Author Topic: First time mortgage questions  (Read 4185 times)

iamsoners

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First time mortgage questions
« on: January 16, 2013, 10:36:45 AM »
Hi all--we're gearing up to make our first real estate purchase which will be our primary residence.  I have a few questions about the home loan process that I'd love to get your expertise on:

First, I've mainly ignored the concept of points since we intend to pay off this house as quickly as humanly possible.  But, I ran the numbers on the Mortgage Professor website and after 3.5 years, it will have been cheaper for us to take the mortgage with points.  And I have to admit, the tax break this year would be helpful.  But I can't get over the idea that points just seem scammy and more trouble than they're worth--anybody have insight?

Secondly, we're putting 30-40% down--enough that we aren't required to do escrow if we don't want to.  I figured it's easier to just do it though--until I got my pre-approval and the mortgage company is charging $1200 to initiate the account (not for the initial deposits mind you, just to set up the account). If I choose not to do escrow, it's an additional $400 on the closing costs.  I feel like for $800 (the 1200-400) plus the opportunity to earn interest on the money, avoiding escrow might be worth it.  Insight on this?

Finally, I'm hoping to find a bank or credit union that keeps their own mortgages rather than sells them off--anyone have success doing this?  Not many places do it anymore...

tooqk4u22

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Re: First time mortgage questions
« Reply #1 on: January 16, 2013, 10:46:06 AM »
Points are not scammy - provided they are actually points and not origination charges - as they are simply buying down the rate and is really just a PV analysis.  Be sure you calcalculate it properly especially if you will be paying it off quicker or making accelerated principal payments. The last few times I refinanced and when I bought my last house  - I actually did negative points where I paid a higher interest rate and got money from the lender for closing costs (it was not added to the loan balance) so when I refi'd three times in the course of two years and sold my house and bought a new one, which I just refi'd, - it cost me nothing more than the increased rate which for the timeframes was absolutely a loss for them. 

If what you say about the escrow account then I wouldn't do it - I have never had such a charge either way.

It will be hard to find a place that keeps its mortgages and will provide the best rate/terms - 90% of mortages being provided now are fannie/freddie. 

Nate R

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Re: First time mortgage questions
« Reply #2 on: January 16, 2013, 11:26:40 AM »
If you're going to pay it off ASAP, why do you care who holds the note?

iamsoners

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Re: First time mortgage questions
« Reply #3 on: January 16, 2013, 11:36:45 AM »
Thanks tooqk.

Nate, ASAP will still probably be 10-15 years.

arebelspy

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Re: First time mortgage questions
« Reply #4 on: January 16, 2013, 11:42:16 AM »
Points can be a great deal - think of it as prepaying the interest, and getting a better rate to do so.

Always run the numbers, but then choose what's optimal, IMO.  Nothing scammy about them, except if they're trying to coerce you into paying points without a comparable benefit (i.e. a mortgage broker charging you more points for the same rate as another place without those points).
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Another Reader

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Re: First time mortgage questions
« Reply #5 on: January 16, 2013, 12:06:13 PM »
Unless the lender holds the loans in their own "portfolio," the loan will be sold to Fannie/Freddie.  90 percent of newly originated conforming loans are sold to Fannie/Freddie.  They in turn contract with a lender or servicing company to service the loan.  "Service" means collect the payments, deal with all the accounting, and foreclose if you don't pay the loan back.  If you are going through a loan broker, the servicing could be sold to almost any major bank or servicing company.  I have had mine end up with everyone from Wells Fargo and Bank of America to GMAC.

There are very few portfolio lenders willing to originate and keep conforming loans right now.  These are usually done in the jumbo market.  I can think of one credit union in Phoenix doing conforming loans and keeping them. 

I do not like to pay much in the way of points.  What you get in rate reduction beyond the first point usually is not worth the price.  The $1,200 set-up fee for the escrow account is ridiculous, since the servicing is going to be sold to someone else anyway.  You would have to deposit a lot of money as well, at least half a year's projected property taxes.  You can handle the tax and insurance payments yourself.

It's a good idea to get multiple quotes (good faith estimates) before picking a broker.  If you are not already under contract to buy the house, you should shop around to make sure you are getting a good deal.

iamsoners

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Re: First time mortgage questions
« Reply #6 on: January 16, 2013, 01:35:39 PM »
so, dumb question that will reveal how little I actually know... when you say good faith estimates, does that usually require going through the entire pre-approval process with them?

Another Reader

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Re: First time mortgage questions
« Reply #7 on: January 16, 2013, 04:08:31 PM »
It should not.  They can make some assumptions with a little information and do a GFE.  One of the posters on this forum got a very good price on a refi from Box Home Loans.  That company is a subsidiary of a larger originator and is set up to do easy "fits in the box" home loans.  Not sure if they only do refis or if they do purchases as well.  You can also try the lead aggregators such as Zillow or Bankrate, but check the lenders out carefully before committing.  Banks and credit unions are variable, try checking the websites of your local banks and credit unions for rates.  PenFed has decent rates, if you are eligible to join.  Make some calls and tell everyone up front you are shopping for rates and fees.  Now that you have seen the paperwork and discussed the deal points, the second, third, and fourth phone calls will be progressively easier!

iamsoners

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Re: First time mortgage questions
« Reply #8 on: January 16, 2013, 04:32:30 PM »
awesome advice all, thanks much!

Nate R

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Re: First time mortgage questions
« Reply #9 on: January 17, 2013, 08:45:49 AM »
Thanks tooqk.

Nate, ASAP will still probably be 10-15 years.

I'm still curious, why does it matter to you then who has the loan? Feel better about it staying local? Don't want  a big bank to own it? Want it to stay out of Fannie/Freddie's hands for some reason?

iamsoners

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Re: First time mortgage questions
« Reply #10 on: January 17, 2013, 12:56:08 PM »
Yes, Nate, all of the above.  I work for an advocacy org. that has run several campaigns against Fannie, Freddie and the FHFA in the past two years--the more I learned, the more I dislike it.  In theory I suppose what they do could be innocuous but in practice it's politicized and exploitative. In making the biggest purchase of my life, I'd rather not fund their practices. Plus, yes, I'd rather see the money stay local--I live in the midwest and so much $$$ seems to drain to the coasts, I'd rather it stay local and the benefit stay within the community.

I've found a local bank that's a portfolio lender, has solid financial health and the rates are on par with everyone else in town--I'll probably go with them although the rates at Navy Federal Credit Union are also pretty great so I'm running all the numbers...

SunshineGirl

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Re: First time mortgage questions
« Reply #11 on: January 17, 2013, 02:38:10 PM »
That fee to set up an escrow account is ridiculous. No reason not to do it yourself.

madage

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Re: First time mortgage questions
« Reply #12 on: January 17, 2013, 02:40:18 PM »
My loan is from Penfed. They do not intend to sell my loan and they have great rates. Sometimes their pace is best described as leisurely, so if you need to close in a hurry (sounds like you don't), they wouldn't be the best choice.

Oh, yeah, definitely opt out of escrow. Just make sure you set the money aside every month to cover those big bills when they're due.