Dave Muti

Melissa,
I think that Tony makes some great points about working with a quality mortgage planner. If my team was working with you we would first want to know why you want to buy a home and why now? Then we would review your credit to discover why it is so low. At the same time we would review your employment, debts and assets to develop a good understanding of who you are both emotionally and financially. Once we review everything we will then discuss your short terms goals and long term planning strategies and set a plan in place to improve your credit scores preferably in the 720 range with a target date to buy a home. Hopefully this helps and please seek out a local person to work with and don’t make snap decisions through an online broker.
Rgds,
Dave Muti - Wed Sep 10 2008, 18:25

The Annual Percentage Rate (APR) is one of the most confusing and misleading parts of the mortgage process and I go into great detail on this in chapter 13 of my book. This is a figure that the federal government requires all lenders to disclose so you can compare loans offered by lenders. The APR is disclosed on the Federal Truth in Lending form (TIL). This document should always be presented with the Good Faith Estimate (GFE) of closing costs. The APR is meant to level the playing field and deter deceptive practices. The GFE shows the real cost of money. It is supposed to factor in the cost to the lender of borrowing the money for your loan, and it is a figure based upon the actual amount financed, and not the amount borrowed, which are usually different.

The problem is that APR is often meaningless unless you know how to calculate it. The information on one TIL and GFE may differ from another even though legally they are supposed to contain the same information. Therefore, it is a figure we advise our clients to ignore. I know that is not what we are told but unless you know exactly how it is calculated and what is listed on each TIL and GFE you will have a meaningless number.

Sadly most people in the industry do not even know how the APR is calculated. In fact, when I was a practicing real estate attorney and loan officers attended the closings, I would have some fun with them. When we came to the APR disclosure on the TIL form, I would look over to the loan officer and ask them to explain the document to the client. Very few actually knew how and would signal for me to explain it so they did not look bad in front of their clients.

I want to reiterate that we advise our clients to focus on the monthly payment when comparing loans. Again the advertised APR is meaningless unless you know exactly how it was calculated and what costs are built in to that rate. Yes we will compare the overall closing costs so see how long one loan will take to recoup the costs over another before we recommend one option over another and this is what the APR is supposed to do. But as stated above, the information used to calculate it is often not accurate. In addition, this is a number that can be manipulated up or down as the lender chooses and you really have no idea if it makes sense. In fact, many times a loan with a lower APR will not be the better choice.

The numbers you do have to compare are your monthly payments and your total closing costs charged by the lender, excluding the per diem (daily) interest charges. As indicated throughout my book the interest rate you are paying is not as important as how much you are paying each and every month. In addition, just as you need to see if it makes sense to pay points to lower your rate and payment (Chapter Eleven), you should perform a similar calculation when comparing one lender’s closing costs with another’s, remembering to exclude the per diem interest costs for your loan.

In a nutshell, the APR is determined by taking the amount “financed” and dividing it by your mortgage payment. The amount financed is always less than the actual amount borrowed because the lender is not going “out of pocket” for the full amount you are borrowing. Assuming you have a loan amount of $300,000 and bank fees including your per diem costs of $2,750, the bank would only be “financing” $297,250 because you are paying “financing costs” in the amount of $2,750 the day of closing. Since you are paying the bank a certain amount to borrow their money, they are not really out of pocket for the entire amount you are borrowing. You are contributing or bringing to the closing, costs in the amount $2,750.00 that is payable to the lender. They only need to make up the difference of $297,250.00 to fund your loan amount of $300,000.00. Think of it this way, if you said to someone I’ll give you two dollars now to let me borrow $10, they are only out of pocket $8. You still owe them $10 but the $2 was the cost of doing business. This is what is happening with the bank. You are still borrowing the $300,000 in this instance and that is the amount you owe, but the lender did not have to come up with all of it on the day of closing. Part of the money you borrow pays the lender’s costs in procuring the loan money for you.

I hope this helps and if you would like to read the complete chapter of my book on this just email me at info@mortgageswhatyouneedtoknow.com and I’ll be happy to send it to you.
Rgds,
Dave Muti - Mon Sep 1 2008, 07:32

Multiple inquiries over time will drop your score but if all done within a day or so it won’t reduce it as much. One thing I cannot stress enough is don’t go through one of the major mortgage portals on the Internet and submit their information to get a “quote on a rate.” The problem with this is the process allows for no planning and you don’t know whom you are dealing with. In addition, by submitting your Social Security number to one of these web portals you will activate the “trigger lists” as discussed in Chapter Two of my book and you don’t want that. I am located in Parsippany so if you would like to see what we can do for you please feel free to drop me an email to dave@teammuti.com or call 888-MUTI-123. I look forward to helping you with your purchase should the opportunity arise.
Rgds,
Dave Muti - Thu Aug 28 2008, 19:06

It should be a buyers market for some time to come so I would not rush into something if your credit is bad. My suggestion is to sit with a local mortgage planner and have them run your credit. Then put a plan in action to raise your scores and work on any debts you may have with a target to purchase in the first or second quarter next year. Let me know if you have any further questions.
Rgds,
Dave Muti - Thu Aug 28 2008, 18:55

One of the best ways is to ask your family and friends whom they used and whether they were happy with that person and would they use them again? Too many people today simply go to one of the major mortgage portals on the Internet and submit their information to get a “quote on a rate.” The problem with this is the process allows for no planning and you don’t know whom you are dealing with. In addition, by submitting your Social Security number to one of these web portals you will activate the “trigger lists” as discussed in Chapter Two of my book and you don’t want that.

This is your first mortgage and despite all of the information available a good mortgage planner will be able to prescribe a better plan for you than you could on your own. After all, this is what they do for a living. Although this can occur over the phone during several lengthy conversations, I recommend that you choose one who is local to you so you can meet face-to-face at their office and ensure that they have your best interest at heart and that you get a good vibe. An added benefit is that a qualified planner is often a pillar of your community and as such may be able to refer you to other quality professionals to assist you in your life.

Even if you get referred to a mortgage planner by a friend, be sure to be proactive in the questions you ask him or her and don’t simply let the person dictate what is best for you. Remember, a mortgage is most likely the largest financial decision you will ever make. Perhaps you will make it several times throughout your life but don’t make this type of decision in a couple of minutes over the phone, or worse, over the Internet late at night before you go to bed. Even if you are dealing with your local bank, you need to ensure the person you are dealing with is knowledgeable on all facets and not just there to take your order. Your financial well being depends on it.

Take the time to research all the products available and then sit down with a mortgage planner to discuss your options. Your goal in the meeting is to ensure he or she is knowledgeable on all programs and is interested in you as a client and not just there to take your order. When you find one you think is right for you, call them to schedule an appointment to meet in their office.

Hopefully this helps?
Rgds,
Dave Muti - Thu Aug 28 2008, 08:59