A happy and a healthy 4th of July to everyone. In my never ending quest to educate as much as possible, I thought I would find a different and more enjoyable way for people to understand what banks are looking for these days. Realize that these are not hard and fast rules and there are lenders that do things "outside the box" but this is a very fair picture of what most lenders are looking for. I hope you like it:
My borrower has a high powered job at major Wall Street firm and has been there 1.5 years. His base salary is $150,000 and he receives a 2010 cash bonus of $1,000,000. Since he was at the firm for only half a year in 2009, he didn't receive a bonus but did receive one at his previous job for $500,000. The bank will give him credit for all or some of his bonus for 2010 and 2009. True or False?
Answer: False. Banks want to see a 2 year history of getting a bonus at the same job in order to be able to use that income.
My borrower is purchasing a single family home and the financial pedigree looks good. Contracts have been signed and the borrower locks his interst rate on a 5 year ARM at 3.125% on $1,000,000 loan with a monthly payment of $4,284. The bank will qualify the borrower with a payment of $4,284. True or False?
Answer: False. This may be difficult to understand but borrowers are no longer qualified on ARM products at the actual rate. Due to the conservative nature of the banks these days, they assume worst case scenario. After the 5 years of fixed payments are up, the rate may or may not go up. The risk of going up now plays a major role in how the bank perceives the loan. They look at it and say-"if it does go up, can the borrower afford it?" Many banks now are qualifying at 2% above the current rates. This can make or breal a loan these days.
A married couple is buying a home and they are getting a gift from the wife's parents. The gift money is coming from a line of credit the parent's have on their primary residence. The bank will allow this gift for the purchase of the home. True or False?
Answer: True. As long as the money is properly sourced, the gift may come from a Line of Credit.
A borrower is looking to refinance her home to save money on a monthly basis. The borrower is currently working at a new job for 5 months with a base salary and no bonus but in the same line of work as her previous job. Unfortunately, the borrower lost her previous job because the company was downsizing. She didn't want to jump at the first opportunity that came along so she took her time and landed the new job after an 8 month search. The bank will let her qualify for the refinance based on her base salary. True or False?
Answer: False. If this is a Fannie Mae loan (loan amount below $729,750) the guideline states that you need to be employed by your new company for at least 6 months if you were unemployed for 6 months or more previous to landing the new job.
Anyone can feel free to comment or ask me any questions they like. In today's environment, its critical to know as may answers as you can before you begin your mortgage process.
Tuesday, June 28, 2011
Tuesday, June 21, 2011
Important mortgage information on Condominiums
Although I have written about this before, it bears repeating. Please be VERY careful when it comes to Condominium transactions. We are in a brutal lending environment and having to deal with a building approval on top of the borrower's financial pedigree just adds fuel to the fire.
Question: I am currently in the market to buy a condominium and I am fairly sure of my price range. I am working with a real estate broker who recommended that I speak with a mortgage professional. What are the next steps?
Answer: There are 2 areas that you MUST focus on right off the bat. First, we will discuss your finances to make sure you qualify. Secondly, and as important, what buildings are you looking at? Give me the names and addresses and I will check and see if you can get financing in these buildings. If I cannot find the buildings on a lenders list, then I will tell you what you need to do to try and get the building approved. You see, your pedigree is only half the battle.
Question: You recently prequalified me and I now have a signed contract for a condominium. What are the next steps?
Answer: Congratulations! Let's check the building right now and see if its on anyone approved list. If not, it would be my recommendation that we try to get the building approved before submission of your file to the bank. The last thing we want is for you to be approved and then down the road, have a building issue.
Question: I am looking to refinance my condo unit in order to save money. I closed on a loan with XYZ bank 3 years ago. I assume that I can go right back to the same bank because they approved the building 3 years ago?
Answer: Let's look at the rate and see if it makes sense. But, just because you closed with this bank 3 years ago does NOT mean they will do it now as the guidelines are constantly changing and what the bank did last month may no longer apply. Let's check and see if the building is still approved at that lender. If it is, then our best bet and easiest road would be to go back there as long as they have competitive rates. If its not on their approved list then we need to find a bank that does or get it approved somewhere. My recommendation is that we not move forward with the application until we have building approval.
Everyone see the pattern here????? Unfortunately, I have seen way too many situations in which the building is not addressed up front and it leads to nothing but heartache.
If you are a realtor, you should always be checking your buildings with a mortgage professional.
If you are the borrower, make sure you check on the building with a mortgage professional.
If you are an attorney, make sure that your borrrower, the realtor and the mortgage professional have discussed the building.
Question: I am currently in the market to buy a condominium and I am fairly sure of my price range. I am working with a real estate broker who recommended that I speak with a mortgage professional. What are the next steps?
Answer: There are 2 areas that you MUST focus on right off the bat. First, we will discuss your finances to make sure you qualify. Secondly, and as important, what buildings are you looking at? Give me the names and addresses and I will check and see if you can get financing in these buildings. If I cannot find the buildings on a lenders list, then I will tell you what you need to do to try and get the building approved. You see, your pedigree is only half the battle.
Question: You recently prequalified me and I now have a signed contract for a condominium. What are the next steps?
Answer: Congratulations! Let's check the building right now and see if its on anyone approved list. If not, it would be my recommendation that we try to get the building approved before submission of your file to the bank. The last thing we want is for you to be approved and then down the road, have a building issue.
Question: I am looking to refinance my condo unit in order to save money. I closed on a loan with XYZ bank 3 years ago. I assume that I can go right back to the same bank because they approved the building 3 years ago?
Answer: Let's look at the rate and see if it makes sense. But, just because you closed with this bank 3 years ago does NOT mean they will do it now as the guidelines are constantly changing and what the bank did last month may no longer apply. Let's check and see if the building is still approved at that lender. If it is, then our best bet and easiest road would be to go back there as long as they have competitive rates. If its not on their approved list then we need to find a bank that does or get it approved somewhere. My recommendation is that we not move forward with the application until we have building approval.
Everyone see the pattern here????? Unfortunately, I have seen way too many situations in which the building is not addressed up front and it leads to nothing but heartache.
If you are a realtor, you should always be checking your buildings with a mortgage professional.
If you are the borrower, make sure you check on the building with a mortgage professional.
If you are an attorney, make sure that your borrrower, the realtor and the mortgage professional have discussed the building.
Wednesday, June 15, 2011
Important changes that will affect mortgage loans
Come October 1st, the conforming loan limit will in all probability be lowered to $625,500 in the NY metro area. In other areas of the country, it will be lower than that. The important questions to ask are why is it being lowered and what impact will that have on borrowers?
Why is it be lowered ? I am sure there are several good explanations for this but let me tackle the one that makes the most sense to me. It is no secret that the Federal Gov't wishes the Fannie Mae and Freddie Mac problem to disappear quickly. I am sure President Obama wishes he could pull an I Dream of Jeannie eye blink on the whole matter but he and all of us know that's not going to happen. As our politicians try to come up with a plan of action on what to do with them, the stated goal is to either eliminate them completely or reduce their role significantly. One way that they can reduce their role is to lower the limit. Think about it-reduce the maximum limit from $729,750 to $625,500 and you eliminate a lot of potential government backed loans. I don't have statistics on it but I have done many loans that fall between those 2 numbers this year alone.
What impact will it have on borrowers ?
If Fannie/Freddie are not buying these then much of the slack is going to be picked up by savings banks and niche lenders.The big banks will end up with less volume and that's what the government wants.
Banks that will lose production: Banks that will gain production:
Chase Astoria
Wells Fargo Ridgewood
Citibank Hudson City
Bank of America ISB
The government wants out of the mortgage business. The next few years will determine just how far they can get out and how far they are willing to take it.
Why is it be lowered ? I am sure there are several good explanations for this but let me tackle the one that makes the most sense to me. It is no secret that the Federal Gov't wishes the Fannie Mae and Freddie Mac problem to disappear quickly. I am sure President Obama wishes he could pull an I Dream of Jeannie eye blink on the whole matter but he and all of us know that's not going to happen. As our politicians try to come up with a plan of action on what to do with them, the stated goal is to either eliminate them completely or reduce their role significantly. One way that they can reduce their role is to lower the limit. Think about it-reduce the maximum limit from $729,750 to $625,500 and you eliminate a lot of potential government backed loans. I don't have statistics on it but I have done many loans that fall between those 2 numbers this year alone.
What impact will it have on borrowers ?
If Fannie/Freddie are not buying these then much of the slack is going to be picked up by savings banks and niche lenders.The big banks will end up with less volume and that's what the government wants.
Banks that will lose production: Banks that will gain production:
Chase Astoria
Wells Fargo Ridgewood
Citibank Hudson City
Bank of America ISB
The government wants out of the mortgage business. The next few years will determine just how far they can get out and how far they are willing to take it.
Monday, June 13, 2011
Savings Banks looking to increase volume
I recently wrote about a few savings Banks that have been the voice of reason in a sea of turbulence. Well, there is more good news. Astoria Federeal Savings Bank has just made it easier to get a loan:
1. Lower reserve requirements. You need less money in the bank, post close to qualify for a loan.
2. They now allow 2nd home Co ops.
3. 40 year amortization allowed on co ops.
What type of loans are best for Astoria?
a. Multi million dollar loans.
b. Strong liquid reserves.
c. Borrowers that are willing to take an ARM product.
1. Lower reserve requirements. You need less money in the bank, post close to qualify for a loan.
2. They now allow 2nd home Co ops.
3. 40 year amortization allowed on co ops.
What type of loans are best for Astoria?
a. Multi million dollar loans.
b. Strong liquid reserves.
c. Borrowers that are willing to take an ARM product.
Monday, June 6, 2011
Mortgage brokers-Why should we use them?
It's an age old debate-mortgage broker vs. loan officer at the bank. Which one is better? Where will you get the better experience? Who will get you the best rate? Which one gives you the better service? These are all the things that go into the decision making of the borrower. Let me make my case for the mortgage broker:
In my humble opinion, there really needs to be only 2 areas that a borrower needs to focus on and they are service and rates. The rate part is the easy one because it is typically a tangible one. Assuming that the loan officer (that includes the broker and the loan officer at the bank) is not being deceptive in the rate and the closing costs quoted, rates will not really vary by more than .125%. In some cases, maybe a little bit higher. The bottom line is, there will not be a tremendous variation on the rates that are quoted.
It is the area of service where I think the biggest difference lies. Service encompasses many, many different things and here are just a sampling of them:
1. Availability of the loan officer: The borrower is making the biggest purchase of their lives in a transaction that has many moving parts. That bears repeating because it's not just words on a page-The borrower is making the biggest purchase of their lives in a transaction that has many moving parts. If a problem occurs with any number of issues, don't you want someone available at a moments notice to either resolve the issue or put it in the hands of someone that will? Ask your attorney, real estate broker or friends what their experience was with the person they used.
2. What type of property are you buying?: This is an especially important in the NY metro area where many people are buying a co op or a condo. As I have noted in previous posts, the borrowers financial pedigree is only half the battle. If the building isn't approved then the borrower will not get financing. Is the loan officer checking the status of the building when they first speak? If they are, it's a clear sign that the loan officer knows what they are doing as is looking out for the best interest of the borrower. If they are not, look out!!!! What you want to avoid, is a loan officer that wants to take your application first and foremost before discussing the landscape. Just 1 example of what a borrower may not know going into the process.
3. Explanation of closing costs: Simply put, the borrower must know their round about closing costs during the first conversation with the loan officer. If they are not aware of costs, they do not get the big picture.
4. Coordination: A very wise and successful person in my industry once told me that as the mortgage broker, "you are the well that everyone comes to for a drink". Be at the center of the transaction. the loan officer must inform everyone all along the way as to what is transpiring. When the commitment letter comes in, inform the borrower's attorney, the real estate broker and of course, the borrower. Same for the appraisal and the final clearance from the bank. Don't leave anyone guessing as to what is going on.
5. Rates: Any good loan officer will give the client options. Discuss the pros and cons of a fixed rate vs. adjustable. If the client is headstrong on 1 product then so be it. With multiple banks to choose from, a broker has a wide variety of options. There may be 1 bank that hasd the best rate but another may have a higher rate yet be able to finance a larger precentage of the purchase price. The borrower may choose that bank with the higher rate because they either don't have the extra money for the down payment or choose to finance more because they can use the money in different ways.
When making your decision, think about all the things I mentioned. if you haven't experienced it before, discuss it with friends, family, attorney, real estate broker. Did the loan officer go over all these things? If they didn't, did borrower really get the best deal or have the best experience? Do you want to trust the biggest transaction of your life to someone that did not go over all these things?
In my humble opinion, there really needs to be only 2 areas that a borrower needs to focus on and they are service and rates. The rate part is the easy one because it is typically a tangible one. Assuming that the loan officer (that includes the broker and the loan officer at the bank) is not being deceptive in the rate and the closing costs quoted, rates will not really vary by more than .125%. In some cases, maybe a little bit higher. The bottom line is, there will not be a tremendous variation on the rates that are quoted.
It is the area of service where I think the biggest difference lies. Service encompasses many, many different things and here are just a sampling of them:
1. Availability of the loan officer: The borrower is making the biggest purchase of their lives in a transaction that has many moving parts. That bears repeating because it's not just words on a page-The borrower is making the biggest purchase of their lives in a transaction that has many moving parts. If a problem occurs with any number of issues, don't you want someone available at a moments notice to either resolve the issue or put it in the hands of someone that will? Ask your attorney, real estate broker or friends what their experience was with the person they used.
2. What type of property are you buying?: This is an especially important in the NY metro area where many people are buying a co op or a condo. As I have noted in previous posts, the borrowers financial pedigree is only half the battle. If the building isn't approved then the borrower will not get financing. Is the loan officer checking the status of the building when they first speak? If they are, it's a clear sign that the loan officer knows what they are doing as is looking out for the best interest of the borrower. If they are not, look out!!!! What you want to avoid, is a loan officer that wants to take your application first and foremost before discussing the landscape. Just 1 example of what a borrower may not know going into the process.
3. Explanation of closing costs: Simply put, the borrower must know their round about closing costs during the first conversation with the loan officer. If they are not aware of costs, they do not get the big picture.
4. Coordination: A very wise and successful person in my industry once told me that as the mortgage broker, "you are the well that everyone comes to for a drink". Be at the center of the transaction. the loan officer must inform everyone all along the way as to what is transpiring. When the commitment letter comes in, inform the borrower's attorney, the real estate broker and of course, the borrower. Same for the appraisal and the final clearance from the bank. Don't leave anyone guessing as to what is going on.
5. Rates: Any good loan officer will give the client options. Discuss the pros and cons of a fixed rate vs. adjustable. If the client is headstrong on 1 product then so be it. With multiple banks to choose from, a broker has a wide variety of options. There may be 1 bank that hasd the best rate but another may have a higher rate yet be able to finance a larger precentage of the purchase price. The borrower may choose that bank with the higher rate because they either don't have the extra money for the down payment or choose to finance more because they can use the money in different ways.
When making your decision, think about all the things I mentioned. if you haven't experienced it before, discuss it with friends, family, attorney, real estate broker. Did the loan officer go over all these things? If they didn't, did borrower really get the best deal or have the best experience? Do you want to trust the biggest transaction of your life to someone that did not go over all these things?
Subscribe to:
Posts (Atom)