How should I go about looking for a mortgage broker?
In today’s increasingly complex mortgage market, some borrowers seek the aid of a mortgage broker to find the most favorable interest rate or best terms. But some unscrupulous practices have cropped up among a few brokers. To avoid being ripped off, follow these guidelines in dealing with a mortgage broker:
- Request referrals.
- Ask reliable sources among real estate professionals and other knowledgeable acquaintances to recommend a good broker. When seeking referrals, ask whether there is any financial incentive from the broker to the person making the referral.
- Look for a license.
- Most states have licensing requirements and a banking and regulatory agency that keeps track of brokers who violate state codes.
- Find out about fees.
- Ask the broker for a list of all fees and how variable costs are calculated before entering into an agreement. Unless you have credit problems, the broker’s fees should not be over 2% of the loan amount. Get a schedule of the exact fees a few days before closing. Read all paperwork carefully and check the math.
- Run a comparison check.
- Before talking to the broker, call some national lenders doing business locally and local banks to find out what the current rates and points are so you will know if the broker’s are the best you can get.
Are there any questions I should be sure to ask a potential lender?
- What types of financing do you handle? VA? FHA? Conventional? Adjustable Rate?
- What is the total cost of origination and/or application fees?
- How much are lender’s processing fees? (Document review, underwriting fee, document preparation, tax service, etc.)
- How many points will be charged?
- What are the loan’s interest rate and annual percentage rate (APR)? APR is a combination of interest rate, points, and other charges divided by the loan’s term to give an annualized rate.
- How long will it take to process the loan?
- Is there a prepayment penalty? You want to be able to pay off the loan upon sale or refinancing of the property without penalty.
- Can I lock in my interest rate? What lock-in fees are charged?
- What is the lender’s track record?
- Will the loan be sold? Who will handle servicing? Some people prefer to deal with lenders who are in town and can handle servicing questions and problems.
We have working relationships with many local lenders and, based on our experiences, we can answer many of your questions. Call or e-mail us for invaluable assistance in selecting a potential lender.
What do lenders look for in borrowers?
- Lenders double check self-employed income. If you’re self-employed and shopping for a mortgage, your lender may be contacting the Internal Revenue Service – directly. In the past, self-employed applicants have often had to produce copies of tax returns to back up income stated in the loan application. Now, however, lenders can compare income claimed on the loan application to the amount on the tax forms filed with the IRS.
- Predict credit problems.
- Lenders try to predict credit problems. Some mortgage lenders have added a follow-up credit check on borrowers after they have closed on a loan. Similar to credit scoring now used in deciding whether to make the loan, the new default-risk scoring evaluates the likelihood a borrower may default on the loan. The score indicates, for each mortgagee, whether a delinquency would likely become a default. Then a lender can decide what action to take, if any, if and when payments fall behind.
- Help high-risk borrowers.
- For a high-risk borrower, a lender can intervene early and provide credit counseling, short-term payment modifications or other measures to help prevent foreclosure. On the other hand, a lender may opt to give a high-risk borrower less leeway in time of financial crisis.
Is it true VA loans are easier to get these days?
It’s not only true, it seems to be real estate’s best-kept secret. Guaranteed mortgage loans for veterans are a lot easier to obtain since the Veterans Administration made its procedures more user-friendly a few years ago.
Some key changes in the VA Home Loan Guaranty Program are:
- the seller no longer has to pay points for the buyer, and
- the VA no longer sets interest rates.
More people than ever are now eligible for VA financing, thanks to recent changes in the VA-guaranteed home loan program. Recent changes include:
- Members of the National Guard and Military Reserve who have served at least 6 years are now eligible for VA financing.
- Loan rates can be negotiated between the lender and veteran, whereas rates used to be set by the government.
- The fee to refinance a VA loan has been lowered from 1.25% of the loan amount to 0.5% (half of 1%).
Also, thanks to a new ruling, VA buyers can now pay their own VA loan fees or points. Before the change, VA points could only be paid by sellers – which meant some sellers were turning away VA borrowers to avoid the extra costs.
The VA loan program can help qualified veterans save money when buying a house because the vet can buy a home with no down payment and no monthly mortgage insurance, although a VA funding fee is required. The debt-to-income proportion can be as high as 41%, and up-front costs are lower. Vets can borrow up to a specific ceiling, and the loan is assumable, with approval. Check with your lender for full details.
Can you tell me about recent changes in lending procedures I should know about before I shop for lender?
- Changes to the Federal Housing Administration’s (FHA) mortgage program will open FHA up to many more potential home buyers. Home buyers with an FHA-insured single-family home loan can now finance 100% of the closing costs on the loan. Previously, FHA allowed home buyers to finance only 57% of the closing costs, adding hundreds of dollars to the up-front cash home buyers need for settlement.A very recent change to FHA was raising the maximum loan amount in high-cost areas and linking the maximum to local housing costs. FHA’s mortgage limit will be the greater of $271,050 or 115% of an area’s median home price, capped at $625,500. Borrowers will have to make a minimum down payment of 3.5%.These changes will interest higher-end buyers in FHA loans and make FHA more accessible to those whom the program is primarily intended to serve – prospective buyers who do not qualify for conventional financing. Traditionally, FHA has served buyers who have lower incomes, make smaller down payments, and purchase less expensive homes.
More Good News For Loan Shoppers
- Federal regulation mandates that mortgage brokers must itemize all fees they receive to originate or close a loan.Previously, brokers were allowed to lump miscellaneous charges and premiums into a general fees category which made it nearly impossible to comparison-shop lender fees. The law applies only to mortgage brokers, not mortgage bankers. Fees really do add up, so when loan shopping, ask up front for an itemized breakdown of lender fees.
Mortgage Help For First-time Buyers
- An exciting Federal National Mortgage Association program may help open the door to home ownership for low- and moderate-income buyers.The Community Home Buyers Program allows for slightly more debt when qualifying for a loan than standard mortgage plans. Although this program requires a 5% down payment, barrowers can make the down payment with as little as 3% of thier own mondy and up to 2% from a family gift or loan from a government or nonprofit agency.In addition, the Community Home Buyers Program waives the common requirement that borrowers have two months’ worth of mortgage payments in savings after closing.There are special requirements to qualify: borrowers must attend a series of home buyer education classes and the borrower’s income must not exceed 115% of the median income in the area. For more information: Fannie Mae, Public Information Office, 3900 Wisconsin Avenue, NW, Washington, DC 20016 or call (800) 732-6643.
Lenders Welcome Borrowers With Open Arms
- Affordable interest rates mean more people can qualify to buy a first home or move up to a bigger house, and lenders are reaching out to make mortgages more attractive. Some lenders even sweeten the pot with low, or even no closing costs.Recently, best buys have been 15-year and 30-year fixed-rate mortgages. In many cases, the rates for these loans have been just above adjustable rate mortgage initial rates, which are low for a short period of time, then rise with the market. Because fixed rates have been so attractive, many current homeowners with ARMs are trading them in for a fixed-rate loan.
Computer Programs Rate Borrowers
- There’s a relatively new twist in mortgage lending. In the past year or so, lenders have begun to replace traditional underwriter’s judgments on an applicant’s creditworthiness with a computerized credit rating called credit scoring.Both ways of assessing a potential borrower’s ability to pay back the loan – the underwriter’s judgments and credit scoring – rely on much the same information: salary history, credit history from credit reporting companies, ratio of debts-to-income, etc. But credit scoring uses a computer program designed to predict who will default on a loan. It assigns a numerical score to each factor and then adds them up. Credit scoring is objective and designed to uncover hidden problems. For this reason, credit-scoring programs may assign more importance to some factors that the underwriters would overlook.
If you are interested in learning more about any of these new lending procedures, call or e-mail us. We’ll be happy to assist you.