As a real estate agent, what do you think is the most important thing to find in a lender?
A lender is his or her own brand. The moment I see a pre-approval letter, I know many things in one instance: Whether or not the deal will close; whether or not the deal will close on time; and whether it will close without hiccups—all because of the person behind the letter. It’s about trust and doing what it takes to get the job done and going above and beyond to be sure it happens!
To do what you say you are going to do is a very important aspect in a lender, especially in this economy where at times it’s hard to get a loan through. It’s about calls, emails, follow up, action- communicating the status of the loan to all parties in the transaction is very important! Also, always be loyal to your lender!
What are three things buyers or sellers can do to make the transaction smoother?
1) Choose a Realtor and be loyal to that Realtor. The relationship between the buyer and seller and their realtor is one of trust. That’s why choosing the right Realtor to work with is important. You need to be able to be honest with your agent and know that the agent understands what you’re looking for and trust that they have your best interests in mind!
2) Pre-Approval is actually the first step to home ownership. So, get pre-approved! To do this, contact your lender of choice and answer a few simple questions. This sets it up so that when you’re ready to make an offer on a home you can add a letter of pre-approval to the offer and look more attractive to a seller!
3) Accept the fact that things will change in this process. I cannot tell you how many times people have told me “I do not want a ranch home,” and guess what they end up buying…..a ranch home!! A few months ago I had active buyers who wanted a town home only and to not be in the hills. Guess what they ended up buying: An adorable home in the hills because it reminded her of her mother’s neighborhood. Things change, all the time!!
The right professionals make all the difference!
Property type: Four-bedroom, two and a half bath in Redwood City
Appraised value: $900,000
Loan amount: $720,000
Loan type: 30yr fixed
Rate: 4.75%
Back story:
This client found the house of their dreams after my referral to a Realtor that I often work with! They knew nothing about the area but they not only found a home, but we were able to pay off their student loans and free up some cash flow to meet the debt/income guidelines to get them the home! It was still 20% down but we were able to increase their cashflow dramatically.
And, as always, it closed in less than 30 days!
What is one deal that fell through in the tough economy that you are able to do now?
The mortgage guidelines tightened up a lot, but recently they have begun to loosen – but not too far. The biggest change is that we are able to do 10% down on a high balance loan, not jumbo, without having to use FHA as our only financing option. It’s been quite awhile since we were able to do that!
We still have mortgage insurance on those deals, but no upfront FHA/MI fees. It’s nice to see that the market is improving, but the rates are already fluctuating and will be climbing soon so be sure your financing, and re-financing, is covered now!
Who Pays What — A Guide to Closing Costs
A lot of people find the cost of selling or buying a home confusing. It is in a lot of ways since a lot of what you can pay as a buyer or seller is contract related. Below is a list of things as a seller and a buyer that you may be expected to pay for. Take these to your agents and make sure you understand what your part of the transaction is going to be paying for!
The SELLER can generally be expected to pay for:
- Real Estate Commission
- Document preparation fee for Deed
- Document transfer tax ($1.10 per $1,000.00 of sales price)
- Any City Transfer/Conveyance Tax (according to contract)
- Any loan fees required by buyer’s lender
- Payoff of all loans in seller’s name (or existing loan balance if being assumed by buyer)
- Interest accrued to lender being paid off, Statement Fees, Re-conveyance Fees and any Prepayment Penalties
- Termite Inspection (according to contract)
- Termite Work (according to contract)
- Home Warranty (according to contract)
- Any judgments, tax liens, etc. against the seller
- Recording charges to clear all documents of record against seller
- Tax pro-ration (for any taxes unpaid at time of transfer of title)
- Any unpaid Homeowner’s dues
- Any bonds or assessments (according to contract)
- Any and all delinquent taxes
- Notary Fees
The BUYER can generally be expected to pay for:
- Title insurance premiums
- Escrow Fee
- Document preparation (if applicable)
- Notary Fees
- Recording charges for all documents in buyer’s names
- Termite Inspection (according to contract)
- Tax pro-ration (from date of acquisition)
- Homeowner’s transfer fee
- All new loan charges (except those required by lender for seller to pay)
- Interest on new loan from date of funding to 30 days prior to first payment date
- Assumption/Change of Records fees for takeover of existing loan
- Beneficiary Statement Fee for assumption of existing loan
- Inspection Fees (roofing, property inspection, geological, etc.)
- Home Warranty (according to contract)
- City Transfer/Conveyance Tax (according to contract)
- Fire Insurance Premium for first year
It’s important to know what to look for when you’re on either side of the transaction!
This information is provided by North American Title Company. Check out www.nat.com for more.
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How Can I Prepare My Financials for Buying a Home?
The state of your financials is an important part of applying for a loan. Nowadays we are back to the basics of full disclosure of all income and assets. Stated income or overstating your income are not going to work and will not pass underwriting. This is actually a positive move in the right direction as recently there were too many people on all sides of transactions that did not disclose material facts, and because of this many people have lost or are losing their homes.
So, what do we need? Just remember the “two’s.”
Most lenders will need the last two years’ federal tax returns, with all schedules, W-2s and ALL pages. Next, they need your last two paycheck stubs and the last two months’ bank, brokerage and retirement account statements. Again, ALL pages must be included — including blank pages. If you are currently renting, we will contact your property management company to get the documentation we need, but if you pay an individual instead of a company, we will need copies of the front and back of the last 12 months of canceled checks.
With this information your loan process can begin.
Three most common errors when submitting documents:
1.All of the pages of the bank statements are not accounted for. Again, be sure to include blank pages and cover pages.
2.Faxed copies are often illegible. For better clarity, use a scanner to scan the documents. Do not mail! There’s lots of sensitive information in your documents and you do not want that lost in the mail.
3.The documents need to be the most current documents you can get. Two years of tax returns means the last two years, not any two years and the same goes for the other requirements!
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Why is pre-approval important? Do I have to go back to the same lender that originally approved me?
Pre-approval is the first step in looking for looking for a home. Yes, even before hiring a real estate agent! The pre-approval letter that you get from your lender shows that the lender has verified your income, pulled your credit, verified your assets to close and for reserves and deemed them all okay for a loan of a particular size.
Part of this process should be your lender sitting down with you and talking about your finances and the mortgage payments you would be comfortable with, based on your income and down payment. This conversation will help you determine a purchase price that will fit into your finances and future plans. We want to make sure any offer you put on a home is something that is comfortable for you to make and will not put you in a financially irresponsible place.
You do not have to work with the same lender that pre-approved you; however, it can speed up the process. Since the lender already has your documentation, credit report and other information and it has already been reviewed by an underwriter (which at some big banks could take weeks), you’re much closer to completing the loan application and receiving funding.
That being said, your relationship with your lender should be a personal one, since they are the ones with the knowledge and experience to make sure you are put in the best position. Resubmitting paperwork and an extra week of time is nothing if it gives you peace of mind and you are treated in a way that lets you know your lender has your best interest in mind.
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What Should I Expect from My Lender and My Real Estate Agent’s Relationship?
The relationship between your lender and agent is extremely important when purchasing a home. The new market environment has many more regulations, hoops and sharp turns and everything relating to your home purchase should be correct and accurate up front.
The lender doesn’t want any surprises, like a seller credit the day before the lender is supposed to draw loan documentation, since surprises can cause delays which can prevent meeting important deadlines. Not meeting these deadlines can have consequences for the buyer, from losing your deposit to not being able to purchase the home at all!
Having an agent and a lender who fully understand the process and have your best interest in mind when securing financing and finding a home makes the entire transaction run more smoothly and puts you in the best position possible.
Many details of your purchase are ones your lender and agent work together on to be sure the home you’re buying is in good shape. Insurance, inspections, appraisals and understanding your financial goals and future plans are just a few things that allow your agent and lender to be sure that you are buying the right home, at the right price, and that you’ll be in the best place to move forward with one of the biggest investments of your life.
Communication is the most important thing all around so that there are no surprises!
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A Note on the New FHA Rules
The Federal Housing Administration has announced major changes to its program. The agency will increase the amount of upfront cash paid by new borrowers and require higher down payments from those with the poorest credit.
Upfront insurance premiums paid at the closing table will increase to 2.25% of the loan value, but buyers will be able to finance the premiums. Borrowers with credit scores below 580 will be required to put at least 10% down. Home buyers with higher scores will still be allowed to put down as little as 3.5%. FHA also plans to reduce seller concessions from 6 to 3% of the home’s value.
These policy changes come on the heels of FHA’s announcement in Oct. 2009 that its capital reserve fund had fallen below the congressionally mandated level of 2%. Lawmakers believe these changes will help ensure the agency’s financial soundness and fulfill its mission of serving borrowers not adequately served by the private sector.
Since August 2008 equity lines used as second mortgages and traditional second mortgages have become almost non-existent. Buyers without at least 20% down have turned to FHA financing as their only choice. The upfront costs at closing are high and private mortgage insurance is required. But, a large percentage of buyers are thrilled with this option providing financing to purchase at an optimum time.
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How Does My Credit Score and Report Affect the Loan I Can Take Out?
Where your credit stands is a very important thing to understand when you start the home buying process*. When your credit is run by a lender, they are looking to see how much of a risk lending money to you may be. Many other factors come into that, including your debt-to-income ratio, other investments you have and other financial information, but understanding your credit score and what your credit report says is immensely important.
Your credit score, also known as a FICO score, is extremely important because it directly relates to your credit history and impacts the rate that you receive on your loan. Depending on the lender’s guidelines, where your credit score stands could mean a substantial rate change or fees.
There are three different credit reporting bureaus that give your information to those who check your credit. You’re given one free credit report on yourself each year from their websites to be able to check the health of your credit. Doing this doesn’t show up on your report, but allows you to understand what is being recorded and make sure that all the activity on there is yours and not anyone else who may have stolen your identity. You can get these free reports at the following sites:
www.transunion.com
www.experian.com
www.equifax.com
Checking each at particular times of the year, like one in January, the second in May and the third in September, allows you to keep a keen eye on your report and stop any malicious activity quickly.
What does this mean for your home loan? Well, the information on your report is used to create your FICO score which is affected by things such as how many times your credit has been checked recently, how many credit cards you have, when you have been late on your payments, and late bills from hospitals, utilities and student loans. All of these things affect your score including if you do NOT have any credit … that is, if you’ve avoided credit cards or other bills that many people have. To find out your FICO score you can go to www.myfico.com and for a nominal fee they’ll let you know where you stand.
As an example, your rate today, based on a 740 credit score or above, may be 5.25% and zero points. If, with the same scenario, your credit score was at 720 there would be a ¼ point charge as a fee for your credit score being lower. At a credit score of 700 there is a ¾ point charge, and below 700 there is a 1 point charge. In some cases, if your credit score is below 700 the loan is unable to be processed. (Break points with credit scores are lender-specific; these quotes are based on W.J. Bradley’s current break points.)
A point is equal to 1% of your loan amount. In the scenario above, a $500,000 loan with a credit score of 740 would have no points, a 720 credit score would cost a ¼ point or $1250, a 700 credit score would cost ¾ of a point or $3750 and under 700 would be 1 point, or $5000. When you see how much your credit score can cost you on top of your loan amount, hopefully you see how important it is to keep your scores up!
A few tips for better credit:
- Make your payments on time. Not doing so shows on your credit report and can heavily impact your credit score.
- Watch your usage as your credit score also relates to your credit limit!
-Check your credit often through Transunion, Experian and Equifax to catch problems early and have them resolved. You can receive a free credit report through each site yearly.
-Remember that hospital bills, utilities, school loans and other non-consumer debts can show up on your credit report if they are sent to collections. All of these need to be managed with care.
* W.J. Bradley is not a credit counseling or financial advisement firm and this information is for educational purposes only and is not to be taken as guidelines or guarantees to improve your credit or financial situation or eligibility to secure a home loan.
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