In the years leading up to the great housing meltdown of 2005/2006, I had a real estate agent license. That was mainly a money-saving convenience for my own real estate deals but, on occasion, I would work deals for friends and family to help cover the expenses of maintaining a license, which is not cheap.
I learned quite a lot about our dysfunctional housing market in those days. I learned retail housing is a really bad deal for most buyers and that some people get a better deal than others, usually because of their income and credit score. If you are one of those elite borrowers, you can bend the system to get a better deal, if you know which buttons to push.
Why 30 Years?
Most people shopping for a mortgage select a 30 year mortgage because they’re looking at the payments, not the cost of the product. That’s a huge mistake for most people because they’re not going to keep a home for anywhere close to 30 years. In fact, the average homeowner sells their home every five to seven years. The 30 year mortgage has roots in the days a family bought a home, raised a family, paid their home off, sold out and moved to a retirement village in Arizona while collecting a pension.
The truth is a mortgage can be almost any duration from five to 30 years and shorter mortgage durations mean higher payments, but lower interest costs. Pick the term that’s right for you, not for the mortgage broker selling your paper.
Seek a Portfolio Loan
The way traditional mortgages work is you fill out the paperwork and the mortgage broker shops your loan around. Premium borrowers can ask their bank or financial institution for a portfolio loan, which means the loan is coming from the bank and not the mortgage market. The interest rate will be higher than a traditional mortgage but a bank is a lot easier to deal with than a mortgage service.
The latest insult to homeowners with a mortgage comes from the mortgage servicing companies, which are outsource organizations that have no accountability to either customers or the banks they serve and are largely unregulated. My doctor called me last month in shock when his mortgage service simply stopped paying his tax bill and he had to pay the insurance company out of pocket or lose coverage. This is an all too familiar story for homeowners these days, but you may have an alternative.
If you are a premium borrower you can demand to pay your own insurance and taxes. You may have to supply proof to the mortgage servicing company that you’re keeping up on your payments, but that’s not particularly difficult. Do keep in mind that loans backed by the government may require escrow for the life of the loan, but that doesn’t mean someone won’t be willing to fund your loan anyway.
New Rules For 2014
It’s to your advantage to understand the new mortgage rules for 2014 as they will impact the Convention Qualified Mortgage rule, known as the QM rule in the business. Under the new rules fees will be capped at 3 percent and many types of toxic (toxic for your finances) mortgages will no longer be available. Overall these rules will be a good thing but it will shrink the available pool of buyer by roughly 10 percent. In addition the Federal Reserve will stop buying mortgage-backed securities and encourage a return of private lenders back into the market.
The new rules should encourage anyone seeking a mortgage in 2014 to shop competitively. For prime borrowers everything is negotiable. While your mortgage broker may try to tell you certain fees are “standard” and everyone charges them, that doesn’t mean they’re not negotiable. Even the real estate agents involved can agree to have certain fees taken out of his or her commission. That’s kind of a hardball dirty trick but I’d remind you that you’re not in this process to make friends; this is a business deal.