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Old 04-20-2009, 06:02 PM
 
21 posts, read 59,593 times
Reputation: 39

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Just got a large packet of stuff from a mortgage broker, with a lot of pages to sign. Lots of disclosure statements, GFE, Loan Application, etc. I've been prequalified w/letter sufficient for the home I selected and just started escrow. I'm a first time buyer and all of this is new to me, I'm trying to get an education fast. My FICO is >750, and the loan amount is well within my qualifications, in fact, I could probably qualify for almost twice as much loan than I'm applying for, for the house I've selected. I've got absolutely no debt, so my credit should be pretty darn good. The loan will need to be FHA though, only because I'm looking to act now and the best down payment i've been able to muster is about 4%.

What I don't get is how the interest rates/APR work. I presume the 5.5 interest and 6.533 APR on the forms are just placeholders. At least I hope they are, as they seem pretty high based on googling around a bit. interest.com for example, in the same area shows a range from about 4.375 to 5.375, with APRs typically about 0.2 over the interest, and fees anywhere from about $500 to $4000.

Here are some things I don't understand:

- Does the fact it's an FHA loan essentially increase the rate over what I'm likely to find as "typical" rates via web searches like the one at interest.com?

- How much spread between interest & APR is reasonable with a brokered loan? Unbrokered loans based on interest.com seem to be about 0.2, I would think that 1.0 would be excessive-- and ANY of the rates/spreads shown on interest.com are better than I'm seeing on these forms. Should I just ignore the rates indicated on the forms?

- At what point in the process can I get a rate lock? I'm being asked to sign these forms with the "preliminary" (my assumption) rates all over them, shouldn't I wait until I can get a lock before I sign anything with a rate on it? Or do I have to sign all the forms before I can get a lock and the rates are understood to be tentative (understood by everyone but ME anyway)? I'm in escrow now, about 25 days 'til closing. So far I really have NO F***ING idea what my rate might be other than the apparently arbitrary 5.5/6.533 on these forms. Is that how it's supposed to work? How do you shop around for a better rate if you don't know what the rate is? Or am I relatively powerless because it's FHA? Or maybe 5.5/6.533 is a good rate for an FHA 30 fixed w/3.5% down?


For an example of my frustration, read this recent article:

Mortgage Rates Plunge To Record Lows - Interest.com


Note that there is NO mention that FHA would adversely affect the interest rate. They do say, "have a reasonable credit score" in order to get one of the "best" loans, but I've yet to see anything, anywhere that states that I should expect to pay a somewhat higher interest rate if I'm going FHA-- and perhaps it's because the statement is false, but I have no bleeding clue of what my loan might look like except for these "preliminary" numbers on these forms which look to me to be excessively high. Maybe I'm just overreacting out of my ignorance...

I do have one thing to say about brokers while I'm at it-- I've worked with two different ones now, only out of convenience, as the first one was local to where I live now and the second one is local to where the house I'm buying is-- I was first looking to move locally and later decided to move north about 600 miles (in California). The second broker was identified by the Realtor up there, and I've compared the GFEs between the two, and they're pretty similar, the second one is a little better but the rates are about the same-- 5.5... There seems to be one irritating thing the two brokers have in common though-- they go off planning to get me a "great rate," a statement upon which I gather I'm just supposed to take on faith-- well sorry, I'm a skeptic. I'd sure like to have SOME clue so I can look around and try to find out if what they say about their "great rate" is true or not. The whole process seems to grow legs and operate without much involvement on my part-- stuff is happening, but I don't completely understand it nor does there seem to be any thought that I might need or simply want to understand what exactly is going on. Perhaps many people are perfectly happy to completely trust a mortgage broker and just accept whatever they get, but I've been screwed over by enough folks enough times that I like to know a little more about what the heck is going on.

One could argue, that even 5.5 is really great over what things were a few short years ago-- but you have to remember, that the interest rate you get at this point is a subject with some bragging rights-- people are working hard to re-finance their homes to lower their rates, so rate comparison is the subject at coctail parties-- "what rate did you get?" I'm trying to avoid looking like the complete noob I am and enduring comments like "5.5, whatta putz-- I just got 4.5 on mine,"... Not that I really care all that much what other people think, but I'm trying to do a little bit here to find out how good of a deal I'm getting-- not that I have to have the absolute *best* deal possible, but I'd sure like to know I didn't get the *worst* deal possible out of ignorance of the process.




--

Zinc
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Old 04-21-2009, 08:05 AM
 
Location: Baltimore, MD
205 posts, read 764,203 times
Reputation: 170
That rate seems a little high. I'm in a similar situation, although my experience with brokers has varied quite a bit. The one I started working with initially is the same one I'm continuing to work with despite attempting to shop around. The 5.5 seems high. I've been told FHA is about .5 higher than conventional and have been getting rates between 5.1 and 5.3. With a point the rate comes down to 4.7 to 4.9 depending on exactly when the rate quote is taken. My employment history may be bumping my rate a bit lower than yours though. You can lock after you have a ratified contract, but if you're bidding on a short sale like I am you risk having to argue about fees if the short sale gets delayed. Since rates aren't going anywhere any time soon, letting the rate float seems safe for now until a bank approval shows up.

Unfortunately, all of the brokers I've talked to have been a complete pain in the ass when it comes to comparing the various kinds of loans. They only want to sell FHA or 20% down conventional. See if you can make your broker think you're a bargain hunter and are willing to repeatedly shop around for better rates and terms. You might get them to make a few "minor" adjustments when they actually have to compete.
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Old 04-21-2009, 09:20 AM
 
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
6,958 posts, read 20,075,189 times
Reputation: 6420
Quote:
Originally Posted by BigDragon View Post
They only want to sell FHA or 20% down conventional.
Because that's the only kind of loans that are getting done on a regular basis (around here anyway) due to underwriters making it VERY difficult to get mortgages.
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Old 04-21-2009, 09:39 AM
 
2,727 posts, read 4,622,180 times
Reputation: 2342
What does the APR includes? That may give you a good idea about the jump from 5.5, for both brokers. Also, rates may be a function of a state.

You said you want to put 4% but I would say take that .5% and add another 0.5% to pay point and lower your rate.

Good luck
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Old 04-21-2009, 12:01 PM
 
Location: Central Florida
800 posts, read 2,887,410 times
Reputation: 307
FHA has an up from MI Fee which affects the APR. Mortgage insurance is required for the life of the loan. 3.5% down payment required.

Conventional has the best rates overall but the most difficult qualifying requirements. I just had a closing where the buyer has a 4.385% 30 year fixed rate, conventional. He has 20% down and a great score. He bought down the rate from 4.85% and a recovery rate of 14 months. (Meaning it will take him 14 months to recover the cost of buying down the rate.

Rates are determined by your score, the appraisal on the property and the amount you put down on the loan. They vary per lender/mortgage broker.

Most importantly, if you don't understand something about your loan, ask questions until it is perfectly clear so you keep out of trouble.
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Old 04-21-2009, 02:56 PM
 
Location: Casa Grande, AZ (May 08)
1,653 posts, read 3,734,027 times
Reputation: 1347
Dee2e,

Just a slight correction to your post above. FHA does NOT require MI for the LIFE of the loan, but rather 5 years, regardless if you reach 80% loan to value or not.

Current market conditions make it pretty safe bet that you woulnt appreciate enough in 5 years to get 20% equity anyway, but in the old days it could easily happen which was one reason FHA loans were not used significantly during the boom.
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Old 04-21-2009, 10:19 PM
 
Location: Texas
5,873 posts, read 7,242,677 times
Reputation: 2967
Quote:
Originally Posted by zinc View Post
Just got a large packet of stuff from a mortgage broker, with a lot of pages to sign. Lots of disclosure statements, GFE, Loan Application, etc. I've been prequalified w/letter sufficient for the home I selected and just started escrow. I'm a first time buyer and all of this is new to me, I'm trying to get an education fast. My FICO is >750, and the loan amount is well within my qualifications, in fact, I could probably qualify for almost twice as much loan than I'm applying for, for the house I've selected. I've got absolutely no debt, so my credit should be pretty darn good. The loan will need to be FHA though, only because I'm looking to act now and the best down payment i've been able to muster is about 4%.

What I don't get is how the interest rates/APR work. I presume the 5.5 interest and 6.533 APR on the forms are just placeholders. At least I hope they are, as they seem pretty high based on googling around a bit. interest.com for example, in the same area shows a range from about 4.375 to 5.375, with APRs typically about 0.2 over the interest, and fees anywhere from about $500 to $4000.

Here are some things I don't understand:

- Does the fact it's an FHA loan essentially increase the rate over what I'm likely to find as "typical" rates via web searches like the one at interest.com?

- How much spread between interest & APR is reasonable with a brokered loan? Unbrokered loans based on interest.com seem to be about 0.2, I would think that 1.0 would be excessive-- and ANY of the rates/spreads shown on interest.com are better than I'm seeing on these forms. Should I just ignore the rates indicated on the forms?

- At what point in the process can I get a rate lock? I'm being asked to sign these forms with the "preliminary" (my assumption) rates all over them, shouldn't I wait until I can get a lock before I sign anything with a rate on it? Or do I have to sign all the forms before I can get a lock and the rates are understood to be tentative (understood by everyone but ME anyway)? I'm in escrow now, about 25 days 'til closing. So far I really have NO F***ING idea what my rate might be other than the apparently arbitrary 5.5/6.533 on these forms. Is that how it's supposed to work? How do you shop around for a better rate if you don't know what the rate is? Or am I relatively powerless because it's FHA? Or maybe 5.5/6.533 is a good rate for an FHA 30 fixed w/3.5% down?


For an example of my frustration, read this recent article:

Mortgage Rates Plunge To Record Lows - Interest.com


Note that there is NO mention that FHA would adversely affect the interest rate. They do say, "have a reasonable credit score" in order to get one of the "best" loans, but I've yet to see anything, anywhere that states that I should expect to pay a somewhat higher interest rate if I'm going FHA-- and perhaps it's because the statement is false, but I have no bleeding clue of what my loan might look like except for these "preliminary" numbers on these forms which look to me to be excessively high. Maybe I'm just overreacting out of my ignorance...

I do have one thing to say about brokers while I'm at it-- I've worked with two different ones now, only out of convenience, as the first one was local to where I live now and the second one is local to where the house I'm buying is-- I was first looking to move locally and later decided to move north about 600 miles (in California). The second broker was identified by the Realtor up there, and I've compared the GFEs between the two, and they're pretty similar, the second one is a little better but the rates are about the same-- 5.5... There seems to be one irritating thing the two brokers have in common though-- they go off planning to get me a "great rate," a statement upon which I gather I'm just supposed to take on faith-- well sorry, I'm a skeptic. I'd sure like to have SOME clue so I can look around and try to find out if what they say about their "great rate" is true or not. The whole process seems to grow legs and operate without much involvement on my part-- stuff is happening, but I don't completely understand it nor does there seem to be any thought that I might need or simply want to understand what exactly is going on. Perhaps many people are perfectly happy to completely trust a mortgage broker and just accept whatever they get, but I've been screwed over by enough folks enough times that I like to know a little more about what the heck is going on.

One could argue, that even 5.5 is really great over what things were a few short years ago-- but you have to remember, that the interest rate you get at this point is a subject with some bragging rights-- people are working hard to re-finance their homes to lower their rates, so rate comparison is the subject at coctail parties-- "what rate did you get?" I'm trying to avoid looking like the complete noob I am and enduring comments like "5.5, whatta putz-- I just got 4.5 on mine,"... Not that I really care all that much what other people think, but I'm trying to do a little bit here to find out how good of a deal I'm getting-- not that I have to have the absolute *best* deal possible, but I'd sure like to know I didn't get the *worst* deal possible out of ignorance of the process.
--
Zinc
First of all congratulations. Second your rate is purely a function of two things: 1.) Your location and 2.) The amount of yield spread your broker is making on your FHA loan. FHA & Conforming loan rates do differ since they are two separate products entirely. Rates are determined by those two things.

Most brokers charge a 1% origination fee. With the new yield guidelines brokers are usually making at least 2.5-3% on the back end. The back end affects rate(s) most. This should be spelled out on your GFE. The higher points or orig. fee you pay the lower your rate should be, however, going FHA there is a different pricing (rate) tier so it won't be the same low rates you see on bankrate or interest.com.

Also, FHA rates will be higher than normal conforming loans not only region to region, but state to state as well. You can lock your rate at any time, especially if you have only 25 days until closing you might want to think about locking soon.
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Old 04-21-2009, 11:15 PM
 
21 posts, read 59,593 times
Reputation: 39
Thanks for the info here you guys-- very helpful. I have to go over this stuff several times before it "sinks in," but it does seem to be getting there...

Origination fee is 1%. With the second broker it was the same. Does this constitute the difference between the preliminary interest rate of 5.5 and the APR of 6.533?


There's also the following fees:

Credit report $18
Processing Fee $725
A confusing -- "wire transfer fee" with subsection "Paid to lender" of $795
closing/escrow fee $550
Notary fees $150
Title insurance $1100
Recording fee $125


Second broker was a little different but it worked out to be about the same amounts in total.


Then there's stuff like advance payments of interest & insurance, & reserves deposited with lender which I wouldn't think are connected with the APR...



--

Zinc
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Old 07-16-2014, 04:02 AM
 
1,233 posts, read 1,258,236 times
Reputation: 1293
I believe we are in 'same situation kinda with the OP. First time buyer also. I also realize this thread is from 2009. Well now the situation is different if I understand the OP correctly.

Now actually FHA loan is LOWER than conventional loan.
FHA is 3.75%
Conventional 4.3% - the first preliminary loan we signed anyway

NOW our problem is.... we were given a 2nd preliminary LOAN to sign again and interest rate went up with 2nd preliminary house loan from 4.3% to 4.5%

Annual percentage in first preliminary loan we signed was from 4.9% to 5.04% to this new 2nd preliminary. Is it because we didn't sign the lock in rate piece of paper in the first preliminary????


I still have the 2nd preliminary paper. My husband has signed it but he was VERY upset. With this increased rate! Is this normal? Should I give this signed 2nd preliminary to the broker today or tell her to go scratch?! <-----Which I am leaning to do.

Also when the hell will our house loan be 'fixed' and final. We signed 2 papers already and they're both 'preliminary' and rate is freaking going up within a week?!!!

I also need to say, we got a house loan with same bank, different broker last year and we had the house loan already in our hands before we even got a house. Our house offers didn't get accepted last year plus my husband was laid off so we didn't push through buying a house last year.


Is this new broker we have right now scamming us?!!

By the way, the broker's reason why we have to sign this 'new' (STILL a) preliminary loan is because in the first preliminary loan we signed they run 'out of funds' of the $7500 government grant but she (conveniently?) fortunately found us another one that can give us $7500 government grant.

Last edited by meaning; 07-16-2014 at 04:23 AM..
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Old 07-16-2014, 06:45 AM
 
Location: El Dorado Hills, CA
3,724 posts, read 8,840,118 times
Reputation: 3887
Call another mortgage broker and get a second quote. Let them know you have been working with one already and you want a second opinion.
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