6 Easy Steps to Shop for Your Mortgage and Be Successful

After 8 years helping families find the right loan for their needs, I want to tell you how I would shop for a loan if I were no longer in the business. Please note, if a good deal to you in buying a home is saving a couple hundred dollars in closing costs in comparison to another lender's offer of the same interest rate on the same type loan, this message is not for you. You might want to read the book, How Do I REALLY Decide What's Important in Life for Dummies, and then come back to this message. (wink wink) Now back to a more serious note, follow these steps and you will likely be more successful in choosing the right lender.

1. You need to figure out what loan officer you genuinely like the most first. However you come up with your list, get your list of lenders you plan on shopping for your mortgage. Some suggested best ways to derive your list are as follows; referral from a friend, referral from a Realtor, check with your local bank. Now, use your best people skills as you make first contact with each of these contacts at the lenders office (loan officers) to REALLY LISTEN to the "person" that answers your question and not so much the detail of the answer. You want to be a great listener in this first communication to find out who sounds more trusting and compatible with you. Maybe even try to get off the subject of mortgage just a bit. In this first communication, you might ask some mortgage questions to make sure they know their business, but interview them. (this step does not require a face to face appointment, so don't waste their time setting an appointment just yet) Once you've talked to your list of loan officers and decided who you like best, this will be the lender you target as your hopeful transaction coordinator and leader in your financing process. Lets call him your #1.

2. In most cases, when you are buying a home, you will have already gotten to your #1 (your #1 is the chosen/preferred lender) BEFORE you have found a house, because most Realtors won't show you homes on "their dime" unless you can show them you are pre-approved...and they have VERY good reason to make sure you are pre-approved before they take you out as well. Now that you have your #1 selected. You have a goal and you want to put that goal in the responsible hands of your #1. Your goal is to get pre-approved, get comparable offers from your list of lenders, get the answers to all your lending transaction questions answered, and find out what your prospective monthly payment and dollar out of pocket at closing estimates are. Just FYI, the dollar out of pocket at closing is NOT to be used at any point as a detail used in determining what lender you use...do not use a "bottom line" on an estimate sheet from a lender to compare lenders. Schedule a time to meet with your #1, face to face if possible, or at minimum, by phone. Allow your #1 to run a credit report, collect ALL of your income and asset documents to underwrite your loan, and in the end, complete your pre-approval. PLEASE NOTE, YOU HAVE NOT STARTED YOUR "SHOPPING" AND COMPARING COSTS YET!!!

3. At a point in time between meeting with your #1, mentioned above, and before you are ready to make a bid on a home, you need to get some numbers from your list of lenders for shopping purposes. Listen very closely here! You do not need, and you should NOT ask for a Good Faith Estimate, Initial Fee Worksheet, or any other template form that the lender has in his system to come up with the variables you need for shopping at this point. To compare lenders, you need to know 3 things: 1) Interest rate, 2)Points (origination and/or discount), 3) total of lenders fees. So get out a writing pen and paper and ask all three lenders what their total of lender fees are that you will incur by doing business with them, what is the current interest rate for the program that you and your #1 decided was the best loan program for you, and how many points do they charge for that interest rate. Your notes might look like this: $1190 total lender fees, 4.875% interest rate on a 30 yr FHA loan, and 1% origination (point). If you go against my shopping plan and ask for a GFE or Initial Fee Worksheet and think that you'll just pull out what YOU know to be the right fees and variables for shopping a lender, then you open yourself up to trouble. I'm not going to bother with the huge number of ways in which that can be used against you, and if you are not willing to take my advice about this, then it won't matter anyway.

4. Now that you have gathered the necessary numbers to compare your lenders, hopefully your #1 was sitting right "in the mix" with the other lenders. If he was .125% higher in interest rate than your other lenders AND the lender fees and origination were higher, you might need to have a talk with your #1, and if the fees were higher by much, you need to work with #2. There is nothing wrong with paying $200-$400 higher in fees and points for a similar or same interest rate if you are going to enjoy the process more with your #1, have confidence that all is going to go well while you and the family are packing everything you own to move, and your sure that #1's experience and advice is going to get you to your destination smoothly and with less collateral damage costs in the end. You are buying a house after all, and not a car, or a stereo system at a pawn shop...$200-$400 in extra fees and $8-$15 extra a month for a slightly higher interest rate is not a bad sacrifice to pay for comfort in the transaction, and to make sure you do not end up paying collateral damage costs at the end of the transaction because you chose a lesser expert to handle your business. (collateral damage costs may be for example: you don't close on time, so you have to pay $100 a day to your moving company while you wait for your loan to be ready, or your contract needs to be extended because your loan wasn't done in time and the seller wants you to put up more cash to make it worth their waiting on you).

5. At this point, you have compared your lenders by interest rate, lender fee total, and points associated with the offered interest rate. You now should have located a property you want to buy, and have an executed contract on that property. You now have an exact purchase price, and a selected title company in which was selected on the contract in the negotiation. Give your shopping lenders the exact purchase price of the home, and the name and number of the title company that was used (if the number is not on your contract, ask your Realtor for it), and give them a copy of your contract...the contract should tell them if there is a survey fee, and seller contribution and all that. Ask them for a Good Faith Estimate in return and that you will be deciding on locking in the next day or two...whether you are or not (this will keep them honest). The 2010 Good Faith Estimate is designed so that you can easily compare lenders, and if the costs in the Good Faith Estimate end up being higher by fee or rate at closing, the lender will be required by law to "EAT THE DIFFERENCE". When you ask these lenders for their GFE's, they will probably want to know what your credit score is and so forth. They may in most cases need that to give you an accurate estimate on your loan. As long as your credit score is above 700, it more than likely will not hurt you to let them pull their own credit report. They'll need to know your income and asset information too, just like you gave your #1, so you might try and have that in email or fax-able form. If your lender can not get you an estimate in 24 hrs, you really need to think about the availability this lender will have in answering your questions during the process, and therefore thinking about that being a reason to NOT use that lender. If they can not get you an estimate in under 48 hours (assuming normal business hours, not including Saturday and Sunday), you REALLY might think about not using them.

6. Now that you should have all your GFE's from the different lenders, just make sure that the lender you chose as your #1 is close or better than the other offers. You might even just ask your #1 to match it and in turn you would work with him. Lastly, while comparing deals, if any one of the lenders has an estimate where the interest rate is more than .375% better than the others and the costs are similar, be very leery and get additional advice from your Realtor or ask him directly why his rate is so much lower. Lastly, make your decision on whether your #1 can compete so you can work with him, or pick the next best option in line.

If at any point along the way you did not like your #1 anymore and the other options were not good either, find another lender to throw in. If you run into discomfort and can not find a lender you like after trying a variety of lenders, you might suggest taking yourself out of the "equation", and allow yourself to be advised and directed. Controlling personalities end up, in many cases, with 2 outcomes. 1)They end up working with someone willing to let the buyer run the show (inexperienced Loan Officers work with anyone), where in turn the buyer won't "let go of the steering wheel", so the inexperienced buyer leads everyone through a very bumpy ride where the entire process is like running a mile with an anchor on your back, or 2) the buyers expectations are underachieved throughout the entire transaction because they did not allow the expert to set the expectations because they thought they could control the process themselves...even if it is your 3rd or 4th time to buy a home, you have no business setting your own expectations in a loan transaction. Loan officers live a life directly related to how the market moves, and if tracking their income as it goes up and down like a roller coaster from year to year is not enough to tell you how the market changes and how often it changes, listen to the news. That being said, a loan transaction today is very dissimilar from one a year ago.

Best of luck in your home search, and shopping!

Using a USDA Mortgage for 100% Financing...No Down Payment

Many people do not think of housing when they hear USDA...they think of rural life farm animals, and not a mortgage that brings together the need to buy with no out of pocket money toward down payment, and lack of ability to afford more conventional or FHA mortgages. The USDA mortgage was designed to help low to very low income households or individuals purchase a home. Just in case you don't consider yourself as a low or very low income household, you might first realize that USDA uses that term a little more differently than what we might.

Let me make an example to help you better understand what kind of household incomes qualify for a USDA Mortgage Loan program that you might think do not. In the system that we have available through USDA, I run this as a loan officer for my clients needing qualification for a USDA Loan, I ran the total household income at $84,000 a year, considered 3 in the household (2 adults, and a child in day care), I was able to list $6,000 a year ($500 monthly) of expenses for the child in daycare (USDA will take that amount out of your household income to better help you qualify as low income), and still qualify for the USDA loan. So you can make $84,000 a year between two adults with one child and qualify for USDA. If you have more kids in the household, you can even make more. To me, I don't think about a household earning $84,000 a year as low income, and this is why I said above that USDA may define low to very low income differently than what you might consider as low or very low income.

Why are USDA loans so great?

First of all, they do not require any down payment. Let me say that again in a different way: USDA Rural Program loans are 100% financing and therefore require ZERO DOWN PAYMENT. Some of the other important details about them that help out so much include; you can roll in closing costs if the seller won't provide cost for you at closing (could help with as much as $3,000-$6000), if the seller will pay closing costs, there is no limit to how much they can pay (meaning the seller can pay ALL of the closing costs if agreed on), loan up to 102% of the appraised value, there is no monthly mortgage insurance (don't get this confused with mandatory Home Owner's Insurance that provides you with risk management where mortgage insurance supports the risk of the lender), you don't have to be a first time buyer to benefit from this program, and there is no sales price maximum (if you can afford it through underwriting evaluation, you can buy it).

The one piece of loan structure in the USDA program that is different to conventional, but not indifferent than FHA or VA, is the 2% participation fee. Just like FHA(upfront mortgage insurance 1.75%) and VA's (2%) up front fee you have to pay when you take on a Government loan, the USDA loan comes with a 2% participation fee. This is 2% of the loan...example: $100,000 loan, then you pay $2,000 up front in participation fee. The USDA loan is still less costly than the FHA option because the USDA does NOT have a monthly cost like FHA does. You pay the one time fee up front for the USDA loan, and then you are done.

The other point about USDA loans that make them so great is their interest rate. Since these loans are guaranteed by USDA, lenders' risks are similar to other Government loans and therefore, the interest rates on USDA loans are almost, if not the same as, present day conventional and FHA financing. So, no down payment, super low interest rate, 100% financing, and multitude of low to no closing cost options out of pocket in the end make up one of today's most beneficial lending programs...for those who qualify in the way of income and location of the subject property being purchased.

To find out if the home you want to buy, or if the neighborhood you are wanting to buy in, is eligible for the USDA program, check with your lender (Me, Brad Lynch at 469-450-2723, or email me at bl@fmillc.com). The cities, towns, or communities with population under 20,000 are typically going to fall in the USDA eligible limits.

Mortgage Rates as the Economy Recovers

Moving.com continues to do an excellent job of telling the public about the daily progress of our economy and how it relates to mortgage rates...just in case the layman wanted to keep an eye on the economy in publicity that can be read and understood by anyone.
Today, bonds started out in negative fashion as the morning report in retail level sales came out not just good, but better than research would have expected. That is a good sign of recovery in our economic times...as I always say, "what's good for our economy, many times is not good for low mortgage rates". In the end for today in comparison to yesterday, rates came out a tad higher...by .125% in discount point (for the layman. That "ain't" much).

This retail level establishments report is announced by The Commerce Department. This is an important report, in case you wanted to take mental note for long term memory, as apposed to trying to add the huge number of reports that we see from day to day in the Stock Market that don't necessarily have a huge influence like this one. The retail level establishments report is important as it makes up two thirds of the U.S. economy.

Furthermore, this blog is piggy backing the recent blog post I made in the Frisco Economic Forecast a couple weeks back, in regards specifically to what rates may do in the coming 6-8 months...if you haven't read it, go read it. Remember, sitting here today with the 30 year fixed FHA and Conventional rates at 4.875%, a 7% to 7.875% rate on that price range you are holding off on today will bring a monthly payment well more than $100 a month higher at the expected higher rates than the ones today. That means you will probably settle for a lesser house in 6-8 months than you would now.

August Mortgage Rates Starting to Hike...Mortgage Trend Last Couple Months

In July, the national average for the 30 year fixed mortgage at one point got as low as 5.25%. Please note, from my long experience in this industry, I'm not sure where the national average is derived because it's always .125% or .25% higher than what most people in my market are seeing. None the less, I'm just using this as an illustration of how rates have moved upward in the recent months. Today, the national average is 5.47%. That is a full .25% higher than July's best rates. Going back to May, rates were at 4.75%. So, from May to August 7th, rates have increased over a half a point, or more than .5%.
If this becomes the trend, like economic forecasters have said it would eventually this year leading into 2010, by January we could see rates hit the 7% mark. If you are waiting on buying a home, or have not checked out of your refinance "procrastinator's anonymous class" yet, this would be the time. Take a look at this first chart on BankRate.com to see what it looks like in an image...for you brain type people that need pictures to subscribe to your long term memory.
On the positive side of this mortgage interest rate hike, I received my investment portfolio statement today and I made some money. Come on economy!

Frisco Mortgage Tweets on Twitter

Just in case you were wanting to have a Mortgage person on Twitter, here is a my link.
http://twitter.com/Frisco_Mortgage

Tax Credit Will NOT Be Available for Downpayment

$8000 FTHB Tax Credit Cannot be used For Downpayment As of Today
The SECRETARY of HUD made an announcement Monday and a HUD/FHA letter was published on the website Monday night stating the the $8000 could be used for upfront down payment (although the mortgage letter was vague at best)...the new DIRECTOR of HUD pulled that Mortgagee letter Thursday morning and is no longer even available on the HUD website because it appeared to violate a federal law that became effective October 1, 2008.
Here is the hyperlink to all Mortgagee Letters: Notice ML 09-15 has been pulled.
This theoretical program is now off the table and cannot NOT be used until there is a real concept of how to offer to your borrowers with real answers as to where the money might come from.
Before this happens there would need to be:
1. State agencies approved WITH MONEY for the down payment (Note that Texas IS working on this currently and we will probably (note that I said probably) have more information by June 1, 2009)
2. A Change to the HUD guidelines on the timeframe that is allowable for a loan….currently must be amortized over 10 years with no balloon.
3. A change to the IRS guidelines allowing your refund to be assigned to a state or non-profit entity.

It is also important to know that some mortgage companies in the area have already closed loans in which they allowed the buyer to use the $8000 as their down payment.
The problem is that those loans cannot now get insured or securitized. As of right now (today), buyers cannot close an FHA or Conventional loan using the $8000 as a down payment.

How is the Government going to get mortgage rates down to 4%?

Too often, the media passes over a story and doesn't do a good job explaining HOW. Sometimes the "HOW" is more simple than we expect, but if so, take a minute to mention it. The question, "how is the government going to get rates down to 4%," is obvious once noted and reminded of what happened with Fannie Mae and Freddie Mac a while back.

The government bought into the conservatorship for Fannie and Freddie, so they could directly demand the Treasury to issue bonds and fund the housing agencies(CLICK HERE for previous Blog on Conservatorship). In turn, their lower costs for funds would allow for a lowering of mortgage rates. In a Blog at Marketplace.com, they make a good point about offering rates at 4%...4% doesn't offer much compensation for overhead (default, prepayment risk, and underwriting).

Anyway, the government has the conservatorship on Fannie and Freddie and has lots of money...they can make it happen.

VA Cash Out Refinancing, 100% and Super Low Interest Rate

Did you know that VA will now allow an LTV of up to 100% on a VA cash-out refi based on the current appraised value? This is a 10% increase from the previous threshold of 90%.

Did you know that a VA cash-out refi is considered to be any current non-VA loan, (with the exception of a Texas A6 Cash-out loan), that is refinanced into a VA loan?

Please keep in mind that even though VA refers to this as a cash-out refi, it is in reality a rate/term refi and no cash back will be allowed at closing.

100% Financing, No Down Payment, USDA Loan for Chameleon Lending, and the Chameleon=aire

Lets step away from the so controversial "Bailout" talk for a minute. This is an industry for Realtors and Lenders that are willing to change right now. As water runs from a wide space to a tight space, it changes very quickly to meet it's new boundaries. Everyone in the Real Estate business knows that the history of our industry is UP and DOWN. As the Real Estate boundaries change, so must the contents w/in it...that's us Realtors and Lenders. There is very few people left with large down payment. There are many more buyers out there that need 100% financing, but can't get it, that only 2 years ago would have had no problem. There is still 100% no down payment home loans in Texas, Dallas, Frisco, and what ever other areas. VA is 100%, USDA Guarantee Rural is 100% and allows the buyer to have the seller pay closing costs over the amount of the appraisal...yeah! It's our job as lenders to decide which families are disciplined enough to get into a home that is leveraged by a 100% loan, and also that the home is not in a risky area that might depreciate quickly so the home owner couldn't sell if he needed to.
As a Personal Mortgage Consultant, I feel that it is my duty to my clients and my Realtor alliances to be a chameleon lender right now and as week to week we see new FHA guidelines, conventional Mortgage Insurance changes, and all the other changes we are seeing happen so fast. I believe that if the Realtor or Lender in this market can target the right places with the right "tools", they will be a chameleonaire and find success.