What Every Homebuyer Should Know Before Getting a Home Loan

 

There is a range of mortgage choices available, so you have the ability to select the right one for you. That’s a good thing, but it can be a lot of information to take in, so be sure to educate yourself.

After you’ve figured out how much you’d like to borrow from a lender, your next step in getting a home loan is deciding what kind of loan to choose. There is a range of mortgage choices available, so you have the ability to select the right one for you. That’s a good thing, but it can be a lot of information to take in, so be sure to educate yourself.

Fixed Rate vs. Adjustable Rate

Fixed-rate mortgages have the same interest rate and monthly payment for the entire life of the loan, whether that’s five, 15, 30 years or more. This type of loan is a good option when rates are low and you plan to own the home for a long period of time. Adjustable-rate mortgages, also known as ARMs, have interest rates that can change at set intervals during the life of your loan. This type of loan is a good option when rates are high and you only plan to own the home for a short time.

Conventional vs. Government-Backed Loan

With conventional loans, a private lender assumes the risk of losing money if you default on your mortgage. A government-backed loan is insured, either completely or partially, by the U.S. government. Federal Housing Administration and Veteran Affairs loans are well-known types of government-backed loans.

Federal Housing Administration (FHA) Loan

FHA loans are available to anyone who meets the FHA lending guidelines and maximum loan amounts. Because the FHA insures the loan and lowers the risk for the lender, this mortgage type is more likely to offer competitive interest rates, less strict credit requirements and low down payments. An FHA loan is a good option for first-time homebuyers, although buyers should be aware of the monthly insurance payments you’ll likely have to pay for choosing this over a conventional loan.

Veteran Affairs (VA) Loan

A VA loan is available to eligible veterans, spouses and other beneficiaries. Similar to FHA loans, the risk is lower, so this mortgage type offers a competitive interest rate often without requiring a down payment or private mortgage insurance.

Conforming vs. Non-Conforming Mortgages

Conforming mortgages meet specific standards set by Fannie Mae and Freddie Mac, the government-sponsored institutions that buy loans from banks. Non-conforming loans do not meet those standards, which means they are less likely to sell on the secondary mortgage market — and lenders offset the risk by charging a higher interest rate.

Mortgage Fees

Once you have a short list of mortgage options to choose from, ask your lender if there are pre-payment fees if you pay off the loan early, and how much the lender will charge. Fees can vary from lender to lender and are sometimes negotiable — all the more reason to shop around!

Source: What Every Homebuyer Should Know Before Getting a Home Loan: What Type of Mortgage is Right for Me? – Redfin Blog

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Those credit scores you see may not be what lenders use

Consumers are often surprised to discover that the number they’ve been monitoring isn’t the one that their would-be lender uses as part of its loan decision.

Several months ago, pharmacy technician Curtis Webb thought his credit score was high enough to help him snag good terms on a mortgage.

“It was close to 730. I thought it would help me get a good interest rate,” said Webb, 27, a Utah resident. “Then the lender came back with my actual score. I was shocked.”

The underwriter had checked his “classic” FICO score, which was more than 40 points lower than the score that he’d been monitoring online. The lower score meant a higher interest rate, making the loan a more expensive prospect.

That scenario is common, experts say. Consumers can retrieve a credit score online that may not be the one that’s used when they actually apply for a loan. And while the discrepancy might not always be significant — or could be in your favor — some industry watchers say the differences are confusing at best and misleading at worst.

“Consumers don’t even know what score they’re looking at, or if it’s the one used by lenders,” said Al Bingham, a credit expert and author of “The Road to 850.”

“In most cases, it’s not,” he said.

The credit-scoring world is a complex one, despite many consumers thinking their score is a number that is the same — or at least very similar — no matter where it’s presented.

“It’s unrealistic to expect that a number, whether from a website or credit bureau or anywhere else, will be the same number that some future lender is going to use,” said John Ulzheimer, a credit expert and president of The Ulzheimer Group in Atlanta. “If it is identical, chalk it up to luck.”

FICO scores are considered the most widely used numbers in lending decisions across consumer loans and lines of credit. The company says its scores are used in 90% of lending decisions, based on data audited by a third party.

VantageScore, meanwhile, says that 2,800 organizations (including 2,500 financial institutions) used close to 10.5 billion of its scores from July 2017 through June 2018, based on a study by global consulting firm Oliver Wyman. Most of that usage, though, came from credit card companies managing existing credit card accounts and prescreening applicants.

Webb, the Utah resident, had been monitoring his score on personal finance website Credit Karma, which provides scores from the VantageScore model. That’s a joint venture among the nation’s three biggest credit-reporting firms: Experian, Equifax and TransUnion.

The VantageScore was created in 2006 as a competitor to FICO, which has been around since 1989. Both brands use similar data to compute your number — including things like outstanding debt, payment history and other financial tidbits that help predict whether you’ll repay what you borrow. The most familiar versions of both VantageScore and FICO result in a score that falls on a scale of 300 to 850.

However, the specific algorithms used to arrive at your numbers are different. And both brands have multiple versions — upgraded editions, often — which also contribute to variations in the scores that you see. Even the credit-reporting companies can provide same-named scores that differ from one to the next due to differences in the information reported to them or the timing of it.

Of course, regardless of the score lenders choose to use, they also typically weigh additional items including income, length of employment, stable housing or other aspects of your financial life that don’t show up in your credit report or get reflected in your score.

Yet as many consumers know, the higher your score, the better terms you can get on loans and credit cards, including the interest rate — which can save a lot of money in interest over the life of a loan.

For example, on a $160,000 mortgage, paying 4% over 30 years incurs $115,280 in interest. Just a half percentage point higher, 4.5%, would yield $132,128 in interest over the same time — $16,848 more.

Source: Those credit scores you see may not be what lenders use

Treasure Coast Events: 49 - Enjoy!

 

Treasure Coast area events calendar.

Things to do in the area including concerts, entertainment and local attractions.

For the full list click HERE

MMG Sponsoring Marketing Madness Today!

Thank you #Realtors and association’s staff for making another great #MarketingMadness possible.

Technology Shouldn’t Replace a Loan Officer

 

The mortgage and financial services industries are in the midst of a dramatic technological revolution, thanks to automation, machine learning processes, and the emergence of the digital mortgage. Applications that were done entirely on paper just a few years ago are now able to be completed on a smartphone by a consumer sitting on a park bench, on a lunch break, or at home relaxing on the couch.

1. Loan officers are problem-solvers

As any loan officer or originator can attest, much of the day-to-day job consists of solving problems, putting out fires and ensuring that customers are taking positive steps towards their destination, whether it be a simple 30-year fixed-rate for a 780 FICO borrower with 20 percent down, or a jumbo non-QM loan for a self-employed borrower with a recent bankruptcy. The problem-solving isn’t always mathematical. Often, it’s a communication issue between agents or an employer not responding about a verification. That is the sort of task that a competent loan officer will always be able to do better than the best AI or automated system. Those are “people problems,” and they need people-focused solutions. Additionally, many problems require not just solving, but an originator committed to advocating for their borrowers. That means being willing to go above and beyond to assist borrowers–calling in support from other departments, finding creative solutions, and picking up the phone to talk to underwriters, compliance, appraisal, title, escrow, real estate agents and more. In my many years as a loan officer, I’ve found that this kind of commitment and “hustle” to get the job done is what separates successful, long-term professionals from those who are just out to make a quick buck.

A loan officer who has a personal connection or takes the time to communicate with a customer should understand their specific needs, so they can precisely tailor a mortgage. As helpful as many online/app-based mortgage applications are, they will never provide all the detail you need, particularly the hidden or “bubble” questions. For example, a borrower reaches out to lender because their mortgage is past due, thanks to an unexpected expense, such as funeral costs. There are so many things that a borrower needs to communicate to a lender–not just what they want, but why they are doing something, including any timelines or relocation concerns to keep in mind. Today’s borrowers are more complicated than ever before, thanks to rising self-employment and the “gig economy.”

One of the big benefits of having a loan officer is the expert counsel that they provide to their customers. While the aforementioned borrower with spotless credit and a large downpayment may not necessarily need much in the way of counsel, many customers need the advice and care that isn’t available through an algorithm. No automated system can provide the kind of nuanced assistance that the job requires. Ask yourself what “digital solution” helps with these common scenarios:

►Loan officer suggests that a client increase his/her creditworthiness by paying off multiple credit cards and putting less money down

►Walking the customer through the pros/cons of having a family member co-sign on a loan

►Client has a very low score–instead of a simple rejection, the savvy loan officer responds with “You currently have a 460 FICO score, but let’s talk once a month until you get your credit score up and eventually, maybe two years down the road, you can be a customer.”

2. Still in demand: The human touch

The hype surrounding new mortgage technology may make it easy to think that borrowers are demanding to turn the mortgage process into something as simple and straightforward as ordering a pair of socks on Amazon.com, but don’t be fooled. While borrowers are certainly demanding that their lenders utilize and embrace new technology, they also want and need the human touch that only a live loan officer can provide. They know that purchasing a home isn’t like ordering a $12 pizza–it’s likely the largest and most significant financial transaction of their lives. Even the much-vaunted digital application isn’t a panacea. Mortgage tech giant Ellie Mae found some surprising facts about consumers and online applications in their annual Borrower Insights Survey: “The survey showed that when borrowers fill out online applications, it is common for them to abandon the process or take multiple sessions to complete it. About one-half that have used an online mortgage application finished in one sitting. About one quarter of those that have used an online mortgage application started the application online but did not finish it online.” To me, that reveals that many borrowers want more communication, more input, to learn about options, get advice–not something that can be done with a chatbot.

In fact, Ellie Mae’s 2018 survey showed that Millennials were not only the most likely to use technology in their mortgage journey, but they were the most likely to say that more face-to-face interaction and increased communication would have improved the mortgage experience. Remember, most borrowers are unfamiliar with the mortgage process altogether, and many homebuyers are making their first purchase. Good loan officers find that there’s an emotional connection when you speak to a borrower, as you work to understand their hopes, dreams and needs, and how you can help them achieve their goals.

3. Tech tools are just that–tools

Instead of feeling anxious or viewing new technology as a threat, loan officers should see it as an opportunity. Remember that these innovations and technologies are simply tools. Ignored or not embraced, they are wasted, but wielded properly by a smart loan officer, they create powerful new opportunities that can grow your business. Making that personal connection with a borrower is key to not only a successful transaction, but making the borrower a customer for life. In addition to face-to-face interaction, utilizing social media platforms and automated marketing systems is a great way for loan officers to extend their reach more efficiently. In particular, I’ve found that simply running ads doesn’t get the job done with today’s consumer, who is bombarded with 4,000-10,000 ads a day. However, posting a short video with a helpful tip or quick insight on the latest housing data or rate change is an effective attention-getter, and provides valuable content to the prospect and gives me instant credibility. Video and social media is also a great way to stay in front of your existing customers, building on that personal connection and trust that leads to the next loan or referral.

While predicting the future, particularly the future of technology, is an uncertain business, I am confident that as long as mortgage borrowers have problems to solve and see the value in human interaction and connection, loan officers will always have a place in the industry. Not competing with technology, but employing technology to help their customers and reach their own professional goals.

Source: Top Three Reasons Why Technology Shouldn’t Replace a Loan Officer

PSL Events: October 2019

The Civic Center calendar shows events happening at the Civic Center.

To see the full list, click HERE