Homebuyers who are not paying cash for their castle will need a home loan.
Navigating a home loan can be treacherous, so today I’ll share some best practices and gotcha’s for the borrower.
First, let’s start with the best practices.
Borrowers will need to apply for mortgage credit with a mortgage loan originator, mortgage banker or go to a bank or credit union. Interview three to learn which one best fits your needs.
It’s very important to be organized and to respond promptly to an MLO or loan processor. Be diligent. Ask them to clarify questions as they come up.
For example, when do we lock the interest rate?
As part of the loan application process, a borrower will be required to come up with income documentation. These include tax returns, pay stubs, W-2s and the like. Make sure the documents sent are readable. Camera pictures are usually illegible and not recommended. It’s best to scan and email the documents or bring them to the lender’s office.
Disclose all owned properties, even vacant land, for example. The lender will run a search and find undisclosed properties.
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The borrower will need to come up with money for the down payment and closing costs, either by providing the two most recent months of asset statements or a gift letter — or both. Disclose all accounts from which money is coming.
Within the last 60 days, any deposit larger than a paycheck needs to be documented and explained. Large amounts of cash deposits are an underwriter’s red flag, believe it or not.
Borrowers also need to provide a copy of their valid ID or driver’s license.
When your credit report is run, find out if you can improve the middle FICO score to better the mortgage rate pricing.
Every credit agency has FICO score simulators that show what a score will go to, if you do X. Most of the time, it takes little effort to raise your score. Examples include paying down a debt or removing yourself from being an additional signer on someone else’s account.
Keep current on the bills. If you are moving from one home to another, continue to make mortgage payments on the departing residence until escrow closes. A “mortgage late” on your credit report can doom future deals.
Get your home inspection done before you pay for the appraisal. Borrowers, you don’t want to throw good money after bad should the home inspection report turn up something unacceptable, forcing you to walk away from the transaction. The appraisal can wait.
Read all the documents thoroughly. Check for accuracy. Have all the loan documents sent to you before the notary shows up. That way, you won’t be rushed when trying to review all the legale.
As an aside, a recent survey conducted by Snapdocs indicated one in four borrowers had errors in their closing documents, with a significant portion having to re-sign their documents because of those mistakes.
Here are some gotchas:
Don’t remove your job in the middle of escrow. Don’t get fired. If you must move to a new job during escrow, communicate such to your MLO, so that he or she can verify your new job.
Don’t go out and buy items for your new house on credit. In other words, don’t run up your credit cards. Lenders monitor credit during escrow. Higher payments could affect income and debt ratios, making a borderline borrower no longer qualify.
Don’t apply for and don’t take out new credit. For example, don’t buy a car. I’ve seen this too many times — new house and new car. But then can you still qualify?
Don’t send money to escrow from previously undisclosed bank accounts. Disclose every account money is coming from.
Don’t go on vacation in the middle of escrow. Things always come up that need to be dealt with. You need to be available.
Don’t procrastinate. Time is always of the essence when it comes to getting your loan approval and staying within the rate lock terms.
Freddie Mac rate news
The 30-year fixed rate averaged 6.08%, 1 basis point lower than last week. The 15-year fixed rate averaged 5.16%, 1 basis point lower than last week.
The Mortgage Bankers Association reported an 11% mortgage application increase compared to one week ago.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $625 more than this week’s payment of $4,635.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5%, a 15-year conventional at 4.5%, a 30-year conventional at 5.5%, a 15-year conventional high balance at 5.25% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year-high balance conventional at 5.875% and a jumbo 30-year fixed at 5.99%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.
Eye-catcher loan program of the week: A 30-year mortgage, with 30% down locked for the first 5 years at 5.5 with 1 point cost.
Jeff Lazerson, president of Mortgage Grader can be reached at 949-322-8640 or jlazerson@mortgagegrader.com .