It's Been a Few Years Since I've Purchased or Refinanced a Home, What's New in the Mortgage Process?

By, Mike Carney, Sr. Mortgage Banker

For anyone that hasn’t purchased a home or refinanced their current home recently, several changes have been implemented to the mortgage process that you should know.

Significant increase in government regulations. Depending on how long it’s been since you last applied for a mortgage, there are significantly more government regulations.  Many of the changes are a result of the Dodd-Frank Act. These new regulations are aimed at preventing a lot of the reckless lender behavior that created the housing bubble that occurred a few years ago.

Significant increase in documentation needed. If you are considering applying for a mortgage soon, start planning now.  You are going to be required to furnish your lender with full documentation.  That includes, but not limited to, tax returns, W2’s, paystubs, bank statements, proof of current housing expense, etc.  Remember that your loan can only be processed as quickly as you furnish your lender with the documentation they request.  And contrary to popular belief, lenders don’t arbitrarily request documentation; there’s a reason why you are being asked to supply items.

Longer processing times. All of the changes we’ve implemented have resulted in longer processing times and consequently, longer closing times.  While 30-day settlements were commonplace in years past, today it’s more likely to see 45 or even 60-day settlements.  While some situations that delay settlements are unavoidable, many can be avoided simply by planning ahead and being prepared.

If you’d like more information about Apex’s current mortgage process contact me or download our 7 Steps to Settlement flowchart. We’re committed to closing clean and on time, every time which is why we believe communication is key. We keep our clients informed each step of the way, and like to be upfront about our steps to settlement and what you can expect from the process.

Why Do I Need So Many Documents When Applying for a Mortgage?

By: Scott Shenton, Mortgage Banker

Today’s mortgage standards require more documentation than ever before.  So much in fact, it can sometimes feel overwhelming. Why do you need so many documents? Let’s explore.

Throughout the years leading up to the housing bubble of 2007, millions of mortgages were made with little to no verification of borrower’s ability to repay the loan, their credit worthiness, and a host of other factors that could alert a lender to a risky situation.   The reason for this was that housing prices were headed up so quickly, that even if a mortgage defaulted, the bank would likely have enough equity to cover it, thus wouldn’t likely suffer any loss.  Unfortunately, many mortgages did in fact default causing the market spiraled out of control.

This all changed in 2008 when the bubble burst.  Borrowers who couldn’t afford their homes started defaulting on their loans.  As these homes foreclosed, it negatively affected the value of nearby homes, causing more people to default on their loans, sending the entire housing market, and our national economy into a tail spin.

Things have stabilized a great deal since then and regulations have been put into place to help ensure that this does not happen again. One of these measures is to require that a borrower’s ability to repay the loan is verified and documented beyond any doubt. 

Today it is expected that a borrower’s income is fully verified with pay stubs, along with a two year history of W2’s and Federal tax returns.  In the case of self-employed borrowers, business tax returns and profit and loss statements must also be submitted to verify the profitability of the business.

Assets are also required to be documented and it’s for two purposes; required cash for closing and reserve funds.  Not only does a borrower have to prove that they have adequate funds for closing, they also need to prove that those funds are available to use and are not the result of an unrecorded loan with the expectation of repayment, which could affect a borrowers ability to repay their mortgage. This regulation ensures that the funds planned for closing costs or reserves are not owed to anyone else.

Two months of statements must be collected for all relevant bank accounts.  Should any deposits greater than 50% of the gross household income be made, it too must be documented with additional statements and check copies.  In the case of a gift, special documentation attesting to the details surrounding the gift must also be submitted.

Depending on the loan type and the number of properties you own, between two and six month’s payment reserves must also be verified. This is usually verified using two months of savings, retirement or investment statements.  Again, any large deposits will introduce new accounts which must show a two month history.  If those new accounts have a large deposit, yet another account will have to be verified, and so on.

In additional to all of the documents already listed, copies of government issued photo IDs, condo association/home owners association dues, real estate tax bills, mortgage statements, rental leases and insurance policies on investment properties must also all be verified.

The documentation requirements have grown exponentially since 2008 and can feel extremely invasive at times.  However burdensome this may seem, it’s also easy to see why these steps were taken and why it’s best to trust the process. Every borrower, regardless of their income or status has to document the same things. The process of applying and taking out a mortgage certainly can be frustrating, however being thorough with your application and being engaged in the process will make the process a whole lot easier.  Remember that by applying for a mortgage, you’re asking a bank to lend you a LOT of money, and by providing all the documentation requested, you’re helping the bank understand why you’re not a risky investment.  The more the bank understands this, the easier your mortgage process will be.

   

For more information on how to create the perfect loan file, take a look as this great article by Forbes.

Prepare your documents early. Use our purchase checklist or our refinance checklist to get organized and help your mortgage process run more smoothly. If you have your documents and are ready to make your homebuying dream a reality, let’s talk about getting pre-approved today!

Why is it harder to get a mortgage if you are self-employed?

By: Paul Defgnin, Mortgage Banker

Being self-employed can come with many perks: flexible hours, long lunch breaks, and always agreeing with your boss. However, when it’s time to buy a home and you’re looking to get a mortgage loan, self-employment can present many challenges in comparison to someone who is salaried. Obtaining a mortgage while being self-employed requires more time, effort, additional documentation and various other challenges including:

Not being able to rely solely on deposits or cash-flows going into business or personal accounts as qualified income

• Needing two years of tax returns
• If you are a partner, a member of a limited company or incorporated in business, you are required to provide various financial documents including, an unaudited year to date profit & loss statement, a balance sheet, and a third-party CPA letter.
• In most cases, you are required to have 2 years of self-employment history in the same business for the income to be considered qualifying income
• If your income fluctuates, it can pose a problem when a lender is considering your ability to repay the loan

Although self-employment presents many obstacles, obtaining a mortgage is still achievable. By educating yourself on the solutions when faced with these challenges, the process can run smoothly and mortgage approval is possible. These solutions include:

• Getting organized and having all your documents in order. 
• Keeping business and personal accounts separate 
• Being prepared to provide additional documents before starting the process including but not limited to 2 years tax returns and other business tax forms
• Ensuring that you have 2 years self-employment history before you apply
• Providing a record that your income is consistent or increasing. If your documents show that your income is declining, be sure to write an explanation and provide documentation if it is an isolated event
• Minimizing how many expenses will affect your net income
• Providing independent verification of your self-employment

Regrettably, sometimes even having all of the necessary documents in order is not enough for lender approval. Frequently lenders and mortgage bankers do not understand how to read self-employment borrowers’ tax returns and will not take the time to learn. The main issue is not proving your income, but it is instead finding an experienced mortgage broker who is able to read your tax returns to assess how much you qualify to borrow.

If you are self-employed and are in need of a reputable Mortgage Banker that understands and has experience working with self-employed borrowers, contact me to get the process started.

Understanding Your HELOC and Repayment: What You Need To Know

By: Eric Gates, President

During the housing boom of the mid 2000’s, Home Equity Lines of Credit (HELOC) were originated at a record pace. A home equity line of credit is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower's equity in his/her house.  In particular, between 2004 and 2008, a significant number of HELOCs with terms of 10 years were created. The draw period for these lines of credit are coming to an end,  evoking conversation on what happens now.

Here is a brief summary of important facts anyone with an existing HELOC should get familiar with:

·      All terms of your HELOC are outlined in the documents you signed when opening your account and should be reviewed to gain familiarity. In particular, read through your HELOC Agreement.  

·      Your interest rate is adjustable and is tied to the prime rate. The prime rate is a commonly used, short-term interest rate used by most banks in the United States. The rate on your HELOC is typically adjusts as the prime rate rises and falls.

·      The prime rate is currently 3.25%. This rate is not static and is subject to change.

·      Rates are expected to rise sometime in the next year or two.

·      All HELOC’s start with a draw period during which the borrower can access the funds on the line of credit.  Typically, the minimum payment during this time frame is interest only, although in some cases it may be a percentage of the outstanding balance.

Which changes can you expect to come to your repayment terms now that your line of credit is amortizing?

·      The initial draw period for HELOCs opened in the 2004-2008 time frame was ten years, in most cases. Some have already moved beyond the draw period and millions more will be doing so within the next few years. Make sure you know when this will happen in your case so you can prepare for it in advance.  DON’T JUST WAIT FOR YOUR HELOC LENDER TO INFORM YOU.

·      At the end of the draw period, the minimum payment requirements change, sometimes drastically, as the HELOC enters the repayment term and funds can no longer be accessed from the Line.  

·      The payments required after the draw period are recalculated so that the balance can be paid off in a specified period of time.  Check your HELOC Agreement to know how long this time period will be.  It is likely to be 5, 10, or 20 years.

·       The shorter that time frame for repayment is, THE MORE YOUR PAYMENT WILL BE GOING UP.  For example, you’d have to pay a lot more each month to pay down the balance in 5 or 10 years than you would to pay if off in 20.

So what should you do?

·         Read your HELOC Agreement and get familiar with the terms.

·         Use an online calculator or ask a Mortgage Banker to determine what your payment will change to based on your balance, interest rate, and the length of the repayment term.

·         Consult with your trusted mortgage advisor to see if there are options to refinance that make sense for you to consider.  Make sure you consult with someone who will give you an honest answer and will be looking out for your best interest, not theirs.

·         If refinancing isn’t an option and the new payment structure is going to be difficult for you to meet, proactively contact your HELOC lender before the adjustment period to see what options they can offer.  While some lenders may work with you to make the repayment terms more affordable, this is not guaranteed.

Navigating changes to your HELOC can be difficult and an experienced Mortgage Banker can help you find the answers to your specific questions. Contact me to discuss your situation and how we can find a solution to meet your needs.

Why Choose a Local Mortgage Banker? They Make the Lending Process Easy.

By: Kendall Tayman, Team Tayman

Finding the best lender to finance your home is one of the most important decisions you can make throughout the homebuying process. Since this will be one of the bigger purchases you make in life, deciding who should help finance your home shouldn’t be taken lightly. It’s important to choose a mortgage lender who is trustworthy, experienced and has a team of seasoned mortgage loan officers. Unlike any online lender, a mortgage banker is a live person prepared to personally manage your loan and look out for your best interest, something a computer cannot do.

 

So why might someone choose a local mortgage banker over an online lender? The answer is simple: they offer a personalized service with the goal of customer ease and care.

1.      Personalized Service

A locally owned and operated mortgage lender with a team of experienced mortgage banker, appraisers, and underwriters is the best possible scenario when trusting someone to help you finance your home. Providing personal financial documents to someone outside of the family may seem like a daunting, invasive task, but with a local mortgage banker, you can rest assured that your personal information is safe in the hands of trusted experts in the mortgage field. When working with a local mortgage banker, all your financial documentation remains in-house during the processing of your loan. The advantage of in-house processing is the streamlined, efficient system in place that retains full control over all aspects of your loan.

2.      Extensive Knowledge of the Local Market

When questions arise - as the loan process can often be tricky - a local mortgage banker and his/her team are able to quickly and efficiently answer any questions you may have. Local loan officers strive to build a trusting relationship between themselves and their client. Local mortgage bankers are your next-door neighbors; they have unrivaled experience in the area and would go the extra mile to help you land in the home of your dreams.

3.      Copious Experience in the Mortgage Field

Would you rather have processors and loan officers based in different locations or a well-oiled team who work with each other, in-house, every day? Or how about an online, impersonal mortgage banking team focused on the number of loans closed, versus a team with each member having over 10 years of experience in the mortgage industry who cares about quality, not just quantity. Experience and control are key aspects in the loan process for the transaction to occur smoothly. You can even take this experience a step further by finding a loan officer with a CMPS (Certified Mortgage Planning Specialist) certificate. A loan officer with the CMPS designation has the knowledge and experience building a mortgage that fits within their borrower’s short term and long term financial goals. This is the kind of lender you can trust with your personal financial documents and trust to resolve any problems that may arise throughout the process. CMPS certification is held by less than 1% of mortgage pros in the industry. In all aspects of life, experience is valued.

4.      Advantages of Independence

The advantage of an independent lender is that loans can be sourced with multiple investors and not be restricted to the pricing of any one institution. This allows for clients to achieve the best possible rate on the market, while still getting the care and promptness of a local mortgage banker.

When you choose a local, independent mortgage banker, you truly can have it all: the right relationship, while receiving fair market rates and fees. Over the course of their life, the average person buys, sells, and potentially refinances their mortgage several times. Therefore, choosing the right lender to finance your home is incredibly important, as the relationship between a lender and borrower is long term. True mortgage management is a commitment by the lender to monitor the loan throughout the complete term and alert you when there are any opportunities to change based on your financial goals.

If you’d like more information about the mortgage lending process please request a copy of our homebuyer’s guide or apply online to get started with one of our mortgage bankers.

3 Things to Consider Before Buying a Home

By: Glen Lazovick, SVP, Business Development

Whether you are a first time homebuyer, looking to trade up or down size your current home, the homebuying process can often be intimidating. Here’s 3 things to consider to help you plan for your homebuying quest. 

 1. Be a smart shopper. 
Begin your homebuying hunt by knowing how much you can afford. How do you determine what you can afford?

 • Prepare a budget.
Create a list of your monthly expenses. Be sure to include any current recurring debt, entertainment expense, commuting cost. Pro tip: This is a great time to ask yourself if there are any items you can cut out to reduce your monthly expenses. Take this time to review your cable and phone plan, check your insurance bill, find cost effective ways to doing the things you do regularly – like brewing your own coffee.

 • Meet with a Mortgage Loan Officer.
A Mortgage Loan officer can help you determine how much home you qualify for. While the Loan Officer can get you a loan for more than you thought you could afford, that does not mean it is what you would feel comfortable paying each month. This is where you could consider the budget you created. While your Loan Officer will review your income and credit statements he or she will not be able to account for your lifestyle expenses paid in cash, or credit cards that get paid off each month. 

2. Determine the best mortgage product for your needs.
Work with your Loan Officer to determine the best mortgage product for your unique situation. Your Loan Officer should ask you questions like how long you plan on being in your home and how much money you’re looking to put towards the down payment. The answers to these questions will help determine the best mortgage product for your needs.

 • Thinking about how long do you plan on staying in the home can help determine if an Adjustable Rate Mortgage (ARM) makes more sense than a fixed rate mortgage. Often times ARM’s provide a lower rate due to the shorter mortgage terms.

 • A down payment is an important consideration when considering a home loan. Your Loan Officer will be able to talk you through different products based on what you feel comfortable having for a down payment.

 3. Location, Location, Location. Check out and target a neighborhood.

• Visit your targeted neighborhood on several occasions at different times and days of the week. A neighborhood that is quiet Tuesday at 2:00 pm maybe noisy and traffic filled on a Saturday at 11:00 am.

• Plan a practice weekday commute from your targeted neighborhood. Leave the targeted neighborhood the same time you leave your current home. Is the commute longer or shorter is it something you can live with? It might be short as far as distance but traffic patterns may double your commute time.

• How are the schools in the neighborhood? Even if you do not have school aged children, the schools that serve your neighborhood can affect the home’s resale value.

• What surrounds the immediate area of the house? There may be a nice tree lined border in the back yard during the spring and summer months but in fall you may find out that the house is behind an Industrial complex.

• What are the future plans for the surrounding area? Check with the City or County planning or zoning board. Will a major highway be planed to cut across your back yard? The more information you have on the location, the more informed decision you can make on your future home.

While the list of considerations above should help begin the conversation about your future move, I would highly recommend meeting with a Mortgage Loan Officer who can help you plan and put you in touch with the right industry professionals to make your move as smooth as possible. If any red flags come up through your consolation, you have the opportunity to plan accordingly before your move.

Want additional information about the homebuying process? Request a copy of our homebuyer’s guide or apply online. Happy house hunting!

What Do Underwriters Actually Do Anyway?

By: Scott Shenton, Mortgage Banker

For anyone who’s been through the mortgage process, particularly in the current regulation-heavy environment, they may feel that underwriter’s only purpose is to be difficult. Although it may feel that way sometimes, underwriters actually are the superheroes of the mortgage industry. 

To appreciate why underwriters are so indispensable, it’s important to first understand a few of the underlying processes in the mortgage industry. No matter which institution you choose to do your mortgage, it’s a near certainty that that loan will one day be sold to a different institution. This buying and selling of mortgages is collectively referred to as the “secondary market”. It’s this buying and selling of mortgages, that enables institutions to continue to have funds to lend and without this market, the entire system would come to a screeching halt. For a mortgage to be considered viable on the secondary market, it must be structured and delivered in a way that proves that it is indeed a good investment (adequately low risk) and is consistent with industry standards.

  

This brings us back to the heroes of this story, the underwriters. Loans are delivered to underwriters complete with a large collection of supporting documents intended to prove a borrower’s income, ability to repay the loan, credit worthiness and the circumstances in which they are purchasing the property. An underwriter’s job is to then look at the big picture and ask the difficult questions.  Is the borrower’s income consistent and stable? Are the borrowers using the property as a primary residence, 2^nd home, or investment? Are all debts being taken in to consideration when determining a borrower’s ability to repay the loan? Does the loan make sense, and will it be purchased by an investor?

Underwriters are expected to pose questions that may impact the loan’s marketability and request additional documentation to answer these questions. When an underwriter has done their job well, the loan will easily be sold and will continue on, issue free. It’s this step that keeps the secondary market, and ultimately the mortgage industry plugging along.

So take it easy when answering an underwriter’s request for additional information and thank them. They keep homebuying possible. Want additional information about the homebuying process? Request a copy of our homebuyer’s guide or apply online.