No one wants to buy a lemon of a home, making a several hundred thousand dollar mistake. The majority of home buyers purchase a home inspection. But have you considered a ‘loan inspection’?

Home Inspection

A home inspection functions as an independent third party service. A home inspector is unbiased, impartial, and checks the quality of your house before you buy. This is to ensure that major aspects of the home are in good condition and working order prior to purchase. Home inspections often include the roof, electrical, hot water heater, air conditioning and heating systems, major appliances, potential mold issues, exterior and interior damage… the list goes on and on. It is very wise to pay the few hundred dollars prior to signing on the dotted line; avoiding a several hundred thousand dollar mistake of buying a bad home.

‘Loan Inspection’

Just like the home inspector checks the quality of the house, a ‘loan inspector’ (or loan review) checks the quality of a mortgage. Potentially saving home buyers from the catastrophe of overpaying by tens if not hundreds of thousands of dollars. A loan review provides an easy to read report on where any ‘damage’ on the proposed mortgage may be. This can help lower your monthly payments by a few hundred dollars. A loan review will check the fairness of your interest rate, origination charges and fees, points, credits, and annual percentage rate.

You can negotiate with your lender

A home inspection report is essential when negotiating the price of the home with the seller, especially for surprise findings. If the roof needs replacing and will cost 20 thousand dollars, the price of the home should reflect this or it is negotiated that the owners fix it prior to selling. If the sellers won’t budge, then you have a decision to make, either accept the house as is, or look elsewhere for a different home. A loan review operates in a similar manner. You can negotiate with the bank if there is any ‘damage’ found on your proposed mortgage. If the bank refuses to budge, you can either accept the mortgage as is, or find a more reasonable lender with what you now know to be fair.

Do it yourself

If you are the handyman type then doing your own inspection on your home may be an option. Of course there is always the possibility of missing something or not being skilled in a specialized area, which left unchecked could be a costly mistake. When it comes to mortgages there is greater complexity. Without a set standard of comparison, even senior bankers will not know for sure what the best interest rate is. The only way to know if your mortgage is fair is with an independent Mortgage Review.

Researching online with comparison tools are frivolous at best as they cannot review what actually matters, your 3-page Loan Estimate. Often any mortgage comparison is anything but unbiased. Rather the websites function as lead captures drawing consumers in with best case scenario teaser rates. Every person obtaining a mortgage should become familiar with the 3-page Loan Estimate. It is the banks guarantee to deliver on their offer and contains all the numbers regarding your mortgage, not just the interest rate. The interest rate is only one aspect of the mortgage, the points and fees are another; usually accounting for thousands of dollars.

A home inspector doesn’t sell you a home any more than a Mortgage Review sells you a mortgage. It works in your favor by empowering you as a consumer to be in the drivers seat when dealing with the banks.

The answer is different for if you are buying or refinancing

Buying a home.

You can cancel your mortgage loan up until the day you sign.  Whether you are pre-approved, approved, have a Loan Estimate, or signed an intent to proceed, you can cancel your mortgage loan for whatever the reason.  You are never locked into one lender until the day you sign at closing.  Keep in mind though, that the later you wait to change lenders or cancel your loan, the more money you may risk to lose.  This is because as the loan process continues certain fees are required.  For example, the purchase of an appraisal is often needed to be made prior to obtaining financing.  You also can risk losing your earnest deposit if you break a contract between you and the seller.

If an appraisal has already been done, and you switch to a different lender, you may need to pay for another appraisal.  This of course could not be a big deal in the great scheme of things.  Especially when the appraisal fee is $500 but you get a lower interest rate with the other lender saving you thousands.  Losing your earnest money is not always the end of the world if you decide to back out from a particular house.  Better to lose a few thousand than to make a several hundred thousand dollar mistake.  In order to cancel your pending mortgage you can simply inform the lender verbally. Of course, being unresponsive to the lender will also cancel the transaction.

Refinancing a home

Some may be surprised to find out that you can cancel your refinance after you have signed on the dotted line.  In fact, you have until midnight of the third business day after signing to rescind (cancel) the mortgage contract.  The three-day clock does not start ticking until these three events have happened:

1) You sign the credit contract (usually known as the Promissory Note)
2) You receive a Truth in Lending disclosure (in most circumstances, this will be your Closing Disclosure form)
3) You receive two copies of a notice explaining your right to rescind

You should note, that in this case business days include Saturdays, but not Sundays or legal public holidays.  To cancel your refinance you can use the form your lender gave you or write a letter.  Make sure the form or letter it is mailed or delivered before midnight of the third business day.  It is a good idea to keep a copy and any evidence that it was mailed or delivered on time.

What is they never gave me those documents

If you did not receive your Truth in Lending disclosure or the notice of your right to rescind, or if they were incorrect, you may be able to rescind your loan up to three years from the date of closing.  If this is the case consulting an attorney would be the best first course of action.

Quick Answer

By as little as nothing, 0% difference.  To as much as 3.25% of the mortgage amount…or more in rarer circumstances.

Semi-quick Answer

Consider a fixed rate 30 year conventional loan (the most popular type of mortgage loan) with a 5% down payment. FYI, a conventional loan is a mortgage that is not guaranteed or insured by any government agency. Still confused? Think of a conventional loan as a private investor lending you the money. This chart applies for most conventional fixed rate mortgages with terms greater than 15 years.  Meaning, an interest rate that does not change while you have the loan, and the length of your mortgage is more than 15 years.

From the chart, with a 740 or above credit score costs 0.25%, of the loan amount. With a 620 credit score, a charged 3.25% of the loan amount will occur. The difference between the two is 3%. For a 200k mortgage, a person with 620 would need to pay $6000 to get the same interest rate as the person at 740. This is a simply example will all things being equal, and with loans from the exact same lender.

For those who want More Details

Let’s understand this chart further. The numbers not in the blue are adjustments for what is known as the loan-to-value ratio (LTV). The loan-to-value ratio (LTV) is a financial term used to express the ratio of a loan to the value of the home purchased.

Example: Assuming the sales price of a home is the actual value.  With a 5% down payment, the LTV would be 95%. A 20% down payment, the LTV would be 80%….etc.

The LTV ratios are along the top of the chart and the credit scores that correspond with the LTV are along the side. The percentages on this chart are NOT interest rates. The percentages in the middle are a percentage of the loan amount charged to you. These charges (adjusters) are often adjusted into the interest rate. Hence why your friend with a 620 credit score would be paying a higher interest rate for the same loan. (With the same bank and the same loan officer.)

The difference in interest rate between these two credit scores is usually .75% to 1%. Your friend with a 620 credit score could be at a 5% interest rate, and you with the same loan could be at a 4% interest rate. A 1% difference over the course of 30 years makes for some big savings with the higher credit score. In fact, using a 200k mortgage, the person with the 740 would be paying $42,000 less in interest compared to someone with a 620 credit score.  Assuming again, you and your friend are using the exact same lender and loan officer.

Big Difference Between Lenders

I keep mentioning the exact same lender and loan officer. This is because rates vary greatly from bank to bank. They can even vary within the SAME OFFICE for the same loan, depending which loan officer picks up the phone. This may be shocking but it happens every day. A person with a credit score of 740 actually ends up with a higher interest rate than someone with a 620. Because they went to different banks. The 740 person was greatly overcharged by going to an overpriced lender. To avoid avoid getting taken advantage of by the bank, you can know for sure if your interest rate is fair by getting an individual mortgage review.

What are the Benefits of a 15 year loan Versus 30 year loan?

Less Years = Lower Rates…Most of the Time

In short, you generally get a lower interest rate with a 15 year mortgage loan compared to that of a 30 year mortgage.  Which means you will be paying less interest over the course of your loan. Usually, the lower the years of the term the lower the interest rate. (And I do mean usually, because MortgageLoanReviewUSA.com, that analyzes the fairness of loans, has seen on occasion 10 year terms having higher interest rates than 15 year terms.)

The 30/15 Year Compromise

Affordability is the number one reason people choose a 30 year term. This allows them the ability to buy more house and/or have lower monthly payments over the course of their loan. Of course, this costs them in the long run as far as total interest being paid. However, if disciplined enough, you can obtain a 30 year loan and add to your monthly payment what you would be paying for a 15 year loan. This is favorable to those who want to pay off their mortgage early, save some interest, but also remove that risk factor of being locked into a 15 year loan, having a job loss and not being able to afford the mortgage payment (or at least things being that much tighter on the wallet.) Generally speaking, there is anywhere between a 0.5% to a 1.0% difference in interest rate when it comes to 30 and 15 year mortgage terms for Conventional loans. (FHA and VA loans tend to have a larger spread.)  We will use 0.75% as the difference in interest rate between a 30 year term and a 15 year term. Let us go through an example to see what the actual difference would be. Then compare it to real life among the average homeowner.

Example: $300,000 mortgage

  • 30 year at 5.25% – $1656.61 monthly; $296,380 total interest
  • 15 year at 4.5% – $2294.98 monthly; $113,096.38 total interest
  • 30 year added payment at 5.25% – 2294.98 monthly; $146,016.02 total interest

Being at a straight 30 year mortgage term means a ridiculous 183k more in interest compared to the 15 year term. However opting for a 30 year and being disciplined enough to set up the additional difference in payment would mean you’re paying roughly 33k more compared to the 15 year term. Again, the benefit in this is that if you ever had a decrease in income, or wanted to save for that yacht, you would have the option to stop putting the additional $638.37 on top of the $1656.61. (638.37 1656.61=2294.98)

Real Life

Now I mentioned comparing it to real life among the average homeowner. Two things: 1) Some may lack the discipline to set up the additional payment amount or are tempted to cave and remove it to go on a shopping spree.  2) In recent years, most homeowners resided in their home for an average of 10 years. With the example above ($300,000), we can see what the first 10 years of interest payments would look like:

  • $145,713.74 in interest paid in the first 10 years of the 30 year loan
  • $98,960.51 in interest paid in the first 10 years of the 15 year loan
  • $121,413.88 in interest paid in the first 10 years of the 30 year loan with added payment

Being at a straight 30 year term means 46k more in interest paid during the first 10 years compared to the 15 year term. And with the 30 year added payment scenario, you would be paying about 23k more in interest compared to the 15 year term.

What it Means

To sum up, keeping your payments the same, in the average homeowner real life scenario you would save about double the interest by choosing the 15 year term as opposed to a 30 year term with the added payment. But as mentioned, a risk with the 15 year would be if you needed to lower your monthly payments for whatever the reason. If you did need to lower the payments on a 15 year loan you would only be able to do this by refinancing into a longer term. Refinancing would cost money, could lead to a higher interest rate (or lower depending on the market) and may not be an option if there was a large decrease in the value of the property, income, credit score etc… Sadly, this is how some people end up losing their home. Regardless of what mortgage you end up going with, make sure that you are getting a fair deal. Either do this by shopping around comparing multiple Loan Estimates, or by getting a 3rd party review of your mortgage before signing with Mortgage Loan Review USA.  You’d get a home inspection, why not a loan inspection?

There are Two Common Types of Mortgages that Allow for a Zero Dollar Down Payment

USDA Loans

USDA stands for United States Department of Agriculture. USDA loans help those with low to mid-income ranges and is available mostly everywhere outside of large metropolitan areas. There are income limits and other guidelines that take place, however, ultimately they are a great choice for those living out of the city as a USDA loan comes with many benefits.  Most notable benefits in addition to a $0 down payment are:

  • Lower interest rates compared to other common types of mortgages
  • Lower monthly mortgage insurance than that of convention or FHA loans
  • Flexible credit guidelines that allow for exceptions for those with poor credit

Learn more and see if you qualify for a USDA loan Here.

VA Loans

VA loans are another common type of mortgage with a zero percent down payment. VA stands for Veterans Affairs. As the name would suggest, a VA loan is available for those who are active or retired military, or surviving spouses of a veteran. The Department of Veterans Affairs requires a funding fee (a percentage of the loan amount to be paid) but even this can be rolled into the mortgage and financed as part of your monthly payment. VA loans have no mortgage insurance either. This in of itself can save hundreds of dollars off of a mortgage payment.

More information on the requirements and benefits for VA loans can be found Here.

Remember

Know your rights as a consumer and realize that your mortgage is negotiable. A person can save thousands by asking for a fee to be removed, by shopping around and comparing Loan Estimates, or by obtaining a Mortgage Review which ensures the interest rate and fees are fair.