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Mortgage Closing Scams

Wednesday, April 8, 2020
by The Mike Parker Team

The American bank robber, Willie Sutton, was asked why he robbed banks and his answer was "because that is where the money is."  During his 40-year career, he stole about $2 million but Internet scammers are stealing many times that amount in phishing schemes preying on unsuspecting home buyers.

These crooks know where the money is because buyers have the down payment and closing costs and are expecting to transfer it to the close the sale of their home.  The FBI, in their 2018 Internet Crime Report, stated victims lost over $149 million and the CFPB estimates the losses at over $1 billion as a result of fraud in real estate transactions.    The scammers want to take advantage of the situation while it is still in the buyer's account.

Commonly, during the closing process, scammers will send spoofed emails to homebuyers from someone they expect to hear from regarding the transaction like the real estate agent or the settlement agent.  They will include false instructions for the closing funds.

Following these suggestions can help to protect you and possibly, avoid scams:

  • Call before you click to verify the wiring instructions to transfer funds.  DO NOT use the phone number or email in the email request.  Use a trusted source, preferably, in person, of contact information.
  • Confirm everything independently with your real estate agent and closing officer.   Confirm the actual instructions with the bank before transferring money.
  • Verify immediately, within four to eight hours, with the title company and real estate agent that the money was received.  If it has not been received, notify the bank immediately to determine if it can be cancelled.

If you believe you have been the victim of a phishing scheme, call your bank immediately and ask them to issue a recall notice on the money transfer.  File a complaint with the FBI at www.IC3.gov and report it to your local FBI office.

The Consumer Financial Protection Bureau has released two documents in an effort to inform consumers about wire fraud scams that commonly occur during closings: Mortgage Closing Checklist and Mortgage Closing Scams.

This is for information purposes only and should not be considered legal advice.

 

Shopping for a Mortgage

Tuesday, March 10, 2020
by The Mike Parker Team

A lower rate will not only result in a lower payment, it will amortize the loan quicker.  A $250,000 mortgage at 4.5% for 30 years will have a $1,266.71 principal and interest payment.  At 4%, the same loan will have $1,193.54 payment saving $73.18 a month and the unpaid balance would be $1,776 lower at the end of five years.

Mortgage lenders tend to price their mortgages based on the credit score of the borrower.  The higher the credit score, the lower the mortgage rate.  There is an inverse relationship that the lower the credit score, the higher risk and therefore, a higher rate is needed to balance the risk.

In order to get a valid rate that will be available to you with your credit score, you need to be pre-approved. The process of making a loan application before you find a home, allows the lender to verify your credit, income, and ability to repay the loan.  Lenders usually only charge the cost of the credit report for this type of service.  Be aware that pre-approval is not the same thing as pre-qualification which is simply a loan officer's opinion.

When you shop for a mortgage with multiple lenders, the credit bureaus count them as a single credit inquiry if they are done within a two-week period. On the other hand, restrain yourself from applying for other credit such as cars, furniture or credit cards until after you have closed on the purchase of your home because those inquiries can negatively affect your credit score.

The Consumer Financial Protection Bureau recommends that you let lenders know that you are shopping the mortgage for the best rate and fees.

Instead of going to the Internet and Googling mortgage lenders, start with recommendations for a lender from your real estate professional.  They see the good, the bad and the ugly and can save you a lot of time.  Another reliable source would be from a friend who has recently purchased a home.

There are lenders who bait unsuspecting borrowers with lower rates and fees into making an application and after critical time has lapsed, try to switch them to a different program.  By that point, many buyers feel they don't have any choice but to accept what is offered.

Another confusing factor is the way that loans are priced to the public.  They are usually quoted at a rate with a certain amount of points.  A point is one percent of the amount borrowed.  An example would be a quote for a loan at 4.5% with 1 point or at 4% with 2.5 points.

The points combined with the rate affect the yield the lender will earn, and you will pay.  A simple way to make this an apple to apple comparison is to have the lender quote the loan as a "par-value" loan with no points involved.  Then, the lowest rate will produce the lowest cost to you.

Another way to compare loans will be to uses a financial app called Will Points Make a Difference.  You can plug in the rate and points to calculate the lowest yield over a projected holding period or the full term.

The lenders do not want to make it easy for you to compare.  Mortgage money is a commodity and shopping will be worth the effort. 

 

Before You Pay Cash for a Home

Monday, March 6, 2017
by The Mike Parker Team

The National Association of REALTORS® reports in its 2016 Profile of Home Buyers and Sellers that 12% of all buyers paid cash for their home.50441319-250.jpg

Before paying cash for a home, a buyer should decide if they might put a loan on the home in the near future.  It may affect the ability to deduct the interest on a mortgage placed on the home at a later date.

Homeowners can currently deduct the interest on up to $1 million of acquisition debt which are the borrowed funds used to buy, build or improve a home. Paying cash for a home establishes acquisition debt at zero. The only deductible interest to the owner would be home equity debt which is limited to $100,000 over acquisition debt.

Paying cash certainly seems like a simple decision but it may limit a homeowner’s ability to deduct interest on a future mortgage. You can get more information about this from IRS Publication 936 or from your tax professional.

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Mike Parker - CRS
HUFF Realty
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Florence KY 41042
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