Pre-Approved Lender Question

[Chairman]

Hi all,

Need some urgent help. I am being offered a 1500 credit to commit to the pre-approved lender, On-Q Financial. I don't close until early 2014 but it seems like they want to lock me in early.

Does it make sense to agree to use them this early on? Part of me thinks I should not agree to use them as my lender. I should take time to shop around. They are charging about 1208 for lender costs. Escrow, title, and 3rd party costs are around 5238.

What are your thoughts? Do any of you have first hand knowledge of On-Q's history in the business? What is their reputation? They seemed decent to me based on my initial meeting but it could be them trying to sell me. Also, I didn't understand the other credit they were willing to offer. They talked about splitting a % of my loan into 1/3 profit for them and 2/3 credit back to me. Typical credits other buyers were getting were around a total of 4500(this includes the initial 1500).

Please help me decide the best way to proceed. Many thanks.

 

[Goriot]

Hi all,

Need some urgent help. I am being offered a 1500 credit to commit to the pre-approved lender, On-Q Financial. I don't close until early 2014 but it seems like they want to lock me in early.

Does it make sense to agree to use them this early on? Part of me thinks I should not agree to use them as my lender. I should take time to shop around. They are charging about 1208 for lender costs. Escrow, title, and 3rd party costs are around 5238.

What are your thoughts? Do any of you have first hand knowledge of On-Q's history in the business? What is their reputation? They seemed decent to me based on my initial meeting but it could be them trying to sell me. Also, I didn't understand the other credit they were willing to offer. They talked about splitting a % of my loan into 1/3 profit for them and 2/3 credit back to me. Typical credits other buyers were getting were around a total of 4500(this includes the initial 1500).

Please help me decide the best way to proceed. Many thanks.

I did a 45-day rate lock with Bill at On Q Financial.  On Q Financial has direct contract with Irvine Pacific so the builder prefers that you work with them directly because they close most of the loans for IP. They also cover the costs if the closing date gets pushed out (not sure if other lender offers this).  I believe there is a $380/day penalty.  Are they trying to lock you in on 60 day lock or 90 day lock?  Closer you get to the closing date before you lock (i.e. 45 or 30 day lock), the CHEAPER/BETTER the rate is.  1/8 every 15 days.

Depends on your tolerance for rate volatility and how you think the rate will trend from here.  Maybe, they are anticipating upward trend in rates in early 2014 so they might want to advise you on locking in the rate.  Although you lock, you can still lock with other lender before 30 days if you find better.  However, I don't think you can float the rate down unless that is in the terms of the lock.  However, float down loan cost a little more.  I hate uncertainty so I preferred to lock 45 days and the rates are relatively attractive at the moment. 

Also, your option to choose other lender diminishes as you get closer to closing.  I think there is a timeline set by IP to select a lender by.  I think 45-60 days out, but you can extend that if you choose to work with other lenders.

You should definitely shop around and use that as a leverage to negotiate the best term with them.  Go look at bankrate.com or zillow to see what you like.  You can also get a quote from other lender and throw at 'em to negotiate a better term.

 

[Chairman]

We are at about the 90 day period. They want me to sign this document and commit to using them and then they give me this 1500 credit.

I haven't looked at other lenders yet. The rate they were quoting was 4.125%

I think rates should come down some by year end. On-Q also thinks rates should come down.

It seems super early to commit to use them. If I commit to using them does that preclude me from using anyone else if I decide to as I get closer?

 

[ps99472]

Getting the house is top priority, you can always refi later, pick a lender you can trust (SGIP) or whoever the builder is working with.  Just make sure there is no prepayment penalty and season the loan a bit, 2-3 months should do.  Sometimes when you refi and end up with the same bank, they might balk (i.e chase loan refi into chase loan).  But a couple of months at a higher rate shouldn't matter in the long run. 

 

[Chairman]

Getting the house is top priority, you can always refi later, pick a lender you can trust (SGIP) or whoever the builder is working with.  Just make sure there is no prepayment penalty and season the loan a bit, 2-3 months should do.  Sometimes when you refi and end up with the same bank, they might balk (i.e chase loan refi into chase loan).  But a couple of months at a higher rate shouldn't matter in the long run.

SGIP stands for (is that a lender)? When you say season the loan do you mean pay extra on top of the first payment (assuming no prepayment penalty)? What is the reasoning behind doing that? Would I just not include it in my down payment? Thanks.

 

[ps99472]

Getting the house is top priority, you can always refi later, pick a lender you can trust (SGIP) or whoever the builder is working with.  Just make sure there is no prepayment penalty and season the loan a bit, 2-3 months should do.  Sometimes when you refi and end up with the same bank, they might balk (i.e chase loan refi into chase loan).  But a couple of months at a higher rate shouldn't matter in the long run.

SGIP stands for (is that a lender)? When you say season the loan do you mean pay extra on top of the first payment (assuming no prepayment penalty)? What is the reasoning behind doing that? Would I just not include it in my down payment? Thanks.

http://www.talkirvine.com/index.php?action=profile;u=42

SGIP is a TI member, he is a lender and has helped many members with home loans (including myself).  Someone you want in your corner when the uglies hit the fan during escrow closing. 

Seasoning means to pay your mortgage for a few months before you refi.  Lenders don't like people jumping ship too soon (especially if its the same lender holding the note), so pay your mortgage for a few months, then test the waters with a refi (zillow).  Worst thing that can happen is they say no, but you still have your house.  Just wait a few more months then refi. 

 

[irvinehomeowner]

@Chairman:

I second ps9's recommendation of Soylent Green is People. He will give you an honest assessment of your situation and do his best to get you a good rate and more importantly, a smooth closing.

 

[Goriot]

If you feel uncomfortable locking in so early, just tell them you feel uncomfortable at the moment and feel that rate will trend down from here.  You can touch base with them later 30-60 days before closing or have them contact you then.  Meanwhile, you can shop around and see how the rates move until when the builder specifies you to select a lender and lock on a rate.  Irvine Pacific deadline to lock is 30 days.

 

[Chairman]

If you feel uncomfortable locking in so early, just tell them you feel uncomfortable at the moment and feel that rate will trend down from here.  You can touch base with them later 30-60 days before closing or have them contact you then.  Meanwhile, you can shop around and see how the rates move until when the builder specifies you to select a lender and lock on a rate.  Irvine Pacific deadline to lock is 30 days.

The weird thing here is I am not locking in anything yet. They want me to commit to using them as my lender and they give me a 1500 credit. What I am unsure of is if this is something I want to take or is it going to prevent me from going with anyone else because I have committed to them. It would seem worth it to them to have me use them as my lender and give me 1500 credit. Once I commit to them does that give them zero incentive to be competitive with my rate?

 

[Goriot]

If you feel uncomfortable locking in so early, just tell them you feel uncomfortable at the moment and feel that rate will trend down from here.  You can touch base with them later 30-60 days before closing or have them contact you then.  Meanwhile, you can shop around and see how the rates move until when the builder specifies you to select a lender and lock on a rate.  Irvine Pacific deadline to lock is 30 days.

The weird thing here is I am not locking in anything yet. They want me to commit to using them as my lender and they give me a 1500 credit. What I am unsure of is if this is something I want to take or is it going to prevent me from going with anyone else because I have committed to them. It would seem worth it to them to have me use them as my lender and give me 1500 credit. Once I commit to them does that give them zero incentive to be competitive with my rate?

Hmm.. I am not familiar with those terms of commitment.  I wouldn't want to commit this early unless they offer me a really GOOD incentive to do so.  You should verify with them to see if you have the option to select the other lenders later.  I guess other IP buyers here might have experience with this contractual commitment.

 

[ps99472]

If you feel uncomfortable locking in so early, just tell them you feel uncomfortable at the moment and feel that rate will trend down from here.  You can touch base with them later 30-60 days before closing or have them contact you then.  Meanwhile, you can shop around and see how the rates move until when the builder specifies you to select a lender and lock on a rate.  Irvine Pacific deadline to lock is 30 days.

The weird thing here is I am not locking in anything yet. They want me to commit to using them as my lender and they give me a 1500 credit. What I am unsure of is if this is something I want to take or is it going to prevent me from going with anyone else because I have committed to them. It would seem worth it to them to have me use them as my lender and give me 1500 credit. Once I commit to them does that give them zero incentive to be competitive with my rate?

How can they prevent you from shopping around?  If you do, you'll lose the credit?  You lock the rate with a lender, but you're never locked in to use the lender.

Again, just make sure there's no prepayment penalty.  That's the only way I can see a lender "locking" you in.  Pick the best lender to close escrow, get the house and move on.  So what if you don't get the best rate, it's only a few hundred dollars for a few months, then refi.

 

[FranchisePlr]

Unless we know the terms of your loan, it would be hard to tell if you are getting a good loan or not.  Usually, in house lenders are not the best in pricing.  Reason I know that is because a lot of my friends work for Wells Fargo in Newport Beach (they did most of Laguna Altura) and another one for Stearns Financial which does a lot of Stonegate and Portola Springs properties.

90 days out is too far and you should start looking closer when it is 45 days out.  Rates aren't moving too much and have come down from the rise of 2 months ago.

Stay put.  Tell us your rate and discount points when you are ready.  If you loan is jumbo (over $625,500), you should get even better rates than conforming loan rates now as most lending institutions put good restrictions on these loans but if you qualify, you usually get .25% to .5% better in rate compared to conforming loan amounts (60k to 625,499).

Credits don't do you any good if someone beats your rate outright with a competitive lender and fees.  Citibank, Chase are good right now with 2.5% 5 year ARMs or 4% 30 year fixed rates on jumbo.  Just make sure you are not going with a broker you DON'T KNOW.  Go with a reputable lender and ask their turn times.

If you are buying in Cypress Village, Mr. Chairman, I assume you will fall into the 417 to 625k range unless you are putting down over $400,000.

My 2 cents.

 

[Goriot]

If you feel uncomfortable locking in so early, just tell them you feel uncomfortable at the moment and feel that rate will trend down from here.  You can touch base with them later 30-60 days before closing or have them contact you then.  Meanwhile, you can shop around and see how the rates move until when the builder specifies you to select a lender and lock on a rate.  Irvine Pacific deadline to lock is 30 days.

The weird thing here is I am not locking in anything yet. They want me to commit to using them as my lender and they give me a 1500 credit. What I am unsure of is if this is something I want to take or is it going to prevent me from going with anyone else because I have committed to them. It would seem worth it to them to have me use them as my lender and give me 1500 credit. Once I commit to them does that give them zero incentive to be competitive with my rate?

How can they prevent you from shopping around?  If you do, you'll lose the credit?  You lock the rate with a lender, but you're never locked in to use the lender.

Again, just make sure there's no prepayment penalty.  That's the only way I can see a lender "locking" you in.  Pick the best lender to close escrow, get the house and move on.  So what if you don't get the best rate, it's only a few hundred dollars for a few months, then refi.

I have not seen any Pre-payment penalty for residential mortgage loans.  Do they even exist?
On the Refi, I am not sure how much lower the rate can adjust downwards significantly from here unless Yellen continues to push QE well into '14/'15 or U.S. economy tanks and QE needs to continue.  If taper happens next year, the rate has a chance of shooting higher.  But, for the short-term, it might go down more until year-end as their is budget issue hanging.  Have to watch the employment numbers.  200k+ few more months and its taper time.

Also, I generally refi with no cost no lender fee refi and the interest rate spread makes sense to refi the rate.  If you plan to move early, no point of refi.  You gotta find your break-even point and see how much you benefit from there.

 

[Chairman]

See image of what the New Contract Financial Review form looks like. It talks about selecting them as my lender but then says they will guarantee a competitive interest rate.

My sales guy did mention that jumbo loan rates are actually lower than conforming. That seems a bit odd but I guess there is more demand for jumbo loans to package into MBS than conforming? If that is the case, shouldn't I get a loan that is 625,001 (or just the right amount to make it a jumbo loan). Now that my loan falls into a jumbo category I can secure the lower jumbo rate and then just pay down my principal the following month to lower my total interest payment (assuming there is no prepayment penalty).

Does this sound like the right strategy? Appreciate everyone's input.

 

[Chairman]

If you feel uncomfortable locking in so early, just tell them you feel uncomfortable at the moment and feel that rate will trend down from here.  You can touch base with them later 30-60 days before closing or have them contact you then.  Meanwhile, you can shop around and see how the rates move until when the builder specifies you to select a lender and lock on a rate.  Irvine Pacific deadline to lock is 30 days.

The weird thing here is I am not locking in anything yet. They want me to commit to using them as my lender and they give me a 1500 credit. What I am unsure of is if this is something I want to take or is it going to prevent me from going with anyone else because I have committed to them. It would seem worth it to them to have me use them as my lender and give me 1500 credit. Once I commit to them does that give them zero incentive to be competitive with my rate?

How can they prevent you from shopping around?  If you do, you'll lose the credit?  You lock the rate with a lender, but you're never locked in to use the lender.

Again, just make sure there's no prepayment penalty.  That's the only way I can see a lender "locking" you in.  Pick the best lender to close escrow, get the house and move on.  So what if you don't get the best rate, it's only a few hundred dollars for a few months, then refi.

I have not seen any Pre-payment penalty for residential mortgage loans.  Do they even exist?
On the Refi, I am not sure how much lower the rate can adjust downwards significantly from here unless Yellen continues to push QE well into '14/'15 or U.S. economy tanks and QE needs to continue.  If taper happens next year, the rate has a chance of shooting higher.  But, for the short-term, it might go down more until year-end as their is budget issue hanging.  Have to watch the employment numbers.  200k+ few more months and its taper time.

Also, I generally refi with no cost no lender fee refi and the interest rate spread makes sense to refi the rate.  If you plan to move early, no point of refi.  You gotta find your break-even point and see how much you benefit from there.

The last jobs report basically showed an uptick in jobs but it was due to the government furloughing workers and then hiring them back. Basically it was a wash but it was shown as an increase in jobs.

When the next jobs report comes out it is likely to be a more accurate picture of the grim reality that is our economy and show a low hiring number meaning the economy is still not doing well, thus less of a chance for Bernanke to taper QE, equity markets will rally, bonds will rally and yields will go down (I hope it is risk on). The Fed and government will want to end the year on a high note so they most likely will not taper or cut spending so we can have a decent 4th quarter gdp. They will push it into 2014 under Yellen's watch.

I should then look to lock in January sometime.

 

[FranchisePlr]

Purchase loans are priority and usually close on time.  The only advantage is that they pay for extensions should your purchase be delayed but I highly doubt IP delays in this market.  Other than that, that purchase agreement looks the same with every other lender.

No need to refinance the loan again, get a good rate now and never look back.  Don't pay points and ask for zero discount point loan vs a no cost loan (pays for 3rd party and lender fees).  Then, do math on recoup cost. 

Easy.

 

[Ready2Downsize]

If you prepay part of your loan it won't reduce your minimum monthly payment. (it will reduce the time you owe on the loan though).

 

[FranchisePlr]

Won't reduce payment, but every dollar you pay above monthly payment goes toward the home and paying yourself back .

Only loan that does that is a First position HELOC.  Lovely loan the past 6 years that went off prime and if you got Prime minus .5 or 1, you would be sitting pretty.

That product is still out there as a Private product loan.

 

[Chairman]

Oh interesting, my monthly mortgage interest rate payment doesn't change? I thought the interest rate was based off of your principal. If your principal is reduced shouldn't the mortgage interest rate monthly payment be lowered? Good to know, guys!

 

[FranchisePlr]

Overall paid interest "does" change if you pay down principal because you will be in the loan less time. 

Here is a layman's example, if you had a 4%, 30 year fixed rate but paid $200 more (using fake numbers) every month, your effective rate if you had the loan for 27 years would have been lower (3.82%) over the 27 years vs 30 years at 4%.