What's My Rate?

Why is my APR 5% when you said I was getting a 4.625% interest rate on my loan? this is one of the most common questions we get on a mortgage when folks review their Disclosure Forms. I want to shed some light on this situation for you. I came across this post on Activerain the other day and thought it would be helpful for you all. I'm not too proud to shared great work from other lenders around the country so please take a minute and read what George Souto has written on the topic. If you still have questions on the subject please leave a comment and we will open up a discussion here.

And keep in mind, if you are comparing several lenders the greater the difference between the APR and the interest rate, the more expensive your loan is. So don't just go out and pick a lender based on the quoted rate.

ORIGINAL CONTENT BY GEORGE SOUTO NMLS #65149

One of the most frequently asked questions I get from Borrowers when we go over the Truth In Lending Statement is Why Is The Annual Percentage Rate (APR) Higher Than The Interest Rate?  The (APR) is probably the most misunderstood and confusing elements in the loan process. 

The APR is not only confusing and misunderstood by Borrowers, it is also confusing and misunderstood by Loan Originators as well.  If you doubt that, just ask the next Loan Originator you speak to, to explain what the APR is, and what fees go into the APR calculation?  The odds are most Loan Originators are not going to be able to provide a good answer, or will most likely give a very vague one.  So if those who make a living originating loans have a difficult time explaining how the APR is arrived at, how can anyone expect a Borrower to understand it?

Let's first make one thing very clear, the APR is NOT an interest rate.  The interest rate is the rate which makes up the interest portion of a mortgage payment.  As oppose to the APR which is simply a calculation that is expressed as a percentage (%) which is suppose to reflects the Lender Fees in a loan.  The purpose of this figure (APR) is to give a Borrower a quick and easy way to determine which Lender has the higher fees.  So if two Lenders have the same interest rate for the same loan product, the Lender with the higher APR has the higher Lender Fees.

That in a nutshell is all the APR is meant to be.  If those reading this blog remember nothing else, please remember this:

• The APR is NOT an Interest Rate
• The APR IS is a percentage which reflects costs
• The intent of the APR is for Shopping Purposes

It is interesting how the APR percentage is arrived at.  The government takes the base loan amount and subtracts the fees which make up the APR from it.  So if the base loan amount is reduced, but the monthly principle and interest figure remains the same, the result in a higher percentage which reflects the Lender Fees.

The most common Fees that go into the APR are:

• Points
• Processing Fee
• Underwriting Fee
• Closing Fee
• Application Fee
• Appraisal Review Fee
• Lender Inspection Fee
• Wire Transfer Fee
• Flood Certification Fee
• Broker Fee

All these are not charged by all Lender, generally a combination of these fees are what is charged and they vary from Lender to Lender.  But these are among the fees most commonly charged which make up the APR.  The important thing to remember is that any fee which is Lender related is part of the APR.

Fees that are NOT part of the APR are:

• Title Fee
• Attorney Fee
• Recording Fee
• Credit Report Fee
• Appraisal Fee
• Notary Fee
• Home Inspection Fee
• Taxes
• Homeowners Insurance
• Re-Inspection Fees 

I hope the above explanation has made it easier to understand Why The Annual Percentage Rate (APR) Is Higher Than The Interest Rate?

Note:

One more thing, a Lender is required to state the APR every time the Lender quotes an interest verbally or in writing. 

- See more at: http://activerain.com/blogsview/4310538/why-is-the-annual-percentage-rate-apr-higher-than-the-interest-rate-#sthash.5B9eBkXL.dpuf

As always, please make comments below with any questions you may have on this topic or other lending and real estate related topics. Thanks for stopping by.

Attention Realtors---Must Read Post

Attention Texas Real Estate Agents! This post is for you and I would encourage you to become familiar with the changes coming up that will affect your business. You can count on Security National Mortgage to continue to educate you about the changes as they take affect in 2014 and as they are modified in the months to come.

What is the general ATR (Ability To Repay)

standard?

Under the general ATR standard, you must make a reasonable, good-faith determination before 

or when you consummate a covered mortgage loan that the consumer has a reasonable ability to 

repay the loan. 

What are the eight ATR 

underwriting factors I must 

consider and verify under the 

rule?

A reasonable, good-faith ATR evaluation must include eight ATR underwriting factors: 

1. Current or reasonably expected income or assets (other than the value of the property that secures the loan) that the consumer will rely on to repay the loan 

2. Current employment status (if you rely on employment income when assessing the consumer’s ability to repay) 

3. Monthly mortgage payment for this loan. You calculate this using the introductory or fully-indexed rate, whichever is higher, and monthly, fully-amortizing payments that are substantially equal.

4. Monthly payment on any simultaneous loans secured by the same property 

5. Monthly payments for property taxes and insurance that you require the consumer to buy, and certain other costs related to the property such as homeowners association fees or ground rent.

6. Debts, alimony & child support payments. 

7. Monthly debt-to-income ratio or residual income, that you calculated using the total of all of the mortgage and non-mortgage obligations listed above, as a ratio of gross monthly income 

8. Credit history, the rule does not preclude you from considering additional factors, but you must consider at least these eight factors. 

How do I determine ATR?

Our organization is responsible for developing and applying its own underwriting standards and 

making changes to those standards over time in response to empirical information and changing economicand other conditions. Implementation Tip: When determining ATR, you have to verify only the income or assets used to qualify the consumer for the loan. Implementation Tip: When the consumers’ applications list debt that does not show up on their credit reports, you must consider that debt in assessing either the consumers’ 

debt-to-income ratios or residual income, but you do not need to independently verify that debt.  17 

To help your organization incorporate the ATR concepts into its operations, the Bureau has prepared some examples that illustrate how your internal policies can influence your ATR determinations. 

The list below is not a comprehensive list of all the ways your underwriting guidelines might measure ATR. 

Each of you must look at the issue of ATR in the context of the facts and circumstances relevant to your market, your organization, and your individual consumers. Given those caveats, here are some of the types of factors that may show that your ATR determination was reasonable and in good faith: 

 Underwriting standards: You used standards to underwrite the transaction that have 

historically resulted in comparatively low rates of delinquency and default during adverse 

economic conditions. 

 Payment history: The consumer paid on time for a significant time after origination or reset of an adjustable-rate mortgage. Among the types of factors that may show that your ATR determination was not reasonable and in good faith: 

 Underwriting standards: You ignored evidence that your underwriting standards are not effective at determining consumers’ repayment ability. 

 Inconsistency: You applied underwriting standards inconsistently or used underwriting 

standards different from those you used for similar loans without having a reasonable justification. 

 Payment history: The consumer defaults early in the loan, or shortly after the loan resets, 

without having experienced a significant financial challenge or life-altering event. 

The reasonableness and good faith of your determination of ATR depends on the facts and 

circumstances relevant to the particular loan. For example, a particular ATR determination may 

be reasonable and in good faith even though the consumer defaulted shortly after consummation 

if, for example, the consumer experienced a sudden and unexpected loss of income. 

If the records you review indicate there will be a change in the consumers’ repayment ability after 

consummation (for example, they plan to retire and not obtain new employment, or they plan to 

transition from full-time to part-time work) you must consider that information. 

Ok that is enough for today! I will be posting pieces of the rule between now and the end of the year. I don't expect you to remember all of this so you can refer to http://files.consumerfinance.gov/f/201310_cfpb_atr-qm-small-entity_compliance-guide.pdf for the complete rule. As ammendments come out I will try to stay on top of those here as well. 

You can expect some lenders to get even more picky and careful about accepting income verification and making exceptions on Debt Ratios. It will be wise to prepare your clients to document everything, especially if they are self employed.

NMLS #3116

Good Agent; Bad Agent and how to tell the difference

Choosing the right agent can make all the difference according Jorge Alvarez of Camacho Real Estate in El Paso, TX.

Jorge has been my agent and an agent for many of my friends. He is a friend, referral partner and all around great guy. I hope you enjoy the conversation I had with Jorge that inspired today's topic. Check out our interaction and feel free to wiegh in with differing opinions or other feedback from your own experiences.

Brian: What is the most important attribute of a great real estate agent?

Jorge: "You should really be focusing on one question as you intereact with your agent.  Does my agent have my best interest in mind? If the answer is clearly yes, then you are on the right track. If you are not sure, take your time deciding if you want them to exlusively represent you in your property purchase."

Brian: How can we tell if our agent is acting in our best interest?

Jorge: "Agents who continually try to show houses that don't fit the profile you have discussed or homes that are only at the top of your price range may be focused more on the commission rather than getting you the right house. Some agents will push only new homes because there can be large bonuses for selling these. When negotiating for repairs or writing initial offers, the agent should provide clear direction and professional opinion but in the end, they are working for you and should be willing to write the offer according to your wishes. Some agents will quickly settle to seller demands to save a deal and I don't think this is the best representation of the buyer."

Brian: What are some obvious signs to help me know if I have chosen the wrong agent?

Jorge: "if an agent starts the relationship with a conversation like this; you may need to find a new agent. Here is my business card, when you find the house you like just give me a call so I can show it to you. Please sign this buyers agreement so I am protected if another agent trys to sell you a house. 

A buyer can certainly keep their eyes and ears open for a house that meets their needs but the majority of the searching and leg work should be done by the agent. That's a big reason why you hire us. Don't settle for an unmotived agent who is simply trying to make easy money for writing your offer. 

One other thing that bothers me is when agents ask clients to pay them up front for services. Don't pay your agent to show you houses, we get paid well when you close on the house. The best way for us to get a deal closed and get paid is by doing our job very well."

Brian: Jorge, this is really good information and I think it can save people a lot of hassle if they follow your advice. Can you give us some tips on how to find a great agent like yourself? 

Jorge: "I always think that personal referrals are the best way to get connected to a great agent. Many of my clients come that way. The next best way is through online reviews if you don't have any personal references to rely on. You can look at real estate sites that have reviews and get a feel for who is strong in the area you are looking."

Brian:  Jorge, I really appreciate your take on this subject and the great advice. I am sure that folks will find useful tips here. To wrap this up, give us your top 5 traits to look for in a great agent.

Jorge: "They should ask good questions and pay close attention to the houses you like so they can refine your search for you. They should be accessible within a timely manner. They should do whatever it takes to get you into the house you are interested in even if it means jumping a fence and getting dog bitten (I've done this in case your wondering). They should guide you to qualified service providers such as a great lender and whatever else you need through out the process. Most importantly, focus on providing great service more than pre-screening you to see if you are worth their time.

Brian: Jorge, this has been very enlightening and it's always a pleasure doing business with you, I am linking you on this post and sharing some of your reviews for readers to check out. Thank you for your time and your referrals.

To learn more about Jorge's online reputation you can visit his profile on Zillow and see what some of his clients have to say. http://www.zillow.com/profile/Top-Rated-realtor/

SNMC El Paso
11601 Pellicano Dr. Suite A-14
El Paso, TX 79936
NMLS#3116

This post is not meant to be legal advice or meant to steer you toward using Camacho Real Estate or Jorge Alvarez. It is meant to be informational but you should always do your own due diligence before choosing an agent to represent you or signing any contracts for representation. The opinons written here do not represent Security National Mortgage Company  nor has Security National Mortgage Company made any specific recommmendation of any agent. These opinions are those of Brian Clayville, Account Executive and Jorge Alvarez, Texas Realtor and are merely opinions.