Why Do I Need to Talk to a Lender?

A question I often hear from buyers is, “Why do I need to talk to a lender?”

There are a number of reasons, the first being that you can find out how much of a home you truly can afford — based on monthly payments, not just the price of house.

On paper, you may be qualified for a house of $XX. There are some beautiful homes near that price! The problem lies within not knowing what that qualification means in terms of how much you’d pay per month, including taxes, insurance, and interest on the loan.

I recently had clients who could “technically” afford more than they were buying. Knowing their monthly limit (they still need to buy groceries, gas up their car, like to dine out on occasion, and meet up with friends for drinks!) helped them to make a very informed decision so they wouldn’t be “house poor.”

With the house we recently helped them get under contract, they will be closer to work (less gas fill-ups!), get the kitchen they wanted, and still be near the restaurants they like to frequent. And due to the monthly payments being within their budget, they can still dine there!

Other good reasons are: Your credit could have some issues that you were unaware of, and they can be fixed up front. My parents, when refinancing years ago, had my student loans on their credit, when they should not have been. My loans were enough debt that it could have affected their ability to get the mortgage — and all due to an error since my address had been the same as theirs until a few years before.

Your lender can let you know of any local programs you may qualify for, which could reduce your closing cost expenses..

Your lender can let you know if it may be beneficial for you to wait to buy based on your current circumstances versus potential in the future.

You can be ready to write a contract when you find the house of your dreams. Many Baltimore houses for sale have a requirement of a loan pre-approval letter or proof of ability to buy. If you don’t have that, you may miss out on that house while a qualified buyer gets it!

For more information and a referral to get a loan pre-approval, contact me. I have a number of lenders who I trust to serve my clients!

Should I Wait for House Prices to Drop?

A question that many buyers have been asking is whether they should buy a house now, or wait until prices drop.

Guest blogger, George Kennedy, of Wells Fargo Home Mortgage, offers some thoughts in his post.

Should I wait for prices to drop?

The question should not be whether or not house prices will fall, but whether your purchasing power will fall. A slight increase in interest rates can cost you tens of thousands of dollars on the life of your loan.

Take a look at the following example. A $250,000 loan at today’s 30 year fixed interest rate of 4.75% will have a monthly payment of $1,304. If the interest rate should rise to 5.5%, the same $250,000 house will have a monthly payment of $1,419. That is an increase of $115 per month. Over the life of a 30 year loan that is nearly $42,000.

So, the real question to ask is this….Do I think it is more likely for that house to drop in price $42,000 or that interest rates will rise by .75%?

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Thank you, George! Contact me for more information on Baltimore house values, and what an increase in interest rate versus a lower price can mean for you.

What Does a Loan Officer Need for My Loan Application?

What do I need for loan application?

…And why is this additional information being requested of me? What are the underwriters looking for?

Thank you to J. Christopher Kennedy of 1st Mariner Mortgage in Downtown Baltimore for some answers to mysteries of loan application and approval process.

Why are you asking this?

Too often buyers who have worked hard to find the right home find themselves thrown into a state of confusion when it comes to the mortgage process. Though simple, the loan process is thorough. At times the process seems repetitive or redundant.  There is a reason it seems repetitive. It is.  While the loan officer, processor, and underwriter have three distinct jobs; each has the responsibility to insure that the documentation matches what is stated in the application.

What are the loan officer, processor, and underwriter looking for?

1. Income- Do they make enough money to pay the mortgage?

Are the W-2’s and pay stubs consistent?

Is the year to date income consistent with the pay rate?

Do they write off expenses on their taxes that reduce their effective income?

Are there any automatic deductions from their pay that might be for loans/child support/alimony that aren’t reported on the credit report?

2.       Savings- Are they responsible and save money?

Is there enough money in the account for closing?

Are there any unusually large deposits? Large deposits must be explained so we know the buyer has not borrowed money or taken an advance on a credit card for funds to close.

Are there any automatic payments from the account that might be for loans/child support/alimony not reported on the credit report?

3.       Credit- Do they pay their bills on time?

What is the score?

Are there any bankruptcies or collections on the report?

Are all accounts current?

Are there loans with deferred payments? If so, how long will they be deferred?

4. The Property-Is the house worth the contract price?

Does it meet the standards of the loan program?

Is the home safe?

Though getting a new loan is a more arduous process than a few years ago, it is still a fair one. If you make a decent living, save some, money and pay your bills on time; you can get a loan. Understanding what lenders require and why they require it will help make the process a smooth and efficient one.

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Thank you, Chris, for this great information! Look for future mortgage posts from Chris, as a new contributor to my site!

This Month in Real Estate August 2010

This Month in Real Estate August 2010 has been released.

As I mentioned in my July 15 post, “Mortgage Rates at Lowest Point in Five Decades,” mortgage interest rates have dropped to their lowest level in the past 50 years. On July 29th, that number was 4.54%! Freddie Mac’s current average interest rate is at a historic low of 4.6% — right at the lowest since it began recording in 1971 (but up from Thursday!).

While it is tempting to wait for a price for a home to drop, what tends to happen is that when prices drop, interest rates rise. Therefore, your payment, even if the price of the house is lower, may be the same or higher than it would be right now!

Contact me more information on buying a Baltimore home using historically low interest rates!

HUD to Investigate Possible Loan Denials to Pregnant Borrowers

News came out yesterday in a New York Times report that there were loan denials to people because of the fact that one member of the family was expecting a baby, and now HUD is going to investigate the possible loan denials to pregnant borrowers.

Shaun Donovan, of HUD, stated to the New York Times:

“Lenders have every right to ascertain the incomes of families to determine whether they are eligible for a mortgage loan, but they have no right to use a pregnancy or a short-term disability as a cause to deny that family a mortgage they would otherwise qualify for,” Shaun Donovan, the agency’s secretary, said in a statement late Wednesday.

This was very upsetting to many who felt this was an illegal and unfair practice. The question I, as well as many, had, is whether this violated the Fair Housing Act.

I am hoping that these practices do not continue, or that they are found to be untrue allegations.

Mortgage Rates at Lowest Point in Five Decades

Mortgage rates are at the lowest point they have been in five decades.

The national average is 4.57% for a 30 year fixed conventional loan.

MSNBC reports that:

Rates have fallen over the past two months. Investors, concerned with the European debt crisis, have poured money into the safety of Treasury bonds. Treasury yields have fallen and so have mortgage rates, which tend to track yields on long-term Treasurys.

Though the rates are very low, many people have already taken advantage of the low rates that have been in place for months now. These rates also don’t include add on fees, which Freddie Mac reports right now theirs are averaging about 0.7% of the loan amount.

Others are not refinancing due to the fact that they actually cannot. They have less equity in their home than is on their current mortgage, and do not have the money to make up the difference. So despite the possible lower payments, these distressed people cannot take advantage of the historically low rates.

Many Baltimore homeowners are in the same situation, putting them at risk for a short sale if they need to sell.

People who have been on the fence about buying a home should consider the moment to be now. With rates this low, plus Baltimore home prices being so low, there has rarely been a better time to buy!

If you are ready to buy a Baltimore home, contact me today to take advantage of these incredible low interest rates.