This will be specifically about FHA loans, but when it comes to mortgages in general, you really need to speak to a qualified loan officer. This is not to throw realtors or anyone else under the bus, but you should be very careful in where you get your answers. Even if that realtor or someone other than a loan officer says, “well, this is what I heard from my loan officer.” Still, speak to that loan officer directly. Things can still get twisted or confused when passing along information. And yes, there can be an argument that some loan officers don’t even know what they are doing, hence why you need to be selective.

Just recently I read a question from a borrower on Trulia that asked : “My wife and I are buying a home together. It will be her second time buying a home and my first time. Can I qualify as a first time home buyer.”

 

 

This was an answer from a realtor on the Trulia Q & A section. FHA loans have no restrictions when it comes to a borrower previously owning a home with a FHA mortgage. FHA loans don’t have a penalty or give breaks to those that are first time home buyers or those that bought previously while using a FHA loan.

One thing to keep in mind, there are different state bond programs that will have stipulations on whether or not you can use their programs. And it’s usually stated that one is not eligible unless they are a first time home buyer and this is usually defined as someone who has not owned a primary residence in the last three years.

 

Conclusion : As mentioned, you just need to be very careful where you get your information from. It doesn’t matter if you got it from someone online that says they are an expert, or if your realtor referred you to their best loan officer, etc, etc. I have a story for each example out there. I even once had a realtor tell my borrowers that FHA loans were better than USDA loans, and because their loan officer told them this. 

 

Reminder : Each borrower is different. Not one is the same and lenders also have lender overlays.  You need to speak to someone that will ask the right questions and understand your goals.

 

For more FHA Rumors & FHA Myths : Squashing FHA Rumors & FHA Myths

 

 

 

Why do many advertise. To make money, right?  You have to spend money to make money. But are some ads deceptive or misleading? You betcha.

What about the little giveaways or gimmicks offered when people advertise? Aren't they spending more money on top of the money that they are spending on their advertising? 

There is a very large company that does tax returns who also has a mortgage division advertising on t.v. now. If you close on a loan prior to December 31st, 2010, you will be entered into a contest. The winner will have their mortgage paid off up to $250,000. WOW....   In my opinion, it just shows that they make some decent money off of their clients. They have call centers set up, and in my opinion, many of the loan officers are just of average nature. Yes, bait and switch tactics are still used.

There is a lender in my local market that advertises and part of their ad states that they have the ability to close the fastest and most efficiently in the country because of a special system that they created. Okie Dokie - And that can be backed up how? Hey, you just give it a whirl kiddo and if it happens, it happens. If not, hope you have 2 + months on your hands.

 

 

 

~ TYPES OF MORTGAGE ADVERTISING ~  The numbers in parentheses are the number of search results when searching those exact terms that are highlighted on Google.

 

Best Interest Rates (14,400,000 search results) 

Lowest Interest rates Guaranteed (10,400,000)  - How to find those best interest rates -

10 day closing guaranteed (83,300,000) - you truly need to read the fine print on this one.

Call Now For a No Cost Mortgage (65,600,000)

Fastest closing (4,860,000) wow.. search this and be surprised.

Best rates available (102,000,000)

Honest mortgage lenders (155,000) - yes, you read this one correct. Sorry, but if you have to advertise this, I have a major problem with it.

 

Conclusion ?? - Just key words that many will search because that is what they are looking for. The best of the best. What did your honest grandma tell you? If it's to good to be true, then it usually is.

 

 

Here is an ad found on the internet

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What is unique about this advertisement? It is not an actual mortgage company, but a company that sets you up with other lenders on their approved lenders list. Where lenders have to pay a monthly advertising fee to get these leads.  What about that one that we have seen advertised for over a decade... Something Tree? Lending something?  Just search Lending and they pop up first. Same set up.

My point about this particular ad? This company doesn't haven't to comply with normal advertising rules and laws for mortgage companies, because this company doesn't directly lend. Yes, very sad in deed. So what is wrong with this ad?

• The rate advertised, you don't know if it's a fixed rate or arm unless you read the fine print. It states that it's a 5/1 arm.

• The adjusted payment that they give you is incorrect, it's not the worse case scenario. That payment should be anywhere from $100 to $200 higher. Why is my range so broad?  Because we don't know if it's a FHA loan or a conventional loan. Why does that matter? The caps are different on each type of loan. Meaning, the maximum adjustment for that rate after 5 years are up.
  

• No hidden fees and just low rates. hhhmmm Just attention grabbers. Makes you feel all warm, fuzzy, and safe, right?
  

• Endorsements - Ah, one of my favorite topics. Look who is endorsing this particular company. MSNBC, CNN Money, and the Wall Street Journal. All places that are highly respected and known. Gee, my local NBC affiliate endorses the company that I tried mentioning above, who I told you to search by the first word "Lending". I worked for a company, who had a division that I didn't work for, who used them. You had to bait and switch the rates and fees just to be competitive.  Even though certain laws have changed in the last year, this can still be done. So many loop holes.
  

 

 

Summary :  When shopping for mortgages, you just need to be very very careful. I could tell you hundreds of stories, all based on my knowledge of how the mortgage industry operates and based on my opinions. But just beware of many different red flags. We all want your business. Key factor : We all get our money basically from the same place, Wall Street. Meaning, most rates are very close. Those promised best offers? You do the math... and this goes for real estate ads and such...

 

 

Below are some great posts concerning different types of advertising and methods.

 

Shopping for mortgages - The Public Image of Advertising that is misleading !!!! - Part 1 of 2

Advertisements - Is the grass greener on the other side?

How does one advertise? Is it misleading? Important things to beware of !!! Part 1 of 2

The no cost mortgage myth - by Ken Cook -

Shopping for mortgages - It's not like shopping for cars - This post has two good mortgage stories

Shopping for mortgage interest rates - A great post explaining to you on what to look for. The main point, find out what your lock terms and policies are before you go with the lender and not after... such as a potential client of mine did. Finding out 3 days later that he couldn't lock in until the appraisal was done. Rut row..

 

 

More the reason why you need to speak to a knowledgeable professional loan officer

 

 

With mortgage interest rates being so low, you would think many people are refinancing. And one would think that more would be doing FHA streamline refinances, because it should be so easy, hence the name streamline. Sorry to sound negative, but no and no, for many reasons.

There is also a mortgage myth, aka mortgage rumor, that FHA streamlines are cheaper than regular FHA loans. A complete lie. I just had a potential borrower that was told this. Yes, there are some lenders that advertise that FHA streamlines are quick with no costs. But mortgage alert, FHA streamlines are the same price. I talk to other loan officers from all over about this and they agree 100%. It just comes down to the type of sales person that you are talking to, and how they want to get you in the door. Just be careful of what you read and hear.

 

 

What are such reasons why FHA Streamlines sound so easy : (new mortgagee letter -Mortgagee Letter 2009-32)

Credit scores - FHA streamlines have a minimum credit score of 500. But most lenders/investors want a 640 + credit score.

Equity - You can do a FHA streamline while under water on your home, but you will need to pay for all of your closing costs. -Understand FHA streamlines-

Credit - At time of application, the applicant must have made 6 payments on their current FHA-insured loan. For mortgages with less than a 12 month payment history, the borrower must have made all of their payments within the month due. (this means no mortgage lates) For mortgages with a 12 + month mortgage history, the borrower must have a.) experienced no more than one 30 day late payment in the preceding 12 months AND b.) made all mortgage payments within the month due for the three months prior to the date of the application.

Net Tangible Benefit - The lender must determine if there is a net tangible benefit, determining if the streamline refinance makes sense, that it doesn't hurt the borrower financially.  There are some factors that are found in Mortgagee Letter 2009-32, under net tangible benefit. 

 

 

In regards to FHA loans in general, if you are doing a 15 year FHA mortgage and your LTV is 90% or less, you will not have monthly mortgage insurance. (New FHA mortgage insurance changes)  I spoke to a potential borrower yesterday that spoke to two other loan officers that never brought this up to him, as he was shopping for his mortgage when he inquired about 15 yr fixed rates.

Continuing with this person above who was shopping for mortgages. I was the third loan officer that he spoke to who had sent him good faith estimates two days prior. I sent mine yesterday and he followed up with me today around 1 pm. I had to say,"hey Mr. Borrower, rates got slightly worse today, so I need to send you a new cost sheet, aka the old good faith estimates." I then asked.. "by the way, did these other 2 loan officers call you or e-mail about any changes, which have happened yesterday and today?"  He said no....  Sorry people, this is a slight red flag, because these two other loan officers new that he was shopping around, because he told them. And mortgage interest rates have slightly gone up in the last week, but some loan officers won't tell you until you commit.

 

Summary : Very simple and very easy.  Just because someone promises the best, makes it sound like it's the cheapest way, or doesn't follow up properly, doesn't mean that your transaction will go smoothly. And unfortunately you won't know until the end or when it's to late. Not trying to scare you here, but just shop carefully and wisely. And use some of these tips.

 

 

 

"HOUSTON, we have a major problem with all of these homes upside down"  "People need to put more money down!!!"

 

Just the other day, a borrower asked this question on Trulia.

What is the difference/advantages between other FHA loan lenders and the lenders approved for the NJ First-Time Homebuyer Program ?

Response by a realtor : "it is probably not wise to buy a house with 3% down anyway. In my opinion, putting 3.5% down is akin to no down payment at all, and that is what got the housing market into trouble in the first place, among other things. Putting 3% down in a declining market will leave you upside down in a few months."  

STOP - It's an opinion, but I think it's a horrible opinion.

 

 

 

So Mr. Realtor, you are saying if I put 10% down, then it would have saved many homes from being upside down and possibly many foreclosures?  Or even 20% down? A home buyer then came in and commented. She said :

"That's ridiculous. It’s quite possible for a buyer to have enough resources to handle any major repairs that may arise but still not have enough for a “serious” (I’m assuming you mean 20%) downpayment.

On a $350,000 home a “serious” downpayment would be $70,000.

Even if the buyer had the worst home inspection in the world and had to replace the roof ($20K), the furnace ($6k) and the water heater ($3K) within the first year. The cost of all of those repairs plus the 3.5% downpayment would be around $41,000 which is almost $30K less than the 20% downpayment."

 

My opinion on the borrowers statements?  There is some truth to this comment.  Read further.

 

 

I replied to this realtor and to the home buyer's comment.  Here is what the realtor then said.

 

 

 

 

 

 

 

 

 

 

 

 

 

My Opinion : I don't have a problem with opinions, but it's the opinions often given in the real estate sector that are just thrown out there because you want to be made as the savior of the end to all real estate crap that has taken place in the last 2 to 3 years.

 

 

My Take on this ongoing issue of upside mortgages and adequate down payments when it comes to FHA loans. (please read my two articles below, because they will give you details and good opinions expressed by some very good real estate professionals)

• The real estate mess in the last 2 years was not due to those that used FHA loans and put 3.5% down or even 2.25% down as a down payment.

• Bad economy overall - sorry to sound negative, but many people have lost jobs, it's a fact, and this has caused many of the foreclosures.

• What about those bad loans, such as the stated loans aka liar loans, when not verifying income? Did many of these foreclose?

• Equity position - The argument by this one real estate agent is that if you use a FHA mortgage and put the minimum down, you will be underwater very soon.  Okay, that could be true depending on your appraised value, but let me ask you this.  Why are you buying the home in the first place.  And many people will live in their home for at least 6 years. Food for thought... If you put 10% down and had to sell in 2 years, you will be close to breaking even anyhow, because you normally will be paying a real estate commission of 6%. Again, focus on why you are buying a home.

• Down payment monies - You can get monies in the form of gifts from family members and or grants from the state or counties. It's out there.
  

 

Summary :  Overall, if you are in the market for a home, you feel secure about a specific mortgage payment, and have spoken to a qualified professional loan officer that has gone over your assets and has explained the process to you, then you should be fine. I have a set of questions to ask a borrower, including their goals. One of my main concerns outside of your mortgage payment is to make sure that you have some reserves left over. I would rather have you put less down and keep more money in your pocket, even if you have 10% down. Sorry, but this makes more sense, even when using FHA loans with 3.5% down. Please just don't be scared of comments such as the ones above. Please read :

• Jeff Belonger's top 10 questions.

• Cash is KING - A larger down payment might not always be your best solution.
  

 

 

UPDATE : The beginning, after Houston, we have a problem... I am against large down payments for many reasons. This should not be the reason not to buy a home. 3.5% down can work and has in the past.

 

 

There is still an underlying value in home ownership that does not involve dollars and cents.

- This is an excellent article by Richard Weisser. It's more than just buying a home.  Thanks Richard..

 

 

The Government at one time last year was pushing that all FHA loans have a mandatory 5% down. I wrote a series of articles on this :

• FHA loans to 5% down? No seller concessions allowed? Rumors? - The government at its BEST again !!!!  10-02-09
  

 

• I WANT your SKIN in this game !!! Give it up !!!   10-07-09
  

 

 

 

_____________________________________________________________________________________________________

 

                  

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- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

Follow me on:

 

 

_____________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

 

 

FHA loans & their misconceptions/myths

 

 

The number one myth - FHA loans are more expensive than conventional loans!! - FALSE -

 

 

Protection of your family & home purchase will always be with a loan officer with knowledge & integrity… not telling you what you want to hear to make a sale!!

 

 

 

PS… this might be a tad long & boring, but worth it if you are buying/refinancing a home.

 

 

 

I received this e-mail from a borrower yesterday buying in WA. Here are some parts of his e-mail.

Borrower #1

"My real estate agent simply told me there would be more closing cost if I chose FHA, which I don't think true."

A major gripe of mine. When comparing a FHA loan to a conventional loan, you need to compare apples to apples. The only difference would be the upfront mortgage insurance premium (UFMIP). Some loan officers and realtors would like to call this a closing cost. It really isn't. First off, you can roll it into your loan. Hence another myth that some FHA closing costs can be rolled into the mortgage.  Still false, because this is not a lender fee. It's a fee from HUD. Yet some will debate this as a closing cost. It's like the VA funding fee or the USDA's guarantee fee.

 

Same person goes on to say...

"XXXXXXX mortgage is the preferred lender to the property and now offering 4.25% for 30 years. Since my house won't be ready til next spring, XXXXXXXX mortgage can't lock the rate that far.  I was told they were not sure how much the rate would be then.  This part is very scary to me as a first time home buyer without any previous experiences....!!!"

Rut row.... first off, you can't get a 30 yr fixed rate that low. And even if you could, it would cost you like 8 points. So, this loan officer plays the trump card per say. Knowing that settlement won't be until next spring.  This lender is giving an awesome rate that can't be locked in...  hhhhmmm

 

 

Borrower # 2 -

I have a borrower that was referred to me by a realtor. She gives out 3 names to her clients. (there is a reason for this that I don't totally agree with)  I shouldn't have a problem with this, but I do.  In most cases, most loan officers can be very competitive, especially when they know you are shopping.  This realtor prides herself on giving good referral sources that close on time and give good rates with fees. Okay for now, but I have a point to this.

This borrower wants a 30 yr fixed and a 5/1 arm. I give him several good faith estimates and find out that mine are in the top two. I then get an e-mail from the borrower who wants me to be lean on mine, because he was able to get the other lender to cut a few fees.  Huh? First off, I had a $100 fee and this other person had close to $1,000 in fees. Secondly,  I will never be the cheapest, but I will be better than average. In many cases, I will give more knowledgeable information than the other loan officers involved. Okay, sounds like I am full of myself.  But after years of asking the borrowers questions and getting feedback, so many things aren't mentioned.

 

Example - I ask this person their goals, how long they think they will be in the house, baring any work related changes. He tells me that I bring up some excellent points to think about. Because I bring up current rates, the future of rates in 3 to 5 years, home values, the cost of refinancing, etc,etc.  Gee, from his answer, it doesn't sound like the other loan officers bring this up.

FHA myth - the monthly mortgage insurance will never fall off.  It does just like on conventional loans.

FHA fact - No matter how much you put down, you will have the mortgage insurance for 5 years no matter what. He said, well, I hope to have more equity in 3 years.  Good for you, but if you refinance into another FHA mortgage, you will then have the MI for 5 more years. Okay, so I will go conventional.  Good for you, again. But there are many new rules regarding private mortgage insurance.  In many cases, the PMI companies want to now see a 2 year history of payments. If late, this could influence their decisions. Again, just so many unknowns to risk.

 

Onto round 2....  In the beginning, I just give him a 5/1 arm and not details of how an adjustable works, because I want to see if my competition does. After about 4 days of him shopping, I have him call me Sunday night around 7 pm. I ask him if he was told how adjustables work and if he was told the margin on this adjustable.  What is a margin Jeff.. hhhmmm.. Just a fact that could have an impact on his decision and his future.

 

Onto round 3....  The good faith estimate.  I always tell the client how long that rate is good for when giving a GFE, showing their rate and fees.  Many loan officers don't point out that it's good for 30 - 90 days. And if they do barely mention this or they don't bring it up again a few days later, when they give you an updated good faith estimate. I know this because I question and quiz these borrowers.  Overall, until you are ready to proceed with the mortgage application and lock-in, some of these good faith estimates don't mean squat.

 

Overall, there are more loan officers than one would think that don't properly educate the borrower. As a borrower, you don't need a Harvard education, hence why you want to speak to a good loan officer an excellent loan officer. I found many holes in my questioning of this borrower, telling me that he wasn't properly educated with buying a home and shopping for a mortgage. My 30 yr fixed rate with fees were better than the other two.  Yet one offered a very good price for the 5/1 arm. I later refused to give him an updated quote, because after speaking to him and getting to know his goals, it wasn't in his best interest. He was suckered into the lower payment. Don't get me wrong, adjustables have their place, especially with today's rates.  But again, the best rate on paper is not always the best in the long run, no matter if it can be offered or not. Knowledge is power!!!

 

 

 

Just don’t be that shopper that shops themselves out of that good mortgage.

 

 

 

 

For some more good reading :

 

The Basics of FHA Loans - Mortgage 101 for FHA Mortgages - 08/24/09

Credit scores - FICO scores for mortgages - I need a 700 credit score?

Is pre-qualifying a borrower like rocket science??? - Important questions that should be asked by all loan officers.

 

 

 

                    

                                                                                               FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

 

 

Copyright © 2009 by Jeff Belonger of Infinity Home Mortgage Company, Inc