By Richard Pisnoy, March 14, 2017
Loan Officer: “I’m going to email, FedEx, or fax you the 20 to 30 page loan application. All you need to do it print it out, sign and date all the pages, and email, FedEx, or fax them back to me.”
Borrower: “That seems like an enormous amount of time and work. Isn’t there an easier way?”
Loan Officer: “Unfortunately, no. Oh, and also, I’ll need you to email, fax, or FedEx all your supporting documentation.”
Until just a few years ago, other than being face-to-face, this was the only way to get the signed application and disclosures to a borrower and back. That’s how it was. The mortgage process was an arduous one.
In an industry that has long been paper driven, where documents easily get misplaced, some companies are starting to get the hint that the time for technology updating has arrived.
It’s a slow process, but things are improving. The first sign of light came when the loan package could be emailed to the borrower and electronically signed. This sped up the initial process because the borrower didn’t need to print out the documents and then send them back.
Unfortunately, not all documents can be electronically signed. Social Security Administration forms and the IRS 4506T form must be wet signed. What’s interesting is that it’s okay for borrowers to fax or email these documents back, but not okay for them to be e-signed.
Because many people feel email isn’t secure and is too risky for sending personal information, we’re pleased to see borrowers can now upload a loan package directly through a secure website, with documents labeled. This helps the broker/lender organize the file for underwriting.
Many lenders continue to live with antiquated systems that were tech marvels at one time. But they have long since fallen behind new lender platforms. While some in the industry have invested in process-improving technology, many lag behind.
One driving force for technology updates are the ever-changing mortgage industry regulations. Old systems simply can’t handle the new requirements. This doesn’t just drag the process, it can bring it to a halt. Technology isn’t cheap. Upgrading or creating new processes and systems can take a huge investment and a lot of time. In the end, many lenders want to spend the least amount of money for the fix, but what good is the process if it doesn’t work?
While the mortgage market is still highly fragmented, regulated, and complex, I believe that thanks to technology, the lending industry is headed in the right direction. But until the industry has evolved, consumers have a decision to make. They can live in the past and do things the old-fashioned way, or they can choose to work with a modern, evolved mortgage company who is maximizing today’s technology and providing the best options the market has to offer.
By Richard Pisnoy, Aug. 10, 2016
We often receive calls and questions like, “What’s your Rate for a 30-year Fixed Rate Mortgage?” or “What’s your rate on a 5-year Adjustable Rate Mortgage”?
While it’s customary for potential home buyers and for people looking to refinance to focus their attention on the lowest rate, the fact is one person’s lowest rate isn’t another’s.
The reason is when homeowners are looking for a loan, they don’t realize how they personally influence what their best rate will be.
Criteria such as loan amount, FICO score, property type and loan to value (LTV) have a definite impact on interest rates as well as when a borrower is looking to close. Keep in mind income and assets play a role in qualifying, but not necessarily in interest rate.
I’m proud of the way the Silver Fin Capital team works with homeowners looking for a mortgage. They know how important the lowest rate is and will search through our 50 lenders to help homeowners get the best rate and the best loan for them.
Rates change daily. No one knows exactly which way rates will fluctuate. I also appreciate how our Loan Officers keep the lines of communication with homeowners open — encouraging borrowers to ask as many questions as necessary so they fully understand the process and their options.
When our Loan Officer feels he or she has helped locate the best loan and lowest rate given a borrower’s specific situation, they’ll hear an opinion backed by years of experience that goes like this: “Now would be an excellent time to lock your rate.”
By Richard Pisnoy
There’s a lot of confusion about why lenders require escrow for taxes and insurance. So here’s a simple way of thinking about it.
An escrow account is an account a mortgage lender uses to pay the taxes and homeowners insurance for your property. Most lenders require a tax escrow when homeowners are borrowing more than 80% of the value of their home (80% Loan to Value or LTV).
While most people believe the first mortgage on a property supersedes all other claims in the event of foreclosure, that’s not true. The distinction for first-in-line to be paid goes to the city and school taxes. Think of them as the first lien holders on your property. They get paid first should a lender need to foreclose on a property.
So escrowing is a way for lenders to minimize their risk of losing all or partial collateral on their loans. In the event a homeowner falls behind on the tax payments, the lender knows the taxes are covered and the borrower, not the lender, is wholly responsible.
Don’t let escrow scare you. It can be a true friend to borrowers. Here’s how:
Escrow eliminates payment shock. When the tax bill comes, it can be quite large. If you’re not escrowing, that tax payment as well as the insurance payment can be a little menacing. When you escrow, your payments are broken down into a monthly payment. You never see the big hit.
Escrow is a convenience factor. As a borrower you no longer have to worry about writing the check for your tax bill or insurance bill. The lender does that for you. Obviously, you should always confirm that those payments have been made.
Escrow is another set of eyes. Your payments can and will change with every tax or insurance increase or decrease. Your lender automatically analyzes tax and insurance fees once per year to ascertain a escrow shortage or overage. Even though they’re watching it as another set of eyes, you can and should request your lender do an escrow analysis at any time to prevent this from happening.
No fees or interest for escrow. Many people are under the impression that the escrow account is an interest bearing account. This is not the case with most lenders. As a borrower you can, of course, put money in an interest bearing account with another institution and pay the taxes and insurance on your own.
It’s also important for you to know that it’s possible to cancel an escrow account and pay the taxes and insurance directly. This depends on the lender and their terms for the cancellation of the escrow account, but this option would only be available on a conventional loan.
By Richard Pisnoy
Homebuyers are looking for low interest rates and low monthly payments. So it’s not uncommon for us to receive phone calls from buyers who have just found their dream house and now need financing saying, “I want to apply for an Adjustable Rate Mortgage.”
After a little conversation we learn that a neighbor, friend, colleague at work, or family member told them that this is “absolutely the only way to go.”
So let’s take a look.
For a long time the Adjustable Rate Mortgage (ARM) has had a stigma associated with it that the product is bad, high risk, and was one of the causes for the market crashing in 2008.
Without getting political, the ARM definitely can be the right product for many people. Depending on how long someone plans on being in their home for instance.
If you have a 5-year ARM, the rate is fixed for 5 years. It’s typically lower than the 30-year fixed rate. If you plan on moving within those 5 years, this loan can make perfect sense. Why pay a higher interest rate and higher payment if you don’t have to?
The ARM may also give a borrower that will see an increase in income over the next few years the ability to move into a home today. So it could be a viable answer.
But given today’s market and low interest rates, the Fixed Rate Mortgage (FRM) is often just as affordable as the ARM, and a safer bet.
Here’s why. The FRM is the most risk adverse loan out there today. The simple reason is that your rate is fixed for 30 years. Rates are still at historic lows. Why not sleep better at night knowing that your rate will not adjust? If you plan on living in your home for a long period of time –– 10-plus years –– this loan is right for you. The FRM offers a fixed payment that can never change.
There are countless other scenarios that will dictate the most appropriate loan for you and your neighbor may be right. But why take the chance? Without hesitation, we always recommend home buyers speak to a mortgage professional about a mortgage plan that makes the most sense for them and their situation.
By Richard Pisnoy
A rate lock occurs when a borrower agrees with the terms of the loan and requests that their mortgage professional locks the rate.
The actual lock is a written agreement between the lender and the borrower. It specifically details the number of days and rate that at which a loan is locked in. It also lists the amount of points, if any, that the borrower is paying for that rate.
Keep in mind that rates can vary from borrower to borrower and from product to product. There are many things that can affect the rate.
Some of the items that can affect rate are:
Length of rate lock
Generally, rate lock time frames in today’s lending environment range from 15 to 90 days.
In most occasions, the longer the lock, the higher the rate. You, as the borrower, should always — and I do mean always — request a copy of the lock-in confirmation.
The lender should provide this document quickly and it should list all the appropriate information regarding your rate. The last thing that the loan officer and borrower want to happen is a miss communication regarding the interest rate. The lock in confirmation will make sure there is no mistake.
The rate lock dictates payment and obviously you want the lowest one. But no one has a crystal ball. When locking in, it’s important to make a decision that you feel comfortable in.
Sometimes borrowers can try to guess the market and miss the boat. If rates go up because a borrower wants a slightly better rate and waits, the opportunity to get that original rate may not come back.
You need to weigh the risk against the reward and make a decision that works for you.
By Richard Pisnoy
People tend to be surprised by the amount of information that’s needed from a potential borrower.
But when you think about it, it makes sense. Lenders want to make sure that the borrower will be able to pay back the loan.
I was speak
ing with someone last weekend and we were discussing the documentation requirements and he asked “Isn’t the collateral enough for the bank?”
The easy answer is no. Lenders are not in the real estate business and don’t want to be. They are in the lending business, period. They want to make sure that the borrower has enough income to pay for the loan along with all of their other liabilities.
They also want to see that you have enough asset reserves should you stop working or have a decline in income. From the lender perspective, this would give the borrower enough time either to sell their home or find another job.
The list of required documentation for a standard loan typically includes:
30 days of pay stubs
Last two years federal tax returns (1040s)
Last two years of W2s (a self-employed borrower may not have these, but may supply 1120s, 1065s)
Last two months of assets statements
Copy of homeowners insurance and real estate tax bill (if applicable)
Existing mortgage statement if a refinance
I know it’s seems like a lot. But keep in mind that if you were lending someone money, you probably would want to make sure that had the ability to pay it back.
During the process the lender will most likely want additional documentation. Don’t fret. These items will help you get the loan.
The best approach is simply to take a deep breath. The process does have an end. And it usually ends with you getting a new home or a lower rate.
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