As long as I have been in the mortgage business (about 8 years now), there has always been confusion by borrowers (and some loan officers) about the difference between a loan Pre-Qualification and loan Pre-Approval.
Not Even Close...
A Pre-Qual, or Pre-qualification can almost be considered a task as simple as someone looking at a credit report and saying "yes, they have a credit report with decent scores, therefore, they are pre-qualified for a mortgage loan !". It isn't that simple, but it is very, very close. A pre-qual has no real standing, and is virtually worthless. There are so many nuances with a REAL approval for a mortgage loan that a pre-qual simply misses. If a broker or lender tells you they will "pre-qual you for a mortgage", first ask them what they mean by "pre-qual". If they then describe to you they will basically only review your credit report, tell them, "never mind". A pre-qual is simply a wast of everyone's time...
Better, But Still Not There Yet...
A Pre-Approval is a little better. Why ? Well, a pre-approval contains more information about the borrower. Generally, a pre-approval involves URAR 1003 loan application. A lender, or broker will actually ask the borrower questions based on the 1003. Then, they just fill in the blanks. It is very similar (it is the same document the loan officer will use for loan submission to underwriting, but usually does not have verified information) to the actual loan application.
Once the broker has the information, they will then submit the information to either Fannie Mae's DO/DU (Desktop Originator/Desktop Underwriting) or to Freddie Mac's LP (Loan Prospector) Loan Approval engines. A broker or lender can use DO/DU or LP to pre-approve a FHA, VA, or Conventional loan for a borrower. It is very powerful, and it is a simple, quick way to see if the borrower fits into the scope and parameters of the loan program they are seeking. DO/DU and LP are also used as guidelines by underwriters as to what the borrower will need to provide to the underwriter in order to receive final loan approval. We will talk more about that in a minute. But you still are not there yet...
You Are Getting Close...
A Conditional Approval is actually that - Your loan is approved based on the conditions that have been set by the underwriting. The 1003 has been completed by the loan officer with the information contained on the application verified with the borrower's documentation. The loan officer has looked at paystubs, W2's, bank statements and verified work history, rental history, and various other items and tasks required for the loan to be approved. A conditional approval is much better than a pre-qual and a pre-approval, but it definitely the riskiest area to be in, and the scariest. You are fully immersed in the loan process now. The chips are stacked - you have drawn a line in the sand...This is your position and you will stand behind it, 100%. You are all in...
There are so many things that can go wrong now, and you are totally exposed, unlike when you are in the pre-qual/pre-approval stages. You can pay for an inspection and the foundation is bad. You can pay for a appraisal and the value is not there. Or if it is at first, the lender will ask for a field review and drop the appraised value $60,000 (welcome to today's real estate market !), which will absolutely kill your deal. Or their is a cloud on the title of the property. There are so many things that can go wrong here.
I do not mean to scare anyone. Most real estate transactions go through okay. Very few have things that happen that stop the transaction cold in it's tracks. But I will tell you this - There Will Always Be Something to Deal With in a Real Estate Transaction, I can promise you...
This is What You Want...
Final Approval. Nirvana. You have made it. This is what it is all about. You have met all of the conditions required to close your mortgage loan transaction, and everything has checked out and fits the parameters set by the DO/LP Approval and underwriting. The underwriter now has no choice - they issue Final Approval, and your loan is Clear to Close. The underwriter then forwards your loan to the lender's closing dept., and then you schedule your closing. The bumpy ride is over, and you have won...
I have been through this process a hundred times, and everyone of them is a unique experience, never to be forgotten...
So, the tip of the day is this - Ask for a "Pre-Approval", always. It will start you off on the right track, and if you do not measure up right now, at least you will know what you may need to do in order to get your final approval in the future...
Showing posts with label georgia mortgages. Show all posts
Showing posts with label georgia mortgages. Show all posts
Wednesday, February 16, 2011
Thursday, February 10, 2011
Who Does the Closing Attorney Represent in a Transaction ?
Who does the Closing Attorney represent in a real estate transaction?
Well...It depends...
In a cash transaction in the state of Georgia (outright purchase of the property), the attorney generally represents the party that contacted them first to oversee the transaction. But this can be seen as a gray area as well, it's according to how the parties act in the transaction as to whose interest the attorney represents. Therefore, it is very important to establish who the attorney will represent in the transaction at the very beginning, so there is no confusion. There is a box of the GAR Purchase & Sale Agreement form (Page 2, Paragraph 7) that allows either the buyer or seller to be represented.
Borrower's almost always assume (mistakenly) that the closing attorney represents them during the real estate closing. It is totally understandable to think this, since the buyer generally is footing the bill for the title services.
Sometimes the seller thinks the attorney represents their interest in the transaction, since they offered to pay closing costs to the buyer. And it is true, generally the seller can stipulate who the closing attorney shall be simply because they are paying the cost for the attorney.
But if a lender is involved in the transaction (in the State of Georgia), the attorney represents the lender, and acts on the behalf of the lender throughout the whole transaction. It doesn't matter if it is a purchase or refinance transaction (see the GAR Purchase & Sale Agreement, Page 2, Paragraph 7)
Every so often, (rarely) you run into a closing attorney who is NOT on the lender's approved attorney list. If they are not approved (or blacklisted), you cannot close your loan with that attorney. You have to find an approved attorney. And the seller has to choose an approved closing attorney (or allow the buyer to select the attorney), or choose another buyer.
That's how you know who's interest the closing attorney represents...
Well...It depends...
In a cash transaction in the state of Georgia (outright purchase of the property), the attorney generally represents the party that contacted them first to oversee the transaction. But this can be seen as a gray area as well, it's according to how the parties act in the transaction as to whose interest the attorney represents. Therefore, it is very important to establish who the attorney will represent in the transaction at the very beginning, so there is no confusion. There is a box of the GAR Purchase & Sale Agreement form (Page 2, Paragraph 7) that allows either the buyer or seller to be represented.
Borrower's almost always assume (mistakenly) that the closing attorney represents them during the real estate closing. It is totally understandable to think this, since the buyer generally is footing the bill for the title services.
Sometimes the seller thinks the attorney represents their interest in the transaction, since they offered to pay closing costs to the buyer. And it is true, generally the seller can stipulate who the closing attorney shall be simply because they are paying the cost for the attorney.
But if a lender is involved in the transaction (in the State of Georgia), the attorney represents the lender, and acts on the behalf of the lender throughout the whole transaction. It doesn't matter if it is a purchase or refinance transaction (see the GAR Purchase & Sale Agreement, Page 2, Paragraph 7)
Every so often, (rarely) you run into a closing attorney who is NOT on the lender's approved attorney list. If they are not approved (or blacklisted), you cannot close your loan with that attorney. You have to find an approved attorney. And the seller has to choose an approved closing attorney (or allow the buyer to select the attorney), or choose another buyer.
That's how you know who's interest the closing attorney represents...
Tuesday, February 8, 2011
What Alternatives Do You Have ? Alternative Credit and How to Make it Work for You...
More and more these days, it seems I am running into buyers and borrowers that just have, for some reason or another, decided to stop using creditor that report to the credit bureaus.
For some clients, this is a REAL BAD THING, because their credit scores were bad before, and since there has been no recent activity, the bad scores are frozen in time, as well.
These potential borrower have one thing to do and one thing only - GET THAT SCORE UP IMMEDIATELY. There are several ways to do this, but there is one way I recommend to most people in this situation: Find a prepaid credit card company (two or three actually, if you really want to get your credit in good condition quickly), and pay the fee. Charge on the card, and make sure you carry a balance of 1/3 of credit limit at all times. If there is a possibility of a debt-to-income ratio issue, simply pay off the balance 45 to 60 days prior to signing a mortgage loan application. And it should work. I have had several clients to follow this formula, and it seems to turn out in a positive way. However, the borrower must be patient. It can take up to a year of seasoning to maximize the effects of the new credit and diminish the old bad credit on the credit report.
For others, it's a good thing. Their credit scores appear to "freeze" in time, holding up that same numbers as the last time there was any activity by the borrower. These borrower have the scores to qualify for a mortgage loan immediately, but do not meet the tradeline qualification quantities or seasoning required by the lender.
That's when Alternative Credit Data comes into play. Lenders understand (yes, they ACTUALLY understand this, at least some of them do) that not everyone uses credit to live. A lot of people use alternative means - barter, money orders, checks (remember checks ?) and cash to actually pay to live. So there is a system set in place where a borrower can use alternative credit to get around normal credit requirements.
First and foremost, a borrower that will use alternative credit must know in advance they will do so, that way they can make sure their cell phone, electrical and gas bills are in their (the borrowers) name. The alternative credit account(s) must be in the borrowers name. Otherwise, alternative credit will not work.
There are different levels, or tiers, given to alternative tradelines:
Each tier has a descending level of importance, with the Tier I alternative tradelines carrying the most weight, and the the Tier III tradelines carrying the least. For instance, proof of 12 months Rental Housing payments are so strong, they often double as Verification of Rent and as 1 of the necessary 3 tradelines needed to meet the the alternative tradeline requirements.
There is one caveat to all of this is - with any source of alternative credit provided, you cannot be late. You are putting the last nail in your coffin if you provide documentation with a history of lates. Take my advice - Don't do it.
You will get the benefit of the service being provided to you, and have the ability to tap into this source when you are ready to take the plunge and buy a new home, without the hassle of maintaining the much heralded credit score rating...
For some clients, this is a REAL BAD THING, because their credit scores were bad before, and since there has been no recent activity, the bad scores are frozen in time, as well.
These potential borrower have one thing to do and one thing only - GET THAT SCORE UP IMMEDIATELY. There are several ways to do this, but there is one way I recommend to most people in this situation: Find a prepaid credit card company (two or three actually, if you really want to get your credit in good condition quickly), and pay the fee. Charge on the card, and make sure you carry a balance of 1/3 of credit limit at all times. If there is a possibility of a debt-to-income ratio issue, simply pay off the balance 45 to 60 days prior to signing a mortgage loan application. And it should work. I have had several clients to follow this formula, and it seems to turn out in a positive way. However, the borrower must be patient. It can take up to a year of seasoning to maximize the effects of the new credit and diminish the old bad credit on the credit report.
For others, it's a good thing. Their credit scores appear to "freeze" in time, holding up that same numbers as the last time there was any activity by the borrower. These borrower have the scores to qualify for a mortgage loan immediately, but do not meet the tradeline qualification quantities or seasoning required by the lender.
That's when Alternative Credit Data comes into play. Lenders understand (yes, they ACTUALLY understand this, at least some of them do) that not everyone uses credit to live. A lot of people use alternative means - barter, money orders, checks (remember checks ?) and cash to actually pay to live. So there is a system set in place where a borrower can use alternative credit to get around normal credit requirements.
First and foremost, a borrower that will use alternative credit must know in advance they will do so, that way they can make sure their cell phone, electrical and gas bills are in their (the borrowers) name. The alternative credit account(s) must be in the borrowers name. Otherwise, alternative credit will not work.
There are different levels, or tiers, given to alternative tradelines:
Each tier has a descending level of importance, with the Tier I alternative tradelines carrying the most weight, and the the Tier III tradelines carrying the least. For instance, proof of 12 months Rental Housing payments are so strong, they often double as Verification of Rent and as 1 of the necessary 3 tradelines needed to meet the the alternative tradeline requirements.
There is one caveat to all of this is - with any source of alternative credit provided, you cannot be late. You are putting the last nail in your coffin if you provide documentation with a history of lates. Take my advice - Don't do it.
You will get the benefit of the service being provided to you, and have the ability to tap into this source when you are ready to take the plunge and buy a new home, without the hassle of maintaining the much heralded credit score rating...
Thursday, February 3, 2011
Rental History - Where You Live and How You Pay Matters...
Inevitably, people who rent or live at home always run into this problem - they do not have a 12 month history of rental payments. So when they decide to apply for a mortgage loan, this fact slaps them right in the face, and can lead to the borrower not being approved.
Of course, this does not apply to those who live in apartment complexes, or have a mortgage in their name that reports to the credit bureaus. The rental or mortgage history is easy for a prospective lender to track in this case, because a apartment complex is a non-interested third party, and your mortgage company will report to the bureaus if you are late with your payment.
The problem arises when a potential borrower lives at home with his or her parents. If you are seeking FHA financing you may be okay (with certain lenders and when certain loan parameters are met, rental history is not required), but as lenders continuously tighten lending requirements, I have seen rental documentation become a requirement on some FHA loans.
So I am going to say what all mortgage industry professionals know, but the general public seems to be totally unaware of - You must pay your rent with a check, or automatic withdrawal from your banking account. And you must pay at the same time, AND same amount, for 12 months consecutively, in order for a lender to consider your rental history as valid. Renters which have a landlord will be required to provide rental documentation in the form of 12 month's bank statements, because the lender will not accept a VOR (Verification of Rent) from this source. The landlord is deemed to be an INTERESTED party (they may not tell the truth about the rent being paid on time, or they could say you were late one month, and you weren't), so lenders do not accept any written documentation from the property owner. VOR's are only acceptable from a apartment complex or property management company.
I have had people to say they pay by checks some months, then by money order, then - sometimes with cash. Or they paid $600 last month, and $750 this previous 10 months, but have been able to skip a month or two because they did some personal favor for the landlord. All of this sends a red flag to the lender, and the borrower with the best credit scores and income is all of a sudden in trouble.
So, if you are a person wishes to purchase a home within the next 12 months who lives at home with your parents rent-free, has a roommate that you share a apartment with but you're not on the lease, or rent from a private landlord, do yourself a BIG favor - open a checking account and pay by check from NOW ON.
When it's time to buy your new home and get mortgage financing, you will be glad you did...
Of course, this does not apply to those who live in apartment complexes, or have a mortgage in their name that reports to the credit bureaus. The rental or mortgage history is easy for a prospective lender to track in this case, because a apartment complex is a non-interested third party, and your mortgage company will report to the bureaus if you are late with your payment.
The problem arises when a potential borrower lives at home with his or her parents. If you are seeking FHA financing you may be okay (with certain lenders and when certain loan parameters are met, rental history is not required), but as lenders continuously tighten lending requirements, I have seen rental documentation become a requirement on some FHA loans.
So I am going to say what all mortgage industry professionals know, but the general public seems to be totally unaware of - You must pay your rent with a check, or automatic withdrawal from your banking account. And you must pay at the same time, AND same amount, for 12 months consecutively, in order for a lender to consider your rental history as valid. Renters which have a landlord will be required to provide rental documentation in the form of 12 month's bank statements, because the lender will not accept a VOR (Verification of Rent) from this source. The landlord is deemed to be an INTERESTED party (they may not tell the truth about the rent being paid on time, or they could say you were late one month, and you weren't), so lenders do not accept any written documentation from the property owner. VOR's are only acceptable from a apartment complex or property management company.
I have had people to say they pay by checks some months, then by money order, then - sometimes with cash. Or they paid $600 last month, and $750 this previous 10 months, but have been able to skip a month or two because they did some personal favor for the landlord. All of this sends a red flag to the lender, and the borrower with the best credit scores and income is all of a sudden in trouble.
So, if you are a person wishes to purchase a home within the next 12 months who lives at home with your parents rent-free, has a roommate that you share a apartment with but you're not on the lease, or rent from a private landlord, do yourself a BIG favor - open a checking account and pay by check from NOW ON.
When it's time to buy your new home and get mortgage financing, you will be glad you did...
Saturday, July 17, 2010
Isn't This Living ? 89 Square Feet Per Person...
For the past few years, all homebuyers in the area I live in have been interested in one thing and one thing only - Square Footage.
"I want the biggest house my money can buy", was their motto. Somehow, we equate Square Footage with prestige. If you have a big house, everyone will think You have Made IT - You have arrived.
What a myth !! Now, I must admit I live in a 1-1/2 story traditional frame home, with about 1,900 square feet. It's roomy enough, especially for two people. As I get older, I am beginning to not like the floor plan. Maybe I need to knock down some walls or something. Haven't figured it out yet...
Sorry for the interruption - To get back to my reason for writing this blog: I think the accesses of the 80's and 90's ingrained in our brains that we needed to have more - better cars - hence the rise of BMW, better clothes - the rise of designer jeans (I guess, I don't know much about clothing. I like t-shirts, shorts and jogging shoes. That's it), and all of the other excessive purchases that really proved that we had arrived.
No wonder when the interest rates dropped beginning in 2003, and the lenders invented the "liar loans", everyone decided - "I need a bigger house too. This will accentuate my portfolio of wretched excessiveness".
Remember growing up in the home with you parents and your brother and sister in a 1,200 square foot home. It had a living room, dining room, kitchen, 3 bedrooms and a basement. And that's it.
Ahhh...But we are better than that. We have arrived - We need a room for our exercise equipment, and another one for the television. And so went the housing boom.
Well, it's bust time now. A lot of people have lost their t.v. and exercise rooms to foreclosure. Some are looking to downsize, but cannot sell their behemoth McMansions.
We all are re-thinking what it means to own a home. And how big does it need to be ?
And THEN, there's this guy. Meet Jay Shafer. Jay has this whole Square Footage thing figured out. I recently had a three person family purchase a home with over 5,000 Square Feet. Absolutely Ridiculous. By Jay's measurements, they would be good with about 267 Square Feet. Which is the size of their den. The downstairs den.
With all of that extra space, they have to have a excessive use of cooling in summer and heating in winter. No wonder we use up to 25% of the worlds energy resources. BIG HOUSES with no one living in them (or not enough people, I guess I should say).
Jay - My hat is off to you and those like you. Maybe we all need to get our own version of "Tumbleweed". I actually would be interested in a tiny home, but I am almost finished buying the home I currently live in. Yes - I have been here that long. Oh well - Maybe it could be a Second home ?
Here is Jay's video. Enjoy...
"I want the biggest house my money can buy", was their motto. Somehow, we equate Square Footage with prestige. If you have a big house, everyone will think You have Made IT - You have arrived.
What a myth !! Now, I must admit I live in a 1-1/2 story traditional frame home, with about 1,900 square feet. It's roomy enough, especially for two people. As I get older, I am beginning to not like the floor plan. Maybe I need to knock down some walls or something. Haven't figured it out yet...
Sorry for the interruption - To get back to my reason for writing this blog: I think the accesses of the 80's and 90's ingrained in our brains that we needed to have more - better cars - hence the rise of BMW, better clothes - the rise of designer jeans (I guess, I don't know much about clothing. I like t-shirts, shorts and jogging shoes. That's it), and all of the other excessive purchases that really proved that we had arrived.
No wonder when the interest rates dropped beginning in 2003, and the lenders invented the "liar loans", everyone decided - "I need a bigger house too. This will accentuate my portfolio of wretched excessiveness".
Remember growing up in the home with you parents and your brother and sister in a 1,200 square foot home. It had a living room, dining room, kitchen, 3 bedrooms and a basement. And that's it.
Ahhh...But we are better than that. We have arrived - We need a room for our exercise equipment, and another one for the television. And so went the housing boom.
Well, it's bust time now. A lot of people have lost their t.v. and exercise rooms to foreclosure. Some are looking to downsize, but cannot sell their behemoth McMansions.
We all are re-thinking what it means to own a home. And how big does it need to be ?
And THEN, there's this guy. Meet Jay Shafer. Jay has this whole Square Footage thing figured out. I recently had a three person family purchase a home with over 5,000 Square Feet. Absolutely Ridiculous. By Jay's measurements, they would be good with about 267 Square Feet. Which is the size of their den. The downstairs den.
With all of that extra space, they have to have a excessive use of cooling in summer and heating in winter. No wonder we use up to 25% of the worlds energy resources. BIG HOUSES with no one living in them (or not enough people, I guess I should say).
Jay - My hat is off to you and those like you. Maybe we all need to get our own version of "Tumbleweed". I actually would be interested in a tiny home, but I am almost finished buying the home I currently live in. Yes - I have been here that long. Oh well - Maybe it could be a Second home ?
Here is Jay's video. Enjoy...
Wednesday, June 2, 2010
Strategic Default Retribution ?
Well, it appears the Mortgage Banker's Association has conjured up a way of penalizing the homeowners who have decided to just walk away from their properties, utilizing the now infamous "Strategic Default" mortgage scheme.
A Strategic Default results when property owners just literally "walk away" from their properties for no apparent reason - other than they don't want to pay the mortgage any more.
The MBA apparently has decided to punish this group of people by requiring theme to wait up to 8 years before allowing them to enter the mortgage financing arena again.
If this is a scare tactic, as I have heard it may be, than I think it's a waste of energy. It may be that the MBA would like to slow down the strategic default rate, but people are smart. If they don't put teeth to it, it will not work. You need the GSE's (Fannie & Freddie) to come out and support the idea of punishment. Otherwise, the initial scare will go away, and the strategic default rate will continue to rise.
However, I do think this is fair, as long as it is genuine. If the MBA is going to use it's influence and choose to punish the Strategic Defaulters, it must be fair and not try to conjure up it's own "default" scheme of another name, whatever that may be. Check out today's TBWSDaily.com video. There is a suggestion that the MBA may have used the ol' Short Sale scheme themselves...
Everyone seems to be taking advantage of the distressed real estate market these days. It's sad, because we all are paying dearly for it as well...
Thursday, May 20, 2010
GA DBF Allows MLO's to work until July 31st Unlicensed
The Georgia Dept. of Banking and Finance has a press release today that states the Dept. will allow Mortgage Loan Originators (MLO's) to continue working unlicensed until end of business July 31, 2010.
That's a relief, because this will allow those MLO's that may have one or another issue concerning license approval a bit of extra time to get things straightened out before the deadline. I was told by more than one party that the deadline was June 30. The extra 30 days should be good news to all MLO's.
If you are a MLO who is currently working with a Georgia licensed bank (non FDIC) or mortgage broker but you did not meet the April 16, 2010 MLO application deadline, the Georgia DBF will process your application on a First Come, First Served basis. This could be a potential problem, because after July 31st, you will not be able to originate until your licensed is approved...
Moral of this blog - Get your MLO applications in as soon as possible !! There appears to be a little more time available to get it done, without a lapse in employment and compensation.
Otherwise your going to have to allow others with licenses to originate your deals...
That's a relief, because this will allow those MLO's that may have one or another issue concerning license approval a bit of extra time to get things straightened out before the deadline. I was told by more than one party that the deadline was June 30. The extra 30 days should be good news to all MLO's.
If you are a MLO who is currently working with a Georgia licensed bank (non FDIC) or mortgage broker but you did not meet the April 16, 2010 MLO application deadline, the Georgia DBF will process your application on a First Come, First Served basis. This could be a potential problem, because after July 31st, you will not be able to originate until your licensed is approved...
Moral of this blog - Get your MLO applications in as soon as possible !! There appears to be a little more time available to get it done, without a lapse in employment and compensation.
Otherwise your going to have to allow others with licenses to originate your deals...
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