Getting a loan, what to know first.
Think you know how to get a loan?

Think you know the best way?

Think again!

Today’s mortgage environment is unlike any we’ve seen before. Having weathered the worst financial crisis since the Great Depression, lenders and mortgage insurers have understandably rewritten the rules of what it takes for

consumers to acquire a mortgage. In fact, when REBAC surveyed members last spring, ABR®s said that difficulties obtaining financing was the top issue preventing buyers from completing a purchase. People associated with the lending industry agree that the lending process has never been more complex and that the rules are changing much more rapidly than before. Since the crisis began, there have been extensive modifications to existing mortgage programs, plus the creation of several new ones, prompting enormous

challenges for lenders to train staff and keep them up-to-date on revisions. With the rules constantly changing, it’s no wonder that it takes longer to process mortgage applications. While the current environment is admittedly challenging, it’s still quite possible for qualified buyers to secure attractive financing. Granted, it takes more work

than before. But exclusive buyer’s representatives will provide a valuable service to their clients, and themselves, if they learn how to navigate the current lending environment and share their knowledge with their buyers.

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The Mortgage Challenge

1. MISCONCEPTIONS

One of the biggest mistakes consumers now make is sitting on the sidelines and waiting to buy a home because they are under the impression that it’s impossible to get a mortgage, or that the minimum

down payment is 20 percent. But FHA loans, with just 3.5 percent down, now dominate the market. Even in today’s tougher lending environment, FHA remains fl exible and buyer-friendly.

Another common misconception concerns the homebuyer tax credit.

“There was a massive race to get under contract before the homebuyer tax credit expired,” observes Joseph Beauvais, Owner/Manager Sunny Spot Realty inc.

“But what buyers don’t realize is that today’s rates are much better than last spring. It may help to explain that even if they missed out on the tax credit, today’s lower rates provide lower monthly payments and reduced interest expense over the life of the loan.” Depending on the amount borrowed and terms of the

loan, these savings could easily exceed the former tax credit.

2. Buyers should get a loan commitment or at least a prequalified letter from the lender.

 “Nothing is more frustrating than finding that perfect home and make an offer only to have it not even viewed due to not having either a loan commitment or prequalification letter to submit along with the offer.

Both scenarios can be avoided by taking a few key steps up front.” Local lenders are the best.

3. Reccomendations that few are brave enough to make to buyers to avoid

many problems down the road.

First use a local mortgage broker that your agent may recommend. They know which ones have or can get the best rates and the agent has leverage which can be used to assist you when problems arise with a lender. And the do!

 Both scenarios can be avoided

by taking a few key steps up front.”

When it comes to shopping around, Beauvais points out that most lenders will be pretty similar on rates and fees. It will be the leverage the exclusive buyer’s agent can wield to make sure the deal closes.

 Beauvais encourages buyers to focus instead on;

1) service (including prompt call-backs),and

2) execution (ability to have the loan ready in time for closing).

Beauvais prefers local lenders because mortgage programs are different for different types of properties and locations. “Out-of-state or Internet lenders don’t typically understand these differences,” says Beauvais. “If I get a buyer who tells me they’re already approved with an out-of-state lender I’m

going to be more apprehensive about getting them to the closing table.”

How do you find qualified lenders? First, ask the exclusive buyer’s agent what their experience has been. Who has provided good service?

Did the transaction close on time?

It’s also a good idea to interview lenders, asking questions such as:

✦ How long have you been in business?

✦ If you have an underwriter, do they make the final decision?

✦ Are your underwriters direct-endorsed by FHA?

✦ Do you sell your mortgages or hold them?

✦ What is your success rate in selling them?

3) Next get written proof of liquid assets used for closing costs and deposits for the offer, no older than 2 weeks.

4. WORK WITH QUALIFIED LENDERS

Most buyer’s reps agree that working with qualified lenders makes a huge difference in whether a transaction makes it to the closing table. But what constitutes a qualified lender? To decide

whether they can deliver, Beauvais looks at their degree of experience—how well prior transactions have gone, and whether a lender does a good job communicating with their underwriters.

Given the high number of FHA loans in today’s market, Beauvais also wants to make sure lenders are direct endorsed by FHA. Four different parties are involved in processing and selling mortgages—the initial lender, the underwriter, the mortgage insurer, and the investor. Each one has their own

rules. But if the lender is direct-endorsed they don’t have to go through another lender, eliminating some layers in the process. “Direct-endorsed lenders are also more plugged-in to the steady stream of rule changes, making them better informed,” adds Beauvais. Beauvais believes that a good lender

should be an available resource to real estate agents even when questions come

5. Learn CURRENT MORTGAGE PROGRAMS

You need to understand your options. Learn the differences between FHA, VA, conventional loans, and special programs offered at the federal, state, county, city, or even zip-code level, including options for

first-time buyers and bond programs. This is too often over looked by buyer’s.

These programs provide fantastic options for qualified consumers including, in some cases, grants for down payments.

6. EDUCATED BUYERS

Perhaps the most important role I can play in today’s mortgage market is one of educating buyers. Beyond current mortgage options, some of the essential things they need to know include:

Credit Score Implications

Credit score-only programs are long gone. Lenders have completely returned to risk-based lending, scrutinizing buyers’ ability to pay back loans. But credit scores still play a major role in what interest rate

a buyer gets, at least in conventional financing, in addition to the cost of private mortgage insurance with

conventional loans.

For example, Beauvais worked with a couple who had a 30 percent down payment and great income. His

credit score was good, but hers was just okay. “As a couple, they were going to take a hit on their interest rate,” explains Beauvais. In discussing options with the loan officer, they decided to reduce the

negative impact of her credit score by taking her name off the loan documents, while retaining her ownership on the title.

His income alone was sufficient to get the mortgage approved.

Plan Early

Fortunately, the couple who had to reconfigure their loan started the process early enough that this adjustment could be made, which also illustrates the importance of advance planning. Even

homeowners insurance typically needs to be in place in order to get a loan approved.

If you wait to start the real process until an offer is made with a 30 day loan contingency, you must now take what may not be your best course of action and cost you dearly. Be prepared. Beauvais says, that is part of what I know like few others as an Exclusive buyer’s agent.

Maintain a Consistent Financial Picture

Buyers should not to make any large purchases, quit their job, or make any late payments prior to closing. This has always been important, but now it’s essential. Before, a bank might have pulled another credit report before closing, but now it is definitely going to happen.

Preapproval

Many buyers make the mistake of thinking that a preapproval means they are guaranteed a mortgage. What the bank is really saying, however, is “I’ve got your numbers and things look good.”

Preapprovals are almost always subject to receiving full documentation. What a buyer really needs to get is “a loan commitment, conditioned on the subject property appraisal” from the underwriter.

Time to Commit

Lock down your lender as soon as their purchase agreement is in place. Showing devotion to a lender definitely helps get you to closing. Beauvais tells his clients, “You may have to pay a fee at this point, but this is also when the bank has to start spending money on you, and they want to know you are committed to them.”

7. REACH THE CLOSING TABLE

Buyers need to keep good records and get things to the lender right away.

You need to have a sense of urgency to get things done in a timely manner as the contract has specific time tables. Buyers cannot bring items at closing. That will not happen.

Perhaps you bought a home before, in a different environment, and assume things still work like that.”

The pendulum has swung the other way. You need to understand that the lender is not singling you out with unreasonable demands.

It’s simply a sign of the times. In spite of all the perceived hurdles, homeownership is still a very achievable goal. But the first step is to navigate today’s mortgage realities.

Can you see that my job is much more than finding a home for you. A lot more. Inspections, assessments on and on.

Call me today!