Residential Purchase - The Mortgage Porter

When are you obligated to a Loan Originator?

April 19, 2007 by Rhonda Porter 4 Comments

Commitment…ah hah! I bet I just lost have of my readers out of fear from that one word! We’ve had a series of post recently at Rain City Guide that has developed some very interesting comments and dialog. Here’s are excerpts from a recent post of Ardell’s:

Me: “…if a buyer comes to you with a lender and has gone through the preapproval process, you might steer them to another one?”

Ardell: “Absolutely YES….Are you suggesting that the “pre-approval” comes with some kind of “obligation” to use that lender? “

A response from a real estate agent like this should not surprise me…but it did. This probably served as a much needed personal wake up call. I know when consumers are shopping me…and I have worked with a few real estate agents who have counseled their buyers to shop. They call me with the same script almost word for word, “All I want is a Good Faith Estimate…” I believe this agent (it’s not Ardell) is using my GFE to keep her preferred lender “honest” with his rates and costs.

As I’ve mentioned many times in this blog…odds are you cannot successfully shop interest rates–they are a moving target and change throughout the day. Any Joe Schmo L.O. can quote an enticing rate to get you drooling and then…when it’s time to lock (assuming he’s really locked in the rate and not gambling it) you may have your real rate. At closing, with Joe Schmo L.O. you’ll discover your real closing costs. (Always bring your GFE to your signing appointment).

The big issue I had with the post was the practice of going through the steps of getting preapproved with a Mortgage Professional just to drop them at the curb when you have a bona fide transaction. Ardell brought up an excellent question though, when are you committed to a Mortgage Professional?

When somebody contacts me for the first time. I’ll ask them a few questions, including what are their expectations of me at this point in time. Some just want rates, have questions or would like to have an idea of what they qualify for. This takes anywhere from five minutes to a half hour. I certainly hope that I’m beginning to develop a relationship and to show the client that I’m worthy of their business…but if they move on and elect to work elsewhere, that’s fine. There is no commitment at this stage. You’re just dating and getting to know each better.

Once you decide to move forward with a preapproval, if you are working with a Mortgage Professional who has been referred to you, they are responsive to you, have earned your trust and you seem to have a decent relationship…I think you should “commit” to them. With the preapproval phase, you’re providing a Mortgage Professional with all of your income documentation for the past two years, savings and assets and allowing them to delve into your credit history. The preapproval process may take hours or it may take days (depending on the situation). This is a lot of work for Mortgage Professionals…and yes, this is what we do for a living. Keep in mind, as much as a Mortgage Professional would love you to feel like you are their only client, we are often juggling quite a few transactions along with various potential buyers who are just interested in quotes or are in the “dating phase” as I mentioned above.

Once you are preapproved, the Mortgage Professional issues a preapproval letter in the buyers name stating they have gone through all of these steps and are committed to providing the buyer financing. We know this is not the perfect and that commitments from unsavory lenders or individuals are worthless…however if you have a solid Mortgage Professional, you as the client should honor that commitment as well. In addition to the time spent with the preapproval process, there are often countless emails, phone conversations, letters…you may have several weeks invested into each other. You are “going steady”. Please don’t date other LO’s behind your mortgage professionals back…at this stage. If there’s something you’re not happy with, communicate with them or move on before spending more of their time and resources.

Once you find your home and have an accepted offer (signed around purchase and sale agreement)…I hate to say the “m” word…if you’re still reading this…but you’re almost married! After a lot of hand holding, late night chats and frequent emails together, your transaction is coming to fruition. By now, you should really know your Mortgage Professional. If you doubt your rate when you’re locking in, you can always ask them. Tell them you noticed xyz rate at the bank this morning…what ever…kind of a “is that a blond hair on your collar” check.

My point is…in this post that is all ready too long (my apologies), when you have a signed around purchase and sale agreement on your home is NOT the time to begin shopping for lenders. Especially if you all ready have, as Brian Brady put it, used someone else to do all of “the grunt work” to get you preapproved. Now is when the Mortgage Professional who has worked with you to get your loan approved really has a chance to do their job and see your transaction through to closing.

And, ideally, I hope to maintain my relationship with my clients long after closing. I hope they will continue to rely on my expertise when they have mortgage needs in the future, whether that just be a simple question or if they need to refinance or buy their next home.

This is a relationship business and it’s a two way street. If you expect to have your Mortgage Professional to be devoted and available at your beckon call, shouldn’t they be able to have a little faith in the borrower?

Filed Under: Mortgage, Real Estate, Residential Purchase

Is it better to buy or rent?

April 12, 2007 by Rhonda Porter 3 Comments

An article in the New York Times was brought to my attention from Tim at Seattle Bubble on whether or not you should buy or rent. The article is very slanted towards renting and considering the part of the country it’s originating from, they are right. Our local economy and housing market remains strong and is not experiencing any sort of a slump.

What I really liked about the article is the on-line calculator to help you determine if you should rent or buy. The calculator is flexible and friendly with adjusting appreciation, down payment, rent increases and the costs associated with owning a home (funny how many potential home buyers forget about that). If you’re considering buying a home, I encourage you to check it out.

Tim, where was this calculator when I did my post at Rain City Guide and Seattle Bubble Blog countered it?

Filed Under: Financial Planning, First Time Home Buyer, Residential Purchase, Seattle, Weblogs

Are You Getting An Income Tax Refund?

April 9, 2007 by Rhonda Porter Leave a Comment

Lucky you! If you are, may I offer you a few suggestions?

Look at adjusting how much income you are withholding from your pay. A refund always feels like a bonus, but in reality, you’ve given the government an interest free loan. Why not adjust how much is withheld from your paycheck each month by increasing your exemptions? Give yourself a monthly spiff instead.
Do you have credit cards with a balance over 50% or 30% of your credit limit? Pay them down to below 50 or below 30% and give your credit score a boost.
Imagine how satisfied you would feel paying off a credit card with a high interest rate and cutting up the card?
Invest your refund into a traditional or Roth IRA or other retirement plan.
Start a 529 account for your child. It’s never too early to start saving for college.
Save your refund towards a down payment or closing costs on your next home. "Zero and low down" loans are much tougher to qualify for. Especially if you have credit issues (which in that case, you should probably refer back to items 2 and 3).

Please do not get a income tax refund loan. These loans are loaded with high interest with all intentions of you not paying them back once your refund shows up. E-file and try to be patient.

As always, consult with your professional Mortgage Planner, CPA and/or CFP. Everyone’s personal situation is unique and may call for a specific strategy and complete review of your financial information.

Filed Under: Credit Scores and Reporting, Debt Restructuring, Financial Planning, Residential Purchase

Getting on Track to Buy Your First Home

April 2, 2007 by Rhonda Porter 2 Comments

Last fall, a Mom made an appointment with me to meet with her children about buying a home. It was so cool. First off, she was very proud of her 18 and 20 year olds. Both were hard working individuals…being responsible young adults. Mom thought they should look at buying a house together instead of renting. It was a very interesting consultatation. I was happy to meet with this family to help make sure her young adults are on the right track of becoming home owners and mortgage payers.

Why I Don’t Like Stated Income Loans

March 31, 2007 by Rhonda Porter 11 Comments

Let me start by saying, I prefer a “No Income” over a “Stated Income” loan. If you have to “state” an income, you’re potentially setting yourself up for committing fraud. A “no income” verified loan (where your income is blank on the loan application) does come with a slightly higher rate than a stated income loan, however, there are no questions about what is questionable…your income!

Recently, a home buyer contacted me for a second opinion on their good faith estimate. They had just made an offer that was accepted on a home. After reviewing his information, he revealed that the loan was stated income. I did not have all of their documentation needed for self employed borrowers (2 years complete tax returns, for starters) since I was just looking at closing costs and the rate. So I asked why they were going stated income. Here is his actual response:

“Let’s just say it’s income we’re hoping to achieve, but higher than what is on our tax return.”

Does that sound a wee bit concerning to you? For one, they are stating income they don’t make in order to qualify for a mortgage. When you’re self employed your income can vary quite easily. What happens if they don’t make the income they “hope to achieve” and they cannot swing their new mortgage payment?

I asked if his Loan Originator was going to have him sign a 4506 or 4506T. These forms are sent to the IRS so the lender (and what ever company your loan is sold to) can verify the income you are stating on the loan application by accessing your tax transcripts directly from the IRS.

“I did ask [our LO] about that, and she said it’s basically a formality – that they don’t actually pull the tax return…it’s just put [the 4506 form] in the file.”

Often times, the 4506 may stay “in the file”. However, if the borrower defaults on the loan, you can bet the first thing the lender will do is to grab the 4506 to compare what was stated on the loan application to the actual income reported to the IRS.

“Since I certainly don’t plan on defaulting, I’m going trust [the LO] and the bank on this one. She’s got an interest in this as well!”

The LO certainly does have an interest in the loan. She’s going to get paid and keep her real estate agent happy. Stated income and no-income verifiers are very easy loans to do as compared to doing a full document loan for a self employed borrower where you have to review and average incomes for the past two years. Yikes…the LO might actually have to pull out their calculator and do some hard math and go through someone’s tax returns. Oh dear!

Let’s assume worse case scenario for this borrower who is all ready admittedly overstating income at what he hopes to achieve…what he suffers a loss with his business and and is not able to keep up with his mortgage? As a self employed person, your income and costs are not secure or stable. This could quite easily happen to the best of people. Now you’re in a mortgage that you could not afford to begin with because you had to ~~over state~~ lie about your income. Should your mortgage go into default, will the LO who put you into this loan stand by you? I doubt it. Plus, she’ll probably state something like “I had no idea they didn’t make that income.” She won’t go down holding the borrower’s hand in this case, far from it.

If you are considering a mortgage where you “state” your income on the loan application, you should know:

Stated income loans are not created to exaggerate your income so you can qualify for a mortgage.
Your stated income should compare to what you have reported on your gross income tax returns.
Consider a “No Income Verified” loan vs. a “Stated Income”. The difference to rate, with good credit, is often not that significant. With no income stated, there are no figures to lie about. You’re qualifying on credit and down payment alone.
Don’t lose sight on whether or not you can actually afford the mortgage payment. Qualifying for a mortgage does not mean that you should have the mortgage if you cannot make the payments.

Lying about your income, or anything on the loan application, is mortgage fraud. There are many other types of documentation available so that borrowers do not need to go this route (unless it makes sense–ie they actually have the income).

Still thinking about stated income? Watch this video from CBS.

Filed Under: Financial Planning, Mortgage, Predatory Lending, Refinance, Residential Purchase, Subprime Lending Tagged With: stated income, subprime