a home before and, on average, about half the crowd does so. I then ask if anyone has purchased more than one home or property; and most of the hands go down. I continue with: “Who’s done it more than twice?” “More than three times?” “Four?” and so on. The lucky person who holds his hand up the longest gets the privilege of trying to answer the next question: What is an overage?
What is an Overage?
Yep. It will.
Do you remember the “zero points” loan? Well, it isn't a zero commission loan, any more than a zero cost loan is free money! The costs have not gone away, they have simply changed form; and an overage is the mysterious and magical process by which they have been rendered invisible.
To understand how this works we have to integrate two concepts we've already discussed. Our old friend “points” will be used once more for the calculations; and we will need to take another look at the lender’s wholesale rate sheet. Do you remember the simpliﬁed representation in Figure 1? Well, it was simpliﬁed by exactly half. Figure 2 shows the whole thing.
Yes, I hear you’re exasperated cry: “Kevin! Why would I agree to accept a higher rate?”
Why Agree to a Higher Interest Rate?
*Loan-to-value or "LTV" is the ratio between the combined balances of all mortgages on the property and its actual present value. For example: a loan of $75,000 on a property worth $100,000 is at 75% LTV, meaning 75% of the value of the property is encumbered by loans. All loan programs have some maximum LTV; and as a general rule, the better the rate and terms of the loan, the lower the acceptable LTV.
**A broker may have a correspondent relationship with one or more banks or mortgage bankers he does business with. The bank/mortgage banker gives the broker a line of credit and authorizes him to close loans in his own name and fund them using the credit line. The broker then sells the loan directly to the bank/mortgage banker, who in turn sells the loan to Fannie, Freddie or an institutional investor.
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