The Real Estate Sage at The Real Estate Investment Institute - REII

The Good Faith Estimate is an "ESTIMATE" of the cost of the loan you've applied for.

All lenders are required to provided you with it and its' companion the "Truth in Lending" form within three days of your application.

We're going to go through it line by line, but the individual lines are unimportant! You should be concerned in the total cost of the loan not individual line items.

There's an old saying "figures never lie, but liars figure" it is never so true as it is in these two forms. Because, different rules apply to brokers as compared to bankers a quick glance at the form by the uninformed consumer all to often misleads the consumer.

Because of the constantly changing market it's rare that a loan closes in accordance with the original disclosures. You can limit this by "locking" the rate at the time of application. This fact along with the variables that can't be controlled mean that the original disclosures are only as useful as your originator's integrity. It's this reason why you should never select your originator by the lowest rate.

Money paid for the origination of the loan, by tradition this is normally 1 point (1 point is 1% of the loan amount) In practice this is never the only amount paid for origination.

Discount also expressed as points, was originally/properly used to adjust the yield of a loan, in current practice it is often includes any amount paid for origination that is smaller than one or exceeds the one listed in line 801.

This is eddied copyrighted material from "Get The Money / A Consumers Guide To A Successful Mortgage Application" republished here by the author with permission of the publisher. Watch for the next part and then "Truth In Lending."

Line 803 *Appraisal Fee

The estimate cost of the appraisal. This rarely varies except when additional inspection are required because of unfinished work or required repairs.

Line 804 *Credit Report

The cost of the credit report, this can go up as the actual lender may require additional reports or an electronic report may need supplemented.

Line 805 *Lender's Inspection Fee

Rarely used.

Line 806 *Mortgage Broker Fee

The latest name for what brokers use to call a processing fee, it now includes any fee charged by the broker not included on lines 801 and 802.

Line 809 *Tax Related Service Fee

This pays for an independent company that reports to the lender for verifying that the taxes and insurance are paid, This protects both you and the lender.

Line 810 *Processing Fee

Mortgage brokers are required to label chargers as the investor/lender does, this is a rarely used third party fee. The brokers fee is now listed on line 808.

Line 811 *Underwriting Fee

Investor/lender third party fee.

Line 812 *Wire Transfer Fee

This may or may not be charged by the investor/lender or by the escrow company.

Line 1101 *Closing or Escrow Fee

Third party fee for closing services. This fee will be what it will be, it's better if this estimate is high.

Line 1105 *Document Preparation Fee

Investor/lender third party fee.

Line 1106 Notary Fee

Normally included on line 1101. This fee will be what it will be, it's better if this estimate is high.

Line 1107 Attorney Fee

If required. This fee will be what it will be, it's better if this estimate is high.

Line 1108 Title Insurance

This is the "lenders policy" not the "owners policy" generally provided by the seller to the buyer. This fee will be what it will be, it's better if this estimate is high.

Line 1201 Recording Fees

The local "Recorders office" charges. If this varies between lenders it is only because they don't know how many pages will need recorded. This fee will be what it will be, it's better if this estimate is high.

Line 1202 and 1203

Rarely used.

Line 1302 * Pest Inspection Fee

This depends upon local need. If required by lender see. Always required on VA loans.

Unnumbered Comparison To Broker (Not Paid Out Of Loan Proceeds)

This is the "Yield Spread Premium" paid by the lender/investor to the mortgage broker, if not for the YSP you would have to pay this much additional at closing. YSP is much maligned but great for the consumer, See the article: A Consumers Guide To Mortgage Brokers And The Evil Yield Spread Premium

.Line 901 *Interest for __ days

Mortgage interest is always paid in the arrears, meaning you pay the interest after you use the money, but all mortgage payments are now due on the first of each month. It takes two to three weeks for the lender to enter your loan in their computer systems, so they start your payments on the first of the second month following closing, this means your accrued interest could be for 29 to 60 days. At closing you will prepay up to 30 days interest so that your first payment will have no more that 31 days accrued interest. See the article: Explaining Pre-Paid Interest

Before closing you may be able to request a payment the first of the next month, if your closing will be in the first week (normally not later than the fifth) of the month, in which case you could have a credit instead of a large charge.

Line 902 *Mortgage Insurance Premium

This is the PMI or MI paid in advance.

Line 903 Hazard Insurance Premium

This is the first year's cost of your home owners policy. This fee will be what it will be, it's better if this estimate is high.

Line 905 *VA Funding Fee

Fee charged by the VA.

All lines in the 1000 series are to establish escrow/impound account and should not be compared between lenders they will be what they will be, only the PMI/MI on line 1002 can be known at the time of the disclosure. It's better if this estimate is high.

Escrow/impound accounts are required on conforming loans over 80% loan to value, and are common on all loans. I would distrust anyone who gives you a low estimate to reduce the estimated total cost.

At the bottom Right is the "Estimated Monthly Payment" If you are making comparisons check only the "Principal & Intrust" and the "Mortgage Insurance," PMI/MI, because all the other numbers are estimates and will be what ever they are with what ever lender finances the property.

* These items will be labeled "PFC" for "Prepaid Finance Charges" You don't pay them until closing the label refers to items used to determine the "APR" listed on the "Truth In Lending" form.

Lines to look at are: line 812, 1101 (If you are buying a new house, the builder/subdivider will have a contract with the escrow company for a low cost closing, you will get the discount with an outside lender but they will originally estimate a much higher fee), 1106, 1107, 1108, 1201, 1202, 1203, 1302, 901 (this is the big one), 902, 903, ( for the 1000 sears charges use the total cost because lender could use the same cost but for fewer months distorting the total) 1001, 1002, 1003, 1004, 1005.

Now that you've adjusted the variables out of the estimates compare them again, if there is a major difference confront the originators there is a reason for any major difference. It's necessary to ask each for an estimate at the same rate, conforming loans are available in 1/8% increments normally over a 2% range. Talk to your originator.

I was born in Central Michigan. Son and Grandson of men that fixed it themselves. I don't remember a time when if something need fixed or built Dad didn't do it himself. I remember when I was very young pestering Dad as he worked on a car in the drive way.

I remember the first major project we worked on together. My Mother needed a dependable car, Dad couldn't afford a new one, it was 1956 and insurance adjusters didn't make all that much. Dad bought two nearly new 1956 Oldsmobile 88's, two! Of course there were two little problems! One had rear-ended a truck and there was nothing resembling a car ahead or the front seat. The other one had been a victim, it had been rear-ended and nothing was useable behind the front seat. Dad had a friend with a shop and we would go over there nights and work at stripping those two cars. When every thing useable was stacked in a corner the two cars were sent to a body shop where they were cut into four pieces and welded back together.

When the "New Car" was returned to the shop, Dad and I would go over there as often as possible. I knew that my job at 7, nearly 8, wasn't to rebuild the "car" but rather to call for help if anything happened as it was often just the two of us. Dad did humor me and teach me what he could. What I did learn was a love of tools and an independent do it your self spirt. I also learned the value of a large heated garage, Central Michigan is cold in January and February, often very cold. When the car was working every thing had finally been reconnected front to rear, it was time to prepare for paint, one end was red and the other blue. One night when Dad had real help I was handed a socket and ratchet and told to take off the front bumper, o' ya, sure.

I had been watching and learning. When I couldn't budge the bolts I quietly got a "persuader" a piece of pipe slid over the ratchet to provide more leverage. There is always more than one way! After removing three of the four big bolts, I got the nut off the last one. I couldn't get the bolt out. Telling Dad my problem he said hit it with a hammer and handed me one as he walked by. The last thing I heard was Dad bragging to his friend that I got one, then I hit the bolt as hard as I could. Crud came down in my eyes and 250 pounds of classic Oldsmobile bumper came down on top of me. It took both of them to get that thing off me. I was as proud of my bruises as Mother was of her "New Car!" Dad and his friend changed that night, never again would they tell me to do something they didn't want me to do.

We moved to the farm two years later. Behind the house was the original wood shed, it was heated and had a good floor this became Dad's shop, I learned to use power tools in that shop. We needed a horse trailer and it was to big to build in Dad's shop so Dad enlisted the help of his/my cousin Elton who had a commercial welding shop. Working nights and week ends, helping Elton when we could, we built a great trailer, the year was 1959, I was 11. Both my Grandfathers helped. That trailer sits over at Eric's, my son, he used it last weekend.

Over the years Dad would rebuild two more cars at home with my two little brothers, Joe and Tom. The woodworking projects were constant, my little brothers know their way around tools! Joe sells them. Tom writes programs that make them work.

Until he retired Dad never had the shop he wanted, but he made up for it. Their retirement home had a large single car garage, but Mom wanted to park the car inside and Dad wanted more space! The answer was a 32 X 52 foot Pole building west of the house and garage. Not only an incredible shop, but it has a bath with shower, a full kitchen, power and water hook-ups for the kids campers and motor homes.

Mom feeds the masses of family and friends out of that kitchen, she did her canning out there, she uses it as much as Dad, swimmers use it to shower and change. When I left there 10-11-07 It held two large boats, a camper, several trailers, a tractor, picnic tables and all their lawn and lake toys, along with everything else, Tom, Joe, and Shirlie didn't want at their homes until spring. Alas even some stuff from Jack's estate.

Dad's shops have always been a bounding and learning experience. Indeed Dad taking me to the woodshed was never the scare old jokes imply!

Dad's shop is for sale! Mom will throw in a neat two bedroom home and garage. Also included are five lake lots to hold it all. Do you have a retirement project? Do you have a Grand kid/s that need the special experience of getting your hands dirty together and accomplishing some thing with Grandpa?

Bill

William J Archambault Jr

The Real Estate Investment Institute

Have you ever considered what tenants miss?

Have you ever considered how important a home of your own is?

I'm talking about a home like an old fashion marriage, not serial monogamy as practice by so many. A home like Mom, not Dad's third wife. A home like our Grandparents kept or maybe your Great Grandparents.

My Brother, Jack may have owned a condo in Florida once, I don't know for sure. But, he understood how much a small peace of real estate could mean. See:Grandmas' House

Jack though so much of this he'd hired an artist to illustrate it and it hung on his wall.

Bill

William J Archambault Jr

The Real Estate Investment Institute

I'm the oldest of five. Born in 1948, two years after my parents were wed, I've always been proud to be William Junior. I didn't surprise anyone, not like my brother "Ops" born just ten months later, Mom called him Jack after her Father and Brother. (Thank God they didn't let Fathers in the delivery room back then! Short of being twins that's the only way we could have been closer.)

I was almost three when on the same day Shirlie and Teddy came home. Shirlie is my sister and Teddy was our Chow-Chow puppy. Teddy was more fun for the first few years.

The perfect family, just over the 2.8 child norm, three kids and a dog. Mom wasn't quite, June Cleaver, because she worked, but Dad had a lot in common with Ward. Then we moved to the farm. Mom and Dad added another dog, Tag and several horses. Then Twelve years after my birth came "Little Ops" Mom called him "Joe!" Life was good, Joe was a lot of fun after a year or so.

Another big move and two years later a long came "O' My God" Mom called him Tom.

I tell you all this because we lost "Ops" September, 26, at age 58. Jack was the second brightest man I ever met, with out dropping names let me tell you that's saying a lot. Jack excelled at every thing he tried except life. Jack live life his way only getting close to a few people, but drastically affecting everyone he encountered. Like Howard Hughes, Jack became a venerable hermit! Never married Jack left no children, no wife, only an old cat with a nasty temper.

Cremated as he wanted we spread his ashes at the spot he love the most. There is not even a stone with his name on it.

Jack had a Masters degree in Interpersonal Communication from Central Michigan University. CMU is just 10 miles south of the farm we'd lived on. He got his Bachelors in Communication with a minor in English from Western Michigan University not far from the Portgage, Michigan home where we went to High School.

Jack wrote poetry, when he was lonely, when he was sad, when he was mad, when he was frustrated. I've never know Jack to say he was sorry or that he loved anyone, he couldn't speak those words, but he'd send people poems to speak for him. Jack always told me he didn't keep copies of his poems, but cleaning his apartment Mom, Dad, and Tom found several hundred.

Tom selected 80 poems scanned and printed them for Jack's friends and family, I've got my family's permission to share them. Over the next few weeks/months I'm going to post them on Brenda's blog. Genius is so often lost, but just maybe Jack will be remembered.

Please see: The River

Bill

William J Archambault Jr

The Real Estate Investment Institute

When I came west from Michigan twenty three years ago, I was shocked to learn that possession in Nevada and perhaps most of the West is excepted to pass on the day of closing. In my experience I knew closings get held up and sometimes blow-up! I found the idea both un-civilized and a grave violation of my view of the listing agents fiduciary to the seller. The only thing worse is possession before closing.

Many, if not most, sellers can't afford temporary housing until their home closes, let alone move out then have the sale fall through. Temporary housing while waiting for another buyer, an unthinkable/unaffordable horror!

I finance homes, I do not sell them so I had to set quietly and keep my mouth shut. My students selling their homes always negotiate a week to 30 days after closing for the change of possession.

I can hear the up roar! Yes, I know all the problems that delayed possession can cause, but before you holler let me remind you who pays your commission and where you fiduciary lies.

Before you think I'm just nostalgic for a distance place and time, let me tell you I'm not. When I left the Midwest, closing were done with all the parties in one room at the same time! That was sometimes the reason for much of the fall out. If I ever decided to write horror stories instead of real estate and mortgage books, I'll use those stories.

Just for the record. When Brenda and I sold our condo nearly two years ago, we negotiated 10 days possession after closing and a non-refundable $10,000.00 deposit released to the sellers in 8 days (so the buyer could get their appraisal and inspectors thru the condo) the buy agreed and paid.

Bill

William J Archambault Jr

The Real Estate Investment Institute

Bunk, BUnk, BUNk, BUNK

A comment on Where' the Bottom of the Burbank Real Estate Market ?

I don't believe you can apply the principles of technical analysis to home purchases! Nor do I believe you can apply them to small (1 to 4 unit) investment properties in a tough market.

No one likes to crunch numbers more than I do. Many years ago as an expatriate banker I got to learn from the best. I joined Michigan's CCIM Marketing Group as a canadate for a CCIM, but a year later I was not making sales. I learned to prove that no property was ever worth anything! There was always suppose to be a better deal somewhere. Our analyses were numerically perfect, scientifically sound, tax and legally correct, but utterly worthless! We weren't selling and we were protecting our clients out of less than mythical profits!

The problem with statical analyses of home values is that there is no consideration of function and no consideration of mandatory alterative cost, if you don't buy you still have to live somewhere! Homes are deferent! If the house in question could rent for $2,150 / month, but you could live in something smaller say a $1,150 rental, is the cost of the home $2,150 / month or is it $1,000 / month? Lenders will be concerned about comparable and variable markets, but they don't have to have some place to live. The more you're leveraged the more concerned the lender is in protecting the value. Provided you don't exceed financable values, analyses of a home's value is flavourous.

Analyses of small non-owner occupied rentals is also of limited value! The problem with applying CCIM type technical analyses to small investment properties is that your investor will miss so many profitable opportunities looking for the elusive if not extent perfect investment.

There is an alterative! Do the Doable! Learn to sell a 2% return. About a year after I got involved with the CCIMs I was introduced to another group. This new group's members could hardly balance their own checkbooks, but few of them had to! They knew how to sell a 2% return! How do you sell a 2% return? Find a person making only 1% and double his money!

Most people can't get the ideal or even reasonable return in today's market, but they can make a profit! Let those who over analyses every opportunity laugh at our investors as they go by, on the way to make deposits at the bank. It's much better to do the doable than procrastinate.

Bill

William J Archambault Jr

The Real Estate Investment

I wrote a blog about illegals and loan fraud and got a comment from a well intentioned writer that I just can't forget. I don't think the writer did anything but express the frustration we all feel, when we group people by heredity instead of their personal choices.

The comment: "It is amazing that many of todays top LO's are hispanic - I wonder how many of them belong in jail."

What's so "amazing?" Do you know how many Americans are Hispanic? Most LO's are licensed and often insured or bonded, I'm sure very few are illegals. I'll bet between us we can't find one that isn't fluent in English, but in fact I know one or two that don't speak Spanish, at least not well.

My family is almost entirely French, but even Jacques who arrived here in 1608 wrote about himself in both French and English as being an American. For the record I don't speak French, but my maternal Grandfather did, until he married my Grandmother.

I do symthise with your frustration. That's the problem with hyphenating identities. I'm an American not a French-American! We Americans come in all shades of mankind, we come in two standard genders and several we invented. For those of us in the people business and real estate in all forms is the people business, it makes life fascinating!

As to "how many of them {Hispanic LO's} belong in jail" I suspect it's a lower percentage than the rest of us! I've got no facts, but two reasons for this assumption! 1. Hispanic LO's have to be careful because of bigoted assumptions. 2. LO's that speak Spanish are probably better at spotting these illegal invaders than the rest of us.

America has proven that it's nurture not nature that determine a person's success in life. Every race in the world has succeed in America. The amazing thing is how many people who are born here or come here chose not to participate! But, it's there choice. Viva La Difference!

Bill

William J Archambault Jr

The Real Estate Investment Institute