- If you are speaking to a loan officer at a bank, a mortgage banker or a mortgage broker and they ask that you help them fill out an application without going over your financial pedigree, you may be asking for a lot of trouble.
- If you are refinancing your mortgage to pay off credit card debts, you may very well be asked by the lender to pay the balances to zero AND close out the account.
- Always ask your loan officer what happens and what your options are if the appraisal comes in less than what you expected.
- Know what your approximate closing costs are before doing an application. If your loan officer doesn't volunteer the information, ask.
- Be prepared for a long, tedious process.
- Banks will not look at your liquid asset statements if there is 1 page missing.
- Assume that the bank will ask for a letter of explanation for the smallest of deposits in your account.
- Any credit inquiries on your credit report within the last 90 days will require a letter of explanation.
- Be prepared to sign many disclosures that don't make a lot of sense.
- If you are buying a home and the appraisal comes in at less than the purchase price, you will probably have to write a letter that says you understand the value is below the purchase price and you still want to move forward.
- At this point in time, no matter what rate you end up getting, you're a winner.
- Never assume that the appraiser has done everything correctly. Mistakes are made all the time.
- "Common sense" underwriting no longer applies.
- Loans are getting closed despite what we see on the news. Just be patient, give the bank everything it asks for and be patient. (I said that already, didn't I?)
Monday, August 6, 2012
Mortgage lending and things you should know
If you are thinking of buying or refinancing or just looking to give some advice to a friend or family member, read ahead. Some words of wisdom: that we can all benefit from:
Wednesday, April 4, 2012
Does Twitter really grow my business?
Let's start with the following statement-I really like Twitter. I find it fun, thought provoking and informative. Wherever I turn, I hear that social media is the way to go. It's the wave of the present and future and if you aren't doing it, you are in the dark ages. Is it really?
From a pure social standpoint, its great. But is it helping me actually grow my business? Since I have only been "tweeting" for a few months, I decided to ask a real estate agent that is a veteran of the business and more importantly, a veteran of Twitter. His tweets, people who follow him and people he follows are in the thousands. Surely, I could get some positive feedback from him on how Twitter has helped him grow his business. Surely, he would be able to tell me a wonderful story about how a tweet he sent regarding the increase in purchase transactions struck a chord with someone and how they contacted him immediately to be come their real estate agent and how he sold them a $2,000,000 property.
I started out delicately asking him how he can constantly come up with new things to tweet about. I mentioned that I have done like 100 tweets and I feel like I have nothing left to say. (That could be due to the fact that I don't use Twitter to let people know what dressing I had with my oriental chicken salad or where I would be at 3:12 PM). OK. Let's get back to the story. He said that it's hard work and required time, effort and dedication. I then asked him the $64,000 question as to whether this has helped his business and his answer-I don't know. There it was. Thousands of tweets, endless hours of work finding informative articles and writing witty things and it's an "I don't know". Boy, that didn't fill me with hope. My mind started to race. "Left behind"? "In the dark ages if you don't do it"?
Maybe others were and are having great success with it so that begged the question-what am I doing wrong? Wait a minute. Am I actually doing something wrong? For the most part, I try to give informative information and I target real estate agents, attorneys and potential borowers. Information that will help them on a daily basis and help grow their business. It could be a good article that I found or just something new in regards to underwriting or rate changes. Surely, that would attract people to follow me, right? Not yet. I'm mostly getting real estate consulting firms in places like Kenosha Wisconsin to follow me. Don't get me wrong, Wisconsin is a wonderful state and they make great cheese but it's not really the target audience that I am trying to attract.
Maybe I wasn't doing this the proper way so I set out searching the internet with queries like-"how to increase twitter followers" and I find some of the information interesting and somewhat of a help but after reading all that stuff, the basics of how to attract people are all the same.
Are there not enough people in residential real estate using it? And for those that are, are they mostly using it for social purposes and not business? Does the social aspect of it attarct business? I think that's what many would say but I am not interesting in telling my life story so I won't go there. Am I not giving it enough time? Yes, that must be it. I am too impatient and these things take time, right? Then I think about my real estate friend that has been doing this for years and has tweeted thoudsands of times and I keep hearing the same thing in my head-"I'm not sure". Oh boy.
From a pure social standpoint, its great. But is it helping me actually grow my business? Since I have only been "tweeting" for a few months, I decided to ask a real estate agent that is a veteran of the business and more importantly, a veteran of Twitter. His tweets, people who follow him and people he follows are in the thousands. Surely, I could get some positive feedback from him on how Twitter has helped him grow his business. Surely, he would be able to tell me a wonderful story about how a tweet he sent regarding the increase in purchase transactions struck a chord with someone and how they contacted him immediately to be come their real estate agent and how he sold them a $2,000,000 property.
I started out delicately asking him how he can constantly come up with new things to tweet about. I mentioned that I have done like 100 tweets and I feel like I have nothing left to say. (That could be due to the fact that I don't use Twitter to let people know what dressing I had with my oriental chicken salad or where I would be at 3:12 PM). OK. Let's get back to the story. He said that it's hard work and required time, effort and dedication. I then asked him the $64,000 question as to whether this has helped his business and his answer-I don't know. There it was. Thousands of tweets, endless hours of work finding informative articles and writing witty things and it's an "I don't know". Boy, that didn't fill me with hope. My mind started to race. "Left behind"? "In the dark ages if you don't do it"?
Maybe others were and are having great success with it so that begged the question-what am I doing wrong? Wait a minute. Am I actually doing something wrong? For the most part, I try to give informative information and I target real estate agents, attorneys and potential borowers. Information that will help them on a daily basis and help grow their business. It could be a good article that I found or just something new in regards to underwriting or rate changes. Surely, that would attract people to follow me, right? Not yet. I'm mostly getting real estate consulting firms in places like Kenosha Wisconsin to follow me. Don't get me wrong, Wisconsin is a wonderful state and they make great cheese but it's not really the target audience that I am trying to attract.
Maybe I wasn't doing this the proper way so I set out searching the internet with queries like-"how to increase twitter followers" and I find some of the information interesting and somewhat of a help but after reading all that stuff, the basics of how to attract people are all the same.
Are there not enough people in residential real estate using it? And for those that are, are they mostly using it for social purposes and not business? Does the social aspect of it attarct business? I think that's what many would say but I am not interesting in telling my life story so I won't go there. Am I not giving it enough time? Yes, that must be it. I am too impatient and these things take time, right? Then I think about my real estate friend that has been doing this for years and has tweeted thoudsands of times and I keep hearing the same thing in my head-"I'm not sure". Oh boy.
Tuesday, November 15, 2011
Fixed rate vs ARM. Is one better than the other?
Fixed rate mortgage vs ARM. Which one is better? You can make legitimate and salient arguments for both but at the end of the day, there is no right answer. Each one has its place and its up to the borrower to decide which one is best for them. The job of the loan officer is to explain the pros and cons of both.
Let's start with the fixed rate loan. It is certainl;y hard in this environment of low rates to argue against taking a fixed rate mortgage. You never have to worry about your rate or your monthly payment increasing. But, that comfort does come at a price. Fixed rate loans have a higher rate than ARMs.
ARM products have a 30 year amortization just as fixed rate loans do. The difference is that the rate is not fixed for the life of the loan. There are 3, 5, 7 and 10 years ARMs and the rate is fixed for that respective amount of time. Think of it this way-its risk vs reward. The risk is that if you still have the loan after the fixed period is up, your rate may go up. The reward is that you have a lower interest rate. Strangely enough, because of current market conditions, those that have ARM products that are adjusting now are actually adjusting lower than the start rate. Don't expect that years in the future! Its also important to note that statistics show the average legnth of a loan to be 7 years.
Understanding the principles above leads us to the trends that guide people in deciding which product to take. Those that are buying a home in which they will stay long term tend to look at fixed rate loans. Those that see themselves in the home for 5 or 7 or 10 years, tend to look at the ARM products because the chances of entering the adjustable phase are smaller.
Know the pros and cons of each. Run the numbers and see exactly what the difference is in the payment. Its not rocket science. With that information, make the decision that is best for you or your family.
Let's start with the fixed rate loan. It is certainl;y hard in this environment of low rates to argue against taking a fixed rate mortgage. You never have to worry about your rate or your monthly payment increasing. But, that comfort does come at a price. Fixed rate loans have a higher rate than ARMs.
ARM products have a 30 year amortization just as fixed rate loans do. The difference is that the rate is not fixed for the life of the loan. There are 3, 5, 7 and 10 years ARMs and the rate is fixed for that respective amount of time. Think of it this way-its risk vs reward. The risk is that if you still have the loan after the fixed period is up, your rate may go up. The reward is that you have a lower interest rate. Strangely enough, because of current market conditions, those that have ARM products that are adjusting now are actually adjusting lower than the start rate. Don't expect that years in the future! Its also important to note that statistics show the average legnth of a loan to be 7 years.
Understanding the principles above leads us to the trends that guide people in deciding which product to take. Those that are buying a home in which they will stay long term tend to look at fixed rate loans. Those that see themselves in the home for 5 or 7 or 10 years, tend to look at the ARM products because the chances of entering the adjustable phase are smaller.
Know the pros and cons of each. Run the numbers and see exactly what the difference is in the payment. Its not rocket science. With that information, make the decision that is best for you or your family.
Friday, November 11, 2011
The mortgage appraisal process and what you need to know
It has been almost 18 months since the implementation of the HVCC appraisal process. It feels like its been 18 years. I understand the idea behind it-reduce the influence of outside sources (loan officers and mortgage brokers) on the apprasiser so the appraisal can be as objective as possible. Certainly, there was a lot of that going on among the worst elements of our business, but for those of us that are above board and have always acted with integrity, unduly influencing appraisers was not in our lexicon.
The problem is multi fold and I want to tackle them one by one:
1. Too much bureaucracy: The system requires that an appraisal management company that works with the bank chooses the appraiser. In some instances, there is a vendor management company AND an appraisal management company. Let me give you one example that speaks volumes. I have a borrower that wants to refinance her co op in Manhattan. I process the loan with the bank and give them the contact information for the managing agent so the appraiser can obtain the required information in order to complete the appraisal. 2 weeks go by and I hear nothing so I decide to pick up the phone and find out what is going on. I call the appraisal vendor company and ask for a status update. Logic would dictate that the vendor appraisal compnay can talk to the appraiser, right? Wrong. The vendor management company puts me on hold and calls the appraisal management company. The apprasisal management company is told we need a status update so they place the vendor management company on hold and call the appraiser. Remember, that I am not allowed to call or speak to the appraiser. Invariably, they cannot get the appraiser on the phone so they leave him a message to call them back. They hang up with the appraiser, take the appraisal vendor company off hold and tell them they left the appraiser a message. The appraisal management company hangs up with the vendor management company and the vendor management company takes me off hold to tell me that a message was left with the appraiser. This all takes about 10 minutes. This type of exchange goes on about 3 times during the course of the appraisal process. So when my client asks me what is going on with the appraisal, how do I explain this to them?
2. The apprasiers: I cannot confirm this as fact but I have been told by an appraiser that I know and trust with an impeccable reputation that the appraisal management companies choose the apprasiers based on lowest price and they "beat them up" to get their prices as low as they can. This speaks volumes. I have also seen instances where apprasiers are chosen who are located very far from the home to be appraised. Familiarity with the area is crucial for understanding values. Especially in NYC with co ops and condos.
3. The variation of values: There are some banks that consistently have very low appraised values and some that are more reasonable. I have seen instances where one bank will appraise a property for one value and another bank, not a few weeks later will appraise it several hundred thousand higher.
4. Lost money to the borrowers: Before HVCC, if a borrower called me to refinance or buy a property and was concerned that the appraised value was not where it needed to be, I could call any one of my trusted appraisers and ask them to do a comp search and give me a good ballpark on the value. Of course, the true value could not be done without an inspection but I knew it would be a good educated guess. I would then order that appraisal and it would be usable at almost every bank. Now, with HVCC, we are flying blind on the appraisal. I have had many client pay for an appraisal, have it undervalued and thus, it kills the deal. If my client starts with one bank and something in the process goes awry, I cannot take that appraisal to another bank. We must order a new appraisal with the new bank. Lost money for the borrower.
By the way, there are banks that still allow us to at least choose from a list of appraisers or if the value is below a certain number, we can choose the appraiser. But this is not typical as most banks require the use of HVCC. Its a tough time in the business and its difficult to close loans. The appraisal process only makes it that much worse.
The problem is multi fold and I want to tackle them one by one:
1. Too much bureaucracy: The system requires that an appraisal management company that works with the bank chooses the appraiser. In some instances, there is a vendor management company AND an appraisal management company. Let me give you one example that speaks volumes. I have a borrower that wants to refinance her co op in Manhattan. I process the loan with the bank and give them the contact information for the managing agent so the appraiser can obtain the required information in order to complete the appraisal. 2 weeks go by and I hear nothing so I decide to pick up the phone and find out what is going on. I call the appraisal vendor company and ask for a status update. Logic would dictate that the vendor appraisal compnay can talk to the appraiser, right? Wrong. The vendor management company puts me on hold and calls the appraisal management company. The apprasisal management company is told we need a status update so they place the vendor management company on hold and call the appraiser. Remember, that I am not allowed to call or speak to the appraiser. Invariably, they cannot get the appraiser on the phone so they leave him a message to call them back. They hang up with the appraiser, take the appraisal vendor company off hold and tell them they left the appraiser a message. The appraisal management company hangs up with the vendor management company and the vendor management company takes me off hold to tell me that a message was left with the appraiser. This all takes about 10 minutes. This type of exchange goes on about 3 times during the course of the appraisal process. So when my client asks me what is going on with the appraisal, how do I explain this to them?
2. The apprasiers: I cannot confirm this as fact but I have been told by an appraiser that I know and trust with an impeccable reputation that the appraisal management companies choose the apprasiers based on lowest price and they "beat them up" to get their prices as low as they can. This speaks volumes. I have also seen instances where apprasiers are chosen who are located very far from the home to be appraised. Familiarity with the area is crucial for understanding values. Especially in NYC with co ops and condos.
3. The variation of values: There are some banks that consistently have very low appraised values and some that are more reasonable. I have seen instances where one bank will appraise a property for one value and another bank, not a few weeks later will appraise it several hundred thousand higher.
4. Lost money to the borrowers: Before HVCC, if a borrower called me to refinance or buy a property and was concerned that the appraised value was not where it needed to be, I could call any one of my trusted appraisers and ask them to do a comp search and give me a good ballpark on the value. Of course, the true value could not be done without an inspection but I knew it would be a good educated guess. I would then order that appraisal and it would be usable at almost every bank. Now, with HVCC, we are flying blind on the appraisal. I have had many client pay for an appraisal, have it undervalued and thus, it kills the deal. If my client starts with one bank and something in the process goes awry, I cannot take that appraisal to another bank. We must order a new appraisal with the new bank. Lost money for the borrower.
By the way, there are banks that still allow us to at least choose from a list of appraisers or if the value is below a certain number, we can choose the appraiser. But this is not typical as most banks require the use of HVCC. Its a tough time in the business and its difficult to close loans. The appraisal process only makes it that much worse.
Tuesday, November 8, 2011
What you need to know about your credit report
In order to get your mortgage approved, there are 3 areas in which you have to pass muster-income, assets and credit. Just a few years ago, that statement wasn't true. If you had good income, but poor assets and credit, you could still get a loan. If you had good assets and poor income and credit, you could still get a loan. Get the picture? Well, those days are gone and have been for quite a while. Now, you must be able to pass the litmus test on all 3 in order to get a loan.
The one that I want to focus on today is credit which in my opinion has taken the hardest hit. The Fannie/Freddie government takeover has caused huge changes to how your credit score impacts your mortgage loan. Here is a perfect example:
Prior to 2007- If you had a 680 credit score or better, you didn't even have to show documentation of income or assets in order to get the best available rate out there up to 80% financing. It was called the Fannie Mae SISA program.
Today- If your credit score is 680 and you want to do 80% financing, your rate will be .375% to .5% higher than the market.
- If your credit score is 739 and you finance 80%, your rate is .125% higher than the market.
-If your credit score is 719 and you finance 70% or more, your rate is .125% higher than the market.
-If your credit score is 659 and you finance 60% or more, your rate is .25% to .375% higher than the market.
The contrast is so dramatic is incredible. A 739 credit score is very, very good yet you are still penalized. By the way, for jumbo loans not owned by Fannie Mae, the credit score requirements have not changed much at all. This is why (if you dont have a jumbo loan) you need to keep your credit as perfect as possible and here are some tips:
1. Do not have too many lines of credit. 4-6 lines is optimal.
2. Keep the balances below 33% or the credit limit. This will insure optimal scores.
3. Never, never, never be 30 days late on a payment. Any payments that are late up to 30 days are not going on your credit report. It's only if you are 30 days late and that kills your scores.
4. If you have a collection and pay it, your scores will go down before going up. Most people do not know this. The only way to get your scores up after paying a collection is to get the collection company or company to remove the collection from your report rather than have it on the report as paid. Most times, you will not get them to do it.
The one that I want to focus on today is credit which in my opinion has taken the hardest hit. The Fannie/Freddie government takeover has caused huge changes to how your credit score impacts your mortgage loan. Here is a perfect example:
Prior to 2007- If you had a 680 credit score or better, you didn't even have to show documentation of income or assets in order to get the best available rate out there up to 80% financing. It was called the Fannie Mae SISA program.
Today- If your credit score is 680 and you want to do 80% financing, your rate will be .375% to .5% higher than the market.
- If your credit score is 739 and you finance 80%, your rate is .125% higher than the market.
-If your credit score is 719 and you finance 70% or more, your rate is .125% higher than the market.
-If your credit score is 659 and you finance 60% or more, your rate is .25% to .375% higher than the market.
The contrast is so dramatic is incredible. A 739 credit score is very, very good yet you are still penalized. By the way, for jumbo loans not owned by Fannie Mae, the credit score requirements have not changed much at all. This is why (if you dont have a jumbo loan) you need to keep your credit as perfect as possible and here are some tips:
1. Do not have too many lines of credit. 4-6 lines is optimal.
2. Keep the balances below 33% or the credit limit. This will insure optimal scores.
3. Never, never, never be 30 days late on a payment. Any payments that are late up to 30 days are not going on your credit report. It's only if you are 30 days late and that kills your scores.
4. If you have a collection and pay it, your scores will go down before going up. Most people do not know this. The only way to get your scores up after paying a collection is to get the collection company or company to remove the collection from your report rather than have it on the report as paid. Most times, you will not get them to do it.
Monday, October 31, 2011
Are low mortgage rates hurting the purchase market?
For the last few months, I have seen lots of chatter on this subject. Twitter comments, articles in major newspapers, etc. It seems that more and more people are asking this question-are mortgage low mortgage rates hurting the housing market? My answer has been and will continue to be absolutely not. Here are some of the arguments that I have seen:
1. By announcing low rates through 2013, you give buyers the ability to sit and wait until the market hits bottom.
On the surface, its sounds logical and plausible but let me explain why I think this holds no water. Put yourself in the shoes of a potential buyer these days. Here is what they are worried about:
a. Losing their job to cut backs due the lousy economy.
b. Not getting their bonus this year. Something they always count on.
c. Rising credit card debt. The bills never stop and they don't get smaller.
d. College education bills.
e. If I lose my job, what are the prospects that I will get another quickly, or at all?
I ask you, will a few hundred dollars in lower mortgage payments or the prospect that real estate values may drop within the next 2 years be a big enough influence to make people buy something? Not a chance. People are frozen by fear because the economy is in the toilet.
2. Everyone is refinancing to a lower rate and in order to recover closing costs fees, the borrowers feel the need to stay where they are for several years.
I have never once heard a borrower say something like that to me. If they see a new house that they want, a few thousand in closing costs will never stand in their way.
I think you would be hard pressed to find someone who doesn't think that the Fed lowered rates to spur the purchase market. That is, other than myself. The Fed knows that consumer sentiment is in the tank and that people are scared to buy. They did it because they wanted to put as much money in people's pockets as they could. Short of a tax cut, refinancing a home loan is the single greatest way to accomplish that. Call it the "homeowner tax cut". Any people that are still buying in this environment could gain from it as well but its intended target are existing homeowners.
1. By announcing low rates through 2013, you give buyers the ability to sit and wait until the market hits bottom.
On the surface, its sounds logical and plausible but let me explain why I think this holds no water. Put yourself in the shoes of a potential buyer these days. Here is what they are worried about:
a. Losing their job to cut backs due the lousy economy.
b. Not getting their bonus this year. Something they always count on.
c. Rising credit card debt. The bills never stop and they don't get smaller.
d. College education bills.
e. If I lose my job, what are the prospects that I will get another quickly, or at all?
I ask you, will a few hundred dollars in lower mortgage payments or the prospect that real estate values may drop within the next 2 years be a big enough influence to make people buy something? Not a chance. People are frozen by fear because the economy is in the toilet.
2. Everyone is refinancing to a lower rate and in order to recover closing costs fees, the borrowers feel the need to stay where they are for several years.
I have never once heard a borrower say something like that to me. If they see a new house that they want, a few thousand in closing costs will never stand in their way.
I think you would be hard pressed to find someone who doesn't think that the Fed lowered rates to spur the purchase market. That is, other than myself. The Fed knows that consumer sentiment is in the tank and that people are scared to buy. They did it because they wanted to put as much money in people's pockets as they could. Short of a tax cut, refinancing a home loan is the single greatest way to accomplish that. Call it the "homeowner tax cut". Any people that are still buying in this environment could gain from it as well but its intended target are existing homeowners.
Thursday, October 27, 2011
What changes mortgage rates?
It's truly amazing how volatile the mortgage market can be. I always tell my clients that rates are like the stock market. They go up and down and can do so several times within a day. It's like trying to hit a moving target. There are many factors that change mortgage rates but I want to stick to a timely topic-The stock market in relation to the EU crisis.
I will start by saying I am not an economist and don't claim to be one. Nor do I play one on TV. Besides, why would the lay person want an intricate explanation anyway? Here it goes:
As a general rule, when the stock market does well, mortgage rates tend to go up and when the market does poorly, mortgage rates tend to drop.
Why is that? The bond market control mortgage rates. When people feel good about investing in the stock market, there is a tendency to move away from the more conservative bond market. More demand for stocks lowers the demand for bonds. When the demand for bonds goes down, their prices go down and their yield goes up. Higher bond yields means higher mortgage rates. The EU crisis is a perfect example of this. Yesterday was a good day for mortgage rates because there were rumors that the talks to put an aid package together was falling apart. If they did, people knew that the market would tank and thus be afraid to invest in the market and thats exactly what happened. There was a "flight to safety" in bonds and mortgage rates dipped.
Once the aid package was announced, a sense of balance and relief was felt by the markets and people felt more secure about investing in the market. Therefore, the demand for bonds dissipated and rates when up today.
Sentiment drives market changes. How people feel about what may happen can and will move markets and of course that includes the mortgage market.
I will start by saying I am not an economist and don't claim to be one. Nor do I play one on TV. Besides, why would the lay person want an intricate explanation anyway? Here it goes:
As a general rule, when the stock market does well, mortgage rates tend to go up and when the market does poorly, mortgage rates tend to drop.
Why is that? The bond market control mortgage rates. When people feel good about investing in the stock market, there is a tendency to move away from the more conservative bond market. More demand for stocks lowers the demand for bonds. When the demand for bonds goes down, their prices go down and their yield goes up. Higher bond yields means higher mortgage rates. The EU crisis is a perfect example of this. Yesterday was a good day for mortgage rates because there were rumors that the talks to put an aid package together was falling apart. If they did, people knew that the market would tank and thus be afraid to invest in the market and thats exactly what happened. There was a "flight to safety" in bonds and mortgage rates dipped.
Once the aid package was announced, a sense of balance and relief was felt by the markets and people felt more secure about investing in the market. Therefore, the demand for bonds dissipated and rates when up today.
Sentiment drives market changes. How people feel about what may happen can and will move markets and of course that includes the mortgage market.
Tuesday, October 25, 2011
What's it like trying to process and close mortgage loans these days.
To the best of my ability, I am going to try and explain what its like trying to get a mortgage loan closed these days. My clients never hear this side of the story as I do a good job of shielding them from the day to day nonsense of dealing with banks in 2011. Frankly, if I told my clients everything I deal with, they would be suicidal and probably not believe half of what I tell them anyway.
Just getting the loan to the bank is much more difficult and paper intensive than it used to be. It used to take me about an hour to put a file together. It takes 3 times that now. The lenders have added (and continue to add) new disclosure forms all the time. Mostly, they are due to new legislation or amendments to current legislation. When we receive them, we most often are not sure exactly how to fill them out and we get very little direction from the banks on how to do it. Added to that, we can speak to 3 different people at the bank and get 3 different answers. Its crazy but a most of the time, the banks are getting no direction from the regulators because the laws are all subject to interpretation. Its the blind leading the blind. The politicians pass the laws and its like the wild west after that. Good examples of this would be the Good Faith Estimate and the Mortgage Broker Disclosure Form. The updated GFE is more than a year old and I still have a hard time explaining to clients how it is structured. Here are some more examples o wha i deal with getting a file to the bank:
1. Most of the dates on the paperwork must match.
2. If some of the documents are not filled out properly, the bank may cancel the loan and the interest rate lock.
3. If you submit bank statements that comprise a hundred pages and the last page of the statement is missing, some banks will suspend the file pending receiving that last page.
Getting the commitment letter can take 2-3 weeks. In a normal environment, it would be 2 days. The appraisal process is a disgrace and that's not an understatement. It used to be that I could order an appraisal through an independent appraiser who I knew and trusted and that appraisal would be good at any lender. Now, the bank orders the appraisal and I am not even allowed to speak to the appraiser. In some cases, I am 3 people removed from the appraiser. What should take a few days, is taking weeks.
We are seeing more bizarre conditions now than ever before. I had 1 bank tell me that he borrower needed to change the address on their drivers license because it didn't match their home address and that they needed to explain why their bank statements were coming to their primary residence. How do you explain this type of stuff to a client? I have seen banks sign off on appraisals and then weeks later ask for additional comparables right before closing. Moving files into the closing department is like pulling teeth.
The positive in all this is that my clients know almost none of this as I do a good job shielding them from the nonsense. Most of the time, all they know is that it takes a little longer to close a loan and there are more documents to sign than before. Their experience is very different from mine but that's the way I want it.
Just getting the loan to the bank is much more difficult and paper intensive than it used to be. It used to take me about an hour to put a file together. It takes 3 times that now. The lenders have added (and continue to add) new disclosure forms all the time. Mostly, they are due to new legislation or amendments to current legislation. When we receive them, we most often are not sure exactly how to fill them out and we get very little direction from the banks on how to do it. Added to that, we can speak to 3 different people at the bank and get 3 different answers. Its crazy but a most of the time, the banks are getting no direction from the regulators because the laws are all subject to interpretation. Its the blind leading the blind. The politicians pass the laws and its like the wild west after that. Good examples of this would be the Good Faith Estimate and the Mortgage Broker Disclosure Form. The updated GFE is more than a year old and I still have a hard time explaining to clients how it is structured. Here are some more examples o wha i deal with getting a file to the bank:
1. Most of the dates on the paperwork must match.
2. If some of the documents are not filled out properly, the bank may cancel the loan and the interest rate lock.
3. If you submit bank statements that comprise a hundred pages and the last page of the statement is missing, some banks will suspend the file pending receiving that last page.
Getting the commitment letter can take 2-3 weeks. In a normal environment, it would be 2 days. The appraisal process is a disgrace and that's not an understatement. It used to be that I could order an appraisal through an independent appraiser who I knew and trusted and that appraisal would be good at any lender. Now, the bank orders the appraisal and I am not even allowed to speak to the appraiser. In some cases, I am 3 people removed from the appraiser. What should take a few days, is taking weeks.
We are seeing more bizarre conditions now than ever before. I had 1 bank tell me that he borrower needed to change the address on their drivers license because it didn't match their home address and that they needed to explain why their bank statements were coming to their primary residence. How do you explain this type of stuff to a client? I have seen banks sign off on appraisals and then weeks later ask for additional comparables right before closing. Moving files into the closing department is like pulling teeth.
The positive in all this is that my clients know almost none of this as I do a good job shielding them from the nonsense. Most of the time, all they know is that it takes a little longer to close a loan and there are more documents to sign than before. Their experience is very different from mine but that's the way I want it.
Tuesday, October 11, 2011
Another refinance boom?
Boy, its been a while since my last post. I have been saying for weeks that I need to write something, anything new. But, I have been so busy with new applications, that I have not had a chance. I guess its good news, but it actually has some downside to it as well. You would think that not having a minute to spare in the last 45 days would mean I have a hundred loans. Well, the answer is no. It is taking 2-3 times longer now to prepare a file for the bank. Additional disclosures, Good Faith Estimates that need to be perfect, making sure the file will get approved at the bank. Loan officers are working much harder now and for less money (but that is a discussion for a different day). It just feels like I have done the work of a hundred loans.
Rates fell below 4% for a 30 year fixed conforming and the rates for ARMs (even the jumbo loan) are off the charts good. In some instances, the rates are below 3%. I recently closed a loan of $900,000 on a 5 year ARM at 2.5%. After the tax deduction, its like free money!!!
There is also a very good government program out there called HARP for those that are underwater or close to being underwater. No its not a perfect program but I think many people don't realize that they can benefit from it.
With Operation Twist in full swing, rates will stay low for a while. The key is to make sure you are prepared. What does that mean? Make sure that you work with your loan officer to have a package ready to go to the bank at a moments notice. Rates are very volatile and can go up and down quickly. If you have the package ready to go, you can lock the rate and get it off to the bank quite quickly. If you lock the rate before having a package ready for the bank, trust me, you will not close within the lock period. Banks are overwhelmed and understaffed. A lethal combination.
Rates fell below 4% for a 30 year fixed conforming and the rates for ARMs (even the jumbo loan) are off the charts good. In some instances, the rates are below 3%. I recently closed a loan of $900,000 on a 5 year ARM at 2.5%. After the tax deduction, its like free money!!!
There is also a very good government program out there called HARP for those that are underwater or close to being underwater. No its not a perfect program but I think many people don't realize that they can benefit from it.
With Operation Twist in full swing, rates will stay low for a while. The key is to make sure you are prepared. What does that mean? Make sure that you work with your loan officer to have a package ready to go to the bank at a moments notice. Rates are very volatile and can go up and down quickly. If you have the package ready to go, you can lock the rate and get it off to the bank quite quickly. If you lock the rate before having a package ready for the bank, trust me, you will not close within the lock period. Banks are overwhelmed and understaffed. A lethal combination.
Friday, August 19, 2011
How to benefit from lower mortgage rates
Wow. The last 2 weeks have been crazy! A tremendous number of inquiries and lots of people taking advantage of the lower rates. I have seen banks below 4% for the first time in my 10 years in the business and from all indications, these are the lowest rates in history.
Anyone who has a mortgage rate of 5%, regardless of the type of loan it is, has the ability to save money on a monthly basis. But its crucial to make try and check every aspect of your deal before submitting your file to the bank. Here are some things that you must think about prior to submission:
1. Type of property- If its a single family home, then its simple. If its a co op or a condo, make sure the building is checked. Just because the bank did a loan in the building 2 months ago, does not mean the building is still approved.
2. Income, assets and credit- Everyone should know this one. Make sure you meet the credit and debt ratio requirements of the bank.
3. Home value- With values continuing to fall, you must be careful and try to assess the value as best you can prior to the appraisal. Federal law no longer allows the appraisal to be ordered before you submit your file to the bank. A law that I believe has hurt the real estate market. Too many people have spent money on an appraisal only to find out the value isnt there and the refinance dies.
If you are thinking about refinancing, now is the time to do it because short of a tax cut, there is no better way to put money in your pocket. Just make sure you have done your homework with an experienced loan officer before moving forward.
Anyone who has a mortgage rate of 5%, regardless of the type of loan it is, has the ability to save money on a monthly basis. But its crucial to make try and check every aspect of your deal before submitting your file to the bank. Here are some things that you must think about prior to submission:
1. Type of property- If its a single family home, then its simple. If its a co op or a condo, make sure the building is checked. Just because the bank did a loan in the building 2 months ago, does not mean the building is still approved.
2. Income, assets and credit- Everyone should know this one. Make sure you meet the credit and debt ratio requirements of the bank.
3. Home value- With values continuing to fall, you must be careful and try to assess the value as best you can prior to the appraisal. Federal law no longer allows the appraisal to be ordered before you submit your file to the bank. A law that I believe has hurt the real estate market. Too many people have spent money on an appraisal only to find out the value isnt there and the refinance dies.
If you are thinking about refinancing, now is the time to do it because short of a tax cut, there is no better way to put money in your pocket. Just make sure you have done your homework with an experienced loan officer before moving forward.
Friday, August 5, 2011
Mortgage rates are down. Refinance activity up
I must say that I am really starting to love twitter. The instantaneous information is terrific but the downside is that its quite hard to make coherent statements in 140 letters. Thank goodness for the blog.
Unless you have been under a rock for the last 10 days, you know that the stock market has tanked. You probably also know that mortgage rates have come down. The typical rule of thumb is that when the stock market declines, there is a flight to safety to bonds and that causes mortgage rates to go down. Talk about the definition of mixed emotions! We are seeing 30 year fixed rates at about 4.125% for a conforming loan and 4.875% for a jumbo. Adjustable rate mortgage are just at obscene numbers. 5 year ARMs in the low 3% range and in some cases, below 3%. Even a 10 year ARM is at 4%.
Several months ago, we actually saw the 30 year fixed below that at 4% and it was always my contention that if it ever hit 4%, there would be a massive refinance boom in which the whole world would take lower rates and put money in their pocket. Well, I was wrong on that one. I will explain that in a bit. Some thought the purchase market would take off and get those that were on the fence, off it. I thought that to be total hogwash and on that one I turned out to be right. My feeling was and is that people prioritize what's important. Will I have my job in 3 months? Will I get a bonus this year? How will I pay for my kids college education? A lower interest rate simply is not enough incentive to overtake the other questions and jump in and buy.
Let's get back to the qyuestion as to why people didnt refinance when the rates hit 4%. I think the answers may tell us why it might not happen again:
1. Much tougher underwriting guidelines knocked many out of the box. Although the financial pedigree may be good, there is a line the banks will no longer cross and too many people were sitting on that line.
2. Many people already had rates in the low to mid 5's because they either bought when rates were really good or they refinanced between 2002 and 2004 when the rates were just as good.
3. Declining home values knocked so many people out of the box. Think about it simply. Many, many people bought their homes with 20% or less as a down payment. Now, values are down 20% to 30% in some cases through no fault of their own. So you start the refinance application and when the house is reappraised, you are hit with a lighting bolt. The house you bought in 2006 for $600,000 with a mortgage of $480,000 is now valued at $500,000. Your loan to value just went from 80% to 96%. That's when you get a disturbing phone call from your loan officer telling you that the loan won't close.
4. Condominium and co op building approval guidelines have gotten much tougher. I can't tell you how many people I turned away because I couldnt even take them back to the same bank only months after the purchase. The argument that they would use with me was sound-"I don't understand. The bank did my loan and approved the building 6 months ago. Why in the world would they say no now?" It wasnt even a question of being qualified because they all were. It was that the building no longer met the guidelines.
So where will rates go? Will they go below 4%? Don't know but I am getting a lot of inquiries. Here is the best advice I can give when rates start to plummet:
Unless you have been under a rock for the last 10 days, you know that the stock market has tanked. You probably also know that mortgage rates have come down. The typical rule of thumb is that when the stock market declines, there is a flight to safety to bonds and that causes mortgage rates to go down. Talk about the definition of mixed emotions! We are seeing 30 year fixed rates at about 4.125% for a conforming loan and 4.875% for a jumbo. Adjustable rate mortgage are just at obscene numbers. 5 year ARMs in the low 3% range and in some cases, below 3%. Even a 10 year ARM is at 4%.
Several months ago, we actually saw the 30 year fixed below that at 4% and it was always my contention that if it ever hit 4%, there would be a massive refinance boom in which the whole world would take lower rates and put money in their pocket. Well, I was wrong on that one. I will explain that in a bit. Some thought the purchase market would take off and get those that were on the fence, off it. I thought that to be total hogwash and on that one I turned out to be right. My feeling was and is that people prioritize what's important. Will I have my job in 3 months? Will I get a bonus this year? How will I pay for my kids college education? A lower interest rate simply is not enough incentive to overtake the other questions and jump in and buy.
Let's get back to the qyuestion as to why people didnt refinance when the rates hit 4%. I think the answers may tell us why it might not happen again:
1. Much tougher underwriting guidelines knocked many out of the box. Although the financial pedigree may be good, there is a line the banks will no longer cross and too many people were sitting on that line.
2. Many people already had rates in the low to mid 5's because they either bought when rates were really good or they refinanced between 2002 and 2004 when the rates were just as good.
3. Declining home values knocked so many people out of the box. Think about it simply. Many, many people bought their homes with 20% or less as a down payment. Now, values are down 20% to 30% in some cases through no fault of their own. So you start the refinance application and when the house is reappraised, you are hit with a lighting bolt. The house you bought in 2006 for $600,000 with a mortgage of $480,000 is now valued at $500,000. Your loan to value just went from 80% to 96%. That's when you get a disturbing phone call from your loan officer telling you that the loan won't close.
4. Condominium and co op building approval guidelines have gotten much tougher. I can't tell you how many people I turned away because I couldnt even take them back to the same bank only months after the purchase. The argument that they would use with me was sound-"I don't understand. The bank did my loan and approved the building 6 months ago. Why in the world would they say no now?" It wasnt even a question of being qualified because they all were. It was that the building no longer met the guidelines.
So where will rates go? Will they go below 4%? Don't know but I am getting a lot of inquiries. Here is the best advice I can give when rates start to plummet:
- Don't have paralysis by analysis. If you like the rate you are quoted, take it. Overanalyzing will do you no good.
- Don't get greedy. You may wait because you think rates will continue to fall but you are taking a risk.
- Be prepared to strike at a moments notice. If you are interested in refinancing, contact your loan officer and ask them to prepare a package for you ahead of time.
- Getting loans to the bank and closed is much more laborious than it used to be. Be prepared to be efficient but have patience once the loan is submitted.
Monday, August 1, 2011
How to make the mortgage process a pleasant one
My father taught me a long time ago that you cannot do a job properly unless you use the right tool. At the time, I pondered the statement and finally said to myself "no duh"! It wasn't until I got older, went into the workforce, got married and had children that I realized this wasn't just a simple saying but rather one that could be applied to all aspects of life. In my case, the mortgage business and for me, the right tool is infomation. Who needs this information? The borrower, the real estate agent and the attorney.
Information that the borrower needs:
1. How much can I afford?
2. Do I have the proper down payment funds?
3. What are my closing costs?
4. Whom am I allowed to get a gift from?
5. Where are current rates?
6. Is a fixed rate or ARM product best for me?
7. What are the steps in the process?
8. What is my monthly payment?
Information the real estate agent needs:
1. Is my borrower qualified?
2. Is the co op or condo nuilding I want to show the potential buyer a viable one?
3. Do they have the post closing reserves to meet the requirements of the board?
4. Can the borrowers afford the house I want to show them?
5. Can my buyers buy the house before they sell their current one?
Information the attorney needs:
1. When will we receive the commitment letter?
2. Are there any conditions in the commitment that are of concern?
3. When will the appraisal be ordered?
4. When will the bank be ready to close?
Closing a loan these days feels like trying to coordinate the Super Bowl. Understanding that, the proper tool to achieve the goal is information and processing it properly. Just think about this-how many times have you called someone needing a price quote or information necessary to get a job done and not received a phone call back? Or, received a phone call after days or weeks? If you have the same experience as me, it happens all the time. Frankly, it amazes me how some people stay in business and thrive. delivering quick and efficient information is the key to a pleasant mortgage experience for al involved.
Information that the borrower needs:
1. How much can I afford?
2. Do I have the proper down payment funds?
3. What are my closing costs?
4. Whom am I allowed to get a gift from?
5. Where are current rates?
6. Is a fixed rate or ARM product best for me?
7. What are the steps in the process?
8. What is my monthly payment?
Information the real estate agent needs:
1. Is my borrower qualified?
2. Is the co op or condo nuilding I want to show the potential buyer a viable one?
3. Do they have the post closing reserves to meet the requirements of the board?
4. Can the borrowers afford the house I want to show them?
5. Can my buyers buy the house before they sell their current one?
Information the attorney needs:
1. When will we receive the commitment letter?
2. Are there any conditions in the commitment that are of concern?
3. When will the appraisal be ordered?
4. When will the bank be ready to close?
Closing a loan these days feels like trying to coordinate the Super Bowl. Understanding that, the proper tool to achieve the goal is information and processing it properly. Just think about this-how many times have you called someone needing a price quote or information necessary to get a job done and not received a phone call back? Or, received a phone call after days or weeks? If you have the same experience as me, it happens all the time. Frankly, it amazes me how some people stay in business and thrive. delivering quick and efficient information is the key to a pleasant mortgage experience for al involved.
Friday, July 22, 2011
New York has the highest closing costs
July 22, 2011
I am sure you will all be thrilled to know that according to Bankrate Inc., NY leads the US as the most expensive state for mortgage closing costs. According to their reserach, origination and title costs on a $200,000 mortgage in NY average $6,183. Nationwide, on the same loan average, the cost was $4,070.
Although, I cannot confirm these figures, it does not shock me. The biggest culprits that I can see are the title fees, appraisal fees and mortgage tax.
In many cases, its impossible to pinpoint your exact closing costs, especially when their are escrows involved but its critical to get a real good handle on what they will be whether it's a purchase or refinance. ask your mortgage professional and your attorney for guidance.
I am sure you will all be thrilled to know that according to Bankrate Inc., NY leads the US as the most expensive state for mortgage closing costs. According to their reserach, origination and title costs on a $200,000 mortgage in NY average $6,183. Nationwide, on the same loan average, the cost was $4,070.
Although, I cannot confirm these figures, it does not shock me. The biggest culprits that I can see are the title fees, appraisal fees and mortgage tax.
In many cases, its impossible to pinpoint your exact closing costs, especially when their are escrows involved but its critical to get a real good handle on what they will be whether it's a purchase or refinance. ask your mortgage professional and your attorney for guidance.
Wednesday, July 20, 2011
Be proactive when shopping for a mortgage
This business used to be much more simple than it is now. A few years back if you had good income, assets and credit, it was a slam dunk. Nowadays, there is no such thing anymore. That's why the buyer has to be proactive when it comes to their mortgage. The tiniest little blip can alter the financing picture and make your mortgage process a very unpleasant one. Here is just a sample of those things that I have witnessed over the last few years. Read them and take notes:
1. If you are taking an ARM product, most banks no longer qualify you at the actual rate you have. Many times they add 2% to the actual rate.
2. Borrowers must show a 2 year history of bonus at the same job. I have had many Wall Street clients that earn significant incomes but couldn't qualify because of a change in jobs.
3. If you are buying into a condo development, is the building approved? Years ago, the banks didn't care how many units were sold or in contract. Now they do.
4. Many lenders no longer allow interst only loans.
5. Many lenders no longer allow interst only on co ops for certain loan amounts.
6. Some Fannie lenders allow up to a debt ratio of 50%, while others are at 45%. Knowing the difference and who does what can make or break your deal.
7. Many lenders use the actual payment from the credit report on a Home Equity Line of Credit to qualify a borrower's liabilities. Others use 1% of the actual line amount. That can be a significant difference.
8. Credit scores that are above 740 can still have a negative impact on rates depending upon the amount borrowed. Know your credit scores!!!!
9. You can still do 90% financing at some lenders but be aware that even though the lender will allow it, the Private Mortgage Insurance Company that insures it may not. Sometimes their guidelines are tougher than the bank.
10. No interest only loans are qualified at the interest only payment anymore. Just the principal and interest payment plus the 2%.
11. If you are buying a co op, does the building have the proper fidelity bond coverage? This covers against malfeasance on the part of the managing agent. 2 years ago, this was a serious problem because almost all co ops did not have the required Fannie Mae fidelity coverage. Now, it's less of an issue but still an issue nonetheless that never existed before.
12. For refinance transactions, the appraisers are being very conservative on values. Years ago, if there was a concern of value, I would always encourage the borrower to do the appraisal before starting the loan application. This ay, it could save a lot of headaches down the road. The law states now that you can't do that.
The idea here is that you must discuss all facets of your situation before getting involved in a contract signing. Don't assume you will have no problem obtaining the financing. It could be the difference between getting your loan or not.
1. If you are taking an ARM product, most banks no longer qualify you at the actual rate you have. Many times they add 2% to the actual rate.
2. Borrowers must show a 2 year history of bonus at the same job. I have had many Wall Street clients that earn significant incomes but couldn't qualify because of a change in jobs.
3. If you are buying into a condo development, is the building approved? Years ago, the banks didn't care how many units were sold or in contract. Now they do.
4. Many lenders no longer allow interst only loans.
5. Many lenders no longer allow interst only on co ops for certain loan amounts.
6. Some Fannie lenders allow up to a debt ratio of 50%, while others are at 45%. Knowing the difference and who does what can make or break your deal.
7. Many lenders use the actual payment from the credit report on a Home Equity Line of Credit to qualify a borrower's liabilities. Others use 1% of the actual line amount. That can be a significant difference.
8. Credit scores that are above 740 can still have a negative impact on rates depending upon the amount borrowed. Know your credit scores!!!!
9. You can still do 90% financing at some lenders but be aware that even though the lender will allow it, the Private Mortgage Insurance Company that insures it may not. Sometimes their guidelines are tougher than the bank.
10. No interest only loans are qualified at the interest only payment anymore. Just the principal and interest payment plus the 2%.
11. If you are buying a co op, does the building have the proper fidelity bond coverage? This covers against malfeasance on the part of the managing agent. 2 years ago, this was a serious problem because almost all co ops did not have the required Fannie Mae fidelity coverage. Now, it's less of an issue but still an issue nonetheless that never existed before.
12. For refinance transactions, the appraisers are being very conservative on values. Years ago, if there was a concern of value, I would always encourage the borrower to do the appraisal before starting the loan application. This ay, it could save a lot of headaches down the road. The law states now that you can't do that.
The idea here is that you must discuss all facets of your situation before getting involved in a contract signing. Don't assume you will have no problem obtaining the financing. It could be the difference between getting your loan or not.
Wednesday, July 13, 2011
Communication, relationships and value are key
Good relationships,communication and value are topics that I have touched on many times in my postings. It is the cornerstone of success in the residential real estate business and there are 2 levels to it:
1. How those relationships and the communication within create value, bringing you repeat and steady business.
2. How that dynamic works once a deal is in play.
You've heard the cliche "it's not what you know, but who you know". Well, how does a cliche become a cliche? Simply by being true. Knowing the right people, building the right relationships is everything in this business. The residential real estate market is a complicated one and demands hard work, diligence, knowledge and good communication skills. The players in the game-attorneys, real estate agents and loan officers cannot do it all on their own. Everyone plays their part and must play it well and just as important, everyone needs each other or the deal will not close. For example:
1. How those relationships and the communication within create value, bringing you repeat and steady business.
2. How that dynamic works once a deal is in play.
You've heard the cliche "it's not what you know, but who you know". Well, how does a cliche become a cliche? Simply by being true. Knowing the right people, building the right relationships is everything in this business. The residential real estate market is a complicated one and demands hard work, diligence, knowledge and good communication skills. The players in the game-attorneys, real estate agents and loan officers cannot do it all on their own. Everyone plays their part and must play it well and just as important, everyone needs each other or the deal will not close. For example:
- Any real estate agent worth their salt will insist that the buyers they work with be prequalified by a mortgage professional prior to taking them to view property. I guarantee you that the vast majority of successful brokers have a "go to" mortgage professional they work with. Successful agents worst enemy is wasted time.
- After speaking to the potential buyer, the mortgage professional should call that agent and tell them exactly what the financial pedigree of the borrower is. This will give the agent all the information they need to know-purchase price, loan amount, type of property (single family, co op or condo), credit scores, etc. Now, everyone is on the same page and everyone knows what is doable and what is not.
- Once a contract is signed, it's my opinion that it's incumbent upon the mortgage professional to reach out to the buyer's attorney either before the loan has been approved or immediately subsequent to approval. During that phone call/e mail, the mortgage professional should let the attorney know where we are in the process, what conditions need to be addressed, etc. If its post approval, the real estate agent should be contacted and told the same information. Again, this is being proactive and gets everyone on the same page.
- Once the bank is ready to close, the mortgage professional should call both the borrowers attorney and the agent to let them know we are all set.
Monday, July 11, 2011
Fannie mae lenders continues to tighten guidelines
Whenever I experience something at my job that I sense will have a major impact on borrowers moving forward, I feel the urge to let you know about it. I recently closed a loan with a Fannie Mae lender that asked my borrower to do something that I have not seen before and when 1 lender starts to do it, it is inevitable that others will follow. Before discussing exactly what it is, I think a little background would certainly help:
For most Americans right now, the job market is a scary place. Companies are not hiring. Bonuses are down or non existent. Unemployment continues to hover around 9%. People are just plain scared of losing their jobs. But, the one thing that never stops are the bills. Like clockwork, they come every month and they need to get paid. For many, credit card debt continues to pile up. One way to battle that debt is to pull equity out of your home at a much lower percentage that you are paying the credit card companies. It's a valid and good way to pay off debt in a sound and reasonable manner. I have had many clients do it and they would call me afterward and say that what I helped them do "changed their lives". It's a really good feeling.
It's fairly simple to understand. Let's say you have $30,000 worth of credit card debt at 12% and you currently have a 30 year fixed loan with a balance of $120,000 at 6%. You can refinance, take out a new loan at $150,000, and pay off the credit card debt at closing. You now are paying all your debts at 6%, you have instantaneously improved your credit and you have some breathing room. Your credit card balances are now at zero. Here is how it's changed:
If the credit cards being paid at closing are revolving lines of credit, the credit card must be closed in order to close the loan.
You can no longer pay off the debt and keep those credit cards. Is that something you would want to do? For some, they would have no choice. Again, not every bank is doing this but I bet we see it more and more. The economy continues to flounder and people need choices to keep themselves going but many of those choices are disappearing.
For most Americans right now, the job market is a scary place. Companies are not hiring. Bonuses are down or non existent. Unemployment continues to hover around 9%. People are just plain scared of losing their jobs. But, the one thing that never stops are the bills. Like clockwork, they come every month and they need to get paid. For many, credit card debt continues to pile up. One way to battle that debt is to pull equity out of your home at a much lower percentage that you are paying the credit card companies. It's a valid and good way to pay off debt in a sound and reasonable manner. I have had many clients do it and they would call me afterward and say that what I helped them do "changed their lives". It's a really good feeling.
It's fairly simple to understand. Let's say you have $30,000 worth of credit card debt at 12% and you currently have a 30 year fixed loan with a balance of $120,000 at 6%. You can refinance, take out a new loan at $150,000, and pay off the credit card debt at closing. You now are paying all your debts at 6%, you have instantaneously improved your credit and you have some breathing room. Your credit card balances are now at zero. Here is how it's changed:
If the credit cards being paid at closing are revolving lines of credit, the credit card must be closed in order to close the loan.
You can no longer pay off the debt and keep those credit cards. Is that something you would want to do? For some, they would have no choice. Again, not every bank is doing this but I bet we see it more and more. The economy continues to flounder and people need choices to keep themselves going but many of those choices are disappearing.
Tuesday, July 5, 2011
What you need to know about closing costs
Whether you are buying or refinancing, it is essential to know what your costs will be prior to applying for the loan. Let's deal with purchase transactions first. Buying a home can be very stressful and confusing and you can add 2 layers to that if you are buying property in New York. You are worried about all sorts of things like down payments, movers, interest rates, etc. For the most part, the closing costs that the lender charges are minor compared some of the other items like title insurance and real estate tax escrows. Title insurance is a state mandated number based on the loan amount. Then, you have your "ancillary" title fees like searches and recording fees that quickly add up. Your title bill can easily run into thousands of dollars.
If you want to pay your taxes with your mortgage payment (as most people do), realize that the bank is going to collect any taxes due within 60 days of closing PLUS collect anywhere from 2-6 months of taxes for the escrow account. The bank wants an assurance that they can pay your taxes if you skip payments or pay late. In some parts of the the country (especially the suburbs of NY) the tax burden is tremendous and the taxes collected at closing far surpass the closing costs that the bank charges.
On a refinance transaction, your closing costs are very similar to that of a purchase. Here are the major items to keep in mind when dealing with a refinance:
1. Unlike a purchase, you can include the closing costs in the new loan and not (in theory) have to come out of pocket to pay those costs. Many people do that but they must realize that they are financing those costs over the life of the loan.
2. Even if your refinance with the same bank that owns your mortgage now, they will probably set up a new escrow account. You will get back whatever is in your old account within 30 days of closing.
3. Even though you took out title insurance when you bought the home, you arr required to get a "re issue" of title insurance for the refinance. The premium is about half of what it was when you purchased the home.
Whether you are purchasing or refinancing, you have to know what your costs are. I have heard of too many instances where the borrower gets to closing and they are shocked by the outlay of money that is needed because they weren't informed of the real costs. Don't let that happen to you.
If you want to pay your taxes with your mortgage payment (as most people do), realize that the bank is going to collect any taxes due within 60 days of closing PLUS collect anywhere from 2-6 months of taxes for the escrow account. The bank wants an assurance that they can pay your taxes if you skip payments or pay late. In some parts of the the country (especially the suburbs of NY) the tax burden is tremendous and the taxes collected at closing far surpass the closing costs that the bank charges.
On a refinance transaction, your closing costs are very similar to that of a purchase. Here are the major items to keep in mind when dealing with a refinance:
1. Unlike a purchase, you can include the closing costs in the new loan and not (in theory) have to come out of pocket to pay those costs. Many people do that but they must realize that they are financing those costs over the life of the loan.
2. Even if your refinance with the same bank that owns your mortgage now, they will probably set up a new escrow account. You will get back whatever is in your old account within 30 days of closing.
3. Even though you took out title insurance when you bought the home, you arr required to get a "re issue" of title insurance for the refinance. The premium is about half of what it was when you purchased the home.
Whether you are purchasing or refinancing, you have to know what your costs are. I have heard of too many instances where the borrower gets to closing and they are shocked by the outlay of money that is needed because they weren't informed of the real costs. Don't let that happen to you.
Tuesday, June 28, 2011
Important mortgage underwriting guidelines everyone needs to know
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.
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 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.
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