Home Improvement Goes Green

Portland, Oregon is regarded as one of the greenest cities in America. As a Portland real estate professional, new home buyers often ask, “What’s available for environmentally friendly homes?” To my surprise, green architecture doesn’t seem to be catching on very quickly with Oregon homes. Yes, there are a few projects popping up here and there, but the majority of newly built homes for sale are following many of the same old environmentally unfriendly guidelines.

My response to Portland, Oregon residents and new home buyers is this, “Get into the house you like and make environmentally friendly improvements on your own.” When your financial situation is right, pull some equity out of your home to make some green improvements. Why wait a decade for Portland real estate builders to go green, when you can get started with your current home? The following are some easy tips for making your home and lifestyle green:

• Have insulated windows installed to conserve heat.
• Buy energy efficient appliances and replace your desktop computers with laptops.
• Have your yard landscaped in a way that conserves water and requires less maintenance.
• Have an advanced climate control system installed.
• Have skylights installed.
• Go to home depot to get water saving showerheads and fluorescent light bulbs.
• Call PGE to get on their renewable energy program.

There are a couple hundred more tricks for making your house green. These are some of the more feasible ideas that generate the greatest results. Some of these tips are less extreme, whereas many of these tips can be made affordable by refinancing your home and using some equity. As a bonus, green improvements aren't just good for the environment, they save you money too!

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PMI Revises Distressed Housing Market List

Effective June 1st PMI, a major mortgage insurance company, has added to its list of distressed housing market areas. They have also divided them into "Level 1" and "Level 2" segments. Given that the options for obtaining combination first/second mortgages to avoid large down payments have all but disappeared, how much mortgage insurance companies are willing to insure is becoming increasingly important for those seeking to purchase or refinance with minimal down payment/equity.

Areas listed under Level 1 are eligible for mortgage insurance up to a 95% loan-to-value ratio.

"Level 1 is for those... areas where we anticipate the downturn to be less severe based on underlying fundamentals, including unemployment trends, home price volatility, etc."

Areas listed under Level 2 are eligible for mortgage insurance once the loan-to-value has been REDUCED by 5% of the maximum allowable for the particular loan program being used. And in any event, the loan-to-value cannot exceed 90%.

"Level 2 is for those... areas that are projected to continue to experience more significant economic and/or housing downturns and are expected to take longer to improve."

Oregon and Washington state are not largely affected by this yet, with one exception. Bend, Oregon is on the Level 2 list. So however bleak it looks to the average person driving around Portland seeing "For Sale" signs on seemingly every third house, PMI doesn't think we have it so bad -- we'll see how it goes over the next several months.

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Mortgage Loan Calculator

With the majority of economists now speculating that rates will either go up or perhaps stay the same for the foreseeable future, anyone who has been thinking about refinancing will probably want to look into it now. We're not expert economists here, but rates have increased a little bit every day since Bernanke lowered the discount rate last week. Below is a calculator to help you determine if a refinance is a good idea for you.

Also, for potential homebuyers, this will give you an idea of what you can afford. Be sure to use the "mortgage" function rather than "loan" function so you'll have the most accurate total payment including property taxes and homeowners' insurance.

Posted by All Pacific Mortgage at 12:22 PM 6 comments  

Excitement Aside, Mortgage Rates May Not Decrease

Charles Schwab published an article that gives a nice clear break down of the reasons why we can’t bank on long-term mortgage interest rates decreasing further. They’re still low, historically speaking (about 6%), but they have actually increased over the past month or so compared to what they’ve been the past several months, (about 5.5%) even in the wake of all of the Fed discount rate cuts and the inflation scare.

Equity Line rates have decreased dramatically over the past year because they follow the Prime rate which is now down to 6%. Other adjustable rates seem like they should be nice and low too, given the performance of the bond markets they follow, but investors are weary from adjustable loan default rates and aren’t particularly eager to buy any more of them. So more often than not, these days the 3/1 and 5/1 ARMS (fixed for 3 and 5 years respectively) are more expensive, or at least as expensive as the 30-year fixed rate.

The 5/1 ARM used to be a popular mortgage both because the rate was slightly below the 30-year fixed and the majority of home buyers don’t expect to own the same home for longer than five years. In contrast to what happened with SubPrime loans (in which case people had low initial fixed rates that increased so high after the second year that they could no longer afford their mortgage payment), people who have existing Prime adjustable loans are probably happy to find their rates decreasing. Which makes it tempting not to refinance into a fixed rate – but when rates increase all around, those annual adjustments won’t be so pleasant.

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Of Course There's No Lull in Mortgage Pitches!

Naturally everyone is concerned about the current housing and mortgage lending trends, but some people really take their concern to the extreme, as in this article Monday from the New York Times. Of course lenders and realtor associations need to be held accountable and advise responsibly, but to suggest that they shouldn’t be advertising because we’re in a down market? That’s crazy. Here are a few reasons why:

1.The real estate market is cyclical. Just because home prices might fall a little bit over the next six months doesn’t mean that thirty years from now you won’t be glad you bought a home today.

2.A lot of people already have mortgages and if you think refinancing your loan to a 5% fixed rate (like a few lucky people did a couple of weeks ago) isn’t a good idea just because Countrywide Financial is having some difficulty right now – well, you can go ahead and pay too much if you want to.

3.The sky is not falling. There’s a lot of opportunity out there and the people who work in the industry are taking advantage of it if they have the means to do so. It’s unfortunate that some people are experiencing hard times, but that they have to get rid of their house is an opportunity for the people who have the money to buy them and for the companies who have the money to refinance them into something they can afford. If you want to hide under a rock because there’s a blip in the financial market, go ahead, but that doesn’t mean you’re the smart one.

Just like stock investors switch strategies to make money in a down market, so do real estate investors. As for what regular ma and pa homeowners and would-be homeowners should do? If history is an indicator, the odds are good that the sun will continue to rise every day for the foreseeable future and that Americans will continue to want to live in houses. Home ownership is not suddenly a “bad” investment, generally speaking.

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It Sounded Like a Creative Foreclosure Bailout Idea

One thing that people often request in order to avoid foreclosure is to add another family member who has good credit to the title, and refinance in that person’s name to pay off the existing mortgage. But lenders don’t like this idea. So much so that a recent memo is circulating specifically forbidding it. No one will be allowed to refinance a property unless they’re obligated on the current loan. These cases are going to have to be treated as a purchase. The issue with that is that generally if a person is going to help someone out of the danger of losing their home, they’re most likely a friend or family member, creating what’s known as a non-arms-length transaction, which causes problems on all purchase transactions in any market.

We have one client who will be affected by this. His brother is several months behind on his mortgage. The client wanted to add himself to title and then refinance the house as an investment property, deeding his brother off title at closing, and then charge his brother “rent.” But no lender will let him do that anymore. And he can’t “purchase” the property from his brother without a slew of issues, because – well, he’s his brother.

These kinds of rules are created to prevent fraudulent transactions (a lot of loan defaults occurred during the 80s as a result of these types of “sales”), but they end up having a negative effect on people whose hearts are in the right place too. Unfortunately, someone wanting to help out a friend in need often doesn’t translate into a good quality loan risk for the mortgage company.

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A Sub-Prime Loan -- Whether You Need One or Not

The New York Times ran an interesting article on Baltimore foreclosures today asserting that too many single women were given sub-prime loans and are now facing foreclosure as a result. (This after just last week they blamed the high foreclosure rate on racism.) As I read through the article I was thinking that in many cases this is probably just coincidence, since more single women than single men buy houses for one thing, and for another, single women often have less income than their male counterparts (and less savings as well, especially if they're raising children alone). But this statistic from FHLMC and FNMA gave me pause:

Freddie Mac and Fannie Mae, which buy loans from mortgage lenders, have estimated that 15 percent to 50 percent of the subprime loans they bought in 2005 went to borrowers whose credit scores indicated they were qualified for prime loans.

This reminded me of a person who applied to be a Loan Officer here and was currently working at a sub-prime company. The fees he told us they charge as a matter of course caused our eyes to bulge out of their sockets (and regular, standard mortgage loans that we do here are not “cheap” by anyone’s definition). Now we only try to find a sub-prime lender if we can’t possibly do anything else for a borrower AND they really insist they can’t wait the six months to two years to do what we advise and get their finances in order. But it occurred to me that if any random person, unknowingly, called a sub-prime lender FIRST, they would probably get a sub-prime loan – whether they needed one or not.

In fact, we just received a “thank you” note from a woman we refinanced out of a negative-amortization, adjustable rate loan that she took out last year. Her credit scores weren’t the greatest and she doesn’t have a lot of income, but if we were able to get her conventional, fixed financing last month, there’s no reason someone shouldn’t have been able to do it for her a year ago. It’s just so important to know who you’re talking to or to verify what you’re being told, particularly if you’re not educated on what is common and normal for the mortgage lending industry.

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Interest Rates: How Low Can They Go?

This morning for the sixth day in a row, interest rates have improved. One of several factors is a weaker-than-expected job market. Sorry to those who are looking for work, but to those who are looking to refinance, this is good news. The 30 year fixed rate is now hovering around 5.125% (subject to change on a whim). Some are speculating that the Fed will issue a 50 basis point interest rate cut at the end of the month (which doesn't always and everywhere translate into lower mortgage rates, but it can and sometimes does).

"Jobs losses were concentrated in manufacturing and construction, hit by declining competitiveness and the housing downturn. However, retail also lost jobs, suggesting that consumers may be holding off from spending."

Speaking of job losses due to the housing downturn, the Seattle Times reports that fewer than half of the loan originators who applied for the newly required state license have fulfilled the state's requirements. A good number of brokers and loan officers seem to have just given up for awhile. Oregon's licensing laws are similar to Washington and hopefully the next time we have a real estate boom, this will keep out some of the riff raff and we won't run into another mess like the one we're in today.

"Meantime DFI has denied 170 applicants because of criminal history, bad credit or "character and fitness issues." Felony or gross misdemeanor convictions within the previous seven years accounted for the majority, Bortner said."

The mortgage lending times - they are a-changin'.

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Happy New Year from the IRS

Einstein called our income tax system "the most difficult thing to understand." That can't bode well for the rest of us, can it? But this year as we start to think about tax time many of those who took out a loan with mortgage insurance in 2007 are in luck.

Mortgage insurance will be tax-decuctible through 2010 assuming the following conditions:

1. A 100% deduction for households with an adjusted gross income of $100,000 or less. The deduction is reduced by 10% for each additional $1,000 of AGI, phased out entirely after $109,000.

2. Deduction applies to primary residences and second homes only -- so no help to investors.

3. The deduction only applies to loans closed in 2007. If you have a loan from 2006 with MI, there is no deduction available to you.

I'm a mortgage advisor, however, so don't take my word for it. Be sure to check with a tax accountant.

Happy New Year!

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Protect and Improve Your Credit Score

Thanks to the Federal Reserve, rates have dropped below 6% a few times over the past month (today included). That's the good news. The bad news is that people whose credit score is below 680 will pay higher rates on all conventional loans. Those with scores below 620 will be paying 2% higher than the going rate.

If you're planning to buy a house next year or think you might want or need to refinance to take advantage of the nice low rates, make sure you optimize your chances of having a high credit score. In addition to the famed "pay your bills on time" and "don't file for bankruptcy" there are additional steps you can take to protect or raise your score.

1. Don't have more (or less) than about 2 or 3 credit cards. I have personally seen this make a difference. My husband and I have had all joint credit accounts for ten years, except I have a Macy's card (I have no choice, of course, as Macy's often offers an addition 10-20% off if you use their card!), and my credit score is always 10-20 points higher than his.

2. Don't max out any of your credit cards. Or better yet, pay them in full each billing cycle.

3. Do use your credit cards regularly, so that you have current credit ratings. If you have a card you keep for emergencies that you never use, have Netflix (or some other recurring bill) charge your card and then pay it off every month.

4. Don't take out any new loans right before you apply for a home loan - brand new debt temporarily adversely affects your score. In other words if you plan to buy a car and a house, buy the house first. ANYONE will give you a car loan -- even if you filed bankruptcy yesterday. Home loans are a little trickier, so get that established first.

5. If you have collections to pay or want to pay off and close some accounts (make sure you keep AT LEAST 3 accounts open), do it well in advance of applying for your loan, as recently closed accounts adversely affects your score.

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Is the "Subprime Bailout" a Good Idea?

At Bizmology, Patrice Sarath wonders if subprime lenders are being adequately punished if they're required to leave borrowers' introductory rates as they are so as to help them avoid foreclosure. Is she kidding? The Sub-prime lenders, predatory or no, smart or no, loaned money to people who were exceptionally likely to not pay it back. That's why they charged such high rates, fees and prepayment penalties in the first place. Now, they won't benefit from the high rate as compensation for the great risk they took.

I'm not suggesting that this help from the government is not good or necessary. Actually, I think it is. (And as a disclaimer, I'm not a sub-prime lender.) But I'm not positive it helps the lenders anymore than getting higher interest payments from some borrowers and short sales or foreclosed houses from others would. It does relieve the stress of many homeowners and also helps the real estate market overall, because so many people won't have to sell their houses in desperation over the next year.

*As an aside, at MortgageFit I found this list of calculators, many of them mortgage related, but one that I used and found helpful was an IRA calculator that tells you if it's to your benefit to convert a traditional IRA to a Roth IRA.*

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Swindlers, Negative Amortization and Eugene's Healthy Real Estate Market

The New York Times ran an article this week about the so-called "mortgage swindlers," of which I'm sure there are many, but it does paint with sort of a broad brush.

Anyway, this article reminded me of a current client we're refinancing. She's a retired lady, who has owned her home for six years. A year and a half ago, someone refinanced her into a NegAm ARM. In English that means an adjustable rate, that requires a minimum payment every month that is LESS THAN the monthly interest charge (to say nothing of NOT making a dent in the principle).

I've said this before, but let me say it again, this type of loan is a cash-flow mechanism for the financially savvy. It is not for people to buy more home than they can afford and certainly not for a single woman living on social security with no other assets. She was definitely sold a bad idea. Now we're putting her into a fixed rate loan, but she owes $20,000 more than she borrowed a year and a half ago. It's terrible. Be careful -- if your loan payment sounds too good to be true, it probably is!

In good news, Eugene is not feeling the alleged housing crash that we're always reading about. Some speculate that Oregon's wonderful land-use laws coupled with a low percentage of sub-prime lending has contributed to Eugene holding its own. At least for now.

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Adjustable Rate About to Reset?

For some people who are struggling to make their recently-adjusted mortgage payments both Countrywide and HUD are offering to help. Generally, it's a catch-22 -- if you fell behind on your payment, then your credit wasn't good enough to refinance. HUD is going to be allowing people who had a good payment history UNTIL the adjustment to refinance even if they have recent late payments. Countrywide seems to be implementing something similar.

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Dave Ramsey's Mortgage Calculator

I've received several e-mails from people wondering why I don't recommend paying off (or paying down) mortgages. But actually I neither recommend that people do nor do I recommend they don't. I think this is a personal preference. Either investment strategy can work out well for people. For those who want to put themselves on a plan to pay their mortgages off early, Dave Ramsey has a great and easy calculator here.

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Big Returns on Home Improvement

A lot of people are having a hard time selling their homes these days – maybe you’ve heard? Because of that we’re doing many loans right now for people who’ve decided to just remodel, instead of move, until things look up out there for sellers.

(A quick warning – if you need a second mortgage to finance your remodel, in most cases you’ll have to wait for six months after your house is taken off the market.)

This can be a solid investment, if you do it right. Some projects increase your home’s value more than others. Remodeling the most-used rooms in your home is likely to pay off the most.

Kitchens, which are used for preparing family meals and are often the preferred gathering spot for socializing, suffer the most wear and tear. They also tend to follow style and color trends more than other rooms, so they can appear dated more quickly. Many homebuyers also want the most up-to-date appliances in their kitchen, so it can really pay to renovate this room. In fact, a kitchen renovation generally has a 95 - 125% return on your investment.

Adding a bathroom usually pays between an 89 - 96% return and adding a family room can pay back more than 84% of your investment, making these the next two smartest home improvements. The main thing to keep in mind when remodeling is whether the project will increase the functionality and beauty of your home.

You also want to remember to remain consistent with other homes in your neighborhood. You never want to remodel your home so much that it’s valued significantly higher than surrounding homes. Altering the size or style of your home too much can also make it harder to sell.

Home Equity Lines of Credit (HELOCS) are the most popular way to finance home improvements. The rates adjust with the Prime rate, but you can run it up as needed and pay it down as you can – as opposed to a closed second where you have to take a certain amount of money in one lump sum and pay a fixed payment for 15 years. In terms of interest and finance charges they operate similar to a credit card, in that your minimum payment each month is the interest accrued on the amount borrowed (not the amount available).

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Could the Writers For Money Magazine Catch a Clue?

Do they just let anyone write for Money Magazine? I have never seen more misinformation in one article than I saw in this one today. The gloom and doom days are over, it would be nice if the media would get with it. A few months ago, it was true that each day lenders were getting rid of programs and tightening their standards. But now, lenders are coming back with the same programs they've always had. There are a few changes, the most important (and one that I'm proud to say does not affect my company) is that lenders are making it more difficult for people to commit fraud.

Here's a short list of errors in this article:

1."What's happening: Several species of exotic mortgages are headed for extinction, including the 2/28, the 3/27 and those requiring no proof of income"

Wrong. There are still loans available (purchased by Fannie Mae and Freddie Mac) that do not require a borrower to even have income or verify where their down payment is coming from. The rate today is 7.125% and requires 20% down. Additionally, there are plenty of "Stated Income" loans still out there, but now they're mostly only available to self-employed people. Which is just as well, because there's no reason for a wage earner to be unable to prove their income unless they're lying or being paid under the table.

2."You'll find lenders stingier on appraisals, more persnickety on documentation and far less likely to finance 100 percent."

Wrong. There are still a lot of 100 percent loans available, and there are only added restrictions on appraisals for people in soft markets (which Oregon is not).

3."If it's [your adjustable rate] coming due and will end up above 7 percent, consider refinancing to a fixed rate. You'll need 10 percent equity and a credit score over 660."

On what planet? Because on Earth, you can do a conventional refinance with 5% equity. If you don't have a high credit score, you can do an FHA refinance with 3% equity.

4."Home-equity loans and lines of credit - What's happening: These are generally holding at about the prime rate, now 8.21 percent if your credit score is above 680 and you can prove income. But you can't tap 100 percent of equity anymore; you'll be lucky to get 80 percent."

Wrong. Actually, the rates on these keep going down. Today I can do a rate of Prime MINUS a half. Pretty good. Additionally, 100 percents are WIDELY available. It is true that you need really good credit for these.

Be careful when seeking information -- evidently even on CNN anyone can say anything on the internet.

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The Rescue Scammers

A woman called us this week wanting to know if she could sell her house and buy a new one. She said she thought there "might" be a "little problem" with her credit so could we check that for her. We checked. The "little" problem she has is she hasn't made her mortgage payment in three months -- which is in addition to the little problem that she doesn't appear to have ever paid any of her other bills either.

But she had hope. Because "some guy" was coming over today to look at her house, and he'd offered to buy it from her for $70,000 less than it's worth (which would give her enough to pay off the existing loan, but she'd walk away from all of the equity). We're pretty sure (and we hope) that she cancelled his appointment. There's no shortage of people out there preying on people's lack of knowledge of options during difficult times.

Real Estate isn't exactly "booming" here at the moment, but our market isn't soft either, so no one should be walking away from that much money. We suggested she hurry up and list it below market value and offer to pay the buyer's closing costs, before foreclosure proceedings are started.

As for purchasing a new home, someone in her position only qualifies for such an outrageously expensive loan that we wouldn't even do it for her. Luckily she has a family member who might be willing to purchase the home as an investment property and then add her to title and have her make the mortgage payment -- otherwise the new payment would have to be so high, she'd probably end up in the same position she's in now!

CNN ran an article about another type of scam where someone claims you can stay in your home and they'll take over your payments. It's NOT TRUE. Don't fall for it.

No matter the situation, there are above-board options available to people who are struggling right now. Get several opinions on your situation before you sign over your house to "some guy."

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Myths About Mortgages & Home Ownership

Grad Money Matters' post about mortgage and homeownership is mostly self-explanatory, but I have a few disagreements. It's worth reading just for the commenter that prompted an author correction (I agree completely with the commenter). Here's what I would add:

Myth 1 - ISPF says that it's untrue that "If I can afford the mortgage payments, I can afford to own the house." It is true that owning a home comes with maintenance expenses and likely higher utility bills, but the property taxes, home-owners insurance and HOA fees are all considered part of the mortgage payment from the lender's perspective. So if you can afford your mortgage payment (according to the old fashioned method of qualifying for a loan), you can probably afford the house in general.

Myth 2 -- ISPF says that you might not benefit on your tax return from owning your home. I know that this is a possibility, but it is so remote that it's really not worth mentioning. It actually happened to me once though. My husband and I have always lived well below our means, and when we bought our first house way back when, it was a teeny tiny little house for $80,000, and we did an adjustable rate loan at 5% interest. The interest we were paying wasn't even close to enough to effectively itemize. Still -- if you can find a house for $80,000 these days, let me know -- I'll take it, tax break or no. Also, even though we didn't benefit tax wise, we had a $650 mortgage payment (PITI) for four years and then sold the house for $110,000. MUCH better ROI than if we'd rented.

Myth 3 -- ISPF says that 40 or 50 year loan terms are not a good idea. I completely agree. Neither are 20 year terms usually a very good deal.

Myth 4 -- ISPF says not to enroll in a bi-weekly payment program. Absolutely. Why pay someone to do something for you that you can EASILY do for yourself? A variation on the bi-weekly program, if you make ONE additional principle payment each YEAR on a 30 year loan, your loan will pay off in the 22nd year. Another option is ask your loan officer to calculate for you a 15 year (or 10 year or however many years you want to pay it off) amortization and just pay that much every month. It's not that complicated, don't pay anyone to do it for you. I'll do it for you if you e-mail me.

Myth 5 -- ISPF says that fixed rate payments don't equate to fixed rate expenses. Well duh. However, what do you have to show at then end of ten years of giving your landlord $1000 per month? The answer is: nothing. A home is an investment -- renting is carefree in comparison, but that doesn't mean it's always financially savvy.

Myth 6 -- ISPF says that you don't have to have private mortgage insurance even if you don't put 20% down. This is sort of true. Most people have been doing "piggyback" loans the last five years or so. However, many lenders have stopped funding second mortgages altogether. Since all of the chaos happened this summer, I haven't done a piggyback loan, but I'm sure they'll come back around. Also, for people earning less than $100,000 per year, mortgage insurance is now tax-deductible, so it's not always worth the hassle (or expense) of avoiding it.

Myth 7 -- ISPF says lenders can amortize your loan on a refinance so that you will still pay the loan off at the original date. This is true of a "streamline refinance," and it can be done on a regular refinance, but I've never had anyone ask to do it.

Myth 8 -- ISPF says shopping for a mortgage at multiple places only counts as one inquiry on your credit report for credit scoring purposes. It's the truth. Same is true if you've been all over town shopping for cars this week.

Myth 9 -- ISPF says you should get pre-approved for a loan FIRST, then shop for a house. YES! It's a rare real estate agent who will take you shopping for a house if you haven't been qualified by a lender anyway.

Myth 10 -- ISPF was spreading that tired old rumor that "the bank owns your house." But was big enough to retract when the error was pointed out.

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What Does an Annual Percentage Rate Mean to Me?

On Monday I linked to an article advising homebuyers to make sure they read the Truth-in-Lending Disclosure which calculates the annual percentage rate on the loan they're about to accept. People also use this calculation when they're shopping for a lender in advance. Chances are if you ask half a dozen Loan Officers what the APR means, six of them will tell you it doesn't really mean anything, it's just a dumb calculation the government makes us do, and that nobody really understands it or knows how to explain it anyway.

But that's only partially true. It does have limited usefulness and there are better ways to determine what kind of deal you're getting on your loan, but it does mean something, and as luck would have it, I even know what that is! So I'll let you in on the secret -- then, if you have to, you can even explain it to your Loan Officer.

A Truth-in-Lending Disclosure contains four boxes across the top:

Box 1) Annual Percentage Rate -- The cost of your credit expressed as an annual rate. Because you may be paying loan discount "points" and other "prepaid" finance charges at closing, the APR disclosed is often higher than the interest rate on your loan. All of the items on your Good Faith Estimate are figured into this calculation EXCEPT the following: Appraisal, Credit Report, Homeowners Insurance, Property Taxes and Title Insurance

Box 2) Finance Charge -- The cost of your credit expressed in dollars. It's the total amount of interest calculated at the interest rate over the life of the loan, plus Prepaid Finance Charges and the total amount of any required mortgage insurance charged over the life of the loan.

Box 3) Amount Financed -- The loan amount applied for, minus the Prepaid Finance Charges. Prepaid Finance Charges include items paid at or before settlement, such as loan origination, commitment or discount fees ("points"), adjusted interest, and initial mortgage insurance premium. The Amount Financed is lower than the amount you applied for because it represents a NET figure. If you applied for $50,000 and the Prepaid Finance Charges total $2,000. the Amount Financed would be $48,000. The idea being that even if you borrow $50,000, if you had to pay $2,000 to borrow it, you ESSENTIALLY only borrowed $48,000.

Box 4) Total of Payments -- The total amount you will have paid if you make the minimum required payments for the entire term of the loan (you'll want to have a tissue handy if you tend to be a weepy sort --- it's a big, ugly number). This includes principle, interest and mortgage insurance premiums, but does not include payments for real estate taxes or property insurance premiums.

It's important to take a good look at your Truth-in-Lending disclosure, but if you're comparing lenders or making sure you understand your loan documents, it's much more straightforward (and you'll get a more accurate result) if you compare rates, fees, monthly payments and loan amounts from the Good Faith Estimate (and the Note, if you're at closing). It's difficult to verify just from a TIL exactly what you're comparing.

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Do You Need an Attorney to Review Your Loan Documents?

Once in a while we come across a borrower who would like to review their closing documents prior to signing them at the title company. Which is absolutely fine with us. But sometimes they do something silly like take them to an attorney, bring them back with various lines scratched out, saying we'll have to remove certain verbiage from our (pretty standard) documents and THEN they'll sign them.

At which point we have to tell the borrower they'll have to go ahead and ask their attorney if he'd like to loan them the $250,000 then, because we don't know any lenders who will alter their loan documents. "Oh," is their typical response, and then they sign the documents as they were prepared.

Ah attorneys -- can't live with 'em... can't live with 'em.

We've had other people spend two hours reading every line of their documents while we all sat there waiting too. All of us who work in this business generally verify about five or six things for accuracy and sign our names as quickly as possible -- because we know what's negotiable and what, simply, is not.

I actually ran across a good article today that lists the very things that are useful, helpful and/or very important to watch for when signing your loan documents. If you understand the basic things in this article, you shouldn't have to waste your money on an attorney -- who probably won't be very useful in the end anyway.

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