks at the bar… BAM! The next morning you check your account and there is a fresh overdraft… Before you know it, you have shamed yourself into transferring money from your savings or other banks to cover it up… a real downward spiral, but I digress.
Mel Kiper Jr. Hates Overdrafting!!
During the loan process is NOT the time to miscalculate how much money you have in your account and use your overdraft protection (OP). The underwriter does NOT look kindly on people who can’t balance their checking account. You’re trying to convince the lender that you are a low credit risk and worthy of borrowing hundreds of thousands of dollars and paying it back on time.
Imagine how the underwriter would view your ability to manage your money if that $5 footlong from Subway showed up under OVERDRAFT PROTECTION. Worse yet, your checking account statement shows you have a history of using your OP in months past, and might even give a dollar amount that you have racked up in those fees. That alone could deny you the loan, please practice safe banking and protect yourself.
Beware of the rules of Lending, 4 of 12 Shredding
May 14, 2012 by Elise Groves · Leave a Comment
DON’T SHRED YOUR PAY-STUBS & BANK STATEMENTS— I run into clients all the time who get their bank statements and pay-stubs in the mail, then they verify the information and balance their own accounts, and promptly shred the statements. There is absolutely nothing wrong with this… unless you are in the process of getting a mortgage!
Please hang on to them during the entire loan process. The underwriter is going to want at least one actual bank statement and 30 days worth of pay stubs, so keep them on hand.
But wait, I can hear it now,”Elise I don’t get paper statements or pay-stubs in the mail ever since I opted for E-Statements” well good for you… I hope you know how to print and scan or email those to us, and if you don’t you better learn fast.
Kidding aside, we all work in an electronically dominated world now a days and it is very important to be able to protect ourselves from identity theft. The Groves Team takes any and all sensitive material seriously and have all non-record keeping papers shredded after the completion of your deal.
Beware of the rules of Lending, 3 of 12 New Credit
May 10, 2012 by Elise Groves · Leave a Comment
DON’T APPLY FOR ANY NEW CREDIT—Resist that new set of knives or the 15% discount you will get if you open a new account!! The lender will refresh your credit report right before they fund the loan and Lord help you if new credit inquiries show up on that report! 
You are going to have to jump through hoop after hoop to convince the lender you didn’t just take on a whole new monthly debt that will disqualify you. Even if you are well qualified the lender will want to know why you are trying to aquire new credit durring perhaps the largest financial process of your life.
Just wait…. It’s the credit inquiry that could kill your deal, so stay out of Best Buy, Home Depot and the car dealers’ showroom please… IT’s A TRAP!!!
Beware of the rules of Lending, 2 of 12 Moving Money
May 8, 2012 by Elise Groves · Leave a Comment
DON’T TRANSFER MONEY FROM ACCOUNT TO ACCOUNT— Please put your money for your down payment and closing costs in ONE account and leave it there, and the sooner the better please. DO NOT keep transferring back and forth between checking and savings, this is especially true if it is two separate banks.
The lender is going to make you verify every single deposit, transfer, wire, etc. over a two month or longer period, so just be prepared to fully document every little financial detail going in and out of those accounts. The lender really is going to turn over every rock and make sure you don’t have money just ‘show up’ that can’t be properly accounted for and ‘papertrailed’… and no, we can not use the old “we had a garage sale” deposit excuse any more.
If you are going to be getting a Gift from family or cashing out various investments to help build your asset account for this transaction, please consult with us before you even think about it!
both of these scenarios are very common, completely within the rules of lending and totally botched all the time because of poor Lender to Client education. Help me help you… we don’t want to chew up valuable time half way through the loan process.
Heed my warning on this, please. You can do transfers, but they better be backed up with the correct paperwork, including DNA and blood samples, or else. (No, you won’t really have to give blood, but seriously… its crazy out there). Keep copies of every check, every deposit and be prepared to produce them quickly. If you don’t know how to do online banking, now would be a good time to learn that as you may periodically have to update information between statements.
Beware of the rules of Lending, 1 of 12 Jobs.
May 3, 2012 by Elise Groves · Leave a Comment
They may be ridiculous, irritating and challenging,
but if you don’t heed these warnings and you break the rules,
your loan could be DENIED AT THE LAST MINUTE!
Check in every Tuesday and Thursday for this 12 part series geared towards the
DOs and DON’Ts During The Loan Process
1. DON’T CHANGE JOBS …or even worse…QUIT!! The lender is going to verbally verify your employment about a day before they fund your loan and if you have changed or quit you might be screwed. So stay at the same job throughout the loan process. Your loan is based on your ability to make the payments, and your job stability is a big factor. So hold on a little longer… and don’t you dare consider quitting and starting your own business until AFTER the escrow closes and you have moved into your new home. That could be a deal killer right there.
Speaking of jobs… PLEASE deposit your ENTIRE paycheck, THEN take a cash draw. DON’T go cash your check, keep your spending money for the week, then deposit the rest. It creates a paper trailing nightmare you don’t want to be a part of.
Wine Country First Mortgage FAQ: Should I Refi- Or Get a HELOC
March 28, 2010 by Elise Groves · Leave a Comment
For homeowners interested in making some property improvements without tapping into their savings or investment accounts, the two main options are to either take out a Home Equity Line of Credit (HELOC), or do a cash-out refinance.
According To Wikipedia:
A home equity line of credit is a loan in which the lender agrees to lend a maximum amount within an agreed period, where the collateral is the borrower’s equity.
A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses a line of credit to borrow sums that total no more than the credit limit, similar to a credit card.
HELOC funds can be borrowed during the “draw period” (typically 5 to 25 years). Repayment is of the amount drawn plus interest.
A HELOC may have a minimum monthly payment requirement (often “interest only”); however, the debtor may make a repayment of any amount so long as it is greater than the minimum payment (but less than the total outstanding).
Another important difference from a conventional loan is that the interest rate on a HELOC is variable. The interest rate is generally based on an index, such as the prime rate. This means that the interest rate can change over time. Homeowners shopping for a HELOC must be aware that not all lenders calculate the margin the same way. The margin is the difference between the prime rate and the interest rate the borrower will actually pay.
A Home Equity Loan is similar to the Line of Credit, except there is a lump sum given to the borrower at the time of funding and the payment terms are generally fixed. Both a Line of Credit and Home Equity Loan hold a subordinate position to the first loan on title, and are typically referred to as a “Second Mortgage”. Since second mortgages are paid after the first lien holder in the event of default foreclosure or short sale, interest rates are higher in order to justify the risk and attract investors.
Measuring The Different Between HELOC vs Cash-Out Refinance:
There are three variables to consider when answering this question:
1. Timeline
2. Costs or Fees to obtain the loan
3. Interest Rate
1. Timeline –
This is a key factor to look at first, and arguably the most important. Before you look at the interest rates, you need to consider your time line or the length of time you’ll be keeping your home. This will determine how long of a period you’ll need in order to pay back the borrowed money.
Are you looking to finally make those dreaded deferred home improvements in order to sell at top dollar? Or, are you adding that bedroom and family room addition that will finally turn your cozy bungalow into your glorious palace?
This is a very important question to ask because the two types of loans will achieve the same result – CASH — but they each serve different and distinct purposes.
A home equity line of credit, commonly called a HELOC, is better suited for short term goals and typically involves adjustable rates that can change monthly. The HELOC will often come with a tempting feature of interest only on the monthly payment resulting in a temporary lower payment. But, perhaps the largest risk of a HELOC can be the varying interest rate from month to month. You may have a low payment today, but can you afford a higher one tomorrow?
Alternatively, a cash-out refinance of your mortgage may be better suited for securing long term financing, especially if the new payment is lower than the new first and second mortgage, should you choose a HELOC. Refinancing into one new low rate can lower your risk of payment fluctuation over time.
What are the closing costs for each loan? This also goes hand-in-hand with the above time line considerations. Both loans have charges associated with them, however, a HELOC will typically cost less than a full refinance.
It’s important to compare the short-term closing costs with the long-term total of monthly payments. Keep in mind the risk factors associated with an adjustable rate line of credit.
The first thing most borrowers look at is the interest rate. Everyone wants to feel that they’ve locked in the lowest rate possible. The reality is, for home improvements, the interest rate may not be as important as the consideration of the risk level that you are accepting.
If your current loan is at 4.875%, and you only need the money for 4-6 months until you get your bonus, it’s not as important if the HELOC rate is 5%, 8%, or even 10%. This is because the majority of your mortgage debt is still fixed at 4.875%.
Conversely, if you need the money for long term and your current loan is at 4.875%, it may not make financial sense to pass up an offer on a blended rate of 5.75% with a new 30-year fixed mortgage. There would be a considerable savings over several years if variable interest rates went up for a long period of time.
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Choosing between a full refinance and a HELOC basically depends on the level of risk you are willing to accept over the period of time that you need money.
A simple spreadsheet comparing all of the costs and payments associated with both options will help highlight the total net benefit.
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Related Article – Refinance Process:
- Refinance Process Overview
- Mortgage Approval Process
- Four Possible Reasons To Refinance
- Calculating The Net Benefit Of A Refinance
- What Do Appraisers Look For When Determining A Property’s Value?
- Understanding The Difference Between Appraised Value vs Neighborhood Listing Comps
- Five Myths About Home Values
Santa Rosa Mortgage FAQ: Should I refinance?
March 28, 2010 by Elise Groves · Leave a Comment
Calculating the net benefit of refinancing can be a challenging task if you do not understand what to calculate. We are going to focus on the net benefits of refinancing from the standpoint of lowering your interest rate.
Although there are several reasons to refinance, lowering your mortgage rate to save on interest payments over the term of the loan is the most popular.
Calculating the actual savings can be a tricky chore unless you know the difference between cash flow savings and interest savings. If your refinance objective is to only save on the interest by lowering your rate, then the interest savings should be done with the calculations below.
Calculating Interest Savings:
(Loan Amount x Interest Rate) / Months in year = Interest paid per month
($200,000 x 6% or .06) / 12 = $1,000.00
*Remember to do the calculation in the parentheses first*
We now know that you are paying $1,000.00 per month in interest. You should take the new interest rate you are getting with your refinance and calculate what your new interest payment will be.
($200,000 x 5% or .05) / 12 = $833.34
Now we need to find out the difference between the two interest rates.
Current Interest Payment – Proposed Interest Payment = Interest Savings
$1,000.00 – $833.34 = $166.66
Now you have figured out that by dropping your interest rate 1% on $200,000 you will be saving $166.66 per month or about $2,000 per year.
Awesome!
Anyone would want to save $2,000 per year, where do I sign… right? Not so fast, you’ll want to calculate the break-even point to find out how you will benefit after your closing costs.
Net Benefit Formula (Break-Even):
(Closing Costs – Escrows) / Interest Savings = Month of Break-Even
($6,000 – $1,000) / $166.66 = 30 Months
In other words, it will take 30 months for you to recoup the cost of your refinance. If you plan to keep your mortgage for at least 30 months then you might want to consider this deal.
Okay, now we can calculate your net benefit for refinancing with one more calculation.
(Monthly Savings * Months you plan to keep mortgage) – (Closing Costs –Escrows) = Net Savings
($166.66 * 120 months) – ($6,000 – $1,000) = $14,999.20
If you kept the mortgage for 120 months (10 years) you would save $15,000.
Okay, now you can find out where to sign.
Calculating the net benefits of a refinance is crucial in determining if it is strategic for you to refinance. Keep in mind that each mortgage is slightly different and you may need to adjust calculations accordingly.
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Frequently Asked Questions:
Q: I heard that I should only refinance if I drop 1% on my mortgage is that true?
Some people say ½% , 1% to never. Every mortgage is different.
For Example: A no cost loan can have a 1 month break-even point with only a .25% drop in interest rate. Now that you know how to calculate your net benefit, you are able to figure out what may be best for your situation.
Q: Why can’t I just compare my current payment to the proposed payment and figure out my net benefit?
You could just compare just the two payments if you wanted to find out your cash flow savings, but the current and proposed loans may have two different amortizations.
Let’s assume you currently have a 15 year mortgage and you’re comparing it to a 30 year mortgage. If both loans have the same interest rate and loan amount but the amortization is different, your interest savings per month would be $0. However, you are going to show a cash flow savings with the 30 year mortgage because of the longer amortization.
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Related Article – Refinance Process:
- Refinance Process Overview
- Mortgage Approval Process
- Four Possible Reasons To Refinance
- Should I Refinance Or Get A Home Equity Loan To Make Improvements?
- What Do Appraisers Look For When Determining A Property’s Value?
- Understanding The Difference Between Appraised Value vs Neighborhood Listing Comps
- Five Myths About Home Values
Four Possible Reasons To Refinance Your Santa Rosa Mortgage
January 31, 2010 by Elise Groves · Leave a Comment
A mortgage is generally the largest debt most homeowners have to manage. It’s a good idea to give your personal real estate finance portfolio a check-up at least once a year.
Since there are many reasons a homeowner may choose to refinance, we’ll take a look at the four most common.
1. Mortgage Rates Drop:
Typically, the most common reason that homeowners refinance their mortgage is to secure a lower interest rate. Interest rate and loan amount determines the total cost that a borrower will pay. The lower the interest rate, the less the overall cost will be. Interest is calculated on a daily basis and usually paid back to the lender on a monthly basis.
2. Lower Payments:
Lowering a mortgage payment can be achieved by lowering the mortgage rate, lengthening the loan term, combining two or more loans or removing mortgage insurance.
3. New Mortgage Program:
Refinancing an Adjustable Rate Mortgage (ARM) to a new Fixed Rate Mortgage (FRM), combining a first and second mortgage or paying off a balloon loan are three possible reasons to explore a refinance.
4. Debt Consolidation:
If there is sufficient equity, sometimes paying off consumer debt by combining all debts into one lower monthly mortgage payment can significantly reduce the short-term deficits in a budget. However, it’s important to keep in mind the total cost of that debt by adding it into a 30 year mortgage payment.
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Frequently Asked Refinance Questions:
Q: Do I have to refinance with my current mortgage company?
No, you may choose any company to refinance your mortgage since the new loan will replace the existing mortgage.
Q: Is it easier to refinance with my current mortgage company?
It is possible your current mortgage company may require less documentation, but this could add additional cost or a higher interest rate. Do your homework and shop around to make sure you’re getting the best deal.
Q: Will I automatically qualify if I’ve never made any late payments?
No, you will have to qualify for your new refinance. However, certain programs will allow for reduced documentation like a FHA to FHA Streamline Refinance.
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Related Article – Refinance Process:
- Refinance Process Overview
- Mortgage Approval Process
- Calculating The Net Benefit Of A Refinance
- Should I Refinance Or Get A Home Equity Loan To Make Improvements?
- What Do Appraisers Look For When Determining A Property’s Value?
- Understanding The Difference Between Appraised Value vs Neighborhood Listing Comps
- Five Myths About Home Values
