Simply The Best Loans

No matter what type of transaction you may be planning, it is necessary to read the fine print. As frustrating as it is, with the “us versus them” mentality of today’s world, it’s imperative that you read every line of a contract, agreement, lease, lien, etc. Businesses, in all forms, have contracts for just about everything. Even the most simple exchanges.

When conducting business of any kind, the “bigger” the company, the “longer” the contract and the “finer” the print. Even when consumer protection is mandated by laws and regulations, many business use finely-printed caveats or loopholes to “stack the deck in their favor”.

Federal regulations require that the terms and conditions when you are borrowing money for a home be written out as part of the settlement paperwork. Those terms and conditions are there, but they may be buried in small type and legal jargon. I’ve seen settlement paperwork that even the closing attorney found cumbersome and confusing.

Once you have decided to purchase a home or refinance one and complete the loan process, you are scheduled for closing with a settlement agent, usually a real estate attorney or title company. With the real estate boom of the last several years, the number of closings an agent has to complete in one day can be huge. Agents rarely schedule more than an hour for any particular closing.

What you should do? Arrange to get there early. Ask to have the closing paperwork ready and take the time to read every word. When you don’t understand something, make a note and then ask your settlement agent to explain it. If the settlement agent is unable to answer your questions, call your loan officer.

Don’t sign the paperwork without having your questions addressed to your satisfaction.

All new buyers getting their first mortgage want to know when to lock their interest rate. Even second and third homebuyers worry over when to lock. While there is not one definitive rule, there are some general guidelines you can follow, no matter what the market rates are doing.

First, most rate locks are for 30 days. Lenders will lock rates for longer periods but you will pay extra for locking your rate for an extended period of time. For instance, if you have contracted on a new construction that won’t be ready to close for 3 to 6 months, you may not save enough on the rate to make up what it will cost to lock it for the extended number of days.

One-time float down deals are good when the market is fluctuating a great deal, but again, you will pay extra for the opportunity to change the rate after you’ve locked-in.

Rates rarely fluctuate more than a half-point at any given time, more often, it changes only an eighth or a quarter of a point up or down. Your best bet, in my opinion, is to talk to your mortgage professional. Find out how much the rates are changing in any given time period. Make sure you’re looking at rates over the course of at least a week or two.

Once you’re within 30 days of closing, your loan officer should watch the rates closely each day and give you regular updates on if or how much the rates are changing. Rates tend to be highest on Mondays and Fridays and lowest mid-week. If there is not much change from day to day, it may be worth waiting until you’re within 15 days of closing to lock your rate. Lenders give a break on pricing at 15 days and, sometimes, another at 7 days. You can save as much as three-quarters of a point in a fluctuating rate market by waiting until closer to settlement to lock the rate. However, for buyers that have been approved with an interest rate cap in underwriting, it may be safer to lock at an approved rate as early as possible, usually within 30 days of settlement.

As with all things, timing is everything. By working with a mortgage professional that helps you understand and monitor current rate trends and changes within the market, you could save by waiting to lock-in your interest rate. Ultimately, unless you’re in a niche or subprime loan program with specific guidelines, when to lock your rate is your choice. A qualified mortgage professional can guide you in making the best choice for your loan circumstances.

As mortgage rates increase for the 8th straight week and the number of new loan applications reaches a 7-month low, the Bush administration is considering changes to the mortgage-interest tax deduction as well as other areas of the tax code. Part of the proposed tax reform will limit the deduction for first mortgages and could eliminate it for second mortgages or home equity lines of credit.

To read articles outlining or offering opinions on proposed tax reform, click on the following links:

How would you fare? Would lower tax preparation costs and greater simplicity in understanding the tax code off-set the potential for an increase in your tax bill if you live in a high tax state or a state with high home prices?

Winners & Losers Should the tax code continue to facilitate homeowners garnering huge deductions on their $1 million mortgages? Shouldn’t tax breaks be more evenly distributed among taxpaying homeowners? Will tax reform help or hurt economic growth?

Tax reform Is a mortgage-interest tax deduction sacred?

Crazy idea Maybe it’s crazy, but Uncle Sam needs the money!

Mortgage-interest deduction The mortgage interest deduction will cost the Treasury $72.6 billion this year alone, according to congressional estimates.

Whether you are a current homeowner or you are considering homeownership at some future time, I am interested in your thoughts on these topics. Politicians and economists can argue the pros and cons all day long but they’re a very small portion of the population. Average homeowners/taxpayers are rarely given the opportunity to voice their position. There are strong arguments for and against tax reform but, as always, changes of any kind could have unforeseen impact on many taxpayers, whether they’re homeowners or not. Send me an email telling me your thoughts on these issues. To email me, click here.