Today’s mortgage environment is unlike any we’ve seen before. Lenders and mortgage insurers have rewritten the rules of what it takes for consumers to acquire a mortgage. There have been modifications to existing mortgage programs, plus the creation of several new ones, prompting challenges for lenders to train staff and keep them up-to-date on revisions. With the rules constantly changing, it takes longer to process mortgage applications. While the lending environment is challenging, it’s still possible for qualified buyers to secure attractive financing.
What steps can you take?
1. CLEAR UP MISCONCEPTIONS
Don’t wait to buy a home because you think it is impossible to get a mortgage, or that the minimum down payment is 20 percent. FHA loans only require 3.5 percent down + FHA remains flexible and buyer-friendly.
“I can’t buy because I missed out on the home buyer tax credit” Find out! Today’s rates are much better than last spring. Even if you missed out on the tax credit, today’s lower rates provide lower monthly payments and reduced interest expense over the life of the loan. Depending on the amount borrowed and terms of the loan, these savings could easily exceed the former tax credit.
2. ARE YOU QUALIFIED?
Buyers, don’t view homes if you’re not qualified. What if you find your dream home and find out you don’t qualify for that amount. What a disappointment!
A good Realtor should ask a few basic questions before taking you out to view homes, how much money do you have to apply to a down payment and do you know your credit scores? They then should suggest that you consult with a qualified mortgage specialist and secure a preapproval.
Sellers and/or banks will not look at any offers unless is comes with a pre-approval letter.
What is Pre-approval letter?
Does a preapproval mean we are guaranteed a mortgage? No, what the bank is really saying is “I’ve got your numbers and things look good.” Preapprovals are almost always subject to receiving full documentation. What a buyer really needs to hear is “clear to close” from the underwriter.
However the preapproval is a good faith letter form lender informing seller that all indications appear that you will indeed fully qualify. Sometimes it isn’t you that doesn’t qualify for the loan, but it is the property.
3. WORK WITH QUALIFIED LENDERS
Most buyers’ agents agree that working with qualified lenders makes a huge difference in whether a transaction will close. There are four different parties involved in processing and selling mortgages:
- the initial lender
- the underwriter
- the mortgage insurer
- the investor
Each one has their own rules. Given the high number of FHA loans in today’s market, it is a good idea to make sure lenders are direct-endorsed by FHA. If the lender is direct-endorsed they don’t have to go through another lender, eliminating some layers in the process. “Direct-endorsed lenders are also more plugged-in to the steady stream of rule changes, making them better informed. Local lenders are preferable because mortgage programs are different for different types of properties and locations. “Out-of-state or Internet lenders don’t typically understand these differences.
How do you find qualified lenders?
- Do your transactions close on time?
- How long have you been in business?
- If you have an underwriter, do they make the final decision?
- Are your underwriters direct-endorsed by FHA?
- Do you sell your mortgages or hold them?
- What is your success rate in selling them?
5. CREDIT SCORES
Credit score-only programs are long gone. Lenders have completely returned to risk-based lending, scrutinizing buyers’ ability to pay back loans. Credit scores still play a major role in what interest rate a buyer gets, at least in conventional financing, in addition to the cost of private mortgage insurance with conventional loans.
6. EXPLAIN CURRENT MORTGAGE PROGRAMS
Understand your options. Lenders should explain differences between FHA, VA, conventional loans, and special programs offered at the federal, state, county, city, or even zip-code level, including options for first-time buyers and bond programs.
For example, a couple has a 30 percent down payment and great income. His credit score was good, but hers is okay. “As a couple”, they would take a hit on their interest rate. Another option for them would be to take her name off the loan documents, and retain her ownership on title. His income alone qualified them for a mortgage.
PLAN EARLY, problems like this may arise. Obtaining the mortgage is the heart of the deal and should be completed or started before shopping for a home.
Maintain a Consistent Financial Picture
- Do not to make any large purchases
- Do not quit a job
- Do not make any late payments prior to closing
This has always been important, but now it’s essential. Before, a bank might have pulled another credit report before closing, but now it is mandatory.
County Properties, 24 years of brokerage experience, trust and a Member of the local Better Business Bureau!
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