My New Blog

I haven’t made a blog entry in some time, as I really don’t like to make meaningless daily or weekly entries. I prefer to limit my blogs to useful information or, what I believe to be important insights.

We all know the precarious situation our real estate and financial markets are in. The volatility in the bond market, upon which mortgage rates are predicated, has created real opportunities for consumers considering purchasing or refinancing real estate. Over the last several weeks mortgage rates have acted much like my daughter’s super ball, alternately skyrocketing and then plunging toward earth. These swings are literally happening within hours and sometimes even minutes.

Since a mortgage application doesn’t obligate a consumer to complete a transaction, I don’t understand the reluctance by many to sign and return their paperwork promptly. Without a signed application lenders and mortgage companies have no authorization to act on behalf of a client. The result is lost opportunities.

Unfortunately, during the boom years there was an influx of people in to the mortgage business that were “quick buck” artists who didn’t have their client’s best interests at heart. If nothing else, the recent “bust” has swept most of these “fly-by-nights” from our ranks.

Finding and developing a relationship with a mortgage professional is just as important as finding an accountant, attorney or even a doctor. A mortgage professional is involved in their industry, aware of new developments and programs and can alert you to favorable opportunities. Having an initial application on file with instructions as to your objectives will enable you to act quickly in this, or any market.

Click Here For The Top 7 Questions To Ask When Hiring A Mortgage Professional

I’ve seen many changes in the mortgage industry over the last thirteen years. The Internet has by far has had the greatest impact. It’s certainly made consumers better shoppers but I don’t think it’s really made them smarter consumers. It’s still assumed by many that if you have a good credit score then you’ll qualify for the best rate. What’s overlooked is that a good credit score is only one of three variables, the other two being capacity and collateral. Collectively known as the “3 C’s” these are the basis on which all mortgage loans are underwritten.

If you look at it from a lender’s perspective it makes perfect sense. Remember, for the lenders it’s a business transaction, an investment. Ask yourself, what would entice you to lend a total stranger $100,000, $250,000, or $1,000,000? You would probably weigh the risk and potential return. You’d want to see a track record of how the borrower has paid back other loans (credit), that they have the capacity to pay you back (income, job stability) and that the collateral is worth what the borrower says it’s worth (appraisal).

Since it’s their business, lenders have all the facts and statistics to accurately measure the risk and to decide what return is worth the risk. They use various models, the “benchmark” being an 80% loan-to-value, full income documentation, single family home and minimum 620 credit score (580 for FHA). This is a simplified scenario and there’s a little more that goes into the “approval” decision (first time home buyer, cash/liquid reserves, etc).

Will lenders make loans if you don’t fit this “perfect” scenario? Of course, it’s their business to make loans. They will however, make adjustments to the different variables to keep their risk/return calculations constant. Loan-to-value greater than 80%, no problem, they’ll require PMI. Want to take cash-out, sure, they’ll lower the maximum LTV and “bump” the rate.

The different variables interact with one another and the combinations seem endless. That’s why a mortgage professional will want to spend some time with you discussing your current situation. Most consumers usually simply ask, “What’s the rate?” They should be wary of anyone who too quickly blurts out an interest rate. It’s almost guaranteed that once full information is gathered that rate will be different. A better way to shop for a mortgage is actually to shop for a professional.

Your comments and input are appreciated.

I had a client tell me today that he planned on staying in his home for at least another 15.  His youngest child will be graduating from college at that time.  His interest in refinancing now is to save on the monthly payment, in part, to help fund his daughter's education.

His current rate is at 7.00% and refinancing into an FHA 30 at 5.50% w/no discount points didn't interest him.  He'd save approximately $185/month but wanted to save closer to $400.  I showed him that we could get close to his $400 target (approx. $350) by paying a discount point to get a 5.00% rate.  This would lower the rate for the life of the loan.  His break-even on the discount point was a little long in my opinion at approximately 7 years but since he planned to stay in his home for at least 15 years he'd wind up saving $350/mo for at least 8 years.  This comes out to a $33,600 savings!

He'd have none of it.  He heard somewhere that you should never pay points.  This is patently false.  It depends on the actual figures and the clients objectives.