Sep
17
Bait and Switch becomes the Norm
Filed Under mortgage, rates, rocky mountain news | Leave a Comment
Bait and switch is a sales tactic that seems to infiltrate every segment of industry. The words “sorry, that’s no longer available, but we have this ___(fill in the blank) available” could fit the car, computer, electronic, et. al. industries.
When your dealing with your homes financing, the last thing you really want to hear is that your mortgage term and rate are no longer available. However, in today’s mortgage world, the mortgage program that you were offered probably was available yesterday but may not be available today.
Home buyers and owners refinancing mortgages are increasingly finding at the closings that their lender isn’t honoring the deal they thought they had locked up.
Read the full story: Tough words on mortgage fraud
Jan
10
Links: You’re fired!
Filed Under personal finance, real estate | Leave a Comment
If you’re a loyal reader, you’ve noticed that I post “Links: yada yada yada” more frequently. As I’ve mentioned numerous times, I’m a huge NY Jets fan and I visit thejetsblog.com quite a bit. Rather than disseminating all the information contained in each article, Bassett (the main blogger on the Jets Blog) would just post a list of links to various articles. I found it to be very effective and if the one sentence summary made the link either click worthy or not. That being said, here are links to various articles of interest:
- 25 Rules to Grow Rich by is old (November 2006) by Internet standards but this list includes 5 real estate related rules:
- For return on investment, the best home renovation is to upgrade an old bathroom. Kitchens come in second.
- It’s worth refinancing your mortgage when you can cut your interest rate by at least one point.
- Spend no more than 2½ times your income on a home. For a down payment, it’s best to come up with at least 20%.
- Your total housing payments should not exceed 28% of your gross income. Total debt payments should come in under 36%.
- Never hire a roofer, driveway paver or chimney sweep who is going door to door.
- While your at it, CNN Money has another article on how technology especially social networking sites are helping consumers make choices on real estate agents, neighborhoods, and even deciphering what their house is really worth.
- One of the sites mentioned in the CNN Money article, Homethinking, allows you find and rate real estate agents. One quick glance shows that none of the real estate agents have been rated. Moreover, they allow agents to pay their way to the top of the list via sponsored profiles.
- Americans are struggling to afford a home. The American dream is getting harder to achieve because buying a home is out of reach. For those of us who grew up near New York City, renting an apartment in the city much less buying a home was always out of reach.
- Donald Trump has stated that he wants to raise the bar in the lending game. He should start by stop focusing on Rosie and start firing his top mortgage guy.
Sep
26
A letter from a reader
Filed Under mortgage | Leave a Comment
I get a lot of email. Some are linking requests. Some are spam that somehow get through GMAIL’s spam filter. Some are mortgage requests. Some are mortgage questions. Some are mortgage vendors trying to sell me something.
On Sunday, I received a well written argument from a reader who asked me to post his response to the Denver Post article NO MONEY DOWN: A HIGH RISK GAMBLE.
Phil,
I enjoy frequenting your blog, and wanted to be sure to share this with you. I am an independent Mortgage Broker with my own company Source Financial LLC, and I wrote an extended response to The Sunday Denver Post’s lead article from September 17, 2006 entitled “No Money Down: A High-Risk Gamble” [www.denverpost.com/ci_4347686].
I found the Denver Post article to be riddled with misrepresentations, one-sided accountings, and dangerous misinformation, all supporting a traditionalist approach to mortgages that has put two-thirds of all families into home ownership, but yet has led to a situation where the average fifty year-old American is worth negative $7000, only 5% of Americans retire at age 65 in financial dignity, and 9 out of 10 Americans die in debt.
In reference to my 2000 word response, Denver Post Business Editor Stephen Keating indicated that “I will take the time to read it and digest your observations, and discuss it with the rest of the reporting/editing team here.” Article author and Denver Post Business Writer Greg Grifffin wrote “This is a well-reasoned and well-supported argument. I don’t agree with everything you’ve said, but you’ve managed to get me thinking.” Unfortunately, checking today’s (September 24) Sunday Denver Post and www.denverpost.com, my response remained unpublished…
A Response to “No Money Down: A High-Risk Gamble” – The Sunday Denver Post, September 17, 2006 lead article [www.denverpost.com/ci_4347686]
As an independent Mortgage Broker that owns my own company, Source Financial LLC, in addition to being affiliated with a larger mortgage company that handles the processing and servicing of my loans, Lion Financial Corporation, I read the lead article “No Money Down: A High-Risk Gamble” with great interest. Knowing that a lot of folks along the Front Range turn to the Denver Post as an objective source for information, I was shocked and dismayed by much of the information and conclusions that were put forth on a topic that already invokes a fight or flight response among many home owners.
100% financing loans have been an amazing tool that has greatly contributed to the 5% increase over the last twenty years in percentage of homes occupied by the owner. But it is not the lack of equity that is putting these borrowers into jeopardy, it is a lack of a flexible asset base to deal with changes that has been increasing the risk of these folks defaulting. In general, people that utilize 100% financing for home purchases usually are lacking the liquid assets, emergency funds, and overall wiggle room to deal with financial hardship.
Of course lenders usually have guidelines concerning liquid asset reserves that must be held by the borrower in order to qualify for a loan, but often they only require enough to cover two to four months of mortgage payments. When people do face catastrophic events rightfully referenced by the Denver Post, “job loss, medical problems and divorce,” those reserves can often quickly disappear.
But having equity in one’s home when faced with these situations does not “give homeowners options when they face financial problems,” because it is precisely when folks are facing such dilemmas that they are quite often unable to qualify for refinancing, as at that point in time they are too high risk of a borrower for lenders to work with. As a Mortgage Broker I am deeply disturbed by this fact, but unfortunately it is a reality that we all must face when dealing with banks and lenders.
And probably the most misunderstood aspect of homeownership is the fact that equity is a ZERO PERCENT RETURN INVESTMENT. Yet two-thirds of Americans hold the majority of their wealth in home equity, which is a non-liquid asset that gives them absolutely zero return. Many people confuse appreciation, which is the increase in home value due to market trends, with getting some kind of return on their equity, but that is a common misconception. That is why it is so important for homeowners to separate their equity from their home via refinancing, and put those “cashed out” funds into investment vehicles that offer an actual rate of return. In doing so, homeowners increase their overall liquidity, improve their capacity to face emergencies, reduce their financial risk, increase their rate of return, improve their tax deductions, and diversify their investment portfolio.
Instead of spending their liquid asset base (savings) to finish their basement and send money to their parents, such as in the case of Jose Garcia and Maria Vanderhorst, borrowers with 100% financing have to exercise greater financial discipline. And putting money down and getting into a 30-year fixed would not have improved their situation, as then their down payment would be tied up as equity, which is a non-liquid asset, money that can only be accessed through refinancing or by selling their home.
100% finanacing loans are not dangerous, what is dangerous is borrowers not having a liquid asset base to deal with life’s contingencies. Unfortunately, these are the type of borrowers that tend towards 100% financing, as it really is their only option for home ownership. And tying up their wealth in the straightjacket known as equity is not part of the solution, it is part of the problem. An incredible means to access equity for the purpose of greater fiscal flexbility and all the other goods mentioned above, or “cashing out equity as one goes,” is the Option-ARM loan, which received quite a misguided slamming in the Denver Post article.
The Payment Option Loan gives the borrower four different payment options each and every month: they can make an Interest Only, 30-Year amortized, or 15-Year amortized payment based upon the fully indexed interest rate, or they can make the minimum payment that is based upon a very low “start rate” (usually between 1% and 4%), which involves deferring interest (a.k.a. negative amortization), or adding the difference between the Interest Only payment and the minimum payment onto the principal of the loan. Now while most lenders offer the Payment Option Loan with an adjustable fully indexed rate, one that starts adjusting as early as the first month, some lenders offer the Payment Option Loan with a fixed interest rate for the first five years.
The Payment Option Loan has proven to be a favorite of Real Estate Investors and Real Estate Agents, as it frees up extra cash flow on a monthly basis for much greater investment opportunities. Knowing that equity is a zero percent return investment is some powerful information to have.
The annecdote concerning Louis and India Harts conflated the fixed “start rate” with the adjustable “fully indexed rate”, such that readers were left with the impression that the Harts’ interest rate went from 2.6% to 8.1%. The start rate, which determines how much the minimum payment will be, is not a “teaser rate” that “quickly shoots up”. Some lenders do gradually increase the minimum payment itself (not its determining start rate) on an annual basis, usually somwhere in the range of 7.5% per year, to keep the borrower from deferring too much interest. But the start rates is always otherwise a fixed rate. It is the fully indexed rate, upon which the Interest Only, 30-Year amortized, or 15-Year amortized payments are based, that is adjustable is this case. And this fact is consistent with the numbers quoted in the article: the minimum payment of $919 the Harts are making would be the combination of $721 (2.6% start rate on a $180,000 loan) and $198 of escrowed Property Taxes and Hazard Insurance, which is approximately what they would be for such a home.
In the Harts’ particular case, they are going to have plenty of time to refinance before their loan starts to recast when the principal hits 115% (which would be $207,000 in their situation), as they will be well below that total when their three year prepayment penalty period is up. So the answer to Louis’ “I don’t know how we’re going to do it,” is that when those three years are up, they’ll refinance and get themselves into a loan that they feel more comfortable with and educated about. Though given their situation, if properly understood the Payment Option Loan really is their best option.
My question is how can mortgage products themselves be blamed for foreclosures? At best the article points towards a correlation, but demonstrating causation surely requires more than offhanded references to what some unnamed experts stated the next wave of defaults “may” come from. Beyond unpredictable catastrophic occurences like job loss and overwhelming medical bills, foreclosures occur because borrowers are getting into loans that they do not understand, and often they do not know that they do not understand the mortgage product. It is the responsibility of the Mortgage Broker to completely explain all the details of any mortgage product to the borrower. But it is also the responsibility of the borrower to be certain that they understand the terms of loan before signing off on it at closing. Vehicles and guns both kill in the range of 35,000 Americans each year, but it is the human misuse due to lack of education, ignorance or simple negligance that creates this reality, much like in the mortgage scenario.
Every different mortgage product serves its purpose, and what works for one borrower will not work for another given the specifics of their situation. To label certain categories of loans as “high-risk gambles” or as leaving “no room for slips” ignores the millions of families that are in these loans and find that they very much work for them. It is also a disservice to consumers to mislead them with such one-sided representations.
The true irony of the lead piece in September 17th Sunday Denver Post is that the conclusion that “Option-ARMs… could fuel a surge in foreclosures in the next few years” is the opposite of what we find is actually going on in the mortgage industry, as Payment Option Loans have proven to have the lowest foreclosure rate of any mortgage product currently on the market. World Savings is a bank that specializes in this product, which they refer to as the Pick-A-Pay Loan, as more than 90% of the loans they outfit borrowers with are of the Option-ARM variety. As a lender they have less than a 1% percent foreclosure rate! But World Savings, along with the independent Mortage Brokers like myself that they work with, take on the responsibility of educating the borrowers as to how to properly and smartly manage this incredibly powerful mortgage product.
A lot of mortgage brokers I know will not touch Payment Option loans, but I believe that is primarily because they are not all that interested in educating the consumer. Why not just throw them into a 30-year fixed APR mortgage? Everyone pretty much knows how that works. But that is also how banks make of the most money off of borrowers! The “list of higher-risk, alternative mortgages” the article refers to are not only not necessarily higher risk (Payment Option loan has the lowest risk, as discussed above), but they also provide the borrower the opportunity to increase their monthly cash flow by lowering their monthly mortgage payments by as much as 40%. In this way consumers are empowered to “become the bank” and grow their own investment portfolio, rather than falling into the trap of handing over their hard earned capital to the banks in the form of a large down payment or paying down principal so that they can have more of a zero percent return investment, equity.
Affiliates of Lion Financial Corporation, like myself through my company Source Financial LLC, do not shy away from the privilege or responsibility of educating our clients how to properly utilize alternative mortgage packages. And why is this? Because when families are taught smart mortgage product and equity management, they learn to utilize their mortgage as a financial tool for building wealth, which easily makes a $500,000 to $1,000,000 difference for the borrower over the next fifteen to twenty years. The affluent have always understood how to leverage their mortgage, pay as little down as possible, and keep very low monthly payments in order to increase cash flow for investment purposes. The American middle class is being transformed by engaging in these very same concepts and increasing their fiscal discipline, and I absolutely would not have it any other way.
Brent Ritzel
President/CEO, Source Financial LLC
Denver, Colorado, USA
An affiliate of Lion Financial Corporation
303-590-8999
Brent.Ritzel@lionfinance.com
Jul
26
NY Times articles explores mortgages and real estate
Filed Under mortgage, personal finance, real estate | Leave a Comment
While reading the Rocky Mountain News, I noticed the main mortgage/real estate article (Housing market shows signs of wear and tear) was by a NY Times writer. So I ventured over to the NY Times and noticed they had a slew of articles on mortgage and real estate that aren’t NY specific. To view these articles you will need a login and password.
- Sales Slow for Homes New and Old
Selling a new home is getting harder and harder: just ask the builders who are being forced these days to entice potential buyers with expensive inducements like free swimming pools and fancy kitchen cabinets.
- Re-Refinancing, and Putting Off Mortgage Pain
It is the latest twist in the gravity-defying world of the high housing prices and exotic low-rate mortgages: As monthly payments on adjustable-rate mortgages are starting to balloon, many Americans have found a way to put off the day of reckoning.
- Cashing In on Home Equity
NEAR-RECORD numbers of owners are still cashing in on the increased value of their homes, and they continue to use that cash for purposes that raise eyebrows among financial advisers. Yet, because the housing market has been so strong in recent years, it is unlikely that the free spending will undermine most borrowers’ long-term financial health.
- Mortgage REIT’s Are Aloft, but Dangers Remain
SOME investors who are new to the market of real estate investment trusts may not know that a small percentage of REIT’s don’t own any real estate. Instead, these companies hold the mortgage debt used to finance property or lend money themselves to owners and developers.
Mar
8
Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.
Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.
The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!
However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down.
In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.
To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.
There are many different types of loan programs available, including “low†and “no†down payment mortgage programs. These types of programs require the borrower to provide less than 3 percent of the loan amount as down payment. FHA lenders rule that the mortgage payment, including principal, interest, taxes and insurance (PITI) should not exceed 31 percent of your gross income, and the PITI plus other long-term debt (car payments, etc.) should not exceed 43 percent of your gross income.
Housing is an expense that takes a big bite out of the monthly budget. If you are a renter and feel that “home†is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a home owner.
Mar
8
Consumers interested in purchasing or refinancing a home will pay an interest rate based on current market conditions and their ability to pay back the loan. The borrower’s income and debt ratios are taken into consideration by the lender, as well as the predictability factor provided by credit scoring. It’s important to have a mortgage professional in your corner that has a keen eye for solutions to improving credit scores in an effort to get the best interest rate possible.
Interest rates associated with various loan programs are broken down into schedules based on credit score ratings. While each lender has its own guidelines, it’s safe to assume that as the consumer’s credit score goes down, interest rates will go up.
A borrower with an outstanding credit rating will get what is called an A-paper loan. This type of borrower is rewarded with a lower interest rate because they have a proven track record of using credit sensibly and paying their bills on time.
Loans designed for consumers with less-than-perfect credit – sometimes referred to as “sub-prime†– can range anywhere from A-minus, B-paper, C-paper or D-paper loans.
If you have already taken out a mortgage loan with a higher interest rate because your credit score was a little under par, you will really appreciate the value in doing a little work to improve your credit score. Refinancing from a D-paper loan to a B-paper classification can save literally thousands of dollars in financing fees over time, even though the B-paper loan is still considered sub-prime.
A qualified mortgage consultant will guide you through the nuances of the process of improving your credit score to refinance and save money. First and foremost, he or she will want to review the terms of the existing mortgage loan to determine if you have a pre-payment penalty clause written into your contract. In general terms, that means that if you sell the home or try to refinance before the pre-payment penalty expires and you have not already paid off 20 percent of the original loan amount, you will most likely have to pay a 3 percent fee back to the lender to compensate for the high risk and high costs incurred to provide that financing.
Next, you should obtain free copies of your credit reports from www.annualcreditreport.com and start working on improving the credit score six months prior to the expiration date on your existing pre-payment penalty.
There are five factors that make up the credit score and your mortgage consultant can coach you through some basic strategies to improve your credit score. This means very conservative use of credit cards, paying off debt as much as possible and not applying for additional credit cards unless you will benefit from such action. You will want to verify that negative items you have paid off are being removed from your credit report, and that good credit history is being reported to all three bureaus. You’ll also want to dispute any errors that appear on your credit reports and seek to have those removed entirely.
Once your credit score improves, it’s time to refinance at a better interest rate. Your mortgage professional should look for a program that carries no more than a two-year prepayment penalty so you can continue to refinance as your credit score increases. You can repeat this process until you reach A-paper status and secure the best interest rate available.
This is a strategy that also works well for first time home buyers who do not have enough credit history under their belt to get an A-paper loan at the time of purchase. The important thing is to work with a mortgage consultant who can give you a road map to follow and a strategy for success in building personal wealth.
Jan
2
Mortgage Refinance
Filed Under mortgage | Leave a Comment
A mortgage refinance is done by applying and qualifying for a new mortgage loan and then using the proceeds from the new home loan to pay off the old home mortgage loan. You can refinance for many reasons: to take cash out of the equity in your home, to lower your interest rate, to lower your mortgage payment, to simply switch mortgage companies because you are not pleased with your current mortgage company, to consolidate debt, to pay off high rate credit cards, to lower the term of your mortgage, to increase the term of your mortgage, to combine a first and a second mortgage, to switch from a fixed rate to an adjustable rate, or to switch from an adjustable rate to a fixed rate, and for many, many other reasons
When refinancing in order to payoff credit card debt, keep in mind that credit cards are unsecured debts. When you refinance, you are transferring unsecured debt into debt secured by your home. Make sure you are financially savvy enough not to continue the patterns that resulted in the credit card debt or your could be putting your home at risk.
One of the most popular reasons for doing a mortgage refinance would be to obtain funds for improvements on the home. Since the money spend on such improvements often directly increases the value of the home, it is a very sensible way to obtain such funds. Some of the most popular improvements include new kitchens and bathrooms, new windows, landscaping and swimming pools.
Jan
1
Why should I refinance?
Filed Under mortgage | Leave a Comment
Many homeowners are using the appreciation in there homes to get rid of high rate credit cards by consolidating. When you consolidate your loans you often reduce the amount of money your spending each month.
One of the main benefits to refinancing is to consolidate consumer debt. Consumer debt (i.e. Credit Cards ampersand Auto Payment) is typically at a higher interest rate and is never tax deductible. Interest paid on debt tied to your home is deducted from your income at the end of the year often substantially reducing your tax liability. This tax favorable status is one of the many benefits of refinancing.
Refinancing your home can save you hundreds per month when you consolidate debt.
What if you want to add on, remodel or update the kitchen? You may not have the cash to do so, but the cost of improvements may be more than covered by the increase in value of the home. This is a great use for a home equity line of credit or a cash-out refinance.
Many people refinance to change from a variable rate to a fixed one or vice versa. Refinancing a high interest rate after a 24 month good payment history could save you a lot of money on your monthly payment.
If planning to purchase investment property, refinancing your primary residence is a great way to raise the cash for the down payment required.
Always consider your long term benefits of doing a refinance. The interest rate is not the most important aspect of the transaction. Even if your current rate is lower, you will probably save more money over time with a debt consolidation refinance then you would be with maintaining the situation you are currently in. Ask yourself a few questions: How long have I had this balance on my cards? At the rate I am paying my credit card debt down, how long will it actually take to pay them completely off? What will be my total cost once I have paid off all my credit card debt?
You can refinance to switch to an interest only loan to maximize cash flow or to switch to a Pay Option ARM to provide yourself with a lot of flexibility in your monthly mortgage payment. Some people also refinance simply to get a way from their current mortgage lender because they are not pleased with them.
Another main benefit of refinancing is to get out of PMI (Private Mortgage Insurance). In most cases if your Loan-To-Value was above 80% when you moved into the home then you most likely got stuck paying PMI. Your home may have appreciated quite substantially over the past year or two and with a new lender they will take new appraised value thus eliminating PMI.
Most people refinance to because of changes in their financial situations. Some, after determining that they can afford a bigger mortgage payment, refinance to a shorter loan term to save on the total amount of interest charges. Others, after experiencing a decrease in income, may refinance to a longer term loan to take advantage of the lower monthly payments. Yet others refinance to withdraw from the equity built in their homes for other financial purposes.
Using equity in your home to pay off high rate loans (credit cards, auto loans, etc.) may have certain tax benefits also. Consult your CPA for more information.
Many homeowners refinance to pull out cash to purchase another property.
To reduce the term or length of your loan, doing so can save you thousands of dollars in interest.
Jan
1
When is the right time to refinance?
Filed Under mortgage | Leave a Comment
Random thoughts on when is the right time to refi:
This is a question that only you can answer. Many lenders will tell you that you ‘need’ to refinance if it is going to save you $50 or more per month. You have to ask yourself if the costs of doing the loan will outweigh the benefits that you will receive from the new loan. A good loan officer can help you determine this by finding out what the cost of the new loan will be, and what your new payment will be. From there, it is up to you to determine if it is really in your best interest.
There are some basic “no brainer” times to refinance. If your credit was less than perfect and your mortgage is an ARM with a short fixed period (2 or 3 years) you should plan to refinance just before you enter the adjustment period. Once you enter the adjustment period your rate could increase by as much as 2%. You should refinance to a fixed rate mortgage, you will most likely lower your payments or keep your payments and go to a shorter term such as 20 or 15 years
The right time to refinance really depends upon your current financial situation and what you need to do to get into a better financial situation. If you are looking to consolidate debt and bills into your mortgage, then you will need to wait until you have enough equity built up into your home to do this. If you simply want a lower rate and or term then you should consult your mortgage professional to see if the benefit of refinancing makes enough financial sense to you. Therefore, each unique situation requires it’s own personal analysis to see when the right time to refinance may be.
Many people refinance and use cash taken out to purchase investment properties. While this certainly isn’t for everyone, real estate investment can be very lucrative and can many times require very little cash out of pocket. If you are considering buying an investment property and would like to take cash out of your equity ask your mortgage professional how this can work for you.
Jan
1
While many borrowers are concerned with what they need to do in order to qualify for a mortgage, there are also a number of things that borrowers should not do once approved for a loan.
In addition it’s a good idea to give yourself a couple of extra days if possible to schedule movers, landscaping companies or and other repairs for the new house. This will give you extra time to get the closing completed and the transaction funded. If you schedule movers or other companies the same day as closing or even the day after you might be in for a stressful situation if for any reason the closing is delayed.
Always consult with your mortgage professional when there is a question regarding any of this because it can cost you your home loan.
After applying for a mortgage do not let anyone pull your credit or apply for any new credit at all. Try to keep everything the same as far as credit goes as when you where initially pre-approved unless told different by your loan officer.
Do not ignore to tell your mortgage broker about any material changes in the purchase agreement you and the seller come to agree upon after the mortgage process has begun. A slightly lower sale price can alter the loan-to-value ratio and requires re-submission of loan documents. Your mortgage broker and lender have to be made aware if any addendum is later attached to the purchase contract.
After applying for a mortgage be sure to advise your loan officer to any changes in your marital status or name changes. This will help you avoid problems with the final closing documents and/or title problems.
Be certain not to lease a car or allow a car dealer to “pre-qualify” you for a car lease or loan. It doesn’t matter whether or not the car is new or used, because either way this would fall under the category of taking on new debt, and is a very common reason for individuals, particularly those making purchases for the first time, run into complications with their mortgage application process after the fact. If you have any need to make any further applications for substantial credit, please give us a call.
Do not take on new debt. The temptation is strong. There are so many big purchases that people want to make in connection with a move: appliances, window treatments, furniture, etc. When you add to this the fact that, today, everyone offers easy terms and no money down—well, why not just do it? Answer: because you will change what the mortgage industry calls your “debt-to-income ratios” (the relationship of your income to your debt).
Do not change jobs. If at all possible, try not to make a career move during the time between your mortgage application and the closing on the home you are purchasing. But, you ask, “What if it’s a BETTER job, for MORE money, in a DIFFERENT field?” Still, try and wait until AFTER closing. One of the factors mortgage companies consider is length of present employment; they are partial to stability. At the very least, changing jobs initiates the need for more paperwork, and may delay your closing.
Do not pack too soon. Well, go ahead and pack your clothes and dishes. But do not pack your bank statements, tax returns, or other important paperwork. Most especially, do not pack your checkbook! More than one buyer has had closing delayed while a friend or relative hurried over with additional funds because the checkbook was in the moving van.
Do not lease a new car. This should go under the general heading of “no new debt.” It is highlighted here because, for some strange reason, many buyers do run right out and lease a new car during the time between mortgage application and closing! As with any debt, this will change your “debt-to-income ratios” and may cause you not to qualify for your mortgage.
Do not stop making your regular monthly payments after applying for a mortgage. Borrowers refinancing their home to payoff other debts sometimes stop making their regular monthly payments because they are going to payoff the debt. This can cause problems during the loan process because not making payments on time may hurt your credit rating. Lower credit scores may cause your interest rate to go up or result in you being denied credit.
Once you apply for a mortgage to refinance or for a home purchase your job is not done. Be involved, don’t just wait for the call to schedule the closing. Check with your mortgage broker, find out what is going on with your loan, talk to your realtor make sure everything you want done is getting done. Be proactive not reactive, don’t wait for a problem then rush to solve it, work to prevent any issues form happening in the first place.
Do not pay off any old collection accounts on your credit report unless you were specifically told to do so by your mortgage professional. Paying off old collection debt will often signal to the credit reporting agencies that there is new activity on an negative entry and actually lower your credit score.