MortgagesUndressed

An oft too common loan approval casualty is when people buy a car just before or during the loan process.

This problem is usually with a first time home buyer. We mean to be a site for quick and valuable information for all buyers. Here is a basic. Hold the tempation, wait until closing is alllll over is the rule.

I will never forget the Doctor and his Jag. He was not a first time home buyer. The new jag payment was almost $800. Neither DO or LP would take his loan. (Be familiar with these terms. They are the initials for Fannie Mae and Freddie Mac approval software.) We had to go to a special program that charged a higher rate. His pride was injured, his temper hot, and the end result outa luck Doc. He didn’t consult with me he just did it.

Larry Cragun

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Is your lender product agile? To me, this is mandatory as you pick out a lender!

My first lending job, after years as a real estate agent, was with a large bank. This one was not product agile, at least in our office. Some loan officer’s aren’t product agile, they work in a tunnel.

Product agile is having the ability to do a wide variety of loans. My first bank, was trying to only take the cream of the crop loans, they tried to persuade us to pass on the difficult, or non standard loans. That was nice in theory, but was one of the reasons I left them. They were not product agile.

A real life example: I will call him Brick. Brick had a very high credit score, near 800. Brick had a good job. Brick was getting married. This was to be an easy loan. It needed to be easy, brick was marrying a lady from out of the area. The sellers were excited to sell to these soon to be newlyweds. They let the future Mrs Brick rent the home prior to closing. The weddding reception was to be at the new house. This loan had to close. This could be a pressure situation I was in, but Bricks loan was a slam dunk.

What could go wrong here I ask you? Why did I need to be product agile?

I couldn’t think of a reason, but I did.

Brick was in the Army Reserves. Desert Storm was happening. Just before the loan was to close, Brick was called to active duty. His activation date, a week after the marriage.

So what did I have to do? First I had to disclose these material facts, as did Brick. Fraud issue. Next I had to listen to Mrs. Brick vent: what a way to start a marriage - and you better close this dang loan buddy, I am living in this house come heck or high water.

So, being product agile, and thanks to Bricks high credit score, the loan closed.

Brick had income from the reserves. It had been for more than 2 years. He was an officer. I found a nitch mortgage bank, that liked Bricks file. They used a NIQ; No Income Qualifier loan and gave Brick a pretty good rate. WHEW.

Product Agile, Great credit score, two year plus history in the reserves, and a sorta happy Brick and soon to be Mrs. Brick.

By the way, I was invited and did attend the wedding reception. It was a nice event for me, for obvious reasons.

Larry Cragun

I am going to describe the components of the bi-weekly mortgage plans I have seen over the years.

Concept:

Your bank account is automatically charged 1/2 a payment every two weeks. This will provide the funds for an extra payment.

The following are components have and do cause me to tell people to not enroll in these programs.

1- You pay a fee to enroll in this type of service.

2- You have a company holding your money in an account.

3- This company, not you, makes your mortgage payment.

4- You earn no interest on your money they are holding in trust.

5- You are charged a monthly fee for this service.

Sorry, this never made sense to me.

These are my two alternate recommendations. They do require you do a little work, not much really.

1- If you are married or own the home with another person, make an extra principle payment equal to 1/2 of your mortgage payment on each persons birthday.(Pretty good birthday gift I would say.)

2- Have your lender provide you an amortization chart with your mortgage components: years of amortizing, interest rate, monthly payment principle amount, and monthly payment interest amount. Each month, write two checks to your lender; a check for the normal payment and a check that is the amount of interest for the next payment. In the early years of the mortgage this second check will be a very small amount. Write the notation on the check, extra principal payment. Save these checks. Keep the chart, check off each payment you make. When you pay off the mortgage make sure the balance you have concurs with the final statement from the lender.

I personally like the second option. I think it gives great visibility to how fast you are cutting off a payment, how little it takes.

PS: After writing this I did a Google search on the topic. I note the following: There definitely are companies trying to sell this servicet. There are several other articles you can find explaining Bi-weekly in greater detail. Make it easy on yourself. Follow the advice in this article. Don’t do bi-weekly plans like these I describe.

1- Out of your current assets.

2- From a lender rebate.

3- From your home equity. (Refinance only)

4- From your seller. (Purchase only)

5- A combination of the above.

Experts - are there more?

During my lending career I began to believe that most people could borrower more money for a home than they would choose to borrow. With good or great credit, good cash reserves, strong employment, and/or a large down payment, even Fannie Mae or Freddie Mac will let you stretch their standard guidelines. Specialty lenders in search of higher returns create programs that help the non standard situation.

I write this short note to encourage you to investigate. Don’t assume you can’t have a particular home you want. There might be a way.

Now with this in mind I give you the advice given me by the father of one of my college buddies. “Be careful of what (or who) you go after, you may get it.”Thad O Yost.

Larry Cragun

Some that speak out, even some of the Feds, talk about rebates as if they were some deep dark sinful practice. Rebates are not necessarily bad.

The purpose of this article is to inform you. Understanding rebates will make the loan process make a lot more sense. It can also make you wise. Wise is good.

To keep it simple, I refer to all types of rebates as a rebate. There are other fancy names. You know what a rebate is, for this article, they are all rebates irregardless of their name. Both banks and mortgage companies have them in one or more forms.

On almost all loan programs your loan officer can select from 6 to 10 different rates for you. Usually by mid morning each lender announces their rates. In looking at a rate sheet for last week I find one National Bank quoted the lowest rate available at 6.125% for a 30 year fixed mortgage. That same bank would lock your rate at 6.75% for the same program.

Why two rates for the same program? Actually they offer six choices on this day. At 6.125% there are fees just to get that rate. At 6.75 % there is a rebate. As the rate goes higher the rebates go higher.

The benefits to you of the higher fee - higher rebate option, can be in what the loan costs you at closing. This is where the no cost loan comes from. Assume you will take 6.75% as your interest rate. If you were borrowing $300,000 on this day the loan officer would have $5667.00 towards your costs. I have seen other banks that quote a rate with rebates that would pay as much as $9,000.00 in rebate for a $300,000 loan.

This concept shoots down what I have heard from many people: “You shouldn’t refinance unless you save X% in interest. Baloney. If you are willing to go through the effort of a refinance, and can do it with enough of a rebate to have no fees and cut your payment down, do it. Saving 1/4 of a percent interest on this amount would cut the payment by $49.05 per month. (Of course it re-sets the 30 year time all over.)

The rebate can however lead to a FAT FEE LENDERS DELIGHT. If he made a 2 per cent rebate and took it for himself he adds $6,000 to his income pot. The way you best avoid this event is to use a lender that is referred by your real estate agent. If the loan officer gets greedy and is found out by the real estate agent that referred you, the loan officer stands to lose all future business from the agent. It is your best safeguard, second to being educated.

We will talk about this subject more in the future.

Larry Cragun

Yesterday I noted this expert advice. It iimplied rates may go up. Today I note this expert information as to why rates just went down. These reports were two days apart, the second tracking information from a week ago. What do you take as pertinent information to your situation? What do you do about locking your rate? My answer, lock at time of application, unless closing is more than 30 days out. If it is, lock about 25 days from closing. Don’t try and beat the experts, as they often don’t agree. Larry Cragun

It is my experience that home shoppers need to research financing at the same time they research homes. People are spending months researching homes before they purchase. Is that you? Are you looking at homes you qualify for, working to qualify for, or dreaming to have someday? There is no wrong answer to this question.

The wrong answer is to be researching homes without researching financing. You should know what you qualify for, what you almost qualify for, and what you can qualify for with some changes. (Example: Lower monthly debt payments.) The more you know the more you are likely to choose a good lender, buy the home you want, and have a good purchasing experience. The fact is the less you know the more likely it is to hurt you. Too often people get tied up with a low skilled lender, with a lender that is too busy, or inexperienced.

Returning often to this site, subscribing to our RSS feeds will assist you greatly. You can ask questions, we will lead you to the right information. Start researching now.

Today I center on one common practice, a disservice to many home buyers. It is usually found in a pre-approval letter or certificate. It has language such as Mr. and Mrs. Jones are approved to purchase a home priced at $400,000.00 with 5% down, etc. etc. etc. Why is this a disservice? You qualify today, what about tomorrow? If the rates changes upward will it be $390,000.00? If so, now what do we do, get a new letter? What if I don’t find what I want at $400,000.00, but do find one I want at $450,000.00? Now what do I do?

A listing agent wants to see acknowledgement the buyer is qualified. For this reason your letter or certificate should match the offer price. But too often this becomes the lenders way to tell you what you can buy. This is the disservice. The first solution is to have the lender tell you what payment you qualify for and under what scenario he came to that conclusion.

You should be told at approval how much home that might be. However the payment includes taxes and insurance, perhaps mortgage insurance. You need to have a way to consider the difference different homes have in taxes for example. A good agent and an attentive loan office can do this for you.An actual approval will have an underwriter approval. Almost as good is automated underwriting. This takes the facts you provide, reviews your credit, and makes a decision. When I had a client tell me they wanted to qualify for $400,000.00 I would go for that approval first, then raise the request to see the maximum I could get them approved for. Usually they bought what they qualified for, not the lower amount.

If you have good credit, good cash reserves, certain job history, make a larger down payment or a combination of these; the system will often let you buy beyond the standard approval guidelines.

Why don’t some loan officers do it this way? It takes extra time and effort. It also pushes them to a level of less safety in completing the loan. After all if you qualify for $450,000.00 and you are getting approval for $400,000.00the risk of failing to deliver the loan is minimized.
The solutions for you then are the following:

1- Know the maximum payment you qualify for. As interest rates change and the payment stays fixed, the amount of home you can buy goes up or down. Stay on top of that.
2- Deal with a lender that will take the effort to have you approved for the maximum either by underwriter review, or by automated underwriting.
3- When you are getting ready to buy, be more attentive to what the payment translates to in home price.
4- Look to ways to qualify for more if the home you really want seems a little out of reach.

We will be adding tools to the site that will assist you in this. I will be willing to accept your questions on line where either myself or the public can help you. Come here often, subscribe, ask us for help. We can do this for you. That’s the bare bones facts. Larry Cragun.

Of course there are many arrangements for compensation. However, here I address the bulk of the loan origination sales force.

How do they get paid? You may think on commission. You may be wrong.

The most common method is sharing in the money earned on each transaction. Being a loan officer (loan originators have many names, I use loan officer on this site) is like a mini business in most cases. So the more you earn the company the more you earn as a loan officer. In a future article I will show you what you may never see, the back end; rebates, SRP, service release, secondary market profit, and other fancy names for rebates. Many pay their loan officers on these profits that you may not see. I am not calling this wrong, I am just informing you.

There are comanies that charge a desk fee, similar to some real estate companies. Here a loan officer will pay a monthly fee plus a small amount on each file. There are companies that charge a flat fee, again the same as in some real estate companies. A flat fee is a fixed amount for each file, the remaining to the loan officer. There are companies that pay the loan officer a percentage of the fees derived, perhaps 70%.

Certainly this is legitimate. More certainly it leaves you the borrower dealing face to face with the person that determines your rate. It is usually up to the loan officer, what rate you are charged and what fees you are charged. They cannot eliminate fees, but they can build them into the rate. I will do a follow up article on this part.

The first bank subsidiary I worked for had a maximum fees policy on what could be charged the client. The limit was stringent, therefore the customer could not be overcharged. It was the only company I have come across that had a requirement like this, on what I call sringent fee limits. I liked the idea, and implemented a policy like this when I formed our company.

What is real encouraging is that loan officers that look for repeat business understand you cannot overcharge people. It catches up with them. Realtors and borrowers see the closing statements. Borrowers are shoppers. It makes no sense to overcharge, yet greed catches up with a few. When you use the Realtors loan officer, you have the benefit of additional pressure on the loan officer to not overcharge. There is a high probability the Realtor will see the closing papers and pass judgement that will affect the future business between the two of them. Loan officers that charge too much don’t get future referrals. Future referrals is what staying in business is all about.

My favorite way to illustrate the point I want to make relates to a loan officer I was fortunate enough to have been referred to work for us. Her name is Colleen McGrath. She is a big producer and planned her transition to us months in advance. I noticed her first 8 or 9 checks were on the low side of the scale we were used to paying. Not just on a couple of files, on all of the files. Some were real small. I called and asked her if she was OK. Of course she answered. Are you happy with the files you have closed here? Sure, why? Well I answered, it seems you aren’t taking home very big paychecks. Her answer was fun and informative, “thats the way I always charge, why do you think I am so busy?”

Lesson Learned.

Larry Cragun