What You Can Do To Help Avoid Another ‘Foreclosure Frenzy’
It is no secret that the real estate market is not what it used to be. San Diego County has been, and still is experiencing a GIGANTIC spike in foreclosures. Year to date, we have seen a 370% increase in foreclosures in the county compared to the TOTAL numbers from 2006 (InnoVest’s Foreclosure Statistics), and this statistic only counts the homes that were actually repossessed and sold by the banks; it doesn’t include the drastic increase of homeowners who have had to declare bankruptcy, short sell their home, or utilize other desperate strategies to avoid a foreclosure sale. These numbers are real; all together the picture looks pretty bleak, and we have yet to see the end of it.
The media has been having a field day with these numbers. I am sure you have seen the headlines – “Subprime Mortgage Meltdown,” “Credit Crisis,” or my favorite “Foreclosure Frenzy.” Go ahead and ‘Google’ any one of these headlines – you will find literally THOUSANDS of articles, audio recordings, and video broadcasts…and each and every one is meant to scare the hell the out of you.
That is the problem…all they do is scare you…they don’t provide a lick of advice on how to protect you and your family. Every single report will highlight frightening statistics, share a sad story of a victimized homeowner, and point a finger at who is to blame…very few provide any real, useful information.
I can probably write a novel about what caused the troubles the mortgage and real estate markets are experiencing today (the weight of the blame definitely does not fall on any one party); however none of that would help you. What I want to do is share some tips and secrets that will help prevent you and your family from falling victim to the pitfalls that many of our neighbors are feeling the effects of today. You can save yourself a ton of stress and money by heeding even just one of the following tips:
1) Shop Knowledge and Integrity…not Rate and Fee – If you are going to shop for your mortgage, do it the RIGHT way. The lowest rate on the wrong mortgage program will cost you THOUSANDS OF DOLLARS more than a competitive rate on the RIGHT mortgage program. I have put together a whole separate article about this topic…feel free to email me at Expressions@HeroicFinancial.com or visit my website at www.californialoantips.com if you would like to receive a copy of this report. Many homeowners are now in trouble because they were focused entirely on getting the lowest interest rate…now their rate and loan is adjusting above what they can afford. Search for a mortgage professional who understands this and is skilled in structuring mortgage financing properly. Beware the loan officers who shoot out rate quotes faster than Lindsey Lohan can pound a beer…this is a disservice to you and should act as a warning sign for future disappointments and/or rate and fee increases. Also, you need to find someone who is updated on, and understands current and future market movements…mortgage interest rates move like any other financial security; it is important to work with someone who is able to foresee and take advantage of rate decreases, and protect you from rate increases. If at this point, you still have two or three honest and competent mortgage companies/professionals to choose from, then you can start comparing rates and fees. To do this properly, you need to make sure you are comparing the total of LENDER FEES in combination with your projected interest rate from each party. Also be sure these quotes were prepared at similar times, otherwise market movements could have an impact on the validity of the numbers. Some words of caution - If you are looking for the cheapest deal out there, understand that you are placing an enormously important process into the hands of the lowest bidder. Best case; expect very little advice, experience and personal service. Worst case; expect that you may not close your loan at all. All too often, you don’t know until it’s too late that CHEAPEST ISN’T BEST.
2) Ask For a Closing Cost Guarantee – I also touch base on this in the article I mention above. I feel this is a very important step necessary to protect yourself from any ‘bait and switch’ type tactics. Some loan officers and mortgage companies will use a teaser rate or low fee quote to get you in the door, and then when it may be too late for you to make a change, they will increase the rate or their fees without telling you…and you won’t find out until you are signing your final loan documents. By asking for a closing cost guarantee you can help protect yourself from these shady tactics, or at the least, discover early on that you need to make a change in lenders (be cautious if they refuse your request, shell out excuses why they can’t do this, or seem skittish/uncomfortable when you bring it up). For an example, my company will give you $500 if the final closing costs are more than $300 above the initial Good Faith Estimate of Closing Costs we provided you. There are many ways this can be structured, just make sure the end result is the time.
3) Understand Your Future Financial Needs – Try to anticipate and understand the future needs of your family. Do you need to start a college fund? Do you need to start putting more away for retirement? Realistically, where do you think your income level is going to go? How long do you plan on living at this home? What potential hardships could you face? How many months in liquid emergency reserves do you have? Could you use more? All of these are very important questions to ask yourself when you are thinking about making a change in your home and/or home mortgage. Your mortgage is most likely the largest financial instrument you have at your disposal, and therefore it can have the largest impact on the financial well-being of your family. By properly planning during this restructuring process, you can drastically accelerate your progress towards your end financial goals. KEY ISSUE – Your mortgage professional must understand the answers to these questions, and be able to develop to develop a safe and proper plan to accomplish what you need. Dedicated and educated mortgage professionals will be able to do this for you… you can also look for a Certified Mortgage Planner, who is trained and certified in using these strategies, at www.cmpsinstitue.org.
4) Ask Questions and Get Honest Answers – Ask the right questions about your loan. Is there a Prepayment Penalty? If so, for how long? Will my rate adjust? If so, how long until it does? Is there any kind of teaser or minimum payment rate associated with this loan? What do these fees cover? Does this loan have an impound account for taxes and insurance (make sure you understand the consequences of having, or not having this set up)? What is the term of the loan? Is the payment you quoted me Interest Only, or is it the full Principle and Interest payment? I could keep going. A lot of the questions will be specific to your situation. Email me at Expressions@HeroicFinancial.com if you need any help. Not everyone is out to take advantage of you, but loan officers are human and do forget…your new mortgage is going to have the most effect on you; therefore you should do everything you can to make sure you understand it in its entirety.
5) Read Before You Sign – You are the one signing the documents, therefore it is your duty to understand and be comfortable with what you are signing…I know it is a lot of legal and financial mumbo jumbo, but it is necessary. I recommend spending a lot of time reviewing the Note (3-5 page document listing the terms of the loan), the closing statement (a final breakdown of the costs associated with your loan), the Truth-In-Lending Disclosure (includes an APR calculation and payment schedule) and look for any Prepayment Penalty, Interest Only, and Adjustable Rate Disclosures. The notary who is overseeing your signing should also be able to point out which documents to look for and how to read them. If something is different from what you were told, DON’T SIGN IT. Contact your loan officer immediately for an explanation or correction…he/she should ALWAYS be available when you are signing your loan documents, if not actually present at the physical signing!
6) Request Periodic Future Follow-Up – The goal of this entire process is to find a trustworthy, knowledgeable, and competent mortgage professional that will be there to serve you whenever you need any mortgage financing assistance. If you do this properly, you shouldn’t have to do it again. You will find a dedicated professional who views the mortgage business as a career rather than a job. You should think of this person as an advisor, just like a CPA or Financial Planner…and they should think of you as a client for life. Just like any other financial advisor, your mortgage professional should periodically monitor your financial situation. He/she should be evaluating the structure of your mortgage, and gauge the effectiveness of the program and interest rate in comparison to your overall financial plan. You should always be able to contact him/her to ask questions or voice concerns.
A lot of our neighbors are suffering right now. Whatever the cause may be, and whoever may be responsible doesn’t really matter…you, your family, your friends, the homeowners of this country are going to feel the most pain. Your mortgage can make or break your financial security, and therefore it deserves the most attention and planning. I am often frustrated by the lackadaisical approach taken by many homeowners when looking for a new mortgage. Take matters into your own hands and give this process the attention it deserves…I GUARANTEE you will be happy with the results.
Brian Daly is owner and founder of Heroic Financial Services, a California home loan expert, Certified Mortgage Planner, and repeat mortgage talk radio guest who specializes in low-rate mortgages for first-time home buyers and homeowners with bankruptcies or other credit issues. You can contact him at Expressions@HeroicFinancial.com or visit his website at www.CaliforniaLoanTips.com/.
Every couple of months Brian’s article will respond to the most common and compelling questions from his readers, so please feel free to ask whatever is on your mind...Brian will respond to all questions within 24-48 hours, and with permission, he will select a few to be included in Q&A article in the future...
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