Mortgage Best Practices
Every Spring the rates and property values do a little dance: The cool headed investor or buyer keeps the hype in perspective.
Get a second opinion: If somebody tells you rates are rising to get you to sign on the dotted line--chances are they are pressurng you to seal the deal. Rates have consistently risen and fallen (as they do) from 1/8th to half a percentage point during all the 'talk' of rises. Funny how they don't report drops! You can still get decent Fixed Rates that beat the Adjustable Rates if that suits your needs.
Avoid predatory lending practices by investing time to find out if the loan you are applying for is the loan you get. For more on that subject visit the Washington State Department of Finance and Industry site: http://dfi.wa.gov/consumers/predlendwp.htm
Check out your Lender: Ask a few leading questions and note how that person responds to your needs. If they are selling rates before they hear about you and your goals....exit stage left. You need to feel the person working with you has more than one answer and isn't tying to fit you in their 'box'. A typical bank has one rate sheet with products for which you may qualify. A mortgage broker will have numberous banks to choose from and they all have their good points so matching you and your needs is a delicate juggling act. Be prepared to work harder if you have any credit issues or you property is a little borderline on type or value for the area.
Qualifying--vs. what you can actually afford: Standard lender ratios don't always relate to individuals. Work with your accountant or good old Home Budget sheet and calculator to draft a home and expenses budget before you decide what kind of commitment you can afford. If your banker tells you that you will 'qualify' for a certain size loan that means that your DTI (debt to income ratio) is under 40-45%. Even FHA is allowing 43% now. Non prime loans allow up to 55% DTI. The actual livabilty of this number depends entirely on you, your family, your stage of life and how you handle debt. Not everyone feels OK about 45% of their income going out the door every month while some high earners may be just fine with spending more of their income for a home. Take an active role in determining your commitment before making an offer to buy or refinance.
Consider your long term goals when buying property: These days even the government guaranteed programs are offering some pretty whiz-bang options that help you get into a home or ease the burden of increasing property values. In many cases a few years of 'interest only' while not paying down your pinciple can buy you TIME. In the few years you are holding the loan balance at the original sale price--your property is often increasing in value much more quickly. If you waited to buy or refinance in 2 or 3 years the rates could easily exceed what you can afford.
Be very upfront about your situation: While the whole process of borrowing money can be a uncomfortable, it's very important you let your lender know what is really going on so they can take everything into account and save time and heartaches. If you wait to tell them you are leaving your job to start your own company--even if you have income to cover the shift to self employment--you could be very disappointed when the underwriter calls to verify your employment and your loan is turned down the day after you sign. Loans for stated income or 'no ratios' may cost a little more but do the job without the disappointment.
Be a good borrower! Get your documents in as requested and be in communication with your realtor or seller to keep things moving. A dead loan is the one waiting for information that keeps finding it's way to the bottom of the pile. Time is money in this business.
Fish or cut bait: If you like to shop around with lenders and fiddle with online offers your credit score will take a beating. Limit your loan shopping to a 2 week 'de-duping period' and don't make it harder for your lender to offer you the product you truly deserve! If you picked a professional to work with you then you should feel comfortable to let them do their job. If your mortgage lender or banker doesn't get back to you quickly with good ideas you can terminate your agreement (so they don't keep loan shopping on your behalf) and ask around for someone who will help you achieve your personal vision. It's really not a good idea to have more than one lender workng for you because that causes multiple inquiries on your credit at the time you need your score the highest.
Wishing you every loan sanity!
(c) Susan Templeton 2006
Get a second opinion: If somebody tells you rates are rising to get you to sign on the dotted line--chances are they are pressurng you to seal the deal. Rates have consistently risen and fallen (as they do) from 1/8th to half a percentage point during all the 'talk' of rises. Funny how they don't report drops! You can still get decent Fixed Rates that beat the Adjustable Rates if that suits your needs.
Avoid predatory lending practices by investing time to find out if the loan you are applying for is the loan you get. For more on that subject visit the Washington State Department of Finance and Industry site: http://dfi.wa.gov/consumers/predlendwp.htm
Check out your Lender: Ask a few leading questions and note how that person responds to your needs. If they are selling rates before they hear about you and your goals....exit stage left. You need to feel the person working with you has more than one answer and isn't tying to fit you in their 'box'. A typical bank has one rate sheet with products for which you may qualify. A mortgage broker will have numberous banks to choose from and they all have their good points so matching you and your needs is a delicate juggling act. Be prepared to work harder if you have any credit issues or you property is a little borderline on type or value for the area.
Qualifying--vs. what you can actually afford: Standard lender ratios don't always relate to individuals. Work with your accountant or good old Home Budget sheet and calculator to draft a home and expenses budget before you decide what kind of commitment you can afford. If your banker tells you that you will 'qualify' for a certain size loan that means that your DTI (debt to income ratio) is under 40-45%. Even FHA is allowing 43% now. Non prime loans allow up to 55% DTI. The actual livabilty of this number depends entirely on you, your family, your stage of life and how you handle debt. Not everyone feels OK about 45% of their income going out the door every month while some high earners may be just fine with spending more of their income for a home. Take an active role in determining your commitment before making an offer to buy or refinance.
Consider your long term goals when buying property: These days even the government guaranteed programs are offering some pretty whiz-bang options that help you get into a home or ease the burden of increasing property values. In many cases a few years of 'interest only' while not paying down your pinciple can buy you TIME. In the few years you are holding the loan balance at the original sale price--your property is often increasing in value much more quickly. If you waited to buy or refinance in 2 or 3 years the rates could easily exceed what you can afford.
Be very upfront about your situation: While the whole process of borrowing money can be a uncomfortable, it's very important you let your lender know what is really going on so they can take everything into account and save time and heartaches. If you wait to tell them you are leaving your job to start your own company--even if you have income to cover the shift to self employment--you could be very disappointed when the underwriter calls to verify your employment and your loan is turned down the day after you sign. Loans for stated income or 'no ratios' may cost a little more but do the job without the disappointment.
Be a good borrower! Get your documents in as requested and be in communication with your realtor or seller to keep things moving. A dead loan is the one waiting for information that keeps finding it's way to the bottom of the pile. Time is money in this business.
Fish or cut bait: If you like to shop around with lenders and fiddle with online offers your credit score will take a beating. Limit your loan shopping to a 2 week 'de-duping period' and don't make it harder for your lender to offer you the product you truly deserve! If you picked a professional to work with you then you should feel comfortable to let them do their job. If your mortgage lender or banker doesn't get back to you quickly with good ideas you can terminate your agreement (so they don't keep loan shopping on your behalf) and ask around for someone who will help you achieve your personal vision. It's really not a good idea to have more than one lender workng for you because that causes multiple inquiries on your credit at the time you need your score the highest.
Wishing you every loan sanity!
(c) Susan Templeton 2006