How to Use UMLs
July 7, 2003, Revised May 18, 2007, November 5, 2008, Reviewed July 6,
2009
There are currently 7 Upfront Mortgage Lenders listed here.
Upfront Mortgage Lenders (UMLs) are for intelligent shoppers who have done their homework. Before they start shopping, they should know the kind of mortgage they want, and the market niche in which they fall.
"Kind of mortgage" includes the type (whether fixed-rate, adjustable rate or balloon), term, down payment, required lock period, and the number of points they want to pay or receive from the lender. Read Tutorials on Selecting Mortgage Features.
"Market niche" refers to any deviations from what lenders consider the ideal applicant. The ideal applicant has excellent credit, is a citizen or permanent resident alien, is purchasing or refinancing a single-family detached house as a primary residence, will not take cash out of the transaction if refinancing, will not have a second mortgage at closing, will fully document income and assets, will escrow taxes and insurance, is the sole borrower (or, if one of several, all will occupy the property), has enough cash from own sources to meet down payment requirements and settlement costs, and has sufficient income to meet standard maximum ratios of housing expense and total expense to income.
Once you know the loan you want and the market niche in which you fall, you can determine very quickly whether or not a UML meets your needs. You merely check the UML’s table of Market Niches Priced on Line. If your mortgage and niche are not there, you can go elsewhere without wasting time. Restrict your shopping to the UMLs that price your market niche.
The best way to compare prices of an FRM is to choose an interest rate, and then record the points and other lender fees for that rate at each UML. This is easy to do because rates are almost always defined in increments of .125%, whereas points can be anything. Make sure all comparisons are as of the same day, since a change in the market can invalidate comparisons made on different days.
For this purpose, you choose a rate that meets your rate/point objective, which you should know going in. Do you want to pay points for the lowest rate possible because you expect to have the mortgage a long time? Or do you want a negative point loan because you expect to be out of the house in a few years, or because you are short of cash? Or are you somewhere in-between?
You also want to record the third party settlement costs of each UML, distinguishing those costs that are guaranteed by the UML and those that are estimates. If a particular cost, say title insurance, is lower at one UML and it is guaranteed by the UML, you can adjust your total cost accordingly.
There are no rules for dealing with differences in third party cost estimates. A low estimate could reflect that the UML has a low-cost supplier, or it could just be a mistake. I don't believe that any of the UMLs deliberately "low-ball" these estimates, but I can't guarantee that.
A UML may meet my requirements pertaining to ARMs by calculating schedules of interest rate and mortgage payment under no-change and worst-case scenarios. None of them do that, however, they meet an alternative option, which is to provide the information the shopper needs to calculate these (and perhaps other) scenarios using calculators on my web site. The required information is shown in Information Needed to Evaluate an ARM. The calculators are the those numbered 9a to 9ci. They make it relatively easy to compare ARMs offered by different UMLs. For help, read How Do You Assess an Adjustable Rate Mortgage?
UMLs price loans on their web sites but do not qualify borrowers on their sites. It is possible, therefore, that you will not be approved. The risk is heightened during a financial crisis.
Usually, however, a borrower who cannot be approved for a conventional loan can be approved for an FHA. If you are rejected, just start over, shopping for an FHA at the UMLs that price them on their site. These are Amerisave, Betterchoice Loans and Century Point Mortgage. In most cases, the all-in price will be higher on FHAs, though in many cases, it is not that much higher.
There are currently 7 Upfront Mortgage Lenders listed here.
Know Your Desired Mortgage and Your Market Niche
Upfront Mortgage Lenders (UMLs) are for intelligent shoppers who have done their homework. Before they start shopping, they should know the kind of mortgage they want, and the market niche in which they fall.
"Kind of mortgage" includes the type (whether fixed-rate, adjustable rate or balloon), term, down payment, required lock period, and the number of points they want to pay or receive from the lender. Read Tutorials on Selecting Mortgage Features.
"Market niche" refers to any deviations from what lenders consider the ideal applicant. The ideal applicant has excellent credit, is a citizen or permanent resident alien, is purchasing or refinancing a single-family detached house as a primary residence, will not take cash out of the transaction if refinancing, will not have a second mortgage at closing, will fully document income and assets, will escrow taxes and insurance, is the sole borrower (or, if one of several, all will occupy the property), has enough cash from own sources to meet down payment requirements and settlement costs, and has sufficient income to meet standard maximum ratios of housing expense and total expense to income.
Determine if the UML Prices Your Niche
Once you know the loan you want and the market niche in which you fall, you can determine very quickly whether or not a UML meets your needs. You merely check the UML’s table of Market Niches Priced on Line. If your mortgage and niche are not there, you can go elsewhere without wasting time. Restrict your shopping to the UMLs that price your market niche.
Comparing Prices of FRMs at Different UMLs
The best way to compare prices of an FRM is to choose an interest rate, and then record the points and other lender fees for that rate at each UML. This is easy to do because rates are almost always defined in increments of .125%, whereas points can be anything. Make sure all comparisons are as of the same day, since a change in the market can invalidate comparisons made on different days.
For this purpose, you choose a rate that meets your rate/point objective, which you should know going in. Do you want to pay points for the lowest rate possible because you expect to have the mortgage a long time? Or do you want a negative point loan because you expect to be out of the house in a few years, or because you are short of cash? Or are you somewhere in-between?
You also want to record the third party settlement costs of each UML, distinguishing those costs that are guaranteed by the UML and those that are estimates. If a particular cost, say title insurance, is lower at one UML and it is guaranteed by the UML, you can adjust your total cost accordingly.
There are no rules for dealing with differences in third party cost estimates. A low estimate could reflect that the UML has a low-cost supplier, or it could just be a mistake. I don't believe that any of the UMLs deliberately "low-ball" these estimates, but I can't guarantee that.
Comparing Prices of ARMs at Different UMLs
A UML may meet my requirements pertaining to ARMs by calculating schedules of interest rate and mortgage payment under no-change and worst-case scenarios. None of them do that, however, they meet an alternative option, which is to provide the information the shopper needs to calculate these (and perhaps other) scenarios using calculators on my web site. The required information is shown in Information Needed to Evaluate an ARM. The calculators are the those numbered 9a to 9ci. They make it relatively easy to compare ARMs offered by different UMLs. For help, read How Do You Assess an Adjustable Rate Mortgage?
What To Do if You Are Not Approved
UMLs price loans on their web sites but do not qualify borrowers on their sites. It is possible, therefore, that you will not be approved. The risk is heightened during a financial crisis.
Usually, however, a borrower who cannot be approved for a conventional loan can be approved for an FHA. If you are rejected, just start over, shopping for an FHA at the UMLs that price them on their site. These are Amerisave, Betterchoice Loans and Century Point Mortgage. In most cases, the all-in price will be higher on FHAs, though in many cases, it is not that much higher.