The Mortgage Process – Managing Expectations with Multiple Vendors

We talk a lot about managing expectations for our business associates and our consumers. This is really challenging in the mortgage industry. People don’t want to hear about the complexity of the process and what can cause delays, they want their loan approved, clear to close and done… no matter what. It does not matter how we explain the process, in writing, verbally, face to face, with video or all of the above, everyone has internal expectations in this process that we cannot seem to influence.

In the mortgage approval process there are multiple entities that we have to work with in order to validate data and ensure that the loan meets all requirements, here is a list of companies and individuals we depend upon during the approval process:

Appraisal Management Companies
Condo Management Companies
Condo Boards of Trustees
Insurance Providers
HR departments/employers
Internal Revenue Service
Title companies
Home Inspectors
Building Inspectors
Fire Departments
Building Departments/Zoning Departments

Each individual or company on this list has a role to provide in the mortgage process on most files, if one entity is away or unavailable, or an individual makes a mistake on a required document that necessitates a correction days can be lost.

How do we properly manage expectations when we do not fully control the process?

Remember when you get a call that a commitment might be delayed, there are many moving parts and people engaged in the mortgage approval process. Our job is to work with the providers who get it done right from the start when we have a choice, however in many areas we have to work with communities and government agencies and we have no control over their response times.

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Mortgage Myth – Buyers need a 20% down payment in order to purchase a home…

Do you know all the different programs available with little or no money down?
Conventional 97% – (That’s 3% down) Fannie Mae has reinstated their 3% down loan program. One of the borrowers must be a first time homebuyer, which means that they cannot have had ownership interest in a home in the past three years. Also of the down payment can be a gift from a family member!

Home Possible/Home Ready – Like the Conventional 97% program, these Fannie Mae/Freddie Mac products are for lower income buyers and offer reduced mortgage insurance costs. Borrowers must complete a homebuyer education class. Set income limits are established by each county, which must be adhered to.

FHA Loans – The Federal Housing Administration (FHA) allows buyers to get into a home with a 3.5% down payment, which can be in the form of a gift from a family member. FHA makes allowances for lower credit scores and higher debt-to-income ratios.
203K Loans – There are FHA products that allow for some improvement or construction financing to be rolled into the purchase mortgage. The standard 203k provides up to a minimum of $5,000 to make some minor improvements to the property, a limited 203k can accommodate a complete renovation up to $35,000 in repairs. We have 203K specialists on staff that are experts in these programs.

VA Loans – These are first class zero down payment loan programs. Wintrust waives our processing and underwriting fees for our veterans. The seller can contribute up to 4% as a credit towards closing costs and Wintrust Mortgage can offer a lender credit to minimize closing costs as well. Always be sure to ask your prospects if they have served in the military.

USDA Loans – The US Department of Agriculture (USDA) has a home loan division that allows 100% financing. The property must be in a rural zone and the borrower’s income must be within the USDA income limits. Give us a call if you want to learn more about USDA qualified communities in your area, there are more than you think. Many communities meet the USDA requirements even though we may not think of them as being particularly “rural.”

State Bond Programs – Most states offer a housing program of some type that allows for low to no down payment and other benefits for the state’s low to moderate income residents. For example, Massachusetts offers the Mass Housing program, which has income limitations and is available to first time buyers only (defined as not having ownership in a piece of real estate in the past three years). The program requires that the buyer attend a home buying education class.

Each of these programs offers different benefits and advantages depending upon the profile of the homebuyer. Let your mortgage professional at Wintrust Mortgage navigate this maze with your buyers. We will provide complete education on all programs and provide written comparisons on everything. Homebuyers will be better equipped to make an educated decision on how to structure their new home purchase in a way that meets their needs and dreams!

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That Pre-Approval Letter May Be A Fake

A mortgage approval is a loan application that has been reviewed and approved by an underwriter. Most of the pre-approvals that you see today are in fact a “Loan Originator Opinion Letter”. Loan Originators are not allowed to approve a loan, that is the job of the underwriter. In fact, for government loans, the underwriter needs the U.S. Department of Housing and Urban Development (HUD) Direct Endorsement Certification from HUD before they can underwrite those programs. Loan originators cannot obtain a Direct Endorsement Certification, so they cannot offer an approval on any HUD loans. Unless the lender you work with has their underwriting department underwrite all ‘pre-approvals’ they are not true pre-approvals, they are pre-qualifications. This is law, not semantics.

TILA-RESPA Integrated Disclosure Rule (TRID) regulations have changed the way consumers shop for a mortgage as well as the way lenders are required to manage the pre-approval process, how the letter is issued and what it’s called.
Today most lenders are really issuing pre-qualification letters.

No matter what it is called, the process the lender goes through is what is most important to the consumer and the real estate community.

For a quality pre-qualification, a borrower should have a thorough interview with a loan originator. The loan originator should pull and review the borrower’s credit. Although a loan originator cannot require a borrower to provide any back-up documentation prior to making an official mortgage application, most consumers are happy to provide all documentation required for that loan originator to make a sound conclusion. The loan details should be run through an automated underwriting system; either Fannie Mae’s Desktop Underwriter (DU), or Freddie Mac’s Loan Prospector (LP) for an automated approval. The Loan originator will review all the information presented to ensure that the documents support the details of the transaction and then provide the consumer with a Pre-Qualification Certificate to give to their real estate agent.

There are plenty of lenders who issue pre-approval letters without doing most of these steps. So, the name of the document has no bearing on the quality of the process or the likelihood of the loan actually becoming fully approved once the borrower has committed to a property.

Make sure you are working with a lender who does a thorough review with the borrower, and explains what is needed to issue the letter. Your lender should be an expert in their field, which is why you should work with a Wintrust Mortgage loan originator.
For more information on how to avoid pre-qualification/pre-approval pitfalls and to learn more about today’s more complex mortgage process call us today, we will happily come to your office for a Wintrust Lunch and Learn. We promise a lively and informative meeting. Book yours today!

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Open Your Month With Closings!

Open Your Month With Closings!

Schedule your closings for the first week of the month, not the last; you’ll receive better delivery, quality and service.

It’s conventional wisdom that it is better to close a mortgage loan at the end of the month, but why? Pre-paid interest is why. Pre-paid interest is the interest paid from the date of the closing until the last day of the month. This is due with the first mortgage payment at the first of the following month. If the closing is the last day of the month there is one day of pre-paid interest due. Each day earlier is one more day of pre-paid interest.

Because everyone wants to close at the end of the month, closing schedules can be fast and furious. There is often no ability to re-schedule or delay your closing, if needed, when busy attorneys and closing agents are conducting back to back closings for days at a time. The sheer volume at the end of the month can make for a poor customer experience no matter how qualified and dedicated the parties are.

The solution – schedule your closings for the first week of the month!

At Wintrust Mortgage, you can close within the first seven days of the month and receive a credit for the interest back to the first of the month. This means no pre-paid interest for your customers. Their first payment will be due on the first of the following month.
Five reasons to close your purchase loans the first week of the month:

• No pre-paid interest with an interest rate credit.
• More attention and customer service from all involved
• More time available to review documents, ask questions of the closing agent and get the job done
• You are not competing with multiple consumers who all want to close at the same time.
• Scheduling is easier, the process is easier and you will have more options.

Don’t compete with thousands of buyers and agents trying to schedule their transactions. With beginning of the month closings, you and your buyers will have the quality home closing experience that we all desire to deliver to our consumers.

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Capacity. Capital. Collateral. Credit. And…

Nothing has changed in mortgage qualification. It’s still about the FOUR C’s.

With a 5th C making an appearance, Character.

A potential homebuyer walked into our office and said, “I have a 798 credit score. What are you going to do for me?”

While this is an excellent starting point, we let the client know that we need to verify income, the ability to make a down payment and review the property they wish to purchase.

The mortgage process essentially has not changed. We look at the same things today that we did decades ago and that is the four C’s of mortgage lending!
Capacity: Is the client able to make the payment on the proposed transaction? We will review income, W2 forms, tax returns, pay stubs, current housing payments and debts to determine the buyer’s loan payment capacity.

Capital: Does the client have a down payment? We review bank statements to verify the borrower’s ability to make the down payment and demonstrate their ability to save. Even with low to no down payment programs or transactions, or if the buyer is receiving gift funds for the down payment, we will look at their saving and spending history to determine if they can manage the new payment.

Collateral: The lender will need an appraisal on the purchase property to determine if the collateral will support the mortgage loan. The market value and condition of the property are determined with the appraisal report.

Credit: Great credit and high credit scores have an impact on many transactions. This can include obtaining insurance, employment, and all financial transactions. Good credit comes with better rates and terms for consumers in most financial transactions. For mortgage lending, the best rates usually come with credit scores over 740. It can be challenging to obtain a mortgage with a credit score below 620, but credit isn’t the only component of the mortgage lending decision.

Character: When reviewing a mortgage application package, underwriters are looking at the consumer as a whole, not just at the individual four C’s. With a new approach to credit review called “Trending Credit,” underwriters are not just looking at a credit score, but a borrower’s approach to credit and debt management. Underwriters are looking at job stability, professional growth and money management. Although the “Four C’s” have been the base line for lending for decades, with the advent of the Internet, lenders have the ability to learn a lot about consumers, the properties they are buying and the nature of the transaction.

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Sticky Offers!

This is an extremely busy and frustrating market. If you are a listing agent you are probably a bit overwhelmed with multiple offers and demanding sellers. It is no easy task trying to navigate the transaction to get to the closing table and end up happy.

If you are anyone else, you are running as fast as you can to do business. On any given weekend we here at Wintrust Mortgage can have dozens of borrowers making offers on their dream home. As a matter of fact, pretty much all other lenders in MA are fielding dozens of borrowers making offers on their dream home. With all of this activity, it is more than likely that those dozens of borrowers are all offering on the same homes! At least it sure feels that way.

As long as we are in a multiple offer market there will be one winner and many disappointed losers for every listing…. So how do we make offers that stick?
What matters other than price?

Timing – look at date flexibility, find out what the sellers need and deliver those dates.

Down Payment Size – The greater the down payment, the more attractive the offer!
Cash – Cash is King! Pay cash if you can, you can finance the property at a later date.

Speed – Talk with your lender about getting a “credit only” qualification quickly to satisfy the sellers, this means that the loan, if fully approved, is subject to approval of the property.
What about contingencies?

Financing – Call your loan originator to determine if it is reasonable for your buyer to remove the financing contingency and what the risks are. This is not the same as paying cash – what it means is that buyer’s cannot get the deposit back if denied the loan. If properly pre-qualified, the only concern when removing a financing contingency is that the appraisal comes in at the purchase price, or that the buyer is willing to make up the difference between the agreed upon price and the appraised value. However buyers with complicated self-employment income or other unusual financial circumstances need to be cautious when considering waiving their mortgage contingency.

Inspections – Some people remove the inspection contingency and some people have the inspection at or even before they make an offer. We have seen other offers accepted with the condition that they would have the inspection right away, but that the results of that inspection could not be used to cancel the contract on the house or to renegotiate the agreed upon price.

More Inventory

Until we get more listing inventory we are going to have lots of frustrated buyers. Many potential sellers tell us that their greatest concern about listing their home in today’s market is fear that they will not be able to find another property in the time frame allowed with the sale of their home.

Our Solution

Team up with Wintrust Mortgage to present programs where we can engage sellers in pre-qualification activity and home selling strategies such as utilizing extended locks and lease back agreements to allow enough time to find a new home once their property is under agreement.

Working together, we can bring more ready inventory to the market.

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Shop For the Truth, Not For The Answer That You Want!

Today is the buyer’s commitment date… but the lender has not issued one, in fact they are declining the loan!!!

That’s because the buyer does not qualify for the purchase which is what we told him when he came to us for the loan. He is self-employed and we suggested that he come back once his most recent year of tax returns was completed because his income would be higher. The buyer decided that he didn’t like the news and went to another lender where he was given a pre-approval letter, he then made an offer to buy a property, spent money on the inspection and the appraisal and guess what… the buyer does not qualify and will not be approved.

How does a consumer differentiate between information provided by two presumably professional lenders? How does a buyer determine who is telling the truth?
Here are some steps to take for your own education and protection:

• Have the lender walk you through exactly how they arrived at the approved loan amount for your financial profile.
• Ask for details on all aspects, credit, income, savings and employment history – get the why.
• Use the information gained with the first lender when interviewing for a second opinion “Why can you do this when the other lender said that it could not be done?” Then carefully consider the answer, you can take that answer back to the first lender if you think that will help you gain clarity.
• In light of differing opinion, get a third.

Regulators are trying to create a mortgage system where the consumer cannot get hurt, but that is simply not possible. All industries have good and bad players and various levels of competency of professionals. No amount of regulation is going to change that. Consumers have to be smart, educated and shop responsibly. Not just for the lowest rate or the answer they want to hear but for competency and knowledge in the marketplace.

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Make It All About You

Each day is full of noise about real estate and our economy. Trying to purchase a home has become a competitive sport. Some buyers will fall out of the market when the weather warms and their frustration from multiple out bit offers has worn them out… they will devote their few remaining weekends to summer living versus house hunting.
If this fall is like the past 3 or 4, prices will gently fall, bidding wars will wain with 2 or 3 competitors and sometimes just one bid… versus the double-digit competition in the early spring market. Inventory will continue to be the huge issue.
However, it is important to keep in mind the economic conditions are constantly changing and in our increasingly global economy events near and far can impact interest rates and financial markets for better or worse.
Perhaps the Millennials have it right, with all the hand wringing about “when will this generation start buying real estate?” They are taking their time and waiting until it is right for them. This is wise.
We should be making our major life moves when the time is right for us. Not because our family members, friends and the media are touting it’s now or never, this is the time, rates are low, do it now no matter what, get in at any price.
Buying a piece of real estate is a big and life changing commitment, you cannot move on a whim at the next romance or job offer, you may have to maintain, repair, pay up for improvements with your extra funds. When the time is right for you, go for it. When the time is right for you, the opportunity will be there. If rates are higher, it is likely that values will stabilize or slightly decline, if rates rise keep in mind that rates will likely fall again. Innovative but not risky programs will be developed to support first time buyers in a rising rate environment. There will be a way to make a home purchase happen when the time if right for you!
Home ownership creates stability and wealth, it makes sense. It makes sense when the time is right and the buyers are ready to take on the responsibility.
Don’t fall into the frenzied ‘get it at all cost’ attitude that is starting to rule the current environment. Make the decision that the time is right for you because you are ready to take it on, not because social pressures are mounting for you to make a huge lifestyle change.

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The New Trend in Credit Reporting

While “transactors” and “revolvers” may sound like the newest Sci-Fi movie, they are actually two new categories now measured by a new credit reporting approach called trending credit. This new approach goes back two years and looks not only at payment timeliness but also at credit trends. A “transactor” pays their credit on time and often in full or significantly over the minimum required payment. A “revolver” is more likely to pay the minimum required, move balances around, and shop for better credit card deals. Revolvers are considered riskier especially those who carry large unpaid balances.

Until recently credit reports told us if the applicant was late on a payment or had defaulted on a loan but they didn’t tell us how the consumer manages their debt.
Fannie Mae will begin evaluating how all applicants manage their credit with a two-year look back to determine payment and spending patterns. This is called ‘trended credit data’ and we have yet to learn how this new approach will impact consumers. However, the common belief is that utilizing this approach will help millions of consumers who have little to no credit history or do not generate a credit score, to build their credit profile. This may allow them to qualify for a mortgage today that they did not qualify for in the past.

This new trending data approach will not alter a consumers FICO credit score, but will change the way the consumer’s use of credit is evaluated. It will take some time to determine how this approach is working for the mortgage industry. Credit industry experts say this move by Fannie Mae is a huge step towards fairer credit.
Freddie Mac has not made a decision to adopt this approach as of this time.
There has been no national discussion addressing any potential negative impact this will have on lending qualification. We will have to wait and see but for now it is important to understand that consumers’ credit is now being evaluated at a deeper level.

For more information on this subject read this great article by national real estate reporter, Ken Harney


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Causing delays in the mortgage approval process.

Ahhh… Spring, the flowers are blooming and the kids are running in the yard and this year’s taxes are filed and behind us. This is a great feeling, but one that soon can go away when it comes to securing a home loan.
From first time buyers to seasoned borrowers, it is no secret that your lender will require you to provide income documentation in order to obtain a home loan approval, including W2 paystub’s, tax returns and the like. What you don’t know is that tax transcripts are required on most mortgage loans originated across the country. Tax transcripts are a validation that comes directly from the IRS to prove that the income used to qualify the borrower is actual income of the borrower and that the lender didn’t miss something or that the borrower is not potentially committing fraud.
Normally, getting copies of tax transcripts isn’t a big deal, but for borrowers who filed their 2015 returns late, or who mailed in their tax return versus filing electronically, tax transcripts may not be available or be delayed. Depending on the source of the borrower’s income, the overall strength of the loan file, and the loan program, the lender may be able to make an exception and close on a loan with missing transcripts, but not always.
Be aware that if asked for an extension on a closing or a commitment date due to an inability to obtain transcripts, don’t blame your lender. This situation is temporary and generally by the end of June transcripts are on track and on time. It’s always better to take the time to do it right. As I have always said, careful and steady always wins out over quick and sloppy.

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