Wednesday, November 11, 2009

No Closing Cost Mortgages from Provident Funding

Folks, while Provident Funding does not offer a no closing cost mortgage per se, they present you a rate sheet of the rates and allow you to pick, in effect, the amount of closing costs you want to pay, regardless if it’s $0, or the whole kit and caboodle.

A little about Provident Funding, they are a lending institution out of Burlingame, California; and are also know as Provident Funding L.P. They loan in what appears to be the contiguous 48 states which excludes Alaska and Hawaii. They loan direct to you and me, the consumer, but they also loan through mortgage brokers as well through their mortgage wholesale section. While I am no mortgage ‘insider’, they claim on their website that they are the 10th largest wholesale lender in the US and service over $25 billion in loans.

You can go to their website and see what kind of mortgage interest rate you qualify for by running your numbers through their ‘Advanced Calculator’ option on their website to see what kind of rates you may qualify for. You will get a wide range of rates with the rates on the top being the lowest rates you can get by paying closing costs or buying points. As I write this, the lowest rate for my state is 4.25%, but that will cost you regular closing costs AND 3.125% in points. You could go all the way up to 5.5% for your mortgage rate and get a no closing cost mortgage, which is labeled as ‘No NRCC.’

What does ‘No NRCC’ mean? Well, it means that for that interest rate, there are ‘No Non-Recurring Closing Costs’ associated with that interest rate. Or, what I like to refer as a no closing cost mortgage. Now, if you are paying real estate taxes or insurance, that is not considered NRCC because you will always those costs year in and year out.

Funding fees however, title fees, mailing costs, lawyer fees, whatever however, that you only pay in the course of getting your mortgage is covered under the ‘No NRCC’ option which is what this website is about. We want no closing cost mortgages because they allow the most flexibility to us as the consumer.

I’ll restate it like I have in the past, BUT, if you are moving into your forever house, then you may look into paying closing cost and even potentially purchasing points to get that lower interest rate, but if you are like most Americans, you won’t be living in your forever house and will move in short order, so it would be best to get a no closing cost mortgage if it is less than three years as I pointed out in a previous post with the analysis.

If you decide to go with the ‘No NRCC’ option however, you do also have the option of taking a bit lower rate for just a tad bit in closing costs. For instance, looking at my situation, if I wanted to pay no closing costs, I would be looking at a interest rate of 5.5%. If however, I paid $145.40 in closing costs, I could get the one lower interest rate of 5.375%. Heck, looks to me like I could potentially get 5.25% for only $290.81. Sounds like I need to give Provident a call and look at refinancing my mortgage again from when I refinanced with Wells Fargo back in April. While I will admit that will re-amortize my mortgage, it will save me about $22 a month, or $264 a year. Not a large sum of money I will admit, BUT, that is money in my pocket today which is what I am after, cash flow today. If however, you want to pay off your mortgage as quickly as possible, then you may want to pay it off quicker, or with larger payments. BUT, you could refinance, apply the payment savings to your mortgage, AND add in the payments you were making.

Let me illustrate, and I’m using round numbers again because that’s how I operate, my brain is simple although randomly it will do semi-complex numbers, but we’re keeping it easy today.

If my mortgage is $1,000 a month right now. If I refinanced, I could potentially save $150 a month at a lower interest rate, but make payments for 30 years from the day my mortgage closed again. Well, I could keep making payments of $1,000 and pay my mortgage off that much quicker, less than 30 years because I’m making more than the required payment. And you’ll pay less in interest over the life of your mortgage.

Provident Funding charges a $1,099 funding/commitment fee to do a loan for you. This fee is flat and does not adjust like it would if they charged a 1% fee like many mortgage brokers do. If we divided the $1099 fee by 1%, we get $109,900. If your mortgage is $109,900 or less, the fee would be the equivalent of paying a 1% funding fee. If however, your mortgage is larger than $109,900, that is when you start saving money over going with a traditional mortgage broker that charges a 1% funding fee. If your mortgage amount is $200,000, Provident Funding Mortgage will still only charge you $1,099. If you go with a mortgage broker however that charges you 1%, then you’ll pay $2,000. You can see that you’ll pay $901 more to a broker over directly going with Provident Funding.

Why am I talking about Provident Funding though and what do I know about them? Before I refinanced my mortgage with Wells Fargo, I had refinanced prior to that with Provident Funding with a conventional 30 year mortgage. It has been some time, so the statements I am about to make are from my memory which may or may not be accurate.

They were easy to deal with and my mortgage refinance went relatively painlessly except for the issue in which I asked to close with one group and they tried to close with a notary. While I would probably go that route NOW, I didn’t then and my mortgage closing had to be rescheduled until the people I wanted to close with could get the documents and close.

Otherwise, the application process, lock process, everything was pretty painless. My processor was responsive and was pleasant to deal with. I unfortunately don’t know if she still works for Provident Funding, but she was all right to deal with. Another thing that I enjoyed about Provident is the fact that in the five years they held my mortgage, then NEVER sold my mortgage. I always made my payments to them the loan was never sold.

Because of this reason however, Provident may be a little bit more conservative in their lending criteria, so unless you have awesome credit and a stable income, they may or may not be the lender to go to.

If I remember correctly, from application to closing took me about two months which isn’t out of the ordinary, I believe it’s about average as far as mortgage refinancing goes.

While visiting their website, they are associated with a bank now out of Colorado and are offering a high yield savings account currently running 1.7%. For a savings account with no minimums, that is a respectable rate. Even Ally bank where you see those funny commercials on TV about the restrictions and no fees, is running a lower interest rate than Colorado Federal Savings Bank.

Enough about Provident, post your experiences with them if you have them or are looking at using them. I’d be interested to hear what you have to say about them and see if they are still right for me to refinance with. I will of course be calling them to inquire further on the rates.

Speaking of rates though, they have gone down a bit recently and if you have a no closing cost mortgage, you may be looking to refinance again to lower your mortgage amount.

Wednesday, November 4, 2009

Teachers Federal Credit Union No Closing Cost Mortgage

Teachers Federal Credit Union, or TFCU, offers a no closing cost mortgage option. Because Teachers Federal Credit Union is a Credit Union, you have be in their field of membership. TFCU is based in New York state, so you will more than likely have to reside near them or have family that qualify for TFCU which would then also make you eligible to join their Credit Union. The list of eligible groups of individuals are large by the groups that are associated with them and the list of designated areas within Suffolk County New York that qualify. While TFCU offers many of your standard mortgage types, we are going to discuss specifically the no closing cost mortgage option that they offer.

Onto their no closing cost option mortgage. They require a rate add on of 0.50% for loan to value of 80.01% to 95%. For loan values up to 80%, they only require a rate add on of 0.25%. This rate add on is what is used to cover the costs they would incur to give you the requested mortgage. You could always just pay the closing costs on your own and take the lower rate, but you would have to figure if that is worth it too you; their estimate is that you are looking at approximately 3% of the mortgage amount for your closing costs. From what I can tell, the no closing cost option is available for purchase and refinance mortgages which is great because purchase mortgages are difficult to accomplish with no closing costs.

Note: They do state that for refinances, there could be additional rate adjustments depending on your credit score and the loan to value of the loan.

If we just use nice round numbers at 30 years, at today’s rates of 5%, you are looking at the following:

Amount 3% of Closing Costs

Regular Payment

No Closing Cost Payment at <80% Difference Months to recover closing costs
$100,000 $3,000 $536.82 $552.20 $15.38 195
$200,000 $6,000 $1,073.64 $1,104.41 $30.77 195
$300,000 $9,000 $1,610.46 $1,656.61 $46.15 195

So what the chart above shows is that if you choose to go with paying the 3% estimate in closing costs, it will take you about 195 months before you start saving money if you choose to pay closing costs. If we take it that your loan to value is greater than 80.01%, it would still take 97 months before you recovered the closing costs and actually started saving money.

You can choose to go with any of the following for your mortgage terms, 20, 30, or 40 years. If you decide to change the term of the loan, the rate increases by 0.125% for each ten year increase that you choose, so for instance, if you wanted to pay on a 30 year schedule, it would cost 0.125% more in interest rate than the 20 year payment would; and the 40 year rate would be another 0.125% more expensive than the 30 year payment.

Something else that I notice is in the list of all of the fees that TFCU will cover is the first year of your mortgage insurance, or PMI, premium. That could potentially be worth $1,200+ a year if you are at about 95% for your loan to value. That’s a pretty big deal in my opinion if you have to carry PMI. The other fees that TFCU will cover with the no closing cost option are as follows:

Appraisal Fee

Underwriting Fee

Title Insurance to include the title searches

Recording Fees

Tax Service Fee

Lender Attorney Fee

Flood Insurance Fee

Teachers Federal Credit Union does list other fees to either get a longer rate lock period or you can also buy down the interest rate. To save on the rate lock fee, choose the shortest period to take advantage of the lower fee and make sure that you have your documents in order. I wouldn’t buy down the rate only because the no closing cost mortgage option gives you the flexibility to refinance if the rates drop more. These suggestions apply regardless if you take advantage of TFCU’s no closing cost mortgage option or pay customary closing costs because they show the same buy downs and fees on their regular mortgage. To lock in your mortgage rate, you have to go to a TFCU branch office and ensure that you have the money in your TFCU account so that you can pay your fees.

TFCU lists the following paperwork they will need to process the mortgage:

  1. a. Online Mortgage Application

    OR

    b. Fannie Mae 1003 Mortgage Application

  2. Borrowers Authorization
  3. Acknowledgement of Lock-in Options
    • Unrelated borrowers must fill out separate applications on items 1-3.
  4. Floating Rate Agreement
  5. $425.00 non-refundable application fee.
  6. Proof of Income:
    • Salaried Borrowers - One (1) Year W-2 (2008) and CURRENT paystub for EACH applicant.
    • Self-Employed Borrowers - Include CURRENT and PREVIOUS years
      (2007-2008) tax returns with schedules attached.
    • Retirees - Submit Social Security Award Letter, Pension Award Letter, or 1099's and One (1) month Bank Statements verifying Direct Deposit.
  7. Copy of Deed - REFINANCE ONLY
  8. Copy of Guarantee Survey - REFINANCE ONLY
  9. Certificate of Occupancy for all structures and improvements - REFINANCE ONLY
  10. In addition to the above, PURCHASE Applications MUST include:
    • Executed Contract of Sale
    • 2 consecutive months bank statements showing funds available for closing
    • Copy (front & back) of cancelled Down Payment Check

TFCU also allows those that already have a mortgage with TFCU to go through the “Refi-Plus Mortgage Refinance” which from appearances, looks like it is a cheaper way to refinance your mortgage. You can only utilize the Refi-Plus program if you are looking to lower your interest rate, or changing the length of your mortgage, either shortening it or getting a longer term but not refinancing from an existing 30 year mortgage to another 30 year mortgage at the same interest rate. The application fee is only $225 versus $425 like on a new application. Their document requirements don’t appear to need as much information as a regular mortgage.

  • $225.00 Application Fee
  • Completed FNMA 1003 application OR Submit our Online Mortgage Application
  • Signed Floating Rate Agreement
  • Signed Lock-In Option Acknowledgment
  • Signed Borrowers Authorization

    Salaried Borrowers: Current paystub for Each applicant

    Self Employed Borrowers: Include Current and Previous years (2007-2008) tax returns with schedules attached.

    Retirees: Submit social security award letter, pension award letter, or 1099s and one month bank statement verifying direct deposit.

  • You can always find out more information on Teachers Federal Credit Union by calling them or stopping by any of their branches. Their numbers are listed as 631-698-7000 if you are within the NY Metro Area or 800-341-4333 if you are outside of the NY Metro Area.

    To sum it up, it appears that Teachers Federal Credit Union is encouraging consumers to go with the no closing cost mortgage option that they offer considering that the rates are so competitive versus a regular closing cost mortgage, and the fact that it takes 195 months to recover 3% of closing costs on a 30 year mortgage with a LTV of >80%, that’s 16.25 years folks, more than half the time for a 30 year mortgage. Might as well just go with their no closing cost mortgage option.