What’s First? The House or the Mortgage?
October 20th, 2011 § Leave a Comment
Most people get it backwards. They shop for a home, THEN, they try to structure the financing for it. They make the emotional decision of buying the home of their dreams, THEN, try to apply logic in how they pay for it. Many even go “online” and play with what is affordable by underwriting standards without TRULY considering their future.I am always fascinated by mortgage underwriting “standards” when they don’t even take into account some very large variables that affect an applicant’s cash flow, and thereby, their ability to repay the loan or maintain a lifestyle they want:
- Are you single or a family of six? Costs for food and clothing alone are very different.
- Do you live in a state that requires State Income Tax or not? Another significant part of the equation.
- How often do you like to eat out or vacation? Are you willing to sacrifice these things for a bigger or nicer home?
Falling in love with a home without considering the REAL impact on your lifestyle is a recipe for unhappiness….either in re-adjusting to a “lesser” home or disappointment over the lack of vacations or nights out.
My advice is to first work on your financing. Go the logic route. Find out what you can afford from a lender’s underwriting perspective, but then, spend some time considering the the cash flow realities of your choice. Work with your loan officer to make wise choices.
Additionally, your loan officer should be advising you on ways to properly represent and transfer your assets, how to explain and document your income, as well as, assisting you in methods to get your optimal credit score. This counsel can be invaluable in smoothing out some of the bumps in the mortgage process, besides giving you the best chance to get the most aggressive pricing available.
To me, the choice is crystal clear…the mortgage before the house!
Tips To Present a Stronger Mortgage Application
October 6th, 2011 § Leave a Comment
As underwriting guidelines for lenders become more stringent, we need to re-examine what a good mortgage application looks like. As home buyers begin their search for a home, there are a few items they should be aware of that they can do to help get their loans approved (with the best possible terms), and, at the same time, lessen some of the stress that goes along with the mortgage process.
1. Income documents
Most lenders want to see a full month of paystubs and two years’ complete Federal Tax Returns. Assembling them ahead of time and holding on to every paystub you get is a good idea even before you find a home and/or submit your mortgage application because it will save you time later. Moreover, looking at those documents and being prepared to explain any deductions that show up is crucial. Child support, alimony, garnishments, and Unreimbursed Employee Expenses are often crippling factors that, if explained and dealt with upfront, can make your loan approval smoother.
2. Asset documents
Most lenders will scour your bank accounts for the two months prior to going to contract. They are looking for large deposits because large deposits can signal a new loan that wouldn’t show up on your credit report yet. What’s a “large deposit”? Typically, any deposit that would represent more than your income can support. If you make $5000 a month, after taxes you likely net $3800 (or $1900 a bi-weekly pay period). Therefore, deposits in excess of that will need to be explained and documented. Sold a motorcycle? Have a paid receipt and motor vehicle documents in place. Received a gift? You will need a Gift Affidavit, proof of the donor’s ability and transfer of the funds. Any and all questions should be discussed with your loan officer.
3. Credit Score Optimization
Do your best to curtail your use of credit as it relates to your available credit lines. Target a cap of 30% of usage of available lines to get the best scores. Do NOT cancel credit cards. That will lower your amount of available credit, thereby raising your percentage of usage. That will damage your score. Do NOT shop for a car, explore life insurance, apply for a new credit card or increase the limits on your current cards because the running of your credit by people in other industries will also lower your credit score. Most importantly, don’t do anything that will require having your credit run without first discussing it with a mortgage professional who knows the impact it could have.
4. Appraisal Concerns
It’s unlikely you will make an offer to purchase without checking out comparable home sales. It’s also likely you received that type of data from the real estate agent you are working with. Make sure your agent prepares the same information for the appraiser. Data about similar sales, similar homes currently on the market and maybe even cost estimates for any repairs or improvements anticipated can preempt future problems with appraised values and conditions.
Overall, it is recommended that you hold onto copies of everything financial, think before allowing your credit to be run and work with an agent and loan officer who can use their experience to put your loan application in its best possible light…as soon as you start thinking about buying a home.
Picking the Right Agent is Crucial
October 5th, 2011 § Leave a Comment
The National Association of Realtors (NAR) released their Existing Sales Reporttwo weeks ago and in the report they discussed a troubling trend: cancelled contracts are increasing dramatically. NAR defined the issue:
“Contract failures – cancellations caused largely by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price.”
NAR explained that 18% of all contracts were cancelled in August. This compares to 16% last month and 9% in August of 2011.
The percentage of cancelled contracts has doubled in the past year!!
It is extremely important that both buyers and sellers pick the right real estate professional to assist them with their real estate needs.
BUYERS
Make sure your agent can not only help you find the home of your dreams but also find you professional assistance with all aspects of the transaction (mortgaging, title, etc.)
SELLERS
Realize that your agent must sell the home twice:
- to a qualified buyer
- to the bank (through the appraiser).
The second sale may be more difficult in this market than the first.
Bottom Line
It is imperative in this housing market that both buyers and sellers use a true real estate professional to guarantee that the deal will actually reach the closing table.
Open House – Sunday October 2nd, 2011
September 30th, 2011 § Leave a Comment
Open House – Sunday October 2nd, 2011 12pm – 2pm
This beautiful 3 bedroom ranch home is a families dream. Located close to schools, parks, library, and everything you would ever want. The first floor includes a large living room, eat in kitchen with dinette area, and 3 bedrooms. The finished lower level provides a large family room, office, and huge storage area with shelving. Fenced back yard is an excellent play area and comfortable for pets. The large deck and patio are perfect for entertaining. Priced to sell quickly. HSA Home Warranty is Included.
Full Details
Sun Prairie Homes for Sale in Sun Prairie Wisconsin 53590.
Find more Sun Prairie Real Estate at http://www.findmadisonhomes.com/community/area/Sun+Prairie or Search the MLS NOW at http://www.findmadisonhomes.com
(608) 616-9555 to contact The Baker Realty Group, Madison Wisconsin Real Estate Agent Team with Keller Williams Realty Crossroads
Selling? Waiting Until the Spring Makes No Sense
September 27th, 2011 § Leave a Comment
Late last year, banks were warned that they needed to guarantee that the paperwork necessary to start a foreclosure process on a family was both accurate and complete. Since then, the banks have slowed down the foreclosure process while they re-examined their procedures. They are now confident that all the required documentation is in order. We are currently waiting on a settlement between the banks and the state attorneys general which will establish what penalties will be assessed.Once this settlement is reached, the banks will again move forward on many homes which are currently stalled at some stage in the foreclosure process.
How many homes are we talking about?
There are millions of homes in this category. Calculated Risk quantified the situation:
“There are a large number of seriously delinquent mortgage loans in limbo waiting for this settlement. According to LPS, at the end of August there were about 1.87 million loans seriously delinquent and another 2.15 million loans in the foreclosure process. This is only down slightly from a year ago when 4.4 million loans were seriously delinquent or in-foreclosure. Once the settlement is reached, the pace of foreclosures will pick up sharply.
The pace will “pick up sharply”.
Bottom Line
As more foreclosures come to the market at discounted prices, there will be greater downward pressure on all housing values. Waiting for the spring selling season to put your house on the market may not make sense this year. The increase in demand may be overshadowed by an increased supply of distressed properties.
How to Pick Your Lender
September 20th, 2011 § Leave a Comment
In the whirl wind that surrounds the home buying and mortgage process, how can a consumer be sure that they are working with the right lender? I mean there are so many choices…here’s some things to consider:
What type of company is it?
There are mortgage brokers, mortgage bankers and banks/credit unions. Mortgage brokers have been hamstrung by many of the recent regulatory changes and typically lack the actual ability to approve and/or lock a loan. Banks are usually limited in program choices and hamstrung by tighter underwriting. Mortgage bankers have the financial stability and direct lending capability of the bank coupled with the wide product menu and expertise of the mortgage broker. From a global perspective, I see mortgage bankers as a clear winner.
How does the company operate?
Many people are dismayed when they find out where their loan is processed or underwritten….or where the appraiser is from. It is important to work with a company (and their affiliates) who understand the nuances of your local market. Asking the questions up front can save you headaches down the road.
What about the individual loan officer?
Your relationship with your LO (and their processor) becomes the most important ingredient to a successful transaction. How well do they educate you about the process, the requirements…the factors that determine your approval or the interest rate you will get? Many LOs are “order takers”. Others are weak in follow up or communication. This is difficult to determine on your own which is why the referral from another person who used them or your real estate agent has far more value than most people know (until it’s too late).
Too many people stay focused on quoted rates and fees and neglect to see the whole picture of what is needed from a lender. Look for great communication, superior information and education, understanding of the local market and someone who looks at your application as something more than a number. Be prepared to pay a little more to get a better experience (even though it might not cost you any more)….in the long run, lowering stress can be more important.
