You can afford the payment, but you don’t want to completely drain your savings account to purchase this house.
Or worse, this is already going to drain your savings account and if the costs come in any higher, the deal might be dead.
So how accurate are those numbers anyway?
It’s called marketing – games ‘other’ lenders play.
Would it surprise you to know many lenders play games with their numbers? They show clients what they want, low costs.
Here’s some of the BS you might see/hear:
Zero Days of Interest
"We plan to close your loan on the very last day of the month." Sure, why not. "What??? Your contract/life/seller want to close some other day. (Shocking.) Well, that’s your choice… but the costs will go up."
Low 3rd Party Fees
"Wow, those people you ‘chose’ for your closing services had fees that came in much higher than we’re used to. Sure, we estimated $250 for your VA appraisal and those are fixed at $600 for you area (and have been for years), but how were we to know?"
2 Months of Property Taxes for Your Impound Account
"You’ll need an impound account to pay your taxes and insurance going forward. That account needs anywhere from 2 months to 11 months of taxes in it at closing (depending on when taxes are due). Sure, 2 months only happens if you close in February, and it’s clearly not February, but that’s what our system – um- ugg- gulp - defaults to." Smile.
"You mean to tell me your HOA company wants a full month upfront and a prorated portion for the current month? Wow, that’s incredibly normal. Sure, you told us about the HOA fee and we included it in your payment, but this… this is going to be an extra cost we hadn’t planned for."
"The property has Mello-Roos taxes? Yes-Yes, you told us about that too. Hey, we did include it into your payment. After all, we want to make sure you can afford it." Smile. "But it turns out we’re going to need 11 months’ worth of taxes in that impound account. 11 times is a way bigger number. Sorry, but that is going to really move the bottom line."
Didn’t the Consumer Financial Protection Bureau fix all this bait and switch stuff?
Yes...and no. Lenders can’t change the fees they control, but all of the above are elements they don’t control and are achievable if all the moons perfectly align. So it’s not totally illegal.
Bad business? That depends.
What’s worse? A client that doesn’t use you because your fees appear a little higher (and you make $0 as a lender). Or a client that does use you, and needs more money to close than planned, but never refers their friends because they feel hoodwinked (and you make $$$ as a lender)?
How we do our fees...
We work to make our estimates as laser accurate as possible. Yes, we’re anal retentive about this.
If anything, we over-inflate items. That way, changes are delightful, not devastating. Smaller means you like us and refer your friends, family, and neighbors. Bigger means you won’t…
To make our quotes hyper-accurate, we use details. For each offer, we need:
- Purchase Price
- Down Payment
- Property Type – Single Family, Condo, Manufactured Home, Multi-Unit
- Town & County the property is in
- HOA Fees
- Any unusual situations impacting insurance (fire area, for example)
- Any extra property taxes (called Mello-Roos in CA)
- Time to close (30 days from now, on the 9th, etc.)
- Any Seller or Agent Credit you might be getting
Will/Can our numbers change?
Unfortunately, yes. The biggest mover is the market (Wall Street). It can (and does) move every day. Sometimes that’s up, and the ‘points’ on your loan get more expensive. Sometimes that’s down, and the ‘points’ on your loan get cheaper.
Those movements are normally small, roughly 0.1% of your loan. That means on a $400k loan, it’s very normal to see your costs move up/down $400 on a daily basis. Yep, that’s normal.
Sometimes (rare) those movements can be big. If the market moves to the better on a big day, awesome.
It’s the big bad movements that will blow your house down. We call those Bloody Market Days, since the charts we watch have giant red blocks on them. On a bad day, the market can move the cost 1.0% of your loan (or more). Yes, your numbers on Tuesday could be $4,000 more than your numbers on Monday for that $400k loan (for the same interest rate).
Compared to the market, the other items that can change are small. Those include:
3rd party providers (Escrow, Title): These are often chosen by the seller. If they choose the most expensive one in history (and you pay 50% of that fee), then our estimate will be off.
Prorated Taxes: if you purchase from someone that has an unusually low/high property tax compared to what you’ll be paying, it’ll skew the numbers. We won’t know that until after you’re in contract.
Closing Date: If you are supposed to close on the 28th of the month, we'll plan for those 3 remaining days of interest. But if the closing is delayed until the 12th of the next month, then the daily interest will now be for 18 days, which is obviously more.
- Insurance: We make a good guess at what property insurance you get, but if you choose the platinum plated policy, a $0 deductible, earthquake, and the life proof case, then it’ll probably be higher than our estimate.
Why do we tell you all this?
So you know what you’re getting.
This is one of the biggest decisions of your life and while we can’t guarantee perfect numbers, we want to ensure that you have the most accurate information possible to make an informed decision.
Did this answer your question? If yes, please share! If not, call us and a human will help you. 619.422.5900
Information accurate as of publication date; the views, articles, postings and other information listed in this section are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation. The material in this section is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.Tue, 2016-02-02 07:18