Hello Orlando and the readers of The Wemert Group’s Blog. My name is Shanne Sleder and I am a Mortgage Banker from San Diego, California and the author of SanDiegoMortgageNews.net.
One of the great agents at The Wemert Group, Susan Ballou, recently contributed to one of my all-time most popular posts on Home Buying Tips. Since that post was so well received, Susan was kind enough to ask me to share some more detailed home buying tips on mortgages. Now let’s get to the tips!
Whether you are an experienced home buyer or a first time home buyer, I have put together 6 tips that can be extremely beneficial to you during the home buying process. Especially now that lending guidelines are stricter. These home buying tips are not discussed by many people in the mortgage industry.
1) Your Lender Can Pay Closing Costs on a Purchase – Many buyers are aware that the Seller can pay some or all of their closing costs for a purchase, but in today’s competitive market, asking the seller to pay your closing costs can cause your offer to be rejected.
What many buyers don’t know is that just like in a refinance, the lender can pay some or all of your closing costs on your behalf.
Now, this does come with a trade-off of a higher rate, but in many cases it is only about .25% in rate. If you are limited on cash to close, this may be a way to make your purchase work. That would make the trade-off worthwhile.
Currently on VA loans, this is a great option because the rates/pricing is structured where as little as .125% in rate may allow the lender to pay all your closing costs. This could allow a veteran to buy a house with no down payment and no funds out of pocket for closing costs.
2) Get Pre-Approved 2-3 Months Early – Getting Pre-approved is a common tip you have probably heard from your agent and your mortgage broker many times, but what I want to focus on is the benefit of going through the Pre-approval process as early as 2-3 months prior to looking for a new home.
Why would you want to do that, you may ask?
First, this will give you more time to look at different kinds of loans and how you want to structure your loan. You can compare and have more time to examine the benefits or drawbacks of different options. Is it better to put 20% down or go with a lower down payment of 10%? If I put 10% down, do I want to have private mortgage insurance or use a 2nd mortgage to avoid the mortgage insurance?
Your mortgage is the largest debt you will ever incur in your life time and most likely your largest payment. You should give yourself the most time possible to make the best decision for your financial plan. Don’t wait until a week before you start looking at homes to get pre-approved. If you do, you will be pressured to make a decision about a loan quickly so you can get your escrow closed on time.
Second, by going through the pre-approval process early, you are giving yourself the greatest potential to get approved for the best loan possible. If your mortgage broker comes across any issues on your credit or involving your income or down payment, they will have time to fix those issues before you start the home search process. This could save you from being turned down for a loan or save you thousands of dollars over the life of the loan if you can get qualified for a lower rate.
3) Don’t Settle For No – If you are in the process of getting approved for a loan and are declined at one lender, do not stop trying! Different lenders have varying guidelines or interpretations of guidelines. Some are willing to make exceptions on some loans that others are not.
Mortgage Brokers may have 25 different lenders they work with. One may decline your loan application and another may approve it. Since the broker has your entire file, it will not be too difficult for them to submit it to a different lender. That is one of the benefits of working with a broker or mortgage banker. Make sure your broker tries multiple sources before he takes no for an answer.
Some Retail Banks may have programs that only they offer and may allow you to get your loan approved. Some Mortgage Brokers may be able to get loans approved that regular banks won’t do. Some banks even have what they call the Personal Banking Division for clients of high net worth. These divisions will do some loans that others can’t.
There are also Credit Unions that are now starting to offer unique mortgage. There is not always a solution for every loan application, but don’t give up until you have tried multiple sources.
4) There are New Loan Products Coming to The Market – If your situation does not fit under the traditional conforming Fannie Mae/Freddie Mac type loans or even FHA or VA, be aware that there are new loan programs coming to the market.
If you are struggling to get approved due to past credit issues or qualifying ratios due to being self employed, there are lenders coming out with products that they will retain and service that will have more lenient guidelines.
Some programs entering the market allow client’s with large amounts of assets to be given an income calculation that will help them qualify. There are also “bank statement” programs for self employed borrowers who have enough cash flow on a monthly basis in their bank accounts, but are not able to show as much income on their tax returns.
Be open to exploring some of these other programs.
5) Should I Pay Points on my Loan to Lower the Rate – When you “Pay Points” on your loan, you are paying a fee up-front to obtain a lower interest rate over the life of the loan. One Point equals 1% of the loan amount. Many people think that this is a good option when getting a loan.
If you are thinking of paying Points to buy down your interest rate, take several factors into consideration.
- 1) Compare the monthly savings on your mortgage from the lower rate versus the cost of the points you are paying. If it takes longer than 4 – 5 years to recoup the cost, you may want to think again.
- 2) How long are you going to keep this loan or stay in this home? If you are going to stay in the home or keep the loan long term, then it may make sense to pay points up-front. But if you are going to move or refinance within 7 years, which is the US average, then paying points may not be your best option.
- 3) Take into consideration inflation. If you pay points, you are buying down the rate in today’s dollars, to save monthly over time. Inflation will eat into the savings over time making a savings of $30 dollars a month worth less in the future. It may not make sense to use today’s dollar to save inflated dollars in the future.
6) Be Ready to Have Your File Scrutinized – Getting a loan in today’s lending environment is not the same as it was 5 years ago. Lenders require more documentation to prove income and your available assets. They are going to want to see pay stubs, W2’s and potentially 2 years of tax returns.
On your assets, expect to provide 2 months of statements for each account. They must be complete statements with no alterations. Many clients try to provide only a few pages or blacken out account numbers. This will not be acceptable to an underwriter.
In addition to having to provide all these documents, be ready to write letters of explanations for anything that may look unusual to an underwriter or for any large deposits that show on your statements. The underwriter will want to see proof of where those deposits came from, so you will need to provide copies of checks or money transfers.
Many people feel that the current process of getting a loan is too invasive of their personal information. If you are aware of this early and can prepare yourself it may make it easier to handle when it happens. As a lender, I try to only get what I believe an underwriter will need, but we also want to make sure we get everything we can to get your loan approved and quickly.
If you would like to see more simple Home Buying Tips from a group of 50 Real Estate experts please check out: Home Buying Tips.
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