Often, perspective buyers, especially first time home buyers ("FTHB"), are steered the wrong direction by mortgage professionals, and don't get the best possible deal that is out there for them. With competition being fierce, since the market is not what is used to be, there are some who will bait and switch, and or, use products that really are not the best for our clients in this significant monetary transaction.
Well, how does one tell what the best deal is...
First, the basic interest rate, over the entire term of the loan; I have seen a recent trend of a graduated start rates, with a higher fixed rate after the introductory interest rate period, some hybrid of the option arm (a negative amortization loan). It offers a low fixed rate for the first two years, with a higher fixed rate for the remainder of the term.
On face value, to the FTHB, the low start rates will look wonderful...well, on face value, they are...., but are they really? My answer will be no. WELL, the low interest rates, the payments consist of an interest only payment, with significant amounts of yield spread premium ("YSP") not disclosed to the lender, but included in the annual percentage rate ("APR"). The APR will be disclosed on the Truth in Lending ("TIL") statement. The TIL is a required document to be disclosed to the borrower prior to closing and at the point of application.
I recently competed against on of these types of deals, but my perspective customer was "comfortable" with the realtors' referral to their mortgage professional. Their mortgage professionals APR was higher and so were the closing costs --- they were significantly higher as well...but I guess they were "comfortable."
So, my 2 cents here is that realtors should be open minded to another professionals opinion, and to get to know the numbers....what the APR is, not just the rate, and the funds to close.
Please feel free to contact me if you need a second opinion of a good faith estimate and the APR.
Michael J. Sally
http://www.mortgagesbymike.com/
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