Why you should use a financial planner to obtain a real estate loan or a business line of credit?

Dr. Gordon is an independent financial planner specializing in assisting his clients to take control of their personal and business financial future. In order to provide a full spectrum of financial services to his clientele, Dr. Gordon developed expertise in real estate loans and lines of credit for businesses. Dr. Gordon is concerned with your entire financial picture and will match the right kind of product to your needs. He has a degree in personal financial planning from the University of California, Irvine. He applies his exclusive knowledge and analytic experience to locate the best loan and line of credit specifically tailored for the individual or the business. 

• As a financial planner, Dr. Gordon is able to evaluate the financial requirements of his clientele and recommend the most appropriate kind of loan or line of credit. 

• Dr. Gordon has well established relationships with many major lenders in the banking and mortgage industries in order to locate the best available loan or line of credit for each unique situation. 

• The loan or line of credit is packaged to highlight strengths and minimize any weaknesses. This creativity avoids the problems of being turned down for any superficial reasons. 

• Dr. Gordon has the flexibility to move loans or lines of credit from one lender to another for fast approval and funding. 

• Dr. Gordon's services don't end when the loan is closed or line of credit is established. He remains available to counsel his clients on all of their financial needs. 

 The Certified Guide on How to Avoid the Most Common Home Mortgage Mistakes

 Since 1980, Dr. Robby Gordon has been an industry leader in product innovation and consumer education.  We proudly present to you this free report to uncover some of the most common areas where consumers are often victims.  We hope this will assist you when choosing among the many mortgage options available.  Most importantly, we have created this report to save you money.  After all, a home mortgage is probably the largest financial transaction we will make in our lives.

 SELLER CONTRIBUTIONS

A "seller contribution" is one of the best-kept secrets in the home-buying process.  That’s when the seller of a home puts up some of the money needed toward the buyer’s closing costs.  It can mean the difference between a sale of a home and no sale. 

 Seller contributions can be negotiated at the time of a home purchase by having the seller pay closing costs rather than or in addition to a reduction of the home sales price. 

 A seller contribution can seal a home purchase in some cases where the buyer does not have enough cash for both the down payment and closing costs.  Many people can qualify for the payment on a home mortgage but encounter challenges in gathering the necessary cash.  Often people worthy of a mortgage don’t have a lot of ready cash sitting around at the moment they find their dream house.  Don’t let the idea of a seller contribution scare you.  An experienced mortgage broker or banker can help you figure out the best way to put a deal together.  He or she should also be able to help you understand the details well enough to be comfortable with the purchase structure.

 There are many other benefits of utilizing a seller contribution.  Using the money from a seller contribution for the closing costs can free up more cash for a larger down payment.  This can reduce or eliminate the need for private mortgage insurance (PMI) and can thereby save the borrower anywhere from $50 to $200 each month in PMI charges. This can also be used to achieve better price break points in the loan to value ratio to help the borrower get a better interest rate.  Another benefit is the improved pricing or accessibility of "no income verification" mortgages.  This is where the borrower cannot verify the income needed but may still obtain the mortgage by increasing the amount of down payment.  If the borrowers have consumer debt with high monthly payments, preventing them from qualifying, they can use the seller contribution to pay off some or all of those debts.  This allows them to now qualify or significantly reduce their overall monthly payments.  Also, closing costs are virtually non-tax deductible. However, points are still tax deductible.  If paying points, it is very smart to use a seller contribution because while the seller pays the points, they are still tax deductible to the buyer.

A Seller contribution is easy to implement.  There are no negative tax consequences to the seller except for a negligible real estate transfer tax in some areas.  A seller contribution must be fully disclosed.  The amount of seller contribution must not exceed the actual amount of closing costs.  The buyer or real estate agent should check with the lender to make sure that they are within allowable limits, normally 3 to 6 percent of the of purchase price.

 TITLE INSURANCE

Paying too much for Title Insurance is a very common mistake.  All lenders will require Title Insurance each time a mortgage loan is granted.  This is because it insures the title to the property is free from any surprise liens that occurred previously.  So in essence, it covers the timeframe prior to the mortgage closing.  That is why a new one needs to be done even on a refinance.  Generally speaking, law regulates title policy fees so all title companies charge the same amounts. 

There are a few different things you can do to save yourself money on title insurance.  If you are refinancing, you can save over 50% by providing your old title policy and get the “refinance instead of the higher “basic“ rate.  Even on a purchase, you can save 20 to 25% by getting the” re-issue’ rate if you get the old title policy from the seller. 

 RATE SHOPPING

Most people will check the Internet or pick up the newspaper to look up current interest rates.  What you see isn’t always what you get.  Unfortunately, there are many ways to get hurt when shopping for the best rate:

Short Pricing –It is not necessary for lenders to state the “lock-in” duration when advertising a rate, so while a rate may sound good, it may not allow enough time for you to close on your loan.  Most people don’t ask how long the quoted rate is guaranteed for – so make sure you do! 

Low Ball Pricing – Some companies will lure you into a mortgage application with promises of low rate only to have the rate changes for the worse just before closing.  They may tell you your rate has expired, the program is no longer available or even delay the closing to break the lock.  It is not nearly as important to shop rates, as it is to shop for a reputable lender. 

Products – With all the different products and options available, borrowers need a good mortgage professional to help the choose the right one that will best suit their needs and goals.  After all, a mortgage is typically the largest financial transaction people make in their lifetime.  It is far more costly to get the best rate on the wrong product that it is to get a competitive rate on the right program for you.

 POINTS vs. NO POINTS

So you’re in the market for a mortgage.  After hearing about all the options and products, your head is probably spinning.  If that weren’t enough, after you pick your mortgage you then have to decide whether to pay points, and how many.  

What is a point anyway?  Points are prepaid interest.  One point equals one percent of the mortgage amount.  One point on a $200,000 mortgage is $2,000.

 People are often tempted to pay points because it will reduce their interest rate.  And why not?  If it saves you money in the long run, then it must be good.  But in the real world, it usually doesn’t work out that way.

 Let’s look at an example: You take on a $200,000 mortgage with a 30-year fixed-rate.  Your lender offers 8 percent with no points, or 7.75 percent with one point, or 7.50 percent with two points, and so on.

 Generally one point equals a quarter of a percentage point.  It’s not a hard and fast rule, but it usually works out that way.

• The 8-percent/zero point option equates to a monthly mortgage payment of $1,467.
• The 7.75-percent/one point option equates to a $1,433 monthly payment, but with $2,000 paid up front.

So your choice is:  save $2,000 now, or save $34 each month going forward. 

It’s quite natural for you to make a few quick math calculations:  $2,000 divided by $34 equals roughly 59.  So 59 months (nearly five years) from now, the point you paid will pay for itself.

 This is probably how some mortgage bankers will explain it to you.  In turn, you might respond by saying:  I plan to live here more than five years so the point makes sense.  That can be a big mistake.  Worse yet, it’s the kind of mistake that goes unnoticed.  The simple calculation is flawed; that’s the whole problem.  This is one case where simplicity isn’t good.

 Here’s why.  The question really boils down to how can you best use that $2,000.  You can pay a point, you can invest it, you can pay down other debt, or you can put it toward a bigger down payment on your house.  If you plow it into the down payment, now you have a mortgage balance of $198,000.  This changes the original choice you were faced with above.  Now the choice is:

• The 8-percent/zero point option gets a monthly mortgage payment of $1,452 with the lower starting balance.
• The 7.75-percent/one point option equates to a $1,433 monthly payment, but with $2,000 paid up front.

So now your choice is:  put the $2,000 toward the down payment, or pay the point and save $19 each month going forward.  Now when you do the quick math:  you will divide $2,000 by $19 and come up with about 105 months or nearly nine years.  This isn’t quite the no-brainer the previous decision was.

 The average family changes residences about every nine years, according to the National Association of Realtors.  And first-time homebuyers move frequently.  The Mortgage Bankers Association says the typical homeowner refinances once in nine years.  All this brings us to the average life of a mortgage, which is less than five years.  So more often than not, borrowers will find themselves with a new mortgage before one point pays off.

 The case for avoiding points is even more compelling when you refinance a mortgage.  That’s because the tax treatment is less favorable.  The points paid on a first mortgage when you purchase a home are fully deductible on your federal taxes that year.  That’s one of the selling points of points to begin with.  But on a refinance, you must amortize those points over the life of the loan.  This leaves you with slim pickings at best, on the tax benefit side of the equation.  On a refinancing with $3,000 of points paid, you get to deduct just $100 per year on a 30-year loan.

 Lenders love to take your point money.  But you should keep it and put it toward a sure thing, like cutting your loan size.

 PRE PAYMENT PENALTIES

Watch out for pre-payment penalties.  I don't like prepayment penalties under any circumstance and would do my best to avoid them.  If you are getting a great deal on a loan that has a prepayment penalty then try to keep it to a one-year period.  Additionally, make sure it's a "soft" prepayment penalty. That means there is no penalty if you sell your home and you can reduce your principal up to 20% per year.  The only time you pay the penalty with a soft prepayment penalty is if you refinance.  Still, there are so many options out there, why be stuck with a lemon like a pre-pay.

 NEGATIVE AMORTIZATION

Negative amortization is when the loan balance increases rather than decreases. This is a dangerous game and is offered in exchange of a lower payment.  An example might be where the borrower makes a payment based on a low 4% rate but the actual rate being charged is 8%.  The difference between what is being charged and the amount paid is added to the loan balance.  Just like a credit card!  You pay interest on the interest as well (ouch).  You home should not be treated like a credit card.  If the situation persists and home prices level off or even depreciate like they did 10-years ago, you may be unable to sell your home because you owe more than the value.  You may also be unable to refinance the loan because you exceed the maximum loan to value limits.  Avoid this like the plague.

 PROCESSING FEES

 The most damaging of all could be the additional processing fee (this may have a separate or different name).  This is really “points”.  What is worse is the fact that because the lender is hiding it as a fee rather than points, they rob you of the tax deduction.

 Dr. Robby Gordon would like to thank you for taking the time to read this report.  We hope that is has enhanced your understanding of potential pitfalls within the mortgage process.  Dr. Robby Gordon is a company dedicated to providing you with superior service, competitive interest rates, excellent product selections, knowledge, advice and a fair way of doing business.  Please feel free to call us with any questions about your next mortgage. 

 We look forward to hearing from you and helping to fulfill your mortgage needs.  Contact us:

Dr. Robby Gordon

34 Redwood Tree Ln.

Irvine, CA 92612

949-733-0607

949-733-1238 fax

drgordon@cox.net