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Yearly Archives: 2008

Pre-Qualification versus Pre-Approval

Posted on by Posted in 1st Time Buyers, FAQs, Qualifying

Several years ago most people didn’t really care about the difference between a pre-qualification and a pre-approval because there were so many qualified buyers in the home buying market place that if you couldn’t buy a home, there was somebody else who could.  With lender guidelines tightening and the pool of buyers shrinking, the importance of a pre-approval is increasing quickly.  So what is the difference?

Pre-Qualification

When I complete a pre-qualification with my customers, I typically do this over the phone and in about 10 – 15 minutes.  Here is what I ask:

  • Name
  • Social security number
  • Address
  • Employer
  • Length of employment
  • Income
  • Balance in bank accounts
  • Current rent or mortgage payment
  • Comfort range for new payment
  • Time frame to purchase or refinance

After asking these questions, I do some calculations and run a credit report.  During the call I can normally tell someone whether or not I believe that I can get them qualified for a mortgage.  I, and other experienced mortgage lenders, am able to do this due to the knowledge and past experiences I have helping customers obtain mortgage loans.

This is the level of qualification where most customers would stop before they buy a home.  The problem with this level of qualification is that nothing has been documented or proven to the lender.  Someone could tell the lender that they are employed and make $60,000/yr, but when a pay stub is provided the income may only be $45,000 or even worse, they may not even be employed.  The pre-qualification is based entirely on good faith.

Pre-Approval

Pre-approval takes the pre-qualification step to the documentation phase.  All the income, employment and bank information you told the lender about is now documented.  Here is a list of the documentation that a lender will need to complete a pre-approval:

  • Pay check stubs
  • Bank statements
  • W2s
  • Federal Tax Returns
  • Divorce decree
  • Child support/alimony orders

Not everyone will be required to provide these documents, however these are the most common.  In some cases, there is even more documentation that will need to be provided to the lender to complete the pre-approval.

Once the documentation is provided, the lender will then input all of the information into a loan application and run an automated underwriting system which compares the borrower’s information to the guidelines for a mortgage to determine if the borrower is an acceptable risk to provide a mortgage loan.  There are two possible outcomes:  pre-approval or a referral to an underwriter (traditional or manual underwriting).

Traditional/Manual Underwriting

In the case the computer can not approve the loan a person underwriter is able to review the file to determine if there are any circumstances that the computer could not analyze.  The person can take these circumstances into consideration and re-evaluate the risk.  In some cases the underwriter can overturn the computer decision, or sometimes they may agree with the computer risk assessment. 

 

Just about every seller wants to know they are selling their house to someone who is actually qualified to buy the home before they take it off the market.  Be prepared to provide a pre-approval letter from your lender when submitting offers on homes you are interested in purchasing.

Lending a Hand,

Scott Wynn

What is a Good Credit Score?

Posted on by Posted in 1st Time Buyers, Credit, FAQs, Free Reports, Qualifying

You just want to know what a good credit score is.  Probably because you are looking into obtaining a mortgage, or maybe an auto loan.  Did you know credit scores are used in other areas outside of obtaining financing?  Cell phone companies, insurance companies, apartments and sometimes even employers will check your credit to determine you as a risk.  So…..what is a good score, right?

720 is a good score.  So is 680.  Sometimes even 640 is a good score.  It is all relative.  These scores are scores used by mortgage companies and credit reporting agencies.  Some companies have developed their own credit scoring model that delivers an entirely different type of score put in the form of numbers or even letters.  I used to work for a cell phone carrier and when we ran credit for potential customers we would get responses of A, A-, B, B-, C and so on.  Based on the result we would increase the deposit that was required to obtain a cell phone.  Eventually the deposit was so high that many would opt out of getting a cell phone plan and just use the pre-paid phones that are a lot more popular now than when I was selling cell phones.

Anyway, I got off track there for a moment.  A good score is relative because someone might be interested in what is good enough to get a loan, while another person wants to know what the score needs to be to get the best interest rate.  So here are the answers:

What is Good Enough?

Good enough has been a moving target in the mortgage business because of the multiple companies making restrictions on the credit scores.  There are mortgage investors, mortgage insurance companies, and mortgage broker companies.  All of these companies may have individual restrictions on the credit scores they are willing to lend on and all of them must be followed.  Typically, the minimum credit score allowed for A-Paper mortgage financing is around 620.  There are some exceptions.  For example, I recently assisted a customer who had a 545 credit score and I was able to obtain A-Paper mortgage financing.  This is certainly an exception though.

More than the credit score, the actual items on your credit is the most important when determining what is good enough for mortgage financing.  FHA mortgages do not look at the credit score, but rather look at the actual trade lines on the credit report.  For more details on the requirements for FHA financing check out Mortgage Loan Requirements – FHA.

What Score Gets You the Best Rate?

Just like determining what score is good enough, the score that gets you the best rate is also a moving target.  This target moves more often than the minimum score to get a loan.  Here is an example to give you some idea of what impact your score (all other factors being equal) has on the interest rates:

  • 620 = 7.250%
  • 640 = 7.000%
  • 660 = 6.625%
  • 680 = 6.000%
  • 700 = 5.625%
  • 720 = 5.375%
  • 740 = 5.375%
  • 760 = 5.375%
  • 780 = 5.375%
  • 800 = 5.375%
  • 850 = 5.375%

As you can see, when the score was above about 720, the rate stayed consistent, up to the highest score I have seen of 850.

It is All Relative

A good credit score is relative upon what you are looking for and I hope this has given you some insight into what a good score is.  If you have any further questions, please email me and I would be happy to reply to your email in the form of a post.

Lending a Hand,

Scott Wynn

Mortgage Refinance – Does it Make Sense?

Posted on by Posted in FAQs, Free Reports, Refinance

Refinancing is a serious decision that will be based on emotion, money and both short and long term impacts.  Deciding whether or not now is the right time can be a difficult process, especially when you know you can get a lower interest rate.  So how do you go about determining if refinancing makes sense for you?  I hope to help you answer that question, now…

What It Means to Refinance

Everyone knows what refinancing means, but sometimes we don’t consider what the implications of a refinance are.  Refinancing means that you are obtaining a new mortgage to get rid of your old mortgage.  So why would someone want to get a new debt to pay off an old debt?  There are the popular answers such as lowering the rate, reducing the payment, getting cash out or obtaining a fixed rate mortgage instead of an adjustable rate mortgage.  All of these are great reasons, but it doesn’t always make sense to refinance for these reasons, which I will explain a little later.  Other reasons may include removing someone off of the mortgage or paying off a large portion of the principal balance.  No matter the reason for refinancing, considering the short term and long term impacts of the refinance should be considered.

Short Term Impacts

Being a mortgage loan officer, I am naturally drawn to mortgage advertisements I hear on the radio and television about mortgage loan options available to consumers.  The one I probably hear more often than any other is the ability to obtain a no cost mortgage.  The no cost mortgage idea gets people’s attention and entices them to look at the possibility of refinancing when they may not have in the past due to the costs.  I will fill you in on a secret…there is no free mortgage.  You probably already knew that though, didn’t you?  Refinancing requires that new mortgage documents are executed and recorded, which costs money.  Someone will have to pay for it.  Likely there are costs that the mortgage lender incurs to process, underwrite, close and fund the mortgage loan, too.  So what do these advertisers mean when they call it a no cost mortgage?

There are a couple of different ways that mortgage loan officers structure a no cost mortgage.

  1. They include the normal closing costs of the mortgage into the new mortgage loan obtained
  2. The cost of the mortgage is built into the interest rate

When looking into refinancing your mortgage, understand what the closing costs are and how they are being paid.  Knowing the cost will help you in doing some of the calculations I will explain later in this post.

Outside of the costs, consider another short term impact which is what your current mortgage looks like.  Are you an adjustable rate mortgage that is going to adjust in the near future?  Do you have a pre-payment penalty on your mortgage that will need to be paid if you refinance?  Are you on an interest only mortgage and considering refinancing into a principal and interest payment?  All of these items should be considered in the short term when looking to refinance and if you are unsure of what these mean, consult with your mortgage loan officer for assistance.

Long Term Impacts

The payment, interest rate, term and overall financial impact are the long term considerations to be analyzed.  If you choose not to pay for the closing costs, mentioned earlier, at the time of closing then you will need to determine which of the options is being used to pay those costs.  Either way, the monthly payment will be impacted.  Here is an example:

Let’s say you are refinancing your $200,000 mortgage and the cost to refinance that mortgage is $5,000.  You could obtain a new mortgage in the amount of $205,000, and a rate of 6.25%, instead of paying for the costs at closing or you could get a $200,000 mortgage with a higher interest rate, maybe 7%, to cover the costs.  If you are interested in how this works, check out my post on How Mortgage Lenders are Paid.  This will help you in understanding how to increase rates to cover costs.

Another factor that often goes without consideration is the term on your mortgage.  When I help customers decide on whether or not refinancing makes sense, I look at the remaining term on their existing mortgage compared to the new one.  If someone has been paying on their mortgage for 9 years and wants to refinance, realize that you will likely refinance into a 30 year mortgage starting the 30 year clock over.

If the reason for refinancing is to get cash out then make sure you look at what the cash will do to help you with your financial picture.  Sometimes that cash is used to pay off debt.  I once helped a customer refinance their home to get cash out to pay off debt.  By refinancing we saved them thousands of dollars and almost $700 per month, on a $250,000 refinance.  The reason it helped so much is because they had equity in their home that helped to pay off car loans and credit cards.  Ultimately, it made sense for them to do this.  But, they could have just used their credit cards again, after the refinance, and put themselves into the same financial picture they were in before, or even worse.  You will be the only one that has control over whether this will help you long term.

Mathematical Reasoning

Math is normally not what most people consider to be fun, so I will do my best to make this simple, yet effective in assisting you to determine if refinancing makes sense.

  • Break Even Point
    • Determine the point in time in which the refinance will ultimately help you more than the short term hurt
      • If you are going to reduce your payments by $116/mo but it costs $4,273 (just an example) to refinance, just divide the cost ($4,273) by the savings monthly ($116) to get 36.84 – the number of months it requires you to keep the new mortgage before it made sense to refinance
      • If you are getting cash out, consider the amount of savings you have each month in your entire financial picture and not just your mortgage payment (in some cases your mortgage payment will be higher)
  • Short Term vs Long Term
    • With all the scary stuff in the news about the mortgage crisis and foreclosures, many want to get out of their adjustable rate mortgage so they know exactly what their payments will be for the life of the loan
      • If you want to get out of your adjustable rate mortgage, scheduled to adjust in 3 years but currently has a rate of 5.125% compared to 30 year fixed rates of 6.25%, for example, calculate the current payment compared to the potential payment over the 3 year period of time
      • Here is an example:  5.125% payment = $1,104 vs 6.25% payment = $1231 or a difference of $$127/mo, over 3 years is $127 X 36 months = $4,572
      • Add in the closing costs of $4,273 (same example as above) for a total cost of $4,273 + $4,572 = $8,845 – is it worth it to you for the peace of mind to know your payment wont adjust for the next 3 years?
  • Mortgage Term Calculated
    • If you have been paying on your mortgage for 5 years and now you want to refinance to take advantage of a lower rate, consider you are getting a new 30 year fixed mortgage and will paying for 5 years longer than you would have if you did not refinance
      • Current payment may be $1,200 and by refinancing, you could reduce that to $1,100 or save $100 per month
      • Cost to refinance of $4,273 (just an example from above) should be considered
      • 5 years of $1,100 payments = 5 years X 12 months/year X $1,100 = $66,000 more to pay at the end
      • TOTAL savings over 25 years (new 30 year term minus the 5 years you would have saved by not refinancing) = 25 years X 12 months/year X $100 = $30,000
      • TOTAL cost of the refinance over the 30 years = refinance cost of $4,273 + cost of the longer term of $66,000 = $70,273
      • This calculation only works if you intend to stay in the home for the full term of the mortgage, but in this scenario, it would not make sense to refinance

The Moral of the Story

If I had to state what the moral of the story was for this post, it would have to be to pick a great mortgage lender who is going to help you in completing these calculations and look out for your best interest compared to their ability to earn a commission.  For assistance on picking a great mortgage loan officer to assist you with refinancing, check out my post on the 8 Questions to Ask Your Lender.  If you have the right mortgage loan officer in your side, they will complete these calculations, and possibly more, to determine if it makes sense for you to refinance.  If you need a little more help, check out the refinance calculator on my mortgage website.

Lending a Hand,

Scott Wynn

Free Credit Report

Posted on by Posted in 1st Time Buyers, Credit

Many people I talk to have heard about getting their FREE credit report at www.freecreditreport.com because they have heard the catchy commercials they have singing about getting their free report.  The advertising is exactly correct; you can get a free credit report from their site IF you sign up for their Triple Advantage Credit Monitoring.  So how much does that cost?  The monitoring is free for 7 days, but after that is $14.95/mo until you cancel it.  After you complete the initial form online to get started, the next form requests the necessary info to run a credit report and gather your credit card for future billing.  Here is the statement explaining the cost of the monitoring:

Payment Information
When you order your free report here, you will begin your free trial membership in Triple AdvantageSM Credit Monitoring. If you don’t cancel your membership within 9 days of enrollment, the card entered above will be charged $14.95 for each month that you continue your membership. If you are not satisfied, you can cancel at any time to discontinue the membership and stop the monthly billing; however, you will not be eligible for a pro-rated refund of your current month’s paid membership fee.”

That stinks, huh?  All this advertising for a free credit report just to find out you have to sign up for a service to get your report.  There is another method to getting a free credit report though! AnnualCreditReport.com offers a completely free method to run your credit report online.

Annual Credit Report

The site is sponsored by the big 3 credit bureaus, Equifax, Experian and TransUnion.  The reason this site exists, is to allow consumers to understand what is on their credit report.  The Federal Trade Commission, according to the Fair Credit Reporting Act, states:

each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.

The problem is that most consumers are unaware of this requirement, and therefore go to sites like FreeCreditReport.com to get their report.  For more details on the Fair Credit Reporting Act on the FTC website check out this consumer information page: http://www.ftc.gov/bcp/menus/consumer/credit/rights.shtm.

Other Credit Report Sites

FreeCreditReport.com is a site created by one of the big three credit bureaus – Experian

TrueCredit.com is a very similar site offering a free credit report with monthly monitoring at a cost of $14.95 per month and is created by TransUnion, another one of the big three credit bureaus.

Equifax, the last of the big three, also has a similar offer, but for a little less cost at a monthly charge of $14.95 at their main website, Equifax.com.

Why Would You Pay?

There are a couple of reasons consumers may be interested in paying for the credit monitoring through these sites to gain their credit report.  First, the reports you obtain through AnnualCreditReport.com do not have a credit score, although you can pay a little extra to get one.  All three of the credit bureaus credit reports do provide a score.  Second, identity theft is the fastest rising crime in the United States and people want to be aware of any changes to their credit report.  The credit monitoring provides them that information.

Mortgage Companies Have a Different Score?

It is possible that the consumer score you receive varies from the mortgage score your mortgage lender obtains.  This excerpt comes directly from the Fair Credit Reporting Act and explains there may be a variance:

(f) Disclosure of Credit Scores
(1) In general. Upon the request of a consumer for a credit score, a consumer
reporting agency shall supply to the consumer a statement indicating that the
July 30, 2004 41
information and credit scoring model may be different than the credit score that
may be used by the lender, and a notice which shall include–
(A) the current credit score of the consumer or the most recent credit score of
the consumer that was previously calculated by the credit reporting agency
for a purpose related to the extension of credit;
(B) the range of possible credit scores under the model used;
(C) all of the key factors that adversely affected the credit score of the
consumer in the model used, the total number of which shall not exceed 4,
subject to paragraph (9);
(D) the date on which the credit score was created; and
(E) the name of the person or entity that provided the credit score or credit file
upon which the credit score was created.

Based on this, the credit bureaus provide an educational score to explain the criteria used when calculating a score.  The educational score does not match the mortgage score the mortgage loan officer will get when they pull your credit.  The score that the consumer receives should be used as a general idea of what the score will be from your mortgage lender, but not the actual score being used for qualifications or determining the interest rate.  Typically, from my experience the scores consumers receive are lower compared to the scores I pull through the mortgage credit reports.

If you have any comments or questions please email me.

Lending a Hand,

Scott Wynn

Mortgage Don’ts

Posted on by Posted in 1st Time Buyers, FAQs, Free Reports, Qualifying

I recently received an email from a Lending a Hand reader requesting information on what to avoid throughout the mortgage process to ensure a smooth approval and closing.  Instead of just responding directly, I thought many of the readers could benefit from this question, so I decided to write a post on the Mortgage Don’ts.  Here they are…

Don’t buy or lease a new vehicle.  Mortgage lenders look closely at the debt-to-income ratio, so any changes to your financial situation, especially a large monthly payment like a vehicle, will impact your ability to qualify.  Many people get anxious to fill that new garage they just bought with a new car.  Just wait until after closing if you really want a new car.

Don’t move your money around.  Although it is not impossible to document assets when the funds are transferred from one account to another, it just complicates the process, unnecessarily.  This includes the transfer of gift money.  If you have a relative that is going to provide money as a gift for your home purchase, talk with your lender about the method they would like you to transfer the money.  In some cases there is a very specific process that should be followed.

Don’t change jobs. Part of the verification process and approval process involves documenting your job history and stability.  If you switch jobs, the income that can be documented may change due to the method in which a lender calculates your income.  This is especially true if you change the industry you work in.  It may seem obvious, but this happens all the time – Do not quit your job.  Some believe that once you are “pre-approved” there is no need to worry about any changes since the approval process is done.  The lender has the right, up to the day of closing, to verify all information that the approval was based on.  This includes your employment, income, assets and credit.

Don’t buy new furniture or appliances.  The reason for this don’t is similar to the don’t about buying or leasing a car.  Any changes to your debt can have an impact on your ability to qualify.  If you charge a furniture or appliance purchase on a credit card, the payment must be calculated into your debt ratio and could impact your ability to qualify.  Even the “no interest, no payment” plans will impact your debt ratios, so wait until after you close.  If you plan to pay for those items with cash, it may not impact your debt ratio but it can impact your assets and reserves (the amount of money remaining after the closing of the house).  This, too, can impact your qualifications, so play it safe and wait.

Don’t make changes to your credit.  Changes to your credit can sometimes negatively impact your score, when your intention was to increase your score.  Check out my previous post on how to Quickly Increase Your Credit Score and read the Beware Tip #1.  This example shows how good intentions can result in bad results.  If you would like advice on what, if anything, you should do related to your credit report, check with your mortgage loan officer.

Don’t pack or ship any financial documents.  Important documents like tax returns, W2′s, bank statements, pay check stubs, divorce decrees, DD214, should not be packed with other household items.  Wait until after you close, as there are sometimes unforeseen circumstances that will require those documents.  Duplicate copies can take weeks to obtain.

By following these don’ts you can eliminate a lot of unneeded stress throughout the mortgage processing.  If you are reading this while in the midst of a loan approval and have done one of these don’ts, be sure to tell your lender so they can help in rectifying the situation before it becomes an emergency, possibly impacting your ability to purchase.

Lending a Hand,

Scott Wynn

8 Questions to Ask Your Lender

Posted on by Posted in 1st Time Buyers, FAQs, Free Reports 4 Comments

I was planning to start this post telling you about how important a home purchase and mortgage financing transaction can be, but I think everyone already knows that. Before I jump right into the questions, I want to explain the questions I am suggesting you ask.  Most sites on the Internet suggest asking specific questions about your loan including interest rate or APR, closing costs, term, whether there is a prepayment penalty and so on instead of how to go about selecting the right mortgage loan officer.  The loan officer you select will be the one to help you find the best mortgage program for you that fulfills your needs, so if you select the right loan officer, you will likely not need to worry about the terms of your loan because they have provided the best possible loan for you.  I am not suggesting you don’t ask the loan questions, but by getting the 8 questions below answered you will likely receive a much better mortgage than you would otherwise.

Here are the questions you should ask when deciding on the right mortgage loan officer for you:

#1 – Why Should I Select You as My Mortgage Loan Officer?

Seems like a simple and obvious question, but I can tell you I rarely get this question asked of me.  Let’s take this out of context for a second, and suggest you were going into brain surgery and there were two outcomes – death or success.  Would you want to know the credentials of the brain surgeon working on you?  Would you want to know why they are better than the other brain surgeons in the area, or even the country?  Personally, I would want the best doctor I could get my hands on, despite how much it may cost me.  By asking why you should select that person as your mortgage loan officer, it allows them the opportunity to brag professionally about themselves and put them in the best light possible.  If they don’t have a good answer, your answer should be, “next” – move on to another loan officer who is confident in their ability to provide you with a great mortgage loan.

#2 – How Many Mortgage Loans Have You Closed in the Past Year?

Understanding the volume of their business helps you to understand their level of experience.  If someone has done just three loans over the past year, I would want to understand how they believe they will be able to help me better than someone who does, say, three loans every month or every week.  This may also be a situation where you determine that the loan officer is too busy to take care of your particular needs.  Just because they do three loans every week does not necessarily mean they are not able to meet your needs, but it should be considered and further questions should be asked to make sure they will be there for you when you need them.  Just because someone does three loans per year does not necessarily mean they are not experienced.  In fact, this could be someone who enjoyed a successful career and now does this part time as a sort of retirement.  I wouldn’t mind that sort of situation considering they have a great amount of experience and now have a lot of time to meet your needs, especially if you have a lot for questions or need a lot of time with your loan officer.

#3 – How Long Have You Been in the Mortgage Business?

I remember when I first started doing mortgage loans.  I had a customer who came to me as a referral.  I was very confident they would end up working with me, but I needed to find the best mortgage option I could.  I provided the option to this customer as a 95% jumbo loan with mortgage insurance (the type of loan is not all that relevant, but what I do want you to understand is that this loan was expensive with a higher than average rate and a mortgage insurance premium that did the customer no good).  It was the only loan program that I thought I could offer.  My customer compared me with a friend of his, who was also in the mortgage business, and was told he should get an 80/15/5 to avoid a jumbo loan amount and mortgage insurance.  Why didn’t I think of that?  Lack of experience.  The primary role of a mortgage loan officer, outside of attracting business, is to problem-solve and provide great solutions to customers.  Without the knowledge and experience, a newer loan officer may not be able to provide great solutions for you.

Consider the flip side now…a very experienced loan officer who has been in the business for a while may be a bit cynical about the business and tired of working with customers.  I am not suggesting that all mortgage loan officers who have been in the business for a long time are cynical, but just like any industry, those people do exist.  A newer loan officer may also be hungry enough for business they will look out for you and your interests more than someone who has been doing this for a while.  The newer loan officer is looking to gain your trust for the income your loan will provide but they also realize there is a potential for referrals if they do a great job for you.

#4 – Are You a Mortgage Banker or a Mortgage Broker?

Understanding the difference between a banker and broker and the impact it has on you is important.  Each have their advantages and disadvantages which I will explain now:

  • Mortgage Banker
    • Advantages
      • Direct access (or In-House) to underwriting
      • Niche products available only to the bank they work for
      • Potential the loan officer is on a salary as opposed to commission
      • Possibility for lower interest rates
      • Mortgage funded by the bank they work for at closing
    • Disadvantages
      • Sometimes limited to use that bank’s mortgage options only
      • Potential the loan officer is on a salary as opposed to commission
      • If that bank is unable to fund on your loan, you will not be able to close

I mentioned the salary loan officer in an advantage and disadvantage because it depends on how you look at this.  Some people like working with salary sales people because there is less pressure or “sales”.  Others, like me, do like working with commissioned salespeople because they have something invested in my time and mortgage, which makes me believe they would do more for me than someone on a salary.  This is exactly why you should ask questions and understand how the loan officer will work for you.

  • Mortgage Broker
    • Advantages
      • They can shop around to various companies to find you the best deal
      • Wide range of options outside of one mortgage company
      • Possibility for lower interest rates
      • Ability to place your loan elsewhere if a mortgage company closes
    • Disadvantages
      • Does not have direct access (or in-house) to underwriter (although some brokers have strong relationships with certain mortgage companies to offer special perks)
      • Possibility of no training

Possibility of lower interest rates was shown as an advantage on both sides.  This is because some banks offer lower rates to their in-house loan officers compared to brokers.  Brokers have the ability to lower their commissions or shop for the best rates through various lenders, so there may be occasions where they can offer better rates than a banker.

I want to also elaborate on training because there is always a possibility that the loan officer you work with, despite whether they are a banker or broker.  I believe it is more likely for a broker to open their doors with little to no training as compared to a mortgage banker who likely have a training program for newly hired loan officers on their staff.

Ultimately, understand how your mortgage loan officer works and what options they have to best help you.

#5 – Can You Originate Government Loans?

You may or may not be interested in a government mortgage, but if you work with a mortgage loan officer who does not have access to government mortgage options, you may miss out on an opportunity.  I often talk with customers who have been told that they should not do a VA loan; later to find out they were told this because the loan officer could not do VA loans.  Be aware of whether the loan officer you select can do government mortgages and whether or not you qualify for a government mortgage that may be better suited for you.

#6 – Can You Recommend a Real Estate Agent?

Most loan officers would love to get this question.  Often, a lot of the business that mortgage loan officers get is through referrals from real estate agents.  When they have the opportunity to return the favor, they will jump at the opportunity.  A good mortgage loan officer will be well connected and can provide referrals to real estate agents, CPA’s, home inspectors or many other professions related to the home buying process.

#7 – What is Today’s Interest Rate?

You want to know what the rate is for a mortgage, right?  A good mortgage loan officer will not just provide a quick answer to that question but rather respond in, “It depends.”  The reason the answer depends is because there are so many different factors that go into determining your rate.  The first step to determining the rate is to determine the best loan program, which will take some time and will occur through a conversation between you and a mortgage loan officer.  If a mortgage lender responds with a rate to this question, I would suggest you look for another person.

#8 – Do You Have Access to any Special Programs?

This may not be a need of yours, but here is a list of people that should be concerned with the answer to this question:

  • First time home buyers – see my post on Money for Buying a Home
  • Buyers with limited to no down payment
  • Teachers, Firefighters, Paramedics
  • Buyers purchasing a home that requires repairs or rehab
  • Buyers with disabilities or family members with disabilities

Other special situations may exist, so if you think you may fall into a special circumstance, make sure you ask your lender if they know of any special programs that may be available.

I hope this post has been helpful to you in selecting a loan officer to work with.  If you have any questions, please feel free to email me.

Lending a Hand

Scott Wynn

Money for Buying a Home

Posted on by Posted in 1st Time Buyers, Down Payment Assistance

Money, money, money.  Money is normally one of the biggest obstacles that stops renters from buying their first home.  I don’t think that would be the case if they knew there was money available to assist them with down payment.  The great thing is that there is just one website that you need to know in order to find out what options are available.  Curious?  I thought so.  United States Department of Housing and Urban Development’s (or HUD) website provides links and/or telephone numbers for just about every program available to home buyers to obtain down payment assistance.

HUD created a page for every local market to determine what is available for you.  Just go to the Local Homebuying Programs website for HUD and choose the state you live in.  Once you select the state, you will need to select Assistance Programs under the Buying a Home section.  For example, I live in Colorado so I went to the Local Homebuying Programs, clicked on the assistance programs link and here are the Colorado assistance programs:

The site breaks down the programs by where they are available and show them by region, which varies based on your state.

Obtain a Professional Mortgage Loan Officer

HUD provides a great resource for potential home buyers but obtaining a knowledgeable and professional mortgage loan officer will be priceless in your endeavor to buy a home.  A lot of these programs have restrictions that may not be clear by reading the information online.  Here is an example in the state of Colorado.  Aurora is a city in the Counties of Arapahoe and Adams in the state of Colorado.  There are several statewide down payment assistance programs in addition to an Arapahoe and Adams County programs and City of Aurora Program.  So which program would a potential home buyer use if they were looking to buy in Aurora?  Can they use more than one?  These are the questions that a mortgage loan officer familiar with first time home buyer programs can answer for you.

For those of you who live in Aurora and are curious about the answers to the questions above, you can use the Aurora HOAP program combined with the CHFA program, or just use the Aurora HOAP program by itself.  The Arapahoe and Adams County programs are not able to be used within the city limits of Aurora.  Small little things like this can have a drastic impact on your down payment.

Each program has special requirements including the area you buy, the area you currently live or work, your household income, amount of money required to be invested, etc.  Read through the programs to better understand what might be available to you.

By combining these programs with FHA financing as explained in Down Payment Assistance: Buying FHA With No Money Down Doesn’t Require 100% Financing!, you may be able to buy that home you didn’t think you could!

Lending a Hand,

Scott Wynn

Mortgage and Divorce

Posted on by Posted in FAQs, Homeowners, Qualifying, Refinance

Finances are a touchy subject when it comes to divorce, but I guess every subject can get touchy during a divorce.  I want to make sure you are aware of the implications of a mortgage when it comes to a divorce and the suggestions I have to protect yourself, on either side.

Who Gets the House(s)?

The first thing you need to do is work out who will keep the house(s).  Sometimes separating couples decide that they will sell the residence and sometimes one party agrees to move, giving up rights to the home to the other.  A good site with information to consider on who is best suited to take the house can be found on Professional Mortgage Matters blog.  Such considerations include who is able to handle the mortgage payment on their own and is the size of the house needed considering the separation.

Once you determine who gets the house, make sure you understand the implications that may have down the road.

Predict the Future

When you decide how to work out the arrangements of the transfer of ownership and/or liability, make sure to consider what may occur in the future.  Typically, a Divorce Decree or Separation Agreement will identify who takes ownership rights of the property and therefore all liabilities are the responsibility of the owner of the home after the divorce is complete.  Seems simple enough, right?

The Separation Agreement or Divorce Decree is merely a civil agreement between the separating spouses.  This agreement does not mean that the other spouse is following through on that agreement and does not override the agreement you made when you purchased the home.  When you purchase a home and obtain a mortgage, both parties agreed to pay back on that mortgage and if it was not paid back as agreed upon, could impact you in several ways:

  • Late Payments – any payments made outside of 30 days will be reported as your credit report as a late payment
  • Short Sale – if the spouse who took ownership of the home agrees to sell the home at a price below the  mortgage balance at the time, the mortgage company may be willing to accept a lower payoff, but would be shown as a short sale on the credit, which is very similar to a foreclosure
  • Foreclosure – payments are not being made and the bank takes the home as the collateral for the mortgage debt
  • Qualifying for New Debt – when qualifying for new debt, such as a home or car, income and debt information is gathered to identify you ability to repay the debt which may not be possible with the mortgage liability on your credit

ALL of these scenarios would impact both people despite what the Divorce Decree or Separation Agreement states.  Typically the spouse that was awarded the house and mortgage will be responsible for all fees and costs associated with the problems that arise from that house and mortgage but that does not mean the person who was released, is released from the original agreement with the mortgage company.

Consider what incidents may occur in the future and work to resolve them prior to signing a separation agreement.

Possible Solutions

There are many solutions that can be considered to work through this issue during a divorce.  Here are a few I thought of:

  • Require that the spouse awarded with the home refinance the property immediately to remove your name from the liability
  • If the refinance can not occur immediately, put a time frame by which the spouse must refinance the property to remove you from liability (maybe 1-5 years)
  • Put in writing that the spouse who took over the mortgage will cooperate to provide documentation to show that they are paying the mortgage debt through their own funds
    • This will, in some cases, allow the underwriters on a new debt to remove the mortgage debt from your financial picture to help you in qualifying

The Disclaimer

I am not an attorney and have based this post on my own divorce as well as experience in the mortgage business.  I am not qualified to provide legal advice and you should consult with an attorney on your own for additional consideration when dealing with mortgage and divorce.  Also seek mortgage advice from a qualified mortgage lender.  Many attorneys are unaware of the implications of mortgage debt after a divorce.  By talking with a mortgage professional you can better understand what would need to be done in the future to avoid problems with qualifying in the future.

Lending a Hand,

Scott Wynn

FHA Short Sale Warning

Posted on by Posted in Homeowners, RE Agents

Avoiding foreclosure is always a good option, and a short sale is one option many homeowners turn to when they are unable to continue to make payments and owe more on the home than they could sell it for.  There are different rules on how short sales can impact the seller when looking to obtain mortgage financing in the future.  This is particularly true when it comes to FHA mortgage short sales.

What is a Short Sale?

A short sale is where a homeowner is asking the bank to settle for less of a payoff than the balance of their current mortgage when selling their home.  Mortgage companies often work with homeowners in this situation to avoid the lengthy and costly foreclosure process.  An example might be where someone owes $200,000 on their mortgage but due to declining values on homes or borrowing more than the home was worth, they could only sell the home for $190,000.  In this case, the homeowner might ask the bank to take a “short” of $10,000 plus real estate commissions and fees.  This would allow the bank to avoid a foreclosure sitting on their books and the homeowner can avoid foreclosure and/or a large chunk of money out of pocket when they sell.  Most mortgage companies will not even consider a short sale unless they see the homeowner is currently past due on their monthly payments.

How FHA Short Sales are Different

When you, possibly with the help of a real estate agent, negotiate a short sale on an FHA mortgage with the mortgage company, the amount of the loss will be noted.  The amount of the loss that the mortgage company took is covered through FHA mortgage insurance, up to a certain amount.  The problem is that FHA has a central database called the FHA Connection that all losses are recorded.  Doesn’t seem so bad; so what they have my name on a database, but the lender allowed the loss, so I am ok.  Well, maybe so, but maybe not.  When you obtain FHA mortgage financing, the most lenient and minimal down payment A-paper mortgage available today, you must past what is called a CAIVRS authorization.  This searches the FHA database for several factors, one of which is whether you have had a FHA short sale in the past.  If so, the report shows a claim and that claim must be paid prior to obtaining an FHA mortgage.

So what can you do if a short sale is the only alternative?  Complete the short sale, and know that in the future you will have to pay off that claim to obtain an FHA mortgage in the future or you can just do Conventional type financing and not worry about it.  A short sale will likely look better than a foreclosure, but there will still be a time frame between when the short sale is completed and when you will be able to obtain A-paper mortgage financing.  This time frame is likely 3 years, although some exceptions are made and talking with a competent mortgage lender will help you in determining your specific situation.

Lending a hand,

Scott Wynn

Quickly Increase Credit Score

Posted on by Posted in 1st Time Buyers, Credit, Homeowners, RE Agents 3 Comments

Many tools are available to mortgage lenders and one of the tools I often use in my business is a Credit Analyzer tool provided by Advantage Credit of Colorado.  By utilizing this tool and the experience gained from working with many customers, I have found ways to improve credit scores quickly to help in qualifying customers for better rates and mortgage loan options.

Let’s talk about two great things to quickly improve your score, and also one change that most believe would improve your score but actually reduces it.

Improve Score #1:  Pay off any past due balances.  When a company you owe payments to reports a past due balance, but not a late payment, the credit score can be impacted drastically.  I have a customer I am working with currently that had a late payment on a credit card.  By paying off only the past due balance and updating the credit report, the score jumped 48 points, basically overnight.  The key to this was that the 30 day late payment had not yet been reported because the customer was not yet 30 days past due, but rather somewhere between 1 and 29 days past due.  Never pay past 30 days or your score will drop drastically and will have very few options to get that late payment removed from your credit.

Improve Score #2: Adjust your balance to limit ratio.  In other words, if you owe $500 on a credit card with a limit of $1,000, you have a 50% balance to limit ratio.  The way the scoring model is set up, credit scores decrease when you are above approximately 30%.  When I tell customers about this, their typical response is, “well, great, I don’t have $3,000 to lower my credit card balance so there isn’t anything I can do about this”.  I have a solution.  Contact your credit card company and ask them to do a review of your account.  Assuming you have made on time payments and have been with them a while, they will see that you are a good customer.  After the review of the account, ask them for an increase on your credit limit.  Have a particular limit in mind to get you below the 30% ratio and your score will likely increase.  This will take some self control since you are increasing the amount you can borrow.  Just remember to stay below the 30% ratios on all of your cards.  Another idea, if they wont adjust your limit is to use your credit cards together.  If you have a credit card with a $0 balance, another with a small balance and then the one you use for most of your purchases, you can do balance transfers to keep all of your cards to the 30% ratio.  It is an individual calculation on each card, not an overall.  I have seen this change impact scores by as much as 75 points!

Beware Tip #1: When people have faced credit challenges in the past collection accounts are normally on their credit report.  When looking to obtain a mortgage, collection accounts will normally need to be paid off (although there are exceptions to this and you should talk with a mortgage lender for further guidance).  How does paying off a collection account impact your score?  You are paying off a bad debt, so it should increase, right?  You would think so, but due to the way credit scores are calculated, it typically decreases your score.  Here is why.  A collection account is a debt that was never paid and the original credit sold the bad debt to another company to hopefully collect it from you some day.  These bad debts are normally sold to collection agencies for pennies on the dollar.  Normally collection accounts are months, if not years, old.  The impact of a debt, good or bad, decreases over time.  So a collection account that once impacted your score by, maybe, 100 points, after a couple of years may only impact your score 10 points.  If you pay off the collection accounts, to settle your outstanding debt, make things right and improve your credit score, you are updated the last active date on the debt, making it current again.  Since it is current, the impact on your score is very close to what it was when it first hit your credit, even though it is paid now.  Showing a collection account paid, can actually decrease your score by as much as it did when it originally got reported on your credit.  You get around this by having a smart mortgage lender who has you pay the collection account at the time of closing to satisfy the mortgage underwriting requirements, while not reducing your score to impact your ability to get a good rate or good financing terms.

Hopefully these tips come in handy for you when you are looking to obtain credit of any kind.

Lending a hand,

Scott Wynn