By Brian Peck
Mortgage lending is a complicated world. There are 1000's of pages of laws and rules for every part of the loan process. There are unique jargon and acronyms that cloud good communication and understanding of the process by the consumer. There is a sea of lending programs designed to solve the even larger ocean of unique lending situations for borrowers. The mortgage process involves many different professions ranging from title, survey, appraisal, home inspections, underwriting, and realty. Each professional needs to function efficiently and timely for the process to run smoothly and give the quality experience each borrower deserves. The mortgage lending professional therefore is not unlike that of the medical professional. Each touch of patient care from the beginning to the end, from the doctor to the nurse and all employees in between, contributes to the quality and health of the patient and a successful outcome.
Myth 1 -All Banks and Mortgage Brokers are the Same.
Your local banks have provided you with trusted financial advice before, so why should you not use them for your mortgage needs, right? Well in some cases, banks can provide a great service. They can do the loans that everyone can do. Great credit scores, large down payment, high income, the real no brainer mortgage lending. But stray just a little from the yellow brick road and you will find a denial just at the wrong time. Realtors can tell you of the many possible struggles in last minute lending issues that can result in breaking the contact and losing the buyer's deposit. Great mortgage brokers can use their experience and a field of lenders to choose the loan that best fits your needs and goals just like a trusted doctor knows what medical test to order based on patient symptoms.
Myth 2 - Medical Professionals have a tough time getting loans.
Medical professionals looking to purchase a home can have some hidden dangers. New doctors right out of medical school are often strapped with large educational debt with payments starting to be due. Other seasoned professionals have just opened their own practice and are navigating the waters of self-employment (We'll talk about that one later). But, the medical professional also has a medical degree and the likelihood of strong sustained income which is attractive to lenders. Many lenders, therefore, have designed specific programs for physicians to increase the allowance for debt ratios (how much debt can be supported with your income) and LTV (loan value compared to property value).
Myth 3 - Credit Score can be manipulated.
No. The credit score has become one of the key elements in determining your ability (and desire) to repay a loan. The higher your score, the lower your rate and down payment can be. You can improve your score by reducing debt and always paying on time. The only cure that allows you to "fix" your credit is correction of inaccurate items. Bad credit stays with you and shows on the report for years. There are loan programs available for the credit challenged individual but they will need to compensate for that score with the strength of high income, large assets, low LTV, etc. Watch your credit always.
Myth 4 - No Down payment means No loan.
Not so. The housing crisis of 2008 and subsequent fallout meant that most lenders went back to a full 20% down payment to qualify for a mortgage. Today, the lending institutions have loosened up some of those restrictions and are now offering 95% LTV loans again. FHA always offered the 97% LTV loan but with caps to the loan amounts. Lenders follow strict guidelines for eligibility for these higher LTV's but, the good news is, they are available again.
Myth 5 - Shop the rate, the fees are the same.
The mortgage loan rate is the seemingly easiest figure for borrowers to compare between lenders competing for your business. This rate however can be misleading and laws now require lenders to disclose the APR (annual percentage rate) to borrowers. The APR describes the loan as a total cost including certain fees. Two lenders with the same rate could have different APR's. Some fees from title companies and other 3rd party fees are able to be shopped around for the best deal. Other fees are fixed like government transaction costs and the like. But shopping and comparing solely on the lowest rate will not always mean you get the quality experience or the best deal. Bottom line, investigate and interview your lender or broker as you would a medical professional you will entrust with your care.
Myth 6 - 15yr fixed is the best program because it has the lowest rate.
Rate for a 15yr fixed are very low these days. So low, the online advertisers often use them to attract your attention and get you in the door. Will you save interest with a 15yr mortgage? Yes. A $250,000 loan at 2.75% will be a monthly payment of $1,695 principal and interest costing $55,379 in interest over the life of the loan. A 30 yr. mortgage at 3.25% will be a monthly payment of $1,088 P&I and cost $141,685 in interest. So the 15 yr. wins, right? Well sure, if you can guarantee you can make the higher payment for the entire term even if you suffer a job loss or income reduction. Now, suppose you take the 30 yr. fixed and then, on your own choice, pay the difference of $607 each month as an extra payment to the bank. Would you believe you would pay your loan off in year #16 and only $68,667 in interest? And you could still choose to not pay the extra amount and if circumstances changed.
Myth 7 - Reverse mortgages - Banks keeps your property when you die.
Reverse mortgages have finally grown up. They offer a welcome alternative for borrowers of retirement age and who do not want a mortgage payment but need the equity they built in their home to make ends meet. This can work particularly well so the homeowner does not have to sell the property to downsize to a smaller home to gain access to the equity. Lump sum or monthly payments (or a combination of the 2) are available for borrowers over 62 years of age. One myth, however, that has persisted, is that the bank retains the property at owner's death. This is incorrect. The property with a reverse mortgage enters the same process any other does at a time of death. The lender will be paid off for the loan proceeds through the sale and any equity remaining will revert to the estate or heirs.
Myth 8 - Don't tell your broker everything.
Ever had a patient tell you right before blood work is done that they didn't exactly fast completely? Your broker feels the same way when last minute items are thrown into the mix. A great broker is planning and staging the entire loan process on information the borrower is providing. Overstating income for the pre-approval is not going to help a borrower in the end. Not mentioning an investment property will change what the lender is going to require for documentation and delay the loan process. Just like you should tell your doctor everything medically, you should tell your broker everything financially. This will save time and frustration and make for a smooth loan experience.
Formally trained as an Engineer at Penn State University, Brian Peck, president, Nona Mortgage, LLC, moved into the field of financial markets and loan origination when he discovered he enjoyed working directly with a variety of clients in an educational advisor capacity. He worked as a licensed financial advisor (3yrs), a retail loan officer (3yrs), a JPMorgan Chase Account executive covering all of Florida (4yrs) and small bank loan operations manager (3yrs). He understands the complete cycle and all aspects of loan origination and servicing. Using engineering math principles to take an analytical approach to solutions, combined with excellent customer care, he has built Nona Mortgage on a simple phrase, One Family, One Home at a Time.
