The four words we long to hear when buying a home, Your Loan Is Approved! Oh, how those four words can turn an average day into a great day. Conversely, the words we dread to hear are, I’m sorry, but your loan is denied.
This article will discuss strategies to make sure that you hear the former and not the later when you apply for a mortgage.
Today, anyone who makes an offer on a home must have a pre-approval in hand when presenting the offer. However, the key point to remember is this: It is a PRE-APPROVAL. What this means generally is that your loan officer has assisted you in completing a loan application, pulled your credit from the three major bureaus and submitted your loan electronically to Fannie Mae for what they call Desktop Underwriting. This electronic underwriting application looks at the data submitted from the application and the credit report and renders either an approval or denial.
So, remember the “PRE” part of the equation. Once the offer is accepted on the home, then the actual loan process begins. What is done here is all of the information you gave the loan officer for the loan application is verified through a variety of means. For instance, income is verified with paycheck stubs, W2s, tax return, employment letters, college transcripts etc. Assets are verified according to the source. Also, there are other investigations behind the scenes that in most cases, the buyer/borrower never is even privy to. Suffice to say, there are a lot of moving parts here to piece together all of the initial verbal information you gave to your loan officer.
More often than not, during the process of these verifications, additional conditions or requirements arise as a result of the information received. What happens here is that the loan that was approved initially by a computer software application is verified by a live underwriter to make sure everything submitted is properly and accurately documented. Because each borrower, property and overall scenario is unique, almost as a fingerprint, there are a number of commonalities that must result from the data to meet the requirements of the loan approval. If you have ever looked at a Fannie Mae underwriting guide, it’s about as thick as a bible. With all the number of possibilities available to arrive at the final underwriting decision, the underwriter needs to make sure that the right path is taken.
This being said, you can see the margin for error can be very slim if the proper steps aren’t taken right at the beginning, thus the purpose of this article. Knowing this, it is good to choose an experienced loan officer, especially if you have a unique situation that requires knowledge and experience to piece it together. Here I have outlined are the things to consider that will give you the best chance of success in getting your loan approved and closed:
Remember the mortgage crisis of almost 10 years ago? It is starting to become a distant memory. The result of the mortgage crisis was a crackdown on many aspects of the mortgage lending industry. One of those areas was adjustable rate mortgages or ARMs. There were many risky loan products that some banks (won’t mention any hear) offered to consumers to “help” them to qualify for more home. One of those you might remember was an ARM that the payment was so low that it didn’t even cover the minimum interest on the loan. So even when you were making payments, instead of the principal balance going down, it was going up. The banks didn’t mind lending these type of loans because home values were going up so quickly that they figure it wouldn’t make a difference as the equity of their collateral would still continue to grow. Well, I think we all know what happened! Homes went down in value and foreclosures were rampant. A vast majority of the foreclosures involved these very loans.
I only mention this because of the fact that ARMs got a bad name as a result of these irresponsible loans that were made. FYI, these loans have since been outlawed as well as some other types of loans. However, the ARMs that did perform well are what they call Hybrid ARMs. What this means is that the initial loan rate was fixed for a set number of years before it ever adjusted. Though, not as commonly used as fixed rate loans, fortunately these are still readily available today. The most common fixed period of these ARMs was 5 years. The benefit was the first 5 years, the rate was significantly lower that the prevailing fixed rate.
The same applies today. While the averaged fixed rate offered by Fannie Mae hovers just over 4%, comparable rates on these type of ARMs start at about ¾% lower fixed in for 5 years. So here are some questions you may ask with the answers:
Q. Why would I choose this type of loan?
A. If you plan to sell at or before the end of the fixed period, there would be no point in paying more. For a $250,000 loan amount, ¾% in rate makes a difference of $105 per month. Over 5 years, that’s $6,300.
Q. What are the difference fixed rate terms available as I may sell in a shorter or longer period
A. Presently, available terms are 3, 5, 7 and 10 years. The longer the fixed rate term, the higher the initial rate, however all of these are lower than the prevailing fixed rate
Q. If I were to keep the loan longer than my fixed term, what could I expect?
A. Though these loans have performed well during their adjustable period over the last 15 years, there is no guarantee as with what to expect in the future. However, there are yearly and lifetime interest rates caps on these loans. In most cases, the lifetime maximum rate is 5% over your initial rate. So if rates go to 18%, which was about the worst they’ve been in the last 50 years This happened in the early 1980s) or so, your rate would never go more than 5% over your initial rate. For instance, if your initial rate is 3.25%, then the lifetime maximum is 8.25%.
Q. Are they harder to qualify for?
A. The qualifying guidelines for these are generally the same as for a fixed rate loan. Though there are some nuances that we could discuss if you were interested in learning more.
I personally had a 3/1 ARM back in about 2003 on a home that I owned then. I kept the loan until 2012. So this loan was fixed at 5.5% until 2006 (3 years), then adjusted yearly thereafter. The average rate in the adjustable period of 6 years was 3% with the highest being 3.5%. So I was quite pleased with it since fixed rates were in the 6% range during that time. It saved me quite a bit of money over the years.
Keep in mind, these loans are not for everyone. However, if you would be interested in learning more and find out if this might be right for you, call us at (503) 243-5626 or to email us, click here and we can discuss this further.
Thanks for taking the time to read this article!
Bill McInerny NMLS #5077Agape Home Mortgage LLC NMLS #4986(503) 243-LOAN (5626)
The number one most common question I am asked when a customer wants to apply for a mortgage isn’t what is your rate or how much does it cost. The most common question is “how does all of this work?”
Considering how many times I have answered this question over the years, I felt like it was time to put this into writing so that, after I explain to them, I can refer them to this article. That way they have it to refer to any time they have a question. It’s uncommon that I provide a mortgage for a customer who is in the mortgage business already (although it does happen from time-to-time). And even when I do, it is so different when you are the applicant. So, for anyone who doesn’t work in mortgage lending even if they have purchased several homes over the years, the process can be a mystery for several reasons:
In order to explain this properly, I think it would be best to break it down in the steps of the process chronologically and explain each step. Keep in mind however that the time line for each piece of the process is subject to change with respect to when and/or if it even occurs in the process, as again, each mortgage loan request is just a little different. So, with that, here are the steps:
That’s about it in a nutshell. There are a number of steps in the loan process, but keep in mind, a lot of this is done behind the scenes. Usually, a process takes between 30-45 day. Most purchase transactions allow for 45 days with the option to close earlier if needed. With refinance transactions, they take a little longer because of a mandatory 3 day waiting period at the end before funding.
If you have any further questions about the loan process or anything else in relation the mortgage loan, please click here to contact me. I have been in the mortgage industry since 1986 and have seen about every possible scenario imaginable. If there is a way to help you get the mortgage you need, you can be sure I will provide it for you.
Thanks for taking the time to read this.
Bill McInerny NMLS #5077 Agape Home Mortgage NMLS #4986 (503) 243-5626
I got this from a friend and wanted to share it...Empathy: is the ability to understand and share the feelings of another. This is not a bad thing.
Sympathy: is having feelings of pity and sorrow for someone or an understanding between people. This is not a bad thing either.
Empathy and sympathy equal apathy. They can relate with pain and identify with grief, but they are never change agents.
Compassion: is a consuming fire of tender mercies, kindness AND a desire for change. Compassion not only weeps with those that weep but is also convicted by the truth of what can be. Compassion is the reformation that brings life altering transformation. It’s active instead of idle.
Faith does not deny the current situation but sees the beauty that lies beyond it.
Imagine if Jesus had just sat with the man at the pool of Bethesda and felt sorry for him. The poor guy would have been there another 38 years. Jesus had compassion on him and said, “Arise, take up your bed and walk”!
Empathy and Sympathy are not bad character traits but BEWARE! Do not confuse empathy and sympathy with compassion. Empathy plus sympathy never moves. But Jesus was “moved with compassion.”Let 2018 be a year where you are moved to transformation by the King of Compassion!
It’s no secret that over the last few years, home values have risen at nearly unprecedented levels. Perhaps you’ve wondered at times how you could benefit from the increased equity position in your home, thus the purpose of this article.
Many don’t know, unless someone can point it out them, the ways in which this equity growth could benefit them. And with mortgage rates presently very low, the options for smart financial planning abound. Outlined below are some of the ways this increased equity position could be helpful.
Of course there are a number of other ways you could effectively use the equity in your home. These are just a few. Call me or click below to respond to this article with your questions and let’s discuss your ideas and how your equity might better your financial position today while rates are still low. Contact us today to find out more, click here.
Bill McInerny, CFOAgape Home Mortgage LLCNMLS #5077