Tag Archives: Home Loan

Are you really “pre-approved” for that home loan?

I sometimes get calls from a home buyer who states they are pre-approved at ………. Bank.

In the course of conversation, I ask the usual, necessary questions to provide good information and recommendations and discover that they have not been asked these questions by the other lender. Many times I hear that the other lender hasn’t seen their tax returns or bank statements.

Since lending in 2013 is much more complicated and requires documentation for all aspects of a borrower’s finances, credit, and the property being purchased, I’m very surprised that other lenders didn’t go into these questions.

Bottom line is; if a lender has not asked for and examined your W2s, paystubs, tax returns, bank statements, and ran credit, you don’t have a pre-approval for a home loan, you have at best a pre-qualification.  Pre-approvals are based on actual documentation and pre qualifications are based on whatever the borrower says to you.  We know that some borrowers will not tell you the whole story because they think that its not important.  Some will outright lie about past credit problems, and some simply don’t want to do their part in the home buying process, ie gathering the necessary documents that it take s to get a home mortgage in 2013.

I say that you approach getting a home mortgage the same way you approach a health concern with your doctor.  You tell them everything you are experiencing or are concerned about, you take the pre-appointments blood test or other screenings, you answer honestly the questions your doctor asks and then you can get the best advice and treatment.

If you are a home seller, you should insist that your prospective buyer provide a solid pre-approval letter from a reputable lender.  some home builders in my market, Boise Idaho , have required that any prospective buyer pre-approve with their lender to be sure.  If you are a Realtor, don’t let your buyers put offers on homes without having a solid pre-approval letter.  Yes, they want to go look at houses as that’s the fun part, but it will be well worth the time to make sure they have a solid pre-approval beforehand.

If you need a lender who will do the hard work beforehand, I know of one.

Can I get a “gift” from my parents for a down payment?

Yes, you can! This is the classic case where the parents help out the kids buy their first home. It is allowed under Fannie Mae, Freddie Mac, and FHA mortgage guidelines.

The rules vary by program, but generally, the rules are it has to be a true gift and no expectation of repayment. It can’t be a loan to be paid back.
There will be a letter stating that it is a gift from the parents (or any other family member) to the borrowers and it is signed by all parties.

There is also a set of documentation that needs to accompany the gift to prove that it was the parents to give, it was deposited into the borrower’s account, and what the balance is after the gift was deposited. FHA also requires that the parents show what account it came from.

There is also a provision in the FHA mortgage guidelines that allow a family member’s “gift of equity” to purchase a home that the parents own but want to sell to the kids.

For Fannie Mae and Freddie Mac, the rules are slightly different. You can get a gift for part of the down payment but you would need a minimum of 5% of your own funds into the deal. Here is how this could work. You have 5% saved for a down payment and want to go with a conventional loan. You can get a gift for 15% from a family member and that would give you a total down payment of 20%. Having 20% down allows you to get a conventional loan without having to purchase private mortgage insurance. This is the exact deal that my wife and I got when we purchased our first home. Thanks Mom and Dad!

Anyway, if you think you will need a gift for a down payment, its best to come see your local mortgage professional ahead of time. There is a little extra work and time required to put this together. You also want to make sure your family members are aware and able to do the gift when you need it.

If you need further assistance with a gift for down payment, contact me at 208-955-1234 ext. 30.

The lowest rate is usually not the best loan!

This might make some of you say “what has he been smoking?” but there is an important reason for this.  I see many people get sucked in to a “my rate is the lowest so I must have gotten the best deal” mentality.

You can’t go online without being bombarded with get a mortgage with a 2.25% rate(APR 2.78%) or other such message.  This is one of the most outrageous offers I have seen.  I can’t think of anyone who would be served by this offer. FYI, it was 3 yr. adjustable rate VA Loan with 1% discount and 1% origination plus all the other third party fees.

I know why online lenders offer it, to make the phones ring.  They later pull a bait and switch and get the borrower into a more realistic loan that their local bank or broker could have gotten them.  For most people, that would have been a 30 yr. fixed rate in the 3’s with either a no points/no origination fee structure.

Lenders offer a wide range of rates and terms for clients so they can select the best mortgage for their situation.  For some, they are never going to move and it might make sense to pay a discount point, origination fees, and closing costs.  On a 30 yr. fixed rate mortgage, it takes about 7 years to recoup the cost of a 1% discount point.  If you are sure you will live there for longer than 7  years, then you would come out ahead.  If you think  you might move in a few years, then don’t pay closing costs or even a 1% origination fee.  The no points/no origination fee option is a much better mortgage for your situation.

There is even an option called the No Cost Refinance that is very popular.  For the record, I call it Lender Paid Closing Cost Refinance as that is more accurate but the slang term is No Cost Refinance.

Here is how it works:  Say a lender offers 3.25% on a VA streamline refinance with no points, just third party  plus your escrow account set up.  That can be about 1.5-2% in most areas.  At 3.75%, that same lender may offer a lender credit of 2% that gets credited to the borrower to offset your closing costs and new escrow account set up.  This means you are not rolling any costs into the loan.  Yes, the rate is higher, but you didn’t pay anything upfront to get it.  The difference in payment might only be 25 dollars more and that would take 10-11 years to recoup if you rolled the closing costs into the new loan.

What I like to do with all my clients is to find out what their reasons are for getting the loan, their goals for the home, and sometimes even their retirement planning goals so that I can help them select the right loan for their situation.  This is why my past clients call me to help them finance their next home or to send a family member to me for help.

I’ve recently changed jobs and get paid on comission, what can I qualify for?

I see this situation a lot.  It is usually a new Financial Advisor or Realtor and they are going from a job that paid them a salary or hourly wage and now they are a commissioned sales person.  This can be an issue when qualifying for a loan.

All the main loan programs today, Conventional, FHA, VA and USDA home loans require a borrowers income to be stable.  A borrower who is going to be paid on commission needs to have a two years history of being able to earn steady commission income.  That income is usually averaged for two years and the monthly average is the figure used to determine what they can qualify for.

On a side note, Self Employed individuals are treated the same way in regard to income calculation.  Both require us to submit 2 years tax return and average the income.

Even the stated income loans of the past didn’t allow for recent commissioned or self employment.  If you had just gotten your real estate license and wanted to qualify for a home loan, you had to go with the No Doc loan, where income, assets, and employment were not stated.  There were many companies willing to do those loans, albeit at a higher rate and larger down payment.

My advice for anyone considering a new career where you are going to be paid on commission is to maybe get the home first before making a career change.  Another option is to continue to work your old job and keep a steady income and do the commissioned job part-time or after hours.  This can be hard but you’ll make extra money and still qualify for the home loan.

 

 

 

Getting a Loan? Be prepared to document everything and then some.

In 2013, getting a mortgage requires a lot more documentation than the pre-housing bubble collapse.

In 2006, you could submit a loan application with little more than a credit report and get an approval.  You might have to get an appraisal, you might have to provide a pay stub or single bank statement and many times you could get through the loan underwriting and to the closing in about a month or less.

While we still get most of our loan done in about 21 days, the work that we must do is many times more detailed.

The laws have changed as well as the guidelines of HUD, Fannie Mae, Freddie Mac, and other agencies that buy and insure loans.

As a result, we much prove that you have income, employment stability,  and assets sufficient to pay the payment.  We also need to show that you have the funds to cover the down payment and closing costs.

We also have to write explanation letters explaining why anyone else ran your credit in the last 4 months, any deposits that can’t be identified, and basically anything that someone examining your loan file could have a question about.

http://realestate.msn.com/loans.aspx has a pretty good list for the most part.  In Idaho, we use title and escrow companies instead of Attorneys and the deed is a public recorded document.  Here is my list that I use, and it works great!

The best bet is to locate and provide everything at the time of loan application, it will be less stressful that way.

Don’t fall for that “too good to be true” interest rate offer!

I have the advantage of being in the industry and can see a misleading offer a mile a way.

Recently, I was shown an offer for a VA refinance at 2.25% (3.94%Apr) and had to dig into it.  Sure enough this national, Internet only, lender was offering a 3 year adjustable rate VA Loan.  Furthermore, it had a 1% origination fee plus at least 1% in discount points.  On a $150,000 loan that would be over $3000 in additional costs borrower would have to pay just to save about $75 a month instead of taking a 30 yr fixed rate in the low 3’s.  In today environment, it just doesn’t pencil out when you run the savings vs the cost and the projections for long term interest rates.

Now to be fair, I do have adjustable rate mortgages available to my Idaho Mortgage seekers, I just don’t think they are the best choice for most borrowers.  If someone just has to have the lowest rate and will tolerate the risk of an adjustable rate mortgage, then I guess I would write the loan for them after much disclosure of how much they are going to pay if the loan adjusts to its maximum over the life of the loan.

Many times online only lender use these advertisements to simply make the phone ring and then switch the borrower to a normal fixed rate loan once they find out that too good to be true rate is for an adjustable rate mortgage.  This is a classic case of “bait and switch.”

 

 

 

The life of a loan application?

I found an interesting article on MSN money titled “the secret life of your loan application.”  It was actually pretty accurate, unlike many of their  mortgage articles.  The bottom line is the application is only the beginning of the loan process.  Enjoy!

http://realestate.msn.com/the-secret-life-of-your-mortgage-application

Apply Now! How to get your home loan.

Getting your loan is not as hard it might seem.  With a short application and some basic documents, we can get you approved for your home loan.

To Start, you should gather your last month’s pay stubs, the last 2 years W2 forms, the last 2 months bank statements, and any retirement account statements.

Go to my secure, online website at https://rogerhowell.com

From there, you can choose the full application or the short one.  Fill out the application, the short one only takes about 5 minutes.  Hit submit, and it shows up in my email.  I will get to work on it right away.  At this point, I will run your credit and let you know what it looks like.

You will need to get those documents to me.  Either drop them off at my office, mail them, fax them, or scan them and email to me.  I’ll put the final touches on your application and run your approval.  It is possible to have a solid pre-approval in a couple of hours if you get the documentation to me. 

If you’re buying a home, I will send you and your Realtor, a Pre-Approval Letter. 

After the pre-approval, we will prepare your loan package for your signitures.  We can email, fax, or print out the documents for your signitures. 

When you’ve signed your loan package disclosures, we will gather anything else needed for submission.  These items include: A title Report, Insurance Binder, Purchase and Sale agreement, and an Appraisal. 

When we have all of them, we submit your loan to the Underwriter who verifies that everything is in order.  If it is all in order, we get a clear to close and the loan documents will be prepared.  If there are any final underwriter’s conditions, we gather those.  We might be updating any information that is dated, such as paystubs, bank statements or maybe getting additional comments on an appraisal issue that the underwriter has questions about.  Sometimes a well and septic inspection is required, if you’re on a well or private septic system. 

Once we are cleared to close, the loan documents get prepared and sent to the title company.  When they have them worked up and printed out correctly, we schedule a closing appointment.

The closing usually takes about 45 minutes to an hour.  Once its completed, the loan records at the courthouse and the new deed to the home is in your name.  If you are refinancing, there is a federally mandated 3 day recission period.  This is in case you decide that you don’t want the new loan and you can cancel in writting.  On refinances, the loan funds and records on the 4th day after you sign.

That in a nutshell is the loan process.  If you are prepared, I can get your purchase loan done in 10 days!  Our record is 8 days.  for a refinance, add 4 days. 

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