Monday, March 4, 2013

The Mortgage Genius Bar: 10 Mortgage Tips for 2013

10 tips to get your mortgage approved from Los Angeles, CA Mortgage Banker and Mortgage Broker Bill Rayman

With mortgage rates at historic lows and likely to stay that way for the next few months, you may be thinking that this would be a good time to buy a new home, a vacation home, a residential investment property, or to refinance existing mortgages you hold.  One thing can be said for certain: there has never been a better time to get a mortgage.  That is, if you can get one!  The news is full of reasons why you can’t.

Your frustration at being approved by a lender is shared among professionals in every part of the real estate industry.  Low prices on properties coupled with unbelievably low rates on loans should mean a robust market.  But by some analyses more than 50% of all loan applications are turned down. 

Here is the first of 10 practical steps you can take to optimize your chances for being approved.  Subscribe to this blog to receive automatic updates. 

1.      Income Clarity

Unlike the heady days of the 2000’s, today you will need to prove your income.  If you are employed, make sure that your employer is showing all income.  If you are receiving any income in the form of cash, gifts, barter or another form that do not show on your W-2, it would be far better to change it and place everything on the payroll.

If you own your own company, you may have some of the same issues as a wage earner.  If you are self-employed or a are a substantial owner of your company, you will need at least two years of history as well as current profit and loss statements.  As with the payroll issue, you will qualify for a better, higher mortgage if you choose to show excellent profits rather than using every possible way to reduce income to reduce your tax bill.   If you believe that your W-2 or business income can be improved with some changes in your methods, you may want to hold off on the mortgage for a few months until these changes are effective and clear.

There are other ways to boost income without altering your actual receipts or taxes.  For example, you might also be able to impute income from assets even though they do not provide actual income.  We can help you assess the potential to show such income on your application.

Call Bill Raymond for a free consultation.  310-295-6213

2.   Credit Score Improvement

Your credit score can keep you from getting a mortgage and will dramatically impact the rate and other terms of any mortgage you get.  There are many on-line resources for checking a credit score and you can get a free report once every 12 months from each of the three credit reporting companies: Experian, TransUnion and Equifax.  Something to know: not all credit scores are the same.  Lenders use a financial score which can differ significantly from a consumer score (your on-line report) and from scores that other industries utilize.  You may want to call me at 310-295-6213 and I will get you a financial credit score that mortgage lenders rely on.

A credit score under 620 will very likely disqualify you from any standard mortgage.  A credit score above 740 will generally qualify you for the best programs, rates and terms.  In between these two results a great broker can help you to get the best possible deal.  Your credit score can save $1000’s in interest charges over the years.  A single percentage point difference in a $400,000 loan can cost over $87,000 over the life of the loan.

Once you have your credit report, check to see if there are any errors.  Report these to all reporting agencies or directly with the company that issued the incorrect information.  It can 90 days to resolve such issues.

Tip: Don’t close unused credit cards.  Use them.  Credit scores measure financial responsibility.  By borrowing and promptly paying the bill you boost your scores.  But don’t open new cards!  

If these efforts are not enough or if you have substantial problems on your credit reports, you may want to use a professional to help you improve your score.  Many companies who offer these services are more talk than action.  Call me for the name of a trusted credit repair company.  310-295-6213

 

3.  How to Set Up a Mortgage Plan


Start your planning process by creating a realistic budget to determine how much of a monthly payment you can handle.  There are many excellent free budgeting formats on-line.  If you are considering purchasing your first home, keep in mind that there are many expenses associated with home ownership that you don’t now have with a rental.  Among other items, you need to include in your plan: utilities cost more; repairs and maintenance expenses; furnishings, flooring, and window treatments in and of themselves are huge expenses; gardening and lawn care; appliance purchases; property taxes; and, property insurance.

One of the benefits of home ownership is the tax deductibility of many of its costs.  The interest on your mortgage, property taxes, potentially your mortgage insurance, some part of any HOA dues, and some home expenses can reduce your taxable income.  Besides reaping the savings, this will improve your monthly cash flow. Even though you don’t get the tax relief until you file with the IRS, you can plan to take advantage during the year by adjusting the withholding on your wages or on your estimated tax payments.  Consult with your tax preparer to determine the best way to achieve those savings.

If you need someone to help you with all the steps outlined in this series, or just want to select a mortgage broker who cares enough to make sure your needs are met at every level, give me a call at 310-295-6213 for a no cost, no obligation evaluation of your plan. West Los Angeles Mortgage Broker Bill Rayman Explains How to Shop for the Lender.

Since the market collapse in 2008, many mortgage lenders have been far from eager to write new mortgages.  Also in reaction to the calamity, new restrictions imposed by the government and rules promulgated by banking regulators have made lending standards much more strict.  The result is that you will need to shop harder than ever to get a bank to agree to loan you money on reasonable terms.

Because I only make money by completing transactions, I have a huge incentive to close loans successfully for my clients.  Most helpfully, my firm is a mortgage bank, and more than 80% of the loans I originate are done in-house.  And as a mortgage broker, I have access to many other banks and lenders including those who specialize in jumbo, construction,  commercial, stated income and hard money loans.  In this way I shop for you to find the best possible resources.

When shopping, we look at every aspect of the cost of the loan: the type of loan, interest rate, discount fees, processing costs, and mortgage insurance (as mentioned in #4).  As a direct lender we don’t charge points or application fees, nor charge for many items people consider “nickel and-diming” such as credit reports and tax service.

To learn more about Bill Rayman, see his life story @ http://www.mortgagehelplosangeles.com/Bill.html




 

4.   How to Choose What Is the Best Home Loan for You


Example of different mortgage rates on July 20, 2012
Fixed rate mortgages provide the security of knowing your interest rate and payments will never rise.  With rates currently at record lows, most people are deciding that a fixed rate loan is their best option.

Fixed rate mortgages can provide different terms options.  A 15-year fixed term offers a lower interest rate than a 30-year term; however, the longer term will help keep monthly payments lower.  If your budget can handle it, the shorter term and lower rate will save you tens of thousands of dollars over the life of the mortgage.  For example, a $300,000 mortgage at 3.500% for 30 years and monthly payment of $1,347 will cost you $185,000 in interest.  A 15-year term at 3.000% may have a higher payment of $2,071 but total interest for the loan is only $73,000 – a savings of $112,000 in just the first 15 years, roughly $7,500 per year.
 
Adjustable rate mortgages (ARMs)
provide the lowest starting rates which can be fixed for the first five seven of 10 years.  Historically, ARMs offer the least expensive approach over the term of the loan and are an excellent choice if you expect to move within a few years.  Because the rates will change after the fixed period, they are not the right choice if you are not confident of being able to handle larger payments in future years.
 FHA Home Loans and Private Premium Mortgage Insurance (PMI).  For purchases, lenders typically want 20% down payment; any amount less and they can require you to pay additional monthly fees for mortgage insurance (MI) which insures the lender against default.  Whether you don’t have the 20% or choose to use a smaller down payment, MI is a viable, often unappreciated, path.  There are two types of insured loans.  One is from the FHA which lets you move into a home with as little as 3.5% down.  The cost for putting so little of your own money down is an upfront fee to the FHA of 1.75% of the loan amount (you don’t need cash; they will add it to the loan) as well as a monthly fee of 1.25% of the loan for at least 5 years.
Please view our video on FHA Loans for a more in-depth discussion.  http://www.youtube.com/watch?v=EU_PU59RFKA

The other type of insured mortgage is a conventional loan with Private mortgage insurance(PMI).   These require at least 5% down, but there is no upfront fee and typically less than 1.00% per month depending on the borrower’s credit score and down payment percentage.  Another advantage of PMI: it can be cancelled after 2 years when there is 20% equity in the home from any combination of paying down the loan and the home appreciating in value.  Typically insurers require higher FICO scores than the FHA allows.

5.   How to Shop for the Lender.


Since the market collapse in 2008, many mortgage lenders have been far from eager to write new mortgages.  Also in reaction to the calamity, new restrictions imposed by the government and rules promulgated by banking regulators have made lending standards much more strict.  The result is that you will need to shop harder than ever to get a bank to agree to loan you money on reasonable terms.

Because I only make money by completing transactions, I have a huge incentive to close loans successfully for my clients.  Most helpfully, my firm is a mortgage bank, and more than 80% of the loans I originate are done in-house.  And as a mortgage broker, I have access to many other banks and lenders including those who specialize in jumbo, construction,  commercial, stated income and hard money loans.  In this way I shop for you to find the best possible resources.

When shopping, we look at every aspect of the cost of the loan: the type of loan, interest rate, discount fees, processing costs, and mortgage insurance (as mentioned in #4).  As a direct lender we don’t charge points or application fees, nor charge for many items people consider “nickel and-diming” such as credit reports and tax service.

6.  How to Get Pre-Approved for You Home Mortgage Loan

 

Sellers increasingly demand to know up front whether a buyer can legitimately get the loan required to make a purchase, and they look to ta lender for authentication of which there are two types. 

One is a Pre-Qualification letter.  This type of letter provides an informal estimate of the loan you can handle.  The lender often sees no documents, just bases the amount on verbal information from the buyer. 

A Pre-Approval letter is more meaningful, and therefore more preferable.  To issue this, a lender generally requires a buyer’s taxes, assets, income proof and credit.  A Pre-Approval letter assures a seller that the buyer meets the guidelines to get the loan needed.

Being able to provide a Pre-Approval letter from a recognized lender or broker from a well-known company makes the seller know you are serious which can help you in a competitive bidding situation.  Cash offers speak the loudest, but a strong Pre-Approved buyer may be chosen over other would-be buyers even if their bids are higher.

If you would like to get pre-approved for a mortgage loan, call today and we will help you through the process.  Loan Rates are at record lows, but you will find that the banks and federal regulations are making it hard to get loans.  We are a bank and a mortgage broker, so we can provide you with the best chance of getting a great loan.

If you have not seen the first five parts of the series, just go to http://www.blog.MortgageHelpLosAngeles.com and scroll down to see all the previous parts.  

You might also find some great direction with regard to more minor details by checking out the forty plus videos on our video channel at http://www.youtube.com/user/BillRaymanMortgages

7.  Details Matter, says Los Angeles Mortgage Consultant Bill Rayman

Lenders granted loans during the go-go years between 1998 and 2007, often with little more documentation than the application.  Today, the pendulum has swung to the opposite side.  Everything is scrutinized.  To be certain that everything is accurate and true, every underwriter checks virtually every piece of information – work that is often double-checked by a 2nd underwriter.

Examples of details they check include:
  • the source of any deposits made to a bank account
  • the reason behind each credit inquiry
  • other proof besides tax returns that a borrower is self-employed
  • every page of an asset statement even if it’s blank
When you use a mortgage broker to help you with your loan, you have someone who is your advocate.  Unlike a banker, it isn't my job to find reasons to turn you down, it is my job to find a way to get you a great mortgage, and get it closed.  Call 310-295-6213

8.  Paperwork Rules.

Because the details of a loan transaction matter so much, be prepared to provide proof of everything.   The vast majority of loans are sold to Fannie Mae or Freddie Mac.  Their requirements for buying a loan (a Conforming loan means it conforms to Fannie’s and Freddie’s guidelines) are stringent, which puts pressure on the bank to make sure everything is exact and correct.   You will be asked for tax returns, pay stubs, rent receipts, banking information, business financial statements, employment verification, and proving many types of assets.

In a very real way, loans have become impersonal.  The days of a friendly banker giving you the benefit of doubt or bending a rule because you’re a good customer are no more.  In this climate, lenders fear that if they miss a detail, the loan could be unsalable, so they’re thinking down the road.  An issue that could be explained by a borrower personally will not be communicated as the loan moves into the secondary market.  Asking for documentation now assures lenders of recouping their investment later. 

You can cut down on the time required to close a loan by having these types of documents organized well in advance.

9.  What Is Rate Locking and When Should You Do It?

Some loans close in less than 30 days.  Others can drag on for 90 days – or more.  During the period between the formal application for the loan and the final closing, rates will invariably change.  Whether they will go up or down is a question each borrower must decide for himself.  This decision is probably the toughest one for any borrower.

The crux of the issue is this.  Because a bank takes a risk that rates will rise after you lock in a low rate, they will charge more – in fee or rate - for locks of longer duration than short ones.  You can choose to lock at any point from the application to the close.  If you believe rates will remain low during the loan process, you’re best off waiting to lock till the end.  If you believe they’ll rise, you benefit by locking early.

Unless and until you lock a rate, you will pay the prevailing market rate at the time of your close.  Some lenders allow a short term lock for free, so be sure to ask for it.  Few lenders will allow locks longer than 60 days, but with interest rates this low, it’s worth considering paying a small fee to secure a low rate early in the process.

Remember: locking is a two-way street.  It protects you from rates rising, and it protects lenders against rates falling.  There are practices lenders enact that prevent people from cancelling locks or renegotiating for lower rates.

For a much more in depth look at locking, check out my video on mortgage rate locking

10.  It Ain’t Over Till It’s Over


Another result of the closer scrutiny from Fannie, Freddie, the FHA and lenders themselves is that all your key financial qualifications are freshly re-examined before the lender issues docs for an approved loan.  They will pull a credit supplement to see if you’ve applied for any new debt.  They re-verify your employment to make sure you’re still working.  They do a nationwide search to see if you own any other property.  They get a transcript from the IRS to confirm that the taxes you supplied are in fact the same you filed.

It is far from unusual for loans to be thrown into limbo or rejected after this final check.  Before you apply for a loan, and particularly once you’ve begun the loan process, make sure to keep your financial ducks in a row.  Do not change jobs.  Do not make any major purchases or sign car leases, student loans or co-sign someone else’s loan.  Do not miss any payments.  And if you have an issue with a creditor, do not file  a dispute with the credit bureaus.


In Conclusion

None of these 10 recommendations for smoothing the process to obtain a loan should discourage you from applying.  Rates are unbelievably low and there are myriad programs available so that many people can qualify that may think otherwise.  Even though almost every loan has its share of problems, my firm has brought more than 95% of our applicants across the finish line.  We are experts at spotting and solving issues.  For more than 20 years, we’ve helped qualified buyers accomplish their dreams and goals.

For a free mortgage loan consultation with absolutely no obligation, call me, Bill Rayman, at 310-295-6213


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